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us stock market, trade stock
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8/21/07 Stock Split Report
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Stock Split Report Subscribers:
MARKET ALERTS
Targets hit alerts: None issued
Buy alerts: ISRG
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 posts another modest gain but without much overall change as market rests in the eye of the storm.
- More Fed intrigue as Bernanke, Paulson meet with Senator Dodd.
- Wages are still growing and the retailers showed it Tuesday.
- Market can still provide a follow through before a test of the prior low and there are strong leaders trying to do just that.
Modest rebound continues as large cap techs jump, but overall market remains status quo.
The day started soft and though we were somewhat dubious, as is often the case, a soft start led to some buying. It was not a market-wide swoosh higher (heck, even NKE, the inventor of the swoosh, was down), just more of the same as seen Monday, i.e. some downside intraday and then a recovery into the close that sent most of the market back to positive. There were some great individual movers with most, though not all, concentrated in the large cap techs that enjoyed a very solid session, helped by a strong upgrade of AAPL.
By the close all but DJ30 (-30 pts) and SOX (-0.11 pts) closed positive. That did not change their status, however. SP500 is still using its finger nails to hang on just below the 200 day SMA, same as SP600, while NASDAQ posted a rather watered down move off of its 200 day. Basically the market, in general, moved a bit higher in relief as it continued the post-hedge fund selling storm.
Why the hurricane analogy?
Given the hurricane season picking up, it seemed appropriate. More to the point, however, the selling two weeks back during all of that uncertainty regarding mortgages and credit issues as the hedge funds sold everything in sight to raise money in order to avoid closing the doors when the redemptions started to hit on August 15. The uncertainty created selling, and when the funds' black box programs started putting them in short positions when the market rallied and long positions when it sold, they knew they had to raise money to avoid the fate of those three BSC funds that went belly up. The selling snowballed and rolled over everything regardless of the actual news underlying the selling. The sub-prime story and the credit issues were not bad, but the uncertainty as to the outcome opened the door, and with that the flood came on in. As a result the hedge funds needed money, and they were selling whatever they had that they could indeed sell to raise cash.
That selling ran its course; it always does because it is hard to keep up such a torrid pace, upside or downside. After they got enough cash, and as a result of the Fed stepping in on Friday morning, the selling abated and the market rebounded off those lows. Indeed, it started to rebound Thursday after the sentiment indicators hit extremes and DJ30 hit -10% on the downside from its high. During this 'calm' the indices have rebounded to recoup some of the losses. The sellers are not stepping in with any intent; they need to see what redemptions actually come and also what the Fed's next move is. They don't want to sell short with the Fed in the game after removing its inflation bias and ready to move again.
Thus we are in the calm period, the eye of the storm. The Tuesday action did not change anything with respect to the market. It was another low volume, overall quiet session with the Fed bid pushing stocks modestly higher by the close. SP500 tried the 200 day MA from the downside again, but it could not push through. You could call it consolidating, but more like hanging on for life at this point. This is the second day of lateral action below resistance as the large caps mark time to see what the Fed does next as well as the hedge funds.
During this time stocks are rebounding from the torching. Some are breaking higher and moving through resistance or bouncing off of support they tested during the selling. Those are the good strong leaders. Others are just bouncing back from the tail-kicking that sent them into massively oversold conditions. That is most of the market.
So why is the market in the eye? Because we expect more redemption related selling toward the end of August. You may or may not recall last week when all of this selling was peaking and sentiment was getting extreme we said that it would end in a few sessions but that the sellers would be back toward the end of the month. There will be some more redemption selling, and that will ratchet up the volatility once more and again show us how wild August and September can be.
In the bigger technical picture, this is all part of the necessary process of bottom building. The sharp sell off, the rebound, the pause after the rebound to see if the buyers come back in, then another drop to test the initial plunge lower. That second move is what you are looking for to finally set the bottom. You want the market to continue this rebound for a few more sessions and then make the test lower. That rather conveniently coincides with the end of the month and the likely renewed redemption selling as the hedge funds make sure they have enough funds on hand. As noted, that selling is the one you look for to test the prior lows to try and cement the bottom.
Remember, on the first run lower sentiment was extreme on all fronts. VIX jumped up to 37.5, the put/call ratio closed over 1.0 for 20 straight sessions, bears surged, bulls fell, the newspapers and magazines led with stories about the housing and credit contagions, and we heard the 'unprecedented' utterances. On top of that the technical and internal indicators were positive as well as new lows spiked over 1000 on NYSE, breadth was massively weak, the indices hit 10+% losses. In short, the groundwork has been laid for a bottom to be put in. The only question is whether the Fed has stepped into the breach in time to grease the wheels and keep the economy strong, containing this to just a financial situation and an issues that impacts less than 1% of all of the mortgages in the US.
THE ECONOMY
Dodd dampens likelihood of near term cut as he stumps for presidential votes via his Bernanke/Paulson meeting.
There was little on the economic front Tuesday in terms of scheduled reports. Still, the Dodd/Paulson/Bernanke meeting was important economic news as the three discussed the mortgage and credit situations. Dodd noted that Bernanke indicated he wanted banks to utilize the discount window and the Fed-injected liquidity more to alleviate the conditions. Thus out of the meeting came the notion that the Fed might be inclined to ratchet up the incentives to get banks to the table and better rebuild the market for all types of paper and thus break through the logjam. Indeed after Dodd's press conference the market rebounded to its highs for the session. Of course it faded as the reality that the Fed likely won't do much on the heels of the meeting in order to avoid looking overly political. It is a government agency; independent or not it is all about politics.
TrimTabs earnings data tells the real story.
There is a lot of rhetoric in a political campaign regarding how bad off the average family is in the US. It makes for very good copy when you can tap into some general current of unrest and label it as an unequal sharing of the wealth, or pose it as some being left behind while the economy rolls on. It is effective. As history shows with respect to the US economy, however, it is often wrong.
It is a favorite theme and you hear it in all of the debates. It is a talking point for democrats; it always has been and not just in this election. The idea that someone is taking what you should be getting, i.e. taking part of your due is quite appealing, and in a nation that now asks the question what can my country do for me versus what can I do for my country, it is a great way to votes.
The data, as often is the case, undermines the political fodder. Trim Tabs has released the latest data with respect to wage rates in the US. Year over year wages are up 7%. Those are strong gains and as if on cue, the specialty retailers and the product makers (e.g. AMZN, CROX, UA, ZUMZ) shot higher.
Once more a strong economy does what a strong economy does. A few years ago the recovery was denied until it was absolutely ludicrous to do so. Tax receipt growth as a result of the tax cuts was denied until it was impossible to do so. Wage growth is being denied, but the tax revenues are surging with tax cuts and wage growth stats continue to climb. It is hard to deny this as well. Let's find something else to deny.
THE MARKET
MARKET SENTIMENT
VIX: 25.25; -1.08. Has come back to test and hold the 18 day EMA after that spike to 37.50. Nice, neat test, setting up for the end of the month that should spike it again.
VXN: 23.67; -1.53
VXO: 25.37; -0.25
Put/Call Ratio (CBOE): 0.91; -0.01. Second day below 1.0 after 20 straight 1.0+ closes. As noted before, its work is done for now.
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: +12.71 points (+0.51%) to close at 2521.3
Volume: 1.715B (+1.93%). Volume edged higher on the gain but it was so far below average that it was insignificant.
Up Volume: 1.012B (+2M)
Down Volume: 693M (+5M)
A/D and Hi/Lo: Advancers led 1.09 to 1. It was all large caps as the NASDAQ 100 posted a 0.95% gain, far outpacing NASDAQ and the rest of the market.
Previous Session: Advancers led 1.06 to 1
New Highs: 44 (+3)
New Lows: 96 (-9)
NASDAQ CHART: http://investmenthouse.com/ihmedia/NASDAQ.jpeg
NASDAQ moved off of the two dojis at the 200 day SMA (2502), leading the market higher. No volume to back the move, however, and unless it gets some trade it is going to have some trouble at the resistance from 2550 to 2600. It is all resistance at this point and it has a lot of work to do to dig its way out. Again, starting at the 2550 level the resistance is sufficient to stall this low volume move and send it back down to test last week's low. Would prefer to see it move higher for another 3 to 5 sessions to really provide a sufficient peak to test from.
SOX (-0.02%) went nowhere, showing a tight doji at the 10 day EMA after three days of reversal and recovery. This puts it right at the February peak; pretty modest bounce if that point is putting brakes on its ascent. The chips really fell off the front lines in this selling and have yet to get back up.
SOX CHART: http://investmenthouse.com/ihmedia/SOX.jpeg
SP500/NYSE
Stats: +1.57 points (+0.11%) to close at 1447.12
NYSE Volume: 1.351B (-12.07%). Volume was summertime low, even lower than Monday's low, below average trade. No trade on the test of the 200 day SMA as the NYSE runs low on rebound fuel, but it is also pausing after the bounce, something it does as well as it waits for a follow through session.
Up Volume: 460.853M (-357.771M)
Down Volume: 340.903M (-361.151M)
A/D and Hi/Lo: Advancers led 1.55 to 1. Not bad, basically matching Monday.
Previous Session: Advancers led 1.51 to 1
New Highs: 21 (+1)
New Lows: 94 (-5)
SP500 CHART: http://investmenthouse.com/ihmedia/SP500.jpeg
SP500 tapped the 200 day SMA on the session high and then slid back to flat. No volume to push it through that key level. Technically it is a weak pattern what with the plunge lower and the rebound on lower volume, stalling out below key resistance at the 200 day and the February peak (1462). With the market surging back off of a screaming plunge (you heard all of the screaming in the sentiment indicators), however, you also look to see if it tries a follow through before the next test. Either way, however, we do anticipate a test of that prior low to help put in the bottom, and the question is whether it does so from here or from a higher point.
SP600 (+0.21%) also tried its 200 day SMA and it too could not push through, but as noted Monday, it is working on a handle to a short double bottom. A breakout would push it through the 200 day. Now would this not be irony: the small caps leading the market back up with the first clean breakout move? It will have to prove it, but if it holds and forms a bigger handle as the market sells back it will be in the leadership on the way back up. It still has to clear 423 with strength to break up that big head and shoulders trying to set up.
SP600 CHART: http://investmenthouse.com/ihmedia/SP600.jpeg
DJ30
The Dow rallied to the same point it hit Monday and turned back over to close below the 10 day EMA (13,134) once more. It is on the rebound from the 10.7% decline and the last hard 1200 point dive two weeks back, and it is stalling here below the neckline at 13,250. As with SP500, technically it is in a weak position. It also held the 200 day SMA on the closes, however, and it is in the process of trying to bridge that interim point between the sell off and the next test. It still looks weak and we are ready to play it on the next run lower, but as with SP500 it is a matter of where it starts the move, i.e. after a break higher to 13,250 to 13,365 or even 13,500 to 13,676.
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
WEDNESDAY
Crude oil inventories are the only scheduled economic data, but the possibility of Fed-speak is always there as is, of course, the idea of Fed action. As noted above, however, the likelihood of any near term action after the Dodd meeting is remote.
That leaves the market pretty much to its own devices with SP500 under the 200 day SMA and DJ30 bumping lower resistance, all on very low volume. The market is in a pause after the plunge and the sharp reversal, i.e. in the eye of the storm. Market leaders from several sectors are making moves higher, using the pause to put in some nice upside. Technology, retailers, construction the list is varied. Most of the market has rebounded from the selling, but after the initial surge they are drifting on lower trade, slowing as they bump into former support that is now acting as some resistance.
Looks like two different roads being followed, and to some extent that is exactly what is happening, but if things work out the roads actually merge. The leaders used the selling to correct back but did not collapse. They held support and are now jumping right back up as buyers move in to pick up these strong stocks for their longer term holds. The rest of the market continues to work on new bases similar to the indices, having broken down in the selling, reclaiming some lost ground, but still needing more work to finish the job. If this is the bottom of this correction then the leaders will test again on the leg lower to test the prior low, but once more they will be dealing from a position of strength. The others will be hit again, but as with the indices, they should hold near the prior lows and continue working on their bases. It may take a few more weeks after the selling to complete their bases just as it may take the market a similar period of time to do the same. Ultimately they will make the breakouts as well, however, just as we saw in the last recoveries from corrections.
That is the road that converges if the market can cement the bottom around last week's plunge lower. It has the credentials to do so, and with the Fed in the mix it is hard to start writing off a recovery. Of course the Fed could be too late and the problems could be too deep, and thus the economy too wounded to support the market discounting more growth ahead. That will all play out as the market tries to finalize the bottom over the next few weeks.
In the interim we picked up some positions in strong stocks again today, and we will continue to look for those to add to. At the same time we have some downside plays that are primed to fall on the next leg lower, and as noted above, we believe it is only a matter of time before they make that fall and the question is from what level they turn back from after this rebound in response to that heavy selling last week.
Support and Resistance
NASDAQ: Closed at 2521.30
Resistance:
2531.42 is the February high (post-2002 high); 2525 intraday
The 50 day EMA at 2574
2601 is the mid-May intraday peak.
2625 is the October/December trendline
2634.60 is the June peak
The November/December/February up trendline at 2665
2673 is the early July high
2685 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:
2509 is the January 2007 high
The 200 day SMA at 2502
2450 is some price support from November and December 2006
2400 is price support
2392 is that old trendline from August 2004 to May 2005
2386 is the August intraday low
S&P 500: Closed at 1447.12
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 1482
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
1560 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
1370 is the August intraday low
Dow: Closed at 13,090.86
Resistance:
13,121 is minor support from the April peak
The 10 day EMA at 13,134
The 50 day EMA at 13,371
The 90 day SMA at 13,400
The mid-May peak at 13,556
13,670 is the November/February up trendline that marks the lower channel.
The early July peak at 13,671
13,695 is the upper channel line in the November/February channel
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:
12,980 is the July 2006/March 2007 up trendline
The 200 day SMA at 12,852
12,796 at the February 2007 high
12,518 is the August intraday low
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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