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us stock market, trend trading stock
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6/12/07 Stock Split Report
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Stock Split Report Subscribers:
MARKET ALERTS
Targets hit alerts: SBUX
Buy alerts: CLF; XLU
Trailing stops: CMI; HAL; MRO; SU
Stop alerts issued: PENN
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:
- Relief bounce turns to higher volume selling as bond rates surge higher
- Inflation worries continue to run high on Chinese numbers, overshadowing the declining inflation elsewhere.
- Foreclosures spike as qualified buyers cannot access funds, thus depressing the market more than it should be.
- Same store sales defy the gloom and rise.
- Alas, the downside strength Tuesday tells the story of further downside yet to come.
Sellers take control once again.
Inflation worries once again dominated the market action. Pre-market the UK inflation report was lower than expected, but that was overrun by the Chinese inflation rate that came in hotter. Given China is seemingly building a new dam and power plant a day as it desperately tries to build out its country, any inflation and the government's attempt at slowing it jeopardizes that growth. The ripple effects of a slowing Chinese economy would be felt worldwide, and thus the faltering in stocks.
With that to set the stage along with TXN's blas mid-quarter update and continued rising US interest rates (5.21% on the 10 year to start the session), even some strong LEH earnings could not push stocks higher. They started lower and again SP500 tested the 50 day EMA. A bounce ensued as rates backed off and buyers stepped in on the 50 day EMA test. By early afternoon NASDAQ and SP500 turned positive even if it was by a hair. Energy was helping lead the way despite another decline in oil ($65.28, -0.69 on the session).
It was not to last, however. Sellers moved back in mid-afternoon as a story circulated regarding Iran providing equipment to kill US soldiers in Iraq and that the US was contemplating a military response. The real issue was, as usual, interest rates. The 10 year shot past 5.25% (was trading as high as 5.29% after the stock market close). That gut-punched the rally attempt and sent the indices to session lows on the close along with a big shot of volume.
Technically it was a classic return to selling after a relief bounce Friday and Monday. Breadth was narrow and volume was low on those sessions, and it flipped to massively high downside breadth (-6:1 NYSE) and above average volume on the selling. SP500 fell back to its 50 day EMA on the close, SP600 broke through its 50 day EMA, and DJ30 fell back into its channel. NASDAQ sold though it managed to hold off a full test of the 50 day EMA just yet.
Basically the market started its second leg lower in this selling bout that saw DJ30 change its character with a high volume breach of the 18 day EMA, a level it had not tested since the rally resumed in March. Typically there are three legs lower, but that is rather loose and subject to interpretation as to what is and isn't a leg. Whatever number you assign it (a continuation of the first or the start of the second), it was clear that the sellers took clear control on high volume and negative breadth.
In the big picture the session gave a pretty good insight into the market direction, mood, karma, whatever you want to call it. It definitely showed where the strength is now: the market tried to continue the relief bounce after resuming a turn back down, but when interest rates continued higher the sellers body slammed the rally attempt.
THE ECONOMY
Mortgage foreclosures jump as the balloons come due.
After virtually no action in April, May saw foreclosures rise 19% with 176,000 filings. Year over year the climb was an impressive 90%. Spring is typically one of the stronger buying seasons, but this year it is the foreclosure season.
As interest rates rise and more and more of the balloons (short term initial loan must be refinanced at the expiration of that period) come due, many that bought in at lower rates are unable to qualify for the higher rate. Indeed, some that could pay the higher rate may not qualify for the refinance because lenders are now so sever with respect to their qualification criteria. Wish they were more discriminating a couple of years ago instead of the 'can you fog the mirror' financing plan. Now when the market really needs to let these people refinance they are shut out and the market continues its decline.
On top of that you still have a lot of projects under construction as builders complete building plans made in better times. That will only add to inventory along with the foreclosures.
This is all very interesting in timing. The economy is on the upswing again, not heading lower, yet lenders are now acting as if it is heading into recession, not coming out of the mid-cycle slowdown. Thus instead of recognizing that borrowers have jobs and are not going to lose them anytime soon and therefore opening up the coffers, access to money is lower for fear of some sort of congressional retribution. Remember the threats to regulate the industry. As usual, they came after the cows left the barn and now they are preventing the farm from functioning because everyone including the farmer is locked out.
That underscores the problems of regulation that sets up too many rules that make it profitable to find ways to game the system. I am often reminded of a story about a city wanting to better control its maintenance workers out in the field. The city carefully set criteria for the number of signs that had to be repaired or installed by each crew per day. When the regulations came out, the workers laughed because the criteria were 40% less than what the good crews could accomplish in a day. Thus the good crews did their quota by lunch and then knocked off. With mortgages, there are solid, qualified buyers shut out because of the overreaction in response to congressional huffing and puffing. Sure they brought it on themselves by taking advantage of the existing regulations, but at this juncture we don't need a bunch of CYA (cover your a--) actions. We need to get these people into mortgages. As it is the market is going to take longer to recover than it should, and we all will pay some of the price for that.
Same store sales post a solid increase.
Month over month same store sales rose 1% from April to May. Doesn't sound like much but it was the strongest since early February and a 1.3% rise. Year over year sales climbed 2.1%, and that was a bit lower than the prior month's year/year measure. WMT sales were rather pathetic again at 1.1%, but TGT, KSS, and the teen retailers did very well.
There is obviously still life in retail as gasoline prices back off from prior highs. As we reported at the start of May, the product was catching up with demand and it was just a matter of getting it shipped to where it was needed. That is happening and prices are falling from $3.23/gallon at the end of May to $3.07/gallon as of today. The NYMEX contract for unleaded is down 45% from its late April high. That is translating into $2.50 to $2.75/gallon gasoline in the near future.
Of course, one storm and all bets are off the table short term. Production is still lower than it should be as of last week, and it was up to some higher imports to make the difference in supply. A storm would disrupt both refineries and imports and prices jump 20% pretty quickly. For now supply is holding up and that is benefiting retail sales.
THE MARKET
MARKET SENTIMENT
Volatility is on the move again after making a higher low at the 10 day EMA. It at times seems surprising that such a measure tracks the same patterns of stocks and indices, but when you boil it all down, charts show emotions. They are the embodiment of investor emotion. Thus they tend to set up the same way, and VIX is setting up for a breakout to the upside. What that indicates is the same as what the indices are suggesting, i.e. a breakdown (the two move inversely).
VIX: 16.67; +1.96
VXN: 17.7; +1.41
VXO: 16.01; +1.4
Put/Call Ratio (CBOE): 1.1; +0.02. Seven sessions above 1.0 on the close, but it is secondary and it looks as if the indices are heading lower before moving higher.
Bulls versus Bears: These are last week's stats. They are likely to change quite a bit on Wednesday.
Bulls: 52.2%. Down from 53.8% last week and 54.3% the week before. That was last week, however, and the downdraft this week will likely make a significant inroads into this but it won't push it down to 40ish where it needs to be. Of course given the indices were hitting new all-time highs, bulls are at a level you would expect. Still well off the 60% hit in December 2006. For reference it bottomed in the summer 2006 near 36%.
Bears: 22.8%. Good jump higher from 21.5% as it continues off the 20.7% hit two weeks back after spending some time below the 20% level considered bearish (19.6% the prior week). It is still well off the 27.5% hit 2 months 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: -22.38 points (-0.87%) to close at 2549.77
Volume: 2.144B (+26.97%). Volume sparked up to above average though just cracking that level. After the dormant volume Monday, however, it was a sizeable increase as the sellers took control of NASDAQ.
Up Volume: 524M (-181M)
Down Volume: 1.606B (+647M)
A/D and Hi/Lo: Decliners led 2.98 to 1. Even on the best upside volume session last week it was not stronger.
Previous Session: Decliners led 1.18 to 1
New Highs: 86 (-20)
New Lows: 105 (+54)
NASDAQ CHART: http://www.investmenthouse.com/ihmedia/NASDAQ.jpeg
NASDAQ gapped lower, tested 2550 and then rebounded smartly in the early afternoon. That took it once again to the 10 and 18 day EMA as well as the July/August 2006 trendline, and there it stalled. It turned over and finished at session lows. Still above the 50 day EMA (2541) but looking for a full test of that level. Very toppish pattern that is ready for more downside.
SOX (-0.94%) turned over after tapping 493, the top of the range, and faded to the 90 day SMA. That puts it in the top half of the range, but still looking for a test lower in this range. Chips have struggled after the April breakout, and back in the trading range it has to once more work up to a new buy point. The other indices don't indicate that happening soon.
SP500/NYSE
Stats: -16.12 points (-1.07%) to close at 1493
NYSE Volume: 1.609B (+21.75%). Volume surged back above average as the large and small caps sold off to and through the 50 day EMA.
Up Volume: 181.965M (-503.399M)
Down Volume: 1.42B (+798.229M)
A/D and Hi/Lo: Decliners led 6.09 to 1. Once again some more heavy downside breadth as the NYSE indices resume their selling. After the 11:1 last Thursday thrashing, this is just more indications of the weakness on NYSE as it consolidates the run.
Previous Session: Decliners led 1 to 1
New Highs: 57 (-9)
New Lows: 143 (+69)
SP500 CHART: http://investmenthouse.com/ihmedia/SP500.jpeg
SP500 again tapped the short term moving averages and the November/February trendline and beat a hasty retreat. Once more SP500, as last Thursday, closed at the 50 day EMA (1493). Such a quick trip after a lower high at the old up trendline indicates SP500 is hanging around in the bad neighborhood. That indicates it is likely to break through and move toward the February peak at 1459.
SP600 (-1.19%) is showing the same kind of action, i.e. the low volume bounce off the 50 day EMA and then the dump back down to that level, actually undercutting it on the Tuesday close. It is close to the February high, however, just 4 points away. That will be an interesting test just as it will be for SP500. The small caps are likely to make it there first, however, and they were in leadership status heading into this sell off. Thus their action provide some foreshadowing with respect to the other indices.
DJ30
The same action on the blue chips as the Dow broke back down into its channel as it did last Thursday with volume rising to average. It has formed a head and shoulders with a very weak (lower in height) right shoulder. The Dow rallied higher and faster than the other indices, and it is not yet at its 50 day EMA (13,198) and still well above its February high (12,786) that was the last peak for any of the indices before the March sell off and recovery rally. Looks as if DJ30 has about 500 points more or less to consolidate. It does not help that DJ20 (transports) have already given up not only the 50 day EMA but the 90 day SMA as well. Some massive weakness there.
Stats: -129.95 points (-0.97%) to close at 13295.01
Volume: 233M shares Tuesday versus 180M shares Monday. Volume jumped up to average as the blue chips sold off. More distribution as with the other indices, setting the stage for a deeper test.
DJ30 CHART: http://www.investmenthouse.com/ihmedia/DJ30.jpeg
WEDNESDAY
Some economic data starts to return Wednesday with retail sales, crude oil and gasoline inventories, and the FOMC minutes. Those are in addition to the continuing interest rate and inflation fears. As noted Monday, there is a lot of hype regarding inflation while there is nothing to suggest that the trend in US inflation has changed. Thus when the CPI is out Thursday there is the possibility of a positive surprise that could finally give the market an upside goose.
That remains to be seen. The price/volume action on the indices indicates further downside even as SP500, NASDAQ and DJ30 test key support at the 50 day EMA. The distribution, the lower highs, the toppy patterns all suggest further downside. We moved into some downside positions as the market rolled back over after the modest and low volume relief bounce. That has set up more downside and Tuesday looks to be the first session as it starts the next leg.
We are going to continue to look at some downside positions to take advantage of the next run lower. At the same time we still have some upside positions that are in surprisingly solid shape given the selling to this point. We were protecting some more positions Tuesday and will continue to do so but unless there is a change in the leading energy stocks, they look as if they are going to ride out this selling and be in great position for the next move higher. Of course Wednesday is oil inventory day and there could be some near term reaction, but overall the patterns have remained quite strong.
In any event the overall market is still weak and ready for more downside barring some unforeseen positive event (perhaps the Friday CPI result). At some point interest rates will be recognized for what they are, i.e. a sign of better economic times as the curve reverts. There is reason for concern if the 10 year hits 5.5% as that changes the economics of stock prices vis- -vis their earnings unless earnings really ramp up. That appears to be the main fear with this spike though the worry regarding 'deal making' is running just behind. That has been the catalyst to send stocks lower, and right now there is not much to take the pressure off until something such as low inflation rates wakes everyone up to the fact that interest rates are not a pseudonym for inflation.
Support and Resistance
NASDAQ: Closed at 2549.77
Resistance:
The July/August trendline at 2574
2580 is the May high
2590-95 from an April 1999 interim peaks
2596 is the November/February up trendline
2615 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 50 day EMA at 2541
2531.42 is the February high (post-2002 high); 2525 intraday
2523 was 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 1493.00
Resistance:
1500 from April 2000 peak
1511 is the late November to February up trendline
The 18 day EMA at 1512
1520 from the September 2000 peak
1528 is the March 2000 closing high
1553 high intraday from March 2000 all-time index peak
The upper trendline of the channel at 1542
Support:
The 50 day EMA at 1493
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 13,295.01
Resistance:
13,360 is the upper channel line in the November/February channel
The 18 day EMA at 13,441
The 10 day EMA at 13,444
Support:
13,260 is the November/February up trendline that marks the lower channel.
The 50 day EMA at 13,198
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 12
Treasury Budget, May (2:00): -67.7B actual versus -$68B expected, -$42.9B prior
June 13
Export prices, May (8:30): 0.4% prior
Import prices, May (8:30): 0.2%
Retail sales, May (8:30): 0.6% expected, -0.2% prior
Retail sales ex-Auto (8:30): 0.7% expected, 0.0% prior
Crude oil inventories: +1.1M prior
Fed's Beige Book (2:00)
June 14
Initial jobless claims (8:30): 310K expected, 309K prior
PPI, May (8:30): 0.6% expected, 0.7% prior
Core PPI, May (8:30): 0.2% expected, 0.2% prior
June 15
Current account, Q1 (8:30): -$202.50B expected, -$195.8B prior
CPI, May (8:30): 0.6% expected versus 0.4% prior
Core CPI (8:30): 0.2% expected, 0.2% prior
New York PMI, June (8:30): 12.0 expected, 8.0 prior
Net foreign purchases, April (9:00): $67.6B prior
Industrial production, May (9:15): 0.2% expected, 0.7% prior
Capacity utilization, May (9:15): 81.6% actual, 81.6% prior
Michigan sentiment, preliminary, June (10:00): 88.0 expected, 88.3 prior
End part 1 of 3
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us stock market
trend trading stock
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