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money investment, investment help
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5/05/07 Investment House Alerts Report
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IH Alert Subscribers:
MARKET ALERTS:
Targets hit alerts: CELG; CROX; PCLN TRMB
Buy alerts: GVA; ROSE
Trailing stops: None issued
Stop alerts issued: None issued
SUMMARY:
- Jobs report not too hot, not too cold and stocks cap another upside week.
- Solid week of economic data, and the lagging jobs report doesn't change that. Indeed, ECRI says things continue improving
- Sentiment still has negative aspects even with the market gains (short interest remains high).
- Earnings season hardly over, but the impact softening as market looks toward what is next.
The news was good enough (and it doesn't take much) to bring more money in.
Another week that had a bit of everything. A sell off to start, an intraday reversal the next session, a further rally to more new highs, mergers, better economic data, and of course, earnings. Even with all of the news, after that Tuesday reversal it did not seem to matter much what hit the tape. The end of April profit taking abated as quickly as it showed up and new money used the pullback to rush in.
The continuing theme back for another week was a snowball of positives: better earnings, better economic data, merger excitement, and that ever present flow of money that is seeking higher returns. It built on itself so much that by the shank of the week a lot of traders were quite worried about the advance. It is certainly extended on this move, but as we have seen, a market can get very extended before it corrects. Indeed, there was an interesting though subtle shift last week: NASDAQ, while still lagging its NYSE cousins, started to show signs of leadership. It was not flashing outsized gains, but in terms of volume and breadth it outpaced the other indices. If NASDAQ is going to take the reins and run some, that gives the other sectors that led the move time for some R&R so they can set back up for another run.
As for Friday specifically, the jobs report hit the right chords: a bit softer on the headline with February and March written down a combined 26K, but average hourly earnings rose a less than expected 0.2% versus 0.3% anticipated. That put the yearly gain at 3.7% and just about on par with the March 2006 low at 3.6%. Unemployment ticked higher to 4.5% from 4.4% as expected. Investors view this as inflation friendly, but as we all know, jobs lag the real time economy. Nonetheless, the softening made most figure the Fed was indeed out of the tightening picture, but the other data for the past two weeks also showed some nice improvement as the economy picks up speed as it comes out of the slowdown that started in the last half of 2006. That is what the market has rallied in advance of, and the data are starting to bear some of that out (along with the better than expected earnings after expectations were discounted far too much).
Nonetheless, after a solid week the sellers did take a shot at the market. The early rally was sold with NASDAQ giving up 15 points from its high. That pushed stocks negative, but then a slow but steady afternoon recovery brought things back to positive at the close.
Technically Friday was a mixed session with NASDAQ rising to a new post-2002 high on stronger volume but the NYSE indices rising on lighter trade. There is worry voiced by many traders that the market is overextended and looking for a correction. There is talk this is a blow off run given the seemingly relentless move higher. Volume is rising, but it is not shooting higher that such a top would indicate. Those occur when volume surges as late comers race to get in and avoid missing out. The early money uses those buyers to unload their shares. Prices and volumes zoom until the one side or the other is done. Then like the coyote realizing he has run out of road on the cliff, the market plunges.
The market may be a bit tired, but as noted, NASDAQ's action showed some emerging leadership, aided by SOX' 1.05% gain. Indeed, NASDAQ showed better volume strength on the week's gains, with that help from SOX. Thus while the move is somewhat extended in its fifth week after the breakout, if there is rotation into some of the sectors that simply followed along off the March double bottom the move can ride higher on some new backs. NASDAQ was stronger all week as the price/volume action showed. Again, no huge gains but NASDAQ's technical strength gelled nicely.
THE ECONOMY
ECRI leading indicators (economy and inflation) continue to bode well.
We hate to sound like a broken record regarding leading indicators, but lets face it, the market looks at leading indicators for its real moves, not the historical review the government reports give us. And as we have seen, it is a history subject to many and substantial revisionist interpretations.
Given that, we just have to mention the latest ECRI data as it continues to indicate improvement just as it did during the recent dark period when many though the economy was ready for the Nestea plunge. All along we maintained that the economic slowdown was mid-cycle slowing and would stay that way as long as we did not actively impede it with tax hikes, trade barriers, and the general foolishness that can emerge from the politics of D.C.
In any event, the latest readings are again quite positive. The leading indicators rose once more, hitting 142.4, up from 141.1. Annualized growth surged to 4.4% from 3.6%, the highest in three months. The pace of growth slowed early in the year, but it kept plugging away, and is once again growing faster.
Is all of that growth spurring inflation? No. As we discussed last week, growth is not inflationary. Bad monetary policy and overregulation are inflationary. Growth gives you a cushion against inflation because a growing economy produces the goods and services demand requires. It gives bad policies a chance to work out by producing more items in an attempt to satiate overheated demand that bad monetary policy creates. After screwing the pooch in monetary terms, the Fed is typically only left with the choice of killing off all activity in order to start from scratch. We have compared it in the past to the Fed's heartworm treatment for the market: it makes it so sick it almost dies, hoping that will kill the inflation. Then it tries to revive it with rate cuts and increased money supply.
In any event, even with an expanding (though slower) economy and expanding money supply (rising for several months), leading inflation indicators show continued falling inflation pressures. Falling pressures mean falling actual inflation. Seems simple, but it is typically confused in discussions of where inflation is heading. The FIG (Future Inflation Gauge) fell to 116.6 from 118.6. This continues a trend lower from October 2005 that has seen inflation pressures falling. That does not mean inflation itself has dropped but that it is going to fall as pressures decline. This continues to be, along with the rising economic indicators, very positive news for the market. Yes Virginia, you can have your cake and eat it too. That is, unless Congress decides to take the cake and tax you for it as well.
THE MARKET
MARKET SENTIMENT
NYSE short interest hit 7 in late April, basically matching the January 2007 and the September 2006 peaks. It bounced modestly lower from that level this month, but the point is, the market rallied well as short interest hit those prior highs. Even with the decline it remains at 6.76, a relatively high level.
VIX: 12.91; -0.18
VXN: 16.59; -0.01
VXO: 12.66; -0.12
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: +6.69 points (+0.26%) to close at 2572.15
Volume: 2.308B (+3.2%). Volume was solidly above average Friday as NASDAQ posted a gain. This week it was no expiration or month end. It was just another Friday in the market, and volume was solid. NASDAQ has shown solid price/volume action the past two weeks, i.e. up on up sessions and down on down sessions. That is the internal relative strength it is showing.
Up Volume: 1.504B (+88M)
Down Volume: 771M (-22M)
A/D and Hi/Lo: Advancers led 1.33 to 1. Very interesting breadth. NASDAQ 100 closed flat but it was negative much of the session even as overall NASDAQ was positive. That shows another positive technical indication for NASDAQ, i.e. the strength spreading out from the large cap techs that led the NASDAQ higher as NASDAQ tagged along with the other indices.
Previous Session: Advancers led 1.02 to 1
New Highs: 189 (+25)
New Lows: 53 (+5)
NASDAQ CHART: http://www.investmenthouse.com/ihmedia/NASDAQ.jpeg
Gapped higher to end the week, overcoming that Monday dump lower to the 10 day EMA. It tapped the 18 day EMA on the low Tuesday and it was all upside after that with a couple of new post-2002 highs to end the week. A bit iffy Friday with a hanging man doji. On this run those have indicated a pullback to test near support. NASDAQ has approached the upper channel line this week, and combined with the doji present a stronger argument for yet another test as it makes these short hops up the near support at the 10 and 18 day EMA.
SOX (+1.05%) was a major contributor to that NASDAQ relative strength this week. SOX broke out from its 6 month range last week, tested it with a doji at the 10 day EMA on Tuesday, and then surged back up to end the week, just missing a new post-breakout high. The semiconductors are stirring with life signs and that is helping drive NASDAQ.
SP500/NYSE
Stats: +3.23 points (+0.21%) to close at 1505.62
NYSE Volume: 1.532B (-3.38%). Volume slipped below average as SP500 tested higher Thursday and Friday. Opposite of NASDAQ that showed strength into the weekend.
Up Volume: 919.376M (-91.313M)
Down Volume: 594.708M (+40.745M)
A/D and Hi/Lo: Advancers led 1.45 to 1
Previous Session: Advancers led 1.34 to 1
New Highs: 306 (+52)
New Lows: 20 (+6)
SP500 CHART: http://investmenthouse.com/ihmedia/SP500.jpeg
SP500 hit 1510 on the high, just off the upper trendline (near 1513) of the old uptrend channel. It backed off on the close, giving up more than half the session gain. With the lower volume that suggests SP500 is going to make another pullback in this run. After 4 bounces off the 10 day EMA on this move you have to watch if a pullback gets some volume that could turn the pullback into something uglier. There is growing concern among traders based on this technical action, and it behooves us to be aware of the lifecycle of this move; it is extended and that always raises the potential for a deeper test. Thus far the liquidity has not allowed it.
SP600 (+0.47%) broke to a new all-time high Friday, clearing the 431 level we wanted to see it take out. Volume was not great on NYSE so the move has some drawbacks, but it has been hard to argue with results in this rally despite technical indications that were from time to time questionable. Small caps continue to advance to new highs, and if you want an argument to counter the economic slowdown one, this is a very good place to start.
DJ30
The blue chips rallied to another new all-time high just as with the small caps. What a great market; the large caps and the small caps peacefully coexisting as they rise to new highs. DJ30 remains above its up trendline marking the top of the channel. Plowing new ground here, and as noted Thursday you can argue the move over the channel line indicates it has run too far in a short period (500 points since clearing the February high; 1000 points following the breakout). In any event, on this run it typically gets 4 or so upside moves after the bounce starts before testing. That would put it just about there.
Stats: +23.24 points (+0.18%) to close at 13264.62
Volume: 236M shares Friday versus 247M shares Thursday. Declining volume Thursday and Friday similar to SP500 as the move extended.
DJ30 CHART: http://www.investmenthouse.com/ihmedia/DJ30.jpeg
FRIDAY
The jobs report is now out but the economic data does not slow that much. The FOMC releases its next iteration of monetary policy on Wednesday, retail sales and PPI follow on Friday. More earnings of course as CSCO and the growing cadre of May announcers attempt to wow the market.
Still plenty of earnings, and they could just continue surprising and pushing the market higher. As noted last week, however, there is a lot of good news in the market already, and though the market rose Friday, outside of NASDAQ and SOX the moves were weak. In other words, the leaders were a bit weaker (not en masse; just overall technically weaker), and that often precedes a pullback to test. Nothing indicates it would be more than that even with the trepidation many traders are voicing. Indeed, that trepidation is somewhat of a contrary indicator as that wall of worry keeps baiting the market higher.
We pared some positions the past week and we took some good gain as plays made good moves. We left many running higher in their uptrends, having taken some gain already and letting the positions work higher for us. Many stocks are well into runs and are not in good buy positions. Others that had a tough week to ten days pulled out of it and continued higher (e.g. RIO). That leaves fewer pickings for new breakouts, but as noted, there are laggard groups that are setting up to move higher, and they are from a variety of sectors from tech to healthcare to energy to retail. We will be ready for them if the money continues to move their way and starts them on some breakout moves.
Support and Resistance
NASDAQ: Closed at 2572.15
Resistance:
2875 from a July 1999 peak
2581ish is the top of the November/February channel
2887 from a September 1999 peak
2920 from an October 1999 peak
Support:
2554 is the November/February up trendline
The 10 day EMA at 2545
2531.42 is the February high (post-2002 high)
2523 is price resistance November 2000
The July/August trendline at 2528
The 18 day EMA at 2526
2509 is the January 2007 high
The 50 day EMA at 2484
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 1505.62
Resistance:
The upper trendline of the channel at 1513
1520 from the September 2000 peak
1528 close, 1553 intraday from March 2000 all-time index peak
Support:
1500 from April 2000 peak is breaking away
1496 is a peak from July 2000
The 10 day EMA at 1490
1485 is the late November to February up trendline
The 18 day EMA at 1480
1475 from peaks in December 1999 and January 2000
1461.57 is the February 2007 high.
The 50 day EMA at 1453
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 13,264.62
Resistance:
Again broke to a new high, surpassing resistance.
Support:
13,228 is the upper channel line in the November/February channel
The 10 day EMA at 13,104
13,075 is the former up trendline that marks the lower channel.
The 18 day EMA at 12,970
12,796 at the February 2007
The 50 day EMA at 12,704
12,700 is the early February peak intraday high
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.
May 7
Consumer Credit, March (3:00): $4.5B expected, $3.0B prior
May 8
Wholesale inventories, March (10:00): 0.4% expected, 0.5% prior
May 9
Crude oil inventories (10:30): 1.17M prior
FOMC policy statement (2:15)
May 10
Initial jobless claims (8:30): 320K prior, 305K prior
Trade Balance (8:30): -$60.0B, -$58.4B prior
Treasury budget, April (2:00): $135B expected, $118.8B prior
May 11
Retail sales, April (8:30): 0.4% expected, 0.7% prior
Retail Ex-autos (8:30): 0.4% expected, 0.8% prior
PPI, April (8:30): 0.6% expected, 1.0% prior
Core PPI (8:30): 0.2% expected, 0.0% prior
Business inventories, March (10:00): 0.2% expected, 0.3% prior
End part 1 of 3
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