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money investment, financial investment
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3/08/07 Investment House Alerts Report
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IH Alert Subscribers:
MARKET ALERTS:
Target hit alerts: Took some interim gain on recent purchases given some good moves, the jobs report, and of course, the correction. SSYS; TRW; UCTT; WFR
Buy alerts: CYTC; RIO; WEBX
Trailing stops: None issued
Stop alerts: None issued
SUMMARY:
- No one day wonder as relief rally runs the market to next resistance.
- Retailers blame the weather for 61% missing estimates.
- Jobs report will likely decide the fate of the relief rebound.
Relief rally resumes after Wednesday pause, but still shows its relief rally spots.
The yen was lower and that fueled foreign markets once more. Recall that one of the issues facing world markets was the yen's rise squeezing the carry trade and forcing sales of securities to unwind these positions. The fear is that a sudden and sustained rise in the yen would cause a rush to the exits, and we all know how financial markets deal with that. Thus with the yen falling and New Zealand raising its interest rates on Wednesday, the carry traders have some cover to unwind their trades in a more orderly fashion. The question is whether they do so or just look at it as a reprieve and keep on pressing their bets. It reminds you of the school kid who didn't write his report and the bell rings before he is called on. Even though he now has time to get it done for the next day he instead runs out and plays ball all afternoon. Sadly that is often the way financial markets work, i.e. similar to less than enthusiastic school kids.
But I digress (recalling my own school days I suppose). The yen pushed foreign markets higher, and the US markets, being in a correction and trying figure things out themselves, continued to play follow the foreign markets. That is a change from just a couple of weeks ago when the US markets went their own way regardless of how foreign markets performed. Thursday foreign markets and the US market applauded the yen move and rallied.
This was good to see in the face of less than stellar news overall. Here in the US retailers reported same store sales and while there were the usual winners, those missing estimates jumped over 60% of those reporting. Then there was rising oil, breaking over 62 again and threatening to really take off, though it did close below that mark once again (61.64, -0.18). While oil has found $60+/bbl to its liking, the real pinch is the spike in gasoline prices. The lowest reported in the US is somewhere in Wyoming at $2.05/gallon. The highest is in Needles at $3.37/gallon. Drive season is nowhere in sight and prices are much too high as refineries are breaking down or burning down. Either they cannot hold up to the stress US demand puts on them or terrorists are at work among us. Remember that one of the repeated findings in every homeland security report is the vulnerability of our energy systems whether refineries, storage, or power grids. Had to throw that in to stir the conspiracy theory pot a bit.
No matter, stocks were going to rally. And of course, shorts were going to take their shot. The indices gapped higher and rose in the first 10 minutes. That is when the sellers took their first shot. They successfully stripped 8 points off NASDAQ, almost half the early gains. Buyers came back, however, and pushed the indices past the early session high. That is solid action, pushing the sellers back into the shadows. The indices moved past those early highs, but they could not push the gains much further. Indeed all of them hit the 10 day EMA that roughly coincided with the bottom of the November/December ranges and that is where they stopped. They worked laterally through lunch and then tried to take out the session high.
About that time (roughly 2:00ET) the shorts went to work again. A rumor hit the floor that NEW, one of the primary sub-prime lenders, was going to file Chapter 11. You would have thought GE was defaulting on its bonds. NASDAQ shed 20 points in less than an hour. The financial stations trotted out a parade of experts to tell us that sub-prime was just 4% of the overall market and that NEW was the worst of the worst. That soothsaying prompted a rebound into the last hour, but they were never the same. It is like when a Little Leaguer gets beaned in the head; he or she is typically never the same during the game. That modest rebound just invited the sellers in and they pushed the indices down near session lows on the close.
It was not a washout, however. The indices all held respectable gains on the close, and thus a quick look at the closing ticker as you walk through the room while undoing your tie and you think to yourself 'hmmm, the market was up nicely again.' Hey, you are still better than some of the communications majors who anchor the financial station desks during the midday stretch; the summation of their knowledge about financial markets is limited to the last time they checked the prompter to see where the indices were trading. It was a good relief bounce session, but it was not a strong session, and indeed, it showed some signs the relief bounce needs some help.
Technically there were again positives and negatives, but overall they show this was still a relief bounce after a nasty bout of selling. The market swallowed some less than great news on the retail front rallied. It held on after a selling attempt and rebounded. Even with the afternoon rumor induced dump lower it was not a freefall. Breadth was solid at 3:1 on NYSE though NASDAQ was mediocre at 1.5:1. There was some leadership that rallied and held up as well with semiconductors taking point. An up day in the financials helped out as well after they slept Wednesday.
Outside of that the action showed a relief rally's stripes. Volume was lower on the bounce higher, continuing the pattern of lower volume as the market recovers from the initial spanking in this correction. The indices rallied, but they stalled at next resistance, unable to punch through the 10 day EMA and the bottoms of the November/December ranges. They sold off from that resistance with that afternoon slump. They also showed their continuing Achilles Heel in this correction, i.e. worries about the economic future due to lending issues. When the rumor hit, and it was nothing really new, the indices dove lower.
It was a pretty classic fade after rebounding to tap resistance. The rally certainly was not a one-day wonder, but it has all the characteristics of a relief move. We were concerned enough about the jobs report, the low volume, the weak late action, and of course the fact of the correction, to take some interim gain off the table on positions we had just bought that had put in some excellent moves. They were not at the target and in some cases nowhere near, but if we can bank 5% to 15% in a day or two, why not.
Now if the jobs report comes in stronger but not too strong (the 'just right' scenario) it could blast the market higher once more, making spam of this near resistance and moving on toward the higher bounce points we suggested last week and earlier this week. Maybe volume surges on another run higher, showing a follow through to the Tuesday reversal, setting the stage for a longer run and maybe even a rare 'V' bottom. That remains to be seen. For now the market is acting just as does a market in a relief bounce during a correction. That means we have to act in like vein, moving up stops, taking gains when they are there, and be generally prepared for the downside.
THE ECONOMY
Retail sales blame the weather, look forward to sunshine ahead.
With the sub-prime scare and fears it will bleed over into other areas of the economy, anything consumer is scrutinized. Accordingly, same store sales were turned over many times Thursday to see where the cracks were.
The biggest issue is that 61% of those reporting missed expectations. The average runs around 42% missing. Big swing. What do you do when you are a retailer and you miss? You complain about the weather. It was bad, no doubt about it. It was cold all the way down here and unlike the holiday season, when it is cold in the south, heading outside is low on the 'to do' list. So we can take some solace in the fact that it was nasty weather and that likely did impact purchases.
There were of course the usual winners, just more losers this time. SKS sales were huge (24% versus 6.4% expected); BONT surged (14.6% versus -2%); ZUMZ &17.4% versus 7.1%); JWN (9.1% versus 5.7%). These are the usual suspects when you look for winners. Outside of the few, there were many that just didn't make it. GPS, PSUN, HOTT, to name a few, missed again.
What saved retail overall Thursday was the outlook. Most retailers forecasted sunny sales days ahead in March. They are already seeing good sales to start and with Easter earlier this year they predict March will bring them right back. Of course whether Easter is earlier or later one of the months will suffer. There number of days remains the same; sales are pushed forward or backward depending upon Easter. Thus the average won't be any different. Therefore what you have to look at is whether sales continue to slow.
Shift taking place?
One thing to watch with the talk of weakening economic activity is indeed retail, but not the overall numbers that get hashed around and lead to erroneous conclusions. Retailers can shoot themselves in the foot with poor fashion consultants and carrying the wrong stock. The key is WHERE consumers are shopping.
As we discussed in the last recession and when we were coming out of it, consumers change where they consume based on their perception of the economy. In the recession WMT, TGT and other discounters hogged the gains. When the economy was improving you started to see consumers moving into specialty more and more. Luxury was strong early on; it is strong early and holds on the longest. It is the middle and lower end where the tide of the battle shifts.
What we are watching is the lower end discounters such as DLTR, DG, FRED, etc. Those stocks horribly lagged the entire sector when the expansion took hold. Indeed WMT turned to mush in the recovery. Everyone wonders why it is lagging. Well, in an expansion consumers don't feel compelled to scrimp as much as they do when times toughen up. This last report shows upside surprises in DLTR, DG, FRED and a few others. Nothing spectacular at this juncture, but they are improving. This will be the most interesting aspect of retail as the economy moves forward.
THE MARKET
MARKET SENTIMENT
VIX: 14.29; -0.95. Showed a big doji on top of the 18 day EMA Thursday after a three day decline. Moves inversely to the market overall and as the indices tapped the 10 day EMA and faded some the VIX held some support, looking ready to rebound again.
VXN: 19.79; -0.77
VXO: 15.01; -0.65
Put/Call Ratio (CBOE): 1.02; -0.2. Fading rapidly but still closing over 1.0. That makes it an even dozen. Lots of downside anxiety even as the market rebounded. It should remain strong and spike higher again as the market pulls back again.
Bulls versus Bears:
Bulls: 46.2%, down nicely from 50.5% and 53.3% just over a month ago. When it bottomed last summer it was about 10 points lower near 36%. Still a ways to go, but when it cracks it can tumble quickly. A 4.3 point drop is pretty salty.
Bears: 26.9%. Solid jump from 24.2% last week and a good move up from the 20%ish the first two months of 2007. The angst is rising, and as with bulls, it is not all that far from levels that sparked prior rallies. It hit a post-2002 high in that late June 2006 move (hit near 36%), eclipsing the March 2006 high (33%) and well above the 2005 highs that spawned new rallies (30% in May 2005, 29.2% in October 2005). It is not far from those 2005 levels.
NASDAQ
Stats: +13.09 points (+0.55%) to close at 2387.73
Volume: 2.014B (-2.85%). Trade backed off again as NASDAQ extended its rally. As noted, high volume selling and lower volume rebounding does not suggest the buyers are back in and ready to take over.
Up Volume: 1.248B (+664M)
Down Volume: 619M (-839M)
A/D and Hi/Lo: Advancers led 1.52 to 1. Pretty modest, not showing any real strength as it extended the relief rally a bit. That is very typical of relief moves.
Previous Session: Decliners led 1.34 to 1
New Highs: 71 (+7)
New Lows: 80 (+9)
NASDAQ CHART: http://www.investmenthouse.com/cd/^ixic.html
NASDAQ gapped higher and ran to 2400 on the high, just below the 10 day EMA (2405) and bumping the lows of the November/December lateral range. It stalled at that point and succumbed to the mortgage fear selling. Thus far it has rebounded decently but on lowered volume. It looks as if it wants to stall here. The jobs report will play a big role in determining if it runs out of gas here or can continue up toward 2435 to 2450ish.
SOX (+1.8%) was the market leader as the chips attracted some buying. It was buying because chips have lagged all the way and have not put in any good moves and were also not sold that hard in the down draft. They were already weak and just tapped lower in their range. Thus there is some longer term money moving their direction.
SP500/NYSE
Stats: +9.92 points (+0.71%) to close at 1401.89
NYSE Volume: 1.655B (-3.32%). Volume slipped to average for the first time in two weeks as The NYSE indices posted another gain. As with NASDAQ, pretty typical price/volume action for a relief bounce that will eventually run out of buyers unless something prompts more money to move in on the long side.
Up Volume: 1.272B (+418.514M)
Down Volume: 370.395M (-464.905M)
A/D and Hi/Lo: Advancers led 3.02 to 1. Still some excellent breadth on the NYSE as the large and smaller caps moved higher together.
Previous Session: Advancers led 1.03 to 1
New Highs: 106 (+32)
New Lows: 23 (-5)
SP500 CHART: http://investmenthouse.com/cd/^gspc.html
SP500 rallied nicely, piercing the 10 day EMA (1416) on the high as it too tapped at the bottoms of the December and early January lows. That stalled it for the session as the mortgage news hit and took advantage of the lateral move and pushed it lower. Has the same look as the other indices, i.e. the lower volume rally running out of gas. Friday we will see if the jobs report can give it some more life.
SP600 (+0.77%) rallied as well, piercing the 90 day MA but also stalling after tapping the 10 day EMA on the high. It will likely take the cue form the other indices though the small caps are technically in better posture than the large cap indices.
DJ30
The blue chips put in a similar move to the others, tapping the 10 day EMA (12,292) on the high and then fading back, holding the gains but on that lighter, below average volume. More than NASDAQ or SP500, DJ30's pullback and action the past week indicate it has some more upside to it. We will see who can win out after the jobs report.
Stats: +68.25 points (+0.56%) to close at 12260.7
Volume: 241M shares Thursday versus 265M shares Wednesday. After some churn Wednesday volume just faded out as the Dow resumed its move higher. That is the same action as the other indices, i.e. stronger on the selling, lower as it rebounds.
DJ30 CHART: http://www.investmenthouse.com/cd/^dji.html
FRIDAY
This jobs report took on more importance as the worries about the economic future grew following the sub-prime issues. Jobs have been a continual carping point for the politicians, and we won't go through the metamorphosis of the argument as the economy continued to improve over the expansion. We will note that it is a lagging indicator, and looking at the leading indicators there is not much of a reason for the jobs market to collapse. Some are looking for that, however.
Problem is, even if jobs are lower than the 100K or for that matter substantially higher, you cannot put much faith in them because the revisions have been huge. Near term, however, the report is all the market has to go on, so for Friday the jobs report is important.
The action Thursday indicated that though the relief bounce has some legs, it is not a marathoner. A weak number will rekindle fears of an economic slowdown and that could put the kibosh on this relief bounce. A stronger number and the bulls might manage to further the bounce on up to the next level as the shorts join in to cover and give the upside a hand. In a relief bounce the action is often driven by the news, particularly at a crossroads. That is why we tightened some stops and took some gain Thursday. We know the relief bounce will likely run out of gas, and it will do so at one of these crossroads. Thursday it showed some signs of fatigue even as it resumed the move. It likely still has more upside on this run but in a correction you have to be ready for quick changes.
Support and Resistance
NASDAQ: Closed at 2387.73
Resistance:
2400ish from the late November and late December 2006 lows.
The July/August trendline at 2429
The 90 day MA at 2435
The 50 day EMA at 2438
2468.42 is the November 2006 high
2471 is the December 2006 high
2509 is the January 2007 high
2523 is price resistance November 2000
Support:
2379 is the October high.
2376 is the April high, the former post-2002 high
2368 is the early October handle high.
2339 - 2334
2333 is the top of the Q1 2006 trading range (the January and mid-March 2006 highs)
2316 from interim tops in January and March 2006 trading range
2300 represents some price support
S&P 500: Closed at 1401.89
Resistance:
1400 is some price consolidation
1408 is the November high
The 90 day MA at 1414
The 50 day EMA at 1421
1425 is an interim high from November 1999
1432 is the December 2006 high
1440 is the mid-January high
1444 from February 2000
1449 is the late November to February up trendline
1475 from peaks in December 1999 and January 2000
Support:
1389 is the October peak.
1371 to 1373 is the December 2000 peak and the January 2001 peak
1369 from early October 2006
1358 to 1362 mark a series of peaks from April 1999 to August 1999 high and the February
1353 to 1350 is the early October consolidation range
Dow: Closed at 12,260.70
Resistance:
The 10 day EMA at 12,292
12,361 is the November 2006 high
The 90 day MA at 12,391
12,499 is the December intraday high.
The 50 day EMA at 12,438
12,695 is the up trendline connecting the November and January intraday lows.
Support:
11,986 is price support from mid-October and the early November low.
October high is 12,167
11,986 is price support from mid-October and the early November low.
11,865 from the early October consolidation
11,750.28 is the pre-2000 all-time high
11,723 is the January 2000 closing high
11,670 is the May intraday high
11,642 is the May 2006 closing high
11,488 is the early September high.
Economic Calendar
These are consensus expectations. Our expectations will vary and are discussed in the 'Economy' section.
March 5
ISM Services, February (10:00): 54.3 actual versus 57.5 expected, 59.0 prior
March 6
Q4 Productivity, revised (8:30): 1.6% actual versus 1.7% expected, 3.0% prior
Factory orders, January (10:00): -5.6% actual versus -4.0% expected, 2.6% prior (revised from 2.4%)
March 7
Crude oil inventories (10:30): -4.8M actual, 1.4M prior
Federal Reserve Beige Book (2:00): 8 regions expanded, 4 showed slowing growth.
Consumer Credit, January (3:00): $6.4B actual versus $7.0B expected, $5.0B prior (revised from $6.0B).
March 8
Initial jobless claims (8:30): 328K actual versus 335K expected, 338K prior
March 9
Non-farm payrolls, February (8:30): 100K expected, 111K prior
Unemployment rate (8:30): 4.6% expected, 4.6% prior
Average hourly earnings (8:30): 0.3% expected, 0.2% prior
Trade balance, January (8:30): -$60.0B actual, -$61.2B prior
Wholesale inventories, January (10:00): 0.1% expected, -0.5% prior.
End part 1 of 3
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money investment
financial investment
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