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us stock market, trade stock
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5/07/07 Investment House Alerts Report
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IH Alert Subscribers:
MARKET ALERTS:
Targets hit alerts: AH
Buy alerts: OSK
Trailing stops: None issued
Stop alerts issued: None issued
SUMMARY:
- Sluggish session, but NYSE continues on merger momentum.
- Gasoline prices top $3/gallon nationally
- Consumer credit surges: half full or half empty?
- Market sits atop a week's rally ahead of Wednesday FOMC meeting.
New deals for a new week continue the upward bias, but no big surge.
Last week NASDAQ tried to show some leadership, breaking to a new post-2002 high while showing some stronger breadth and volume than the NYSE. SOX tested the breakout from its range and started back up. Looked as if techs were finally going to lend a hand and take some of the load the NYSE had carried to this point.
Monday that was not the case. NASDAQ and SOX were the only two of the notable indices that closed lower. Instead, it was back to the NYSE to lead, and stocks were driven by more merger news. Alcoa made a hostile move at Alcan while UK-based BAE announced it was buying on one or our holdings, AH. With a lighter and somewhat mixed earnings calendar for the session (HANS missed, ETN and RCKY beat), that M&A news was the real driver for the session. It got the money flowing once more as investors speculated on all of the other metals stocks.
There was other news as well. Oil was lower once more (61.47, -0.46), closing at a 6 week low. Gasoline on the other hand hit $3.07/gallon as the national average for the week. The Lundberg survey suggests that prices are peaking right now. That survey is usually very accurate but peaking for how long? Until the next round of problems crops up of course.
In addition, consumer credit jumped much more than expected to $13.46B in March ($4.5B expected). Credit and charge cards rose 9.2%, the largest gain since November in the early holiday shopping season. Non-revolving debt (cars, etc.) rose 5.3%, the largest since January. As with the MasterCard earnings last week that topped expectations, you can read this as consumers having to rely on credit cards to make ends meet or using them because they feel flush and thus ready to spend. With the current jobs market, wages, and the improvement in the economic numbers, it would appear to be more of the latter, i.e. some confidence about the future. It is interesting to note that consumer confidence reports have wobbled some, but the buying remains solid. That is indeed a sign that things are normal.
Technically the action was muted as well. Low volume was the word as NYSE stocks moved higher, at least as measured by the indices. Volume was low and mixed, up 1.2:1 on NYSE, down 1.2:1 on NASDAQ. There were definitely some good moves related to M&A and earnings activity, but they were pretty scattered. Stock picking is the key at this juncture after a week of gains on top of a month of gains before that. The lower volume was a positive on NASDAQ and SOX as those indices sported losses. As for NYSE, the gains were modest and thus lower volume was not that unwelcome; beats a high volume session of churn.
The session was basically a drift higher from last week, of course with NASDAQ losing its drive to try and take some of the leadership role. After it made the new post-2002 high last week it seemed to look around Monday and say 'what next?' Monday that meant holding the gains more or less with no real strength. Given the run last week on top of all the earnings and economic news, and given the FOMC result this Wednesday, that is not unusual. Once more the market is taking a breather and we will see if it can consolidate more or less in place with that kind of side-step, slight fade dance step and then resume the move. Pretty extended at this point after 5 upside weeks since the breakout, but it has been a hard bet to go against all of the money trying to work into the market.
THE MARKET
MARKET SENTIMENT
VIX: 13.15; +0.24. Hugging the 50 day EMA as VIX continues the lateral move for the past 5 weeks after that sell-off induced spike higher in February and March. The market is certainly complacent as measured by the VIX, but as we have seen in past rallies of significance, the VIX can hug low levels for a long time without indicating the market has peaked or is ready to turn over. There is still plenty of concern from many traders and even in the retail investor as the AAII surveys indicate.
VXN: 16.98; +0.39
VXO: 12.66; 0
Put/Call Ratio (CBOE): 0.7; -0.13.
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: -1.2 points (-0.05%) to close at 2570.95
Volume: 1.754B (-23.97%). Volume plunked lower, the lowest in a month as tech investors pulled in their horns after a very good volume showing last week that pushed NASDAQ to a new post-2002 high. The volume indicated no desire to try and forge new leadership to start the new week. Good to see lower trade after this run, however, as it shows no sudden rush to unload shares.
Up Volume: 770M (-734M)
Down Volume: 901M (+130M)
A/D and Hi/Lo: Decliners led 1.14 to 1. Quite flat, matching the session, after showing some better upside breadth last week as NASDAQ moved to a new post-2002 high.
Previous Session: Advancers led 1.33 to 1
New Highs: 167 (-22). New highs did not spike up last week as NASDAQ broke higher, an indication that there simply was not a lot of new breakouts to lead the market. In past rallies where NASDAQ has failed to really move through to leadership, this indication remained low as well.
New Lows: 51 (-2)
NASDAQ CHART: http://www.investmenthouse.com/ihmedia/NASDAQ.jpeg
After a week that saw a series of gaps higher on stronger and stronger trade following the Monday selling, NASDAQ started the week flat with a low volume loss. Compared to the prior Monday that was a victory in itself. That dump back down came after a solid week of gains, and thus a basically flat session on low volume is something to be applauded. Sure NASDAQ could not carry through and show more leadership this week after putting together some good internals last week, but you would expect a test after breaking to a new post-2002 high, and that is just what it showed Monday. Still in its channel, still showing good price/volume action even if it is a bit tired.
SOX (-0.35%) struggled as well, matching the recent peaks on the session high before sliding back for a modest loss of its own. After the test of the 10 day EMA last week that tested the breakout from the 6 month range, it needs to go ahead and punch through here without too much dilly-dallying (which leads to the age-old question, do chips really dilly-dally?). In any event, a modest pullback is okay if the chips can then turn that into a higher low and a break over the recent breakout high at 506.87.
SP500/NYSE
Stats: +3.86 points (+0.26%) to close at 1509.48
NYSE Volume: 1.322B (-13.75%). Volume faded for the fourth straight session and its second consecutive below average day as the NYSE indices moved higher. Not a lot of power on this move, especially compared to what NASDAQ showed last week. That makes this move appear to be a bit on borrowed time.
Up Volume: 773.033M (-146.343M)
Down Volume: 507.284M (-87.424M)
A/D and Hi/Lo: Advancers led 1.22 to 1. Very plain-Jane breadth as the large, mid-, and small cap stocks posted most modest gains.
Previous Session: Advancers led 1.45 to 1
New Highs: 300 (-6). This has been better on the move higher but hardly blasting off and showing a really decisive new move into the new high territory.
New Lows: 15 (-5)
SP500 CHART: http://investmenthouse.com/ihmedia/SP500.jpeg
SP500 edged a bit higher, closing just below the Friday intraday high as it works in the upper quarter of its uptrend channel it recaptured (again) early last week. The low volume as it approaches that level indicates it is likely not going to follow DJ30's lead and break through the channel, at least on this move. This is SP500's fifth bounce up off of the short term support since the breakout to start April; that puts it at the high end of the usual number of bounces after a breakout, and the action suggests a pullback to test near support once more and then we see if it can resume the rebound or has to test a bit deeper.
SP600 (+0.01%) showed a doji on the candlestick chart after recovering last week from a near trend-breaking experience. It held the 18 day EMA and rebounded, posting a new all-time high. That NYSE volume was lower as it did, however, so not a lot of power. It is hard to argue with the trend, however, and how it has avoided close calls with selling off. The next test will be the important tone given the dicey pullback a week ago. That Monday doji indicates a potential momentum shift that could start that move.
DJ30
The blue chip index continued higher, aided by more merger news and speculation about further M&A activity. It drove the blue chips to a new all-time high but volume hit a month low. As with the other indices there was not a lot of new buying driving it higher, just a few buyers and a definite lack of sellers. Thus DJ30 rose unmolested to a new high on no volume. It is now 9.7% above its 200 day SMA (12,131), and that is typically a point where it starts to struggle a bit. No sign at all of struggling thus far though the low volume provides little comfort.
Stats: +48.35 points (+0.36%) to close at 13312.97
Volume: 207M shares Monday versus 236M shares Friday. The last two sessions were on below average trade, indicating a slowing of the move, but we note that the prior week and one-half moved higher on above average trade. Thus it is hard to get all cranky over a couple of low volume rises. The only issue is how far it has rallied on this move and that low volume typically accompanies interim peaks. That has not been much of an issue for DJ30 on its run.
DJ30 CHART: http://www.investmenthouse.com/ihmedia/DJ30.jpeg
TUESDAY
Wholesale inventories are the only scheduled economic report Tuesday. CSCO announces earnings after hours, and it is one of the last major tech earnings reports. CSCO has formed a fairly nice base the past four months after a good rally to end 2006. That means it has not participated much in this current run but it is set up well to break higher on a good report, something that could trigger a tech rally of sorts given the better relative strength they showed last week, at least in terms of the internals. Should you buy CSCO ahead of the numbers? If you have some speculative money you want to put on a good pattern there is some upside here as the pattern shows net positive accumulation. The market has put in a week of upside, however, and that can truncate a good move; one of the hazards of announcing results late.
Overall the market is a bit extended with DJ30 9.7% above its 200 day SMA. The lighter volume is always an issue, but as noted above, volume last week was not bad on NASDAQ or DJ30, just fading some on NYSE as the week ended. You cannot have rising volume every session the market rises. That does not mean a crash is coming unless the problem is chronic. This time the problem is not chronic, but that does not mean you won't get a pullback either.
Ahead of the FOMC it would not be unusual to see more pensive, low volume trade and that can lead to some back filling in the indices as investors put the wallet on the hip for a change and wait and see. That is a long way from saying that the sellers are going to suddenly swarm the market.
So if we get another half-hearted pullback as we have seen, i.e. just a test of near support, the money waiting for an opportunity to enter will likely once more make a play. With so many stocks extended we have to be particular with what we are looking at and what we are willing to buy into. There are still some cherry-like patterns in strong stocks that are setting up for another move higher. Some great pullbacks are in progress, meaning they were leading this last run and were testing last week as the rest of the market played catch-up. Those streakers are setting up for another move higher, and while a few are close to a bounce point it is still a bit early for the most part to move in. Patience is, as always, a virtue at this point as we let the plays come to us without chasing them after another week of gains.
Support and Resistance
NASDAQ: Closed at 2570.95
Resistance:
2584ish is the top of the November/February channel
2590-95 from an April 1999 interim peaks
2778 from a July 1999 peak
2887 from a September 1999 peak
2920 from an October 1999 peak
Support:
2557 is the November/February up trendline
The 10 day EMA at 2550
2531.42 is the February high (post-2002 high)
2523 is price resistance November 2000
The 18 day EMA at 2531
The July/August trendline at 2530
2509 is the January 2007 high
The 50 day EMA at 2487
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 1509.48
Resistance:
The upper trendline of the channel at 1514
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 1494
1486 is the late November to February up trendline
The 18 day EMA at 1483
1475 from peaks in December 1999 and January 2000
1461.57 is the February 2007 high.
The 50 day EMA at 1455
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. Now 9.6% above the 200 day SMA where it started to struggle in late 2006.
Support:
13,245 is the upper channel line in the November/February channel
The 10 day EMA at 13,142
13,075 is the former up trendline that marks the lower channel.
The 18 day EMA at 13,006
12,796 at the February 2007
The 50 day EMA at 12,727
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 expected, 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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