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money investment, Breakout test
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8/01/07 Investment House Daily
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Investment House Daily Subscribers:
Report is truncated this week due to travel schedules.
MARKET ALERTS:
Targets hit alerts: TRMB
Buy alerts: LAYN; RESP; FNM; NITE
Trailing stops: FCX; SLB
Stop alerts issued: HURC
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SUMMARY:
- More credit worries trigger another sell off, but SP500 holds key support, forcing a last hour short covering rally
- Will the buyers take over from the shorts? Only next week, and some leaders, know.
Market manages to push aside credit worries, at least long enough for a short covering rally.
There was plenty of bad news before and after the bell. ADP issued its monthly jobs report forecast, and it predicted 73K jobs, basically a drop off the edge. Of course, ADP stands for Amazingly Dumb Prognosis when it comes to the jobs report. Futures dove on the news, then remembered the track record and rebounded. Then BSC announced a third hedge fund was ready to fold and it had suspended distributions. An Aussie bank chimed in that some if its hedge funds faced 25% losses due to ties with the US sub-prime market. Just great news all around.
Treasury secretary Paulson was again out pre-market, however, assuring the world that the sub-prime issue was contained (remember the ROTC kid in 'Animal House'? "Remain calm. All is well!"). Helped a bit. Then Challenger Gray issued its layoffs report and noted a 23% drop in July, a 12 month low. MET chimed in noting that 98% of its sub-prime portfolio received an AA or AAA rating. Take that.
It was an effective counter. A nervous market recovered into the open and started positive. More than that, the opening salvo sported decent gains. Then the volatility set in. Sellers took their shot as we expected, and then the buyers came back. Then the sellers, then the buyers, then the sellers. At 10:00ET the ISM came out as weak as a gallon of potato soup with just one spud (53.8 versus 55.5 expected and 56.0 prior). BZH was next and rumored to be heading toward bankruptcy before this housing downturn is over (and it subsequently lost 40+% of its value before rebounding some). Then oil inventories showed a 6.4M bbl draw. That sent oil to a new record in current dollars.
The market actually managed to bottom for the morning on that news and rallied to the session highs. Over lunch the sellers took another shot. With all of that bad news, why not? They pushed the market back into negative territory and things looked grim. SP500 undercut the 200 day SMA earlier in the session but recovered. It cratered through that level in the afternoon yet again, bringing in a rush of sellers. That rush, however, emptied the bullets for the day. SP500 moved back up above its 200 day SMA as the selling abated. When it did not go back down the sellers started to cover. Then some more. And then more. In the last 40 minutes the market staged a furious recovery to positive, closing at session highs on strong volume. What do you know? Break a key support level, sell a bit more, then a rebound. Happens more often than you would think.
Technically that very volatile morning and early afternoon session after the thumping the market has taken the past two weeks suggested the market was trying to put in a bottom as SP500 tested the 200 day SMA and DJ30 danced with its 90 day SMA. The midmorning alert noted this but frankly we did not have a lot of faith. The afternoon selling only added to the volatility. The key move was that SP500 undercut of the 200 day SMA. That brought about some additional selling but then when it recovered that level in the last hour the market surged.
There were some seriously weak internals. Volume was surging, breadth was almost -3:1 on NYSE, support was undercut. That led to the recovery into the close. Always good to see the indices reverse and close positive on volume. It was not a major reversal and with all of this volatility another big point swing on volume is just another day. That it occurred at some key support is a different factor and a positive. Of course, it was the start of the month and some new money could have found its way in as SP500 tested key support. We will have to see if the buyers step in again starting next week, i.e. showing some follow through. We are looking at some leaders, and if they surge back up that foreshadows a rebound by the market. Nonetheless, we still view the next move up as just an interim bounce ahead of another test. Bottoming takes time.
THE MARKET
MARKET SENTIMENT
VIX: 23.67; +0.15
VXN: 23.78; +0.23
VXO: 24.05; -1.13
Put/Call Ratio (CBOE): 1.36; +0.09. Eight consecutive closes above 1.0 demonstrates heightened anxiety remains.
Bulls: 53.9%. Rose last week from 52.3%, continuing the move higher from 49.5% and 49.4%, but it is going to change quite a bit after this past week. Hit 56.7% 7 seven 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: 18.0%. Right at the lows for the past two months, falling sharply from 19.3%. That is what that breakout did. Dow below the 20% threshold level considered bearish. 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: +7.6 points (+0.3%) to close at 2553.87
Volume: 3.009B (+6.68%). Volume splurged again as NASDAQ tested lower yet again and then reversed to close positive. High volume is not that bad on such a session.
Up Volume: 1.584B (+750M). Basically a dead heat as the buyers and the sellers fought to a standoff.
Down Volume: 1.809B (+16M)
A/D and Hi/Lo: Decliners led 1.43 to 1. Nice intraday recovery.
Previous Session: Decliners led 1.45 to 1
New Highs: 65 (-26)
New Lows: 375 (+81)
NASDAQ CHART: http://www.investmenthouse.com/ihmedia/NASDAQ.jpeg
NASDAQ undercut the May low and the late February peak, tapping at the January peak. Kind of split the difference and then rebounded to hold those levels on the close. A positive one with strong volume. A good start, but a long way to go as NASDAQ is still below the 90 day SMA as it sits at the bottom of a 2 week sell off. Primed for a rebound toward 2610 to 2635 before the prior test.
SP500/NYSE
Stats: +10.54 points (+0.72%) to close at 1465.81
NYSE Volume: 2.4B (+11.94%). Another very strong volume session as the NYSE indices tested sharply lower and then rebounded on strong volume. Good action.
Up Volume: 1.271B (+773.487M). Up volume swung back above the downside, but it was a dead heat.
Down Volume: 1.13B (-569.188M)
A/D and Hi/Lo: Decliners led 1.36 to 1
Previous Session: Decliners led 1.4 to 1
New Highs: 32 (-11)
New Lows: 499 (+137)
SP500 CHART: http://investmenthouse.com/ihmedia/SP500.jpeg
Undercut the 200 day SMA and the February high on the low and then reversed to close positive, reversing off that test of key support. On the close it landed right on top of the July 2006/March 2007 up trendline. That is the next hurdle to clear, but after this tail kicking and the lateral move the past three sessions it looks ready to make the bounce. Nice how the laggard and the leader in the selling sets the bottom for the rest of the market to build off of.
DJ30
DJ30 continued lower but it resisted selling all session. It rebounded to close above the 90 day SMA and the June lows. Strong volume. It is still a weak pattern and DJ30 will have to break up the head and shoulders look alike that is forming. If it moves up to 13,692ish and fails we have to watch out for a breakdown. That remains to be seen; there is still a way to go before that happens, and this is just one move. A good one, but not definitive in and of itself.
Stats: +150.38 points (+1.14%) to close at 13362.37
Volume: 355M shares Wednesday versus 319M shares Tuesday. Strong volume on the recovery, even stronger than the Tuesday selling.
DJ30 CHART: http://www.investmenthouse.com/ihmedia/DJ30.jpeg
THURSDAY
Initial jobless claims and factory orders are out Thursday along with more earnings and always the fear of some mortgage or credit issue arising once more. Wednesday the market took a bucket full of bad news. It was slipping and sliding all over that bad news all session but it found its footing and rallied out of the selling and bad news. Positive volume, positive close. As noted above, some promise there.
Of course it is easy to overlook it with all of the negatives and the deep, deep hole the selling has left the indices in. That has left many very glum and calling this just another relief bounce. It may be, but there are those different attributes noted above. And anyway, the market has to have a bounce back higher at some point so it can test this selling. The buckets of bad news of late and the series of negatives Wednesday washed out with a reversal and upside close. Man are still very glum about the prospects. Looks to us that the market is going to try that bounce given it emerged from the storm rather nicely.
We will be looking at rebounding leaders that held up during the selling and are in position to run higher in a more sustained market relief bounce following this rather harsh two weeks of selling that saw the indices put in as much downside in this first leg as they did in the entire summer 2006 pullback. That means a rebound will likely tap out and sell again, but buying leaders that did not break down during the last selling gives us some good upside potential on even this interim rebound.
Support and Resistance
NASDAQ: Closed at 2553.87
Resistance:
2570 is the 90 day SMA
2604 is the October/December trendline
2601 is the mid-May intraday peak.
The 10 day EMA at 2605
The 50 day EMA at 2611
2634.60 is the June peak
2660 is the November/February up trendline
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:
2531.42 is the February high (post-2002 high); 2525 intraday
2523 was price resistance November 2000
2509 is the January 2007 high
The 200 day SMA at 2490
S&P 500: Closed at 1465.81
Resistance:
1467 is the July 2006/March 2007 up trendline
1475 from peaks in December 1999 and January 2000
1490.72 is the early June closing low
The 10 day EMA at 1490
The 50 day EMA at 1508
1534 is the early July high
1539 is the mid-June intraday high
1541 is the early June high.
1546 is the late November to February up trendline
1553 intraday high from March 2000 is the all-time index peak
1564 is the upper channel line from October/December 2006
Support:
1461.57 is the February 2007 high.
The 200 day SMA at 1449
1440 is the mid-January high
1427 represents some interim peaks from December 2006
Dow: Closed at 13,362.37
Resistance:
The 50 day EMA at 13,505
The 10 day EMA at 13,506
The mid-May peak at 13,556
13,572 is the November/February up trendline that marks the lower channel.
13,620 is the upper channel line in the November/February channel
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)
The July high at 14,022
Support:
The 90 day SMA at 13,284
13,121 is minor support from the April peak
12,796 at the February 2007 high
The 200 day SMA at 12,770
Economic Calendar
These are consensus expectations. Our expectations will vary and are discussed in the 'Economy' section.
July 31
Personal income, June (8:30): 0.4% actual versus 0.5% expected, 0.4% prior
Personal spending, June (8:30): 0.1% actual versus 0.1% expected, 0.6% prior (revised from 0.5%)
Core PCE, June (8:30): 0.1% actual versus 0.2% expected, 0.1% prior
Employment cost index, Q2 (8:30): 0.9% actual versus 0.9% expected, 0.8% prior
Chicago PMI, July (9:45): 58.5 expected, 60.2 prior
Construction spending, June (10:00): -0.3% actual versus 0.2% expected, 1.1% prior (revised from 0.9%)
Consumer confidence, July (10:00): 112.6 actual versus 105.0 expected, 105.3 prior (revised from 103.9)
August 1
ISM Index, July (10:00): 53.8 versus 55.5 expected, 56.0 prior
Crude oil inventories (10:30): -6.4M bbl
August 2
Initial jobless claims (8:30): 310K expected, 301K prior
Factor orders, June (10:00): 1.0% expected, -0.5% prior
August 3
Non-farm payrolls, July (8:30): 135K expected, 132K prior
Unemployment rate, July (8:30): 4.5% expected, 4.5% prior
Hourly Earnings, July (8:30): 0.3% expected, 0.3% prior
Average workweek, July (8:30): 33.9 expected, 33.9 prior
ISM Services, July (10:00): 59.0 expected, 60.7 prior
End part 1 of 3
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money investment
Breakout test
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