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us stock market, stock watch
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8/20/07 Stock Split Report Update
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Stock Split Report Subscribers:
Full report issues Tuesday.
MARKET ALERTS
Targets hit alerts: None issued
Buy alerts: CPHD; CROX; DE; ZUMZ
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 SSR alert service you can sign up at the following link:
http://www.investmenthouse.com/alertssr.html
SUMMARY:
- Market struggles all session, selling intraday but finally finding a bid in the last hour as the Friday Fed action puts in a floor again, at least for Monday.
- Leading economic indicators rebound in July, but ECRI indicators continue to slow.
- Market quiets after a tumultuous expiration week as investors decide how much of a floor the Fed has put in.
Market loses an early bid but finds an afternoon floor and recovers to hold the status quo.
Foreign markets were up solidly with the Nikkei posting a 3% gain, the best in 13 months. LOW announced its earnings on the heels of HD last week. It beat but at the same time cut its guidance for the year. Nonetheless added to the upside bias as it noted that some regions showed signs of improvement in housing. Hmm. For what it was worth it did not hurt the futures action and the market started up nicely.
After that early start there was not a lot of pizzazz, however. The Conference Board's leading economic indicator gauge for July met the 0.4% expectations, turning the negative June reading around, and oil prices moved lower as hurricane Dean tracked further south, away from much of the Gulf's oil production. That was good enough to hold the market higher for the first hour or so, but then it started to bleed back. By lunch on the east coast the indices were negative, lacking a bid to hold the early gains as volume tracked significantly lower and well below average.
On the back half of the afternoon session, however, the Fed bid came into play. In other words, the market started to rise as the shorts used the decline to close some more positions as they did on Friday after the Fed cut its discount rate. Why? Because the Fed, by its Friday action and more importantly in its accompanying statement, indicated it viewed the credit and mortgage issues as detrimental to the economy, thus signaling it was ready to step in with whatever action is necessary to quell the uprising. With that shark in the water, ready to rush in and take a bite when it sees fit, the ranks of those swimming naked on the short side is rapidly thinning. Friday we saw a 'Jaws-like' rush from the water as the shark was spotted. Monday some more shorts left the water when the tide came in and gave them some cover.
Will the Fed remain an effective reliever from the bullpen?
The big question is whether the market will continue to fend off the selling bouts because the Fed is warmed up in the bullpen, ready to come in and throw some heat whenever things get dicey. It definitely has its effect as seen on Monday, but if more news such as COF after hours comes out, the market will sell anyway and it will take the Fed to come in and strike out the side. COF is the latest to announce issues with loans, after hours saying it will take an $80M charge and lay off 1900 employees in its lending division, and more announcements such as this will build more of that worry about the spread of the contagion and keep the Fed busy.
The market will still sell when the news gets bad, and indeed the market will more than likely need another good test lower to try and cement the bottom on this last round of selling. You just want to see it come a bit later to give the upside some time to better set up that test lower. Thus very similar to the sentiment indicators that spike higher on the plunge lower that is the trading low though not the point the market turns and rallies back, the Fed action signals a bottom being set as well but does not inoculate the market from further bouts of melancholy.
Thus as long as it is not too late to save the overall economy, the Fed action helps the bottoming process though that process still has to run its course. If the Fed is too late or does not have the weapons in its arsenal to turn the tide (as in 2000), it won't work. It will be 'pushing on the string' as in 2000 through 2002. While the economic indicators have gone from a reacceleration in Q2 as the economy recovered from its mid-cycle slowdown back to a slowdown as this contagion contaminated the recovery, we don't think it is too late. It looks more like a financial issue that has dampened sentiment and thus some economic activity versus something fundamentally wrong with the economy. If the Fed acts decisively it can contain and kill the virus.
I know some do not agree with this, arguing instead this is a bubble that the Fed is trying to save from popping. The housing market got overheated, there is no question about that. With rates at 1% for an eternity, Greenspan's last legacy was one more bubble. Housing is going down; it always does as a recovery matures. This one is a harder fall because it was higher and longer than most thanks to those low rates. Does that mean the rest of the economy is a bubble as well that needs to collapse? Of course not. I am not in the school that proselytizes that each time the economy expands it has to contract an equal and opposite amount. We have technology and productivity gains that help us further along in each expansion. Just because we enjoy success we do not have to suffer an equal amount of pain. Our standard of living would stagnate if that was the case. There are the same positives still in place outside of this housing issue, and indeed the housing sector is far from rolling over in its entirety as the vast, vast majority of mortgages are nowhere near in trouble.
Technically the market finished up, posting a nice intraday rebound to positive, but the move did not change the relative position of the indices as they basically held their positions on lower volume and flattish breadth (1.5:1 NYSE). There was some very solid leadership from stocks such as CROX, BCSI, DE, etc., and that is always a very good sign. At the same time, however, a lot of stocks simply continued their low volume rebounds after the harsh selling, unable to find new strength in their bids. That was not all that encouraging. Still, after the Friday dive lower and reversal, you are not looking for a strong upside session after a lag in the move. That shows buyers returning to buy after the short covering got the move started. Thus we will watch for a stronger upside session to show follow through to the rebound. The market can show that move and still come back to test and keep the new rally attempt alive. For now we look for strong stocks that are showing solid moves off their test of support to give us upside.
THE ECONOMY
Dueling leading economic indicators.
The Conference Board's monthly leading economic indicator report showed a 0.4% rise over June's 0.3% decline. Hurray. Of course, the Conference Board's take on where the economy is heading is not exactly science. Indeed, it has shown weakness when there was strengthening and vice versa over the past year. The market barely reacted to the release of the data, and that was about all it deserved.
The more important indicator ECRI, the one that showed the resumption on strength after the 2006 second half slowdown, is softening. Indeed, its leading index was down 0.1 last week, making it an even month of declines. That pushed it down to its lowest level since 4-20-07. The 4-week annualized growth rate fell 4.2% from 5.1% last week. It also reached its lowest level since April.
The ECRI indicators tend to be the most accurate of the man-made economic indicators for forecasting. The weekly growth indicator peaked at 6.9% in June, just as the contagion issues really started to surface. As the market is part of the equation in the future, its troubles pulled the indicator lower. Thus ECRI provides less than a perfect picture short term, and we need to, as always, focus on how the market and leading stocks respond to this sell off, i.e., can they find bottom over the next few weeks and make a solid break higher on strong volume.
THE MARKET
MARKET SENTIMENT
VIX: 26.33; -3.66
VXN: 25.2; -1.84
VXO: 25.62; -3.81
Put/Call Ratio (CBOE): 0.92; -0.31. First time below 1.0 on the close in 21 sessions. That was an extreme amount of downside activity, and it does not matter if it was speculation, protective put buying, or whatever. The point is there was so much belief in the further downside that more were playing it than the upside, and that historically means there is some type of upside bounce coming.
Bulls: 43.8%. Surprisingly, and quite disappointing, bulls held steady at 43.8% for a second week. Down from 47.2% and 53.9% the week before. 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: 32.6%. Not nearly as big a run as the prior week's 5 point jump to 31.5% from 26.4% and 18% just the week before. 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: +3.56 points (+0.14%) to close at 2508.59
Volume: 1.683B (-36.94%). Volume fell off the table, coming in well below average and more what you would expect from a late summer, pre-school session.
Up Volume: 1.01B (-1.329B)
Down Volume: 688M (+407M)
A/D and Hi/Lo: Advancers led 1.06 to 1
Previous Session: Advancers led 2.58 to 1
New Highs: 41 (-28)
New Lows: 105 (-42)
NASDAQ CHART: http://investmenthouse.com/ihmedia/NASDAQ.jpeg
NASDAQ moved modestly higher, fell negative and undercut the 200 day SMA (2501), and then, just as on Friday, rebounded to close modestly above that key level. That leaves it somewhat in no man's land below resistance at 2550 to 2600, and hanging on at the January and February peaks. Another day of lateral action and then a break higher up to 2550 would be a good place to start the test of last Friday's dump and reversal.
SOX (+0.89%) was up most of the session but it broke no new ground, unable to pass the Friday high and thus the November and December peaks. Not a lot of positives from the pattern and we will have to see how it plays out a relatively weak hand after rolling over from a 4 month head and shoulders last week and rebounding Friday and Monday.
SOX CHART: http://investmenthouse.com/ihmedia/SOX.jpeg
SP500/NYSE
Stats: -0.39 points (-0.03%) to close at 1445.55
NYSE Volume: 1.537B (-37.95%). Volume faded as the NYSE indices sold off early (good) and then rallied back (not so good). Overall a session that, by its volume, did not show a lot.
Up Volume: 818.624M (-1.42B)
Down Volume: 702.054M (+469.228M)
A/D and Hi/Lo: Advancers led 1.51 to 1
Previous Session: Advancers led 6.63 to 1
New Highs: 20 (-27)
New Lows: 99 (-72)
SP500 CHART: http://investmenthouse.com/ihmedia/SP500.jpeg
SP500 rallied up close to the 200 day SMA (1455) on the high and then sold off to negative. The covering on the selling pushed it right back up to flat, holding the 10 day EMA on the close but still below the 200 day. That also leaves it below the February peak and still in a weak technical position after the Thursday rebound from the intraday dive lower. Does not look strong, but all that means now is that the large cap index has more work to do to try and fulfill the potential for a bottom after that steep plunge. We are expecting another test lower at some point, but for the upside you don't want to see it occur just after the dump lower just three sessions back.
The SP600 (+0.30%) had the same unsatisfying close below the 200 day SMA (as it has had for the past three weeks, but it is has already set up a double bottom similar to the one it formed in March. The tug of war here is between this short double bottom trying to set the bottom versus the bigger head and shoulders trying to form as discussed over the weekend.
SP600 CHART: http://investmenthouse.com/ihmedia/SP600.jpeg
DJ30
Added modestly to the rebound that started Thursday, tapping at the late July and early August lows on the high (13,181) and fading. No volume so there was nothing to send it through the 13,250 level that represents a lot of thick ice for the blue chips. It was just feeling the resistance Monday as the volume was so low it had no hope of breaking through. Lots of resistance from 13,250 through 13,365 and then at 13,500 to 13,676. Still looking for a move to 13,300ish on a bounce to set up a second sell off on this last bottom attempt. A bump up to that level on continued low volume is another shorting opportunity for the next run down. It will be a quick play as the last one if it sets up, but it should be nice if it gives the set up.
Stats: +42.27 points (+0.32%) to close at 13121.25
Volume: 231M shares Monday versus 424M shares Friday. No volume on the continued bounce to test resistance, not a great validation of the rebound.
DJ30 CHART: http://www.investmenthouse.com/ihmedia/DJ30.jpeg
TUESDAY
No scheduled economic data for Tuesday. The underlying theme is the Fed and the 'will he or won't he?' question that lurks behind every trade, upside or downside. That provided some upside bounce after intraday selling, but it did nothing to change the complexion of the market and the weak patterns in the big 3 indices. After hours the head of the finance committee in the House is meeting with Bernanke and Paulson, and there is some speculation that a cut might come out of that. It won't be tomorrow given the Fed won't want to look like it is bending to political will. Indeed, we don't expect it to come anytime soon after such a meeting. In any event, remember, the action Monday was not that significant in the big picture as it did not change the current character, but there was also no higher volume sell off. The slow, sluggish, go nowhere action kept the Thursday reversal alive, and thus and that keeps you with an eye out for a follow through session.
The latter requires a lot of work given the negative headwinds, but you can have a follow through and still continue work on a bottom. As unlikely as that seems we are not arrogant enough to think that just because we feel it is the long shot the market won't do just that. As we always say, you have to take your lead from the market, not from your gut. Thus we see strength out there still and that is providing what backbone there is in the market. We will continue to look for that strength and slowly accumulate some positions as the opportunity arises.
At the same time it is hard to resist the set ups for the downside after this rebound. The threat of Fed action is out in the market and that adds risk to the downside in addition to the fact that downside action often occurs rapidly once it starts. That said, we anticipate another test lower, bottom or no bottom, and if more news similar to the after hours COF news piles on then there will likely be more downside simply because the Fed cannot negate all bad news. Indeed, the continued dive in the short end US treasuries shows that the Fed has not gained control of the fears. Money continues to run to the cover of these instruments and historically when the 90 day treasury bill is 100BP or more below the Fed Funds rate the Fed has to cut in order to stave off the ills that are pushing it lower. Thus the likelihood of more aggressive Fed action remains high, and indeed the Fed could cut the discount rate another 50BP to match the Fed Funds rate or even 75BP to undercut it and make it a true discount this week.
Thus while we like what we see from some of the short side set ups, with the Fed in the game the drops can be truncated rapidly. Thus any good downside action for a couple of days is worth taking with respect to index plays. That said there are some resource stocks with weak patterns that are a play on the idea the global growth spurt has to slow. Fed action won't necessarily cure their ills overnight as say the banking sector which is much more interest rate sensitive.
The sum of all of this is that it remains a volatile period with the market turning quiet after a very raucous 4 weeks. After the selling, the Fed intervention, and the rebound, this quiet action is trying to lure you in. As always, if we see strong stocks in solid position to move higher or weak stocks that are the type that will fall even with the Fed in the background, we will take advantage of the situation. At this point we are not trying to load the boat and make a killing, just taking what is given until the market starts to play its next hand.
Support and Resistance
NASDAQ: Closed at 2508.59
Resistance:
2509 is the January 2007 high
2531.42 is the February high (post-2002 high); 2525 intraday
The 50 day EMA at 2576
2601 is the mid-May intraday peak.
2624 is the October/December trendline
2634.60 is the June peak
The November/December/February up trendline at 2664
2673 is the early July high
2680 is the November/February up trendline
2725 is the July high
2778 from a July 1999 peak
2887 from a September 1999 peak
2920 from an October 1999 peak
Support:
The 200 day SMA at 2500
2450 is some price support from November and December 2006
2400 is price support
2390 is that old trendline from August 2004 to May 2005, and it held on the Thursday low.
S&P 500: Closed at 1445.55
Resistance:
The 200 day SMA at 1455
1461.57 is the February 2007 high.
1475 from peaks in December 1999 and January 2000
1480 is the July 2006/March 2007 up trendline
The 50 day EMA at 1483
1490.72 is the early June closing low
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
1559 is the late November to February up trendline
Support:
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 - 70 from March 2007 low
Dow: Closed at 13,121.35
Resistance:
13,121 is minor support from the April peak
The 10 day EMA at 13,143
The 50 day EMA at 13,382
The 90 day SMA at 13,395
The mid-May peak at 13,556
13,655 is the November/February up trendline that marks the lower channel.
13,690 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:
12,975 is the July 2006/March 2007 up trendline
The 200 day SMA at 12,846
12,796 at the February 2007 high
12,500 is the December 2006 peak
Economic Calendar
These are consensus expectations. Our expectations will vary and are discussed in the 'Economy' section.
August 20
Leading Economic Indicators, July (10:00): 0.4 versus 0.4% expected, -0.3% prior
August 22
Crude oil inventories (10:30): -5.1M prior
August 23
Initial jobless claims (8:30): 320K expected, 322K prior
August 24
Durable goods orders, July (8:30): 1.0% expected, 1.4% prior
New Home Sales, July (10:00): 825K expected, 834K prior
End part 1 of 3
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