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us stock market, trade stock
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6/21/07 Stock Split Report
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Stock Split Report Subscribers:
MARKET ALERTS
Targets hit alerts: None issued
Buy alerts: ARRS; SPIL; FCX (bonus)
Trailing stops: None issued
Stop alerts issued: FLO
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:
- Stocks counter the downside momentum with some rebounding leaders and renewed chip life.
- Philly Fed joins the other regional PMI reports with a show of strength.
- Congress appears bent on ending the prosperity one way or another.
- Thursday shows promise but the market still has to resolve its volatile issues.
Market rebounds yet again in the face of selling.
Once more the market met a plain old butt kicking with some buying. More than that, NASDAQ actually moved up on rising volume given an assist by the semiconductors that found the strength to start breaking out. It is not out of the woods but it is trying to fight fire with fire.
It was the usual mix of morning news with the Asian markets at new highs, analysts upgrading (AMD, NVDA) and downgrading (CAKE, HD) stocks, and even some M&A activity thrown in. Oh yes, bond yields were moving higher (started at 5.14% on the 10 year and closing at 5.19%) once more but were offset somewhat by lower oil prices ($68.65, -0.21). In short, nothing really changed from Wednesday to Thursday.
Stocks started modestly higher but could not hold the move, turning negative within the first half hour. That move took SP500 and SP600 to their 50 day MA, where they visited two weeks back. Unlike that trip, however, they rebounded intraday, helped along by a solid LEI and a very strong Philly Fed. Energy was back in play and rebounding, but there were also the other usual suspects rebounding, e.g. FCX, GME, GRMN. There were even new breakouts with the chips making a dramatic move as SOX broke out, powered by a different crop of chips than led up through April.
That strength helped stocks fight off a modest afternoon dip as a few sellers tried their hand once more. That selling didn't take and the indices rebounded to close at the early afternoon session highs. The action was basically the opposite of Wednesday, i.e. coming back from early selling and moving steadily higher into the close. Volume was higher on NASDAQ. Other than that, however, the strength of the rebound was not the same caliber as the strength of the selling.
Technically the action was a good response to the Wednesday selling with NASDAQ scoring gains on rising volume and strong chip stocks. NASDAQ volume was not the problem on Wednesday, however. NASDAQ volume was up on the selling but still below average. NYSE trade was what jacked up the downside volume. Thursday NYSE volume was not bad, but it was lower than the Wednesday selling trade. High volume selling, lower volume buying.
As for the price moves, the indices tested nicely down to next support with SP500 and SP600 tapping the 50 day MA, NASDAQ tapping the August 2006 up trendline, and DJ30 tapping its upper channel line. They all rebounded crisply to post gains. Leaders showed similar action with tests to near support and then rebounds to close positive. This gives them the good test we were looking for though the Wednesday part of the equation was on some higher trade than we wanted to see. The joinder by the chip stocks was very good to see and a long time coming.
It was a positive step, but in itself it was not enough to beat the Wednesday action or turn back the overall volatility the market has shown in June. Indeed Wednesday marked the resurgence of that volatility that died down a bit on the rebound move. The Thursday rebound was good to see but it was not driven by a huge surge in buying. Promising yes, but again, not enough by itself to overcome Wednesday and the backlog of choppy trade for the month. The leadership is trying to assert itself once again, however, and the fact that it was able to turn right back up after that downside thumping and the downside momentum shows that the money is still there and ready to move in. The question right now is whether the indices can make good on a higher low and drive back up through the prior highs. A lot to overcome but it all starts with the leaders reasserting themselves.
THE ECONOMY
Philly region joins the expansion.
The regional PMI reports (manufacturing) gave insight into the 2002-2003 recovery with some early indication of strength that was not seen in many other parts of the economy until later. In this recovery from the 2006 mid-cycle expansion, once again the regional reports started to perk up; all but the Philly Fed.
Not sure what was holding Philly back, but in June it finally made a breakout of sorts, posting a reading of 18, well ahead of the 8.0 expected and the 4.2 in May. That is light years ahead of the 0.2 in April and March. Ever since Katrina Philly has lagged. Now that Philly is joining the expansion that indicates to us that the recovery from the mid-cycle slowdown is well on its way. Of course the strong gains in the national index for the past two months told that story already, but at least Philly is not a hole in the boat at this juncture.
Congress is ready to find a way to end the expansion.
Back in the spring we saw the leading indicators pointing to a recovery from the slowdown. We stated at the time it was just a mid-cycle breather before a renewed advance that would see the expansion resume. This even as the market struggled with the selling that broke out last spring.
We also write that there were three things that could derail the continuing expansion: trade barriers, energy policies and prices, and taxes. All of these have been topics of discussion in Congress. Schumer and company continually threaten trade barriers if China doesn't loosen its currency and drive up prices here in the US. Energy prices are high, but the real issue is whether the Congress tries to usurp energy profits under the guise of 'excess profits' and basically confiscate wealth without due process. As seen in the 1970's and as we have discussed just over a week back, doing so only limits our own production and puts more power in OPEC's hands.
The tax issue is now on the burner, and it is burning hot. It has shifted (at least for the moment) from raising income tax levels on the so-called 'rich' (and what we are hearing from some camps is that $75K/year is considered rich) to changing the rules ex-post facto on capital taxation. The Blackstone IPO that was priced at $31 this evening is the poster child for this movement. Congress realized that the founders were going to make billions on the IPO and started to look for a way to confiscate some more private citizen money.
The argument is that Blackstone is really just a company that is paid a fee for managing assets and thus should be taxed at the higher corporate tax rate versus the lower rate for passive investments. Whether you feel this is right or not, Congress created these rules this way to specifically create investment funds to help spur the economy. Now that the founder made $400M last year and stands to make billions on the IPO, Congress wants to change the rules. Indeed, in a move that is so Hugo Chavez-like it should make every entrepreneur livid, one Congressman wanted the SEC to hold up the IPO until Congress acted to change the tax law. The Congressman knew that changing the law after the IPO was patently unconstitutional as an ex-post facto law, something expressly prohibited in the Constitution. So in an effort to make it less offensive he wants to stall the IPO, pass the law, then subject Blackstone to the tax.
This is nothing more than a shakedown. The Blackstone founder started the company and made his deal with investors that he would get 2% of the assets. The company grew and grew and grew through hard work and solid management. Now that it is a screaming success and he made a stack of money, Congress and others are committing deadly sins, i.e. envy and coveting thy neighbor's property. The covet so much they want to skirt the Constitution to achieve their goals.
Once more success is being punished under the guise of 'fairness.' Congress creates what is being called a loophole with the specific intention to generate investment capital and to spur the economy. Then when companies act according to those rules and are resounding successes, Congress panders for votes from the uneducated, and more importantly, devises a shakedown or a modern day land grab to get more of what hard-working, successful people make.
Unfortunately it is not stopping with the change regarding how entities such as Blackstone are taxed. We are hearing there is a whole laundry list of taxes on capital that certain democrats want to ratchet up. Capital gains, passive investments - - anything to do with investment activity. It is a sad, sad resumption of habits of old. The democrats said raising taxes would be a last resort. It seems the last resort has been hit without ONE thing other than the minimum wage being acted upon.
The tragedy of this is that this sort of action is like going to a stall game plan with 10 minutes to go in the basketball game when you built your lead by a running and gunning fast break offense. The latter built you the lead, and the former loses the game. All of this capital creation spurred the economic boom we enjoy today. Now that there is success and it has generated the investment anticipated, Congress wants to change the rules and tax more of it. As we know from history, when you make these changes the capital goes elsewhere. If you make the changes too onerous the capital goes into hiding.
This is a tremendous threat to the expansion and our prosperity, all done under the guise of 'fairness.' Tell you what; the tax code and the word 'fairness' have never gone together in the US. It has always been unfair. Would Congress think it was fair that capital left investments here and we did not get the economic stimulus it provides and thus had less jobs for those people it is trying to make the system 'fair' for? Nine out of 10 employees would say they would prefer to have a job and the Blackstone boss making billions versus no job and the Blackstone boss taxed at the 35% rate. Of course our fearless leaders never put it that way and the polls never ask the question in that manner either.
Everyone should call their senators and House reps and ask them just what the heck is going on in D.C. This is something we ridicule dictatorships about when they start confiscating property without due process. Now we are doing it here in the US, at least if the majority on Congress has its way. Fortunately the SEC is not going to hold up the IPO, but we can expect all kinds of tax hikes on capital to be proposed. Bush will likely veto them (if he remembers what a veto is), but if a democrat becomes president, taxes are going up and prosperity is going down, particularly so given the focused taxation on investment capital. Very dangerous game.
THE MARKET
MARKET SENTIMENT
VIX: 14.21; -0.46
VXN: 16.21; -0.47
VXO: 14.36; -0.36
Put/Call Ratio (CBOE): 0.99; -0.06. Back below 1.0 after a one-session move over that level Wednesday
Bulls versus Bears:
Bulls: 53.3%. Back below 55% after spiking to 56.7% last week. Even with this decline they are historically too high, but then again, they have been in this range since last October. The 55% level is 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: 18.9%. Dumping back below the 20% level considered bearish after 21.1% last week. It held in the 22 range more or less after bouncing back up from 20.7% a month ago, but it tumbled right back down. 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 points (+0.65%) to close at 2616.96
Volume: 2.087B (+2.38%). NASDAQ volume rallied back to top the Wednesday selling volume. That is a good sign day over day, but in the bigger picture it does not show a great swell of buying given the selling volume was below average and the rebound was below average as well. In short, NASDAQ was not the issue on Wednesday, and though chips were stronger, they could not shove volume above average on the rebound.
Up Volume: 1.547B (+1.108B)
Down Volume: 504M (-1.077B)
A/D and Hi/Lo: Advancers led 1.11 to 1
Previous Session: Decliners led 2.59 to 1
New Highs: 101 (-48)
New Lows: 92 (+19)
NASDAQ CHART: http://www.investmenthouse.com/ihmedia/NASDAQ.jpeg
NASDAQ tested the July/August 2006 trendline on the low (2586) and then reversed to move back into its channel. Rising but still below average volume trade on the move shows some buying. Have to like the higher low and the rebound. NASDAQ is trying again to show some leadership as summer starts and it is doing that with the semiconductor assist. It will have to keep it up to help prop up SP500.
SOX (+3%) blasted out of a 7 week double bottom with handle base, clearing the May breakout high on the move. Very strong as chips received a lot of buying attention as NVDA surged on an upgrade.
SP500/NYSE
Stats: +9.35 points (+0.62%) to close at 1522.19
NYSE Volume: 1.603B (-4.13%). This was the disappointment on the session given the strong selling trade Wednesday. Volume was still above average so it was not a slacker as the large caps rebounded off the 50 day EMA, but it does not expunge the Wednesday distribution.
Up Volume: 1.108B (+769.496M)
Down Volume: 456.133M (-863.148M)
A/D and Hi/Lo: Advancers led 1.21 to 1
Previous Session: Decliners led 3.48 to 1
New Highs: 108 (-115)
New Lows: 89 (+38)
SP500 CHART: http://investmenthouse.com/ihmedia/SP500.jpeg
The large caps were diving early, once more taking the brunt of the selling. They found support at the 50 day SMA where it checked up two weeks back and that brought some buyers back in. It was enough to push SP500 back up above its November trendline. Good response to the selling and to a test of support. Volume was solid but would have been nice to see it top the Wednesday level. That leaves SP500 still with something to prove as it tries to advance once more off a higher low.
SP600 (+0.31%) reached lower and tapped its 50 day SMA as well (and its August/January trendline) and then reversed to close with a modest gain right in the middle of its trend channel. As with SP500, a good higher low attempt that once more held the uptrend channel. Energy will have to continue its recovery to help out the small cap recovery.
DJ30
Very good action on the blue chips as they tested the upper channel line on the low and rebounded for a modest gain. It was not a reversal as volume was lower, falling back to average versus the strong selling volume Wednesday. It bounced off of key support and we will see if that once again translates into more buying on the blue chips and helps them break up this double toppish pattern that both it and SP500 are struggling with.
Stats: +56.52 points (+0.42%) to close at 13545.84
Volume: 241M shares Thursday versus 274M shares Wednesday. Average volume on the rebound. Not bad trade, just not at the caliber of the Wednesday selling. DJ30 will need more trade to break up this double top pattern.
DJ30 CHART: http://www.investmenthouse.com/ihmedia/DJ30.jpeg
FRIDAY
Friday has been a good day for the bulls for three months running. With the Thursday rebound from the selling it could be yet another good session for the upside. There is still the Wednesday higher volume NYSE selling overhanging (and thus the continuation of the month's volatility and distribution), but Thursday the indices did what they needed to do with some brisk bounces off of support.
Money still moves in on the dips, and that continues to pop the leaders back up from their support tests. Thursday it popped the indices back up from their intraday dive to support and put the indices in great position to make a higher low at that support. They will need more trade to make the move stick. At this juncture the balance is tilted a bit more toward the downside given the nasty Wednesday reversal and the NYSE's lower volume rebound.
That said, many of the rally leaders, the ones we have positions in and are looking at more positions, tested support nicely and rebounded. We will continue to look at those for new opportunities to participate in their runs after giving us this pullback that we were looking for last week. It has come to fruition though we would have preferred to see the pullback not come on such heavy volume (though the other sessions were on light trade). There are also those semiconductors that have come to life along with some other technology stocks, and we will consider some of those even though it is summer and it is technology. As always, you have to look at where the money is flowing and take what the market gives.
Given that it is Friday and there was that Wednesday blow lower that left SP500 and DJ30 in a shakier position, we are going to really want to see some solid moves. The Thursday rebound did not take the market out of jeopardy, and Monday can be a tester when you have a resumption of some distribution. Thus we look for quality on the moves, but that is really nothing unusual.
Support and Resistance
NASDAQ: Closed at 2616.96
Resistance:
2627 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:
2615 is the November/February up trendline
2601 is the mid-May intraday peak.
The 18 day EMA is at 2594
2590-95 from an April 1999 interim peaks
The July/August trendline at 2587
The 50 day EMA at 2558
2531.42 is the February high (post-2002 high); 2525 intraday
2523 was price resistance November 2000
2509 is the January 2007 high
S&P 500: Closed at 1522.19
Resistance:
1528 is the March 2000 closing high
1541 is the June high.
The upper trendline of the channel at 1545
1553 intraday high from March 2000 is the all-time index peak
Support:
1519 is the late November to February up trendline
1500 from April 2000 peak
The 50 day EMA at 1501
1475 from peaks in December 1999 and January 2000
1461.57 is the February 2007 high.
1440 is the mid-January high
Dow: Closed at 13,545.84
Resistance:
The mid-May peak at 13,556
The early June high at 13,676 (closing), 13,692 (intraday)
Support:
13,415 is the upper channel line in the November/February channel
13,310 is the November/February up trendline that marks the lower channel.
The 50 day EMA at 13,288
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 19
Housing starts, May (8:30): 1.474M actual versus 1.475M expected, 1.506M prior
Building permits, May (8:30): 1.501M actual versus 1.470M expected, 1.457M prior
June 20
Crude oil inventories (10:30): +6.9M bbl actual versus 100K expected and 82K prior
June 21
Initial jobless claims (8:30): 324K actual versus 310K expected, 314K prior (revised from 311K)
Leading economic indicators (10:00): 0.3% actual versus 0.2% expected, -0.3% prior (revised from -0.5%)
Philly Fed, June (12:00): 18.0 actual versus 8.0 expected, 4.2 prior
End part 1 of 3
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