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us stock market, trend trading stock
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5/29/07 Investment House Alerts Report
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IH Alert Subscribers:
MARKET ALERTS:
Targets hit alerts: None issued
Buy alerts: ICE; SUNH
Trailing stops: None issued
Stop alerts issued: None issued
SUMMARY:
- Stocks bounce up and down, close positive while holding status quo
- Consumers feeling confident despite rising gasoline prices.
- Market drifting back up ahead of jobs report, waiting for next leaders to drive it.
A little upside, a little downside, but stocks once more drift higher to the close.
A new week started a bit later but the pre-market news was the same. Indeed it is very similar to the Houston forecast in the summer: hot, high humidity, and a 20% chance of rain. Tuesday saw a bit more M&A activity, rumors of M&A activity, and some buybacks. That was enough to keep the optimism up and the futures higher, though we are hearing more concerns voiced about just how long the M&A activity can continue. A little pessimism is good, however, and that certainly did not put the brakes on the morning upside, at least not at the open.
Oil was lower as well, falling to 63.15 on the session, down a sharp $2.05. Gasoline prices were down as well; as noted last week, with inventories high and gasoline runs producing more product than can go in the delivery pipelines, prices had peaked for at least the near term.
That all added up to a higher open, but the indices could not make much headway. SP500 bumped into a minor resistance point three times through midmorning, and that stalled its run. It also stalled the rest of the indices as well. Just after lunch they were at session lows trying to find their legs once more. NASDAQ held its gains along with the small caps though the large cap NYSE stocks turned negative. High to low action as a higher open was failing.
That NASDAQ was leading (along with SP600 at +0.87%) was not a lot of comfort on top of the midmorning selling. When the NYSE large caps slumber NASDAQ gets some buying interest. It never lasts, however, and the last episode last week ended in that Thursday jolt lower on strong volume. Basically a false prophet for the most part, feinting as if it wants to take off and then getting sold off. It has not broken down, of course, but that is not very comforting either given the distribution on the index the past couple of weeks.
After the dip that lasted through early afternoon stocks found their legs. They were never really in trouble at all; negative on the large caps but nowhere near a sell off. Buyers returned, however, and stocks put in a solid afternoon session. No new session highs, but enough to close all indices positive with the small caps closing in on a 1% gain.
Technically, however, it was a sleeper. There was that fairly positive low to high move to end the session. Breadth was decent at 1.7:1 and volume was higher. It just topped the Friday pre-holiday volume, so it was not quite what you would classify a buying surge. There were a bit more buyers in the market than on Friday, but the numbers were swamped by the sellers on Thursday. Better volume is good, but as Einstein taught us, it is all relative. Thus we still have volume issues that can't be ignored like next week's homework.
Even though the market basically maintained the status quo through the session, the status quo is not an altogether perfect picture. DJ30, SP500 and even SP600 are still in their uptrend channels though they are not immune to the distribution and more simply gravity after such strong moves to the upside. NASDAQ is still trying to recover from its last leg of distribution Wednesday and Thursday on top of the prior sessions this month. That is the reason NASDAQ's relative strength Tuesday was not that comforting. The saving grace for this rally is the continued solid action of some pretty diverse leadership. Sure energy was off Tuesday as it continues its test from its last strong move, but many solid sectors with leading stocks are still behaving well (e.g. metals with stocks such as FCX from Fridays buy). That is keeping the market moving higher as money continues to look for opportunities to move into these stocks.
THE ECONOMY
Consumer confidence bounces right in the face higher gasoline prices.
Gasoline prices hit an average of $3.20/gallon last week. That is a lagging indicator, however, and if you look on the web you see prices are falling rather rapidly though they have hardly cratered. Surveys are showing a lot of sub-$3 gasoline, even in those areas that sport the reformulated, 'clearer' blends required under the Clean Air Act enforcement.
Prices may be higher on average, but perhaps the consumer is sniffing out the decline in prices. That, however, would not fit into the most recent confidence report as prices have started to decline only as of last week.
No, confidence is holding higher even in the face of gasoline 3 times what Hank Williams Jr. complained about paying back in 1982. Of course inflation adjusted they are pretty close. The real underlying support is not found by looking at gasoline prices, but at jobs. We have written on this many times before, but historically confidence tracks feelings about jobs more than anything else. Jobless claims are trending lower, hitting below 300K two consecutive weeks this month. Remember how the Greenspan Fed saw jobless claims approaching 300K as a problem? During this recovery pretty much everyone viewed 300K as a positive. Apparently so do the workers based upon their outlook even with $3/gallon gasoline prices.
Of course to many this only means more lack of savings among US citizens as they feel good about their economic positions and the future. Lack of savings. What does that mean? According to the narrow governmental definition it means not much money put into actual savings accounts. It doesn't entail an actual measure of household wealth and incomes versus outlays. Why? Because it does not consider investments of any kind, e.g. stock, bonds, mutual funds, real estate, etc. Are the Chinese now classified as spendthrifts because they are opening brokerage accounts (100 million new ones as of last week) to invest in their stock markets? Many, many make large monthly contributions to 401K, IRA, HSA, brokerage and other accounts despite what we hear on the common media. They actively manage their accounts and their retirements. That is not the profile of a spendthrift. Better watch out citizens of China lest you be labeled spendthrift.
Let's face it. Historically US citizens spend when the economy is good and they are comfortable with their jobs. We buy a lot of domestic and foreign goods when things are prosperous. That does not mean there is no savings. Thus we have consumers consuming even with higher gasoline prices and also investing despite their consumption. Imagine that.
THE MARKET
MARKET SENTIMENT
VIX: 13.53; +0.19
VXN: 17.57; +0.5
VXO: 12.99; +0.13
Put/Call Ratio (CBOE): 0.91; -0.14
Bulls versus Bears:
Bulls: 54.3% for the second straight week. Still bumping up against the 55% level considered bearish. It remains too high, but as noted above, there are other indications that say that there are potential investors out there that are still apprehensive. Nonetheless, it is where you would expect when the indices are hitting new all-time or multiyear highs. It was 45.5% eight weeks back, making a steady climb higher. 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: 20.7%. After a month below the 20% level considered bearish (19.6% last week), bears are on the rise. Well, they are stirring; the level hardly indicates they are ready to charge. A big plunge the past three 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: +14.87 points (+0.57%) to close at 2572.06
Volume: 1.682B (+7.15%). Volume was up but still way, way below average on the session. Hardly enough to offset the Wednesday and Thursday distribution. The price/volume action continues to disappoint on NASDAQ as stocks are being sold harder on the downside days than bought on the upside sessions. That is eating away at the index, but it is not taking it down yet as SP500 and DJ30 continue to advance.
Up Volume: 1.119B (-30.134M)
Down Volume: 540.138M (+177.138M)
A/D and Hi/Lo: Advancers led 1.72 to 1. Not bad at all.
Previous Session: Advancers led 1.87 to 1
New Highs: 68 (-21)
New Lows: 20 (-44)
NASDAQ CHART: http://www.investmenthouse.com/ihmedia/NASDAQ.jpeg
NASDAQ continued its bounce back from last Thursdays selling that took NASDAQ down to the July/August 2006 up trendline. That move was on strong volume and this bounce is not. More distribution, more lackluster rebounding. Tuesday NASDAQ tapped the November/January up trendline on the high and faded modestly. It was a leader Tuesday, but it was while the large cap NYSE indices took a breather. That is the case the past couple of months, and thus no real change in NASDAQ. It is struggling to move higher, suffering some distribution as it does and low volume on the upside. Nonetheless, it is continuing to trend higher. For how long is another matter with this distribution, but the large cap NYSE stocks have some powerful magnetism and they keep pulling NASDAQ higher with them.
SOX (+0.53%) bounced as well but it could not recover its 50 day MA after getting flogged Wednesday and Thursday. Critical test for the chips as they try to recapture the breakout over its trading range at 493. It has another 10 points to the upside before it can even try that.
SP500/NYSE
Stats: +2.38 points (+0.16%) to close at 1518.11
NYSE Volume: 1.414B (+15.3%). Volume was below average on NYSE as well, but it was relatively stronger than NASDAQ in that it almost scared average trade. Still well off the Thursday selling volume so not technically washing that away.
Up Volume: 810.13M (-88.992M)
Down Volume: 584.249M (+271.005M)
A/D and Hi/Lo: Advancers led 1.74 to 1. The small cap gains pushed the breadth higher though still unable to match the Friday upside or the Thursday downside (-4.3:1).
Previous Session: Advancers led 2.27 to 1
New Highs: 80 (+1)
New Lows: 13 (-19)
SP500 CHART: http://investmenthouse.com/ihmedia/SP500.jpeg
The new week came and SP500 pushed modestly higher into its uptrend channel with a bit better trade than a really low volume pre-holiday session. It is sitting right in the middle of the channel, and the Tuesday action didn't do much to change its position after failing the new closing high last week and getting drilled Thursday. Even with that drilling it held the channel and has bounced. Has not tipped its hand yet, but the jobs report is Friday and it may not do much before that, distribution or not. It has threatened trouble many times and it has skated by it many times as well.
SP600 (+0.87%) posted a very nice session, bouncing back up in its uptrend channel. It has recovered time and again when it looked to be on the ropes, and it is doing so right now though that volume is not great. Hard to argue with the continued success, indeed, the market leading success.
DJ30
Tapped the 10 day EMA on the low and rebounded for a modest gain as the blue chips continue to hold near support after that strong run two and three weeks back. It too suffered the distribution Thursday, but it handled it with a bit of aplomb, holding the closest support. A bit more volume Tuesday, but not significant. Indeed, the Thursday selling was insignificant as far as volume levels. Indeed, the best volume the past two weeks was on the upside. The blue chips are taking their hits as well but they are also holding up very well.
Stats: +14.06 points (+0.1%) to close at 13521.34
Volume: 205M shares Tuesday versus 183M shares Friday. Modest bump in volume but still well below average. As noted, the selling volume Thursday was just above average, indicating no harsh selling.
DJ30 CHART: http://www.investmenthouse.com/ihmedia/DJ30.jpeg
WEDNESDAY
The market managed a rebound Tuesday after trying to give away gains midday. A positive, but it was nothing that changed the face of the market. Overall low volume, quiet action that was more of a relief drift higher in response to the Thursday selling than a new burst of buying. The consumer confidence news was good, but as seen with the midday selling, it was not something that was going to carry the market itself. Investors have seen improving economic data, and it is scaring some with the fear the Fed may raise rates. The PCE later this week will tell us more about that. The trend has the year/year core PCE at 2.1%; a break to 2% or lower would be huge.
For now that is in the distance. Tuesday does give another look at the Fed, however, with the minutes from the prior FOMC meeting. That has some market moving potential as the last couple of releases showed a Fed that was not as sanguine as believed. There is some worry there that inflation is not down enough for the economy to be resuming growth. That is a backwards, Phillips Curve view of the world, but it is the Fed's stated view (though Bernanke likely believes otherwise based upon his actions as Fed chairman). The Fed is not likely going to be any less concerned about the economy, and thus that PCE later in the week (who cares about the jobs report anyway?) very important.
This story is still unfolding and as noted, the action on NASDAQ is not that great (summer for techs in GENERAL is usually tough). The NYSE indices remain in solid uptrends, and solid leadership continues to hold up and even emerge. That remains the strongest positive underpinning for the market. Sure the trends are in place, but they have struggled to hold over the past month and they need the leadership in good position to break higher to continue doing so. Thus far the money keeps seeking these stocks and driving them higher.
We are thus going to keep looking at these stocks for buying opportunities as the week progresses. It is a week chock full of economic data and the potential for up and down, but as noted, the key report will be the PCE that comes out on Friday. Even then, however, stocks that are going to continue moving will ignore this near term data and focus on the future; strong data means a good economy and a good environment for earnings growth. The market is due for a more near term pullback, but the action in stocks during this trend, even with the economic data was waffling, shows the market was building in expectations of better times ahead.
Support and Resistance
NASDAQ: Closed at 2571.68
Resistance:
2579 is the November/February up trendline
2580 is the May high
2590-95 from an April 1999 interim peaks
2609 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:
The July/August trendline at 2545
2542 is a newer trendline from December/January that has propped up NASDAQ in April and twice in May. Interesting.
2531.42 is the February high (post-2002 high); 2525 intraday
2523 is price resistance November 2000
The 50 day EMA at 2519
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 1518.11
Resistance:
1520 from the September 2000 peak
The upper trendline of the channel at 1532
1528 close, 1553 intraday from March 2000 all-time index peak
Support:
1500 from April 2000 peak
The 18 day EMA at 1508
1503 is the late November to February up trendline
1496 is a peak from July 2000
The 50 day EMA at 1481
1475 from peaks in December 1999 and January 2000
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 13,521.34
Resistance:
Now just 9.5% after the selling (hit 10.7% on the prior sessions) above its 200 day SMA
Support:
The 10 day EMA at 13,471
The 18 day EMA at 13,383
13,332 is the upper channel line in the November/February channel
13,245 is the November/February up trendline that marks the lower channel.
The 50 day EMA at 13,053
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.
Economic Calendar
These are consensus expectations. Our expectations will vary and are discussed in the 'Economy' section.
May 29
Consumer confidence, May (10:00): 108.0 actual versus 104.5 expected, 106.3 prior (revised from 104.0)
May 30
Crude oil inventories (10:30): 1.9M prior
FOMC minutes (2:00)
May 31
Q1 GDP preliminary (8:30): 4.0% expected, 4.0% prior
Initial jobless claims (8:30): 311K prior
Chicago PMI, May (9:45): 54.3 expected, 52.9 prior
Construction spending, April (10:00): 0.0% expected, 0.2% prior
June 1
Non-farm payrolls, May (8:30): 140K expected, 88K prior
Unemployment rate, May (8:30): 4.5% expected, 4.5% prior
Hourly earnings (8:30): 0.3% expected, 0.2% prior
Average workweek, May (8:30): 33.8 expected, 33.8 prior
Personal income, April (8:30): 0.4% expected, 0.7% prior
Personal spending, April (8:30): 0.4% expected, 0.3% prior
Core PCE inflation, April (8:30): 0.2% expected, 0.0% prior
ISM index, May (10:00): 54.0 expected, 54.7 prior
Michigan sentiment, May final (10:00): 88.5 expected, 88.7 prior
End part 1 of 3
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us stock market
trend trading stock
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