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4/25/07 Investment House Daily
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Investment House Daily Subscribers:
MARKET ALERTS:
Targets hit alerts: FCX; OMCL; WFR. Many just powering higher so continuing to let them run.
Buy alerts: MO; NVDA; SUN
Trailing stops: IVN
Stop alerts issued: AAPL (partial)
The market alert service is a premium level service where we issue intraday alerts relating to the general market conditions, when stocks hit action points (buy, stop, target, etc.), and when we see other information impacting the market or our stocks. To subscribe to the Daily alert service you can sign up at the following link:
http://www.investmenthouse.com/alertdly.html
SUMMARY:
- Indices powering to new highs on strong volume as the liquidity chase is in full swing.
- Money is sending stocks soaring with 1990's-like ferocity.
- Durables show a rebound in business investment.
- New home sales miss expectations but still manage to post a month/month gain.
- Volume ignites at new highs as money reappears and pushes stocks higher in waves.
Short lateral move unleashes another, stronger barrage of buying.
Even with strong gains last week in the bank, the market refused to give up any gains, coming back from early downside each session this week, pretty much brushing off potentially worrisome news (e.g. existing homes sales). Earnings kept coming in stronger than expected, and after that short pause to catch their breath, investors couldn't stand it any longer. With NASDAQ sporting the AMZN earnings that showed life after its obituary was written, the market exploded higher with NASDAQ breaking decisively over the February high. When NASDAQ moved over that level for the second time in the session after giving up the breakout early and energy joined in after its pullback, the buying surged.
Ironically, even though NASDAQ made an important move, it was the NYSE indices that lead the way higher as non-tech sectors continued impressive surges. DJ30 and SP500 sported 1+% gains while NASDAQ just missed out. SP600 and SP400 did not sit it out the move what with energy coming back to life, but they were lagging though they both moved to new all-time highs.
Technically the action was strong on most fronts though NASDAQ breadth was well out of line with the move. Regardless, volume jumped on both NASDAQ and NYSE with trade well above average on both indices as investors charged after stocks. Breakouts were plentiful as were rebounds from tests and continuations of strong moves. Volume, breadth (at least on NYSE), and breakouts. Hard combination to beat, and it is hard to argue with the new highs as well now that NASDAQ has joined in.
Strong money flow and shades of the mid-1990's
It is almost spooky seeing stocks such as $32 Wendy's zoom over $4 after hours on burger sales. That on top of massive surges in many stocks that don't conjure up images of single day, double digit moves. When you couple that with crazy talk that references the old days of NASDAQ 5,000 and the gusto on the financial stations you start to wonder a bit.
Just a bit. The climate was certainly ripe for upside earnings and guidance surprises to go to work on the market seeing how expectations were knocked well below reality. Good job to the companies; they managed investors and analyst expectations well and are reaping the reward. It didn't hurt a bit that many analysts bit on the idea that the economy was rolling over versus just a mid-cycle slow down in an otherwise continuing expansion. That gloom helped usher in the February and March dump lower that at least worked out some of the froth from that strong August to January run.
Moreover, as noted earlier this week, P/E ratios are still hardly higher than they were at the start of the recovery thanks to the strong gains in earnings. The fear was that would slow considerable and thus pump up the ratios, ushering in value sellers. As seen Wednesday, it this only engaged the buyers further. Indeed with expectations so low and the guidance so positive, investors are throwing their wallets at stocks.
Further, remember that things also appeared rather spooking in 1995 as the market surged higher without a break. Then in 1996 with just one hitch in the get along that July. Then in 1997, 1998, 1999. You get the point. Recall how many pundits in 1995 and 1996 (the year of 'irrational exuberance') talked of the internet craze/bubble that had to burst, how they were taking money off the table because of the inevitable fall to come. Of course after that NASDAQ rallied nearly 4000 points from 1995 to the peak. The only thing spooky was how they continued to fight the tape all the way up, listening to their CNBC interview taps and not listening to the market.
Sure things eventually became overdone as earnings growth simply could not keep up with the price appreciation and ratios in the 80:1 and 100:1 range were common on NASDAQ. Indeed, many had no P/E ratio because they had no earnings. That only became an issue, however, once the money ran dry. It didn't do that until the Fed drained the money pool and the effects of federal tax hikes were fully felt. The aftermath was grim, but up to that time the action was great. We have said it many times before: in the market your guts and emotions may tell you one thing, but the market has the final say. Thus it is best to listen to what the market says and act accordingly. That way you avoid that retro-angst many felt in the 1990's and some are going to feel now. Heck, we were not comfortable with the short base and the short correction, but when the market showed stock after stock saying 'buy me, we had to put aside doubts and make the plays. We have some huge ongoing runs in many positions and many recent positions are blasting higher. When money comes along it is best to follow along.
THE ECONOMY
Durable orders show spark of business investment.
Durables continued their volatile path, bouncing higher for the second consecutive month (3.4% versus 2.5% expected and 2.4% prior), sporting a nice February revision from 1.7%. Transportation was once more a key factor, but the move was more broad-based than in prior reports. Ex-transportation orders still rose 1.5% versus a 0.4% decline in February.
The nice surprise was a resumption of business investment as non-defense capital goods less aircraft jumped 4.7% over February. That was the largest increase since September 2004 when orders screamed 7.9% higher. It was the first gain for 2007 after -6.2% in January and -2.3% in February. Hardly a trend reversal, but at least a breath of fresh air to end Q1.
Durables remain in a softened position after peaking in mid-2006, just about the time the economy started this mid-cycle slowdown. It is too early to read much into the gain; you don't want to get one data point syndrome. Still, the stock market is surging, and while it typically overshoots near term, it is a good economic prognosticator. After a slowdown in the spring it is surging in anticipation of something better for the economy. Has some promise.
New home sales post a modest rise as foreclosure filings continue their surge.
New home sales rose 2.6% for the month, but that was down 23% year/year. Expectations were for an 890K annual gain, but the fell well short at 858K. Inventory rose close to 8 months. Lots of homes for sale, and as we noted before, there are still many projects that are yet to come on line, so inventories will rise over the next three months before it can start to really stabilize. Incentives among home builders range from free closing costs to free upgrades. Beats sitting on an empty house. Prices actually rose to $254K, up 6.3% year/year. That is going to head lower.
Even as home sales bounced month to month, mortgage foreclosures 27% in Q1 over Q4 2006. That is a 35% year/year rise. As is usually the case, when the mortgage market starts coming up with creative ways to get people into mortgages the peak has hit. It thus does not take long before those mortgage closing proceedings turn into foreclosure proceedings. We are in that process now as the last year or so of mortgages are the first to go in kind of a real estate version of accounting's last in, first out method.
THE MARKET
MARKET SENTIMENT
VIX: 13.21; +0.09
VXN: 16.36; -0.01
VXO: 12.58; +0.02
Put/Call Ratio (CBOE): 0.81; -0.39
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: +23.35 points (+0.92%) to close at 2547.89
Volume: 2.735B (+16.92%). Volume exploded upside as NASDAQ moved to a new post-2002 high. That is when you want to see the volume uncorked, and that is what NASDAQ showed.
Up Volume: 1.726B (+484M)
Down Volume: 981M (-82M)
A/D and Hi/Lo: Advancers led 1.46 to 1. Better breadth but still weak compared to the gains. NASDAQ 100 (+1.21%) was the strong while overall NASDAQ lagged.
Previous Session: Decliners led 1.21 to 1
New Highs: 202 (+55)
New Lows: 52 (-21)
NASDAQ CHART: http://www.investmenthouse.com/ihmedia/NASDAQ.jpeg
Much maligned AMZN provided the spark that finally helped spring NASDAQ to a new post-2002 high. It took that level on the open, gave it back, but then rallied back through and did not look back. It moved back into its former channel as it cleared the December/January up trendline (2542). Hard to find a lot of fault with this move. About the only thing is the breadth, but as NASDAQ is market cap weighted, that won't slow it down as we saw in 1996 to 1997 when a handful of stocks led higher to the detriment of most tech stocks.
SOX (+0.77%) lagged but put on its second gain of the breakout move from its 6 month range. As with other sectors there are some solid earnings reports beating expectations, e.g. TXN, XLNX. Chips are still lagging, but as with NASDAQ they are trying to play catch up.
SP500/NYSE
Stats: +15.01 points (+1.01%) to close at 1495.42
NYSE Volume: 1.679B (+1.75%). Volume was not up as big as on NASDAQ, but volume was already solid Tuesday and posted another strong session as the NYSE indices carved out new highs.
Up Volume: 1.36B (+596.457M)
Down Volume: 306.096M (-565.82M)
A/D and Hi/Lo: Advancers led 2.37 to 1. Solid upside volume as large and small cap NYSE stocks moved higher.
Previous Session: Decliners led 1.24 to 1
New Highs: 400 (+174). Solid. It should be with all of the indices clearing to new highs.
New Lows: 17 (-7)
SP500 CHART: http://investmenthouse.com/ihmedia/SP500.jpeg
No test Wednesday, just all upside as the large caps furthered the advance into the former channel, and before too long will be threatening the former upper channel line near 1500. It took just a quick pause before the large caps resumed the move. It always helps when the financials join in, but when you have WHR gaining $12 you know it is broad.
SP600 (+0.73%) broke above the week long lateral move, finally posting that new all-time after being perched on the edge. Energy definitely helped it resume the move as those stocks started their recovery from last week's test. Solid but still lagged the overall move. Hard to call SP600 a laggard, however.
DJ30
The blue chips exploded through that November/February trendline (13,005) on rising, above average volume. It was not the blowout volume seen last Friday, but it was a solid showing as the blue chips crashed the old channel and are in their way to the former upper channel line near 13,135ish. Just hard to find any fault with this run other than its own success.
Stats: +135.95 points (+1.05%) to close at 13089.89
Volume: 250M shares Wednesday versus 238M shares Tuesday.
DJ30 CHART: http://www.investmenthouse.com/ihmedia/DJ30.jpeg
THURSDAY
Economic data takes a day off Thursday ahead of the Q1 GDP preview on Friday. Of course, economic data, earnings, and foul weather could not stop the market of late. Maybe without some data tomorrow it will get bored. Earnings will keep things spicy, as some chip stocks and indeed just about every type of stock announces results. The point, however, is that despite some bad news the past couple of weeks, the market has ignored it and instead focused on the positives. We often say that there are times the market simply puts its head down and rallies regardless of the news. It has made up its mind about the future and the money then pours in, driving stocks higher. Once that round is over it will look up, check the lay of the land, and then decide if it wants to continue or take a moment.
After this kind of run it is hard to get jazzed up about a lot of positions given the runs some have already put together, but as we frequently note, when the market starts a strong run it continues to find new fuel to the upside as stocks breakout in waves. Thus as we saw with energy pullback back last week and the market struggling some, new players stepped up to the plate and ignited the next leg of the move. Wednesday energy started joining back in big time, and you can see the results. Most paddles were rowing together Wednesday, and things just fell into place.
These moves tend to feed on themselves as good moves beget more money to chase them higher. We still have to keep our heads and look at those stocks that are still in a decent buy position or are setting up to make their breaks. Notably absent from the Wednesday action were the medical and healthcare stocks. They were up ahead of this surge and are taking a bit of a breather, awaiting their next surge. We were looking at energy when it made its pullback and they were roaring again Wednesday. We will see what healthcare has to offer in the same manner.
In these kinds of moves many are tempted to chase the bus. There is no need to. A lot of money is flowing into the market, and it is pushing stocks in waves. We are looking around for the next wave to push some primed stocks higher, riding what the market is giving. We could have banked a lot of gain on Wednesday, but as noted in our alerts, so many are riding such good trends we are loathe to step in the way of a winner.
Support and Resistance
NASDAQ: Closed at 2547.89
Resistance:
2565ish is the top of the November/February channel
Support:
2542 is the December/January up trendline
2531.42 is the February high (post-2002 high)
2523 is price resistance November 2000
The 10 day EMA at 2513
The July/August trendline at 2512
2509 is the January 2007 high
2471 is the December 2006 high
2468.42 is the November 2006 high
The 50 day EMA at 2461
2460 is the March high
2405 is the 'hump' high
2400ish from the late November and late December 2006 lows.
S&P 500: Closed at 1495.42
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:
1479 is the late November to February up trendline
1475 from peaks in December 1999 and January 2000
The 10 day EMA at 1473
1461.57 is the February 2007 high.
The 18 day EMA at 1461
1440 is the mid-January high
The 50 day EMA at 1440
1439 is the March high
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 13,089.89
Resistance:
13,135ish is the upper channel line in the November/February channel
Support:
13,005 is the former up trendline that marks the channel.
12,796 at the February 2007 and all-time high
The 10 day EMA at 12,845
The 18 day EMA at 12,727
12,700 is the early February peak intraday high
12,623 is the mid-January high
The 50 day EMA at 12,553
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): 3.4% actual versus 2.5% expected, 2.4% prior (revised from 1.7%)
New home sales, March (10:00): +2.6% at 858K actual versus 890K expected, 848K prior
Crude oil inventories (10:30): +2.1M actual versus -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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