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6/28/07 Stock Split Report
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Stock Split Report Subscribers:
MARKET ALERTS
Targets hit alerts: None issued
Buy alerts: CIEN; MTOX
Trailing stops: None issued
Stop alerts issued: BHI
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:
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SUMMARY:
- Market gets a left-handed handshake from the Fed.
- Fed acknowledges slowing core inflation but is playing its cards conservatively.
- Market still working through the hangover from its long run higher.
Stocks fail to hold gains post-Fed.
Stocks continued the Wednesday rebound move into the FOMC decision, starting a bit soft but quickly finding their stride once again. The final GDP revision was softer than anticipated but better then the prior iteration (0.7% versus 0.8% expected and 0.6% prior), but the PCE component was nudged higher. Earnings continued to dribble out with MON and RAD beating while KB (homes) missed and NVLS and DRIV guided lower. The tech recovery or relative strength, whatever you want to call it, received an assist from analysts with upgrades of CSCO and INTC. Oil was higher, rising over $70/bbl intraday, but that did not slow the market much. Ironically, it did not help energy stocks at all as they continued their struggle despite the overall market gains ahead of the Fed.
NASDAQ was sporting a 14 point gain at the FOMC announcement, SP500 a 6 point gain. Initially stocks jumped to the tune the Fed was playing as the Fed acknowledged the slowing core inflation. In the next breath, however, it took it back saying the move was thus far not sustained. After the initial jump stocks were sold. Another upside bounce failed and they stumbled off into the close flat, muttering about rates, inflation, the Fed, M&A, housing, oil, the price of tea in China, etc.
As is often the case post-Fed outside of a clear change in position, the market gyrated up and down, trying to figure out just what the market said. More to the point, as the market did not get a 'nirvana' statement, it continued the same choppy, indecisive action and closed flat. In short, the FOMC failed, at least for Thursday, to provide any catalyst, and that left the market in basically the same position it has been in this week: weak and trying to hold the line where it absolutely had to.
Technically the session was a mushy as it was price-wise. Volume was lower as usual on the FOMC decision days, again, indecisive. The indices rallied then gave the move back to close flat. Stocks in most cases could not push the Wednesday move higher, and that left SP500, DJ30 and SP600 still slogging just above their 50 day EMA. The FOMC decision muddied the water for the session a bit, but the clear feature is that the market did not blast ahead and continue the Wednesday rebound after the edict from on high. In short, more of the same as the market works off its prior runs higher, trying to consolidate and hold on at the 50 day EMA.
THE ECONOMY
The Fed acknowledges lighter inflation, but really didn't want to.
The Statement:
"Economic growth appears to have been moderate during the first half of this year, despite the ongoing adjustment in the housing sector. The economy seems likely to continue to expand at a moderate pace over coming quarters.
Readings on core inflation have improved modestly in recent months. However, a sustained moderation in inflation pressures has yet to be convincingly demonstrated. Moreover, the high level of resource utilization has the potential to sustain those pressures.
In these circumstances, the Committee's predominant policy concern remains the risk that inflation will fail to moderate as expected. Future policy adjustments will depend on the evolution of the outlook for both inflation and economic growth, as implied by incoming information."
Call it intellectual honesty or simply owning up to the facts (at least the facts the way the federal government compiles them), the Fed finally dropped the 'elevated' moniker in describing core inflation and acknowledged the core had improved, if only 'modestly.' I suppose a decline from 2.8% to 2% (roughly 29%) on the annualized core PCE is only a modest improvement to the Fed, but if the rate comes down to the top of your comfort zone you have to say something positive.
So the Fed did. It nodded in the direction of improving inflation. It immediately took the real impact of that statement back, however, with the next sentence, noting that a sustained decline was not "convincingly demonstrated." I am reminded of an uncomfortable situation a long, long time ago when a girl told me she loved me and I responded in kind. Realizing what I had just said I immediately sought damage control, saying quickly she was such a good friend to have. You could see the cold water splash on her as certainly as if I had dumped a bucket of water on her. You get the drift.
So the Fed does finally say inflation is moderating, but it also acts as if it does not believe it. Thus the debate regarding the Fed's internal debate regarding core versus overall inflation and which one should be watched is further fueled. Thursday the Fed was unwilling to broach the subject, but its continued concern about resource utilization (a definite Phillips Curve holdover) keeps the worry out there. The Fed seems to think if too much capacity is used that inflation will follow. If money is allowed to flow where it is needed that is not an issue. Of course with Congress beating the tax (where did that 'last resort' go we heard about so much during the election campaign?) and regulation drum, maybe the Fed is onto something. If the new powers in Congress get their way, higher taxes and more government intervention are assured. That has always turned out bad for the economy and thus the market.
In sum, the Fed is acknowledging what is has to based upon its articulated guidelines. The problem with this Fed is that it is a Fed in transition: it had to carry on the Greenspan torch given Greenspan was in charge for so long and everyone was used to his style, as dangerous as that was for the market and the economy. Bernanke is an inflation targeting economist, and we have the suspicion that after another year or so he is going to implement targeting. Bad idea in our view, but right now during this transition he is acting as we think a Fed chairman should: stick to following the bond market, pick your course of action and let everyone know what it is, and keep your mouth shut (though it took him awhile to figure out this last point). For now he is punching the right buttons and the market has prospered accordingly. That wasn't the case Thursday, but the market is already in consolidation/correction mode, and if it did not get manna from heaven it was not going to change its colors. It didn't and thus it didn't.
THE MARKET
MARKET SENTIMENT
VIX: 15.54; +0.01
VXN: 16.91; -0.45
VXO: 15.61; +0.09
Put/Call Ratio (CBOE): 0.88; +0.04.
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: +4.13 points (+0.16%) to close at 2609.48
Volume: 1.967B (-4.81%). Volume fell even further below average on the uncertainty ahead of the FOMC decision. Par for the course. What it does from here is more to the point as it has bounced off the 50 day EMA and is already tapping at the prior highs.
Up Volume: 1.066B (-641.805M)
Down Volume: 876.476M (+537.341M)
A/D and Hi/Lo: Advancers led 1.06 to 1
Previous Session: Advancers led 2.22 to 1
New Highs: 73 (+10)
New Lows: 40 (-3)
NASDAQ CHART: http://www.investmenthouse.com/ihmedia/NASDAQ.jpeg
As the internals above show, NASDAQ was totally noncommittal on the session. Sure it rallied early, but volume was lower and when the FOMC announcement came it surged and purged, closing flat. It almost tapped the upper channel line on the session high; a 50 point high to low move basically covered its channel. Not a lot of room to move around. Without more volume, it is not likely to break higher to a new upside channel, but at this juncture in the market that is wishful thinking. The fact that NASDAQ made a higher low at key support and bounced is well beyond what the other indices managed. The action has not been powerful with that low overall volume on the moves, but it has provided an anchor for the rest of the market. Not likely to provide any serous new direction to close out the week as it is still nicely within its channel.
SOX (-0.89%) found some tougher going Thursday as NVLS cut its guidance, somewhat undermining the reasons for the strength shown in the semiconductor indices the past few weeks. The selling was not horrid, however, and SOX stands in good position to resume the bounce.
SP500/NYSE
Stats: -0.63 points (-0.04%) to close at 1505.71
NYSE Volume: 1.492B (-15.29%). Volume fell below average for the first time in over a week as the market climbed ahead of the FOMC decision but it really lacked conviction. At least it was not a high volume reversal as the large caps and small caps fell back from their early foray higher.
Up Volume: 760.243M (-625.496M)
Down Volume: 697.553M (+332.346M)
A/D and Hi/Lo: Advancers led 1.37 to 1
Previous Session: Advancers led 3.02 to 1
New Highs: 55 (+15)
New Lows: 11 (-21)
SP500 CHART: http://investmenthouse.com/ihmedia/SP500.jpeg
As with NASDAQ, the internals were very even as the large caps rallied then gave it back to close flat and still unable to take out the 50 day SMA (1508) on the close. The result was a tombstone doji below that resistance point as well as the 10 and 18 day EMA, not to mention the trendline up at 1525 (which it did not close to threatening). Not a really great picture for SP500 as it tried to rebound from the early June lows. It did, but it is already struggling after one.15 sessions to the upside.
SP600 (+0.10%) fared the same though it closed on top of its 10 and 18 day EMA, both 50 day MA, and is in its uptrend channel. That said it has a lower high and a lower intraday low on this move and thus still is on probation for now.
DJ30
The Dow tried another bounce and managed to clear the top of its channel and the 18 day EMA intraday ahead of and immediately after the FOMC decision. Volume was low and back below average, however, and it could not hold the move. Still trying to fight off the double tops from earlier this month and doing a better job of it than SP500 though this is still hardly a position of strength just yet.
Stats: -0.63 points (-0.04%) to close at 13422.28
Volume: 207M shares Thursday versus 246M shares Wednesday. Showed some better volume at the 50 day EMA test and on the Wednesday bounce. Kind of slicing hairs, however, as the differences are quite modest.
DJ30 CHART: http://www.investmenthouse.com/ihmedia/DJ30.jpeg
FRIDAY
Friday in summer typically means lower volume. With the Fed just acknowledging core inflation was declining and with a new reading on the core PCE due out Friday morning, however, things could get a bit interesting. If the core PCE can slide down to 1.9% the market might get the lift it was looking for from the Fed but didn't get Thursday. Chicago PMI is out as well, and the regional manufacturing reports have improved nicely. A good number there won't hurt, but it won't get the mileage a good PCE reading would.
It definitely needs something to re-energize it. When you have NASDAQ leading in the summer on light volume you need a catalyst. DJ30 and SP500 are suffering from their own success, trying to digest those prior runs where DJ30 just seemed to climb and climb without interruption. That kind of party typically leads to a hangover. This one has yet to really break down, but it is threatening with respect to the NYSE large caps as they continue to struggle above the 50 day EMA in a weak pattern.
Not a lot of great news in that picture, but it is simply what the market has to do from time to time after it posts good moves. It does have NASDAQ going for it and if the chips can stop shooting themselves in the foot every time they make a decent move they can help out as well.
That leaves a lot riding on the PCE to generate some excitement that the Fed could not. A 1.9% annualized core rate would be quite nice given the Fed wants to see more improvement. That would not be the 1.5% the Fed would like, but it would demonstrate the continued improvement the Fed found lacking thus far.
Outside of that the market continues to struggle along in this correction of sorts. SP500 is the weak link while NASDAQ, DJ30, SOX and even SP600 are all salvageable as they have not done major technical damage to their patterns. Leadership continues to hold up rather well, but energy is struggling as are metals, both leaders in the prior moves. The market is trying to find new leadership as it also tries to consolidate. We are going to continue looking at well-positioned leadership caliber stocks as we also watch the action on the major indices. Good moves from leaders and emerging leaders are the best indicators of the market, but if SP500 breaks lower and starts dragging the rest of the market with it there will be an impact on even the leaders.
Support and Resistance
NASDAQ: Closed at 2608.37
Resistance:
2623 is the November/February up trendline
2630 is the top of the November/February channel
2634.60 is the June peak
2778 from a July 1999 peak
2887 from a September 1999 peak
2920 from an October 1999 peak
Support:
2601 is the mid-May intraday peak.
2570 is the October/December/January trendline
The 50 day EMA at 2564
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 1505.71
Resistance:
The 50 day SMA at 1508
1525 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 1553
1553 intraday high from March 2000 is the all-time index peak
Support:
The 50 day EMA at 1501
1490.72 is the early June closing low
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 13,422.28
Resistance:
13,443 is the upper channel line in the November/February channel
The 18 day EMA at 13,455
The mid-May peak at 13,556
The early June high at 13,676 (closing), 13,692 (intraday)
Support:
13,371 is the November/February up trendline that marks the lower channel.
The 50 day EMA at 13,305
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): 5.99M actual versus 6.00M expected, 6.01M prior (revised from 5.99M)
June 26
Consumer confidence, June (10:00): 103.9 actual versus 106.0 expected, 108.5 prior (revised from 108.0)
New home sales, May (10:00): 915K actual versus 925K expected, 981K prior
June 27
Durable goods orders, May (8:30): -2.8% actual versus -1.0% expected, 1.1% prior (revised from 0.8%)
Crude oil inventories (10:30): 1.6M actual versus 1.2M expected
June 28
GDP final, Q1 (8:30): 0.7% actual versus 0.8% expected, 0.6% prior
Chain deflator, Q1 (8:30): 4.2% actual versus 4.0% expected, 4.0% prior
Initial jobless claims (8:30): 313K actual versus 315K expected and 236K prior (revised from 324K)
FOMC policy statement (2:15): Left rates at 5.25% and acknowledged the slowing core inflation rate but said it was still not enough.
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): 0.1% 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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