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world stock market, us stock market
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7/12/07 Investment House Daily
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MARKET ALERTS:
Targets hit alerts: ALY
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Stop alerts issued: None issued
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SUMMARY:
- Retail sales provide the trigger for the break to new highs.
- Same store sales: weak consumer or solid and steady?
- So the indices broke out. Now what?
Market explodes to new highs.
Wednesday we said we were looking for another run given how well DJ30 was forming up in support of NASDAQ. We did not necessarily expect Thursday to deliver the massive move, but it did. With the high short interest in the market, the modest Wednesday short covering bounce turned into a screaming run higher that left many shorts screaming as they ran for the exits. The trigger appeared to be retail same store sales. While the overall numbers were mixed, the results showed there was no consumer collapse. It was enough to engender some excitement and set the stage for a tremendous move higher.
There is not a lot to say about this move. Futures started higher and so did the market. It survived a midmorning test that you knew was coming, and then it was upside. A pause in mid-afternoon was used as a launching ramp for an explosive afternoon that took stocks higher right up to the bell. Shorts used that mid-afternoon dip to start covering, and that ignited another surge to the close.
Technically everything was clicking. After SP500 held the 50 day EMA on Wednesday and bounced we noted the stage was set for a move higher if there were any takers. With the short covering got things started there were buyers in the mix. How can you tell? For one, look at what stocks are moving. Leaders were blasting higher out of good patterns or easy pullbacks to near support. Breadth was strong. That is not an indication of short covering where beaten up stocks and sectors rebound on rather narrow breadth. Thus the shorts got things rolling as usual, and buyers moved in as well, driving the bounce and forcing more and more shorts to cry uncle.
The move left SP500 and DJ30 at new highs and NASDAQ at a new post-2002 high. SP600 and SP400 are right at their prior peaks. SOX is heading for a 1.5 year high. The consumer showed he or she is far from dead and so did the buyers in this market. Despite all of the gloom about the sub-prime mortgage plight, the supposedly tapped out consumer, high oil prices, higher bond yields, inflation fears (we know we are leaving something out), the market is again building in gains with a new breakout following this 7 month consolidation. We said earlier in the week this sure looked a lot like the March recovery (i.e. a low volume one that still broke to new highs), and with the strong leadership breaking out and the strong volume when it is needed, this sure fits that description.
THE ECONOMY
Some say weak, some say stronger than expected: is the consumer tapped out?
Choose your headline: retail sales were either disappointing or were surprisingly strong. There is no question they were not blowout as the gains were not spread across the spectrum. Department stores were laggards once more while teens and specialty retailers were the winners. There was an addition to the winners, or at least a stock that performed much better than expected: WMT.
Housing, gasoline prices and high food costs are having an effect. After all you buy food and gas at least once a week while you buy a flat screen television, computer, or digital camera just once in awhile. While the latter are offsetting rising prices of the former it is not an offset that you feel every week. Prices of what you buy often are higher.
Of course that leads many to leap to the conclusion inflation is underreported. Higher prices are not per se inflation. Prices that rise at modest rates are not inflation. In an expanding and healthy economy, prices rise. When you have a world economic boom that is sucking up all the concrete, wire, rebar, wallboard, bricks, heavy equipment, etc., price rise but that does not mean the gains are inflation. Monetary policy could be perfect and prices would rise in this environment. The fact that they are rising at a slower pace as the boom continues is a pretty good indication monetary policy is pretty solid right now.
That is the price side. What about the consumer side? What do the same store sales tell us? Once again department stores were weak. They are typically weak outside of 2 to 3 that regularly post solid earnings (e.g. JWN, JCP). They have been weak for years. What was strong was specialty retail. When the consumer feels good he or she shuns the big boxes and goes specialty. Nothing says chic like specialty. Add teen to specialty and you can start printing money if you get the fashion combination correct. Thus you saw PSUN, ANF, AEO, ZUMZ surging. They were joined by non-teen specialty as well (e.g. MW, TJX). Specialty retail success typically suggests the consumer feels good and the economy is in good shape: a confident and secure consumer likes the cache of specialty retail.
The wrinkle was WMT's success. Of course its performance was hardly great (2.4% increase) as electronics and the like outpaced weak apparel and home goods. But when was the last time you saw WMT start posting solid results? Well, besides an outrider here and there (and this one certainly needs some confirmation), it was back in the last recession when the consumer turned to discount stores over specialty and high end stores. That is the new paradigm in retail: discount does well in weaker times, specialty in stronger economic times.
Thus is WMT's 'success' telling us the economy is weaker? No, but it is, to some extent, showing the impact of handing over at least a $50 bill when you fill up your tank, shell out almost $4 for a gallon of milk, and $20/pill of your medication. Consumers are turning to discount to allay some costs. Ironically, this is occurring at a time when many in Washington want to slap tariffs on China where a lot of these goods come from. You also have to look at what made the difference for WMT's improving sales: it was not basic home goods, food, and clothing. It was in highly discretionary items such as flat panel televisions, MP3 players, video game hardware, and laptop and desktop computers. Thus while you can argue WMT's gains were due to a worried consumer, that argument waivers when you look at what the consumers are buying. They may not be heading to the high end home entertainment stores to buy their goods but they are still buying them. Thus they are feeling the effects but they are not at the point some argue they are.
And that is the point. Despite the sub-prime worries and the decline in housing prices, the jobs outlook remains strong (jobless claims fell to 308K last week) in the mind of the consumer. Indeed, with the economy expanding again the jobs market is not going to fade. As the last jobs reports showed us, the jobs market rode through the 9 month economic slowdown that ended in late Q1, and with the economy expanding rapidly once more the jobs market is all that more secure.
THE MARKET
MARKET SENTIMENT
VIX: 15.54; -1.1
VXN: 17.25; -0.29
VXO: 14.87; -1.69
Put/Call Ratio (CBOE): 0.76; -0.14
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: +49.94 points (+1.88%) to close at 2701.73
Volume: 2.142B (+7.34%). Volume jumped back above average, answering the Tuesday distribution with stronger upside trade. That is what you want to see on a breakout move.
Up Volume: 1.874B (+623.611M)
Down Volume: 320.496M (-393.225M)
A/D and Hi/Lo: Advancers led 2.48 to 1. Very solid.
Previous Session: Advancers led 1.15 to 1
New Highs: 167 (+97)
New Lows: 40 (-35)
NASDAQ CHART: http://www.investmenthouse.com/ihmedia/NASDAQ.jpeg
NASDAQ was clicking on all cylinders Thursday as it gapped higher, tested early, then rallied the rest of the way home. It has struggled on some low volume and showed some distribution this week, but it once more showed the strength when it needed it, i.e. when it kicked off another run and a new post-2002 high. NASDAQ did not struggled as did SP500 and DJ30 during the past seven weeks, but this move was important because it put a stamp of power on the index. After lagging and then taking the lead tentatively, it announced its presence with authority (from 'Bull Durham') Thursday with this strong break higher. What was cool is that NASDAQ and NASDAQ 100 were up equal percentages, indicating the buying was indeed across the board.
SOX (+2.90%) exploded higher off of its nice higher low. It has cemented its breakout as it is heading toward a new 1.5 year high.
SP500/NYSE
Stats: +28.94 points (+1.91%) to close at 1547.7
NYSE Volume: 1.663B (+9.13%). Strong, above average volume that also topped the Tuesday distribution levels. Fight fire with fire as they say.
Up Volume: 1.448B (+491.569M). 7:1 up to down volume. Strong.
Down Volume: 204.749M (-333.69M)
A/D and Hi/Lo: Advancers led 2.65 to 1. Not blow out but solid breadth. Some of the recent leaders lagged while new areas broke higher such as retail.
Previous Session: Advancers led 1.14 to 1
New Highs: 292 (+226)
New Lows: 26 (-14)
SP500 CHART: http://investmenthouse.com/ihmedia/SP500.jpeg
Stronger volume and a break to a new high, clearing a 7 week choppy consolidation. It looked sick at times with its lower and lower highs and a lower low thrown in, but it hung on and then exploded higher with the other indices. It didn't just tag along Thursday but broke out with some authority of its own, a very nice addition to the breakout as the market was hitting on all cylinders.
SP600 (+1.72%) kicked into gear as well as it continued its move off of the 50 day EMA test on Wednesday's low. It did not make a new all-time high though it did bump right up into that level and closed at the high. Small caps are back to lagging after they took over again following the spring correction. This time they are not taking the leadership, at least not yet. That may say something about the stage of the economic expansion as small caps are earlier cycle growth stocks. They looked dead earlier in the year, however, but then sprinted higher.
DJ30
Blistering move off of that higher low we discussed Wednesday night. Volume vaulted higher on the move. Simply a great move to end the nicely improved pattern. Hard to say much about this except nice set up and a strong breakout with a tremendous upside session.
Stats: +283.86 points (+2.09%) to close at 13861.73
Volume: 300M shares Thursday versus 224M shares Wednesday 274M. Great surge in volume that overshadowed the Tuesday distribution volume.
DJ30 CHART: http://www.investmenthouse.com/ihmedia/DJ30.jpeg
FRIDAY
Thursday was the retail sales warm up with the same store sales, and now we see what the consumer did overall. Of course gasoline sales are included in the mix and thus you have to see what the consumer did without it. No doubt there will be some impact. Indeed a new survey out Thursday indicated consumers were pensive and putting off big ticket purchases. Hmmm. That does not jibe with the data we are reviewing. It is, of course, all in how you ask the questions. 'Excuse me sir, are you more likely to buy a hamburger in the next week or a washer and dryer?' When the answer comes back 'hamburger' the obvious conclusion is that consumers are putting off purchases of big ticket items. You get the picture. How many times have you been called for a telephone survey and you get questions you know were designed to elicit a particular response ("Would you prefer to see our mean and women in the military alive here at home or dead in Iraq?")? Give me a break. I could devise a couple of surveys on the same subject that could elicit the exact opposite responses from those canvassed. Thus, as with all surveys, its best use is lining the bird cage.
In any event, retailers will report and as same store sales suggest so-so results, that is what we should expect. Of course those so-so results were better than expected and helped fuel the market breakout Thursday.
Not much has changed regarding the economic views, yet the market broke higher. That shows us there is an underlying force still driving prices higher. Liquidity of course, but that wouldn't be coming in unless the belief that a renewed economic expansion was leading to higher than expected earnings. As we noted last week, the economy was much stronger than expected in Q2, so earnings will be stronger than expected as well. The market was back into pricing that in on Thursday.
If we get another move higher following the Thursday upside momentum that pushed stocks to close at session highs, we will look at banking some gain heading into the weekend. Often after a strong breakout move the market will test back. Thus, another early surge is an invitation to take some gain. There are many of our positions that are well into their moves and locking in some gain, despite the renewed breakout, is not a bad thing to do. Remember, we were buying into these stocks when the market was quite choppy, and we already have some nice gain built in. As others rush to buy and bid the prices higher, we won't mind selling half or some portion of our gains. If there are some August options (and we are holding some) we definitely will look to take some of that off the table.
In sum, it was hard to find fault with the Thursday move. When the indices break to new highs on volume you really have to be negative and basically in denial to keep carping on the market. If we get more upside we will lock in some gain. We will also, however, look for more buying opportunity. Thursday the market surged but some well-positioned leaders continued to work on their consolidations, and that is very good to see. It was not a pall mall, random sprint higher. Money moved into specific areas while others rested. That rotation provides continuous opportunity as a rally advances. Have to like that as well.
Support and Resistance
NASDAQ: Closed at 2701.73
Resistance:
2778 from a July 1999 peak
2887 from a September 1999 peak
2920 from an October 1999 peak
Support:
2673 is the July high
2642 is the top of the November/February channel
2640 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 2634
2601 is the mid-May intraday peak.
The 50 day EMA at 2591
2586 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 1547.70
Resistance:
1553 intraday high from March 2000 is the all-time index peak
Support:
1541 is the early June high.
1539 is the mid-June intraday high
1534 is the early July high
1528 is the March 2000 closing high
1531 is the late November to February up trendline
The 50 day EMA at 1508
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 13,861.73
Resistance: At a new high so nothing holding it back other than gravity.
Support:
The early June high at 13,676 (closing), 13,692 (intraday)
The mid-June high at 13,689
The early July peak at 13,671
The mid-May peak at 13,556
13,522 is the upper channel line in the November/February channel
The 50 day SMA at 13,476
13,457 is the November/February up trendline that marks the lower channel.
The 50 day EMA at 13,393
The 90 day SMA at 13,061
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): 308K actual versus 315K expected, 320K prior (revised from 318K)
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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world stock market
us stock market
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