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world stock market, us stock market
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8/13/07 Investment House Daily
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MARKET ALERTS:
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Buy alerts: HSIC
Trailing stops: None issued
Stop alerts issued: None issued
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SUMMARY:
- Fed eased the credit issues and market tried to respond upside but it couldn't.
- July retails sales bounce back from weak June, take some sting out of the weak same store sales.
- China offs another export executive.
- Market stemmed some selling on the Fed infusion, but still trying to determine if that changed the economic outlook.
Market fails to make an early week bounce stick.
Some were saying this was just what the market needed, nothing flashy, nothing fancy, just another day at the office, one without massive volatility and volume. That was true with respect to the latter, but as for the former, well, DJ30 swung triple digits from high to low once more and NASDAQ ranged 30 points. Maybe not as much volatility, but the market still showed the propensity to change direction rather abruptly when the mood struck it.
After a solid early open that is exactly what it did. The Fed looks to have done its job last week and again on Monday: the credit market was frozen and the Fed applied the warm water to the tune of $38B Friday and another $2B Monday. As noted over the weekend, the Fed's goal was to bring the overnight bank to bank rate down at least to the Fed Funds rate, i.e. 5.25%. Friday it closed at that level. Monday it opened at that level and then fell to 5.18%. The $2B the Fed injected was less than the market expected, but with the overnight rate falling, it did not need to put so much into the system Monday. With the ECB pushing another $65B into the system and the European markets up 2%, the Fed likely did not have to do much more for this round.
The stock market responded with a solid upside open led in large part by energy and financials, though just about every sector had some upside representation. With oil back over 73 with a tropical storm in the Atlantic, that sparked the sector a bit after forming up better last week. After the open, however, they struggled. No major sell off, just having a hard time holding the upside. Two selling attempts were rebuffed, but the third from late morning to early afternoon took the indices negative. Energy and the financials, early leaders, turned over, and when they did the rest of the market followed. An afternoon bounce also could not hold and the market sold into the close, turning negative.
In the end all that was standing was the large cap tech sector as NASDAQ 100 closed higher by half a percent. It was no pillar of strength, but then again, the selling was nothing malicious. It was just another session of many where the upside just did not have any bite to it. To us, that was the big takeaway from the session: the credit market got its liquidity and that calmed the investment seas, but that in itself did not provide any major or, at least on Monday, lasting, lift to stocks. The Fed managed to quell the credit storm for now, but the market was unimpressed, at least such that it could not move higher after getting rescued Friday. Seems the market feels there is more Fed work necessary, there are remaining economic and earnings issues beyond the credit crunch, or perhaps a combination of both before stocks can sustain a rally.
Thus to us the action Monday was in no way an endorsement of the Fed action as solving the stock market's problems, and indeed that was not the Fed's aim. Friday the Fed action put a floor under the market, but that floor is not fully buttressed yet. It is basically buying the market time to sort through all of the issues confronting it; the market certainly ran in place Monday, appearing to do just that. Whether the market can come to a resolution is up to it, and the Fed is likely not to care too much, at least to the point of intervening, to push it along. The Fed simply wants the system to be able to function and actually sort things out without a liquidity vapor lock. The market's action indicates that is its take on the Fed action and thus it is not using the Fed as a fallback for the market's worries as long as there is sufficient liquidity for the market to properly function.
Technically the market action was middle of the road at best. DJ30 and NASDAQ both tried their 90 day SMA more or less and both faded back from that attempt. SP500 failed its early bounce as well though it closed near its 200 day SMA once more, still showing a doji on the candlestick chart. They tried to move but just could not make the move stick. Volume, after three weeks above average, fell off and without it the move had no real backing. At least there was no high volume to accompany the intraday high to low, and thus no indication of a reversal. No, the market was basically still trying to sort out what the Fed did and what it meant. By the close it looks as if the market had come to no firm conclusions but we did not like the action: down big Thursday, rebounded to flat Friday, gave away a post-Fed rally attempt Monday. That action should sound pretty familiar, and it indicates there is no change in character from the bearish overall action in the indices. Still lots of great stocks in great patterns but they are more holding the market up than anything else at this juncture. It is still up to the market to get back on track and follow the lead of the leaders. Thus far the action is not there yet, meaning there is no change in the market's character post-Fed, at least by virtue of the market's action Monday.
THE ECONOMY
July retail sales perk up though after June that was not hard to do.
May was a stinker because Easter showed early, but June was a dog (but not as smelly as first thought) as well because the consumer just didn't show. July worked to reverse some of that with sales up 0.3% versus the 0.2% expected (and -0.7% in June, revised up from -0.9%), and 0.4% ex-autos (0.3% expected, -0.2% in June, revised from -0.4%).
That was better but it was not enough to shake off the same store sales reported last week that were just about uniformly disappointing with the usual outriders here and there. It is a question of who do you trust in both the reporting and how the numbers are compiled. Same store sales are what the retailers report. Retail sales are as well, but the government takes them and massages and adjusts them to 'more accurately' reflect reality. Right. If that were the case then no one would say 'yes but same store sales were not as good . . .' and there would have been a greater upside response from the market.
The bigger question is just what the trend is. After an expected May slowdown due to an early Easter, June's weakness was a surprise. Now there is another recovery just as gasoline prices are starting to ease. Ironically, gasoline prices rose during the last reporting period, helping push sales higher. Now they are falling and won't provide that boost to sales. It is up to the consumer to come back to the stores, and the gasoline decline helps, but we are seeing a trend to the discount stores as noted last week, and that means consumers are not totally comfortable right now with the stories they hear about the sub-prime mortgage sector (which is 0.6% of all defaults) and what it could do to the world. They don't understand it, but with some of the dire predictions they definitely don't like what they are hearing.
Chinese export controls get more stringent.
Recall that on the heels of the scandal regarding tainted dog food and toothpaste from China the head of the government agency overseeing those areas was executed. Now we learn that the head of the agency overseeing the toy department during the period lead paint was used for those toys has committed suicide. Suicide? Hmmm. Sounds as if China is stepping up its quality control efforts even more. Tough living in a communist country, and it is tough to govern a communist country trying to loosen up and show the rest of the world what a great place it is.
THE MARKET
MARKET SENTIMENT
VIX: 26.57; -1.73
VXN: 24.57; -2.27
VXO: 26.55; -2.53
Put/Call Ratio (CBOE): 1.01; -0.09. Sixteen sessions above 1.0 on the close. Again, this is an extreme level.
Bulls: 43.8%. Still on the downside run, falling from 47.2% last week and 53.9% the week before. Already below the March level on that market decline, hitting the low for the year. Would not complain about a move below 40, and this kind of continued selling can do the trick. Hit 56.7% hit two months back and moving toward that 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. Hit 60% in December 2006. For reference it bottomed in the summer 2006 near 36%, and 35% is considered bullish.
Bears: 31.5%. Juggernaut rising from 26.4% and 18% just the week before. That is a strong jump. Hit 27.5% in April. 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: -2.65 points (-0.1%) to close at 2542.24
Volume: 2.218B (-28.56%). Volume fell below average on the session, the first below average day in a month. Not a lot of volume on the upside, not much on the downside either. Market was trying to figure out what the Fed did.
Up Volume: 1.11B (-141M)
Down Volume: 1.103B (-883M)
A/D and Hi/Lo: Decliners led 1.18 to 1. Very modest again, but of course it was an upside day until the close.
Previous Session: Decliners led 1.37 to 1
New Highs: 47 (+20)
New Lows: 115 (-89)
NASDAQ CHART: http://investmenthouse.com/ihmedia/NASDAQ.jpeg
Gapped higher to the 10 day EMA and waved at the 90 day SMA (2581) on the high but then rolled over once more to close flat. That kept NASDAQ above the March trendline and in the May consolidation range. Still two taps of the 200 day SMA on the intraday lows and still in position to make a double bottom, but the Monday action did not do anything to enlighten the picture. It did not hurt it, but it had a chance to help and it did not. Still many techs are in good shape so NASDAQ is still working well.
SOX (-0.51%) worked laterally for the third consecutive day, rallying over the 50 day EMA (506) on the high and then giving it up on the close. It has to get over 510 to make a significant move as it clears the May high.
SP500/NYSE
Stats: -0.72 points (-0.05%) to close at 1452.92
NYSE Volume: 1.716B (-32.19%). Volume fell below average on Monday, the first time in three weeks on NYSE. An indecision day for the NYSE stocks.
Up Volume: 878.866M (-264.472M). Dead heat as SP500 tried to move higher but failed. Big indecisive day on NYSE.
Down Volume: 831.765M (-543.321M)
A/D and Hi/Lo: Decliners led 1.04 to 1
Previous Session: Decliners led 1.59 to 1
New Highs: 21 (-9)
New Lows: 229 (-29)
SP500 CHART: http://investmenthouse.com/ihmedia/SP500.jpeg
SP500 showed a doji at the 200 day SMA (1453) Friday and was rallying off of that on Monday but then ran out of gas in the form of volume and it faded back to the 200 day SMA (1453) on the low. Second consecutive doji at that key level as the large caps chew on what the Fed did Friday and Monday. The financials were up and so was SP500, then they were down, and so was SP500. The financials are leading SP500 around by the nose, and accordingly, SP500 has stunk the place up. As with NASDAQ, however, it is trying to put in a short double bottom to move off of, and while Monday was a disappointment in that the market could not make anything of the Fed's actions, it did not damage this attempted short double bottom.
SP600 (-0.85%) tried again, the third session out of four, to move over its 200 day SMA just below 415. It made it but was then pushed back down below that key level. When energy lost its bid so did SP600, and it is threatening to sell off. It has also, however, formed something of a short reverse head and shoulders, and we really like that pattern as a fortune teller at the bottom of sell offs. If SP600 can break up through 415 and hold it, then it is in business near term.
DJ30
DJ30 tried to move higher but pulled the opposite action from Friday in that it sold back after an intraday gain (Friday rallied back after an intraday loss). The move left it flat, still below the 90 day SMA and still above the recent lows. If you try to turn this into a positive pattern you get all twisted up. It is not looking that great, but it is hanging around as SP500 and NASDAQ try to form their double bottoms. They are struggling to do so, and the market didn't get much out of the Fed action, so we are not holding our breath for that or for DJ30 right now. Thus we still have that downside play ready to go.
Stats: -3.01 points (-0.02%) to close at 13236.53
Volume: 215M shares Monday versus 338M shares Friday. Back way below average
DJ30 CHART: http://www.investmenthouse.com/ihmedia/DJ30.jpeg
TUESDAY
The economic data gets more interesting with the PPI, but as we all know, that is simply a precursor to the CPI on Wednesday. CPI inflation has weakened though not as much as the PCE, and it would sure be nice to see it continue the slide and give the Fed a bit more breathing room. As noted last week, the Fed is playing the waiting game, hoping like hell that inflation comes down to generally accepted acceptable levels so there are not those polar views on what the Fed should or shouldn't do with respect to interest rates. With the rather deft moves last week during the credit freeze the Fed has gained esteem in some circles and has held steady or lost it in others. The Fed did what the Fed should do, however, and that is ensure liquidity without making moves that cause investors to sprint in a particular direction. Mission accomplished in that respect.
That leaves the market still trying to piece it all together after some harsh selling. SP500, NASDAQ and SP600 are trying to put in a floor to build off of, but while the patterns are interesting and somewhat promising, reality is it is a stretch to call any bottom on them. Energy stocks, while giving up their early moves on Monday, are still in some interesting patterns that can yield strong upside moves. They tried to get it going Monday but faded after a good open. Kind of the story of the market as it has sold off into this hole.
We are just going to keep an open mind about the market and see what looks to be working either upside or downside. The market remains in a state of flux that has and is tearing apart professionally managed hedge funds, and prompting even more selling as they try to raise cash to avoid the problems BSC had when it simply had to close down its funds because they could not meet requests for withdrawals. Thus the selling pressure remains even as some of the credit squeeze pressures dissipate over the near term.
With that backdrop things are rather daunting, but we still see excellent stocks in good position for an upside move and stocks set up for downside moves. Overlaying all of this is that volatility that we still view as a real problem for the market until it can convincingly rally out of this. I keep going back to the fact that the indices still have not sold 10% off of the high, and the last to do so was NASDAQ back in summer 2006. They are basically due, and with these issues confronting the market it is a prefect time to get it out of the way. That is rather formulaic (hasn't sold in awhile so it should sell now), but we are taking all positions, particularly upside, with that overlay simply because of the issues confronting the market.
Support and Resistance
NASDAQ: Closed at 2542.24
Resistance:
The 90 day SMA at 2581
2601 is the mid-May intraday peak.
2613 is the October/December trendline
The 50 day EMA at 2596
2634.60 is the June peak
The November/December/February up trendline at 2655
2670 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 2500
2470 to 2467 are price peaks from November and December 2006
2400 is price support
S&P 500: Closed at 1452.92
Resistance:
1461.57 is the February 2007 high.
1475 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 50 day EMA at 1496
1534 is the early July high
1539 is the mid-June intraday high
1541 is the early June high.
1553 intraday high from March 2000 is the all-time index peak
1554 is the late November to February up trendline
Support:
The 200 day SMA at 1453
1440 is the mid-January high
1427 represents some interim peaks from December 2006
1406 - 1407 from March 2007 and November 2006 interim peaks
1389 from October 2006 interim peak
1375 from March 2007 low
Dow: Closed at 13,236.53
Resistance:
The 90 day SMA at 13,370
The 50 day EMA at 13,468
The mid-May peak at 13,556
13,630 is the November/February up trendline that marks the lower channel.
13,665 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:
13,121 is minor support from the April peak
12,928 is the July 2006/March 2007 up trendline
The 200 day SMA at 12,825
12,796 at the February 2007 high
Economic Calendar
These are consensus expectations. Our expectations will vary and are discussed in the 'Economy' section.
August 13
Retail sales, July (8:30): 0.3% actual versus 0.2% expected, -0.7% prior (revised from -0.9%)
Retail ex-autos (8:30): 0.4% actual versus 0.3% expected, -0.2% prior (revised from -0.4%)
Business inventories, June, (10:00): 0.4% actual versus 0.4% expected, 0.5% prior
August 14
PPI, July (8:30): 0.1% expected, -0.2% prior
Core PPI (8:30): 0.2% expected, 0.3% prior
Traded Balance, June (8?30): -$61.0B expected, -$60.0B prior
August 15
CPI, July (8:30): 0.2% expected, 0.2% prior
Core CPI (8:30): 0.2% expected, 0.2% prior
NY Empire State Index, August (8:30): 19.0 expected, 26.5 prior
Net foreign purchases, June (9:00): $126.1B prior
Industrial production, July (9:15): 0.3% expected, 0.5% prior
Capacity utilization, July (9:15): 81.8% expected, 81.7% prior
Crude oil inventories (10:30): -4.1M prior
August 16
Housing starts, July (8:30): 1.41M expected, 1.467M prior
Building permits July (8:30): 1.4M expected, 1.413M prior
Initial jobless claims (8:30): 310K expected, 316K prior
Philly Fed, August (12:00): 8.0 expected, 9.2 prior
Michigan sentiment, August preliminary (10:00): 88.5 expected, 90.4 prior
End part 1 of 3
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