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6/14/07 Stock Split Report
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Stock Split Report Subscribers:
MARKET ALERTS
Targets hit alerts: SLB
Buy alerts: CHE; FLIR; ICE; MON; MRO; OMNI
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:
- Rally turns into more of a relief move ahead of CPI, expiration.
- PPI headline driven higher by gasoline, core meets expectations.
- Bond yields may have seen the peak on this current run.
- CPI is the deal maker or breaker for this bounce.
Wednesday rally continues but buyers remain in control for the day, but less enthusiastic ahead of CPI.
The PPI was tolerable as the core met expectations and the year over year held steady. Jobless claims were solid once more (311K), continuing the overall trend of a solid return in economic activity after that second half 2006 and Q1 2007 slowdown. That was enough for investors to overlook some disappointing GS and BSC earnings and a warning from CSC. The main driver, however, is the idea that bonds have likely peaked on this move and that higher interest rates don't equal inflation (as the Beige Book, PPI, and hopefully the CPI show).
Stocks rallied sharply the first hour, pushing the SP500 and NASDAQ up to their mid-May interim peaks. That move was tested over lunch, and then stocks started a slow, steady rebound back to the session highs in the afternoon. They got a bit of cold feet right before the close given the CPI Friday before the open. Understandable, and with the lighter volume on the session some profit takers could swing the indices a few points.
Energy was the clear leader once more (oil close up again at 67.65, +1.39) as those stocks continued their breakouts and resumed breakouts, moving on strong volume the rest of the market wished it had. Metals other than steel had another solid session as did some big industrial equipment makers. Technology was not a dullard either as SOX posted a breakout over that 493 level.
Technically, outside of the leading sectors that got the money, the action was pretty weak. Lower volume on both exchanges indicated the buyers were a bit pensive ahead of the CPI, but the sellers were not going to step in their way. They made a half-hearted effort after that initial run but the buyers beat them out. Breadth backed off to less than 2:1 on NYSE; at 1.87:1 it was not bad, just rather anemic after the hefty numbers thrown in the prior sessions. Price-wise there were some interesting moves. NASDAQ cleared the mid-May closing high, potentially an important move if it can get some more trade and lead the NYSE indices higher. Interesting as well was SOX' move back above the top of its 6 month trading range. And there was that leadership as well, moving nicely on solid volume. And we don't want to forget that SP500 and SP600 bounced off their 50 day EMA after a run higher, and that is typical action in a continuing uptrend.
Even with those positives we still have to recognize that the overall market is still in a somewhat precarious position as SP500 and SP600 tap those mid-May peaks on low volume. This move has not turned the tide on that distribution that preceded it. Volatility is up, and after a run higher or a slide lower that often indicates a change of season, i.e. a transition to trend.
With that in mind, CPI could be the impetus to drive the market higher if it is really low and makes a substantial dent in the core 2.3% year/year growth rate (thanks for the heads up from those of you who caught our misprint last night). It would have to be a great number to do that. If it is in line with expectations it could lead to a further move higher initially, but after that initial run the NYSE patterns and the weaker internals suggest there could be a reversal after the initial positive response wears thin. Indeed a key point for the indices in this rebound.
THE ECONOMY
PPI doesn't provide the kind of report that screams for a lower CPI.
The overall PPI jumped 0.9%, well ahead of the 0.6% anticipated. When you take out rising energy costs (gasoline +10.2%) and food (-0.2%), however, the core rose 0.2%, right in line with expectations. That left the core year/year at 1.58%, matching April's number. As noted, that is not the type of result that gears you up for a much lower than expected CPI on Friday. Again, if there is an in line number, that could further the rebound but we doubt it has staying power without more strength, i.e. dropping the core year/year down to 2.2%.
Bond yields beat a hasty retreat, as fast as the bounce higher.
The surge in bond yields on the 10 year treasury the past two weeks sent investors fleeing in fear of inflation and pressure on stock prices. The speed of the run was the problem; you can get nickeled and dimed to death and not really feel as if you are dying. If you see a truck barreling right at you and impact is imminent, you run to get out of the way. Fast moves that are not understood create uncertainty, and when uncertainty prevails the market sells (kind of catchy). Thus the run up to 5.25% from 5% in less than two weeks rattled a market used to low and slow moving rates.
Wednesday morning there was that spike to 5.33% on the high before the stock market opened. As soon as it hit that level it reversed and fell back to 5.25% and below (5.22% Thursday). That kind of fast reversal shows the move up likely hit zenith on this run and how there is some retrenching. It does not mean it won't resume the climb again; that happens in a healthy and expanding economy. The next move higher, however, will likely be much more orderly and restrained, and the market can absorb that kind of move, at least until it gets to 5.5%. At that point companies will have to start showing some stronger earnings growth once more to offset rising rates. With the economy starting to expand again that is more likely.
THE MARKET
MARKET SENTIMENT
VIX: 13.64; -1.09
VXN: 15.43; -0.38
VXO: 13.69; -1.56
Put/Call Ratio (CBOE): 0.79; -0.17. Down for the second day below 1.0 after 7 closes above that level preceding.
Bulls versus Bears:
Bulls: 56.7%. Well so much for bulls fading in the selling. They spiked above 55% from 52.2% after falling over the past three weeks from 54.3%. This is over the 55% considered bearish, and is thus another factor along with the lower volume on this recovery bounce that suggests the market is still overbought here. Still off the 60% hit in December 2006 but getting closer. For reference it bottomed in the summer 2006 near 36%.
Bears: 21.1%. Tanking as well, falling from 22.8% last week. A one-week bounce from 21.5% is right back down. It hit 20.7% three weeks back after spending some time below the 20% level considered bearish (19.6%). 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: +17.1 points (+0.66%) to close at 2599.41
Volume: 2.021B (-6.68%). Volume slipped back below average on the session after a solid advance on the Wednesday upside move. NASDAQ is making more of an effort to overcome its prior distribution, but the Wednesday move was not enough by itself to do that.
Up Volume: 1.462B (-239M)
Down Volume: 535M (+111M)
A/D and Hi/Lo: Advancers led 1.5 to 1. Pretty wobbly after all of the outsized breadth figures the past week.
Previous Session: Advancers led 2.27 to 1
New Highs: 140 (+34)
New Lows: 54 (-19)
NASDAQ CHART: http://www.investmenthouse.com/ihmedia/NASDAQ.jpeg
The techs showed some relative strength Thursday as they moved higher off the 50 day EMA test and into the November/February up trendline on the close. The move took it past the mid-May closing high (2588) and just a hair from the 2600.94 intraday high for that peak. That makes this a higher high and the Wednesday volume was not bad. This is a better rebound or recovery than on SP500 or SP600. NASDAQ again provides some hope, but in the past we have seen that relative strength fail to make a difference in the other indices. When the NYSE indices stopped fading, they recovered and NASDAQ was again relegated to the second row. Of course, that has worked well for the market to this point. In short, NASDAQ is showing some strength, but its recent history suggests it won't continue to do so.
SOX (+1.08%) continued higher off its higher low at the 90 day SMA, breaking through the top of the 6 month trading range at 493. That higher low often precedes the break higher, and that is what happened here. This helped push NASDAQ higher as well, just as it did in late April. That move failed as well. We don't have a lot of confidence in the techs heading into the summer, but we will gladly stand corrected if they want to lead out of this pullback.
SP500/NYSE
Stats: +7.3 points (+0.48%) to close at 1522.97
NYSE Volume: 1.448B (-9.01%). Pretty weak below average trade as SP500 and SP600 pushed higher up to the mid-May interim peaks. Not the kind of action that raises anticipation of a strong break through that level. Volume made a run at the Tuesday selling volume on Wednesday, but it still came up short, and that leaves the NYSE indices in basically a relief bounce.
Up Volume: 1.019B (-373.78M)
Down Volume: 416.123M (+224.546M)
A/D and Hi/Lo: Advancers led 1.87 to 1. Not bad, but as noted with NASDAQ, compared to the recent swings (-11:1, 4.5:1), it is a piker.
Previous Session: Advancers led 4.5 to 1
New Highs: 213 (+107). Energy and metals leading the new high list.
New Lows: 63 (-47)
SP500 CHART: http://investmenthouse.com/ihmedia/SP500.jpeg
The large caps added to the bounce off the 50 day EMA, putting together two nice sessions following that higher low early this week set the stage for a bounce. Unfortunately the volume has not followed suit and thus SP500 is at an important juncture on this bounce (at the mid-May high at 1525) with no volume to back it. It is the licklog time for SP500. It would appear the path lower is the easiest, but that also appeared to be the case last week and on Tuesday as well.
SP600 (+0.74%) broke through the mid-May closing high on its intraday peak (436.77) but with out much volume it could not hold the move. Still in that rather toppy pattern, and SP600 did not make a higher low on its last trip lower. Of the indices the small caps are the most precarious at this juncture. They were leaders but fell from that grace in this hard drop to start June. These head and shoulders patterns often set up and often fail to consummate. Nonetheless, it is not the best position for the small caps.
DJ30
The Dow rallied up to the mid-May high and it could not hold a modest push higher through that level. Volume was lower and below average after a big surge in trade on the Wednesday rebound. This is helping break up that head and shoulders from just Tuesday; see what we mean about those patterns not consummating? DJ30 is still not out of the woods on this move given the SP500's lower volume move higher, but the industrials continue to provide leadership in the market. The rest of the market needs that leadership.
Stats: +71.37 points (+0.53%) to close at 13553.72
Volume: 228M shares Thursday versus 253M shares Wednesday. Lower, below average volume trade as DJ30 continued the Wednesday move. Solid trade to start the bounce and not bad on Thursday.
DJ30 CHART: http://www.investmenthouse.com/ihmedia/DJ30.jpeg
FRIDAY
After all the worries about rising interest rates and their correlation to inflation, the CPI will answer some more questions. The Fed Beige Book started the rebound as it cracked the correlation. Retail sales and PPI helped as well. Now CPI will show if inflation continues to follow lower inflationary pressures and again notches lower, taking the year/year core CPI below 2.3%.
If that occurs it could really bring in some more money into the market just at a time when it needs it. The indices sold on rising volume the past few weeks, particularly the last week, and have rebounded on questionable volume despite some excellent leadership in energy, certain metals, and industrials. It would take some really great news to reverse this action, to wipe away that distribution.
It is hard to see that happening given the index patterns, the distribution, the volatility, and the other factors discussed this past week. Of course the market has made the long odds a reality on this run. Nonetheless, if it is in line or the inflation reading dips further and the market bounces early, we will look at taking some profits off the table after a decent rebound by the market in general and some very strong runs by specific stocks in energy, metals, industrials, and a handful of other sectors. It is always good to take some gain after strong runs, and with the SP500 and SP600 bumping prior peaks on lower trade, any further upside begs taking some gain off the table.
As for new plays we will continue to look at strong stocks on strong patterns as those have, despite the market, continued their runs or started new breakouts. They use the market weakness to test or finish bases and then break higher when the upside returns as we saw this week. Thus we are not going to ignore upside opportunity though after this rebound some of the leaders are already a bit extended short term.
We are also going to watch the downside. This lower volume bounce has pushed the indices up to resistance and if there is a reversal off a higher open or if the CPI disappoints and stocks start lower there could be a resumption of the downside move the distribution sessions started. The bounce has not taken the indices out of the toppy patterns or turned back the distribution, and after the run to this point, the volatility, and the weaker volume on the upside still warn of potentially more weakness.
Throw in expiration Friday and the day could be interesting, though the direction will likely be determined by midmorning after such an important piece of economic data hits a market that is experiencing something of an identity crisis. It has beaten back the hordes many times, but they have been hammering cracks in the defenses with those distribution sessions. We will take some gain if given the opportunity, see how the session plays out, and then take what the market gives.
Support and Resistance
NASDAQ: Closed at 2599.41
Resistance:
2601 is the mid-May intraday peak.
2602 is the November/February up trendline
26119 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:
2590-95 from an April 1999 interim peaks
The July/August trendline at 2578
The 50 day EMA at 2545
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 1522.97
Resistance:
1528 is the March 2000 closing high
1553 high intraday from March 2000 all-time index peak
The upper trendline of the channel at 1545
Support:
1520 from the September 2000 peak
1516 is the late November to February up trendline
1500 from April 2000 peak
The 50 day EMA at 1495
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 13,553.72
Resistance:
The late May peak at 13,556
The early June high at 13,676 (closing), 13,692 (intraday)
Support:
13,390 is the upper channel line in the November/February channel
13,275 is the November/February up trendline that marks the lower channel.
The 50 day EMA at 13,223
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): 311K actual versus 310K expected, 311K prior (revised from 309K)
PPI, May (8:30): 0.9% actual versus 0.6% expected, 0.7% prior
Core PPI, May (8:30): 0.2% actual versus 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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