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money investment, financial investment
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5/10/07 Investment House Alerts Report
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IH Alert Subscribers:
MARKET ALERTS:
Targets hit alerts: None issued
Buy alerts: SAF
Trailing stops: PCLN; VMSI
Stop alerts issued: None issued
SUMMARY:
- Same store sales, trade gap give nervous investors a reason to sell and market gets spanked in the process.
- Trade gap surges for the month, but the gap is narrowing year over year.
- Same store sales fall as expected and guidance remains solid, but the data brings in the catcalls once more about a weakening economy.
- Still plenty of stocks going about their business as market tests. Time for some patience to let them finish their bases and let the leaders we want to own make a pullback.
Sellers get an opening after nervous traders use economic data as the reason to sell.
Back when the last serious sell off in the market started it was driven by economic worries. China was talking about clamping down on its supposed bubble economy (was the US economy post-WWII when it boomed a bubble or were we just finally waking up and reaching our potential? Sounds like China.) and the sub-prime issues were starting to hit home. After a good run higher the past 6 weeks fund managers were nervous and itchy. They were looking for a reason to sell, and when same store sales showed 85% missing expectations and the trade gap jumped up for the month they marked it down.
As is often the case, when traders and fund managers get nervous about a sell off they make it happen. They control trillions of dollars and if they get the willies about how far a move has gone then they stop thinking about what the next good buy is and start thinking about selling. Then when a report that you know is going to be weaker because March was so much stronger thanks to Easter coming early comes along and it is weak, you can convince yourself it is time to sell because someone else might use the same data to sell. The race is on to see who can sell the first and the fastest. It is something of a short term phenomena, but it can certainly be a powerful influence in that short term.
Thursday the snowball picked up speed in the afternoon and pretty much gathered much of the market with it. Well, at least a lot of it. Those stocks that were hit the hardest were the hardest runners of late. It was a case of find the biggest gainers and sell them. Breadth was really negative as with the down to up volume ratio, and while the indices lost a lot of ground and many stocks were down, a lot of stocks were left mostly unmolested. Many stocks that are in solid bases or just broke higher were basically unscathed. Indeed, most of the positions on the report suffered just modest downside and those that sold more mostly held support. Quality has its blessings.
Technically it was without a doubt a spanking. After 6 weeks of unabated upside and 8 weeks of gains with only a modest test when the double bottom formed its handle, the market was extended. What is the saying? The higher they fly? It needed a pullback, but the size of the losses were large for just one day. It was no steady, orderly pullback over several days that you like to see in a simple test. All of the indices sported losses in excess of 1%. SP500 and DJ30 are still in their channels (DJ30 fell into its old channel today), but NASDAQ and SP600 broke through the 18 day EMA. They are a bit dicey right now given their closes and SP600's near breakdown on the last selling not quite two weeks back. A lot of stocks did hold support as noted, but you also hate to see them back at support after just one day of selling!
As for the internals, breadth was hideous (-3.5:1 range) on both NASDAQ and NYSE, and volume was interesting as there was more volume on NASDAQ but less on NYSE. NASDAQ showed some distribution with trade that matched some of the upside volume last week. It was topped by the reversal volume two Tuesdays back, but the point is it was up and not chump volume we can ignore. With NASDAQ breaking its 18 day EMA, the higher volume shows there was tech dumping after some tech buying the week before. NYSE trade was lower and still below average. Indeed, it has resided below the red line for the past week as the indices moved higher. It had good trade to start the move and then coasted. Thus the lower trade means less than if there was a lot of solid upside trade, but it is in keeping with the overall trade pattern. In short, there was no dumping of NYSE shares. Now the down to up volume ratio was close to 10:1 on NYSE (8.4:1). That is getting what you would consider extreme, yet it did it on the first day of the selling. That can be a harbinger for more selling to come. If NYSE volume jumps on continued selling, that is worrisome. For now with the overall lower trade on NYSE we don't sweat the down to up volume ratio much.
In sum the market was thumped with big losses on some rising volume. At the same time there are many stocks that sold but are in no danger of breaking their trend and fell on relatively light trade. It can get worse before it gets better, but with the economy improving (despite the worries to the contrary on the financial stations Thursday), the light NYSE volume, and many strong stocks holding up well, we are looking for opportunity in this selling until it shows otherwise.
THE ECONOMY
Trade gap gaps wider for March.
The $63.0B easily topped the $60.0B expected, and that was the second economic story of the morning that had worry about the economy pulled back up to the front of the stove. It was the largest gap since last September and of course that had Congress out on the airwaves talking about how we need to punish China with tariffs so we can keep some underwear and trinket making business here in the US and force US consumers to pay more for those items.
What this means is that Q1GDP will be revised lower because this was more than expected. Imports jumped 4% while exports jumped 2%. We are exporting a lot more goods, and year over year the trend in the gap is declining because of our exports. Why are exports up? Because the world economy is strong as is the US (though we are in a mid-cycle slowdown). We import a lot of goods when we are prosperous and we export a lot when the world is prosperous. We should be happy with this scenario, not ready to slap tariffs on China and thus import inflation here at home and threaten our economic strength.
Again we have to state reality: why are we willing to punish our best trade partners for a deficit that is the result of a symbiotic relationship? Sure there can be improvements in copyright enforcement and subsidies, but the relationship we both enjoy far, far, far outweighs the political points the senators and congressmen from underwear states want to make. We want to punish China, India, Brazil and Japan yet we ignore the 'fixed cost' in our monthly trade gap: oil imports. If they were cut out our trade gap would be flat. When we try to browbeat our trading partners and threaten a mutually beneficial existence while ignoring those countries selling us oil and who are willing to stick it to us at any chance, it reminds us of the person who takes his anger out on his loved ones as opposed to those causing the problem. Browbeating China won't solve the trade gap; China likes things done behind closed doors, and outright opposition just digs the heels in further. China could acquiesce to our demands and we would still have the problem because of oil. Solve the problem should be our mantra as it was for Mike Douglas in that move 'Disclosure.'
Same store sales are down but guidance is not out. Don't forget jobless claims either.
April was weak. 85% missed estimates but that was after 80% beat estimates in March. If you put Easter in April, you have a different result. Why? Because guidance in March was lower for April because of the early Easter, but guidance was not lowered for May at all. In other words, it was a calendar event, not a consumer event.
So what do you make of all the whining about a slowing economy and the Fed having to move given the April same store sales? Nothing. It is garbage. Jobless claims fell to 297, well below the 315K expected and the lowest since mid-January. Yes employment is lagging, but we have seen the leading indicators improving, and we have also seen other more leading economic data the past few weeks turn back up. Thus the lament Thursday about a slowing economy sending stocks lower is simply crapola. It was the story of the day, the ribbon the financial station journalists were using to tie a bow on the reason for the selling. Can you sense the disdain in this writing or have I failed my point?
THE MARKET
MARKET SENTIMENT
Geez. Last night we talked about the 'this time it is different' comment regarding M&A activity, indicating that was something to be concerned about but it was not necessarily a timing device. How about 1 day? New rule of thumb: when you hear 'this time things are different' or some variation thereof, get ready for the opposite to happen in short order.
VIX: 13.6; +0.72. Barely budged on the selling, not indicating much fear yet.
VXN: 17.38; +1.09
VXO: 14; +1.52
Put/Call Ratio (CBOE): 1.11; +0.37. Bounced back over 1.0 with the greatest of ease. With the selling hitting hard there was a lot of funds buying protection (puts, not condoms) as well as downside speculation. Always good, but it also takes many closes above this level and other indicators to 'get right.' Not there yet.
Bulls versus Bears:
Bulls: 53.5%, up from 51.7% and close to the 55% considered bearish. Seems the market beat it to the punch and sold before 55. It was 45.5% six weeks back. It has not topped its recent high at 53.3% but is well off the 60% hit in December 2006. For reference it bottomed in the summer 2006 near 36%.
Bears: 20.0%. Plunged from 24.7% in the most telling move of the two indicators. This is the level considered bearish, and of course the market was careening lower on Thursday. Quite a drop from the 27.5% hit 5 weeks back. The rally has taken the bears down from the recent highs near 29 (28.4% and 28.9%). It is now matching its January and February lows. For reference, 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: -42.6 points (-1.65%) to close at 2533.74
Volume: 2.333B (+6.87%). The early volume returns looked promising, but the final tally shows a significant rise as the techs sold through near support.
Up Volume: 314M (-927M)
Down Volume: 1.996B (+1.078B). 6:1 downside volume is strong. Not ragingly extreme, but very strong.
A/D and Hi/Lo: Decliners led 3.59 to 1. Ouch. Techs were soundly pummeled with the large cap NASDAQ 100 and the overall NASDAQ matching pace as they raced lower.
Previous Session: Advancers led 1.23 to 1
New Highs: 118 (-54)
New Lows: 87 (+33)
NASDAQ CHART: http://www.investmenthouse.com/ihmedia/NASDAQ.jpeg
NASDAQ fell through the November/February up trendline, the 10 day EMA and the 18 day EMA. Oh, need to throw in the July/August 2006 up trendline as well. NASDAQ was the whipping boy on the session, selling on strong volume and weak breadth, breaking near support. Leave anything out? No, just a weak session all around. The techs were trying to show some leadership last week and now they are; to the downside. There is support at 2525 from the February peak and late March. Will see if the selling checks up there.
SOX (-2.1%) was rocked back a day after making a new breakout high. It is still holding the breakout and is above the 18 day EMA, but it is time to see if that breakout can hold after this initial push back down.
SP500/NYSE
Stats: -21.11 points (-1.4%) to close at 1491.47
NYSE Volume: 1.539B (-1.2%). With all the selling and all the teeth gnashing, volume was lower on the NYSE. There was not a lot of willingness to sell off energy, metals, industrials, etc., at least not real hard.
Up Volume: 161.458M (-904.355M).
Down Volume: 1.353B (+875.845M). Declining volume topped upside volume 8.4:1. That is getting to an extreme level but it did so on the first day of selling; you typically want to see this after a hard bout of downside as it shows more of a cathartic end of the selling.
A/D and Hi/Lo: Decliners led 3.39 to 1. As with NASDAQ, the downside was spread out among the large, mid-, and small caps. There was no favoritism on Thursday.
Previous Session: Advancers led 1.71 to 1
New Highs: 145 (-133)
New Lows: 34 (+16)
SP500 CHART: http://investmenthouse.com/ihmedia/SP500.jpeg
SP500 fell from close to the top of the channel to near the bottom, but it held above the 18 day EMA and that November/February up trendline. Volume was lower as noted. It looks very much like a round of lemming selling where some gains were taken but no one really wanted to sell all of any position. They sold but at the same time they were looking for opportunity.
SP600 (-1.79%) was the downside leader outside of SOX, breaking through the 10 day EMA and 18 day EMA. It broke the recent up trendline connecting the March and April lows. SP600 has been shaky of late, almost breaking down in late April in the last selling but managing to recover with the market. Now it is threatening again and the second downside in two weeks is something to be concerned about. Energy struggled again and that was a weight on it.
DJ30
DJ30 sold off as well but volume was lower here also. It did fall back into its channel but landed on the 10 day EMA (13,208). As with SP500, there was a significant point loss but no volume. The first round, though heavy in point loss, looks like profit taking. DJ30 is still extended and needs more of a base to sustain a further run given that it hit close to 10% above its 200 day SMA before the Thursday selling.
Stats: -147.74 points (-1.11%) to close at 13215.13
Volume: 224M shares Thursday versus 237M shares Wednesday. Good to see that volume back off on the selling as it shows no dumping.
DJ30 CHART: http://www.investmenthouse.com/ihmedia/DJ30.jpeg
FRIDAY
Friday is not without its excitement with PPI and retail sales out before the open. They are not likely to assuage investors too much, however, on the heels of same store sales and with CPI still to come next week. Friday is always a harder gauge, particularly now that the market is moving into May, the early part of summer that can lead some to go ahead and sell when there is any doubt. Indeed, some of the push in selling Thursday was no doubt some money managers figuring they might as well sell some given the time of the year.
Friday is likely not the end of the pullback attempt. The market had something of a one-day pullback to end April, and you just cannot count on another one of those to pull the chestnuts out of the fire on every pullback. Thus we don't want positions that are holding support to break lower and not recover by the close. We can have some intraday testing and a recovery from those stocks once more. If they sold on light volume Thursday then they are good candidates to hold near some support on the close. We also wan to watch for stocks that are coming back and testing strong moves; that low volume on NYSE says that though many of these stocks sold, they were not being routed or dumped like two-timing lovers.
Thus we will have to practice patience on both sides of the ledger, letting new plays come back and hold support, then show they are ready to move back up. That will likely take more than Friday. We will also give good positions we have a bit of room to operate. Given the strong run higher this is a bit more of a treacherous dance as a big run higher tends to need more of a downside move. Again, as long as they are hold close to support in a solid trend we can give them some leeway.
We still don't think the overall run is over. This run may need more of a pullback than the quickies it has shown on the way up, but a deeper test in itself is not the end. Indeed, it would be more the norm and quite healthy. With the economy actually showing signs of starting a recovery and the long leading indicators still strengthening we view this as a pause in an impressive run.
Again that means practice some patience, see how the market responds to the next economic data, the Thursday close at session lows, and of course the breaks of the trends by NASDAQ and SP600. We will be ready to close positions if needed and wait to see how this shakes out. It has been a big run with little rest. It needs more of a rest, but we cannot forget the money that continues to swirl out there. The economy is still improving once more and the rest of the world is strong as well. That money is going to try and use a pullback to get in again. The question is when it makes its move. Given the weak Thursday close it will be waiting and watching as well, but when some of these big runners have 3% to 5% taken out of them that money will start poking around at buys.
Support and Resistance
NASDAQ: Closed at 2533.74
Resistance:
The July/August trendline at 2540
The 18 day EMA at 2539
The 10 day EMA at 2553
2562 is the November/February up trendline
2588ish 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:
2531.42 is the February high (post-2002 high)
2523 is price resistance November 2000
2509 is the January 2007 high
The 50 day EMA at 2495
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 1491.47
Resistance:
1496 is a peak from July 2000
The 10 day EMA at 1498
1500 from April 2000 peak
The upper trendline of the channel at 1518
1520 from the September 2000 peak
1528 close, 1553 intraday from March 2000 all-time index peak
Support:
The 18 day EMA at 1488
1487 is the late November to February up trendline
1475 from peaks in December 1999 and January 2000
1461.57 is the February 2007 high.
The 50 day EMA at 1461
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 13,215.13
Resistance:
13,250 is the upper channel line.
Support:
13,250 is the upper channel line in the November/February channel
The 10 day EMA at 13,207
13,090 is the former up trendline that marks the lower channel.
The 18 day EMA at 13,087
12,796 at the February 2007 high
The 50 day EMA at 12,791
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): 0.3% actual versus 0.4% expected, 0.4% prior (revised from 0.5%)
May 9
Crude oil inventories (10:30): 5.6M actual versus 500K expected and 1.17M prior. Gasoline 400K actual versus 200K expected.
FOMC policy statement (2:15): Rates left at 5.25%, economy weaker replaces economy mixed language.
May 10
Initial jobless claims (8:30): 297K actual versus 315K expected, 306K prior
Trade Balance (8:30): -$63.9B actual versus -$60.0B, -$57.9B prior (revised from -58.4B)
Treasury budget, April (2:00): $177.1B actual versus $143B expected, $118.8B prior
May 11
Retail sales, April (8:30): 0.4% expected, 0.7% prior
Retail Ex-autos (8:30): 0.5% 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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money investment
financial investment
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