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world stock market, us stock market
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4/28/07 Investment House Daily
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SUMMARY:
- GDP a downer but market hangs onto gains to close an important week.
- 2007 output starts softer as housing, trade deficit shave growth rate, offsetting solid consumer & business spending.
- Michigan sentiment tops expectations but continues trend lower.
- Earnings trend is solidly higher through the busiest week.
Fireworks mostly over by Friday as market coasts into the weekend.
Once more there was some adversity, some intrigue to try and upset the market. MSFT beat on earnings and was up, but there were a number of other techs (mainly chips) that missed, acting as a counterbalance. As for the economic side of the coin, GDP was rather crappy at 1.3%, the lowest growth rate since Q1 2003. After four years of solid growth the economy is taking a breather, thanks in part to the Fed, thanks in part to its own success.
After the solid surge midweek that continued the nice April advance this kind of news was enough to put most investors on the sidelines. It simply was not the kind of news to get investors running after stocks with their checkbooks out again. Quite frankly it would have been hard to top the excitement from earnings. Perhaps if the inflation component was weaker instead of stronger . . . but that is a moot point as inflation continued to skulk around in the shadows.
With that backdrop stocks still managed to open positive, and added some gain on the stronger than expected Michigan sentiment report (though still steadily lower the past several months). Once more, however, the midmorning dips hit, and the indices were negative by as the first hour ended. Once more, stocks bottomed and started a steady, albeit somewhat shakier, recovery well in to the afternoon. A last hour round of selling pushed the indices negative, and a late bounce could only turn NASDAQ and DJ30 modestly positive.
For the week, however, the action was solid once more. A Wednesday burst pushed NASDAQ to a new post-2002 high and back into its prior uptrend channel. DJ30 and SP500 moved back home as well, and in truth, they were the drivers of the week as the 'old economy' stocks of the 1990's are the new economy stocks for the rest of the world as noted Thursday. We heard more than one floor trader humming 'Back in the Saddle Again' to end the week.
Technically, it was just an 'end of the week after a gain' day: mushy. For the week it was excellent action: new all-time highs for the NYSE indices, new post-2002 high for NASDAQ, breaking back into the channels. The market continued to overcome potentially distressing news in favor of better than expected earnings. There was solid price/volume action as the indices broke sharply higher. There was big leadership from those 'old economy' stocks. There are more stocks setting up to move higher as the money moves through the market in waves.
There are still issues to confront the market though ignoring them has been in vogue this month as investors throw money at stocks. That is that 'head down' rallying we refer to when it doesn't seem to matter what the news is and stocks just continue higher. Oil is surging (closed at 66.46, +1.40 Friday with gasoline leading the push into our wallets). The dollar is falling hard (hit a new all-time low versus the euro Friday). No poor dumb government ever won prosperity by devaluating for its country. It won it by making some other poor dumb government's currency seem less valuable through policies that strengthen the economy and make the country a more desirable place to invest. Devaluating only fuels inflation. Any wonder inflation is not giving in? Aside from a weaker dollar, economic data continues to come in softer overall. Earnings are indeed much better than expected, but in the bigger picture they are still decelerating. Sure they are much stronger than thought this quarter, but that doesn't mean they will surprise again, particularly with the economy still slowing some. Indeed, a lot of the strength shown in Q1 results was found in the multinationals where currency played a role to the tune of 25% of the earnings.
Plenty of issues for sure, but the market is either rallying in anticipation of something better 9 or so months down the road, or it is just flat out overrun by world liquidity. Which is it? Yes. The market looks down the road to better times and the best long leading indicators such as ECRI still show a return to better growth later in the year. As for the liquidity, that is true as well. There is so much money running through the world's financial markets it only let the US stock market take a 4 week breather. The market always overshoots in the short term so there will be some deeper test ahead after this binge higher, but it can overshoot for quite some time before that happens.
THE ECONOMY
First run at 2007 GDP is basically par for the course.
Of course the expected par was 1.8% not the 1.3% that showed up Friday. 1.8% was almost in spitting distance of Q4's 2.5%; 1.3% is not even worth puckering up to give it a try. Prices were outlandish, up 4.0% on food and energy (core was up 2.2%).
To look for the drags on the number, just round up the usual suspects: housing (-17%) and the trade deficit as exports fell. Housing carved 1% off GDP and the trade imbalance skimmed another 0.5%, right off the top. Add it back in and you have a 2.8% reading. Hey, break out the bubbly; after a few glasses we can add everything back in and have a 4% growth rate.
On the positive side business investment rose 2%, nice to see a gain after the declines. Equipment and software rose 1.9% after a pitiful 4.8% Q4 decline. The consumer was great as well with a 3.8% gain on top of Q4's 4.2% rise. Gasoline is high, but wage growth and jobs are offsetting that for now. It will be interesting to see how $4/gallon gasoline impacts that this summer. Recall how post-storm 2005 prices hit over $3 and stalled demand for gasoline and curtailed some travel. It happened briefly in 2006 as well. That will make things very interesting in the Chinese curse way.
Michigan sentiment higher than expected but still lower than before.
In January the Michigan poll takers braved the cold to take the pulse of the US consumer. They found enough positive attitudes to push the results to a 2 year high. Gasoline had been on a decline since August 2006 and when gas is cheaper after a spike, consumers feel great. As gasoline jumps back up since January, sentiment has flagged. When petrol approaches $3 consumers get edgy. They don't clam up, they just get edgy.
Thus the April read was 87.1, down from 88.4, 91.3, 96.9 and 91.7. Steady trend lower, indeed a 7 month low, but expectations are up 12% from the August low, and given the rise in gasoline prices that is somewhat impressive.
Despite the trend lower, levels are still well within the range that shows continued consumer spending. The trend can always continue lower and take us into jeopardy (in the low 60's to the 50's), but there still is an awful lot of good news on the horizon to offset the economic worries of the past couple of months spurred by the sub-prime woes.
ECRI looks down the road, and as with the stock market, sees things it likes.
So much air time is spent on the economic future. The bears smell blood with the housing issues and with the Fed still in the game (at least with respect to its public image). Thrice weekly they are on the financial stations predicting a major meltdown. It just has to be. The consumer is tapped out after a buying binge. The decline in housing only exacerbates feelings of wallet impotency or purse envy. Gasoline prices will drive more nails into consumers' coffins. Earnings are declining. The dollar will implode. Inflation will spike. Foreigners will stop funding the US trade gap. The Bible talks of pestilence overtaking the world in the latter days, of seven signs of the end of the world. There are seven there that the bears cite with the regularity of someone on a high fiber diet.
The problem with those prognostications? There are at least hundreds of variables dealing with the above mentioned issues, and you can name as many countervailing issues that undermine those. These fellows cherry pick the ones that make their point and they repeat them as often as possible. Problem is, when you cherry pick with a foregone conclusion you are doing nothing more than relying on supposition based on incomplete data similar to Al Gore concluding we are the cause of the earth warming. Don't bring the sun into it; it is only the source of the heat and changes in its energy output directly impact our temperatures. Heaven forbid you include those changes in your calculations, especially when temperatures have dropped 0.04 degrees since 1978, after rising only 0.5 degrees in the past 50 years versus the 1 degree in the 100 years before that. Thus the world's temperature is not rising at a faster pace, but no one seems to be paying much attention to that fact.
The point: look at what works; look at what accurately tells the truth. ECRI has the best track record for predicting economic cycles. What does ECRI say right now on the week that pitiful Q1 GDP report was issued? The weekly gauge of activity popped to 141.6 from 140.4. The annualized growth rate rose to 4% from 3.6%. None of the ECRI data suggest the economy is going off the edge. Indeed, it still indicates, as it did early in the year, that there is growth out in the late summer and early fall after this mid-cycle slowdown. Could it possibly be this is what the market is building in? Well, yes.
THE MARKET
MARKET SENTIMENT
VIX: 12.45; -0.34
VXN: 15.46; -0.51
VXO: 12.05; -0.5
Put/Call Ratio (CBOE): 1.01; +0.18. Some nerves showing up as big money was buying some protection after this last run up through the prior highs. That is good. We could see a test that strikes up a bit more worry, and then a bounce from there.
Bulls versus Bears:
Bulls: 51.1%. Down from 52.7% the prior week in somewhat of a surprise downturn given the market run higher. Of course that week saw the energy sector test and the market struggled as it did. Thus the decline. Up from 49.5% and 45.5% just a month back. It hit 50.5% level a couple of months ago though below 53.3% on the recent high. Bulls bottomed last summer near 36%. That is the lowest level since September 2006.
Bears: 26.1%. That fade in energy brought some bears in as well as they rose from 25.3%. That is still down from 27.5% three weeks back. 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 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: +2.75 points (+0.11%) to close at 2557.21
Volume: 2.15B (-14.4%). Volume faded back close to average but was still above that level as NASDAQ basically held steady. Running out of a bit of steam to end the week, but after a break to a new post-2002 high the Friday action did not induce cold sweats.
Up Volume: 863M (-479M)
Down Volume: 1.157B (+18M)
A/D and Hi/Lo: Decliners led 1.59 to 1. Declining breadth on an upside day only means one thing: a few big names moved higher while everything else held steady.
Previous Session: Decliners led 1.07 to 1
New Highs: 163 (-29)
New Lows: 69 (+2)
NASDAQ CHART: http://www.investmenthouse.com/ihmedia/NASDAQ.jpeg
A pair of casual dojis in a row after that big Wednesday break higher as NASDAQ drifted higher to close out an important week. It broke back into its old channel, hit a new post-2002 high, and then held the gain ahead of the weekend. No giveback was very good to see; the sellers were not immediately on the button, trying to beat back the barbarian techs. We are looking for a test back this week as an important break over resistance is typically tested.
SOX (-1.54%) took the beating for the market Friday, posting the largest decline. After a strong breakout move on the week it is of course testing. It spent 6 months in the confines of that trading range and it would be impolite to just run away without coming back for a kiss goodbye. Thus a test toward 493ish is in order.
SP500/NYSE
Stats: -0.18 points (-0.01%) to close at 1494.07
NYSE Volume: 1.5B (-11.68%). After three above average volume sessions trade fell back below average as the large and small caps took a breather after a solid move. Precisely the type of action you want to see if an index has to take some time off.
Up Volume: 549.116M (-227.162M)
Down Volume: 911.232M (+2.384M)
A/D and Hi/Lo: Decliners led 1.31 to 1. Flat, as it should be given the index action.
Previous Session: Decliners led 1.14 to 1
New Highs: 210 (-111)
New Lows: 24 (-2)
SP500 CHART: http://investmenthouse.com/ihmedia/SP500.jpeg
SP500 closed flat, showing second doji after the Wednesday break higher into the prior up channel. It was so successful it moved into the top half of the channel and tested back. A bit further back toward that up trendline at 1478 and a hold there would confirm the break higher. Oh yeah, it hit a new post-2002 high on the week and is just 59 points from a new all-time high.
SP600 (-0.27%) struggled a bit more though calling it a struggle is an exaggeration. With lower volume and a steady move up the 10 day EMA plus a new break higher Wednesday to a new all-time high, it is looking very solid once more.
DJ30
DJ30 broke into its former channel as well, clearing the November/February up trendline (13,010) on Wednesday after bumping up against it for three sessions. Similar to SP500, it moved quite successfully into the channel and on the Thursday and Friday intraday highs it was almost bumping at the upper channel line. Thus the action slowed with some loose dojis as DJ30 felt its way higher. A test toward the up trendline on some lower trade and a hold there would show the break back through had some starch in it.
Stats: +15.44 points (+0.12%) to close at 13120.94
Volume: 271M shares Friday versus 251M shares Thursday.
DJ30 CHART: http://www.investmenthouse.com/ihmedia/DJ30.jpeg
THIS WEEK
Earnings results have ruled the market the past two weeks, hitting a crescendo this last week. Investors have pretty much ignored everything else after getting the economic worries out of their system in the February to March sub-prime et al scare.
There are more earnings this week; plenty more. There is also a full calendar of significant economic data: income and spending, ISM, Chicago PMI, factory orders, jobs report. Heady stuff, and with investors ignoring most things last week as they lapped up earnings and the indices breaking back into their channels, the market is likely to raise up and look around a bit at all of this new data.
The market ended the week with modest moves, looking as if it wanted to try and consolidate the last move in place once again. Each pause has been just that, a pause and then a move right back up. It has done that three times in April already. A burst higher one session, a drift up for a couple more, then a 2 to 3 day test before the next round. This is its fourth pause after one of those upside jumps.
The market cannot keep climbing at that rate forever without a deeper rest. Four or five such moves are typical before such a test. The key point on this move is not that much lower than the Friday close, however, as NASDAQ, SP500 and DJ30 all broke through their up trendlines and that is the key level for a test to hold. With the month-long run in April, that is a taller order. That is one reason we banked some gains on Friday if a stock was showing a bit of fatigue.
There are still plenty of stocks set up to move as of the Friday close. Those waves of good moves that have rolled through the market as the money hits are still forming. Some are setting up the breakout, some have tested prior moves and are ready to bounce, while others are ready to test after strong runs.
We will be ready to ride the new movers if the next wave hits. We suspect there will be an attempt to test the move above the trendlines before any further significant upside. The jobs report still holds sway, and with a week of action between Monday and the jobs tally, a test of those trendlines is on the short list of possibilities. We sure want to see how the market reacts to this break into the old channel. A test and a bounce on rising trade is what you want, and with the money moving in right now it is the odds on result. Thus, as noted, we will be ready to move in with new positions on current solid moves that are testing as well as new arrivals as the money spreads out.
Support and Resistance
NASDAQ: Closed at 2557.21
Resistance:
2570ish is the top of the November/February channel
2875 from a July 1999 peak
2887 from a September 1999 peak
2920 from an October 1999 peak
Support:
2545 is the December/January up trendline
2531.42 is the February high (post-2002 high)
The 10 day EMA at 2527
2523 is price resistance November 2000
The July/August trendline at 2519
2509 is the January 2007 high
2471 is the December 2006 high
The 50 day EMA at 2469
2468.42 is the November 2006 high
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 1494.07
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:
The 10 day EMA at 1480
1478 is the late November to February up trendline
1475 from peaks in December 1999 and January 2000
The 18 day EMA at 1467
1461.57 is the February 2007 high.
The 50 day EMA at 1444
1440 is the mid-January high
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 13,120.94
Resistance:
13,154ish is the upper channel line in the November/February channel
Support:
13,010 is the former up trendline that marks the channel.
The 10 day EMA at 12,934
The 18 day EMA at 12,804
12,796 at the February 2007
12,700 is the early February peak intraday high
12,623 is the mid-January high
The 50 day EMA at 12,596
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 30
Personal Income, March (8:30): 0.5% expected, 0.6% prior
Personal spending, March (8:30): 0.5% expected, 0.6% prior
Core PCE, March (8:30): 0.1% expected, 0.3% prior
Chicago PMI, April (9:45): 55.0 expected, 61.7 prior
Construction Spending, March (10:00): 0.3% expected, 0.3% prior
May 1
ISM Index, April (10:00): 51.0 expected, 50.9 prior
Pending home sales, March (10:00): 0.4% expected, 0.7% prior
May 2
Factory orders, March (10:00): 1.0% expected, 1.0% prior
Crude oil inventories (10:30): 2.074M prior
May 3
Initial jobless claims (8:30): 321K prior
Productivity, Q1 (8:30): 1.1% expected, 1.6% prior
ISM services, April (10:00): 53.0 expected, 52.4 prior
May 4
Non-farm payrolls, April (8:30): 100K expected, 180K prior
Unemployment rate (8:30): 4.5% expected, 4.4% prior
Hourly earnings (8:30): 0.3% expected, 0.3% prior
Average workweek (8:30): 33.8 expected, 33.9 prior
End part 1 of 3
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world stock market
us stock market
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