|
|
world stock market, us stock market
* * * *
6/05/07 Investment House Daily
* * *
Investment House Daily Subscribers:
MARKET ALERTS:
Targets hit alerts: MA; Took some interim gain: BIDU
Buy alerts: ATHR; BCSI; DRI; LYO
Trailing stops: None issued
Stop alerts issued: ACGY; TTEC
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 Daily alert service you can sign up at the following link:
http://www.investmenthouse.com/alertdly.html
SUMMARY:
- Indices give in at trendlines with a Bernanke assist.
- ISM delivers service with a smile
- Some backfilling by the major indices after a good run is just fine as long as trade levels remain in line and leadership holds the line.
Stocks find no reason to continue beyond their channels given the news.
BBBY warned and DD was downgraded, but the real morning driver was Fed chairman Bernanke's address to the Heritage Foundation that was rather rigid and dull. It did not provide any bombshells or mark any change in Fed policy, though Bernanke allowed that the housing slowdown would linger on longer than expected. It was the lack of any calming or reassuring words that the market has grown accustomed to as well as the no hint whatsoever regarding a rate cut that did the damage, at least according to the traders and brokers we talked with when we made our usual calls to get a bead on the day's market sentiment.
There was also a worry about interest rates rising as the idea of a Fed rate cut sails off into the horizon. The 2 year is at 5% while the 10 year is bumping that key level (4.99%). This matters to stocks because as interest rates rise stock values theoretically fall based upon their impact on earnings as well as the calculation of the relative values of different asset classes. 5% is okay, but if it hits 5% you worry about the next level. 5.15% is fine as well. If it jumps past that it starts getting problematical for stocks based on the level of earnings growth ahead (and it has slowed as we know). At 5.5% with current earnings levels you have a problem for growth in equities as you are digressing to 2006 levels. Of course if the economy accelerates (and that is why rates are moving higher) and earnings expand once more, then higher rates can be sustained. Historically they are low. The issue, however, is their relative levels versus how the economy and earnings are performing. They are all intertwined and thus you cannot simply say 'rates are high' or 'rates are low.' They are always high or low relative to the economic strength.
That worry was enough to start stocks lower. Once more, however, they rebounded midmorning and made it up to the opening levels. The catalyst appeared to be the ISM Services report that jumped to 59.7, blowing past the 55.8 expected and the 56 in April. It was good news and the market initially responded with a rebound up to the opening levels. Then the rate fears set in and stocks tumbled lower into lunch, hitting session lows. It took a long, steady rebound through the afternoon to cut the losses, and even at that the rebound outside of NASDAQ was not very impressive. Once more NASDAQ outperformed when the NYSE large cap indices and stocks struggled. As we have noted in the past, this is a good indication even though the market was down for the session. Each time DJ30 or SP500 struggle, NASDAQ performs better (though Tuesday was hardly a roaring good tech time), and that shows money heading that way, i.e. not leaving the market. Money is the mainstay for this market, and when it moves around when one area gets overbought, that is a very good indication of continued buy side interest. It wasn't a great performance by NASDAQ, but it was a solid recovery and a much better finish than its NYSE counterparts.
Technically there was some higher volume selling on NYSE, but it was also below average volume. Not a lot of teeth in the attempt to bite NYSE's butt. As for NASDAQ, trade was well above average though off the previous two big volume sessions (one downside, the other upside). With the point losses that smells of more serious distribution, but NASDAQ also rebounded 16 points off its low that tapped at the 10 day EMA. A very solid rebound in the afternoon driven by rising volume. Again, that money moving toward techs when the NYSE large caps struggle was evident. Breadth was terrible at -2.8:1 NYSE and -1.7:1 NASDAQ. We note that NASDAQ 100 was down just 0.07%; the buyers in the afternoon were focusing on large cap tech, and stocks such as AAPL did not hurt.
Was it really Bernanke and interest rates?
Okay, it was a weak session, but it was also on the heels of a rally last week that bounced the indices off of their up trendlines or near support and took them to the upper channel lines (at least for NASDAQ, SP500 and SP600; DJ30 is long past that stage). After trying to punch through Monday on low volume, the sellers finally found some purchase as we thought they might in our weekend discussion of the market.
Thus was it really Bernanke and/or interest rates that caused the stutter on Tuesday? No, they were mere pawns in the bigger picture just as was Mongo in 'Blazing Saddles.' The market made another solid bounce up to the upper channel lines for NASDAQ, SP500 and SP600. They kicked the tires of a breakout from the channel but they were not ready to buy. Now they are testing back in the channel, trying to set up again for another move higher.
We didn't like the volume rising, but frankly after two well below average volume sessions a rise in volume was pretty much in the cards no matter which way stocks went on the session. The real disappointment was energy. It held up in the first bout of selling, but it also cracked on the session and could not come back. It did not pull a Floyd Landis stage collapse as seen in the 2006 Tour de France, but it could not hold the early strength. After starting the breakout moves Monday, we wanted to see more strength from those obscenely profitable companies that our leader wannabes are champing at the bit to tax. Of course failed policies of the past are just like stale milk. You pull the milk out of the refrigerator and it is stale. You put it back in. You take it out a week later and it is still stale. All we got from the windfall profits tax was plummeting US oil production that handed a world monopoly to OPEC. Way to go! But I digress. Energy could not extend the breakout, but it did not collapse, and thus we are looking for energy to lead again this week.
THE ECONOMY
ISM services serve up a nice gain.
May was a good month for the service sector with a burst up to 59.7 from 56 (55.8 expected). If you look at the restaurant, hotel and other travel services stocks you can see the strength this report reflected. Remember, the ISM reports are basically glorified sentiment reports. They are not really based on hard data other than the respondents' interpretation of their data. So it is more of a feeling about how business looks right now and what it will be down the road versus all hard data. That is not necessarily a bad thing; as we know, the market prices in good news ahead of the event, and the service stocks nice move higher indicates the improvement that is taking hold.
Bigger picture, this was the second month of strong gains, though February and March (54.3 and 52.4, respectively) were no slouches. New orders hit 57.4, the high since September 2006. Inventories moved up to 61, quite a turn from a sub-50 showing (47.0) in January. Employment moved up to 58.0; it has been a year since they were that high.
All in all a very solid report showing continued improvement in the service industry and is another big weight on the growth side of the scale. Seems everything but housing is moving to the growth side of economic scales, and while housing continues to struggle thanks to the continued expiration of term mortgages, the impact is not stalling the recovery.
Some argue that housing is the predominant factor, but as we have discussed before, housing is an early cycle sector that typically tails off after the initial economic rebound. It is coming back from lofty heights and the fear is the economy cannot handle such a decline. Again, thus far the rest of the economy is holding its ground. More than that, it is improving nicely. It is getting harder and harder to argue the economy is going to succumb to the housing slowdown just as it became harder and harder for the economic nay sayers to talk down the economic recovery. Report after report proved them wrong and they continually adjusted their arguments as the economy improved. From the look of it we will likely see the housing grinches give up their arguments piece by piece.
THE MARKET
MARKET SENTIMENT
There remains a lot of nervousness about the market climb. We talked about the record NYSE short interest. With the advent of more and more ETF's there are those that are 'short' ETF's, i.e. you buy them and they go up as the market falls. Those are seeing most of the action relative to the universe of ETF's. True, a lot of the activity is used as a hedge for positions that individual and more institutional investors do not want to liquidate upside positions.
That in itself proves the point, i.e. there is a lot of nervousness about the ability to hold the gains and move higher and thus the active purchases in these downside ETF's. Regardless of the reason (speculation or protection), the predominance of the negative sentiment continues building that wall of worry stocks are climbing.
VIX: 13.63; +0.34. Of course, you would not know that there is bearish sentiment by looking at the volatility indications.
VXN: 16.44; -0.15
VXO: 13.12; +0.39
Put/Call Ratio (CBOE): 0.95; +0.05
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: -7.06 points (-0.27%) to close at 2611.23
Volume: 2.231B (+16.74%). NASDAQ volume jumped back above average as NASDAQ sold off to the 10 day EMA and then rebounded to hold the break over the upper channel. Good to see the recovery as volume ramped up; there was some buying.
Up Volume: 727M (-363M)
Down Volume: 1.46B (+599M)
A/D and Hi/Lo: Decliners led 1.76 to 1. Bad, but not that bad. Note that NASDAQ 100 was down just 0.07%.
Previous Session: Advancers led 1.08 to 1
New Highs: 146 (-51)
New Lows: 49 (+9)
NASDAQ CHART: http://www.investmenthouse.com/ihmedia/NASDAQ.jpeg
NASDAQ sold off with the rest of the market, but as noted above, it tapped at the 10 day EMA (2592) on the low and rebounded to cut two-thirds of its losses and hold the modest break above the upper channel line. The volume shows buying coming back in on the test. The hold above the channel line indicates some strength. Once more NASDAQ had a bit of buying thrown its way when DJ30 and SP500 struggled a bit. This could turn out to be an inflection point for NASDAQ. It is summer and techs generally stink from May to August, but techs are showing signs (once again) of trying to take the lead. They have head faked us on two prior occasions and likely will do the same here, but with NTGR, NVDA, AAPL, GOOG, AMZN and company moving higher on strong volume it has the looks of a potentially important break higher.
SOX (-0.65%) is not exactly showing NASDAQ's strength. It reached well below the 50 day EMA and had to rally back to hold that support on the close. It is still back in the trading range having failed to take out 493 on Friday and Monday before fading back.
SP500/NYSE
Stats: -8.23 points (-0.53%) to close at 1530.95
NYSE Volume: 1.513B (+12.22%). Big jump in volume on the downside, and that shows the sellers controlled the action. Volume was still below average, however, so it was not a complete turn to the downside. SP500 also bounced up off the 10 day EMA, showing some backbone (or some starch in the shirt).
Up Volume: 344.965M (-429.247M)
Down Volume: 1.152B (+599.737M)
A/D and Hi/Lo: Decliners led 2.85 to 1. Pretty much a broad-based beating as all the NYSE indices closed lower without much of a rebound.
Previous Session: Advancers led 1.37 to 1
New Highs: 173 (-175)
New Lows: 40 (+11)
SP500 CHART: http://investmenthouse.com/ihmedia/SP500.jpeg
SP500 tried to hold the upper channel breakout, but it was not much of an attempt. It sold off to the 10 day EMA on the low on rising trade, managing a rebound but unlike NASDAQ, it could only take back a third of its losses. After bumping the upper channel it is fading back, still in the uptrend. It has bumped the channel line and faded back several times and this is thus 'normal' action. Don't want to see volume continue to run higher as it makes the test back, but as noted before, volume was so low Friday and Monday, it was bound to be higher once session.
SP600 (-0.81%) behaving much as SP500, bumping the upper channel and then fading back. It rebounded as well, but its rebound was modest. The small caps have led higher and now they are taking a breather.
DJ30
The blue chips sold as well and on rising volume, but it was no meltdown. On the low it undercut the 10 day EMA but held it on the close. Thus far DJ30 continues moving higher in its trend, using this 10 day EMA (13,577) as its support. This is another test of that near support and it is very much the same as the three (possibly four) prior moves. Getting a bit extended on this run, but it has been extended for awhile. Each test at this level, however, requires some attention given the move higher.
Stats: -80.86 points (-0.59%) to close at 13595.46
Volume: 223M shares Tuesday versus 177M shares Monday. Volume rose coming in just below average as the blue chips tested back. Some distribution for sure but nothing huge. With the long run to this point it bears watching as DJ30 makes this test.
DJ30 CHART: http://www.investmenthouse.com/ihmedia/DJ30.jpeg
WEDNESDAY
Productivity and oil/gasoline inventories are the scheduled economic reports for Wednesday. Gasoline has peaked for the time being, something we anticipated a couple of weeks back when reports started to surface that the pipelines had more product than they could push through. Thus we are expecting a further build in gasoline.
After hours there were some good earnings reports. After BBBY warned for the first time in its history and set off concerns about retail given the housing market, GES handily beat its earnings and was up $3 after hours. The retail sector took its lumps in the mid-cycle economic slowdown but we are seeing positives as the economy pulls back out. Indeed a lot of the growth in ISM Services was due to this stronger consumption.
That said, the market, at least with respect to SP500, SP600 and NASDAQ, again struggled at the channel lines and faded. This comes after a solid run off near support the prior week. Some backing and filling is normal after that move and it is also in line with the patter of the continuing trend higher. The volume was more than we wanted to see but it was still below average on NYSE and NASDAQ rebounded to recoup much of its losses. Again, with the low Friday and Monday trade levels, the session, whether it was up or down, had a high likelihood of moving on rising trade.
Each test is a bit worrisome given the run higher, but we also continue to see good leadership stocks, or as one subscriber put it, there are many 'interesting' charts out there. This market has fought off each pullback and has thrived on the pessimism surrounding it. Thus we will continue to pick out the strong stocks in the best position to move higher; some are already set to go, others are using this test to lay the foundation for the next move. The volume raised some questions and the pullback have to be watched at these levels, but as we often say, the market moves as its leaders move. Right now the report is chock full of them and we are looking at others. What we do is prepare and then when the market says it is time we move in.
Support and Resistance
NASDAQ: Closed at 2611.23
Resistance:
2778 from a July 1999 peak
2887 from a September 1999 peak
2920 from an October 1999 peak
Support:
2611 is the top of the November/February channel
2590-95 from an April 1999 interim peaks
2592 is the 10 day EMA
2586 is the November/February up trendline
2580 is the May high
The July/August trendline at 2562
2548 is a newer trendline from December/January that has propped up NASDAQ in April and twice in May.
The 50 day EMA at 2536
2531.42 is the February high (post-2002 high); 2525 intraday
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 1530.95
Resistance:
1553 high intraday from March 2000 all-time index peak
The upper trendline of the channel at 1537
Support:
1528 is the March 2000 closing high
1520 from the September 2000 peak
The 18 day EMA at 1519
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 1491
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 13,595.46
Resistance:
10.7% above its 200 day SMA where it struggled the third week of May.
Support:
The 10 day EMA at 13,577
The 18 day EMA at 13,492
13,335 is the upper channel line in the November/February channel
13,230 is the November/February up trendline that marks the lower channel.
The 50 day EMA at 13,160
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): 0.3% actual versus 0.6% expected, 4.1% prior (revised from 3.5%)
June 5
ISM Services, May (10:00): 55.5 expected, 56.0 prior
June 6
Productivity, Q1 (8:30): 1.0% expected, 1.7% prior
Crude oil inventories (10:30): -1.9M prior
June 7
Initial jobless claims (8:30): 312K 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
|
world stock market
us stock market
|
