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world stock market, us stock market
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7/17/07 Investment House Alerts Report
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IH Alert Subscribers:
MARKET ALERTS:
Targets hit alerts: None issued
Buy alerts: VDLK; VDSI; UTHR
Trailing stops: ALY; RIG; WNR
Stop alerts issued: MTOX; OMNI
SUMMARY:
- Techs lead higher again but internals are mixed at best.
- More of the same: Economic indications still point to renewed growth.
- Net foreign purchases surge, but that is already old news: what does the falling dollar tell us?
- First tech earnings are not as hoped as INTC disappoints again.
- Leaders are overall solid but some breakdowns in energy.
Techs continue higher, small caps find renewed strength, but large cap index continues to struggle
There was enough good news out in the morning to keep the rebound moving forward, though once more it took through lunch to really sort out the differences before the market moved higher. At least if you were looking at the techs. SP500 started at its best level then did about everything it could to squander the gain. In the end it succeeded, closing just underwater as the other indices posted gains.
A lower overall PPI (-0.2%) but a bit hotter core (0.3%) didn't seem to bother investors. Strong production and capacity results helped but did not light any big fires under the market. Net foreign purchases were huge, almost double expected, but that data was 2 months old. That is 2 years old in stock years. Earnings weren't bad with JNJ, MER and KO beating handily, Of course they all finished lower for the session. So much for great earnings driving the market higher, at least on Tuesday. Oil was higher (though it finished lower at 74.02, -0.13) and bond yields were lower (4.89% versus 5.06%). LYO went and got itself bought out. Again, there was enough good news to keep things going. It just didn't ignite another big surge.
Indeed the market acted really sloppy all session despite the constant 14K watch on the financial stations (one was particularly annoying). DJ30 crossed that level but could not hold the move to the close. Indeed all of the indices were trading off their highs at the final bell. There was more leadership from cyclical stocks, transports and some industrial giants (e.g. GE), but breadth was negative on NYSE and basically flat on NASDAQ. SP500 closed negative as the financials, despite MER's beat, were kicked again while they were down, once again proving the market is not a nice place for kids to play. There was no breakdown by the large caps, just a lack of internal strength. Indeed the entire market really lacked any strength despite rising volume. There were pockets of solid movers, but a lot of the upside resembled smoke.
Technically the action was a mixed bag. Higher volume on NASDAQ and NSYE was good for NASDAQ and SP600, but showed some churn on SP500. NASDAQ volume was well above average; NYSE was below average. You could call it a draw, but given the strength of the volume the nod goes to the accumulation on NASDAQ as SP500 basically moved laterally, consolidating its move on overall low volume. As noted above, breadth was flat on NASDAQ and just slightly positive on NYSE. Indeed, NYSE was negative well into the afternoon. There was no general groundswell higher, just some large caps driving the indices. The small caps were up over 0.6% intraday, but that fizzled and with it the breadth.
In short it was kind of a hollow rise given the internals. Definitely good in some parts, but those were in the minority on Tuesday. It would have been better to see the indices consolidate a bit on lower trade than the somewhat hollow move higher. NASDAQ is moving on strong trade but this continues move higher on questionable internals leaves the market standing on some slightly weaker legs. With the INTC and YHOO earnings less than exciting, NASDAQ could find some of its recent strength diminished. The CPI is out before the market, and Bernanke speaks to Congress Wednesday as well. These items could combine to raise some issues for the market near term, and thus we could see a test back. That is something the indices should be doing and indeed what SP500 is doing, if you call moving laterally a test. That is, however, a test that shows strength as it is not giving up its gains. After this last salvo of earnings and inflation data, we will see how much strength there is still in this rise. Make no mistake; it was a strong breakout. Now the indices are feeling their way along after that initial move and that typically means some sorting out for a few sessions.
THE ECONOMY
More solid economic data as the re-expansion continues.
The improving economic data parade continued Tuesday, following that strong New York regional PMI Monday. PPI core rose 0.3%, more than the 0.2% expected, pushing the year over year to 1.8% From 1.6%. Overall PPI fell 0.2% versus the 0.1% gain anticipated. Gasoline was down 3.9% and food fell 0.8%. Okay. Given the latter two readings, not many put much stock in the morning's PPI report. Indeed, the futures hardly ruffled.
As noted, the regional manufacturing reports are strengthening nicely again, showing the rebound from the second half to Q1 mid-cycle slowdown. Tuesday gave the latest read on industrial production, and it jumped up 05%, in line but topping the -0.1% dip in May. Capacity rose to 81.7 from 81.4. Greenspan would be hiking rates on this data even if the inflation data showed declining inflation rates (overall). Again, more data is showing a return of economic strength.
This raises an interesting point, i.e. what Greenspan would do with these inflation readings. While that is a bit hard and unfair to do at this juncture, if you apply his last two rate hiking campaigns to today's data and it is likely he would be raising rates. Initial jobless claims are hovering at 300K. Capacity is at a level he would say causes bottlenecks. Oil is high and going higher. Overall prices are higher, and some, perhaps Greenspan, would conclude this was inflation.
It is not. Inflation is too much money chasing too few goods. That is caused by poor monetary policy. Right now real interest rates are rising. Oil is higher because of demand for the product. Materials are likewise higher. This is not because of too much money in the market. If there were too little money prices would not decline, at least not until the world economies seized up due to lack of liquidity. In short, while prices are rising in some areas, that is not per se inflation, just as higher interest rates do not necessarily mean inflation. That is similar to saying that because the earth is 1.5 degrees hotter over the past 150 years the change was caused by man. Higher temperatures are not inexorably caused by man's activities. Indeed, the sun has increased its output during that time. Thus higher temperatures are mostly, if not totally, caused by the source of the heat, i.e. the sun. Again, just because prices are higher does not mean inflation just as higher temperatures do not mean man has caused them. Kind of long way getting there but I think you get the drift.
Net foreign purchases surge . . . in May
The $126.1B blew past the $72.0B expected and the $80.3B prior. What an appetite for US securities. For several years many have worried there would be a point where foreign investors would say 'no mas' and dump American assets, e.g. the dollar, treasuries, stocks, etc. There is no doubt foreign countries are 'diversifying' into other assets such as the euro to name one, but the most recent data shows plenty of appetite for US assets. Plenty. Massive.
Of course, that was two months ago. The dollar was on a modest upswing in May and early June after a decline from January through April. That is part of a continuing decline in the dollar overall; nothing new there. What is new is the rather sharp drop in the dollar from mid-June through mid-July. It is not unprecedented; it fell at least this hard in late November to earl December 2006. The importance of this will become more apparent in two months, i.e. when the July data is out re foreign purchases. In other words, does the dollar decline match up with a decline in foreign purchases, i.e. are they selling U.S. assets and by necessary extension dollars (you sell dollars to buy other currencies to shift into those foreign assets)? If foreign purchases are way down we know they are likely tied and you have to start wondering where the bottom is.
Not to be alarmist. The dollar is still strong against most currencies, just not the euro. And why not? Because Europe is backtracking on a century or more of socialism while the United States moves toward more socialist policies. Europe is cutting taxes everywhere with France the most recent and frankly the most incredible given its history. If France can change it is time to go teach my old dog some new tricks. With Congress talking about more tax hikes on capital, socialized medicine, tariffs and trade limitations, the irony is clear. What is also clear is how the world views these changes: money is running from the US to Europe because it is viewed as a better growth opportunity given the lay of the political climate.
THE MARKET
MARKET SENTIMENT
VIX: 15.63; +0.04
VXN: 16.95; +0.4
VXO: 15.47; +0.12
Put/Call Ratio (CBOE): 0.93; +0.1. Rose despite a rise in the market overall. Still a lot of belief this rally cannot last. The record short interest in the SP500 corroborates this high anxiety.
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: +14.96 points (+0.55%) to close at 2712.29
Volume: 2.146B (+19.98%). Volume jumped above average as the techs, mostly the large cap techs, rallied ahead of INTC's earnings. That means accumulation, but you have to put it into context with the news: INTC results basically sucked and thus part of the reason for the higher volume upside is gone.
Up Volume: 1.381B (+694.669M)
Down Volume: 778.025M (-250.837M)
A/D and Hi/Lo: Advancers led 1.04 to 1. NASDAQ 100 was not that much stronger (+0.68%) than overall NASDAQ, but the weak breadth combined with high volume shows you it was an earnings driven day related to the large caps (INTC).
Previous Session: Decliners led 1.93 to 1
New Highs: 96 (+12)
New Lows: 60 (+17)
NASDAQ CHART: http://www.investmenthouse.com/ihmedia/NASDAQ.jpeg
NASDAQ posted another gain and was looking solid mid-afternoon before a last hour fade shaved 9 points off the high. Still not a bad session but there was no breadth and thus NASDAQ, particularly after the once again disappointing INTC results will have to find another reason to try and rally further. NASDAQ is thus likely to test back after that breakout, and that makes it stronger overall. The 10 day EMA is at 2675 and the early July peak is 2670 on the close. Those are good points to look at for any test.
SOX (+2.95%) was on fire, and within three weeks is at the January and February 2006 highs. That is also roughly at the early 2004 peak as well. Key test of resistance coming. If it can clear SOX is set to make a serious run.
SP500/NYSE
Stats: -0.15 points (-0.01%) to close at 1549.37
NYSE Volume: 1.434B (+4.77%). Volume was up but still below average as SP500 traded flat and SP600 gave back a nice 0.64% gain. A bit of churn but given the continued below average trade we are viewing this as a consolidation session.
Up Volume: 584.064M (+117.419M)
Down Volume: 830.846M (-52.931M)
A/D and Hi/Lo: Decliners led 1.38 to 1. Rather weak, but then again SP500 was weak and the small caps were nothing super as they gave back two-thirds of their gain.
Previous Session: Decliners led 2.12 to 1
New Highs: 90 (-9)
New Lows: 21 (-1)
SP500 CHART: http://investmenthouse.com/ihmedia/SP500.jpeg
The large caps lagged again but it was not a washout. SP500 is moving laterally in a tight range the past two sessions. It isn't moving higher but it also is not giving any ground following the Thursday breakout. Thus while it was sitting back on its heels for the session, it is doing what we would like to see the other indices do, i.e. a nice orderly consolidation of the breakout.
SP600 (+0.22%) was really rocking midday, moving to a new all-time high at 445.82. Then it collapsed in the last hour as energy folded up the tent. SP600 made three tries at 445 and it failed three times. It is bumping at the early June highs and with the energy sector in a month long consolidation (outside of a narrowing list of energy stocks that moved higher the past two weeks) the small cap index is having its struggles. Definitely a follower here, but if energy puts in its time and can start to rally again it has promise.
DJ30
Strong volume as the blue chips posted a fifth straight gain but it was a nominal gain. INTC volume surged along with UTX and others and thus the volume shot higher. It pared 50 points off its high in the last hour as it dumped back down toward flat. It was not a strong session and DJ30 is ready for breather after the breakout and subsequent drift higher.
Stats: +20.57 points (+0.15%) to close at 13971.55
Volume: 266M shares Tuesday versus 209M shares Monday.
DJ30 CHART: http://www.investmenthouse.com/ihmedia/DJ30.jpeg
WEDNESDAY
There will be more talk of will it or won't it, i.e. will DJ30 cross 14,000. It is a non-issue from my perspective, but others seem to get hung up on it. I find it funny that Bill Flekenstein is so exorcised about the talk re Dow 14,000. He says everyone is obsessing over it. From all of the people I heard Tuesday, the only one obsessing over it was Flekenstein.
Three key issues for Wednesday: earnings (INTC did not help at all); CPI (will core be hotter a la PPI?); and Bernanke (he delivers the Son of Humphrey-Hawkins testimony). CPI has trended lower but we would not be surprised to see it bump up a bit on the core; trends move up and down within the trend and the core has been below expectations the past two months. Intel's earnings pretty much tossed cold water on the loins of the NASDAQ rally leading into that report. Bernanke is not likely to help things out; his more recent comments have not been the 'Uncle Ben' variety that the market warmed to. After hours BSC said its two hedge funds involved in the sub-prime area were basically broke, worth about 9 cents on the dollar. More good news.
Thus things are set up for some disappointment tomorrow, particularly given the rise the market has enjoyed ahead of all of this data. Maybe this is the end of the run; there are times when a strong breakout is reversed. The earnings and other news is pressuring stocks after hours, and that will likely bleed over into the Wednesday open. Even some great CPI numbers (not what we are expecting this month) would not turn things completely around because this move was in part built on expectations of some stronger earnings. We will likely get them, but it was just not forthcoming from INTC, a perennial disappointment that many were expecting would change its stripes. It didn't and those that thought it would will get out. The key will be how many run for the exits.
We have expected a test after that strong surge, and we are now likely to get it. SP500 has been doing so already so there is not as much fluff to take out. The question we have is whether money rotates from tech after this disappointment into other areas as it has done in the past (energy? There were some breakdowns in the sector Tuesday as well as some nice pullbacks to support) or does it leave everything initially lower and then a general recovery. As we have noted the past few sessions we continue to see stocks setting up into position to buy, something this market has done on a continual basis as some areas rise while others test back and set up their next runs. We see more of that right now and we will be looking for those on Wednesday and Thursday as the market tests back some. Indeed, we may see those that have rested and tested during the last part of this run take over the helm as the recent winners give back some gain.
Support and Resistance
NASDAQ: Closed at 2712.29
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
2675 is the 10 day EMA
The 18 day EMA at 2654
2646 is the November/February up trendline
2634.60 is the June peak
2601 is the mid-May intraday peak.
The 50 day EMA at 2604
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 1549.37
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
1535 is the 10 day EMA
1534 is the early July high
1531 is the late November to February up trendline
1528 is the March 2000 closing high
The 50 day EMA at 1512
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 13,971.55
Resistance: At a new high so nothing holding it back other than gravity.
Support:
The 10 day EMA at 13,756
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 13,518
13,485 is the November/February up trendline that marks the lower channel.
The 50 day EMA at 13,455
The 90 day SMA at 13,119
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): -0.2% actual versus 0.1% expected, 0.9% prior
Core PPI (8:30): 0.3% actual versus 0.2% expected, 0.2% prior
Net foreign purchases, May (9:00): $126.1B actual versus $72.0B expected, $80.3B prior
Industrial production, June (9:15): 0.5% actual versus 0.5% actual, -0.1% prior (revised from 0.0%)
Capacity utilization, June (9:15): 81.7% actual versus 81.6% expected, 81.4% prior (revised from 81.3%)
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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world stock market
us stock market
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