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us stock market, trade stock
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4/18/07 Investment House Daily
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Investment House Daily Subscribers:
MARKET ALERTS:
Targets hit alerts: None issued
Buy alerts: NUVA
Trailing stops: None issued
Stop alerts issued: UA
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SUMMARY:
- Techs struggle but hold the line after disappointing first round of earnings
- Mortgage foreclosures spike again, another indication the housing correction is not through.
- NASDAQ weathered first earnings shots with help from semiconductors, but now the second round starts.
First tech earnings weigh on NASDAQ, but NASDAQ selling is controlled, aided by DJ30 joining the new post-2002 high list and surging semiconductors.
Earnings hogged the spotlight once more, but it was not all about the YHOO and IBM miss, though those were close to the top of the list to start Wednesday. Though the first pass at tech earnings was disappointing, more solid results from a group of large cap NYSE stocks pushed to the top of the headlines. UTX showed the industrials were still solid and JPM sparked further interest in the key financial sector even as MOT and STX, both in tech-land, missed their targets (or at least those the street set). That set the stage for another bifurcated session with NYSE stocks leading and techs trying to hang on near the February highs.
Earnings garnered the most attention but there were a few other news stories. RIMM's Blackberry service suffered what was termed a 'catastrophic' outage. In other words the service was down completely and was just coming back online in the afternoon. Mortgage foreclosures jumped once more in another sign the housing market is in no mood to turn back up this week. To add a little salt to the wounds, some big name energy stocks (e.g. SLB, NOV) were downgraded on valuation, basically due to their success of late capped off by that last run higher.
With the mixed news the market started weaker, at least on the tech and small cap side (many energy stocks are in the small cap indices), but found bottom within the first hour.
By the time oil inventories were announced at 10:30ET the rebound was underway and the inventories did not slow it. Crude was down 1M bbl, gasoline fell 2.7M, and distillates dropped 800K. All of that was more or less in line, but the bigger news was that refinery runs jumped to 90.4%, the highest of the year and well in excess of the recent showing. The changeover from oil to gasoline is apparently well underway and thus after declining some 27 million barrels the past two months there should be some improvement over the next month.
DJ30 pushed to a new all-time high as did SP500, and that no doubt helped hold the other side of the market from a further slump after those initial tech earnings. Semiconductors were the standouts as SOX posted a 2.53% gain aided by some buy backs in the sector. SMH jumped to the top of its 7 month range on some huge volume. It faded back after tapping the high, but it was a massive move that has the potential of changing the sector's character, i.e. making a breakout move. The chip move was definitely enough to bolster NASDAQ and keep it from really fading after its bump at the February high.
Technically the gains on DJ30 were legit as it sported stronger volume as it made the move to a new post-2002 and new all-time high. DJ20, the transports, are moving up behind it, ready to confirm the new high on the industrials. SP500 was up but it was more of a churn session as volume climbed while it ran in place. NASDAQ suffered a bit stronger distribution just below the February high, but the action was not that bad given the negatives surrounding the release of the YHOO, MOT, STX and IBM earnings.
Indeed, overall it was not a bad session as the market showed some of the character referred to last night. It could have been far worse, i.e. the earnings triggering a sharp NASDAQ sell off. NASDAQ received almost Herculean assistance from the semiconductors and managed to check up the early selling just over the July/August up trendline. EBAY results were initially greeted with a solid surge after hours in the neighborhood of 2 points but most of that was washed away as the after hours session wore on. Once more the market will have to fight with mediocre tech earnings. Maybe some more buybacks will again help offset the disappointment; after all, the Q's were rising late after hours. In sum, NASDAQ is still at a critical level in its test of the February high, and it is still looking for a catalyst to join the other indices in a new post-2002 high after showing a bit of backbone Wednesday in avoiding a sell off on a disappointing first wave of technology earnings.
THE ECONOMY
Foreclosure rate keeps climbing as housing bottom still in the distance.
March foreclosures rose 7%. Strong number but nothing compared to the year over year decline that clocked in at 47%. Ouch. The sub-prime market is of course the leading culprit and the worst performing geographic areas are California and the Midwest. Interesting given the housing starts report that showed a 44% jump in starts in that region, and that is what pushed the number up 0.8% last month. As we noted earlier in the week, something is fishy in that report.
It is clear, however, that this data along with the other housing data indicates that the housing decline has not finished declining, at least to the extent it is ready to turn back up. There are still much too many houses that are still going to get built over the next few months regardless of what you hear about the major builders shutting down much of their projects. That pushes a bottom in the market through the summer as the economy continues its mid-cycle slowdown. It will take a bottom in the inventory climb combined with a resumption in the economic expansion to start housing up off the bottom. If the Fed has to tilt at inflation further with rate hikes and further credit restrictions (and if Congress mistakenly steps in) then the recovery is pushed back. The credit has to be there for a recovery, and right now the restrictions are not allowing those buyers to come even if they wanted.
THE MARKET
MARKET SENTIMENT
VIX: 12.42; +0.28
VXN: 16.29; +0.21
VXO: 11.73; +0.3
Put/Call Ratio (CBOE): 0.9; 0
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: -6.45 points (-0.26%) to close at 2510.5
Volume: 2.122B (+7.56%). Volume rose above average, the first since a distribution session a week back and the highest in a month. That is not necessarily a great indication, however, as NASDAQ was lower and the higher volume indicates some distribution or churn, understandable given the early earnings report disappointment.
Up Volume: 1.035B (+79.17M)
Down Volume: 1.041B (+56.159M)
A/D and Hi/Lo: Decliners led 1.44 to 1.
Previous Session: Decliners led 1.37 to 1
New Highs: 129 (-72)
New Lows: 46 (+3)
NASDAQ CHART: http://www.investmenthouse.com/ihmedia/NASDAQ.jpeg
NASDAQ performed better than you would expect given the trepidation ahead of the first earnings and the disappointment when they came out. It did show some backbone, bouncing off the July/August trendline (now at 2502) to cut its losses. NASDAQ remains in a precarious position below the February high (2525, 2532 intraday), trying to hold onto the 3-day move that took it up to this level and set up for another run at it. It looked as if EBAY's earnings would give it a boost early in the after hours trade, but that fizzled as the late session wore on. Nonetheless, the overall late trade was moving higher. NASDAQ needs strong earnings to push it to a new post-2002 high along with the other indices. Another boost from the chips would not hurt.
Speaking of chips, SOX (+2.53%) posted impressive gains along with SMH (the ETF). SMH flashed to the top of its 7 month range on strong trade and is at the ready to make the breakout. The old highs in the range will try to block it and thus there may be a pause as they hit that point, particularly given the big move it took to get to this point. That burned a lot of gas and thus a bit of a breather would again set it up for a run at the top of the range.
SP500/NYSE
Stats: +1.02 points (+0.07%) to close at 1472.5
NYSE Volume: 1.61B (+2.39%). Volume posted a stronger above average volume session, the best in two months, as SP500 pushed to a new post-2002, but SP600 faded as energy sold. Mixed indications, particularly since SP600 was the leader in the move up to this point.
Up Volume: 753.855M (-33.569M)
Down Volume: 834.135M (+78.037M)
A/D and Hi/Lo: Decliners led 1.22 to 1. Even with SP500 closing positive breadth was negative as the small caps declined thanks to the pullback in energy stocks after their strong run.
Previous Session: Decliners led 1.06 to 1
New Highs: 225 (-96)
New Lows: 15 (-4)
SP500 CHART: http://investmenthouse.com/ihmedia/SP500.jpeg
The large caps were 'propelled' by the financials once more as some earnings from JPM once again renewed interest. The move pushed SP500 to a new post-2002 closing high, but interestingly, it faded and was not enough to push it through the November/February trendline that acted as the bottom of the channel during that run. It is bumping but thus far cannot get through. A bit of some churn with the higher volume and lack of progress at resistance. To this point, however, it has been able to shake off the churn and continue higher.
SP600 (-0.48%) fell back from the recent new high as the energy stocks took a breather after their strong run. A bit of a test here is no big deal as SP600 faded but still held easily above the 10 day EMA. With the energy names approaching near support, a bit more pullback in the small cap index sets up the next bounce.
DJ30
DJ30 finally made the move, pushing through the prior highs and closing at a new all-time high on even stronger volume than Tuesday. With that move it joined rank with SP500 and SP600. Not bad for an index that was content to follow. DJ20, the Dow transportation index, is also moving toward a new high, needing about 45 points to a new high and thus confirmation of DJ30's new high. With money flow screaming higher on the transports, that looks doable in short order (it gained 80 points Wednesday).
Stats: +30.8 points (+0.24%) to close at 12803.84
Volume: 262M shares Wednesday versus 256M shares Tuesday. A second straight above average volume session after a month drought. That is what you want to see as an index hits a new high.
DJ30 CHART: http://www.investmenthouse.com/ihmedia/DJ30.jpeg
THURSDAY
Earnings, initial jobless claims, earnings, leading economic indicators, earnings, and the Philly Fed highlight the Thursday action. As noted, EBAY initially stirred some much needed interest in techs. It faded in the late after hours trade but tech was still moving higher even as EBAY gave back a big chunk of the earnings gain. NASDAQ was down Wednesday but it showed some backbone in limiting its losses. We will see if it can show a bit more Thursday and join the other indices with a new post-2002 high.
As noted Tuesday, a bit of a pullback here is not a bad thing, particularly if it is overall orderly as on Wednesday. There was a bit of churn on NASDAQ, but nothing necessarily a rally killer. Indeed, NASDAQ can take some more time and set up for a move higher and we can still see the market move higher as energy recovers from its pullback after that strong run.
That said the market has the same issues as before with the small base and overall low volume rally higher. Volume has picked up the past couple of sessions as stocks moved higher overall, somewhat mitigating the lower volume on the move higher. It is always good to see volume jump as a stock or index hits a new high. With the return of 'record high Dow' mania (CNBC had to announce this every 15 minutes), however, it is easy to take the upside for granted. The run to this point has been a good one, and after a break to a new high there is often some back filling. SP500 churned a bit for the second session, SP600 faded off its high, and NASDAQ once more failed to punch through to a new post-2002 high.
We will continue to look for upside opportunity given pullback in energy and the resurgence of semiconductors. The higher volume on some churn Wednesday deserves a close eye, but it is expiration week and that tends to pump up volume midweek. We will let positions in good runs make their test as long as they hold near support, typically the 18 day EMA. We will also use that to look at new positions if they are not too extended from their breakouts. The market is still not completely convincing with this move, but that is typically the way it works: flashes of positives mixed with negatives, and you have to buy when the stocks show you they need to be bought. That is what we have done all during this move despite our misgivings, but it is no time to jettison concern. Thus we will let good movers test support as a test after a move to a new high by the indices is normal. We have an eye on NASDAQ, however, as it has not made its new expansion high and shows a bit of churn. That keeps us honest at least.
Support and Resistance
NASDAQ: Closed at 2510.50
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 2502
The 10 day EMA at 2487
2471 is the December 2006 high
2468.42 is the November 2006 high
2460 is the March high
The 50 day EMA at 2447
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 1472.50
Resistance:
1474 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 1454
The 18 day EMA at 1444
1440 is the mid-January high
1439 is the March high
1432 is the December 2006 high
The 50 day EMA at 1430
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 12,803.84
Resistance:
Cleared 12,796 at 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 12,632
12,511 is the March intraday high.
12,499 is the December intraday high.
The 50 day EMA at 12,466
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): -1.0M actual, 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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