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7/16/07 Investment House Alerts Report
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IH Alert Subscribers:
MARKET ALERTS:
Targets hit alerts: None issued
Buy alerts: SIMO; SPSS; UA; WFR
Trailing stops: ALJ
Stop alerts issued: None issued
SUMMARY:
- Market sluggish in the wake of the Thursday breakout
- Retail sales leave more worries about housing, but tax receipts show wages are rising, jobs are in good shape, and thus a solid consumer.
- Still some backfilling to do, and that means new entry points on leaders
Up and down but rather quiet consolidation to start the week.
Friday stocks added modestly to the Thursday breakout, but the same mojo was not there. After such a run buyers have to reload; given the size of the gains they had to go out looking for more ammunition. Thus Monday was sluggish as well.
There was a respectable amount of positive news to hit with some M&A (IHP buying the fern bar APPB), more strong economic data (New York PMI 26.5 versus the 16 expected, adding onto a strong 25.8 reading in June), the start of some good earnings (EME reported excellent results), and lower bond yields (4.87% on the 2 year and 5.04% on the 10 year, down from 5.10% on Friday). Oil prices moved over $74 (74.15, +0.22), and that is something of an offset to the positives (national average for a gallon of gas is now back to $3.06) though it did not help energy stocks at all.
The news was not enough to get the market going. Futures were lower and stocks opened soft. They managed to bounce initially but the force was not with them just yet. After hitting session highs over lunch they sold off sharply in the early afternoon. A modest bounce in the last half of the afternoon session turned most of the indices positive, but once more some selling hit, leaving only DJ30 and SOX positive for the day. Nonetheless there were modest losses on modest trade; basically some good consolidation action after that strong breakout.
Technically, that was the story: some backfilling after the Thursday breakout and the Friday glide higher on that breakout momentum. Volume inched higher but was still quite low and well below average. The session was volatile but it was not a wild reversal session what with the modest trade. Breadth was an issue with -2:1 readings; the breadth was weaker than the final index tallies would indicate. It was definitely a session where a few large caps in each index propped up the pricing. As for leadership, there were no major breakdowns despite the negative breadth, and in the final analysis a market follows the leaders. More pullbacks for sure, but that is after a surge higher last week. No issue with that. Energy remains a question mark with respect to leadership; it has been in a quagmire for the past four weeks. It is not breaking down, but like gum on your shoe on a hot summer day, it just cannot shake off the trading range just yet.
That said, with the low volume and modest losses on the heels of the breakout, it was basically a good consolidation session, retrenching and resting before an attempt at another move higher. With earnings about ready to flood the market, a bit of a pause is typical.
THE ECONOMY
Tax receipts tell much of the consumer story.
Last week the consumer was the focus with the continued housing issues and the retail sales report that was well off pace following a very strong May. That raised more concern for those anticipating a consumer shut down.
As discussed last week, the consumer sales trend flattened the past four months but with the May sales the strongest in 1.5 years and June the weakest in 2 it still remains to be seen how that will shake out. Business sales are picking up steam at the same time; they are providing an offset even if the consumer is stalling.
But is the consumer really in a stall? The latest tax figures are out, i.e. what we pay our efficient, limited government in Washington, D.C. The Feds tell us that taxes withheld from paychecks, the basic measure of what the workers are doing, are up 6.6%. Tax receipts don't go up if workers are working less or the same (barring a tax increase). Thus workers are making more money.
There is an old axiom we just made up: more tax receipts means more workers working and making more money, and that means more jobs and jobs security. As we discuss repeatedly (or so I am sure it seems), job security equals consumption. Sure housing plays a role and gasoline prices tend to wear on consumers, but historically a worker's comfort level as to his or her job security dictates consumption habits. With the labor market creating jobs, employers finding it harder and harder to attract qualified workers, and employers again ramping up spending, the jobs picture is secure. Thus the consumer should continue to consume with some offset due to high gasoline.
Indeed, that is what we are seeing in the recent retail sales reports. Gasoline sales were softer in June as gasoline prices, though lower, were still high as they have been for months. That is wearing on the consumer and softening consumption some. Money is shifting from department stores to discounters such as WMT; its same store sales were not great but they were up more than expected as consumers looked to the big retailer for discretionary items such as electronics (flat panel TV's, game systems, iPods, etc.). Gasoline prices are causing a shift in where consumers shop, but it is not tanking the consumer, at least not at this juncture, because the job outlook remains solid.
THE MARKET
MARKET SENTIMENT
VIX: 15.59; +0.44
VXN: 16.55; +0.11
VXO: 15.35; +0.3
Put/Call Ratio (CBOE): 0.83; -0.11
Bulls: 49.5%. Basically flat from last week's 49.4%. Still high but well off the 53.8% three weeks back and the 56.7% five weeks back. 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: 21.3%. Nice jump from 18.0% after hanging in that 18% range for three weeks. After hitting near 30% in March it has faded back in the subsequent rebound and this current selling is not jumping it higher. Still is holding lower and did not rise as it did in March. 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: -9.67 points (-0.36%) to close at 2697.33
Volume: 1.788B (+2.1%). Volume was up but still well below average as NASDAQ slid, giving back some of the breakout gains. Technically distribution but with the low Friday trade we are not viewing it as such.
Up Volume: 686.522M (-244.522M)
Down Volume: 1.029B (+222.936M)
A/D and Hi/Lo: Decliners led 1.93 to 1. Modest loss in the index but breadth was significantly skewed downside. The large cap techs in the NASDAQ 100 (-0.20%) performed better and propped up the index while most of its components traded lower for the session.
Previous Session: Decliners led 1.15 to 1
New Highs: 84 (-39)
New Lows: 43 (+3)
NASDAQ CHART: http://www.investmenthouse.com/ihmedia/NASDAQ.jpeg
Techs tried to rally, turning positive midday but unable to hold the move through the afternoon. After breaking to a new post-2002 high last week and leading the market the past four weeks, it was due a rest. Modest volume though most of the index' strength was in the large caps. Nonetheless the action was still positive as NASDAQ took part in some low volume backfilling.
SOX (+0.19%) edged higher, but after the surge that resumed its breakout the session was a blip. The index has joined NASDAQ as a leader the past month, holding the prior breakout and then surging higher once more. Money is flowing into chips. We picked up some WFR Monday though it ended up coming back on us some. Still like that action, however.
SP500/NYSE
Stats: -2.98 points (-0.19%) to close at 1549.52
NYSE Volume: 1.369B (+1.99%). Volume inched higher on NYSE as well but remained well below average as the indices tested back after the big gains.
Up Volume: 466.645M (-334.579M)
Down Volume: 883.777M (+370.75M)
A/D and Hi/Lo: Decliners led 2.12 to 1. The small and mid-caps struggled, posting the largest losses on the session. Thus the rather decent index read in SP500 while breadth was weak.
Previous Session: Advancers led 1.1 to 1
New Highs: 99 (-137)
New Lows: 22 (+5)
SP500 CHART: http://investmenthouse.com/ihmedia/SP500.jpeg
SP500 stalled but basically traded flat on the session, holding its break to a new high from last week. Looking for some backfilling here toward the June peaks. This is an important test point for the large caps as they lagged the break higher though they did make it last week as DJ30 and NASDAQ broke higher as well. Want to see an orderly pullback, i.e. no really big price losses and no run higher in volume.
SP600 (-0.65%) struggled as metals and energy were laggards. The small caps turned back from an interim trendline formed at the October 2006 highs and the April/May 2007 peaks. The small and mid-caps are struggling more than the rest of the market, just clearing to a new closing high last week but no definitive breakout as with the larger cap indices. With energy struggling the past month the small cap index is doing the same. Normal for the smaller caps to struggle later into an economic expansion though it would be very nice to see them continue their move as that would suggest some robust growth ahead.
DJ30
The blue chips continued to lead the market, posting their fourth straight gain as the momentum from the Thursday breakout continued. The action was limited to a few stocks, however, similar to Friday. Lower volume as the move continued so there is likely to be a test of that breakout to come; almost always is. As with NASDAQ, however, DJ30 is dealing from a position of strength given the strong upside breakout.
Stats: +43.73 points (+0.31%) to close at 13950.98
Volume: 209M shares Monday versus 222M shares Friday.
DJ30 CHART: http://www.investmenthouse.com/ihmedia/DJ30.jpeg
TUESDAY
PPI and industrial production and capacity utilization are out before the Tuesday open, and these are always interesting to the market, but with the CPI Wednesday and earnings ramping up, the latter will hold the most water, particularly after stocks broke out ahead of the earnings surge.
Despite the heavier dose of economic data and earnings, unless there are some blowout results the market looks ready to make a test of that breakout move. Indeed all but DJ30 and SOX started the test Monday. We don't really have a problem with that; it is a normal part of market action, i.e. breakouts and tests. The Thursday breakout was important to take DJ30 and SP500 over a triple top, and now the test is important as well. We knew it was likely to come after such a strong move and that is why we were taking gain off the table Friday, taking advantage of that further drift higher as we said we would do.
With a test we are again looking for a test to set up some of the strong stocks we have been playing, and others we want to play, in position to give us a buy point. Of course that means we want to see the strong stocks such as CLF, COP, CVX, and friends to make orderly pullbacks to near support and then rebound and not necessarily breakneck plunges lower. Energy is interesting because some have surged while others have worked laterally the past month. After the recent leaders in the sector make their tests, the entire sector might be ready to make the move higher. We will be keeping an eye on them.
It is time to be a bit patient and let the pullbacks and tests come to us. It is hard to do, being patient and letting a play develop; we are guilty of jumping the gun as well, but as we often say, patience in the market is rewarded. Of course a series of strong results could turn a pullback into a new run higher in short order, so we will be ready to step in if that hits before a typical pullback to near support can run its course. You hate to be too bullish, especially as many are now starting to expect the unexpected with regard to earnings. Thus we feel a full test is more likely. You always have to be ready for the blindside hit, however, so if we see a good move we will take it.
Support and Resistance
NASDAQ: Closed at 2697.33
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
2667 is the 10 day EMA
The 18 day EMA at 2647
2644 is the November/February up trendline
2643 is the top of the November/February channel
2634.60 is the June peak
2601 is the mid-May intraday peak.
The 50 day EMA at 2599
2592 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 1549.52
Resistance:
1553 intraday high from March 2000 is the all-time index peak
1558 is the upper channel line from October/December 2006
Support:
1541 is the early June high.
1539 is the mid-June intraday high
1534 is the early July high
1533 is the 10 day EMA
1528 is the March 2000 closing high
1531 is the late November to February up trendline
The 50 day EMA at 1511
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 13,950.98
Resistance: At a new high so nothing holding it back other than gravity.
Support:
The 10 day EMA at 13,709
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
13,550 is the upper channel line in the November/February channel
The 50 day SMA at 13,504
13,480 is the November/February up trendline that marks the lower channel.
The 50 day EMA at 13,434
The 90 day SMA at 13,100
12,796 at the February 2007 high
Economic Calendar
These are consensus expectations. Our expectations will vary and are discussed in the 'Economy' section.
July 16
New York PMI, July (8:30): 26.5 actual versus 16.0 expected, 25.8 prior
July 17
PPI, June (8:30): 0.1% expected, 0.9% prior
Core PPI (8:30): 0.2% expected, 0.2% prior
Net foreign purchases, May (9:00): $72.0B expected, $84.1B prior
Industrial production, June (9:15): 0.5% actual, 0.0% prior
Capacity utilization, June (9:15): 81.6% expected, 81.3% prior
July 18
CPI, June (8:30): 0.1% expected, 0.7% prior
Core CPI, June (8:30): 0.2% expected, 0.1% prior
Housing starts, June (8:30): 1.45M expected, 1.474M prior
Permits (8:30): 1.49M expected, 1.52M prior
Crude oil inventories (10:30)
July 19
Initial jobless claims (8:30): 310K expected, 308K prior
Leading economic indicators, June (10:00): -0.1% expected, 0.3% prior
Philly Fed, July (12:00): 14.0 expected, 18.0 prior
FOMC minutes, June (2:00)
End part 1 of 3
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