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trend trading stock, top stock pick
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4/24/07 Investment House Daily
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MARKET ALERTS:
Targets hit alerts: None issued. Again, letting some strong movers continue to run even though they have hit their targets.
Buy alerts: AH (bonus)
Trailing stops: PRFT
Stop alerts issued: None issued
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SUMMARY:
- Stocks recover from the dips suffered on economic data, but NASDAQ recovery still leaves NASDAQ below its February high
- Existing home sales continue their struggle, indicating no bottom yet.
- Consumer confidence takes the usual course, falling as gasoline prices rise.
- AMZN, TXN try to change the views on tech earnings, but industrials still blowing away all competition.
- Post-earnings stocks setting up for their next move as market tries to hold onto last surge.
Market takes another moment, shows some character with a recovery from early, economic-induced selling.
Futures indicated higher, but as is often the case after a run higher, the early upside bump struggled to hold on and it slipped away. This often happens as the late comers see the new highs and put orders in to buy. That money is put to work early in the session, and when the ammunition is spent the market does what it wanted to do in the first place, i.e. continue its breather. Thus stocks were up early then faded as the session got underway.
The fade picked up speed as the day's economic data came out. New home sales continued their slide and consumer confidence fell from excessive gas fumes. Sellers were emboldened and turned the early modest gains into a midmorning low. Not much of a low, however. NASDAQ tapped the 10 day EMA and its July/August trendline and started a steady recovery into lunch. Ditto DJ30 and SP500. All three made it back to their recent highs and then . . . stalled yet again. For the second day NASDAQ tried to slip through the February high, and for the second day it could not do the deed. It made two tries at it but buyers simply did not have their hearts in it, chip rally or no (chips had by far the best session with a 3% SOX gain thanks to the TXN numbers). Thus once more there was talk of DJ30 13,000 and NASDAQ at six year highs, but with the upside moves last week, there was just not enough interest to see it through.
That does not mean the session was a failure, though it was not a textbook day off on lower volume. Technically the intraday action was not bad with the recovery from the early dip, the rally back, and the refusal to give up gains. But once more NASDAQ could not push through to a new high. Not a surprise given the strong moves last week, at least by the NYSE indices, as the market tries to consolidate the gains while basically holding onto them. That is the 'have your cake and eat it too' scenario where the market is stingy with its gains. In this case, there is nothing wrong with that scenario; indeed, it is one of the best as no one really wants to let go of their shares. Indeed there is still buying ongoing as seen by stocks that surged higher on their earnings. There is still good leadership, but the breakouts were the exceptions as negative breadth showed most stocks stayed home.
There was higher volume as well, and thus it was no textbook low volume pullback that shows few sellers. The high volume as the indices bounced around the prior highs shows some churn, that high volume game of hot potato where the early players in the rally pass off stocks to those coming to the table late. Sprinkle in those glowing comments about new highs on the stock stations, CNN, MSN, FOX, etc. along with the rising bulls/bears indicator and you have another indication things are a bit overheated short term.
Earnings remain the primary impetus for the action holding this level as reports, particularly from the industrial sector, continue to beat rather weak expectations. Sprinkle in a couple of solid tech reports and you have enough to hold the market steady after the industrial earnings reports sent the market higher last week. Yes earnings are better than expected and that really gave the market a shot in the arm. The market typically will take the initial reports (and the market) up or down based on how it perceives the results. That is the initial gut reaction so to speak. Then once it gets the gist of the reports the 'earnings trend' is set. That often entails moving the other way a bit after that initial gut reaction, something about equal and opposite effects.
In any event, the initial reaction is upside, and now the market is trying to consolidate the run in place. No problem with that at all; that is an indication of strength. The issue is the higher volume and that means we have to be a bit careful because of that churn where stocks are passed around, trying to find a home. Thus far new money has provided homes as the 'better than expected' earnings keep the excitement up. Even with that, the market needs periodic tests of the moves, and that is what it is doing right now. The issue is whether it continues to hold and consolidate more or less in place or comes back a bit and then makes the next run. TXN earnings could not break NASDAQ higher. AMZN? Possible. If enough high profile tech earnings combine then NASDAQ has the ammunition it needs to make the move.
THE ECONOMY
March existing home sales show nothing new as attitudes are likely to put a drag on future sales.
Well, almost nothing new. They were weak as expected and as they have been for a year (the top was in May 2005, but the real weakness did not show up until 2006). The magnitude of the weakness was the surprise. 6.50M were expected, but they came in at 6.12%. That is down 8.4% month over month and 11.3% less than March 2006. Basically buys logged their sharpest decline since 1989.
The immediate blame was placed upon the weather. Why not? Can't do anything about it so let it be the whipping boy. Bad weather in February was blamed for deals failing to close in March. Existing home sales are measured at closing where new home sales are measured at signing the contract. Of course some did mention issues with tightening lending standards. Gee, you think?
How about consumer confidence results? While it rarely tracks with reality, consumers did say their plans regarding buying a home were pretty weak with the percentage saying they were considering a buy in the next six months hitting a 13 month low. That doesn't prove anything other than consumers are in a fouler mood, but it is interesting in that it jibes with actual buying. With all of the talk about homes losing value ahead do you think Joe Buyer who has to make a stretch to buy the house is all that fired up about it? Right now to qualify he has to pretty much submit to a body cavity search just to fill out the application and then sign over the wife and kids as collateral. Now that might be appealing to some, but given how our politicians talk of family values we will adopt the approach that pawning your family to qualify for a loan is against public policy.
The point is that a buyer on the borderline is going to say 'no thanks' and wait until all of this prognosticated doom and gloom bottoms out before stepping into that wringer. If Congress gets involved that will only delay the process because even when the would-be buyer feels good enough to step in the money, a.k.a. credit, won't be there, and that delays the ultimate recovery.
April consumer confidence falls short of expectations, but it is coming off highs.
It is all in the headlines as to the impression a news storey leaves. The 104.0 reading fell short of the 105.0 expected after that solid 108.2 in March. The headlines screamed about the slowest confidence since August 2006. Of course, February hit a 5.5 year high. So, do you opt for the negative story and ride the bandwagon of worries that helped push the market lower in February and March or do you take a more honest approach?
CNN takes the sensational approach. So do others. Here is the scoop. Confidence rose five straight months to a 5.5 year high at 111.2 in February. It backed off in March and April, due primarily to the return of higher gasoline prices. Despite claims that consumers are not feeling the impact of the current gasoline prices, nearly all of those surveyed put gasoline prices as their number once concern. Even worries about jobs being harder to find did not balloon though the expectedly slipped after the March high. Most significantly: the survey is nowhere near levels that would indicate the consumer is even remotely thinking about folding the tent. The trend is definitely not lower right now, just suffering a near term pullback as gasoline prices rise.
THE MARKET
MARKET SENTIMENT
VIX: 13.12; +0.08
VXN: 16.37; -0.01
VXO: 12.56; +0.07
Put/Call Ratio (CBOE): 1.2; +0.28. Some protection being bought as the indices bump against the prior highs.
Bulls versus Bears:
Bulls: 52.7%. Well this is hardly good news with the bulls spiking back up over 50 and well on the way to 55% that is considered bearish. Up from 49.5% and 45.5% just a month back. 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: 25.3%. Heading the wrong direction as well, falling from 27.5%. Fairly volatile of late as it bounced from 25.8% the week before but down from 28.4% and 28.9% immediately before that. Still 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: +0.87 points (+0.03%) to close at 2524.54
Volume: 2.339B (+16.22%). Volume hit the highest in over a month as NASDAQ bumped against the prior high, sold back, and then rallied back up to close flat. Churning away at the prior peak, but each churn thus far has led to another upside move.
Up Volume: 1.242B (+299M)
Down Volume: 1.063B (+50M)
A/D and Hi/Lo: Decliners led 1.21 to 1. Finished positive but breadth was negative. NASDAQ 100 was leading the way with a 0.47% gain. Not a lot of overall strength.
Previous Session: Decliners led 1.36 to 1
New Highs: 147 (-21)
New Lows: 73 (+16)
NASDAQ CHART: http://www.investmenthouse.com/ihmedia/NASDAQ.jpeg
Semiconductors were up but they could not provide the push to get NASDAQ over its February high. It didn't even do it intraday. On the other hand, NASDAQ 100 jumped to a new post-2002 high on that strong volume. The large caps are trying to lead NASDAQ higher. Even with some improved tech earnings the rest of tech is not yet following. Indeed there was some churn Tuesday as NASDAQ ran in place at the prior high (2531.42). Well, not in place. It fell to the 10 day EMA and the July/August up trendline on the low (2509) and then rebounded; there was some buying on the test. NASDAQ is hanging in at the high, not giving up its gains. Volume is a bit of a concern, and it could come back again toward the 10 day EMA or 2500ish to test before it can move higher. Thus far tech earnings have not inspired a leadership role. We will see what AMZN generates, but the techs were not blasting higher on that news.
SOX (+3.09%). Semiconductors led the session, breaking out of their 6 month trading range. They could not, however, break NASDAQ to a new post-2002 high. Strong breakout move as the chips try to make an upside move stick. Not a bad start but there are some important earnings ahead this week.
SP500/NYSE
Stats: -0.52 points (-0.04%) to close at 1480.41
NYSE Volume: 1.65B (+14.68%). Volume moved back above average as SP500 tested lower intraday and then recovered to close flat. As with NASDAQ a bit of churn, but this action has not stalled the move of the large caps as they are moving on the back of the industrials.
Up Volume: 763.272M (+127.989M)
Down Volume: 871.916M (+84.91M)
A/D and Hi/Lo: Decliners led 1.24 to 1. Similar to NASDAQ it was a large cap day, though not much of one.
Previous Session: Decliners led 1.06 to 1
New Highs: 226 (-80)
New Lows: 24 (+9)
SP500 CHART: http://investmenthouse.com/ihmedia/SP500.jpeg
The large caps tested back below the channel line at 1478 and then rebounded to hold the channel, rebounding on strong volume. A bit of churn, but also consolidating in place as it holds its gains. On the low it tapped last week's early closing highs and used that as support. Good move and trying to hold in a lateral consolidation as it did in early April and on the last lateral move last week.
SP600 (-0.10%) continued to work laterally over the 10 day EMA, bumping 427 on the high again as it refuses to gives up any gain and tries to set up the next break higher. Energy is still working on the recovery and SP600 is holding as it does and looks to be priming for the next break higher.
DJ30
Lots of talk about Dow 13,000, but once more it was all talk as DJ30 tapped the November/February trendline in the high (12,990) and faded back on some rising, average trade. It is still having trouble getting back into the channel, content for now to ride higher just below that level. It is hard for a stock or index to recover back into a channel (making SP500's move rather impressive), and even with the Dow's strength it is showing that to be the case. That has to keep you on the alert for a reversal, but you also have to like the upside volume DJ30 has shown on this move. Thus while it is bumping into the former channel and not making the break, it is hardly showing weakness.
Stats: +34.54 points (+0.27%) to close at 12953.94
Volume: 238M shares Tuesday versus 223M shares Monday.
DJ30 CHART: http://www.investmenthouse.com/ihmedia/DJ30.jpeg
WEDNESDAY
The economic data gets even more interesting with durable goods, new home sales and the latest iteration of the FOMC minutes. Recall last month the minutes threw a wrench at the market and sent it lower for a few sessions as the Fed was more bearish than indicated. Layered on top of that is the continuing barrage of earnings reports. After hours they were flying again with AFL, AMZN, ZRAN (chips), ILMN (biotech), DXPE (industrial equipment) - - quite a wide range - - beating. CYMI (chip equipment), EXBD missing. The winners are treated well, the misses are hammered.
Thus far tech is still unable to really get the results that break it out. TXN was strong but JNPR was light (though it did recover much of its losses). Industrials are the real winners, particularly those with the overseas exposure where they enjoy sales with some of the more rapidly growing economies as well as some of the currency exchange benefits. The bottom line across the market, however, is that earnings and the outlooks are quite better than expected. Thus we are in a situation where even though earnings are lower overall, they are handily beating expectations and thus the market is rising after pricing in those lower expectations. This was the upside surprise we wrote about as the best hope for further market upside, and thus far it is playing out.
Earnings season can be a fickle mistress, however, as alluded to earlier. What is greeted with excitement early on turns to 'so what?' as the season wears on and investors become somewhat ambivalent to all but the really blowout results. Thus we were not too interested Tuesday in stepping into a bunch of positions reporting results over the next couple of sessions. One, the moves were simply not that great, i.e. showing a lot of buying that indicates strong support and perhaps some inside information. Two, the response to earnings has been 'gee they are better than expected' and has generated buying. There is typically the next shoe to fall, i.e. the point where earnings no longer generate that excitement. That is where the market typically makes its test and sets up the next move after the initial excitement and run higher on that excitement wears off.
Thus with a lot of theses blasts higher on earnings we can be patient and let them test and set up the next move. If the buyers are still going to be there they will set up and then resume the move. We are thus trying to focus on stocks that have already announced and are setting up their next moves. Energy is still setting up to run again after leading higher and we will look to pick up more as they start back up. There are many times to buy into a move, and if we see a stock in great position after already announcing earnings, that takes a lot of the earnings risk out of the play. As NASDAQ bumps against the prior high and the indices try to consolidate that last move and may try another pullback, these stocks that have already tested will be in place to move higher and leas as the market makes its test.
Support and Resistance
NASDAQ: Closed at 2524.54
Resistance:
2531.42 is the February high (post-2002 high)
2534 is the December/January up trendline
Support:
2523 is price resistance November 2000
The July/August trendline at 2510
2509 is the January 2007 high
The 10 day EMA at 2506
2471 is the December 2006 high
2468.42 is the November 2006 high
2460 is the March high
The 50 day EMA at 2458
2405 is the 'hump' high
2400ish from the late November and late December 2006 lows.
S&P 500: Closed at 1480.41
Resistance:
1496 is a peak from July 2000
1500 from April 2000 peak
1520 from the September 2000 peak
1528 close, 1553 intraday from March 2000 all-time index peak
Support:
1478 is the late November to February up trendline
1475 from peaks in December 1999 and January 2000
The 10 day EMA at 1468
1461.57 is the February 2007 high.
The 18 day EMA at 1457
1440 is the mid-January high
1439 is the March high
The 50 day EMA at 1437
1432 is the December 2006 high
1425 is an interim high from November 1999
1410 is the 'hump' high
1408 is the November high
Dow: Closed at 12,953.94
Resistance:
12,994 is the former up trendline that marks the channel.
Support:
12,796 at the February 2007 and all-time high
The 10 day EMA at 12,791
12,700 is the early February peak intraday high
12,623 is the mid-January high
The 50 day EMA at 12,531
12,511 is the March intraday high.
12,499 is the December intraday high.
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 24
Consumer Confidence, April (10:00): 104.0 actual versus 105.0 expected, 108.2 prior (revised from 107.2)
Existing home sales, March (10:00): 6.12M actual versus 6.50M expected, 6.68M prior (revised from 6.69M)
April 25
Durable goods orders, March (8:30): 2.5% expected, 1.7% prior
New home sales, March (10:00): 890K expected, 848K prior
Crude oil inventories (10:30): -994K prior
Fed Beige Book (2:00)
April 27
GDP, Q1 advance (8:30): 21.8% expected, 2.5% prior
Chain deflator (8:30): 3.2% expected, 1.7% prior
Employment Cost Index, Q1 (8:30): 0.9% expected, 0.8% prior
Michigan sentiment, revised, April (10:00): 85.5 expected, 85.3 prior
End part 1 of 3
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