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money investment, investment help
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5/22/07 Investment House Daily
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MARKET ALERTS:
Targets hit alerts: ICE
Buy alerts: EPIQ; NTGR
Trailing stops: None issued
Stop alerts issued: GSOL; MTL
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SUMMARY:
- Repeat of Monday with techs trying to lead while SP500 stalls at the old high once more.
- Still little hard economic data to give direction to the week outside of US/China trade sparring and more worries about retail.
- NYSE short interest hitting record highs as sentiment continues its Janus-like appearance.
- Waiting for energy, metals to come back, but not ignoring other parts of the market.
Monday repeat with SP500 stalling below the high and tech trying to show a hint of leadership.
It was another quiet economic session with just some US/China head butting over trade, some modest retail earnings, lower oil ($64.97, -1.30) despite a BP shut down of 100K bbl/day in Prudhoe Bay, and hints that gasoline prices were undermining mall traffic. In short, the data was much too amorphous to provide much of a catalyst, especially for a market where the leaders were extended and the areas trying to assert some strength (e.g. technology, financials) are pretty timid still.
Without a catalyst the market did what it did Monday. SP500 tried the old high again, but after an early afternoon test that followed its best upside rally of the day, it failed again to punch through. The large cap NYSE stocks lost a little more ground but hardly turned over. At the same time NASDAQ moved to a new post-2002 high while SP600 moved higher again as well, posting a new all-time high. Both showed some relative strength as the large cap industrials paused after a strong advance. They are trying to take up the torch, but at this stage they look more like they are holding a match versus a torch.
The financials tried to join the techs to the upside, and that gave SP500 a bit more starch than it would otherwise have had. They were up but not sharply so. Housing stocks rallied well. Energy on the other hand, after starting to stall and reverse some Monday did actually reverse on Tuesday after a blistering run higher. They are looking for a test and we anticipate that will provide some new entry points when the pullback is over. While waiting for that move to complete we did take a few positions in some strong tech stocks.
Technically the action was mixed with some strength in techs and a stall in large cap NYSE stocks, but overall the action was very sluggish. The intraday action was low to high, typically a bullish indication as the techs tried to pick up some of the money that is coming out of the NYSE large caps, but they are not falling much and thus techs are not surging much. Modest movement both directions but in the bigger picture, no real tectonic shifts.
Volume reflected this sluggishness. NYSE volume was lower and that kept it below average; no dumping of those shares, just stalling out after a strong move. As noted Monday, thus far in this run those little pauses have led to a resumed rally. On NASDAQ trade was higher, suggesting some accumulation, i.e. some strength in the move to those stocks. Its overall volume was below average as well, however, so the move, though showing some promise, was hardly a textbook picture of strength. Once more the techs are trying to show some leadership as the large cap NYSE stocks stall out some just as they did in early 2007, but that move failed due to lack of interest. This move is hardly strong yet, so we will have to see how it develops.
THE ECONOMY
Another quiet day on the economic front. There was a retail association report that mall traffic was down 7.5% due to rising gasoline prices. Those prices hit a national average near $3.20/gallon, and inflation adjusted we are now paying a record high, matching the prices in the early 1980's when the Iraq/Iran war started. Interestingly, thus far the data show no decrease in demand even with prices topping $3/gallon. After Katrina and Rita demand declined when prices hit this level, and those were relatively short-lived price spikes. This one is not going away, yet thus far demand is rising, up over 2% from this time last year.
On the international front China and the US were not mincing words at the start of their economic summit. The US said China was holding its currency at artificial levels while China blamed the US for not saving enough, saying it would not bow to political argument in the US. Of course China is all about politics back on the mainland when it comes to its domestic issues as well as protecting the rights of foreigners. That is conveniently ignored, however, when China enters the world market.
Of course a major problem is not just with China but with every other Asian currency as well. Many of them model their currency policies on China, thus depressing their currency values as well. They have done this for decades and they have prospered mightily as a result. China's GDP has grown at 10% rates for over 10 years thanks to this policy, and it is not about to give it up, at least not nearly as fast as Congress demands. Thus China and the other Asian exporters to the US make up 60% of our trade deficit and largely because of the currency imbalances. The other chunk is largely due to our dependence on foreign oil.
The problem is we are not going to attack the real issue, the one that puts us at most risk: the energy dependence. US enemies hold much of what we import, yet we are no nearer any solution to the problem than we were in the early 1970's when the spigot was turned off. We are still prone to the same problems yet we tilt at the issue with switch grass and ethanol as well as talk of mandated fuel efficiency standards that will leave us driving European micro cars.
All that does is raise our cost of living and lower our standard of living. Our food prices rise (creating our own inflation) and we are forced to drive vehicles we don't want to drive because the government has neglected its duties for 50 years and then looks to us to bite the bullet, 'tighten the belt,' or any of the other innumerable and trite phrases we hear when the government has painted itself into a corner and thrown away the key (to borrow an Archie Bunkerism).
Attacking China with respect to its currency only adds to the inflation problem. If it does concede our less expensive Chinese goods suddenly cost more and we import more inflation and again lower our standard of living. China suddenly has more money to invest in weapons and undermining our economy because it doesn't have to hold as many US Treasuries because we buy less due to higher prices. Sure China needs to clean up its act with respect to copyright protection, pirating, and other blatant stealing, but we are not going to accomplish much by trying to force it to float its currency freely. Focus on what really hurts our businesses, and that is the stealing of intellectual property.
As an aside we had to chuckle today when we heard there were more Chinese dignitaries in D.C. than ever before. Gee, what about the free run they had of the White House during the 1990's when a lot of sensitive material, according to our intelligence agencies, was stolen and shipped back to China? Lots of corporate secrets and billions of dollars of R&D were stolen while we looked the other way.
If we want to solve some issues and raise, not lower, our standard of living, why don't we address the energy issue and solve it versus placate segments with ethanol programs that are not going to solve the problem but only worsen the favoritism played to segments of the economy (in this instance corn farmers). If they were really interested in using ethanol the government would allow the importation of ethanol products made with other better sources of ethanol such as sugar beets. Nope. Under the guise of 'solving' our energy dependence problem the administration has simply found a way to placate farmers and create another subsidy while raising our cost of living.
We need to really develop alternatives that really solve the problem, really work, and that raise our standard of living. Instead of subsidizing corn growers lets use that money to fund research, by using incentives versus giveaways, to develop the kind of vehicles we want. We know what the solution is, but we don't want to embark upon it because there are too many ready to fight hydrogen vehicles, and it is easy to argue against it because it seems to be a daunting task. Thus we are unfortunately stuck with addressing issues that won't solve the problem while at the same time raising our cost of living and ultimately lowering our standard of living. In a world economy where we are going to be fighting tooth and nail with China, we need to address what will make us the strongest economically as opposed to short term band aids applied in order to win political points an re-election.
THE MARKET
MARKET SENTIMENT
The NYSE reported Tuesday that short interest on NYSE stocks hit an all-time high. What that means is a higher dollar amount of NYSE stocks have been sold short than every before. Many investors are betting the market will go lower. This indicator is a contrary indicator meaning it is used to signal the opposite of the level of short interest. More short interest suggests continued upside. There may be interim pullbacks, but this level of short interest is another indication there is a high level of concern the rally is overdone.
VIX: 13.06; -0.24
VXN: 16.07; +0.04
VXO: 12.4; -0.01
Put/Call Ratio (CBOE): 1.21; +0.25. Talk about a lot of put buying as SP500 and DJ30 stalled out for the second session. Lots of protective puts being purchased, indicating a belief the market is going to roll over. Remember, this is a contrary indicator and when there are high levels of pessimism as demonstrated by put buying largely outsizing calls, that is a sign of a healthy level of apprehension.
Bulls versus Bears:
Bulls: 54.3%, up from 53.5% last week and 51.7% the week before. This indicator is right at the 55% level considered bearish. Too high, but as noted above, there are other indications that say that there are potential investors out there that are still apprehensive. Still, it is too overdone as would be expected when the indices are hitting new all-time or multiyear highs. It was 45.5% seven 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: 19.6%. Below the 20% level considered bearish, the level it hit last week (20.0%). A big plunge the past two weeks from 24.7%. Quite a drop from the 27.5% hit 6 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: +9.23 points (+0.36%) to close at 2588.02
Volume: 2.03B (+1.16%). Volume edged higher as NASDAQ rose, indicating a modest amount of accumulation as NASDAQ gained ground. Trade was still below average, however, and thus it was not a sudden rush into tech stocks.
Up Volume: 1.31B (-229.349M)
Down Volume: 691.521M (+241.521M)
A/D and Hi/Lo: Advancers led 1.72 to 1. Not a bad follow up to the solid Monday breadth. As it did during April and early 2007 NASDAQ is showing more internal strength. We will see if it can pan out this time.
Previous Session: Advancers led 1.99 to 1
New Highs: 195 (-20)
New Lows: 48 (-2)
NASDAQ CHART: http://www.investmenthouse.com/ihmedia/NASDAQ.jpeg
NASDAQ pushed to another new post-2002 high. It gave up some ground off its intraday high but it held a solid advance. Volume remained below average, still lagging somewhat. Solid trade Friday though that was expiration trade. NASDAQ is trying to brush aside that distribution, and a move to a new post-2002 high is an indication it is getting that done. Some strong trade to go along with it would be nice confirmation of the break to the new high.
SOX (+0.44%) again tapped at the 50 day EMA on the low and bounced some. Three days at that level and it is still looking for a bounce. It is holding at the top of its 6 month range that it broke from in late April. Still looking for a bounce, but holding at that level.
SP500/NYSE
Stats: -0.98 points (-0.06%) to close at 1524.12
NYSE Volume: 1.479B (-1.97%). Volume remained below average and it backed off for the second session after a strong upside volume and price move on expiration Friday. The lower trade shows not much money leaving the large caps. It also shows not a ton of accumulation as the small caps continue higher.
Up Volume: 748.82M (-179.311M)
Down Volume: 713.511M (+153.286M)
A/D and Hi/Lo: Advancers led 1.17 to 1. Pancake-like.
Previous Session: Advancers led 1.48 to 1
New Highs: 239 (-86)
New Lows: 20 (-11)
SP500 CHART: http://investmenthouse.com/ihmedia/SP500.jpeg
SP500 showed a second consecutive doji as it again closed just below its all-time closing high at 1528. It also showed those dojis right at the upper channel line in its uptrend channel that it recaptured in late April It is still exerting force here, but of course it has the help of that prior closing high as well to keep it under wraps here. It is stalling after a strong run, but it is also not rolling over at all and the volume is lighter as it does stall out.
SP600 (+0.71%) once more led the market higher as it forged into new high territory once more. It is definitely getting some buying interest along with NASDAQ as SP500 stalls. Volume is not surging but it is hard to argue with this move. In addition, these are small caps, and they can move well without the NYSE volume surging higher.
DJ30
Similar to SP500 the blue chips showed a second doji after the run higher. That can signal the peak of a run but as noted with SP500, these have only meant a pause in the upside. With DJ30 about 10.5% above its 200 day SMA you have to watch to see how it holds up on a test. The 10 day EMA (13,434) is the first potential support for the blue chips. On this run the 10 day EMA has held each time. At some point it will not hold. Thus far the price/volume action shows only buying and no heavy selling, and until that changes the trend is in good shape.
Stats: -2.93 points (-0.02%) to close at 13539.95
Volume: 201M shares Tuesday versus 215M shares Monday. No dumping, no distribution as the blue chips take another session off.
DJ30 CHART: http://www.investmenthouse.com/ihmedia/DJ30.jpeg
WEDNESDAY
The return of some economic data Thursday in the form of the weekly crude oil and gasoline inventory report. Tuesday there was a report that Gulf of Mexico refineries were producing more gasoline than the line servicing the refineries could transport. That pushed gasoline prices lower. It remains to be seen if that shows up in the weekly report Wednesday as last week refinery runs were lower then the prior week. It would be a pretty dramatic turn given that there were many outages reported over the past week as well.
That is about it for the scheduled data. Once more the market will more or less be on its own as it works toward the start of the 3-day Memorial Day weekend. Many traders say they are looking for the Thursday durable goods orders report as well as the home sales numbers on that day and Friday. At this juncture without any real catalyst to drive the market, traders are looking for anything.
The truth is, the market has rallied well and many of the early leaders are testing back. Thus SP500's stall at the prior high and the trendline. The lack of economic data is allowing them to come back and set up for another run. Some of the leading energy movers are doing just that, testing back after a blistering rally that started last week. As noted above, as they pull back there are other stocks that are moving higher, mainly those techs and small caps.
The techs are relatively unproven. The only track record they have of late is failed attempts at leadership. We are going to continue looking at them; if NASDAQ gets some volume they will take off. They will have to get that volume, however, to show the buyers are back in after the sellers were selling them off through mid-May and to show they are good plays. There are more and more calling for a return to techs, and that alone makes us somewhat uncomfortable with them in addition to their track record of head fakes to the upside. We will look at them but we will also have an eye on the strong market leaders as they come back to test strong moves. We know they are able to perform.
Support and Resistance
NASDAQ: Closed at 2588.02
Resistance:
2590-95 from an April 1999 interim peaks
2600ish is the top of the November/February channel
2778 from a July 1999 peak
2887 from a September 1999 peak
2920 from an October 1999 peak
Support:
2580 is the May high
2577 is the November/February up trendline
The July/August trendline at 2561
The 10 day EMA at 2560
2531.42 is the February high (post-2002 high); 2525 intraday
2523 is price resistance November 2000
The 50 day EMA at 2512
2509 is the January 2007 high
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 1524.12
Resistance:
The upper trendline of the channel at 1526
1528 close, 1553 intraday from March 2000 all-time index peak
Support:
1520 from the September 2000 peak
1500 from April 2000 peak
The 10 day EMA at 1513
The 18 day EMA at 1504
1497 is the late November to February up trendline
1496 is a peak from July 2000
1475 from peaks in December 1999 and January 2000
The 50 day EMA at 1475
1461.57 is the February 2007 high.
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 13,539.95
Resistance:
Now 10.4% above its 200 day SMA, a point where DJ30 has historically show some struggles.
Support:
The 10 day EMA at 13,434
13,305 is the upper channel line in the November/February channel
The 18 day EMA at 13,371
13,230 is the former up trendline that marks the lower channel.
The 50 day EMA at 12,976
12,796 at the February 2007 high
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 23
Crude oil inventories (10:30): 1.061M prior
May 24
Durable goods orders, April (8:30): 1.0% expected, 3.7% prior
Initial jobless claims (8:30): 300K expected, 293K prior
New home sales, April (10:00): 860K expected, 858K prior
May 25
Existing home sales, April (10:00): 6.10M expected, 6.12 M prior
End part 1 of 3
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