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us stock market, trade stock
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5/30/07 Stock Split Report Update
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Stock Split Report Subscribers:
Full report issues Thursday
MARKET ALERTS
Targets hit alerts: None issued. Enjoyed just letting positions run higher.
Buy alerts: BUCY; COP; NKE; RIG
Trailing stops: None issued
Stop alerts issued: None issued
The market alert service is a premium level service where we issue intraday alerts relating to the general market conditions, when stocks hit action points (buy, stop, target, etc.), and when we see other information impacting the market or our stocks. To subscribe to the SSR alert service you can sign up at the following link:
http://www.investmenthouse.com/alertssr.html
SUMMARY:
- China syndrome tries to rattle the market again but US stocks reverse, get a Fed assist, and close at new highs.
- Fed is not worried about the economy, at least not that much.
- Jobs report still ahead but investors are not waiting for it as the leaders in energy and industrials take off again.
US markets building immunity to the Chinese cold.
The SP500 finally managed to do what many said it would easily do last week, i.e. close at a new closing high. Last week we were concerned about the 'sure bet' to make that move, and sure enough it could not pull it off, suffering an ugly distribution session Thursday, and the weak rebounds Friday and Monday were not reassuring. Wednesday morning the news out of China made that move appear even more improbable.
Once more China's policies aimed at slowing its economy and stock market reached across the ocean and lowered US futures, starting the session out negative. China tripled its stock trading tax (up to a 'whopping' 0.3%) in an effort to curb its version of irrational exuberance. After all Greenspan opined about that significant correction to come, so why not use his own verbiage.
In addition to the Chinese flu bug, ADP released its monthly guess at the non-farm payrolls number, and its 97K was significantly less than the 135K or so expected. Of course ADP track record is a s good as the local weatherman's, so why the market would be glum over that is a mystery.
It was enough to rattle the market at the open and all indices started lower. They also started rebounding almost from the start. Nothing big or flashy, no surge of money using the lower open to back up the trucks, just a steady climb. Right before the FOMC minutes they made it back to flat. When the FOMC minutes hit and were somewhat dovish regarding the outlook, the market received another boost. Sure it waffled for a few minutes, but it quickly decided the news was good and indeed showed a kinder, gentler Fed. The indices went from flat to positive and closed at the session highs on rising trade and some solid leadership from the likes of energy and industrials.
Technically you have to like this kind of action. Distribution last week was forgotten as the indices surged to new highs. Another weak to strong session, always a winner, gave the indices a ramp to make the run at those highs. DJ30, SP500 and SP600 all posted all-time closing highs. NASDAQ pushed to a new post-2002 closing high. Volume rallied to average or better. Breadth a solid 2:1 on NYSE as the small and mid-caps were rejoined by the large caps. Leadership jumped back into action with energy surging along with industrials and metals. Once more leaders lead and the market follows. The action did not completely wipe out the NASDAQ distribution issues, but it is hard to complain about the move, particularly as the market tends to find ways around the periodic NASDAQ bouts of melancholy. Lots of money will do that, and Wednesday was another example of the power of that money looking for a home.
THE ECONOMY
FOMC minutes still recognize inflation threat but see economic risks.
Talk about walking the middle of the road. Really the Fed is not even walking the middle of the road regarding inflation. The minutes recognize inflation as the ongoing main threat to the economy, but at the same time state "members continued to view the risks to economic activity as weighted to the downside." Inflation is the threat, but downside risks outnumber other risks. Yea, that makes some sense, but you have to stretch a bit to get there, at least if you look at things the way the Fed says it does. Typically the Fed sees a slower economy as good for inflation; these statements, however, seem to recognize the truism that inflation is more of a threat in a slower economy due to a lack of supply.
Rather confusing and the market was befuddled for a bit after the minutes, but then found solace in the words. The Fed also talked of the lack of spillover from the mortgage issues and the return of business investment. True and true. There was enough there to assuage investors, and the market rallied nicely after digesting the words.
That leaves the Fed still talking inflation but not acting as if it was really all that uncomfortable its trend. Indeed, the trend is lower as we discussed two weeks back. The PCE on Friday will tell a big part of the tale as the trend is just about to take the core below 2.0% annualized. Bernanke started the pause phase before the data suggested it was the thing to do, at least using the Phillips Curve model. Moskow and Lacker howled, but inflation kept coming down even without more hikes. There was talk of a cut soon, but the expanding economic numbers the past two months has squashed that notion.
At least until Wednesday. Implicit in the market response is the idea that the Fed is worried enough about the economy and can be pleasantly surprised by the next reading in inflation. If there is still worry about the economy and inflation falls below 2%, there is some Fed wiggle room if inflation continues to drop over the next several months. As noted, the market liked the progress of this scenario, and as we know, the market looks well down the road.
THE MARKET
MARKET SENTIMENT
VIX: 12.83; -0.7
VXN: 16.84; -0.73
VXO: 12.33; -0.66
Put/Call Ratio (CBOE): 0.93; +0.02. After 4 straight sessions of 1.0 or better on the close through Monday, the ratio is falling some, but the market posted a nice gain on solid internals Wednesday.
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: +20.53 points (+0.8%) to close at 2592.59
Volume: 2.079B (+23.65%). Volume jumped up to average as the techs bounced off that mid-2006 up trendline. Not a huge surge of volume but not bad at all. Still doesn't wipe out that prior distribution, but it is getting there.
Up Volume: 1.426B (+307.134M)
Down Volume: 633M (+92.862M)
A/D and Hi/Lo: Advancers led 1.27 to 1. Pathetic, but it was a reversal session. NASDAQ is not leading the move, particularly if you look at the internals.
Previous Session: Advancers led 1.72 to 1
New Highs: 151 (+83)
New Lows: 57 (+37)
NASDAQ CHART: http://www.investmenthouse.com/ihmedia/NASDAQ.jpeg
NASDAQ managed a new post-2002 closing high, reversing much of the damage done last Wednesday and Thursday on the higher volume selling. It is not leading but it is doing what it has to do to keep the trend alive and tag along as the NYSE indices continue to provide the real leadership. No complaints, but this is a hard time of the year for techs (on into August), and playing follow the leaders is not a bad way to get through this time.
SOX (-0.36%) was the epitome of the tech weakness. Techs show signs they want to lead give it a whirl, then cash in. Happened the past two weeks. Now they are tagging along once more. The chips broke out of their range but SOX gave it up. It was down on an upside reversal session. Seems it cannot help but struggle, particularly as it heads into the summer. Perhaps it can prove us wrong, but with the Wednesday reversal, no money was flowing their way. Kind of tells the story.
SP500/NYSE
Stats: +12.12 points (+0.8%) to close at 1530.23
NYSE Volume: 1.564B (+10.61%). Some nice, above average volume, good to see on the upside after last Thursday and the downside volume surge. Shows there was some real buying ongoing in the market leaders.
Up Volume: 1.223B (+413.311M)
Down Volume: 317.064M (-267.185M)
A/D and Hi/Lo: Advancers led 2.26 to 1. Unlike NASDAQ, breadth was strong as the small caps were in the lead early what with energy and metals advancing.
Previous Session: Advancers led 1.74 to 1
New Highs: 190 (+110)
New Lows: 38 (+25)
SP500 CHART: http://investmenthouse.com/ihmedia/SP500.jpeg
With the modest two bounces earlier and the Wednesday surge, SP500 is right back at its upper channel line as it posted a new closing high. Volume was up, breadth was solid. Even with the upper channel line the index looks solid and might try a DJ30ish break above the channel and establish a higher channel.
SP600 (0.68%) was not the market leader, but its sister the SP400 (1.11%) was. Both broke to new all-time closing highs. You have to really, really like this. Smaller caps are economic growth stocks. They typically lead a recovery and then drop off. That is why so many keep calling for a large cap takeover. To a certain extent that happened starting in summer 2006 ahead of the economic slowdown. Now, however, the smaller caps are right in the game, moving to new highs as well. That means the market still sees better economic times ahead, enough to drive price of the smaller cap stocks higher. Cool.
DJ30
Of course the blue chips moved to a new all-time high on the session, turning a test of the near support at the 10 day EMA into a new move higher. Volume was up as well. It really looks as if DJ30 is in a paradigm shift along with the old yet now new again economy stocks wherein they can rally further than historical norms just as techs did in the 1990's. It is not different this time, it is just a different market sector benefiting from the growth. In addition, P/E's are nothing. They are well below the 1996 and 1997 levels, and the market still had some major gains ahead of it then. Again, cool.
Stats: +111.74 points (+0.83%) to close at 13633.08
Volume: 224M shares Wednesday versus 205M shares Tuesday. Starting to complete with that selling volume from last week.
DJ30 CHART: http://www.investmenthouse.com/ihmedia/DJ30.jpeg
THURSDAY
The tempo picks up with Q1 GDP and Chicago PMI along with the delayed oil inventory report. That all precedes Friday's PCE and jobs report. Quite an agenda.
The market is not blanching ahead of the news, indeed posting new highs. Acting as if it is going to be the news it wants. Or as is usually the case, it is going to see the news as it wants to see it. That is that 'head down and rallying' that we often talk about.
Even with the nice Wednesday surge that saw many of our Tuesday new plays give us nice entry points, there are still many stocks ready to move higher and give us buys. The market is making its response to that selling and once again the money moving in is holding the day. Thus we will continue to move in as the leaders we track daily and run on the report make their moves.
At the same time we are letting our current positions run some. We could have taken some gain off the table Wednesday but with the strong response to last week's selling we decided to let them run higher and see where this move takes us. With the metals, energy and industrials taking off again we could get another blistering run for a few sessions once more before SP500 then comes back to test the break above its channel and sets up the shift higher a la DJ30.
Support and Resistance
NASDAQ: Closed at 2592.59
Resistance:
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:
2580 is the November/February up trendline
2580 is the May high
The July/August trendline at 2548
2548 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 2522
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 1530.23
Resistance:
The upper trendline of the channel at 1532
1528 close, 1553 intraday from March 2000 all-time index peak
Support:
1520 from the September 2000 peak
1500 from April 2000 peak
The 18 day EMA at 1511
1505 is the late November to February up trendline
1496 is a peak from July 2000
The 50 day EMA at 1483
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 13,63308
Resistance:
Now just 9.7% after the selling (hit 10.7% on the prior sessions) above its 200 day SMA
Support:
The 10 day EMA at 13,500
The 18 day EMA at 13,409
13,345 is the upper channel line in the November/February channel
13,240 is the November/February up trendline that marks the lower channel.
The 50 day EMA at 13,076
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
FOMC minutes (2:00)
May 31
Q1 GDP preliminary (8:30): 0.8% expected, 1.3% prior
Initial jobless claims (8:30): 315K expected, 311K prior
Chicago PMI, May (9:45): 54.0 expected, 52.9 prior
Construction spending, April (10:00): 0.1% expected, 0.2% prior
Crude oil inventories (10:30): 1.9M prior
June 1
Non-farm payrolls, May (8:30): 135K 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): 0.3% 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): 88.0 expected, 88.7 prior
End part 1 of 3
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