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world stock market, us stock market
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5/01/07 Investment House Daily
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Investment House Daily Subscribers:
MARKET ALERTS:
Targets hit alerts: None issued
Buy alerts: RS
Trailing stops: CMC; SPWR
Stop alerts issued: None issued
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SUMMARY:
- Market extends Monday selling but finds footing at near support, stages solid rebound.
- ISM logs solid gain, hints at recovery to come.
- Gasoline remains a summer obstacle.
- Earnings fail to provide same inspiration, but liquidity uses the disappointment to its advantage.
Earnings cannot inspire further upside, but market finds a bid anyway.
The morning ritual the past two weeks citing a string of stocks beating expectations altered Tuesday. Yes there was the usual string of stocks reporting earnings, but instead of 'beat' as the operative word, 'miss' was substituted. LIZ missed big. ADM posted a surprise miss. FRK missed. PG's guidance was cool. UA lowered its guidance. After all of those upside surprises the worm appeared to be turning, the other shoe ready to drop on the back half of the season and push the indices to a deeper test.
Futures remained higher, however, as the market moved into the open with a positive bias. It quickly stumbled as the indices turned negative. The stronger than expected ISM did not help, and with pending home sales contracts down 4.9% from February, what little starch left in the early action withered. SP500 undercut its trendline marking the bottom of the channel while NASDAQ fell through the July/August 2006 up trendline.
Once more the market found bottom around 10:30ET, but the rebound failed just before lunch. Another test lower held at the early session lows and a solid rebound ensued. NASDAQ bounced off its 18 day EMA, DJ30 bounced off its up trendline. We indicated in an early afternoon alert that an intraday double bottom was setting up, but it had to show the break over the midmorning rebound high. It did just that with a little over an hour and one-half left in the session. That really put a bid in the market and the indices ran higher into the last hour. The sellers tried to come back in, but they were rebuffed as the indices closed near their session highs.
Technically the action was solid, somewhat the reverse of Monday that saw some quarter end selling push stocks lower on rising trade. The indices sold, tested support, then rebounded to close positive across the board and near session highs. Volume spiked up as the indices reversed and turned positive. Seems as if some of the money picked up on the Monday sales was finding its way back into the market Tuesday afternoon. Very solid reversal trade showed the buyers moving in as the indices tested and slightly undercut near support. Breadth ran negative all session but then swung positive late. It was no blowout but it always lags a bit in a reversal of any type.
The important points from the action: the hold at near support; the bid remaining on each dip; the rebound to close near the high; the high volume on the rebound showing buyers actively buying. It was not much of a pullback to test the last jump higher as once again the money was there after just a day and one-half of downside. At least SP500 can say there were 3.5 days of consolidation or pullback as it posted modest losses to end last week before dumping lower Monday. That puts a bit better spin on calling it a 'consolidation,' but the underlying theme is money waiting for the opportunity to move in, and it did not take much of a pullback to provide the perceived opportunity. The unfortunate occurrence was that once more the market found support and rallied without really putting in any kind of significant pullback following such an impressive April run. Nothing new with this market, however.
THE ECONOMY
National ISM throwing in with regional PMI's, looking at brighter times ahead.
The ISM and regional PMI manufacturing surveys are just that: surveys. They are a mixture of some hard numbers as well as business sentiment about the future. Thus you don't want to assume that a higher number is a sign of surefire, actual improvement, but it is an indication of what businesses are planning to do barring some unforeseen, ugly event.
More than that, it is a leading indicator because it tells us what businesses see and what they are going to do about it. While the consumer sentiment surveys are often more of a 'say one thing, do the other' report, and while we don't put a lot of stock in how CEO's feel, the purchasing managers reports are a pretty reliable indicator of the future economic activity. Back in late 2002 and early 2003 we saw these surveys bottom and start modest recoveries. They were one of the leading indicators we utilized in concluding that the economy had indeed turned from contraction to expansion even before the PMI reports hit the magic 50 levels. The internals of the reports showed the turn was made and taking hold.
Thus the trend in the Chicago report released Monday and the action in the national report is quite promising. Overall the report jumped to 54.7 from 50.9 (51.0 expected). After a weakening trend that posted a couple of sub-fifty readings over the past six months, the trend has strengthened as purchasing managers look out past the current economic slowdown that started the second half of 2006. The result is a survey that reads sentiment at its strongest level in a year. That puts it prior to the slowdown and thus quite a solid reading.
The internals of the report are positive as well. New orders vaulted to 58.5, the highest since February 2006. Production rose to 57.3. Employment gained to 53.1. Inventories fell below 50, the only component below that level, but that only bodes well for the future as it shows any inventory excesses are just about gone, clearing the way for more production ahead.
Thus even with the 'hard' economic numbers such as business investment levels, factory orders, etc., companies are seeing stronger growth ahead. Indeed, the last read on business investment saw a nice swing positive after a series of consecutive declines. There can always be an event that upsets this outlook, and of course auto sales and the housing slump play their roles in keeping a lid on the rest of the economic activity.
Nonetheless, this report is very reminiscent of the 1995 period when the ISM came off of a decline during the mid-cycle slowdown resulting from the FOMC 1994 tightening. Indeed, the 1994 declines were greater than the current declines as they dropped to the 44 range before recovering. That splashes a lot of cold water on the idea that the current economic slowdown is on the order of a recession versus what it is, i.e. a typical mid-cycle cooling.
Gasoline bubble likely to cause some indigestion.
Even with the housing bubble, crash, recession or whatever you want to call it, the economy remains quite solid. Gasoline is much too high to start the summer, however, with futures surpassing levels hit post-Katrina and Rita. When some stormy weather approaches, gasoline prices will bubble higher and higher. That effect is the wildcard in the economic picture. We can pretty much predict the mortgage problem because we know when these mortgages were taken out and when the adjustment period is over. It will rise as a wave, peak, then descend.
With gasoline consumers have a hard time avoiding the problem. If you have a job, and from the look of the jobs market most do, you have to get to work. That means you have to allocate more of your disposable income into your vehicle's gas tank. That means less to spread around. It also means that consumers will cut back in times of uncertainty as to just how high prices will go, e.g. when a storm approaches the US. We do know that when prices hit $3 and above post-Katrina and again in the summer of 2006 that consumers did curb demand, finding alternative means of transportation.
That only goes so far, however. When prices hit $4/gallon this summer as a storm approaches there will be a change in behavior both in discretionary purchases and in gasoline consumption. A lot depends on how sticky the prices are. After Katrina and in summer 2006, prices fell rather quickly after the spike. When that occurs consumer demand is not negatively impacted longer term, meaning the consumer spending bounces right back as gasoline prices retreat. A lot is riding on how well the overtaxed refineries hold up during the peak demand season and whether any are knocked out of service by storms.
The ability to import post-storm.
One thing we did see after Katrina is how the market responds to the demand. When the three refineries went down in the twin storms the international response made a dramatic impact on prices. First, oil flooded over on tankers, more than replacing the production shutdowns in the Gulf of Mexico. Second, gasoline imports shot higher, and as it turned out we had so much gasoline that prices quickly plummeted. That piece of history is not talked about much in the television discussions of what will happen, but it is a key element in any recovery. Gasoline imports at high prices actually caused gasoline prices to fall due to the supply delivered.
Have a truly strategic reserve.
Thus, it is not all that bad having a lot of petroleum products produced in other parts of the world after all. That means we don't drain our reserves first. Why not drain the others capacity ahead of our own? Why not proceed with exploratory drilling and building delivery systems in those parts of the US that were specifically set aside almost 100 years ago for our future strategic oil needs such as the Alaskan Oil Preserve? We then know where the oil is and can produce it and deliver it in relatively short order when foreign supply is put in jeopardy. That gives us much better bargaining posture with respect to any geopolitical situations such as terrorists blowing up some Middle Eastern production or delivery systems. In combination with our SPR that would provide a nice cushion when events drive prices out of hand.
That still leaves the issue of refined product, and that is another story. There has to be enough refining capacity spread across the nation to handle demand in order to prevent a patchwork of prices. Right now there are not enough to handle regional demand adequately, and that means in crisis times there will be outages all across the country. The current regulatory set up does not make it cost effective to build new refineries: if you build it and product becomes plentiful, prices fall and then the cost of operating a refinery becomes oppressive. That is why so many have closed and none are built in their places.
That is why we will continue with this problem until we bite the bullet and spend a large portion of the dollars wasted on subsidies and corrupt programs as incentives to industry and entrepreneurs to develop viable alternative fuel vehicles that can still do an internal combustion engine's job. That doesn't mean ferrying a typical 4.5 person family to and from work and school but vehicles to haul heavy loads, yank stumps out of the ground, pull boats out of the lake, etc. Until alternative fuel vehicles are created that we can actually use in real life as opposed to some Hollywood types touting them as the solution to the problem (as they drive home to their 20,000 square foot homes that consumer more energy than a typical neighborhood), no appreciable dent will be made in the problem. In this environment of government subsidies, why not make some real use of the money?
THE MARKET
MARKET SENTIMENT
VIX: 13.51; -0.71
VXN: 16.94; -0.32
VXO: 12.86; -0.48
Put/Call Ratio (CBOE): 1.16; +0.21. Quick jump over 1.0 on a second day of selling even though the market managed to reverse and close positive.
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: +6.44 points (+0.26%) to close at 2531.53
Volume: 2.459B (+15.42%). Volume was up all session, but it was good to see it hold a very nice gain as NASDAQ reversed off of the 18 day EMA test and rallied to close positive.
Up Volume: 982M (+612.565M)
Down Volume: 1.463B (-289.569M)
A/D and Hi/Lo: Decliners led 1.07 to 1. Even with the reversal the decliners still led but it was a reversal session and breadth always lags, particularly as NASDAQ turned positive late in the session.
Previous Session: Decliners led 2.33 to 1
New Highs: 110 (-37)
New Lows: 109 (+8)
NASDAQ CHART: http://www.investmenthouse.com/ihmedia/NASDAQ.jpeg
NASDAQ sold off through the July/August up trendline intraday, but found its footing at the 18 day EMA. It used that to mount a 20 point afternoon recovery and close just over the 10 day EMA (2528) and above the February closing high. Similar to the test after the first week of April when NASDAQ tapped the 18 day EMA intraday and reversed into a new bounce higher. A good recovery Tuesday as well, but this rebound finds NASDAQ further down the road on this run. The new money for the month found its opening and pushed NASDAQ back up in a solid move. Now it needs to show some staying power as NASDAQ tries to assert some leadership.
NASDAQ 100 (+0.30%) more or less matched NASDAQ in the action but it started from a better position and easily held its breakout to a new post-2002 high before it rebounded.
SOX (+0.24%) recovered for a modest gain after a full test of the breakout from its 6 month trading range. It tapped at the 18 day EMA on the low and held the 10 day EMA on the close as well as the highs in the range. We said to keep a watch on this one and it looks ready to resume the move after the test, but that is not much different from the other indices other than it is just in tine beginning of its rally attempt.
SP500/NYSE
Stats: +3.93 points (+0.27%) to close at 1486.3
NYSE Volume: 1.776B (+3.82%). Nice volume as SP500 undercut its up trendline but then recovered to close positive. Solid shakeout and recovery as buyers came back in.
Up Volume: 978.518M (+634.58M)
Down Volume: 772.051M (-578.252M)
A/D and Hi/Lo: Advancers led 1.17 to 1
Previous Session: Decliners led 2.58 to 1
New Highs: 113 (-140)
New Lows: 41 (+5)
SP500 CHART: http://investmenthouse.com/ihmedia/SP500.jpeg
The large caps put on a very respectable show. Two sessions holding tough, a hard sell off Monday, and then an intraday reversal to close positive Tuesday on the best volume of the move. Held the trendline and the channel on the close as well. Not a bad day's work. Not much of a test overall, but it is hard to argue with the action: test of the trend it recaptured then a rally back on strong volume.
SP600 (+0.46%) posted a decent gain as it rebounded from losses as well, but unlike the other indices, its pattern still looks heavy. It managed to close just over the 18 day EMA, but that leaves it in little better position than the Monday close. The small caps helped lead this last move higher, and they are struggling.
DJ30
DJ30 faded modestly intraday, but it did not even test the November/February up trendline (now at 13,035) before rebounding back up in the uptrend channel. Hardly any test yet again as money found its way in once there was a test. Volume was lower and average on the move so not a big surge back into the blue chips.
Stats: +73.23 points (+0.56%) to close at 13136.14
Volume: 249M shares Tuesday versus 264M shares Monday.
DJ30 CHART: http://www.investmenthouse.com/ihmedia/DJ30.jpeg
WEDNESDAY
Factory orders, oil inventories (and more importantly, refinery runs) and more earnings are on tap Wednesday. Earnings, or at least the positive reaction to the results, looked to be waning somewhat Tuesday. The market had a chance to turn on stocks if it wanted to as it tested the April earnings rally, but new money for the month as well as the continued liquidity (the Wall Street Journal bubble liquidity) pushed the market back up. Often the second half of earnings season will show opposite action from the first regardless of direction once it gets the overall theme of the season. Again, it tried Monday and Tuesday to start a fade, even showing higher volume selling Monday. The money in the market, however, shoved it right back up when it had an opening.
That higher volume selling from Monday is still hanging out there, but the recovery Tuesday off the further selling was solid. Old money out on Monday as profits were taken, new money in on Tuesday as positions were snapped up on the pullback. That action gave some stocks a chance to test their moves once more and set up for the next run higher.
Thus even though the move may be extended in the short term, Monday saw some higher volume selling, and some stocks are indeed overextended and are struggling. Those are typically the early leaders that have put in some impressive runs and need a break. Nonetheless, there are still stocks in position to move higher, ready to take torch. At least that is the way they are set up. You never know if they will take it, drop it with concrete-like hands, or burn themselves with it until they show the move.
Overall things may be a little overdone after that April run higher, but not so much so that we cannot get into plays that will make us money while the early leaders test. There remains a lot of the WSJ bubble money out there that is ready to move in with each opportunity. That means it spreads out into other sectors, and as for instance copper cools it looks to semiconductors or healthcare.
The down Monday, and reversal Tuesday set up something of a rubber match Wednesday. As noted, money left Monday to end the month and book gains, and then was back Tuesday afternoon buying as new money was put to work. Now we see which move holds sway as the indices hold their uptrends.
Support and Resistance
NASDAQ: Closed at 2531.53
Resistance:
2531.42 is the February high (post-2002 high)
2550 is the November/February up trendline
2574ish 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:
The 10 day EMA at 2528
2523 is price resistance November 2000
The July/August trendline at 2522
The 18 day EMA at 2510 held the Tuesday low
2509 is the January 2007 high
The 50 day EMA at 2473
2471 is the December 2006 high
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 1486.30
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 1481
1480 is the late November to February up trendline
1475 from peaks in December 1999 and January 2000
The 18 day EMA at 1471
1461.57 is the February 2007 high.
The 50 day EMA at 1447
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 13,136.14
Resistance:
13,170ish is the upper channel line in the November/February channel
Support:
13,035 is the former up trendline that marks the channel.
The 10 day EMA at 12,990
The 18 day EMA at 12,863
12,796 at the February 2007
12,700 is the early February peak intraday high
The 50 day EMA at 12,635
12,623 is the mid-January high
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): 0.7% actual versus 0.5% expected, 0.7% prior (revised from 0.6%)
Personal spending, March (8:30): 0.3% actual versus 0.5% expected, 0.7% prior (revised from 0.6%)
Core PCE, March (8:30): 0.0% actual 0.1% expected, 0.3% prior
Chicago PMI, April (9:45): 52.9 actual versus 55.0 expected, 61.7 prior
Construction Spending, March (10:00): 0.2% actual versus 0.3% expected, 1.5% prior (revised from 0.3%)
May 1
ISM Index, April (10:00): 54.7 actual versus 51.0 expected, 50.9 prior
Pending home sales, March (10:00): -4.9% actual versus 0.4% expected, 0.7% prior
May 2
Factory orders, March (10:00): 2.1% expected, 1.0% prior
Crude oil inventories (10:30): 2.074M prior
May 3
Initial jobless claims (8:30): 325K expected, 321K prior
Productivity, Q1 (8:30): 0.8% 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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