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world stock market, us stock market
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6/02/07 Stock Split Report
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Stock Split Report Subscribers:
MARKET ALERTS
Targets hit alerts: Took some interim gain: BIIB; CNX; COG; SUN; UAPH; VIVO
Buy alerts: CMI; GES; GME; TSO
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:
- Economic data, new money help close out a solid week.
- Growth, yet lower inflation: there you go again.
- After a strong surge off near support the indices could use another rest.
A week that once more turned selling to its advantage.
Two Thursdays back the major indices sold off on strong volume with NASDAQ and SP600 threatening to break their uptrends. A week later and NASDAQ surged on volume that equaled the selling volume. Friday it broke to a new post-2002 high and it topped its uptrend channel. SP600 and its sister SP400 exploded to new all-time highs.
The economy and the market are undergoing something quite special. Friday it was more of the same that has helped propel the indices higher and higher: improving economic data in the US and a lot of money in the world from strong world economies. That money is being put to use for all manner of purposes, such as buying back stock, buying US goods (our exports continue to surge), buying companies, and of course, buying US financial instruments. All the past week there were more stock buybacks, more company buyouts, and more money flowing into US stocks.
Friday it was the economic data that capped a week brimming with economic news. Things started dicey with the ECB (UK central bank) huffing and puffing about rate hikes to stave off inflation, but that inanity was overrun by the US economic news. Jobs rose 157K, better than expected and a solid showing, though not really reflecting the strong dip in jobless claims the past few months. That received all of the headlines at first, but as we surmised, it was the annualized core PCE data that was the real story. After a 2.1% showing for Q1 and for March, it fell to 2.0%, the top of the Fed's 'comfort' zone. Growth and lower inflation. Nirvana. What about the weak GDP? Old news; the last vestige of the mid-cycle slowdown. As we have written about for a couple of months, the mid-cycle slowdown is turning back to growth.
The futures were higher on the news and the market was up solidly out of the gates, but as is often the case, however, the market sniffed out this result ahead of time and was up nicely for the week ahead of the number. Friday stocks rose again, but after the initial surge they faded. It was not a reversal, not by any means. The indices held onto some of their gains but they were going through the motions after the strong Thursday. Basically a perfunctory bow to the anticipated solid economic data.
The large cap indices all closed with the same gains, roughly 0.3% though it is notable that NASDAQ 100 was flat on the session. After a solid move higher they struggled near their upper channel lines, moving marginally higher but again, no real power on the session. At the same time the small and mid-cap indices had no such issues. They surged to new all time highs, closing near their session highs. As noted Thursday, that only means good things for the economy as these indices are dependent upon economic growth for their earnings expansion, and they are pricing in a solid return for the economy.
Technically the action for the week was solid with the strong Thursday trade accompanying the push to new highs. Friday was not as strong overall though it did cap a week of gains with more upside. The start was strong but then the large caps muddled to the close. Volume was lower after the Thursday surge. As noted, the small and mid-caps surged to more new highs as the large caps struggled some, but all are a bit extended once more after this move with NASDAQ and SP500 trading just over the top of their channels. Steady action indeed as they continue to bounce in their uptrends. We wanted to see SP500 breakout of its channel; it started to do that, NASDAQ as well. If the new money continues to move in they can continue higher, but given the run to get to this point there is likely a test back and a higher low to get a running start at the move to join DJ30 in setting up new, higher channels.
Of course there is always the prospect of a more serious pullback given the run; that has been the case for months. Thus far, however, money continues to seize each downturn to push back in. That cannot continue uninterrupted; there are always sharp downturns in even the strongest uptrends. Right now strong leadership continues pushing to the fore in waves, and that is propelling the market higher. We have lamented NASDAQ's inability to take and hold leadership, only rising to the occasion when SP500 and DJ30 stall. It is playing a stopgap role, however, with money moving to it when the large cap NYSE indices need a breather. It is hard to complain too much, particularly given this is typically the start of a weaker period for technology.
Thus we have to remain on guard if stocks start to break down. Indeed we used Friday's upside surge that capped the week as an opportunity to take some gain off the table on strong movers and on some plays that were not providing as great a move as we wanted. It is never a bad idea to bank some gain after a good surge. At the same time we are letting many positions continue higher, and they are posting very impressive runs, racking up the gains. With the rally continuing and with stocks stepping up in rotation, we are continuing to look for new positions and moving in when they show us the moves we want to see. There will likely be a pullback after this week of moves given NASDAQ and SP500 are bumping their channels. That, however, is the same action the market has shown all the way higher.
THE ECONOMY
Regan/Clinton era low inflation and prosperity breaking out all over.
There they go again. There is so much erroneous talk going around about economic strength and inflation. On the financial stations you hear predictions of recession or a 'growth' recession prompted by the housing market, consumer debt, the trade deficit, oil, etc. Take your pick. You also hear central banks talking of inflation caused by too much economic strength and thus the need for rate hikes and tighter money. Case in point was the ECB on Friday talking tough about inflation and the need to stand tough and hike rates if need be. Recession or prosperity with inflation. Tough choices.
Time for a reality check. All of this misinformation clouds the truth that history shows: economic growth unfettered by overregulation alleviates inflation pressures versus fanning them. Why? Money wants to make more money. Thus if the producers and manufacturers see there is an unmet need or envision a new technology they can utilize, money moves to fill the need or make use of the technology. In other words, supply meets demand or in times of innovation, supply creates demand. Remember when the PC first came out? I still remember reading the articles questioning who would ever need one. Now you cannot live without one. Supply created demand. Innovation creates its own demand. Former Dallas Federal Reserve president McTeer advocated this position and of course that is why Dallas was typically the lone dissenter during the Greenspan years. If there were more who thought his way the crash of 2000 and 2001 would not have been so ugly. It could not have been avoided; Greenspan artificially hiked the markets beyond reason with his freewheeling easy money policies and then jerked it all away in one motion. The markets have a hard time reconciling that kind of micromanaged overregulation. But in my anger toward Greenspan (not bitterness, just anger), I digress.
Right now we have a marvelous confluence of events. While many bemoaned the recent economic downturn as the start of a new recession, we were talking of a mid-cycle slowdown similar to 1994 when the Fed hiked, the economy and market went flat, the Fed stopped, the market took off and the economy followed it. That is precisely what is happening now. The Fed stopped hiking in July and the market took off in August, hardly looking back. That move was in anticipation of the second half 2006 slowdown turning again into expansion, and that is exactly what it is doing. The jobless claims show that the jobs market is strong, the manufacturing indices have jumped back into the game, and business investment is now back in the black after a 3 quarter hiatus. All of this happening while . . . inflation falls. Improving economic conditions and falling inflation. Who would have thought? Anyone who looks at economic history.
That is a dynamic set of events that set the spark to the market. It is building in gains ahead of the re-expansion even as earnings growth was flagging along with the expansion. Again, the market builds in the future before it happens and when the Fed paused before it put the Vulcan death grip on the economy, the market started higher with conviction. (And for those 'Star Trek' aficionados, yes we know the Vulcan death grip was a hoax)
As dynamic as these are many still make argument with the housing decline, high gasoline prices, the disparity in income growth - - there are many potential negatives and you can bet they are dissected every day on the financial stations. The problem is, these have not slowed the market or the economic recovery. There is more to the economy than housing. As we wrote last week, housing is typically an early cycle sector and it is supposed to drop off as the economy improves. It was up an atypically long period due to 9-11 and Greenspan holding rates too low too long. Consumers took advantage of it and that along with baby boomers buying second homes kept it alive past its usual term. That leads to a harder crash, or so it seems; activity was very high so the fall seems extreme (the higher they climb the farther they fall). Nonetheless, it has not derailed the climb. Thus far neither have soaring gasoline prices. The forces at work in the rest of the economy are stronger as evident by the climb in the market and the turn back up in the economy. While we say 'there you go again' to those badmouthing prosperity, we can also say that phrase as well with respect to the economy's ability to grow and work off that inflation that the poorly reasoned initial demand-side tax cuts fomented back in 2001 and 2002.
THE MARKET
MARKET SENTIMENT
NYSE short interest: Hit another record for the week at 7.74. There remains a lot of pessimism swirling about the ability to sustain these gains. There is this idea out there that because SP500, DJ30, SP600 and SP400 are hitting all-time highs that the market has to suffer the same consequences as 2000.
Hardly. The economy is expanding again, picking up steam after the mid-cycle slowdown. SP500 P/E ratios are half what they were at that time, and with the economy on the upswing earnings will be improving again and that will only work to keep P/E ratios tame.
Of course, many don't believe the economy is as strong as it is, or should we say improving as rapidly as it is. After all, the Q1 GDP was a stinker, but they tend to do that in slowdowns. With that pessimism, why would they think the market's overall rally can maintain itself? You have to love this skepticism.
VIX: 12.78; -0.27
VXN: 16.58; -0.28
VXO: 12.51; -0.25
Put/Call Ratio (CBOE): 0.9; -0.03
Bulls versus Bears:
Bulls: 53.8%. Down from two weeks at 54.3%. A modest dent in the bullish sentiment but not much. Still very close to the 55% considered bearish. As we have noted before, there are other indications that the 'average Joe' as CNBC termed them is still not in the market. It is where you would expect when the indices are hitting new all-time or multiyear highs. It was 45.5% nine weeks back, making a steady climb higher. Still well off the 60% hit in December 2006. For reference it bottomed in the summer 2006 near 36%.
Bears: 21.5%. Moving higher off 20.7% hit last week after spending some time below the 20% level considered bearish (19.6% the prior week). A quick plunge from 24.7% over the past month. A significant drop from the 27.5% hit 7 weeks back. The rally has taken the bears down from the recent highs near 29 (28.4% and 28.9%), 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: +9.4 points (+0.36%) to close at 2613.92
Volume: 1.93B (-21.93%). After the strong Thursday trade that pushed NASDAQ to a new post-2002 high volume dropped off to below average. Good to see the volume surge as the index hit new highs though the Friday trade at a new high with a doji indicates a slowing move.
Up Volume: 1.211B (-380M)
Down Volume: 690M (-123M)
A/D and Hi/Lo: Advancers led 1.68 to 1. Decent breadth but it was all outside of the large caps as the NASDAQ 100 closed flat.
Previous Session: Advancers led 1.45 to 1
New Highs: 249 (+29)
New Lows: 42 (+5)
NASDAQ CHART: http://www.investmenthouse.com/ihmedia/NASDAQ.jpeg
Another gap higher took NASDAQ over its upper channel line. That was about all it could manage, however. As the large cap NASDAQ 100 faded in the afternoon NASDAQ shaved 12 points from its high, over half the session gain. The result was a tight doji on the candlestick chart, the tombstone kind. That suggests, and the operative word is suggests, that the move is running out of momentum. After 5 upside sessions in a row and 75 points, that is understandable. It would be perfectly normal for NASDAQ to test back again as it did in early May off of a very similar pattern.
SOX (0.35%) posted the same action as NASDAQ, at least with respect to the intraday movement. It surged higher then gave up 5 points of gain. Hardly scratched upside. It is notable that SOX was unable to hold the move over the highs in its 6 month range at 493, fading back below that level. Chips still are still struggling to get any consistent backing.
SP500/NYSE
Stats: +5.72 points (+0.37%) to close at 1536.34
NYSE Volume: 1.481B (-20.22%). Volume faded on NYSE as well, falling back below average though not by much. Volume was much better on NYSE this past week, showing accumulation as SP600 and SP400 rallied sharply. SP500 was not surging as much, but the action was solid overall given the strength of the small and mid-caps.
Up Volume: 1.042B (+24.672M)
Down Volume: 423.273M (-380.034M)
A/D and Hi/Lo: Advancers led 2.01 to 1. With the small and mid-caps surging, breadth was solid once again.
Previous Session: Advancers led 1.4 to 1
New Highs: 392 (+44). Getting better as the small caps and mid-caps move to new highs. Oh, large caps as well.
New Lows: 37 (+9)
SP500 CHART: http://investmenthouse.com/ihmedia/SP500.jpeg
A solid week for SP500 as well, moving to a new high and on Friday it cleared the upper channel in its trend. Thursday was iffy for SP500 with that strong volume and little movement, but Wednesday and Friday were solid upside sessions with a definite improvement in trade. Closed off its high and that suggests a pullback to test; it did not clear its channel with a lot of authority, and after the week of gains a bit of a test before launching into a new channel would be normal.
SP600 (+0.77%) led the market higher with another excellent surge, 15 points over the past 5 sessions. Impressive. It faded modestly off the high, and that high marks the trendline off the November/December/February tops. The strong move for the week took the small caps up to the next resistance level, and a breather here to test is normal. What a move. Good for the small caps, good for the economy considering the strong economic ties the small caps have.
DJ30
DJ30 posted another gain that was right in line with the other large cap indices. As with the others volume backed off below average. DJ30 spent the prior week fading back to test near support at the 10 day EMA and the launched into another run this week. That is how it has moved, i.e. bouncing off near support and posting 300 or so point gains. That leaves 80 or so points on this move, but with NASDAQ and SP500 testing their channel lines DJ30 might take a breather here as well.
Stats: +40.47 points (+0.3%) to close at 13668.11
Volume: 212M shares Friday versus 243M shares Thursday. Volume fell back below average as DJ30 pushed to a new high. Volume Thursday was strong as DJ30 showed a doji. Not the best price/volume action to end the week but volume was up as the index climbed.
DJ30 CHART: http://www.investmenthouse.com/ihmedia/DJ30.jpeg
MONDAY
After a very busy week of important economic data, the reports for the week ahead are rather anticlimactic. Earnings are also long since cold (though warnings season is now just a couple of weeks away). Seems as if summer is definitely here.
The indices are now at that somewhat uncomfortable point where they put in a solid bounce up off of support and are at a point where they have put in tests, particularly with NASDAQ and SP500 just cracking their upper channel lines. To this point they have been almost clockwork in their rise and fall up the trendline. Granted NASDAQ and SP600 got a bit interesting a week back with that two-day distribution bout, but they recovered nicely, the small caps particularly so.
We still see, as usual, solid patterns standing ready in the wings to move higher when the new money comes their way, but after this last run there are fewer of them simply because more and more stocks are participating in the move and are a bit extended. If the market makes a test they may or may not make the move; it depends on whether the money decides to move into new stocks even if there is a pullback. This rally has shown both sides of that coin. Overall, a test would be nice to let many of these solid movers come back and test their breaks higher and set up the next run.
Thus it behooves us to simply be ready to move into strong stocks as they show the breaks higher from good entry points. We are also carrying a lot of plays, letting them run higher. Some have impressive gains built into them and we are inclined to let them run higher for as long as they will. As for the options on those plays, if they expiration is within a month or two (July or August) we have to consider taking some more gain if the market starts to fade back. Friday we took some gain off the table on positions that were not in bad shape, but were not moving very rapidly.
If we get more upside to star the week we will do some more of that. If they are not great movers it would not take much selling to sweep away the gains. Further, we simply want to use the cash on other positions that are set to make a faster move. For example, if we have a stock that has made a breakout but is now creeping along but we see another very strong stock ready to make a break higher, we would rather put the money there and capture that strong move instead of squeezing out a few more nickels. In this market it is hard to cut off a play that is still trending well though slowly. Sometimes you do it just to see it break higher once more, but we never fret about that. If the play is good enough we can treat it like a new play and look at it again. Similar to playing cornerback in football, you need to have a short memory with the stock market, at least with respect to positions you close.
Support and Resistance
NASDAQ: Closed at 2613.92
Resistance:
2778 from a July 1999 peak
2887 from a September 1999 peak
2920 from an October 1999 peak
Support:
2609 is the top of the November/February channel
2590-95 from an April 1999 interim peaks
2584 is the November/February up trendline
2580 is the May high
The July/August trendline at 2558
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
The 50 day EMA at 2529
2523 is price resistance November 2000
2509 is the January 2007 high
2471 is the December 2006 high
2468.42 is the November 2006 high
2460 is the March high
S&P 500: Closed at 1536.34
Resistance:
1553 high intraday from March 2000 all-time index peak
Support:
The upper trendline of the channel at 1533
1528 is the March 2000 closing high
1520 from the September 2000 peak
The 18 day EMA at 1515
1506 is the late November to February up trendline
1500 from April 2000 peak
1496 is a peak from July 2000
The 50 day EMA at 1487
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
Dow: Closed at 13,668.11
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 13,550
The 18 day EMA at 13,457
13,330 is the upper channel line in the November/February channel
13,200 is the November/February up trendline that marks the lower channel.
The 50 day EMA at 13,120
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.
June 4
Factory orders, April (10:00): 0.6% expected, 3.5% prior
June 5
ISM Services, May (10:00): 55.0 expected, 56.0 prior
June 6
Productivity, Q1 (8:30): 1.4% expected, 1.7% prior
Crude oil inventories (10:30): -1.9M prior
June 7
Initial jobless claims (8:30): 315K expected, 310K prior
Wholesale inventories, April (10:00): 0.3% expected, 0.3% prior
Consumer credit, April (3:00): $6.0B expected, $13.5B prior
June 8
Trade balance, April (8:30): -$63.0B expected, -$63.9B prior
End part 1 of 3
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world stock market
us stock market
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