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money investment, day trading
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3/13/07 Investment House Alerts Report
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IH Alert Subscribers:
MARKET ALERTS:
Target hit alerts: None issued
Buy alerts: ACAS; EXC; VLO; HMSY
Trailing stops: None issued
Stop alerts: FDX; VSAT; NTGR
SUMMARY:
- Rebound runs out of gas as the right combination of events reignites the selling.
- Retail sales, outlooks, mortgage issues continue the problems.
- Likely more downside before the bottom is found.
Rebound runs dry.
The lower volume rebound reversed between the Monday close and the Tuesday open. The rebound was losing steam as it continued bumping against the near term resistance with price gains and volume moving lower. As is often the case with these moves, they continue higher until something hits to upset them. Tuesday several stories converged (just as they did on the last round of selling) and turned the action to selling even before the bell.
TXN's update noted the inventory correction was over, but investors questioned if that was the case why didn't TXN raise its guidance. Never mind TXN management did a good job forecasting its growth to see and account for the end of the inventory problems. No it would be better if TXN had been caught by surprise and had to restate higher. Retail sales were weak, following on the heels of the same store sales reported last Thursday. There were more mortgage issues as well with LEND now saying it needs some cash or it is in trouble. On top of that the Q4 foreclosure numbers came in at 4.95%, up from 4.67% in Q3. That was it. Time to tighten the circle and start to sell.
Stocks started lower but tried an early bounce. That failed and the sellers swarmed again, driving stocks lower midmorning. The market recovered from these midmorning sell offs the prior three sessions, but when afternoon rolled around there was no rebound. With that the sellers were emboldened and the newer hedge fund managers were concerned. The market sold and sold some more. It closed at session lows on a volume surge. The sellers were back and they easily overpowered the buyers from Monday.
Technically the action showed all of the accouterments the resumption of a sell off should have: surging volume, negative breadth, low to lower close, lack of leadership. Basically the flip side of what you want to see on a follow through. When the early rebound failed and there was no afternoon recovery, the sellers went to work with the blow torches and dismantled just about all of the prior 5 days of work in 1 session. Scratch and claw back and then it is all washed away with one big wave.
That left the major indices in a headlong dash lower to test the lows hit on the prior selling. The financials were in the lead to the downside once more after trying to buck up on GS' earnings. GS reversed almost 10 points intraday, and when it turn negative in the afternoon that took the remaining starch out of the attempt to keep the selling at temperate levels.
The dive in the financials is significant. When the financials lead a correction it can typically get uglier than anticipated. That is important because the indices are approaching the prior lows and there has been a lot of talk about 'testing' the prior low. The prior low is going to be tested for sure, but it is not as many would like. It will be 'tested' as the indices burrow through it. It may not be in one session. It may look like a reversal with a test below those levels followed by an intraday reversal. That, however, likely won't be the end of the correction. There will likely be a new low on this leg and that will have to be tested at a later date.
That will be another gut check for the newer hedge fund managers and piercing the prior lows will force many to sell more either through fear or risk manager mandates. The beauty of that is it gets the selling over faster as they unload positions rapidly. That tends to jack up the fear levels and gets others selling. You get to some selling exhaustion pretty quickly in that situation, say a week or so. Then you have to rebuild only to get things sold off again in the last leg that gets those remaining after the first up and down to say 'uncle' and then the decks are clear enough to start to rebound.
In sum, the selling could end at the prior lows but it is highly unlikely to do so. Selling begets more selling on a break of those levels before the bottom of the first leg is hit. Maybe they hold and the liquidity in the world wins out. If we see that is the case via strong leadership moves and strong upside price/volume action, breadth, etc., then we play it. If it doesn't we keep our heads, play the downside and watch for the signs of the bottom of this leg. That second upside move is even better because it tends to last longer than the first. In short, you have to know the basic structure of corrections and at the same time watch to see if the more typical structure holds or if there is a big follow through after this leg ends. You do what the market tells you, and if it tells you it is rallying without following the typical pattern, then you do what the market says to do. It always has the last word.
THE ECONOMY
More on the economic events later this week.
THE MARKET
MARKET SENTIMENT
VIX: 18.13; +4.14. Volatility surged as the market sold. Rapidly approaching the prior highs just over 20 and it was the first day of selling. Likely to get a up toward the 24 range (23.81) hit in June 2006 when the market was putting in the bottom of its first leg in that correction.
VXN: 22.04; +3.52
VXO: 17.57; +4.01
Put/Call Ratio (CBOE): 1.45; +0.39. Let's see, that is fifteen straight sessions above 1.0 on the close. It is more than showing it is ready, but it is also showing that it does not have all of the predictive power it used to as it tends to front-run the rest of the sentiment indicators. It is similar to a sentiment indicator for the sentiment indicators at this point.
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: -51.72 points (-2.15%) to close at 2350.57
Volume: 2.269B (+38.48%). Now that is a big jump in volume, one that shows where the strength is. Little wispy volume sessions on the upside and then a big above average volume jump as the downside resumes. As noted Monday, only the buyers were in the market and there were not that many of them. Tuesday everyone was playing and the sellers swept the buyers aside.
Up Volume: 218M (-943M)
Down Volume: 1.874B (+1.42B). 8.51:1 down volume over up volume. That is getting toward extreme.
A/D and Hi/Lo: Decliners led 4.69 to 1. Sharp downside breadth, much stronger than any of the upside.
Previous Session: Advancers led 1.38 to 1
New Highs: 65 (-18)
New Lows: 148 (+83)
NASDAQ CHART: http://www.investmenthouse.com/ihmedia/NASDAQ.jpeg
Gapped lower, made one attempt at the 10 day EMA, and then headed out of town for the week. Closed at 2350, right in the heart of the late October lateral range, but that is not likely to keep NASDAQ from running through the early March low (2340) and indeed lower toward the 200 day SMA (2293). Now we are just watching to see how far down it has to mine before it finds bedrock. The 2300 level has some support, and it is 9% form the February high. That puts it in the 'range' for a full correction of all gains since the fall 2006 breakout.
SOX (-1.66%) showed a bit more relative strength, aided by the QCOM higher guidance that helped light the wireless and telecom chips. Those remain the best segments in the chip sector and indeed the tech sector, giving the chip indices some more strength versus the market overall. Still moving in its lateral range from 450 to 490, now fading back toward the lower half of the range.
SP500/NYSE
Stats: -28.65 points (-2.04%) to close at 1377.95
NYSE Volume: 1.96B (+33.46%). Volume soared above average here as well, starting to rival the initial selling volume on this correction. Well, not really. It was very strong, however, and clearly showed the sellers were back in the saddle again.
Up Volume: 109.95M (-742.537M)
Down Volume: 1.847B (+1.25B). Can this be right? 16.8:1 down to up volume ratio. If you look up 'extreme' in the dictionary this will be the ratio you see.
A/D and Hi/Lo: Decliners led 4.56 to 1. Not the -10:1 seen when the last leg down started, but very respectable. After all, that initial burn off had more excess to wring out. This is doing some mop up work.
Previous Session: Advancers led 1.85 to 1
New Highs: 88 (-23)
New Lows: 77 (+45)
SP500 CHART: http://investmenthouse.com/ihmedia/SP500.jpeg
That was an ugly session. SP500 burned off nearly all of the weeks gains (all but 4 points) in one move. Strong volume, weak breadth, 90+% of the large caps trading lower. With the financials on the fish gutting table there was not much hope for the large caps. The drugs, a typical safe haven, were down as well, so the list of hiding places for the upside was thin. Almost at the prior low (1374) and very likely to blow on through this level that represents some modest support that the original March selling held.
SP600 (-2.30%) was spanked as well, turning lower at the 50 day EMA and now heading back to the bottom of the November to January range (the handle in its base). It has some support there, but it is likely to head to the 200 day SMA (383) or even to 380ish where there is a series of prior peaks.
DJ30
Of course the blue chips did not escape given that its components were systematically dismantled as well. The financials? Turned to chum. Paper? Turned back into pulp. Surprisingly, techs showed some of the best relative strength, but then again, when you have had the snot kicked out of you it defeats the purpose (and it is not as much fun) to keep trying to kick more out. DJ30 also is very close to its prior low after just a session (12,039). There is some support at 12,000 that will likely try to hold again (that would be only 6.3% from the high). If it doesn't you start looking at the 200 day SMA (11,757) and the May 2006 high at 11,670 (8.8% correction). That is the lone island out there, the most significant support when 12,000 gives way.
Stats: -242.66 points (-1.97%) to close at 12075.96
Volume: 312M shares Tuesday versus 219M shares Monday.
DJ30 CHART: http://www.investmenthouse.com/ihmedia/DJ30.jpeg
WEDNESDAY
Current account and crude inventories are the scheduled reports, and those are important, but at this stage of the game they are ancillary to the downside move that resumed. More earnings in the financials as LEH reports and any new word from the mortgage companies will be on the front burner.
After such a sharp sell off the market will likely find the prior March lows rather early on (not that far for any of the indices), and that will be the key technical event of the session. Some will try to buy and hope the market makes a stand at that level. In other corrections this point actually held for a day or two, particularly after a test lower through the prior low that rebounds intraday. That can look impressive, but it is typically not the bottom.
Right now the market is in correction mode and it simply has to burn off as much of the gains as it deems necessary. There is the argument whether this is a correction or the start of a bear market, but that is really academic at this point. You don't play the moves any different for now. There is still strength in the leading indicators and still no confluence of really bad events. That can change, but again, that is not going to change what we do right now.
In a correction we look at support levels, but we are not looking at them as rock solid points we expect the market to find bottom. It will break one after another until it finds it has gone far enough. Typically it goes a bit farther and then rebounds. We keep track of them in order to be in the vicinity when one holds and the move the other way starts.
We are going to play our downside plays as far as they will take us. After such a big down session you can get a bit shy from moving into more, but there is more downside beyond today on this leg, and that will make us money before we have to button them up and wait for the next leg higher prior to that last downside leg.
Speaking of buttoning up, many upside plays held support today, but they are likely to remain under pressure. If they bounce some consider taking more off the table. If they cannot hold onto support consider the same. As we have noted before, we can always get back in.
Support and Resistance
NASDAQ: Closed at 2350.57
Resistance:
2368 is the early October handle high.
2376 is the April high, the former post-2002 high
2379 is the October high.
2400ish from the late November and late December 2006 lows.
The July/August trendline at 2438
The 90 day MA at 2435
The 50 day EMA at 2435
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:
2340 is the March low
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
The 200 day SMA at 2293
S&P 500: Closed at 1377.95
Resistance:
1389 is the October peak.
The 10 day EMA at 1400
1408 is the November high
The 90 day MA at 1415
The 50 day EMA at 1418
1425 is an interim high from November 1999
1432 is the December 2006 high
1440 is the mid-January high
1444 from February 2000
1451 is the late November to February up trendline
1475 from peaks in December 1999 and January 2000
Support:
1374 is the March low
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
The 200 day SMA at 1348
Dow: Closed at 12,075.96
Resistance:
12,361 is the November 2006 high
The 90 day MA at 12,394
The 50 day EMA at 12,427
12,499 is the December intraday high.
12,708 is the up trendline connecting the November and January intraday lows.
Support:
12,039 is the March low.
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
The 200 day SMA at 11,817
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 12
Treasury Budget, February (2:00): -$120.0B actual versus -$123.0B expected, -$119.2b prior
March 13
Retail sales, February (8:30): 0.1% actual versus 0.3% expected, 0.0% prior
Retail ex-auto (8:30): -0.1% actual versus 0.3% expected, 0.2% prior (revised from 0.3%)
Business Inventories, January (10:00): 0.2% actual versus 0.2% expected, 0.0% prior
March 14
Current Account, Q4 (8:30): -$203.5B expected, -$225.6B prior
Crude oil inventories (10:30): -4.848M prior
March 15
PPI, February (8:30): 0.5% actual, -0.6% prior
Core PPI (8:30): 0.2% expected, 0.2% prior
Initial jobless claims (8:30): 325K expected versus 328K prior
NY Empire State Index, March (8:30): 17.0 expected, 24.4 prior
Net foreign purchases, January (9:00): $60.0B expected, $15.6B prior
Philly Fed, March (12:00): 3.5 expected, 0.6 prior
March 16
CPI, February (8:30): 0.3% expected, 0.2% prior
Core CPI (8:30): 0.2% expected, 0.3% prior
Industrial production, February (9:15): 0.3% expected, -0.5% prior
Capacity utilization, February (9:15): 81.3% expected, 81.2% prior
Michigan sentiment, preliminary, March (10:00): 89.0 expected, 91.3 prior
End part 1 of 3
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money investment
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