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world stock market, us stock market
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6/23/07 Stock Split Report
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Stock Split Report Subscribers:
MARKET ALERTS
Targets hit alerts: DO
Buy alerts: GSOL; MA; SLB
Trailing stops: CHE
Stop alerts issued: FISV; HC
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:
- Market ends a down week with NYSE large caps struggling, technology showing relative strength, and leaders holding the line nicely.
- Bear Stearns sub-prime issues show the housing market is still not done with its troubles
- Leaders are holding the line as NYSE large caps again test key levels.
Market shows a split of a different kind.
For most of 2006 and through early 2007 the large cap NYSE stocks were the clear leaders. The small and mid-caps led as well on the backs of energy and metals stocks though they had to retake the leadership mantle early summer after that March market dip. NASDAQ started to show some relative strength, at least internally, over the past couple of months as the volatility we have discussed at length the past month started to enter the market. NASDAQ would show flashes of strength only to once more yield to the NYSE large caps as those stocks received a new wave of money that pushed them back to the front.
Last week was one of those weeks where the NASDAQ and technology pushed once again toward leadership. They did not assume leadership; all of the indices were lower on the week. Being called a leader in that context is like saying a warthog would be cute if it wasn't so ugly. No, once more NASDAQ showed relative strength. It was the index that hit a new 6-year high last week while SP500 and DJ30, the new high kings, did not. It pulled back on the week as well, but it is still comfortably in its uptrend channel while SP500 is struggling once more at the 50 day EMA, its third trip to that level in as many weeks after making a lower high along with DJ30.
Leadership in individual stocks remains solid even with the pullback in the indices. Many were lower on the week but they also easily held above near support, making that pullback to test their prior moves just as we were looking for. Indeed, several made the pullback and started to bounce, giving us nice new buy points (e.g. MA, SLB, FCX, FFIV). Indeed even in the Friday fade these leaders demonstrated excellent strength, going about their own business of testing the prior move higher, getting close to the rebound point.
Ah yes, Friday. Prior to 3:30ET Friday was lower on the day but it had all the attributes of a nice, easy day of rest as volume contracted significantly versus the Thursday upside session. As the market hit the final 15 minutes of trade the buy on close orders for the yearly Russell rebalance hit and volume exploded. That is why you get stocks such as GES suddenly trading on volume 10 times what it showed in the session up to that last 15 minutes. Thus the action was not nearly as bad as the volume would indicate. It was not a great session by any means, but stocks were not getting dumped on Friday, and after the Wednesday spanking and the Thursday bounce, that was a positive for the session.
Technically that lower volume and the solid leadership action made the session passable, but with the weak action on the Dow and SP500 the market overall remains in a compromising position. The intraday action was that weak high to low, or more accurately, low to lower. Breadth was -3:1 on NYSE and -2:1 on NASDAQ. The NYSE A/D line has flattened and turned lower last week. That action mirrors the stumble in the NYSE large caps, a stumble accompanied by some distribution (higher volume down sessions), a lower high, and those frequent, annoying visits to the 50 day EMA by SP500. As we have noted before, the more often you hang out in a bad neighborhood, the more likely something bad will happen. These regular trips to the 50 day EMA without making new upside headway is simply not good action.
As noted, NASDAQ and thus growth stocks are trying to take some leadership role, but they have let us down thus far. Even so, leadership in many areas, e.g. energy, internet, specialty retail, looks very good, either breaking higher with authority or just about finished with some low volume pullbacks. This could be a summertime rotation from the large cap industrials as they take a deserved breather and into what are considered traditionally as growth areas, e.g. technology. Of course, the growth areas in the resurgent world economy have been industrial equipment, materials and the like as China, India, Korea, etc. build out their countries. Those stocks have enjoyed tremendous runs, however, and a summertime breather would set up more gains.
If the world liquidity derived from the economic boom continues seeking stocks during that time, then some leadership in technology would be more likely. NASDAQ has definitely started to show some more relative strength, and how it holds this week as it continues its test will show if the money is moving that way. The market action remains choppy and volatile, yet a large core of leadership remains. We will continue to look to those for upside as well as any new emerging leadership areas as the overall market makes its test.
THE ECONOMY
Market feels some ripples from the housing market.
For the most part the market, indeed all but the housing stocks, have not only survived the housing drop-off, but as the indices have indicated, have prospered. Friday saw some of the first impacts outside those direct hits on housing stocks. It was rumored early that BSC was securing $3.2B in loans to bail out one of its hedge funds tied heavily to the sub-prime housing market. That rumor later became reality later in the session.
Thus the ripple effects of the housing bubble are now being felt outside areas directly tied to housing. The question is whether this is just the tip of the iceberg as some suggest, or is just emerging as the housing slowdown has just about run its course (and thus will be rather mild and contained).
We believe it is more the latter, i.e. the issues showing up at the tail end of the housing problems. Sure there are still foreclosures to come as the rest of the balloon mortgages come to the takeout point and those interest rates jump, putting the homes out of reach. There is also the completion of those housing subdivisions that are still in the works and are still going to come to market. Inventories firmed a bit last month, but at 8.4 months there are still many houses sitting out there.
What is the real state of housing with respect to the economy?
That said, housing is always early cycle, and with 9-11 and the low, low, low Greenspan interest rates, the cycle extended well beyond its usual length. Indeed, it helped the economy hold up reasonably well even though it went into recession. But for housing, the recession would have been much more severe as consumers bought new homes or remodeled and refurnished their current ones. Now housing is finally falling as interest rates rise in a healthy economy after being kept artificially low for so long.
In short, housing is now feeling the bite from higher interest rates that typically comes naturally as the economy recovers. Interest rates rise in a healthy economy unless they are artificially held lower. The Fed Funds rate was at 1% for two years before Greenspan started to hike it. Then when long rates did not respond he talked of a 'conundrum.' Not until a new Fed chairman showed up, one that the financial markets see as following the bond market and not trying to lead it, did long rates finally start to rise. Now rates are rising and housing is falling as it naturally does in each economic cycle.
There are those saying that the economy will follow housing because housing is such a large part of the economy. It was indeed. It was huge during the recession; it kept the economy going as noted. It was big with the second home buying. In each recovery, however, housing falls off while other parts of the economy step up. The economy slowed in second half 2006, and that got the 'housing bubble equals economic bubble' faithful lathered up. The economy is rebounding nicely now, and we are already hearing projections of 3+% growth in Q3. The economy can, and indeed does, survive the housing fall off once an economic recovery matures past that initial surge and typical mid-cycle slowing.
That is what we believe we are seeing now. Interest rates are not rising due to inflation but due to finally responding to a strong economy given that the Fed is not going to jump in every 4 to 6 months with a hike or a cut. The Bernanke Fed appears to be doing exactly what we said the Fed should do: it moves rates to where it believes they should be, it does so quickly, then it has the patience to wait and see how things shake out. Thus far all financial markets are responding nicely to that management style.
There will be more glum housing news ahead as the last big developments are pushed to market and the balloon mortgages run their course. Even with that cycle in full swing, however, the economy has picked up its momentum once more. Indeed, the ECRI annualized growth rate held steady at 6.7% the past week, the highest in over 3 years. ECRI is very accurate and that kind of reading is not what precedes an economic cataclysm as some predict. Not even a slowdown; we just had that.
We can always make things worse than they are.
Thursday night we discussed how Congress is doing what it can to try and blow up the economic expansion. Congress complains of deficits caused by tax cuts, but even the most adamant antagonists on Capital Hill know that tax revenues are soaring, hitting all-time records. That can only mean that once again Washington is spending well past what it takes in, even at record revenue levels.
Yet even with those soaring revenues, Congress is ready to strangle the golden goose providing the funds for all of its profligate spending. Indeed, as we see in every economic boom, Congress starts feeling the economy and indeed Congress are bulletproof. They forget how bad things were in the last economic slump and what it took to get us out of it. They start to attack the very vehicles that brought about the prosperity.
During the campaign we heard taxes were to be raised as a "last resort." Pelosi and Rangell and a litany of others said the same. Not even three months of the term were up before we heard about tax hikes on the 'rich'. That was, as usual, massively unpopular, so then we heard about tax hikes on 'outrageous' oil profits. Now we are hearing about tax hikes on capital. Not just changing the rules after the fact regarding private equity taxation, rules designed specifically to create the investment capital that has helped fuel the economic recovery, but also on dividends and any other 'passive' income. Darrell Royal used to say 'dance with who brung us,' meaning stick with what is working. Congress has turned the phrase into 'kill who brung us and dump the body.'
Thus, even as the economy pulls out of its mid-cycle slowdown there is the push to raise taxes. The current administration will veto any such measure, at least that used to be an absolute certainty. Now there is a climate of capitulation in the White House, a kind of 'can't wait to get back to the ranch' or 'get it over with as painlessly as possible' mentality. In any event, ASSUMING such actions are vetoed, they will be back in 2008 when the democrats win the Presidency. Then these initiatives will pass and we will over the course of a few years squander an economic expansion by bleeding to death what caused it in the first place, spending the money on items that do not result in economic creation. It is a cycle that repeats over and over again throughout our economic history: party beyond our means during the good times, make tough choices during the bad times (but still party beyond our means), then come up with even new ways to tax and spend when the next up cycle comes along.
THE MARKET
MARKET SENTIMENT
VIX: 15.75; +1.54. Bouncing back up toward the early June highs when SP500 tanked hard to the 50 day EMA. Indeed on the high (16.58) it was not far off from the peak at 17.09 on that bounce. That suggests that this selling, if it is short-lived, could be approaching its end for this round.
VXN: 17.29; +1.08
VXO: 16.97; +2.61
Put/Call Ratio (CBOE): 1.03; +0.04. A second close above 1.0 in three sessions, though with the Russell rebalance it is harder to make the call this was due to downside speculation and anxiety.
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: -28 points (-1.07%) to close at 2588.96
Volume: 3.552B (+70.21%). Volume exploded on NASDAQ in the last 20 minutes on the Russell indices rebalance. Prior to that it was running roughly 1.8B shares, well off the Thursday upside pace. Thus ahead of unleashing the rebound volume NASDAQ trade was lower and not indicating distribution.
Up Volume: 807.282M (-739.718M)
Down Volume: 1.893B (+1.389B)
A/D and Hi/Lo: Decliners led 2.35 to 1. Pretty negative volume shows the struggles even without high volume selling, but overall the NASDAQ A/D line is on the rise.
Previous Session: Advancers led 1.11 to 1
New Highs: 77 (-24)
New Lows: 65 (-27)
NASDAQ CHART: http://www.investmenthouse.com/ihmedia/NASDAQ.jpeg
NASDAQ sold back along with the rest of the market, closing just off session lows. Not a stellar session, but the volume was low ahead of the last rip higher. NASDAQ was not immune from the selling, but its recent show of relative strength pushed it to a new 6-year high and that gave it a higher starting point with respect to the selling. It came back, but Friday it held above its July/August 2006 trendline. That puts it smack dab in the middle of its channel marked by the October/December/February trendline (2563) on the low. Price/volume action has improved on NASDAQ as the month has progressed but there is a big test ahead this week as it tries to hold its channel.
SOX (-1.52%) was the real surprise of the week. It got whacked on Friday, but it also broke Thursday with a fairly impressive break from its 6 week double bottom with handle base. How it responds this week to this breakout test will tell a lot about what kind of money is coming into the techs as the NYSE large caps struggle.
SP500/NYSE
Stats: -19.63 points (-1.29%) to close at 1502.56
NYSE Volume: 2.624B (+63.64%). Big volume surge due to the Russell rebalance as the large caps and small caps test the 50 day EMA once more.
Up Volume: 754.471M (-353.638M)
Down Volume: 1.852B (+1.396B)
A/D and Hi/Lo: Decliners led 3.08 to 1. Still heavier breadth on the downside sessions than the upside. Thus the flattening in the advance/decline line the past month and indeed the dip in the line last week. This was one of the hallmarks of the advance and now it is waffling as the NYSE indices stumble off a lower high.
Previous Session: Advancers led 1.21 to 1
New Highs: 80 (-28)
New Lows: 57 (-32)
SP500 CHART: http://investmenthouse.com/ihmedia/SP500.jpeg
SP500 did not hit a new high last week, failing to take out the early June peak and indeed never really trying to punch through that prior high. It made a higher low and slumped back to the 50 day EMA with a rising volume session Wednesday and a lower volume Thursday rebound try. Friday was on lower volume until the rebalance trade hit late, but the price action was a thud to the 50 day EMA. Third time in three weeks the large caps have sold down to this level as the trend channel shifts lower. If it can hold here that is fine; the 50 day MA is a level where big money supports stocks. It needs to make a higher low here, however, to start offsetting the repeat visits as well as the lower high made on the last rebound attempt.
The small cap SP600 (-0.87%) bounced down to its 50 day EMA for the third time this month as well though it was rebounding modestly off that level as it did Thursday. The small caps made a lower high as well, always a concern and magnified when the indices are in choppy trade such as this. It is still in the ballpark for a higher low here at this key support. If NASDAQ can make the break higher the small caps, being a growth index, should get some upside as well.
DJ30
The Dow could not capitalize on the nice Thursday rebound after the intraday shakeout. Friday it rolled sharply lower and closed in on the 50 day MA as well as the bottom uptrend line in its channel (13,325). It is a large cap index, and as with SP500 it made a lower high last week just below the prior high hit at the start of June. This is a key test for the blue chips this week as they make their third test of the trendline similar to SP500's test of the 50 day EMA.
Stats: -185.58 points (-1.37%) to close at 13360.26
Volume: 380M shares Friday versus 241M shares Thursday. Not counting this volume given the rebalance. The Dow suffered distribution Wednesday as it struggled at the prior high and then sold back.
DJ30 CHART: http://www.investmenthouse.com/ihmedia/DJ30.jpeg
MONDAY
After a quiet week for economic data, a week that saw the market lose ground, the news pace picks back up. Home sales, durable goods, personal income and spending, PCE, Chicago PMI, and Michigan sentiment. Oh yes, the FOMC announces another decision on interest rates on Wednesday. With other central banks hiking rates there is some trepidation ahead of this meeting, but remember, most are saying the US is the soft spot in the world, and that gives the Fed the cover it needs to hold rates just where they are.
The key data for the week, FOMC and the PCE are later in the week meaning the market has to find support ahead of the news. Thus the task again falls to the leadership, and after Friday we still see quite a few leaders that have moved back to near support. We will be looking to play them off of this support if they show the moves. We will also keep an eye on possible emerging leadership from technology and semiconductors given the relative strength shown as the large cap indices stumble some.
As noted before, the overall market, particularly the large cap NYSE indices, are in for an important test after struggling as they reached toward the prior high. This is the point to show something if there is anything left in the tank. Given the lower high and the third test of the 50 day MA in quick succession it is definitely a point where these indices have to show us they are ready to try a break higher and resume the uptrend.
Support and Resistance
NASDAQ: Closed at 2588.96
Resistance:
2601 is the mid-May intraday peak.
2563 is the October/December/February trendline
2614 is the November/February up trendline
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:
The July/August trendline at 2588
The 50 day EMA at 2559
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 1504.07
Resistance:
1521 is the late November to February up trendline
1528 is the March 2000 closing high
1541 is the June high.
The upper trendline of the channel at 1548
1553 intraday high from March 2000 is the all-time index peak
Support:
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 13,360.26
Resistance:
13,420 is the upper channel line in the November/February channel
The mid-May peak at 13,556
The early June high at 13,676 (closing), 13,692 (intraday)
Support:
13,325 is the November/February up trendline that marks the lower channel.
The 50 day EMA at 13,291
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 25
Existing home sales, May (10:00): 6.00M expected, 5.99M prior
June 26
Consumer confidence, June (10:00): 106.0 expected, 108.0 prior
New home sales, May (10:00): 925K expected, 981K prior
June 27
Durable goods orders, May (8:30): -1.0% expected, 0.8% prior
Crude oil inventories (10:30)
June 28
GDP final, Q1 (8:30): 0.8% expected, 0.6% prior
Chain deflator, Q1 (8:30): 4.0% expected, 4.0% prior
Initial jobless claims (8:30): 324K prior
FOMC policy statement (2:15)
June 29
Personal income, May (8:30): 0.6% expected, -0.1% prior
Personal spending, May (8:30): 0.7% expected, 0.5% prior
Core PCE, May (8:30): 0.2% expected, 0.1% prior
Chicago PMI, June (9:45): 58.0 expected, 61.7 prior
Construction spending, May (10:00): 0.2% expected, 0.1% prior
Michigan sentiment revised, June (10:00): 84.0 expected, 83.7 prior
End part 1 of 3
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world stock market
us stock market
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