|
|
money investment, investment help
* * * *
7/25/07 Investment House Daily
* * *
Investment House Daily Subscribers:
MARKET ALERTS:
Targets hit alerts: None issued
Buy alerts: None issued
Trailing stops: AAPL; BCSI; CMI; HURN
Stop alerts issued: FCSX; FFIV; ICE; NSM; PCLN; PQ; UA; VCLK; XTO
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 Daily alert service you can sign up at the following link:
http://www.investmenthouse.com/alertdly.html
SUMMARY:
- Earnings bounce doesn't have much strength but after hours techs were smoking.
- Fed sees modest growth but solid investment and expanding employment.
- After hours earnings trying to pull the chestnuts out of the fire.
Stocks recover some ground on better earnings but the move was pale compared to Tuesday.
Once more the earnings pendulum swung and after the spanking stocks received Tuesday earnings from AMZN, BA, COP, CL and others started stocks higher once again. The earnings push fizzled quickly, however, as the gains faded as the existing home sales report came in less than expected. The market bounced up then back down, finally managing a rebound in the last hour to turn the major indices back to positive after the Fed Beige Book viewed the economy as modestly positive with good capital investment and solid jobs gains.
It was a nice late rebound after some continued downside from the Tuesday tail kicking, but it lacked any real strength. NASDAQ and DJ30 held onto their breakouts, but SP500 held on to the 50 day EMA by its teeth. Small caps continued to struggle as well as the economic cycle looks to be passing them by now that this run has hit middle age.
Technically volume was strong as the indices tested and then rebounded. It was strong both directions, that is during the selling and on the rebound. Breadth was negative, however, not matching the strong volume. Once more there were some generals leading but the solders refused to follow, something that is occurring more and more.
The charts show NASDAQ and DJ30 holding where they had to, i.e. at the June highs, keeping their breakouts intact. SP500 managed to hang onto the 50 day EMA, but as noted above it only did so by a hair. Indeed, it had to claw its way back to get there. SP600 tanked, hitting an old trendline on the low and then rebounding to close flat. In doing so it held its range on a closing basis, but that does not trump the two peaks and the dive lower through key support levels. In sum, NASDAQ and DJ30 are hanging onto positions of strength while SP500 and SP600 are just trying to hang on.
After hours BIDU, AAPL, and WFR enjoyed strong gains on their earnings. AAPL was down early on but as the conference call moved ahead, so did the stock, tacking on 10 points after hours. BIDU was out of sight, up almost 50 clicks on its results. Maybe now the earnings are good enough to turn the market back up and out of this volatile tennis match that resulted after earnings season started and the results were not unexpectedly higher than expected. It would take something like a buying wave in response to earnings results to turn the tied on SP500 with its issues relating to the financials. Without a major shift based upon these earnings the action of late typically indicates more consolidation work is needed before a new sustained move can start.
THE ECONOMY
Fed Beige Book for June and July discusses solid though not spectacular economic activity.
Maybe the market was looking for the Fed to say something positive, or more accurately, avoid saying something negative with respect to inflation. The Beige Book basically satisfied that wish. The Fed described the US growth as 'moderate to modest,' indicating a 2%ish growth rate during the period. It noted that high gasoline prices were restraining consumers though not to the point of significantly pinching consumption. On the flip side of consumption, business investment in the form of capital expenditures was more than taking up the slack. As we saw in the 2000 recession, the lack of capital spending kills off expansions. Thus while gasoline prices are higher and affecting the consumer, businesses are more than keeping their end up.
The Fed did touch on an old Phillips Curve holdover, the 'more jobs means more demand and thus inflation' notion that the Fed has used to launch more than one recession. The idea is that if you pay workers more due to a tighter labor market then the consumer goes out and spends more, and that pumped up demand causes inflation. If you look with myopic economic eyes you can see some vague connection, but if you look at reality you realize that as long as there is good investment on the supply side it will meet demand. Ironically, more employment and higher wages are merely a byproduct of a stronger economy that is showing healthy growth. It never ceases to amaze me that the Fed can look at prosperity with good jobs, wages, and growth rates and conclude that we are heading for trouble.
In any event, the Fed noted that while employment gains were broad-based there was moderate wage pressure at best. While it noted that cost pressures in the economy in general were ongoing, at least it is not seeing trouble at every turn as Bernanke's predecessor did. That calmed the market some and allowed it to rebound into the afternoon session.
THE MARKET
MARKET SENTIMENT
VIX: 18.1; -0.45. Cracked over 19, clearing the late June and late February highs, but the rebound started before it could reach the 21 level hit in mid-March.
VXN: 18.92; -0.39
VXO: 18.27; -0.76
Put/Call Ratio (CBOE): 1.05; -0.43. Backed off but still closed below 1.0 as there were not many believers in the afternoon bounce.
Bulls: 52.3%. Up from 49.5% and 49.4%. Moving back up toward that 53.8% hit a month back and 56.7% six 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: 19.3%. Back down under the 20% threshold level, down from 21.3% after jumping up from 18%. Spent a month at 18%, well off the 30% hit 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: +8.31 points (+0.31%) to close at 2648.17
Volume: 2.511B (-3.27%). Volume was lower but still impressively above average as NASDAQ tested lower and then rebounded for a gain. Some buyers stepped in as the tech index tested the breakout and rebounded.
Up Volume: 1.319B (+994.349M)
Down Volume: 1.156B (-988.342M)
A/D and Hi/Lo: Decliners led 1.24 to 1. Even with the recovery, breadth was lower as NASDAQ 100 posted a 0.53% gain, topping overall NASDAQ. Most of the action was again with the big techs, and with the AAPL earnings they are likely to have more success Thursday.
Previous Session: Decliners led 4.83 to 1
New Highs: 32 (+15)
New Lows: 114 (-105)
NASDAQ CHART: http://www.investmenthouse.com/ihmedia/NASDAQ.jpeg
NASDAQ gapped higher on the heels of the AMZN news but then it was more of the same, i.e. selling back from gains, bouncing back, then selling some more. It took a late afternoon short covering bounce ahead of the AAPL earnings to get the index back up to positive and holding the breakout above the June highs and also holding its uptrend. It remains in good position to bounce, and the AAPL, BIDU and other earnings are going to give NASDAQ an upside goose on Thursday once again.
SOX (+0.52%) sold again but then found support at the early July interim peak and the 18 day EMA, showing a nice tight doji at that level. That sets up the chips for a bounce higher and with strong results from the likes of WFR we are likely to see it.
SP500/NYSE
Stats: +7.05 points (+0.47%) to close at 1518.09
NYSE Volume: 2.03B (+2.06%). Volume was up as SP500 regained some ground. You can call it accumulation, but with all of this high volume volatility that is a stretch. Volume is elevated as the market careens up and down. That is overall distributive despite the upside volume gains.
Up Volume: 909.024M (+776.206M)
Down Volume: 1.083B (-765.749M)
A/D and Hi/Lo: Decliners led 1.5 to 1. SP500 closed positive but SP600 was flat, and thus the negative breadth.
Previous Session: Decliners led 8.86 to 1
New Highs: 27 (+7)
New Lows: 201 (-48)
SP500 CHART: http://investmenthouse.com/ihmedia/SP500.jpeg
The large caps were under pressure even though they were higher on the session. It was a fight to recover from the midmorning selling and claw back to close above the 50 day EMA. On the high it moved over the 50 day SMA but could not hold on. SP500 gave up its breakout and is now fighting to hold in its 11 week up and down trading range, hamstrung by the financial stocks that are under tremendous pressure from the credit issues in housing. The pattern is not one of strength and SP500 has more work to do and will ultimately need the financials back in the fold if it is going to make a serious advance.
SP600 (-0.03%) opened flat then traded up then down and then flat, managing to close at the bottom of its 11 week range. It made a modestly higher peak on the last move higher in July, but then it collapsed Tuesday, leaving a double top in the making. It bounced Wednesday off of an old support line from the summer 2006, and that helped it rebound. The doji suggests it will try a bounce. It is not, however, dealing from a position of strength.
DJ30
The blue chips recovered as well after the Tuesday drubbing, bouncing off an intraday test of the June highs. Held where it had to as with NASDAQ, though it was not a great recovery session as volume was lower and it stalled out below the 10 day EMA. It is still in position to bounce and continue its breakout, particularly if its tech components take heart from the AAPL, WFR, etc. results.
Stats: +68.12 points (+0.5%) to close at 13785.07
Volume: 266M shares Wednesday versus 296M shares Tuesday when DJ30 sold. As noted Tuesday, no out and out selling on DJ30.
DJ30 CHART: http://www.investmenthouse.com/ihmedia/DJ30.jpeg
THURSDAY
Wednesday was a modest recovery session, leaving DJ30 and NASDAQ still holding their breakouts and in position to rebound and continue higher if they get a catalyst. The AAPL earnings, after some solid earnings from AMZN and other techs have started showing up, could provide that turning point to push the buyers back in the market. If SP500 was not sucking wind in the vacuum of its financial stocks and their declines, the scenario would look much better. It is hard for the market to ascend or at least continue an ascent when the financials are heading in the opposite direction. Very similar to dragging a body along with you, not that I have done that of course.
Looking at the responses to the AMZN, AAPL, and BIDU earnings results, the market is starting to show that same kind of enthusiasm for those much stronger than expected earnings as shown in Q1. Another couple of reports by big names along the same lines could really turn the tide. It might already be turning based upon the tech earnings the past two sessions. Indeed, Apple's earnings pulled a lot of techs higher because of its strong Macintosh sales in addition to the rollout of the iPhone and the anticipated sales of that new device.
The market needs that kind of catalyst. The high volume price volatility the past few weeks, particularly on SP500 as it really struggles, is not a good indication for the market. As we have discussed over the past week, high volatility at peaks is not a good thing to see. Jerky, back and forth price moves coupled with volume and rising volatility indicate distribution regardless if there are upside sessions on strong volume. The buyers and the sellers are fighting it out all over the map, but you know something has changed because before the volatility the market was churning steadily higher. Now the sellers have strength in numbers that matches the buyers, and neither is shy about throwing their money around.
That makes this reaction to AMZN, AAPL, BIDU, QCOM, SYMC, WFR and any other strong earnings results critical for this rally. The market has to respond positively to them and cement the breakouts on DJ30 and NASDAQ after this breakout test the past week. If they cannot extend their breakouts and drag SP500 along with them, the market is in for some trouble in at least the form of a longer trading range. The financials remain a real concern for the rest of the market as it struggles to hold its rally and continue higher because the financials typically point the ultimate direction of the market.
Given the string of solid earnings results in technology, we are likely to get another run higher Thursday as the market again tries to take advantage of these strong results. Each time we have had our doubts about the rally's ability to fight off volatility it has done just that, and these earnings show the kind of strength that provides the upside with the ammo it needs. Thus we are going to let the recovery run where it will, and if we see opportunity we will move in. At the same time, however, we are going to continue watching the financials. They were up some Wednesday and after a mauling they are likely ready for a relief bounce of their own. That will help fuel the overall upside the tech earnings are helping trigger, and thus we could see a solid jump higher as a result.
After that is the key point, i.e. whether the financials shake off their funk and truly recover or they resume their decline. If the latter, then the market is likely going to suffer some more downside, and it may come around the 'traditional' times in late August, September, and October. Of course this will play out over weeks, not just a day on Thursday. Have to take a bigger view here given the damage done by the selling and the high volume volatility shown at the last peak. The recovery from this selling on the coattails of strong earnings will eventually need a rest, and how the market responds at that point will tell the story. By then other leaders could have emerged and changed the complexion yet again. For now we will let positions rebound, take positions on those ready to move back up or make new breaks, and see where this earnings bounce takes us.
Support and Resistance
NASDAQ: Closed at 2648.17
Resistance:
2654 is the November/February up trendline
The 10 day EMA at 2674
2673 is the early July high
2725 is the July high
2778 from a July 1999 peak
2887 from a September 1999 peak
2920 from an October 1999 peak
Support:
2634.60 is the June peak
The 50 day EMA at 2620
2601 is the mid-May intraday peak.
2600 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 1518.09
Resistance:
The 50 day EMA at 1517
The 50 day SMA at 1522
The 10 day EMA at 1531
1534 is the early July high
1539 is the mid-June intraday high
1541 is the early June high.
1541 is the late November to February up trendline
1553 intraday high from March 2000 is the all-time index peak
1562 is the upper channel line from October/December 2006
Support:
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 13,785.07
Resistance:
The 10 day EMA at 13,819
The July high at 14,022
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
13,581 is the upper channel line in the November/February channel
The 50 day SMA at 13,585
The 50 day EMA at 13,542
13,530 is the November/February up trendline that marks the lower channel.
The 90 day SMA at 13,231
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 25
Existing home sales, June, (10:00): 5.75M actual versus 5.9M expected, 5.98M prior
Crude oil inventories (10:30): -1.1M actual versus -1.9M expected
Fed Beige Book (2:00)
July 26
Durable Goods Orders, June, (8:30): 2.0% expected, -2.4% prior
Initial jobless claims (8:30): 310K expected, 301K prior
New home sales, June (10:00): 900K expected, 915K prior
July 27
GDP advance Q2 (8:30): 3.2% expected, 0.7% prior
Chain Deflator, Q2 (8:30): 3.4% expected, 4.2% prior
Michigan sentiment, final July (10:00): 91.5 expected, 92.4 prior
End part 1 of 3
|
money investment
investment help
|
