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8/23/07 Stock Split Report
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Stock Split Report Subscribers:
MARKET ALERTS
Targets hit alerts: GME; GRMN; ZUMZ
Buy alerts: AMD; SLB
Trailing stops: None issued
Stop alerts issued: BG; GES
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:
- Rebound hits some headwinds, but nothing major . . . yet.
- To test or not to test, that is the question.
- Maybe a quiet Friday in August.
Market bounce takes a pause.
We noted Wednesday that investors sentiment was calming down with investors turning more positive after that plunge lower last week. Thursday the confidence was such that there were some saying that not only did Thursday mark the bottom (it may indeed have) but that there would be no test of that level. The Fed can be a game changer, but that is getting downright cocky.
In any event, futures were up on no real news as the market tried to extend 5 upside sessions to 6. There were some decent earnings (GME blew it out again), CFC in the mortgage market (you know, the company with the orange tan in a bottle, used car salesman attire CEO) receiving $2B in cash from BAC, jobless claims were decent, and oil remained under $70/bbl (69.93, +0.67).
So the market started higher. It immediately started to peel back, however, and it did not stop until the indices were negative. They bounced and the NYSE large caps were positive for much of the session, but in the end, even those stocks could not hold positive. It was nothing heavy; volume was light once more. It was just sluggish, whittling back the opening gains all session. The standout sector was energy; after lagging the entire rebound, the leaders in the sector start to show some life. The best were of course those that did not roll over with the market selling, but that is nothing new.
So technically it was rather quiet session though showing undertones of a low volume bounce wearing thin. A higher open and a lower close; not a drubbing, but when the upside was on lower and lower volume, any slowing in momentum is noteworthy. Now after 5 upside sessions there is nothing wrong with a pause. Indeed if you look at the volume, the price losses, the breadth, and the action of leaders, it was a pause. All showed modest losses on low volume with no breakdowns. No worries, right?
As for the charts, DJ30 and SP500 both showed dojis on the candlestick chart. Heck, they did that Monday and Tuesday, yet continued higher from there with SP500 moving through its 200 day SMA. So, nothing new for this move. Not exactly. A move is made up of its parts, and this rebound has yet to flash any serious upside strength. The doji indicates a potential change in momentum; with a low volume bounce that makes it all the more significant. Still, you have to see the doji confirmed just as you have to see a reversal session confirmed with a follow through. This market has not shown a follow through to the Thursday reversal, now 6 sessions into the rally attempt. Getting toward the high side of days to show a good follow through.
It has not shown a downside break either, however, but the pathetic upside volume does not instill any confidence. And there is that historical pattern of testing the prior low before moving higher. As I said Wednesday, that can happen, but it is rare. With a lot of very crappy looking rebound patterns mimicking the overall indices, the market is leaning heavily on the leadership stocks to pull them through. Leaders lead, but they do need some help.
In sum, the market has not shown its hand on this bounce and it has refused to give in. Nonetheless it has not shown much strength either, and thus we remain skeptical it can continue without another drop lower. In that regard, every upside session it puts in makes the test all the more workable as far as putting in a bottom.
A test or not?
We noted above that some on Thursday were questioning whether a test would occur at all. One of the arguments I heard was based on the amount of time that passes before a test. The theory was the longer a market moved without making the test, the less likely the test would be. That makes sense: if a market never tests after a selloff and rebound, there is little likelihood of a test.
As noted, there are occasions where the market makes a knifepoint turn and never looks back. The Fed might provide the catalyst for that type of move, but on the past few occasions when the Fed jumped in the market still tested after that initial recovery. It would have to be a major event, and history has shown that, while big, Fed action does not override the need to test.
What about this time thing? Is 5 days enough to scratch a test? Well, the very thing that we have looked for is a rebound that lasts more than a week as that sets up a better, more likely successful, test. Even two weeks is not bad. In March there were seven upside sessions before it started to test. Hmm. 7 is more than 5 and it still tested. In June 2006 almost 3 weeks of upside transpired before a test of that first low. You can go back to each correction through 2004 and rarely is there one without a test. We could look further but why bother? This 5-day equals too long for a test to occur theory is basically crap. If you look back to the last time the Fed acted to stave off a financial crisis, back in October 1998, that bear market correction ended with a classic double bottom.
So much for the argument that 5 days of upside means no test of the prior low is coming.
THE MARKET
MARKET SENTIMENT
VIX: 22.62; -0.27
VXN: 22.03; +0.03
VXO: 22.67; -0.01
Put/Call Ratio (CBOE): 1.16; +0.07. Second day above 1.0, making it 22 out of the past 24. Didn't take long to jump up with a hint of selling. What we are hearing is that there are buyers that are going long but buying a married put with the buying. That means the same thing as high put buying overall: there is still nervousness about the market.
Bulls: 40.6%, down from 43.8% where it sat for two weeks. Nice drop from 53.9% just a month back. It is well below the March level on that market decline, hitting the low for the year. Getting toward that sub-40 move we were looking for. Hit 56.7% hit two months back 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: 37.4%. Sharp jump resumed, bouncing from and up from 18% just a month back. This tops the June 2006 peak. 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: -11.1 points (-0.43%) to close at 2541.7
Volume: 1.653B (-9.2%). Volume was lower, continuing the week of low volume as NASDAQ rebounded off last Thursday's low. The low volume on the selling is good as it shows no heavy dumping. No buying on the upside, no heavy dumping as it paused. Just a bounce to this point, but the sellers are reluctant to rush in.
Up Volume: 684M (-792M)
Down Volume: 907M (+566M)
A/D and Hi/Lo: Decliners led 1.53 to 1. Were worth than the price loss would indicate.
Previous Session: Advancers led 2.27 to 1
New Highs: 54 (-6)
New Lows: 68 (-11)
NASDAQ CHART: http://investmenthouse.com/ihmedia/NASDAQ.jpeg
Gapped higher on growing enthusiasm, but the large caps that led it higher the past two sessions were not moving and thus the index faded. Tapped the 10 day EMA on the low and then rebounded to hold at the 18 day EMA on the close. That keeps it at the May and June lows and below the 50 day EMA (2572) it tapped toward on the initial surge. Still looks weak. The question is whether it comes back to the 200 day SMA (2505) and holds or heads lower.
SOX (-0.74%) turned back from the 18 day EMA, closing right at the late February high. Basically no change for the chips, though they are not in a position of strength.
SOX CHART: http://investmenthouse.com/ihmedia/SOX.jpeg
SP500/NYSE
Stats: -1.57 points (-0.11%) to close at 1462.5
NYSE Volume: 1.241B (-13.15%). Lowest volume of the rebound as the NYSE indices showed no advance. As with NASDAQ, no dumping, but just not much upside interest either.
Up Volume: 535.198M (-613.953M)
Down Volume: 633.125M (+399.964M)
A/D and Hi/Lo: Advancers led 1.01 to 1
Previous Session: Advancers led 3.93 to 1
New Highs: 25 (+1)
New Lows: 58 (-16)
SP500 CHART: http://investmenthouse.com/ihmedia/SP500.jpeg
The day after moving through the 200 day SMA (1456) the large cap index tapped that level on the low and rebounded to close flat. That shows there was a little pop in that support level though the volume showed there were not many in the game. SP500 is holding right at the late February peak, trying to make a test of that level and the 200 day SMA hold. It is still in the game, but that doji suggests a momentum change and with the low volume on the move up we have to watch for a break below the 200 day SMA over the next few sessions.
SP600 (-1.17%) rallied up tot eh 50 day EMA on the high and then rolled back down to undercut the 200 day SMA the day after it took that level. The light NYSE trade shows no distribution, and the double bottom pattern is still setting up. Again, it is important for the small cap index to clear 423 on this move to top the February peak and break up that head and shoulders.
SP600 CHART: http://investmenthouse.com/ihmedia/SP600.jpeg
DJ30
Similar to the SP500, the blue chips showed a doji on the session accompanied with some low volume. This occurs right at the May, June and late July lows marking the neckline of that head and shoulders top that sent DJ30 lower on that plunge to 12,500. Low volume bounce after high volume selling, doji at key resistance. Sure has the look of a move lower to test that prior low.
Stats: -0.25 points (0%) to close at 13235.68
Volume: 198M shares Thursday versus 205M shares Wednesday. Lowest trade of the rebound as it bumps resistance.
DJ30 CHART: http://www.investmenthouse.com/ihmedia/DJ30.jpeg
FRIDAY
Some more economic data with durable goods orders before the open and July new home sales at 10:00ET. Not necessarily market moving but with a better mood regarding the market some solid data won't hurt, particularly as the Fed is not going to be providing the kind of gracious moves it made last Friday.
Volume will likely to be light now that the market is back to more of a late summer routine. That is, unless the hedge funds start to use the 5-day rally to sell given the end of the month is just the following Friday, right ahead of Labor Day. We anticipate more selling for redemption purposes, and though it will likely wait until next week, with the dojis on SP500 and DJ30 we need to be somewhat wary.
If nothing happens Friday and stocks hold the status quo, i.e. holding the rebound though not in great shape, we will likely let the stronger leaders ride into next week, but with the rebounders that are struggling at resistance we will look to close some more versus risking a Monday gap lower. Despite the Fed being in the bullpen, there is nothing to suggest that it will act over the weekend. Indeed, the Fed probably views things as better off and won't act unless things appreciably worsen once more. Basically some risk management and wanting to be ready to react to a move higher by leaders if that occurs or to a downside move if this low volume bounce gives way as it sure looks it will.
We could always be wrong; once you are pretty sure the market is going to do one thing it does the opposite. It likes to keep you on your toes. Nonetheless, despite predictions of no test necessary because 5 days have elapsed and more confidence about the future (indeed because of that as well) we are still looking for a downside move unless an awful lot of buyers turn up. As we anticipate more selling from the hedge funds as investors request redemptions (look at that spike in bears to 37.4%), we want to cull through the positions and be leaner if that occurs. If it does not, well, we are ready to buy into the best and the strongest as they make their moves.
Support and Resistance
NASDAQ: Closed at 2541.70
Resistance:
The 50 day EMA at 2572
2601 is the mid-May intraday peak.
2628 is the October/December trendline
2634.60 is the June peak
2667 is the November/December/February up trendline
2673 is the early July high
2690 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:
2531.42 is the February high (post-2002 high); 2525 intraday
2509 is the January 2007 high
The 200 day SMA at 2504
2450 is some price support from November and December 2006
2400 is price support
2396 is that old trendline from August 2004 to May 2005
2386 is the August intraday low
S&P 500: Closed at 1462.50
Resistance:
1475 from peaks in December 1999 and January 2000
The 50 day EMA at 1481
1482 is the July 2006/March 2007 up trendline
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
Support:
1461.57 is the February 2007 high.
The 200 day SMA at 1456
1440 is the mid-January high
1427 represents some interim peaks from December 2006 and the early August low
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 13,235.88
Resistance:
The 50 day EMA at 13,360
The 90 day SMA at 13,411
The mid-May peak at 13,556
The early July peak at 13,671
13,680 is the November/February up trendline that marks the lower channel.
The mid-June high at 13,689
The early June high at 13,676 (closing), 13,692 (intraday)
13,710 is the upper channel line in the November/February channel
The July high at 14,022
Support:
13,121 is minor support from the April peak
13,002 is the July 2006/March 2007 up trendline
The 200 day SMA at 12,864
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): +1.9M actual versus -3.2M expected, -5.1M prior
August 23
Initial jobless claims (8:30): 322K actual versus 320K expected, 324K prior (revised from 322K)
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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