* * * *
8/02/07 Investment House Daily
* * *
Investment House Daily Subscribers:
Parts 2 and 3 will be later tonight due to travel delays.
Report is truncated this week due to travel schedules.
MARKET ALERTS:
Targets hit alerts: None issued
Buy alerts: ARTC; CSCO
Trailing stops: None issued
Stop alerts issued: None issued
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:
- Stocks fight urge to sell early bounce, close another session with an upside push.
o Technical:
- FOMC meets Tuesday and the 'debate' ignites as to hike or not to hike.
- Looks a lot like an interim rebound in a correction, but one with some nice leadership emerging.
Another afternoon bounce lift stocks, but they are still at the bottom of their hole.
After the credit and sub-prime worry crescendo Wednesday that sent stocks lower only to rebound with a nice short covering surge, stocks hung in there Thursday yet again. There was no new sub-prime or credit woes news, but instead a passel of good earnings with NOK's results causing the most excitement. Indeed with just over two-thirds of the S&P reported, earnings are running at twice expectations. That is lower than Q1, but 2x expectations is never bad. Jobless claims were again solid, rising from last week but at 307K still less than the 310K expected. Oil relented as well after hitting a new non-inflation adjusted high on Wednesday at 78.77.
That was enough to boost futures, and the market parlayed that into an early bounce. Of course it was tested, and indeed NASDAQ and company traded up and down all morning and into early afternoon, but they did so in a rather narrow range, never coming under serious pressure or falling too far underwater. They hung on well enough to not only close positive, but close at or near session highs as well. It was nothing spectacular, just a steady move that posted decent gains that managed to hold into the close. In addition there was some good leadership as large cap techs, after trying to move higher all session, found buyers late (e.g. CSCO, HPQ, VSEA).
Technically the intraday action was an improvement for the upside move, holding off a selling attempt and closing near session highs. That indicates a change in bias, though modest, indicative that this relief bounce may have a bit of staying power to make it a bounce a second test can use to help set the bottom on this selling. Breath was decent on NYSE (1.9:1), so-so on NASDAQ (1.3:1). Volume was lower, not surprising on a rebound from such intense selling. Both of those are, again, indicative of a relief bounce.
As for the charts, DJ30 tapped the 50 day EMA on the high and faded back modestly. This is the first key test of resistance on this move, and for the move to be truly meaningful in forming a bottom it really needs to get up to 13675ish. NASDAQ managed to move through its 90 day SMA and held it on the close, about the minimum it could do. It still needs to get to 2600 to 2635ish on this move to make it something worth testing back from.
The indices, at least NASDAQ and DJ30, are setting up something of head and shoulder patterns, working on the right shoulder as they rally back from the selling. The problem with these patterns is that they tend to form during any correction and thus at this stage you can see threatening patterns turn benign as the strength returns. There is indeed still a lot of strength in the economy despite the worries about credit. There is enough strength to turn this pattern into a new breakout, and thus we just have to see how the pattern plays out and how solid the rebound and test set up. As noted above, there are still many leaders in solid shape as they have held up or recovered from the selling, and every market with leadership has a good chance of continuing a rally. That said, leadership definitely needs to improve over the next few weeks, shoring up or forming new bases, as the overall market works through this correction.
THE ECONOMY
Once more there was not a lot of economic news on tap; the big report for the week is the jobs report on Friday what with ADP predicting a rather pathetic showing (consider the source, however; ADP has been way off each time it has 'predicted' slow jobs growth). Indeed, the jobless claims for the week were less than expected, hanging out near 300K once more.
The credit issues and the next jobs report are spawning a lot of debate about just what the Fed will or should do. Some argue that a weak jobs report on top of the credit issues lays the groundwork for a Fed cut. If jobs are strong there are those arguing the Fed will have to consider hiking rates. What to do?
Strong jobs or weak jobs, the Fed is going to leave rates alone for now. It has factored in jobs to the equation, and while they are not knocking the cover off the report of late, they haven't been doggish. Thus one report, unless it is incredibly weak, won't trigger any change from the Fed. Similarly, a very strong report won't force the Fed into a more restrictive tightening mode.
The reason? The sub-prime and credit issues. Credit is still basically an unknown. Oh sure the Treasury Secretary says the sub-prime market issues are contained, but credit is another story. It is fueled in significant part by fear of being left out in the cold with deals not closed, payments coming due, etc. and no readily available funds. It can surge and then fade based upon those emotions, and emotions are hard for the powers that be (e.g. the Fed) to contain. With this big unknown out there the Fed is not going to raise, but it is also not going to cut anytime soon for fear of spooking markets by appearing skittish. Further, the last thing the Fed wants to do right now is cut rates and send the dollar into a freefall. Some say it is in freefall right now, but that is not the case; it is in a sustained steady trend lower. A cut would send it tanking and inflation surging here at home. We are already fighting imported inflation with the dollar fall to this point; a gap lower would send our inflation spiking. Thus the Fed has to be on hold, praying that the credit concerns won't expand.
THE MARKET
MARKET SENTIMENT
VIX: 21.22; -2.45. Hit 26.22 on the Thursday intraday high, highest level since April 2003. Volatility has done its job here as far as showing fear, though we are still concerned about that rising volatility on rising peaks in the market. That can be a signal of a more significant top. As noted above, it is up to this relief bounce and the next test to show us how virulent this last round of selling will be. It is already deeper than the prior two corrections, i.e. summer 2006 and spring 2007.
VXN: 21.24; -2.54
VXO: 21.68; -2.37
Put/Call Ratio (CBOE): 1.1; -0.26. Down but a ninth consecutive close above 1.0. That is getting to the point of extremity.
Bulls: 47.2%. Quite a tank from 53.9% last week, just short of the peak of the recent run higher in positive sentiment 56.7% hit two months back). Getting there but still needs to drop below 40% to really show the kind of dent in optimism that stronger runs are built upon. 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: 26.4%. The bears came out bawling, blasting higher from 18.0% last week and just over 1 point off of the 27.5% in April and the quickly closing in on the 30% hit in March. Amazing what contagion fears will do to investors. 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: +22.11 points (+0.87%) to close at 2575.98
Volume: 2.458B (-18.32%). No surprise volume fell off on the rebound from the selling. Typical in a relief move off of heavy selling on the first leg of the rebound.
Up Volume: 1.602B (+18M)
Down Volume: 807M (-1.002B)
A/D and Hi/Lo: Advancers led 1.29 to 1
Previous Session: Decliners led 1.43 to 1
New Highs: 83 (+18)
New Lows: 196 (-179)
NASDAQ CHART: http://www.investmenthouse.com/ihmedia/NASDAQ.jpeg
The large cap techs were the leaders on the session as NASDAQ posted a rebound that managed to move above the 90 day SMA on the close. That is about all it could muster though with the rebound Wednesday afternoon it has put in 60 points bottom to close. Admirable start, but looking at the chart the move looks rather modest. That shows you the depth of the hole it dug for itself.
SP500/NYSE
Stats: +6.39 points (+0.44%) to close at 1472.2
NYSE Volume: 1.977B (-17.63%). Significant drop in volume but still well above average as the NYSE indices continued higher.
Up Volume: 1.214B (-56.76M)
Down Volume: 732.991M (-396.618M)
A/D and Hi/Lo: Advancers led 1.89 to 1. Not bad breadth as the small caps enjoyed a solid session as energy started to recoup some losses and put in some bottoms.
Previous Session: Decliners led 1.36 to 1
New Highs: 49 (+17)
New Lows: 220 (-279)
SP500 CHART: http://investmenthouse.com/ihmedia/SP500.jpeg
Continued higher off the 200 day SMA, making 32 points up off the low. A good start and looking for SP500 to make it up to 1490ish (the June lows) on up to the 90 day SMA near 1500 on this bounce to better set up the test.
DJ30
The blue chips added triple digits. Nice but it hit the 50 day EMA on the high and backed off. As noted above, that is the first key test level (13,500) on this move, but it really needs to push on through to 13, 675ish for a really good set up to the test back to set the bottom.
Stats: +100.96 points (+0.76%) to close at 13463.33
Volume: 264M shares Thursday versus 355M shares Wednesday. Similar drop off in shares as with the other indices on this bounce.
DJ30 CHART: http://www.investmenthouse.com/ihmedia/DJ30.jpeg
FRIDAY
Jobs report is all the word for Friday and it definitely has the potential to disrupt the rebound attempt. That said, even if there is some disruption we expect another try higher as the market has taken a load of bad news and managed to rebound and start a climb higher even as the news got as bad as it has on this credit and housing slump. Thus if there is some early disruption we will still look for a recovery, and with some good stocks still holding up well, a weaker open could give us some really good entry points as they test and then start higher.
We will again focus on those stocks that have held their bases the best; they have already fought off the sellers and no one wanted to dump them. They are leaders on rebounds and even used the selling to their advantage. That is what you want to own, though we are not loading the boat completely on this move as we still anticipate another bout of downside that will determine a bottom or a real crater.
Support and Resistance
NASDAQ: Closed at 2575.98
Resistance:
2605 is the October/December trendline
2601 is the mid-May intraday peak.
The 10 day EMA at 2599
The 50 day EMA at 2609
2634.60 is the June peak
2661 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:
2571 is the 90 day SMA
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 2491
S&P 500: Closed at 1472.20
Resistance:
1475 from peaks in December 1999 and January 2000
1490.72 is the early June closing low
The 10 day EMA at 1487
The 50 day EMA at 1506
1534 is the early July high
1539 is the mid-June intraday high
1541 is the early June high.
1547 is the late November to February up trendline
1553 intraday high from March 2000 is the all-time index peak
1565 is the upper channel line from October/December 2006
Support:
1468 is the July 2006/March 2007 up trendline
1461.57 is the February 2007 high.
The 200 day SMA at 1450
1440 is the mid-January high
1427 represents some interim peaks from December 2006
Dow: Closed at 13,463.33
Resistance:
The 50 day EMA at 13,503
The 10 day EMA at 13,498
The mid-May peak at 13,556
13,575 is the November/February up trendline that marks the lower channel.
13,625 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 13,295
13,121 is minor support from the April peak
12,796 at the February 2007 high
The 200 day SMA at 12,777
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): 307K actual versus 310K expected, 304K 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
|
