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us stock market, trade stock
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7/11/07 Stock Split Report Update
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Stock Split Report Subscribers:
Full report issues Thursday.
MARKET ALERTS
Targets hit alerts: None issued
Buy alerts: CSX; FCN; VLO
Trailing stops: None issued
Stop alerts issued: ESV
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:
- NYSE indices test key support and bounce, prompting some short covering.
- Fed continues its discourse on monetary policy and asset bubbles, and as it does it confirms no rate hikes.
- Same store sales are next key economic reports as earnings kick in.
- Market is not out of the woods but the pullback is setting up nice tests in the leaders and indeed DJ30.
Stocks post modest rebound after holding key support.
It was no watershed reversal, but once more the indices did what they had to do. The news was a mixed bag: a bit of M&A activity in the steel sector, continued milder bond yields (4.89% 2 yr, 5.09% 10 yr), and some constructive Fed-speak on the positive side; flat initial same store sales reports and lower oil inventories on the negative side (-1.4M bbl versus -50K expected). It was mixed enough to push NASDAQ back and forth in a 14 point range in the first hour. Stocks tried to start positive after the Tuesday sell off, but as is typical, the early bounce couldn't hold.
That set off an early test that the market needed to make. SP500 sold down to the 50 day EMA and the DJ30 down to the 50 day SMA. That was the test the shorts were looking at. When both held that level and bounced that sent in some shorts to cover and the indices rebounded sharply over the next half hour, then started a session long climb that ended posting some decent 0.5% gains nearly across the board. The move was tested mid-afternoon as the sellers tried their hand again, but again the selling was met with buying and the indices rebounded to close at session highs.
Nothing wrong with some short covering on a rebound; all rebounds from selling start with shorts covering positions. The key is whether the upside buyers come back in after the initial covering. Volume suggests that was not the case, at least not with any force. It was not enough to overpower the Tuesday selling volume.
Technically the session was nothing spectacular. Stocks recovered positive but breadth was flat. The A/D line started to flatten in March and it has continued that lateral move through this 7+ week trading range. The market rallied after the A/D line initially started to flatten, indicating that the move was losing strength. That is indeed what has happened as seen in June and into July.
Volume was ahead of last week but it was lower than the Tuesday selling. Would have preferred to see more volume as SP500 rebounded from the 50 day EMA test, but there was no surge of buyers on the session, just bouncing where it had to bounce. That still leaves a lot of work to be done what with the lower highs on SP500. For Wednesday, however, SP500 held key support and bounced. It has given itself the opportunity to start something here. It doesn't hurt that many of the leaders, e.g. CMI, CLF, ICE, CVX, etc. have tested and held the line as well.
In sum, SP500 is still in a weak pattern, but it has held where it had to, it is in position to make a higher low at that key support, and it has some leadership trying to take it higher once more. With DJ30 tapping its 50 day SMA and rebounding and NASDAQ bouncing off of near support, it has company to help it as it makes this test. Earnings started to pick up the pace after hours with DNA, YUM and AEO posting solid numbers. This market needs some solid upside surprises to throttle back up. All in all Wednesday was not a bad response to the Tuesday selling, more of a consolidation session in the ongoing lateral move that held where it had to held but didn't do much more than that.
THE ECONOMY
There was some more Fed-speak on asset bubbles. With Moody's and S&P downgrading several sub-prime securities groups the talk about a housing bubble bust and what the Fed's role should be continues. So too does the Fed's PR campaign about what it can and cannot as well as what it should and should not do with respect to asset bubbles.
Prosser was the man on Wednesday, reiterating in a speech Bernanke's points made Tuesday. In a nutshell Prosser said that monetary policy should not target asset prices as its goal or as a means to an end. Amen to that.
Despite worries of the Fed raising rates as the economy re-accelerates, it won't.
The interesting aspect of this new Fed topic is that the Fed has maintained that the sub-prime issues would not cause any major disruption in the economy. Yes there are effects, but the Fed consistently states they won't bleed over into the rest of the economy despite what Bill Gross says. The Fed has some pretty decent support for this argument, the primary being the sub-prime market is just a sliver of the mortgage market and most of the issues arose at the tail end of the housing cycle . . . just as they always do. Builders build those last few too many houses and lenders squeeze the turnip for those last few loans they know should not be made.
By maintaining nothing is going to impact the rest of the economy, many assume the Fed is still going to raise rates if the economy continues its return to strength. No way. The Fed may say there is no major effect, but there is some turmoil in the credit markets as a result of the sup-prime problems. If the Fed were to hike rates it would only exacerbate the effect. Lenders have already clamped down on loans, and raising rates would only stifle the natural recovery when it tries to take hold. Further, bond yields would explode higher on another rate hike; yields are finally reacting to the economic environment rather than anticipating Fed intervention in the debt and credit markets. If the Fed hikes it knows it will upset the natural and positive reorientation of the bond market after years of artificial lows as a result of the Greenspan era. Higher rates are not bad in and of themselves; they provide a governor on the excesses or imbalances Greenspan so often talked about yet so often fostered by his incessant meddling in the financial markets.
The short of it is the Fed is not going to raise rates now, and it is not going to raise rates for a long time. Near term the effects would be rather horrific for the financial markets. Longer term doesn't matter; the short term impact would change the game. Fortunately if you listen to what Bernanke is saying now you realize he is telling us the Fed will raise rates if necessary but the Fed is not going to raise rates now or in the foreseeable future. That is meaning of that statement Tuesday regarding food and energy prices not impacting inflation as long as inflation expectations remained in check: the Fed remains ready to raise rates, but right now there is no reason to do so. Given the Fed is on pause, that actually makes sense for a change.
THE MARKET
MARKET SENTIMENT
VIX: 16.64; -0.93. Volatility took a breather after topping the early June peaks. Even though it dropped back on Wednesday we still need to keep in mind Tuesday's discussion about rising volatility coupled with highs in the market.
VXN: 17.54; -1.07
VXO: 16.56; -0.66
Put/Call Ratio (CBOE): 0.9; -0.11
Bulls versus Bears:
Bulls: 49.4%. Now that is quite a drop from 53.8% the prior week and well off the spike to 56.7% a month back. Heading in the right direction but still needs to be lower to get to a comfort level. The 55% level is considered bearish, and it topped that level on this last run. Still off the 60% hit in December 2006 but getting closer. For reference it bottomed in the summer 2006 near 36%.
Bears: 18.0%. Bulls may be falling, but bears are as well, and that leaves the indicator mixed and thus less than an good signal. Quite a drop from 20.4%, and now at the lowest level on this cycle (hit 18.9% a month back). After hitting near 30% in March it has faded back in the subsequent rebound and this current selling is not jumping 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: +12.63 points (+0.56%) to close at 2651.79
Volume: 1.996B (-10.05%). Volume slipped back below average as NASDAQ held near support at the 10 day EMA and bounced. Not bad though there is still more downside volume than upside.
Up Volume: 1.25B (+687.184M)
Down Volume: 713.721M (-909.676M)
A/D and Hi/Lo: Advancers led 1.15 to 1. Back to flat on an upside day after spiking on the downside. That is what is pressuring the A/D line.
Previous Session: Decliners led 2.77 to 1
New Highs: 70 (+25)
New Lows: 75 (-15)
NASDAQ CHART: http://www.investmenthouse.com/ihmedia/NASDAQ.jpeg
NASDAQ undercut the 10 day EMA modestly on the morning low and then rebounded through the session, fighting off a mid-afternoon slump to rally and close at session highs. It was a good test as well in that NASDAQ also tapped the June high on the low and reversed. In short, NASDAQ showed good action after a test of what should have held as support, and that despite the high volume selling on Tuesday. NASDAQ continues to show some pretty solid action outside of that distribution that hit the entire market. What it needs right now is a shot of good earnings results to send it higher once again after this test of the prior high. May not quite be there yet, but if it can hold in this range it is set to make that move.
SOX (-0.11%) was the only down index but it also showed a nice doji as it tests its run from the start of the month that took it to a new breakout high. Nice. It may test a bit more toward 511 and if it does it will be a buy. If it holds here and bounces it is still a pretty nice buy.
SP500/NYSE
Stats: +8.64 points (+0.57%) to close at 1518.76
NYSE Volume: 1.524B (-6.97%). Volume was lower than the Tuesday selling trade and it was below average, but it was not that much lower. Nice action as SP500 tapped support and bounced.
Up Volume: 956.347M (+735.238M)
Down Volume: 538.439M (-860.892M)
A/D and Hi/Lo: Advancers led 1.14 to 1. Pancake breadth here as well as the NYSE A/D line continues its three month flattening.
Previous Session: Decliners led 3.38 to 1
New Highs: 66 (+30)
New Lows: 40 (-21)
SP500 CHART: http://investmenthouse.com/ihmedia/SP500.jpeg
The SP500 remains the weakest link as far as the large indices. The action Wednesday with the test of the 50 day EMA (1506) on the low and then the rebound was nice to see after the lower consecutive peaks following the early June high. SP500 is in position to put in a higher low here after a pretty solid session. If it can do that it will help change the dynamics of the market and show this 7 week lateral consolidation is just about over. That seems intuitively crazy given the rally the market has had with just two consolidations, but we have to stay open to the possibilities as the market lays them out. Wednesday did not change SP500's character but SP500 gave itself a chance to do so.
SP600 tapped at its 50 day EMA on the low and it too rebounded. Unlike SP500, the small caps scratched out a higher high on their last bounce, a better technical indicator (though it was a very narrow higher high. Good position to make a higher low as well. The small caps, similar to the large caps, however, have basically given up any leadership aspirations for now.
DJ30
The blue chips tested support themselves, but they held well above the 50 day EMA that SP500 tested, instead bouncing off the higher 50 day SMA. Tapped at it on the early morning low and then bounced nicely. DJ30 has quietly turned a weak hand into a stronger and stronger pattern. It is putting in a higher low here despite the chop in the market, and it along with NASDAQ are setting up for another move higher.
Stats: +76.17 points (+0.56%) to close at 13577.87
Volume: 224M shares Wednesday 274M shares Tuesday. Volume fell off to below average after the Tuesday higher volume selling that took DJ30 down from its mid-June high.
DJ30 CHART: http://www.investmenthouse.com/ihmedia/DJ30.jpeg
THURSDAY
Retailers will start reporting same store sales Thursday ahead of Friday retail sales report. We are already getting some results as CHS and ARO missed but after hours ZUMZ raised its outlook. Everyone expects retail to be weak what with the housing issues and the debt burdens. We are seeing the restaurants reporting good results, and it is pretty much a consumption truism that if people are eating out they are not down in the dumps about their financial situation. Thus we are not going to get all lathered up over the results though they will be another important piece of the economy picture.
Earnings are going to continue as the near term driver as more and more results are issued. The season saw few warnings so when AA and the initial reporters were lackluster the initial reaction was, well, we saw that initial reaction Tuesday. The lack of warnings and the low expectations add up to upside surprises. The market certainly can use some of those here. As noted, NASDAQ and DJ30 are in pretty solid shape while SP500 is trying to hold on. After 7 weeks of choppy consolidation trade they have put in the time to move higher. Upside surprises would provide the reward.
Wednesday we saw many solid stocks completing some pullbacks and we are looking at some new positions as they show solid moves back up. ICE was an early leader in the rebound category as it surged off a higher low Wednesday. That is the power of that higher low that DJ30 is showing. We wanted this pullback to give us some buys on leaders, and we have used this lateral chop to take positions this week and we are going to continue to take advantage of upside opportunity on these pullbacks because the economic underpinnings continue to improve, the Fed is on the sidelines, and inflation is falling. Those are always positives for the market, and with the improvement in DJ30 and SOX in support of NASDAQ, despite the fears about the consumer and sub-prime, we are looking for another run.
Support and Resistance
NASDAQ: Closed at 2651.79
Resistance:
2778 from a July 1999 peak
2887 from a September 1999 peak
2920 from an October 1999 peak
Support:
2640 is the top of the November/February channel
2637 is the November/February up trendline, and it is about to intersect the upside channel
2634.60 is the June peak
The 18 day EMA at 2626
2601 is the mid-May intraday peak.
The 50 day EMA at 2587
2583 is the October/December/January trendline
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 1518.76
Resistance:
1529 is the late November to February up trendline
1528 is the March 2000 closing high
1534 is the early July high
1539 is the mid-June intraday high
1541 is the early June high.
1553 intraday high from March 2000 is the all-time index peak
Support:
The 50 day EMA at 1506
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 13,577.87
Resistance:
The early July peak at 13,671
The mid-June high at 13,689
The early June high at 13,676 (closing), 13,692 (intraday)
Support:
The mid-May peak at 13,556
13,505 is the upper channel line in the November/February channel
The 50 day SMA at 13,461
13,450 is the November/February up trendline that marks the lower channel.
The 50 day EMA at 13,374
The 90 day SMA at 13,041
12,796 at the February 2007 high
12,700 is the early February peak intraday high
Economic Calendar
These are consensus expectations. Our expectations will vary and are discussed in the 'Economy' section.
July 9
Consumer Credit, May (3:00): $12.9B actual versus $6.5B expected, $2.3B prior (revised from $2.6B)
July 10
Wholesale Inventories, May (10:00): 0.5% actual versus 0.4% expected, 0.3% prior
July 11
Oil inventories (10:30): -1.4M actual versus 315K prior
July 12
Initial jobless claims (8:30): 315K expected, 318K prior
July 13
Import prices, June (8:30): 0.5% prior
Export Prices, June (8:30): 0.2% prior
Retail sales, June (8:30): 0.0% expected, 1.4% prior
Retail sales ex-autos, June (8:30): 0.2% expected, 1.3% prior
Business inventories, May (10:00): 0.3% expected, 0.4% prior
Michigan sentiment, preliminary, July (10:00): 86.0 expected, 85.3 prior
End part 1 of 3
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