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world stock market, us stock market
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6/30/07 Technical Traders Report
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Technical Traders Report Subscribers:
MARKET ALERTS
Target hit alerts: RIMM
Buy alerts: CMTL
Trailing stops: None issued
Stop alerts: BWLD
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/alertttr.html
SUMMARY:
- Volatile session, chock full of positive and negatives, marks the end of the quarter and a trying month.
- Core PCE is now inside the Fed's comfort zone, and indications are it will continue to do so.
- Bond rates veer lower on a Friday flight to safety, but they were already trending lower after that mid-June peak.
- New quarter, new money, but a shortened holiday week may set the calendar back.
Another up and down session as market consolidates, marks the quarter end.
Friday was the last day of June, and fittingly it encapsulated the action for the month. There was a lot of news, both positive and negative. Foiled London bomb plots reminded everyone it is a very American holiday in the week ahead and sparked fears the US might be a target as well. Oil ran to a 10 month high, closing over $70/bbl ($70.68, +1.11). Sub-prime mortgage woes were again a concern as BSC and company sold off on SEC probes. This was in addition to prior commentary this week as to how far the mortgage problem would spread, including Bill Gross (the 'bond king') saying the sub-prime effect was worse than expected and would impact the overall economy. Gross has pulled a 180 the past month with his view on bonds and that helped rattle all financial markets in June.
There was also some more very good news. Yes, despite the negatives, there was a lot of good news the past week. Friday added to the list with a core PCE that rose a less than expected 0.1% for the second straight month, dropping the core annual rate to 1.9%, now officially within the Fed's 'comfort zone.' Of course the Fed in its Thursday statement said this moderation in inflation had not shown itself to be sustained, but that was more a case of trying to act tough and feign concern when everything is going just the way you want. The annualized core PCE is down from 2.8% as it makes a steady, sustained trend lower. The Fed has to be happy with that even if it pisses and moans in public. Michigan sentiment topped expectations as did construction and the Chicago PMI (turning in another 60+ reading). Falling inflation in an economy that is expanding once more.
Wow. This is just what you want to hear and what we were expecting as per our writings, speeches, and interviews. Many ask us then why is the market struggling right now? It is struggling because it anticipated this news and rallied in advance. That is what the August 2006 to early 2007 rally was about. The economy was slowing as per the economic readings, but the stock market was looking down the road to what was coming in the new year, i.e. a resumption of the economic expansion after a mid-cycle slowdown. This even with the worries regarding the housing and sub-prime market. As we said last week, the market responds to daily news events over the short term, but its longer term moves are based on what is going to happen 6 to 9 to 12 months down the road.
With that in mind lets consider June. Preceding the month there was a rally in place that ran from August 2006 to the end of May 2007. In that entire 10 month run the only appreciable correction was a 3%ish job in February and March that lasted just 5 weeks. Are the current struggles the result of the worries about sub-prime, rising interest rates, tax and tariff talk in Washington? In the short run, of course it is. It is also an excuse the market is using to consolidate the gains in this run (274 SP500 points, or 21%). Consolidations that occur when the underlying economic underpinnings remain solid (as they are in this case with expanding activity and falling inflation) use the excuse de jour as the reason to sell. In June the excuses were rising interest rates (viewed as inflation and as an M&A killer), sub-prime housing worries, and fear that the democratic Congress was going off the deep end with talk of rich versus poor and tax hikes on everything that has made the economy grow out of the 2001 recession. Given the long run into June and these issues percolating to the surface, it was the time for the market to consolidate, and it is still in that process. Thus the failure to respond to the really excellent PCE news with any kind of move that could stick.
The near term key is how far the consolidation goes. Much of the action on higher volume last week was due to the month and quarter end shuffling that tends to mark the tape, i.e. skew the action as funds position their portfolios for their investor statements. Thus the up and down price action and the elevated volume levels for the week. With a holiday shortened week ahead that has a holiday smack in the middle, we can expect that volume to lighten considerably. That leaves the market susceptible to more volatility as it takes fewer hedge or mutual funds to skew the tape. Some will be putting new money to work for the month and quarter, some will be using gains to take money off the table. The result will likely be more volatile consolidation action as the market bases out, digesting that big run higher.
Thus far there is no sign yet that the consolidation has run its course or even hit bottom. SP500 is the weakest of the major indices, struggling to hold its 50 day EMA. Interestingly, all of the indices finished higher for the week, but that was just part of the up and down volatile action that is a base. Indeed the fact that the action is still so volatile indicates there is still quite a bit of work to do in digesting the gains. That said, leadership is still performing well though the ranks of the very strong have thinned as most stocks partake in the market pullback, testing their prior moves. There are still stocks oblivious to the market issues (BIDU, WNR, GRMN), then things fan out to those moving laterally, those testing near support, and those heading into deeper bases. We anticipate the economy to continue its expansion and thus while this base has not shown it has hit bottom, we expect it to do so and resume the climb associated with the economic expansion.
Technically despite the volatile swings there was no change in relative position for the indices following the Friday session. The Dow was up 100 points and down 100 points, settling basically flat as did all of the indices (not the 200 point swing, just closing basically flat). Volume was strong, up above average, the first trip above average for NASDAQ outside of the Russell rebalance two Fridays back in over two weeks. That trade, however, was due to quarter end marking as discussed above. Thus the market finished the week with the NYSE large caps still attempting to hold the line and NASDAQ showing new found leadership.
THE ECONOMY
PCE continues heading in the right direction but not many seem to notice.
The May PCE marked another 0.1% gain, matching April's gain and in line with expectations. That moved the annualized core PCE down to 1.9% versus the 2.0% in April and the 2.1% in March. That pushes the core rate back into the Fed's comfort range for the first time since February 2006. It also is well off the 2.8% peak; definitely heading in the right direction even as the economy starts up again.
Yes the economy is improving even as inflation declines. Once more economic expansion leads to more supply and less inflation. Somehow this is lost on the Fed, at least based upon its public statements since former Dallas Fed president McTeer retired. The evidence is pretty clear of late as the economy resumes its expansion and both the core PCE and core CPI decline. Friday was more evidence of the same as the Chicago PMI posted a strong 60.2 reading versus the 57 expected, its second consecutive reading above 60. Construction spending was also strong at 0.9% growth versus 0.2% the prior month. Growth but lower inflation. Imagine that.
From all of the grousing about inflation to come, however, you would not think the PCE was anything positive. Many pundits were on the financial stations talking about inflation still to come based upon food, commodity prices, etc. We have discussed food at length; government boondoggles that squander our food stocks (e.g. ethanol) and thus drive up prices are not inflation, they are government interference. For all of the inflation talk regarding energy, it has not made a jailbreak into core prices. Prices are up, but it is not runaway inflation that is doing it but growth. Interest rates rise when economies are strong and so do prices. That does not mean there is inflation. Inflation is monetary and occurs if there is too much liquidity. The US Fed has done a good job of mopping it up under Bernanke.
The wild card is whether the Fed succumbs to world and domestic pressure to turn its focus on energy and food prices, i.e. non-core prices, in its inflation analysis. Of course hiking rates won't lower demand for energy unless we go into a massive recession. It won't stop the rush to turn our food supply into ethanol and thus pushing up prices.
Bond rates are heading lower after that June scare.
Not if the Fed needs to keep looking to markets to take its cue. Friday the 10 year bond closed at 5.02%, well off its high at 5.33% hit almost three weeks ago. Investors were rushing to the safety of US treasuries given the twin bomb scares in London. Nothing like a good world fright to heighten the appeal for US bonds.
The trend, however, was already heading back down long before the London news on Friday. The 10 year bond's key band of trading now is from 5.25% on the high side to 5.00% on the low side. That 5.02% handle on Friday has it at the low end of the range and should quell worries about runaway bond yields. As we reported at the time of the spike, a lot of that was technical in nature as funds had to adjust their portfolios due to rising yields, and the effect snowballed as it often does in financial markets when the routine turns to fear then panic. The Fed was likely quite happy to see the long end rise as that was doing the Fed's job at least with respect to any rate hikes, but it is also likely happy to see the sudden surge moderate.
Thus the Fed can hold pat if rates remain in this range because the Fed has been, without admitting it, following the bond market since Bernanke took over. That has the effect of giving the market breathing room without the monkey on its back. Yet with its blustering about fighting inflation the Fed is putting on the appearance it is ready to battle inflation any time, any place and in any manner. Thus far it has worked, and thus we cannot see the Fed succumbing to the pressure to change horses and focus on energy and food as well in its analysis.
THE MARKET
MARKET SENTIMENT
VIX: 16.23; +0.69. VIX jumped to 18.98 on the high last week, just off the March levels. The late week rebound in the market pushed it back down but it was bouncing again Friday. Lots of up and down here as well as the market bounced with the quarter end shuffling.
VXN: 17.86; +0.95
VXO: 16.69; +1.08
Put/Call Ratio (CBOE): 1.02; +0.14. The ratio is bouncing above and below 1.0 on the close, following the market's up and down swings. This makes 5 closes above 1.0 since this recent selling started.
Bulls versus Bears:
Bulls: 53.8%. Still holding high levels, rising from 53.3% after a spike to 56.7% three weeks back. Still too high, but as noted before, bulls 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: 20.4%. Back up above the 20% threshold considered bearish after falling to 18.9% three weeks back. After hitting near 30% in March it has faded back in the subsequent rebound and this current selling has not done much to jump it higher. Looking only at this indication and the fact it has not risen as it did in March when the selling took hold, you would conclude that there is more selling to go. Well off the 27.5% hit in April. 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: -5.14 points (-0.2%) to close at 2603.23
Volume: 2.058B (+4.62%). Volume surged above average Friday as NASDAQ lost ground, but as with most of the volume the past week, with the Russell rebalance and then the quarter end this week, the volume levels were skewed.
Up Volume: 949.551M (-116.623M)
Down Volume: 1.162B (+285.057M)
A/D and Hi/Lo: Decliners led 1.25 to 1
Previous Session: Advancers led 1.06 to 1
New Highs: 58 (-15)
New Lows: 44 (+4)
NASDAQ CHART: http://www.investmenthouse.com/ihmedia/NASDAQ.jpeg
NASDAQ rallied again to the upper channel line as it did Thursday, and again it turned back at that point. That also roughly marks the early June peak (2627), another interim resistance point. After testing near the prior highs after the Wednesday bounce NASDAQ faded but it did hold its 18 day EMA on the low and bounced modestly to recoup some of the losses. That keeps NASDAQ easily in its trend and in the leadership role. Thus far it looks decent in the price pattern though volume has run low all the way up and down, showing no heavy buying or selling.
SOX (-0.22%) backed off a bit more but it bounced up off the 18 day EMA on the intraday low and it looks to be making a higher low at this level after fading back and giving up the breakout. Chips have struggled for two months to make a clean getaway and they are still struggling to do so. Still in the game to make that move, and as with NASDAQ showing some relative strength in the market.
SP500/NYSE
Stats: -2.36 points (-0.16%) to close at 1503.35
NYSE Volume: 1.663B (+11.45%). Volume jumped back above average after a one-day respite as the NYSE indices again struggled to get up and off the 50 day EMA. That volume, however, was due to the quarter end shuffling as fund managers set their roster for the quarter ending statements.
Up Volume: 707.055M (-53.188M)
Down Volume: 935.625M (+238.072M)
A/D and Hi/Lo: Advancers led 1.07 to 1
Previous Session: Advancers led 1.37 to 1
New Highs: 56 (+1)
New Lows: 27 (+16)
SP500 CHART: http://investmenthouse.com/ihmedia/SP500.jpeg
Once more the large caps struggled to get through the 50 day SMA (1509) with a solid intraday surge but it could not hold that run. In the end SP500 closed just over the 50 day EMA (1501) for the third session after coming back from an undercut of that level early in the week. That undercut matched the early June low though it did undercut it intraday. SP500 remains in a precarious position after the twin tops in June, but it is holding where it has to hold as the market consolidates the last run higher. Good that it is holding support for now but it is still has a ways to go to work through this toppy pattern.
SP600 (-0.43%) tried to make the run higher once more but it failed at the same point hit Thursday, coming back to its trendline to close. Very similar to SP500 in its pattern though SP600 is in its channel. The small caps have struggled as the energy and metals struggled in June. Even with that they have held the trend thus far as the market consolidates.
DJ30
The blue chip index tested the 50 day EMA (13,309) on the low and rebounded to hold the trendline. It was a 200 point swing up and down as DJ30 tested support and tried to move back up through the trend channel. It still has the double top in June to contend with and is making a higher low here at the 50 day. Better than SP500 but that is like choosing what flat beer you want to drink.
Stats: -13.66 points (-0.1%) to close at 13408.62
Volume: 262M shares versus 207M shares Thursday. Volume jumped above average and the highest since the prior Friday on the Russell rebalance. This is not a bad indication as DJ30 tapped the 50 day EMA on the low and rebounded to flat off of that support. Of course there is that end of quarter action that likely ramped up the trade level.
DJ30 CHART: http://www.investmenthouse.com/ihmedia/DJ30.jpeg
MONDAY
Holiday week with an early close Tuesday and an all-day close Wednesday for July 4. It is also a new month and quarter, and that typically means new money put to work as that liquidity has to have some place to go. With the holiday week, that means lighter trade, and as indicated above, likely more continued volatility as money is put to work and others take some money off on any advance. In short, more of the consolidation action of June as the market continues into the summer session. There will be some economic data that could give it a push if it is inclined. The ISM index and factory orders on Monday, ISM services on Thursday, and the jobs report on Friday. Still, even a really important and very good reading on the PCE could not pull stocks back up on Friday.
There are still leadership stocks in solid shape to move back up from their tests. The market overall is not likely finished with its consolidation, however, and that will keep many from making their rebounds. Some will do it because some stocks and sectors are moving regardless of the overall market as they are continuing their moves in anticipation of a strong economy still to come. We are going to look at those for some strong upside moves, and if they show it we will look at entering new positions. After all, strong is strong and we have seen stocks continue higher despite the June volatility.
That said, this is a higher risk point for new upside positions because the indices, particularly the NYSE indices, have not indicated they are through basing. After such a strong run with very little consolidation time the market likely needs more consolidation. Of course we felt the same way in late March but that did not slow the market when it decided it had enough of a pullback.
We like what NASDAQ is showing (at least compared to the NYSE indices), and the NYSE indices are trying to hold support for a new bounce. Until the latter can set up better patterns and resume their upside breaks, however, it remains a higher risk level for the market. Again, we will be watching if opportunity presents itself, but with likely low volume ahead of the holiday we may not get much action. The big money funds may just wait until after the holiday to start putting the new money for the quarter to work.
As for reports for the week, given the half session Tuesday and closure all day Wednesday we are not issuing a Wednesday report and the Tuesday report will consist only of market data and a summary play table with trading stats for the session.
Support and Resistance
NASDAQ: Closed at 2603.23
Resistance:
2625 is the November/February up trendline
2632 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.
The 18 day EMA at 2594
2572 is the October/December/January trendline
The 50 day EMA at 2566 held on the Wednesday low
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 1503.35
Resistance:
The 50 day SMA at 1509
1526 is the late November to February up trendline
1528 is the March 2000 closing high
1541 is the June high.
1553 intraday high from March 2000 is the all-time index peak
The upper trendline of the channel at 1555
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 13,403.62
Resistance:
The 18 day EMA at 13,450
13,457 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:
13,385 is the November/February up trendline that marks the lower channel.
The 50 day EMA at 13,309
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 29
Personal income, May (8:30): 0.4% actual versus 0.6% expected, -0.2% prior (revised from -0.1%).
Personal spending, May (8:30): 0.5% actual versus 0.7% expected, 0.7% prior (revised from 0.5%)
Core PCE, May (8:30): 0.1% actual versus 0.1% expected, 0.1% prior
Chicago PMI, June (9:45): 60.2 actual versus 58.0 expected, 61.7 prior
Construction spending, May (10:00): 0.9% actual versus 0.2% expected, 0.2% prior (revised from 0.1%)
Michigan sentiment revised, June (10:00): 85.3 actual versus 84.0 expected, 83.7 prior and 88.3 in May.
July 2
ISM Index, June (10:00): 55.0 expected, 55.0 prior
July 3: Early close
Factory Orders, May (10:00): -1.0% expected, 0.3% prior.
Pending home sales, May (10:00): 0.6% expected, -3.2% prior
July 4: Closed
July 5
Initial jobless claims (8:30): 315K versus 313K prior
ISM Services, June (10:00): 58.0 expected, 59.7 prior
Crude inventories (10:30): 1.56M prior
July 6
Non-farm payrolls, June (8:30): 120K expected, 157K prior
Unemployment rate (8:30): 4.5% expected, 4.5% prior
Hourly earnings (8:30): 0.3% expected, 0.3% prior
Average workweek (8:30): 33.9 expected, 33.9 prior
End part 1 of 3
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world stock market
us stock market
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