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world stock market, us stock market
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5/03/07 Investment House Daily
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SUMMARY:
- Earnings influence wanes a bit as economic data continues pushing stocks higher.
- Jobless claims dip once more.
- ISM Services posts solid, steady advance.
- Jobs report caps a week of better than expected economic data. After better than expected earnings, is good news saturation ready to set in.
When in doubt, the market rides higher.
Once more there was some concern on the trading floors and in brokerage houses as to the sustainability of the latest move higher. After a month of gains to new highs and then the quick rebound from the Monday selling, there is some basis for that concern. When a market rises at a 45 degree angle, it eventually has to correct. The longer it goes without any significant correction the more anxious traders get. With the February/March correction just a babe at 4 weeks, the 5 week run on the breakout is another reason for some amorphous general worry.
Once more that worry was either put aside or it helped fuel another market rise. There were other stories at work as well, however. Earnings continued in the recent on again, off again fashion with Thursday more of the 'off' variety. CELG missed, UBS missed (citing US mortgage issues), AGU guided lower, MGM missed, TSO missed, and TLB warned. Just about every sector was represented with a miss or a warning.
The economic data was on the sunny side of the street. It has definitely taken the 'on again' side after early 2007 was rather grim as the economy's slowdown from the second half of 2006 bottomed. It was just a bottom, however, and not a bad looking one at that. The leading data released over the past couple of weeks have definitely taken on a positive tone. Thursday continued that trend with jobless claims falling to 305K, productivity jumped above expectations and was revised higher as well. The ISM Service report blew past expectations. Sure has the look of a recovery after what was a mid-cycle slowdown.
The market took it that way though there was that gain-induced angst that appears from time to time when traders don't really know why the market keeps going up and they start fearing what lurks around the next corner. Kind of like Greenspan in the late 1990's when he was sure inflation was out there ready to pounce. His fear of what he could not see led him to commit economic hari kari supposedly for the good of us all.
Despite all of the concern and the jobs report Friday, the market managed to ride higher once more, following the path of least resistance yet again. It was a rocky start, but by midmorning the indices were positive. The sellers took a lunchtime shot and the indices turned mixed, but once again they failed to hold the line and stocks rebounded to match session highs. Another late selling attempt had some success, but buyers returned late once more. There was some concern heading into the jobs report, enough to keep the moves rather lackluster, but not enough for the sellers to overcome the upside momentum.
Technically the action was again bullish with some low to high action, but it was not as crisp. Volume was mixed with NASDAQ trade edging out the prior trade while NYSE volume faded. Breadth was flat. The indices pushed to new highs and new post-2002 highs, but the gains, while solid, were slowing once more. What do you expect? The market has rallied for over a month after breaking out from that short double bottom with handle that formed during the February and March trist with the downside. Whenever you combine a solid run with new highs and then some up and down trade, some angst sets in. That angst, however, along with a lot of money looking for action, actually helps keep the move alive. When everyone is buying with no fear of tomorrow, then you need to gird your loins or at least sell some positions.
THE ECONOMY
Jobless claims post second low of the year.
Remember the old days when the Greenspan Fed worried that jobless claims were approaching 300K and the 'tight' labor market would spark inflation? Now it is properly viewed for what it is: a sign of prosperity. You don't hear many complaints about low claims and near full employment. After years of complaining about the jobs situation, even the most political of our politicians are not really grousing about the job scene other than getting off some hip shots about outsourcing and job quality. With the national headhunters lamenting the dearth of qualified applicants for high end positions, however, those sour grapes don't play too well in most of America.
What the jobs report showed was 305K jobless applications versus the 325K expected (the 'ante' amount that is tossed on the table each week in the absence of some compelling evidence the jobs picture will change). That was down 21K from the prior week. Continuing claims fell 93K to 2.495M. The 4 week average of claims fell to 329K, but that is above the 316K hit in March.
You can parse the numbers all you want. What they show is a jobs sector that is still in good shape, still demanding workers, and is able to fill the positions for the most part. This is also a more leading indicator than the unemployment report because this data is more timely. It is still a lagging indicator, but in the world of employment reports, it is closer to real time than the monthly job calculations.
ISM Services follows manufacturing lead, posts strong gain.
After dipping to 52.4 in March the services sector quickened its expansion pace once more, getting back into the groove of the prior months. One data point such as March is never reason to call a turn, particularly when it is an outrider with the trend. If the trend resumes and buries that outrider all by itself, you can forget it. That is likely the case with March. Even as an outrider, however, it was still easily above the 50 level that marks expansion/contraction.
New orders rose to 55.5, employment rose to 51.9, and inventories were steady at 50. Exports jumped to 55.5 from a rather low 48.5 in March that was likely an erroneous reading. Prices held steady at 63.5, but the past two months jumped into the sixties from the fifties as energy prices recover.
As with the other reports you can parse it to death, looking for pending collapses, but the end result is you have continued expansion though at a moderating pace, particularly during the second half of 2006 through the first part of this year. There should be an acceleration of growth as the year advances, though it will not be at the heady levels from 2005 (78+) are not likely to be threatened. At this stage of the economic expansion any uptrend is a good uptrend.
THE MARKET
MARKET SENTIMENT
VIX: 13.09; +0.01
VXN: 16.6; -0.1
VXO: 12.78; +0.25
Put/Call Ratio (CBOE): 0.88; +0.07
Bulls versus Bears:
Bulls: 51.7%. Bearly bumped higher, but given the market's gain, the modest rise from 51.1% was something of a surprise. Moving basically laterally, down from 52.7% two weeks back though up from 49.5% and 45.5% just a month back. Hit 53.3% on the recent high. Bulls bottomed in the summer 2006 near 36%.
Bears: 24.7%. Bears predictably declined, moving down from 26.1% the week before. Hit 27.5% a month back and 25.8% the week before that. The rally has taken the bears down from the recent highs near 29 (28.4% and 28.9%), but 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: +7.62 points (+0.3%) to close at 2565.46
Volume: 2.236B (+3.12%). Volume rallied back up as NASDAQ put in another gain. That shows a bit more accumulation after that Tuesday reversal on strong volume.
Up Volume: 1.416B (-335M)
Down Volume: 793M (+397M)
A/D and Hi/Lo: Advancers led 1.02 to 1. Hardly impressive, but Wednesday was solid on that advance.
Previous Session: Advancers led 2.26 to 1
New Highs: 164 (-7)
New Lows: 48 (-5)
NASDAQ CHART: http://www.investmenthouse.com/ihmedia/NASDAQ.jpeg
NASDAQ wrung out another gain, extending the recovery from the Monday sell off and Tuesday reversal. Moved to a new post-2002 on the session, basically brushing past that hiccup to start the week. That keeps NASDAQ above its trendline and in the former (now current) channel. The action is not all positive, but it is a solid trend, rallying up the 10 day EMA as each time some selling starts there is some new money to move right back in and pick up stocks.
SOX (+0.40%) posted another gain but closed well off the session high. It is still in the rebound from the breakout test, but the action was not as strong. Still set up well to continue the break higher after this test of near support after clearing that six month lateral trading range.
SP500/NYSE
Stats: +6.47 points (+0.43%) to close at 1502.39
NYSE Volume: 1.586B (-5.58%). Volume faded to average as the NYSE indices continued their advance. Lower trade suggests a slowing advance, but as noted Wednesday evening, the volume leading into this session was not bad at all, still solidly above average on the advance.
Up Volume: 1.011B (-361.837M)
Down Volume: 553.963M (+260.472M)
A/D and Hi/Lo: Advancers led 1.34 to 1. Not much life today, though as with NASDAQ, the Wednesday action was solid as the advance renewed itself.
Previous Session: Advancers led 2.89 to 1
New Highs: 254 (+19)
New Lows: 14 (-157)
SP500 CHART: http://investmenthouse.com/ihmedia/SP500.jpeg
SP500 again pushed higher, clearing the late April peak and forging a new post-2002 high. It cleared a 100 level (1500) on the move, always something of a psychological boost. Volume was not soaring on this move, but as noted, it was solidly above average on the last stages of this run. Holding the trend, holding near support on the last move, it is hard to argue with this trend.
The small caps struggled once more, unable to move through 431 at the late April high, showing a doji in the candlestick chart. Still a question mark after coming back from a rough start to the week. Still needs to clear 431.
DJ30
Another new high though this session was an inside session, meaning it traded within the Wednesday high and low. Lower though above average volume. This combination after a run warrants some attention as the move following this indication typically sets the next near term move for a stock or index. A 500 point move since clearing the February high. A 1000 point move following the breakout. It also moved above the top of the prior channel. That is a lot of a move in one run and it would not be surprising to see a pullback to test at any time. Thus far, however, money has stepped in at each pullback and pushed it higher.
Stats: +29.5 points (+0.22%) to close at 13241.38
Volume: 247M shares Thursday versus 251M shares Wednesday. Volume waffled a bit as the Dow broke to a new high the second half of the week.
DJ30 CHART: http://www.investmenthouse.com/ihmedia/DJ30.jpeg
FRIDAY
The jobs report is tops on the agenda, capping a week of stronger than expected economic data. Of course the jobs data lags other reports, and thus it may bring up the rear in more ways than just being the last report out for the week. Indeed, the expectation of 100K reflects jobs catching up with the slowdown that started in 2006, something that was not reflected in the 180K gain in March.
As for the market, it made more highs Thursday as if it had nowhere else to go but up. After recovering from the Monday selling the path of least resistance has definitely been up, and the success of the upside gains is the root of the concern about the next market move. Even with that there continue to be stocks at buy points as the market managed to bring to the fore many waves of stocks in position to move. One sector breaks higher and another gets ready. Moreover, it is not necessarily a sector by sector rotation. We see stocks in the same sector though different sub-sectors moving in rotation (e.g. energy with its drillers, refiners, E&P companies, service companies).
Thus though there is reason for some concern as to the continued longevity of this move, this conveyor belt of potential buys combined with the money seeking a home in the market has thus far fueled further gains at each pullback. The jobs report may be the piece of data that stalls the move for now even if it is good. When the market gets saturated with news that has driven the run, good or bad, the market stops reacting to the same way and the tide typically turns. Better than expected earnings and better than expected economic data have worked in tandem to push prices. The market is getting close to saturation, and indeed with earnings season heading toward the shank, you would expect that.
We will still look for good plays that present money making potential; there are plenty out there. It is time to be a bit cautious with new buys, and to continue taking some gain on good moves. If the market jumps higher on the jobs data, that is time to take more gain off the table and then see how the market tests. You don't have to take all of a position off if the trend is solid, but bank some gain. Despite the gains, stocks have turned a bit choppier of late, and what is here today may be gone tomorrow. If you take some gain you are in a position to deal rationally with what the market throws at you rather than the character building situation of having to emotionally handle a reversal when you are 'all in.'
Support and Resistance
NASDAQ: Closed at 2565.46
Resistance:
2576ish 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:
2552 is the November/February up trendline
The 10 day EMA at 2539
2531.42 is the February high (post-2002 high)
2523 is price resistance November 2000
The July/August trendline at 2525
The 18 day EMA at 2521
2509 is the January 2007 high
The 50 day EMA at 2480
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 1502.39
Resistance:
1500 from April 2000 peak is breaking away
1520 from the September 2000 peak
1528 close, 1553 intraday from March 2000 all-time index peak
Support:
1496 is a peak from July 2000
The 10 day EMA at 1487
1483 is the late November to February up trendline
1475 from peaks in December 1999 and January 2000
The 18 day EMA at 1475
1461.57 is the February 2007 high.
The 50 day EMA at 1451
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 13,241.38
Resistance:
Again broke to a new high, surpassing resistance.
Support:
13,205 is the upper channel line in the November/February channel
The 10 day EMA at 13,069
13,055 is the former up trendline that marks the lower channel.
The 18 day EMA at 12,936
12,796 at the February 2007
12,700 is the early February peak intraday high
The 50 day EMA at 12,680
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): 3.1% actual versus 2.1% expected, 1.4% prior (revised from 1.0%)
Crude oil inventories (10:30): 1.1M actual, 2.074M prior
May 3
Initial jobless claims (8:30): 305K actual versus 325K expected, 326K prior (revised from 312K)
Productivity, Q1 (8:30): 1.7% actual versus 0.8% expected, 2.1% prior (revised from 1.6%)
ISM services, April (10:00): 56.0 actual versus 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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