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money investment, day trading
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4/17/07 Investment House Alerts Report
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IH Alert Subscribers:
MARKET ALERTS:
Target hit alerts: Took some interim gain: TK; VCLK
Buy alerts: SMSI; TZOO
Trailing stops: ACTG; GLW; VLO
Stop alerts: ASCA; COGO
SUMMARY:
- DJ30 leads a split market worried about tech earnings.
- CPI core looking better but food keeps getting pricier.
- Housing starts rise but bottom is not here.
- Utility output decline lowers production and capacity.
- First round of tech earnings not inspirational.
Market gets cold feet ahead of first tech earnings.
Futures were higher once more as more economic data was on the sunny side of the street, oil was lower (63.10, -0.51), and early earnings remained solid (e.g. KO, JNJ, BDK). The CPI was high overall but the rose less than expected, putting the core year/year at the Fed's comfort level. Production and capacity faded back from the sharp February jumps, suggesting the Fed is okay with its 'steady as she goes' approach to monetary policy.
Stocks stumbled out of the gates, but the data was enough to turn them back to positive by midmorning. No huge gains but everything was green, at least outside of the semiconductors. That did not hold, however, as stocks sold to the early session lows after lunch. Seems there was some pre-tech earnings jitters. An early afternoon rebound held promise, but by the last hour NASDAQ and the smaller caps were underwater ahead of the INTC, YHOO, and IBM earnings results. DJ30 plowed into new high territory intraday, but even it felt the weight of some selling late in the session that dragged to close below that level. It posted a market leading gain and was followed by SP500 as the latter added onto its post-2002 new high, but it could not drag all of the indices along with it. It has been a follower all along, and when it tried to lead no one wanted to follow a follower.
Technically there was not a lot of new ground broken compared to Monday. As noted, SP500 extended its new post-2002 high by 3 points as DJ30 ran into the February high then faded modestly to close. SP600 and SP400 were weaker, not adding to their new all-time highs hit Monday. NASDAQ bumped 3 points higher but that did not scare the February high. Not a whole lot of price power Tuesday, but after a strong move as on Monday, that is nothing all that unusual.
There was higher volume on both NASDAQ and NYSE. That shows some churn on NASDAQ and the smaller cap indices and even some on SP500 as it again bumped into the bottom of the channel at the November/January trendline. All in all volume was not a clear positive on the move as some sellers used the move to unload some shares. Breadth was much weaker on the session give that the small and mid-caps slowed in no small part because energy and metals took a breather.
The bigger issues involve the indices tapping around the prior highs and trendlines and leadership. NASDAQ still has not cleared its prior high. Neither has DJ30 though it is hardly a leader in this move. Still, we want all of the indices to break free as that removes the anchor chains from a rally. As for leadership, energy and metals took a breather and thus a big part of the market upside strength was off for the day. The market didn't necessarily do a great job replacing it. Techs were mostly hands off ahead of the after hours earnings, and those didn't do much to change that status heading into tomorrow's session. Looks as if after this pause it will once more be energy and metals time along with medical unless techs can show something they were not showing after hours.
That leaves the indices still at a crossroads. SP500 and SP600 have crossed over and are beckoning to NASDAQ and DJ30. The blue chips made a run to join them Tuesday but could not pull it off. NASDAQ is not going to make it, at least not on the back of the after hours earnings. The market cannot really achieve a sustainable new rally if it bifurcates at this juncture, so we see if the market can look ahead to the coming tech earnings versus INTC (typically weak and the market overlooks it) or YHOO (could hurt the nets).
THE ECONOMY
CPI up on food and energy climbs but core hits a 3 month low.
Surging gasoline prices (+10.2%) and additional food price increases thanks to ethanol (0.4%) pushed the overall March consumer price index up 0.6%, in line with expectations. The gasoline rise was the largest increase in 1.5 years (17.4% in September 2005). No wonder the overall CPI was the highest since April 2005.
The core was 0.1%, lower than the 0.2% forecast that would have matched February. As it stands, the cores has declined 0.1% for the past two months (0.3% in January, 0.2% in February) and puts it back at the 0.1% level from November and December. That left the year/year core at 2.5%, the lowest in 10 months. That is well off the 2.9% hit in September 2006, and is in line with the Fed's comfort level for core CPI (2.5%). The PCE comfort limit is 2.0% and at last read it was 2.4%. Thus there is progress on the CPI front, but the more closely watched PCE (at least by the Fed) remains above the comfort zone.
You hate to put too much emphasis on any one data point because it can be an outrider. Looking at the February 0.3% gain and then the relatively quick slide back to the 0.1% growth level hit 3 of the past 5 months and you get the idea that the 0.3% was the odd man out. Of course medical care remains hot (4% year/year) as does tuition (6% year/year). Owners equivalent rent is the more recent factor pushing up CPI (4% yearly) as the government figures that people who are losing their houses have to pay rent and that pushes rental rates higher. It is all somewhat of a fiction; it is nothing more than a best guess by the government, and that provides little comfort as to the accuracy of the numbers. Even with that, the core continues to settle back down to a modest growth rate after that February spike higher.
The Fed will worry about oil and inflation even if they are not part of the core. Bernanke's last speech mused as to whether these once again spiking oil prices would trigger inflation. That is still a disingenuous argument in our view; the kind of jump in oil prices he is talking about tends to have more of a debilitating impact on economic growth than on inflation. Nonetheless, the Fed is talking as if energy is an inflation problem and thus we have to view it as such at least with respect to what the Fed will do with monetary policy.
As for food, we all know that corn futures are up because of the anticipated demand for ethanol and the pervasiveness of corn in our diet and as a feedstock for our domesticated animals. Well, that pressure is moving to wheat as well. First, wheat is relatively cheaper than corn given corn's price rise, and it is being swapped out with increasing frequency as a feedstock. Second, we hear that wheat is a new 'chic' food product in Asia. As their wealth grows it appears some Asians want to eat 'western' with more wheat-based foods. Thus more demand from both ends as with corn, and that is pushing wheat prices higher as well.
Housing starts and permits rise 0.8% in March but while trying to bottom, the bottom is not here.
After hitting a 33 year high in January 2006 and a 9 year low in January 2007, starts rebounded in February and March, both months topping expectations. It has been a rather precipitous decline in just one year, and the modest bounces the past two months have not broken the trend lower. A chart suggests that the bottoming process is ongoing, and if left alone there could be a recovery initiated toward the end of the year. Of course, as we have discussed before, if Congress gets involved in regulating it will as usual fight the last battle and enact legislation that does not prevent the same problem from occurring but that will, because of its restrictive nature, push any recovery back by 6 months to a year. That is how government intervention works: late to the party, locks the door after everyone has left, and then doesn't open it to let them back in.
You have to look at the numbers with a pretty jaundiced eye. Starts in the Midwest rose 44%, single handedly pulling the overall number to that 0.8% gain as every other geographic region was lower. Thus it is safe to say the housing starts remain in a bottoming process and not ready to significantly rebound, at least due to any surge in demand.
By that we mean there are still a lot of housing developments in the country that are cleared and set for building with water, sewer, and electrical conduit stacked at the ready. We hear this from enough regions to conclude that there are still a significant number of new homes yet to come onto the market that will further swell the housing inventory. Contracts have been entered to build out these areas, and unless the builders calculate the cost of breach is less than the cost of building homes that may not be sold (cancellation of contracts by individual buyers are still rising), builders will build those houses. Again, this means that there are houses out there still to be built and still to hit the housing market. There will always be individual buyers contracting with a builder to construct a single home. Until these big projects more or less grind to a halt, inventory will not fall enough to end the drought, particularly with stricter lending practices. Thus while bottoming, a bottom is not yet in the current hand of cards.
Capacity and production fall on utility decline.
Capacity utilization and production jumped in February on a rise in utility output due to the very nasty cold weather snap. Thus the March decline to 81.4% from 81.6% (82% originally reported) in capacity and the 0.2% production decline (from 0.8%) are mostly attributable to the weather. Thus February was not that inflationary in its gains, and March was not that deflationary in its declines. More accurately, they were reverting more to their norms in this cycle.
This is rather a bogus inflation indicator in any event. It measures manufacturing only and it applies a static model that does not assume that money will flow to sectors where there is demand. Of course, it does not always flow because it is blocked by regulation. The lack of refining capacity is a classic example. Desperate need, but federal and local regulation has prohibited construction of any new refinery in over 20 years. Sure you could have built one, but the placement choices and the stringent regulation made it cost ineffective to proceed, so no one did. Now we are having regulation remorse as consumers clamor for cheaper gasoline and don't really care how they get it.
In the real world the market moves pretty quickly to fill in the gaps. It is not instantaneous, but without stumbling blocks that add to the time required (time is money in both lost opportunity for the manufacturer and higher costs for the consumer), the market moves quickly to fix the imbalances. Thus, saying we are at 82% of capacity has some ring of finality to it when in reality capacity shifts as capacity is needed.
THE MARKET
MARKET SENTIMENT
VIX: 12.14; +0.16
VXN: 16.08; -0.36
VXO: 11.43; +0.18
Put/Call Ratio (CBOE): 0.9; +0.1
Bulls versus Bears:
Bulls slid and bears rose, a positive development after the converse last week threatened to derail the improvement. Is this enough to sustain a new move? If you were looking just at this indicator, no. Before the last significant market bottom back in August 2006, bulls fell to 36% in late June. Bears rose to 36% as the two kissed before going their separate ways once more as the market started to rally. They are still over 20 points apart, and that is not what new bottoms are made of.
Bulls: 49.5%, down from 50.6%. Fading back a bit though still above the 48.4% two weeks back, and that was up from 46.6% and 45.5% before that. Could be a double top building in as it hit 50.5% level a couple of months back though below 53.3% on the recent high. Bulls bottomed last summer near 36%. That is the lowest level since September 2006.
Bears: 27.5%. Solid jump in bears from 25.8%, putting it right back to the level hit two weeks back though down from 28.4% and 28.9% immediately before that. Well above the 20% where it held to start the year. 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).
NASDAQ
Stats: -1.38 points (-0.05%) to close at 2516.95
Volume: 1.973B (+6.81%). Volume rose but was still below average as NASDAQ churned modestly below the prior high in February. It is expiration week and volume tends to run higher Tuesday to Wednesday, so we are not getting too tweaked about this although we never like higher volume at an old high that stalls an index.
Up Volume: 956M (-389M). Dead heat as the sellers and buyers were evenly paired.
Down Volume: 985M (+516M)
A/D and Hi/Lo: Decliners led 1.37 to 1
Previous Session: Advancers led 2.52 to 1
New Highs: 201 (-53)
New Lows: 43 (+13)
NASDAQ CHART: http://www.investmenthouse.com/ihmedia/NASDAQ.jpeg
The techs had some cold feet ahead of the 'official' start of tech earnings with YHOO and INTC earnings after the close. Once more NASDAQ traded below that old high (2525, 2532 intraday), not really challenging that level. NASDAQ suffered a bit of churn as it paused below the old high. YHOO tanked while INTC traded higher in the late trade; call it a draw? After a nice run up to a prior high a bit of a pause is typical. The issue for techs is whether it is just a pause or NASDAQ turns into harsher selling.
SOX was once more a laggard, trading lower and closing at the 50 day EMA. It is in a 6 month lateral range and thus far it has not shown any inclination with respect to trying to shift to a leader and make a breakout. The INTC earnings were not pushing chips higher after the close.
SP500/NYSE
Stats: +3.01 points (+0.2%) to close at 1471.48
NYSE Volume: 1.572B (+1.28%). Volume moved higher to average as it pushed further above the February high. Some accumulation but also bumped the old channel line. Hard to complain about the move other than volume is still overall light. Have to complain about something.
Up Volume: 787.424M (-454.817M)
Down Volume: 756.098M (+460.646M)
A/D and Hi/Lo: Decliners led 1.06 to 1. Without the small and mid-caps (energy and metals took the day off) breadth was flat despite SP500's gain.
Previous Session: Advancers led 2.65 to 1
New Highs: 321 (-84)
New Lows: 19 (+4)
SP500 CHART: http://investmenthouse.com/ihmedia/SP500.jpeg
SP500 traded to another post-2002 high still trying to get back into the old November/January channel, tapping it on the high (1474) and then fading modestly. Better trade, up to average, so technically an accumulation session but not a blowout to the upside. As with NASDAQ, after a strong surge to a new high a bit of softness to test is normal. The move was not bad given the financials, some big winners from Monday, did not participate.
SP600 lost some ground after that breakout to a new all-time high, gapping lower as the energy sector moved lower from the open. It recovered off of that level and losses were modest by the close. After the strong run in energy a bit of a pullback was in the cards. There may be a bit more before they are ready to make the move again, but SP600 has shown excellent leadership in this last run higher.
DJ30
The blue chips traded to a new closing high intraday but could not take the old high out (12,796). Nonetheless they showed the strongest volume in a month, coming in well above average. IBM was up after hours initially but then was lower. INTC helped a little with a late but solid spurt in the later after hours trade. Solid move by the blue chips to test the old high. Likely to be a bit soft on the open after a good run and on the earnings; will see what kind of character it has.
Stats: +52.58 points (+0.41%) to close at 12773.04
Volume: 256M shares Tuesday versus 225M shares Monday. Best volume in a month as the blue chips tested the all-time high.
DJ30 CHART: http://www.investmenthouse.com/ihmedia/DJ30.jpeg
WEDNESDAY
Tech earnings have started and they are not quite impressive. IBM was initially higher on earnings that mostly matched expectations, but that early 'sigh of relief' move faded. YHOO did not even try a run, at least upside. It turned tail and was pretty much clubbed the moment the news came out.
After the run up to the prior highs by NASDAQ and DJ30, Wednesday will be a character test. SP500 and SP600 have led the move higher; can they hold NASDAQ and DJ30 up on a test? As noted last night (and it seems almost endlessly this run) the move has issues with its short base, low volume rise, etc. Now we see if the move holds on a test or folds in another collapse. Earnings are thus far surpassing expectations (80% of the 51 SP500 stocks reporting before the Tuesday close beat expectations), but again, this initial round of tech earnings cuts the other way.
All in all a modest pullback would not hurt stocks at all. Energy is already pulling back after a strong run, and after leaders start to test the rest of the market tends to do so as well. An orderly test is what you want to see, making a higher low. A great point for SP500 and SP600 is in the neighborhood of the breakout point, i.e. the February high. Thus far the move has overcome all obstacles as liquidity finds a way into the market. It will have another opportunity to do so after this initial round of tech earnings.
Support and Resistance
NASDAQ: Closed at 2516.95
Resistance:
2523 is price resistance November 2000
2530 is the December/January up trendline
2531 is the February high (post-2002 high)
Support:
2509 is the January 2007 high
The July/August trendline at 2499
The 10 day EMA at 2481
2471 is the December 2006 high
2468.42 is the November 2006 high
2460 is the March high
The 50 day EMA at 2445
2405 is the 'hump' high
2400ish from the late November and late December 2006 lows.
2379 is the October high.
2376 is the April high, the former post-2002 high.
2368 is the early October handle high.
2340 is the March low
2339 - 2334
2331 is the March intraday low
S&P 500: Closed at 1471.48
Resistance:
1472 is the late November to February up trendline
1475 from peaks in December 1999 and January 2000
Support:
1461.57 is the February 2007 high.
The 10 day EMA at 1450
The 18 day EMA at 1441
1440 is the mid-January high
1439 is the March high
1432 is the December 2006 high
The 50 day EMA at 1429
1425 is an interim high from November 1999
1410 is the 'hump' high
1408 is the November high
1389 is the October peak.
1374 is the early March low
1371 to 1373 is the December 2000 peak and the January 2001 peak
1369 from early October 2006
1364 is the March intraday low
Dow: Closed at 12,773.04
Resistance:
12,796 is the February 2007 and all-time high
Support:
12,700 is the early February peak intraday high
12,623 is the mid-January high
The 10 day EMA at 12,593
12,511 is the March intraday high.
12,499 is the December intraday high.
The 90 day MA at 12,461
The 50 day EMA at 12,452
12,361 is the November 2006 high
12,350 is the March 'hump' high
12,039 is the early March low.
October high is 12,167
11,986 is price support from mid-October and the early November low.
11,940 is the March low
Economic Calendar
These are consensus expectations. Our expectations will vary and are discussed in the 'Economy' section.
April 16
Retail sales, March (8:30): 0.7% actual versus 0.4% expected, 0.5% prior (revised from 0.1%)
Retail ex-auto (8:30): 0.8% actual versus 0.7% expected, 0.4% prior (revised from -0.1%)
NY Empire State PMI, April (8:30): 3.8 expected, 10.0 expected, 1.9 prior
Net foreign purchases, February (9:00): $58.1B actual, $80B expected, $98.8B prior (revised from $97.4B)
Business inventories, February (10:00): 0.3% actual versus 0.3% expected, 0.2% prior
April 17
CPI, March (8:30): 0.6% actual, 0.6% expected, 0.4% prior
Core CPI (8:30): 0.1% actual versus 0.2% expected, 0.2% prior
Housing starts, March (8:30): 0.8% gain; 1.518M actual versus 1.5M expected, 1.506M prior (revised from 1.525M)
Building permits, March (8:30): 0.8%; 1.544M actual versus 1.515M expected, 1.532M prior
Industrial production, March (9:15): -0.2% actual versus 0.0% expected, 0.8% prior (revised from 1.0%)
Capacity utilization, March (9:15): 81.4% actual versus 81.9% expected, 81.6% prior (revised from 82.0%)
April 18
Crude oil inventories (10:30): 678K prior
April 19
Initial jobless claims (8:30): 320K expected (like the weather forecast in the summer: hot and 20% chance of rain), 342K prior
Leading economic indicators, March (10:00): 0.1% expected, -0.5% prior
Philly Fed, April (12:00): 3.0 expected, 0.2 prior
End part 1 of 3
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money investment
day trading
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