|
|
us stock market, trade stock
* * * *
6/13/07 Investment House Daily
* * *
Investment House Daily Subscribers:
MARKET ALERTS:
Targets hit alerts: CRZO; FCX
Buy alerts: FISV; HC; MA; WNR
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 Daily alert service you can sign up at the following link:
http://www.investmenthouse.com/alertdly.html
SUMMARY:
- Tuesday may have foretold more downside, but retail sales and lower inflation pressures in the Fed Beige Book gave the market present gains on Wednesday.
- Nice Wednesday response to the selling, but still a lot of volatility in the market.
- Retail sales surge back in May after a weak April showing.
- Fed Beige book hits the right chords with stronger regional gains and jobs but no increase in price or wage pressures.
- Market once more finds buyers as inflation and interest rate worries fade some in the face of economic reality, but Wednesday does not wash away the prior distribution altogether.
Buyers wrest back control on strong retail sales and a better view of inflation versus interest rates.
A strong rebound in May retail sales, sans gasoline or not, turned sellers to buyers ahead of the open as futures traded 10 points above fair value. It didn't hurt that some M&A activity perked up again, at least in the form of raised bids from the likes of ICE as it continues to covet BOT. That started the worm turning toward the idea that maybe higher interest rates were not going to cause the collapse of western economies just yet.
Stocks started higher, aided by a recovery in energy stocks even ahead of the weekly energy inventory report. When gasoline inventories were flat versus the 2M to 3M expected, energy stocks continues to lead. The market started to lose its early momentum, however, and spent midmorning to early afternoon working laterally and slightly lower, still holding the gains but losing that early kick. Then the Fed Beige Book was released wherein the Fed noted the economy was expanding again but it saw no increase in price pressures as a result. Imagine that; growth without inflation. Seems we have talked about that a bit lately. The Fed also saw improvement in the jobs market, but here as well it saw no increase in wage pressures. Capital investment was rebounding as well. The Fed went on, but those were the attention getters.
This was the better inflation news that we were expecting the Friday CPI to show and surprise the market. As it is, it compounded the earlier indications that higher interest rates were not disguising inflation that would kill the market, helping put inflation fears in their place: rising interest rates do not equal inflation where there is growth in supply and demand together just as there is now. With capital investment improving once again after a mid-cycle slowdown for 4 months, the prospects for inflation-free growth started to work back into the market. As they did (and as the 10 year yield fell back to 5.21% from an early bump up to 5.31%), stock prices started to work their way back up. Stocks spurted higher on the news with the indices breaking back up through the trendlines they just broke. That is what happens when myths face reality. Just didn't expect them to have to face it as a result of the Beige Book.
Technically the action was solid but a bit lacking on NYSE. Strong start that was tested midday, then a strong rally to finish on the session highs. Volume was up on NASDAQ, topping the distribution trade on Tuesday. Have to like that; fight fire with fire as they say. SP500 was close, but it could not top the Tuesday trade, and that was the primary hole in the action. Breadth, while still below the level of the downside breadth on the selling, was not bad at all (4.5:1 on NYSE). The indices broke back up through trendlines (SP500, SP600, DJ30) or bounced off of support (NASDAQ). Also significant is that DJ30, SP500, and NASDAQ all made higher lows as they bounced on stronger volume. As noted, there was plenty of leadership from the likes of energy, metals, and chemicals. No rally is complete without solid leadership making moves from positions of strength. That was the case on Wednesday.
Don't forget the volatility.
That looks and sounds like solid action and it was. There is a caveat. We have talked about volatility, and not just that measured by the VIX. There is volatility in volume, moving back and forth from distribution to accumulation. There is volatility in price as the market bounces back and forth from gain to loss and back again and on some big moves. NASDAQ's past sessions starting from Wednesday: +32, -22, -1.39, +32, -45, -24. The week before that saw NASDAQ sell off 65 points and then bounced right back 75 points. Very up and down action with just the most gradual trend higher and something of a head and shoulders trying to form. Same action on the other indices as the show a similar picture.
This action represents the bulls and bears fighting it out, and they are both landing some big blows. In the end the one landing the most big hits wins. Over the past 5 weeks SP500 has logged 4 bona fide accumulation sessions to 7 distribution sessions. NASDAQ has 7 accumulation and 8 distribution sessions over the same period. Right now the sellers still have the upper hand.
Wednesday was a good response, but it has not broken up the toppy looking patterns on some of the indices. It can still do the trick; the higher low, leadership, and overall solid action Wednesday was a solid start. We don't ignore the moves; we never do. We just have to remain light on the feet, something we have been doing as we took some gain on the upside moves and trimmed positions while preserving some gains during the selling. It is a time to keep looking at strong stocks, and that is exactly what we are doing for our upside plays.
THE ECONOMY
May retail sales push April's Easter-induced weakness aside.
Even as the weak April retail sales were released retailers were telling us that May was turning up strong. With a strong March due to an early Easter and a weak April because of that early holiday, the May results tell the story: the consumer remains solid despite higher gasoline prices. The 1.4% gain more than doubled the 0.6% expected and blew out the -0.2% from April. It was the best showing in 16 months. Must have been the Mother's Day sales. That means June should be huge as well given Father's Day falls in there.
Of course gasoline prices make up part of retail sales, so to get a cleaner picture you have to take them out. Ex-gas sales were still up 1.2% even with a 3.8% rise in gasoline. Take out gas and autos and sales were big at 2.5%. Moreover, discretionary areas were ups nicely. Clothing +2.9%, Department store sales +1.3%, sporting goods up 1.8%. If the consumer is worried, discretionary is the first to go.
This all dovetails with what we have said about an expanding economy and a consumer that is confident with his position, i.e. job security. If the job market was poor and consumers were not making their house payments, etc. then they would not be spending on discretionary items. The consumer remains strong even in the face of high gasoline prices, and with prices peaking for now, that bodes well for June.
Fed Beige Book speaks soothing tones.
As noted above, the renewed expansion and improving jobs market did not provide the Fed with any evidence of rising inflation or wage pressure. Select raw materials were higher in price, but it was not an across the board rise. Consumer spending remained solid overall. Manufacturing was up in most districts versus slowing in the last Beige Book report. And as noted above, capital expenditures were on the rise once more.
This Fed summary is exactly what the various economic reports have told us the past few months and what ECRI was pointing to several months before: a resumption of growth and diminishing inflation pressures. Of course the Fed would not go as far to say inflation pressures were down given its proclivity to overstate inflation pressures, but it was a milestone for it to note inflation pressures were not rising. In English that is the equivalent of saying inflation pressures were falling.
There are some features to watch, however, to see how they develop. The service sector was solid but the Fed noted that some trucking companies reported a decline in activity. Trucking and transports foretold the 2006 mid-cycle slowdown several months in advance of recognition of the event, so it behooves us to see if this continues in the June report.
THE MARKET
MARKET SENTIMENT
Of course volatility fell right back down on the session gains after bouncing almost 2 points Tuesday. It looked ready to break out Tuesday and now it is back at the 10 day EMA on its chart. Not a breakdown from the pattern, just fading back to see how this last market bounce pans out.
Volatility as measured by the VIX is still at relatively low levels, but the back and forth action in the market as discussed above is still picking up steam. We always have to beware of these incidents of rising market volatility, particularly when a market is coming off of some solid gains. When there is a lot of back and forth that tells you there is an ongoing fight between the bulls and the bears that has not been resolved, and it is happening at a higher level. The bulls were in charge and now the bears are at least as strong, stronger when you consider the distribution versus accumulation sessions as discussed above.
Volatility is not a primary indicator, but it shows up at tops and bottoms. It is telling us to remain wary of the Wednesday rebound.
VIX: 14.73; -1.94
VXN: 15.81; -1.89
VXO: 15.25; -0.76
Put/Call Ratio (CBOE): 0.96; -0.14. Fell below 1.0 on the close after 7 sessions above 1.0.
Bulls versus Bears:
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: +32.54 points (+1.28%) to close at 2582.31
Volume: 2.165B (+1.01%). Volume bounced higher on rising volume after making a higher low from the last bout of selling. A good session as volume was stronger on the upside and above average. That is a start to reversing the distribution but it does not do it by itself.
Up Volume: 1.701B (+1.177B)
Down Volume: 424M (-1.182B)
A/D and Hi/Lo: Advancers led 2.27 to 1. Solid, not spectacular, but solid.
Previous Session: Decliners led 2.98 to 1
New Highs: 106 (+20)
New Lows: 73 (-32)
NASDAQ CHART: http://www.investmenthouse.com/ihmedia/NASDAQ.jpeg
After renewed distribution Tuesday with a gap lower, NASDAQ held the line, making a higher low as it rebounded off its 50 day EMA and its trendline that marks the bottom of its channel. Nice recovery that held where it had to, though just this one accumulation session to the two heavy distribution sessions that led to this test. Making the right moves for now, but it is approaching 2600 where it peaked in late May before the early June top. It needs to blow on through this to break up the wobbly, toppy pattern that has tried to set up.
SOX (+1.44%) posted a higher low as well off of the 90 day SMA test, closing the index just 4 points off 493 that bounced it back last time and was the top of its 6 month range. We will see how this one pans out. The pattern is jumbled but for this higher low here.
SP500/NYSE
Stats: +22.67 points (+1.52%) to close at 1515.67
NYSE Volume: 1.591B (-1.1%). Unlike NASDAQ, the NYSE could not scare up enough volume to top the Thursday distribution. Still above average and a solid session relative to much of the volume the preceding month, but still below the recent selling volume.
Up Volume: 1.393B (+1.211B). 7:1 upside over downside volume. NYSE continues to throw off these big differentials depending on whether the index was up or down. Much like the passengers running back and forth across the deck of a cruise ship.
Down Volume: 191.577M (-1.228B)
A/D and Hi/Lo: Advancers led 4.5 to 1. Big upside breadth once more as the NYSE indices swung to the upside. Again we see that volatility.
Previous Session: Decliners led 6.09 to 1
New Highs: 106 (+49)
New Lows: 110 (-33)
SP500 CHART: http://investmenthouse.com/ihmedia/SP500.jpeg
SP500 did again what it had to do, i.e. jumping off the 50 day EMA (1494) for the second time in a week. As noted Tuesday, SP500 is hanging around in a bad neighborhood, struggling to advance. Each upside is met with some downside. On the positive side, it made a modestly higher low as it jumped again. Would have been better if volume accompanied the move. It was not bad as it was above average, but it was not a showing that the buyers came back and ran over the Tuesday sellers. The move took it back above its November/February trendline. Again, another step but it will need to back it up with more volume strength.
SP600 (+1.25%) rebounded as well from its recent drubbing that took it from market leader to struggling with its 50 day EMA. As with SP500, it bounced off of this support for the second time in a week, and in doing so it held its up trendline as well. It is still in a toppy pattern here as it is beneath both the early and late May peaks, kind of a head and shoulders that many of the indices have set up. Once more it did what it needed to do, but this move has not broken up this weaker pattern.
DJ30
The Dow moved up off its November/February trendline once more as it too bounced for the second time within the past week. Making a higher low as well and doing so on stronger, above average volume. Unlike SP500, that gives this move more credibility to actually turn the tide. DJ30 has been the leader in the market, but it is hard to see this modest 3% pullback as setting up another major run. You cannot argue with the moves from CAT, MMM and the like, however, so if the blue chips want to lead again and drag SP500 with them, we are not going to psychoanalyze that move too much.
Stats: +187.34 points (+1.41%) to close at 13482.35
Volume: 253M shares Wednesday versus 233M shares Tuesday as the blue chips posted a strong session, topping all volume but the last Thursday selling volume. Strong action.
DJ30 CHART: http://www.investmenthouse.com/ihmedia/DJ30.jpeg
THURSDAY
PPI is out Thursday morning, another step closer to the Friday CPI. Sometimes the PPI is viewed as a harbinger for CPI and stocks move on it (basically when it is in line with the market's view and beats expectations). This time it might add a bit more to the Beige Book's rather upbeat view of the economy, but the big report is still the CPI. That is because the last PCE report put the annual core at 2%, and this is the first CPI since the last PCE. Investors would love to see the core annual CPI fall from 2.1% to 2.0% as well. Growth without inflation. That would calm the fears of higher interest rates leading to inflation and Fed rate hikes, etc.
The market made a step in that direction Friday, but it was somewhat mixed with that solid yet just a tick lighter NYSE trade. Even if NYSE volume had slipped in above the Tuesday downside trade the move still would not reverse all that has gone before. There is some excellent leadership in the market, but SP600 (one of the leaders) is struggling, the breakdowns from the last run were very virulent, the return to selling was much quicker after the last upside move, and the indices still have more distribution than accumulation of late. In short, we don't want to get too excited that Wednesday and the higher lows on the indices was the turning point. It is a step in the right direction but there is still a lot to overcome.
There is still some solid leadership and we were moving into positions in those stocks as they showed good moves. We will continue to do this but we have to stick to quality, and as the market rebounds we are also going to look at developing downside plays in the event this bounce fails.
Support and Resistance
NASDAQ: Closed at 2582.31
Resistance:
2590-95 from an April 1999 interim peaks
2600 is the November/February up trendline
2617 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 2575
The 50 day EMA at 2542
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 1515.67
Resistance:
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 1543
Support:
1515 is the late November to February up trendline
1500 from April 2000 peak
The 50 day EMA at 1494
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 13,482.35
Resistance:
The late May peak at 13,556
The early June high at 13,676 (closing), 13,692 (intraday)
Support:
13,370 is the upper channel line in the November/February channel
13,270 is the November/February up trendline that marks the lower channel.
The 50 day EMA at 13,210
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): 0.2% actual, 0.4% prior
Import prices, May (8:30): 0.5% actual, 0.2% prior
Retail sales, May (8:30): 1.4% actual versus 0.6% expected, -0.1% prior (revised from -0.2%)
Retail sales ex-Auto (8:30): 1.3% actual versus 0.7% expected, 0.1% prior
Crude oil inventories: +100K actual, +1.1M prior; gasoline flat versus +2M expected
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
|
us stock market
trade stock
|
