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world stock market, us stock market
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8/27/07 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: BIDU; CMED
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 pauses to backfill last week's gains on continued low volume.
- Existing home sales are down; they beat expectations but still a glum report.
- FOMC minutes won't give much insight to the current Fed's current state of mind.
- The test of the bounce is at hand
Soft start, positive rebound, then an afternoon fade.
There was some M&A activity again as X and Canadian company Stelco hooked up while Acer bought GTW. Recall when GTW was the number three PC maker? Feel like an old timer reminiscing ("Back in my day we didn't have no Acer computers"). Analysts were active on a Monday, upgrading AMZN, downgrading SWY in the grocery sector. WMT is said to be considering acquisitions for the first time in 25 years or something like that.
Some positives, but it was not enough to turn the market upside as futures continued to languish lower. It didn't help that a survey of 'top' economists now placed the credit and sub-prime issues as a bigger economic threat than terrorism. Eventually they had to get worried about something else, and a bit of scare in the economy is a good way to force a change. YRCW (trucking) CEO, something of a regular fixture on CNBC now, splashed some more cold water, stating that both its manufacturing and retail business was slowing. It said its visibility was just 6 to 8 weeks, but that the rebound in the economy had not delivered the rebound in shipping the company was looking for. If that was not enough, July existing home sales were down again with inventories at 9.6 months.
With the market already tired after a week of rebound gains, the wet blanket news snuffed out any early upside potential. After the home sales number the market continued to sell, but it hit bottom midmorning and put in a short intraday double bottom. That bounced the market higher, and by mid-afternoon DJ30 turned positive while SP500 was flat. Didn't last. Sellers returned and took the indices lower. Another bounce attempt in the last hour looked promising. Then the sellers returned with 10 minutes left and undercut the bounce, sending SP500 to a new session low and DJ30 to its early session low.
Technically you could look at the session in two or more ways, and you would likely be at least part right. The day in and of itself was a light volume pause after a weeklong rebound took SP500, DJ30 and NASDAQ up to their 50 day EMA. Logical place to take a breather. As noted, trade was lower so there was no real dumping of any stocks after the bounce. Breadth expanded to the downside, but it was not as strong as the upside breadth on Friday's gain. Again, nothing there to indicate a run from stocks. Thus looking at just the day itself it did not appear nefarious.
That is just part of the story, however. You have to look at where stocks and the market are and where they came from. They are at resistance (50 day EMA and prior price resistance) after a low volume, weeklong bounce that has recovered roughly 50% of the losses after a high volume slaughter on fears of a credit crisis. There are some potential head and shoulders topping patterns on SP500, SP600 and NASDAQ. DJ30 has rebounded to the point where it collapsed from its own head and shoulders top in early August. In short, they are not holding strong technical hands.
This exercise shows that Monday was not just a low volume pause during a continued upside run. Might turn out to be that, but it has to overcome some pretty unfavorable odds to do so. There is one other consideration here that takes the action at least part way out of the technical realm only: the genesis of this selling was fear of a financial crisis. The market sold, it sold near redemption period for hedge funds, and there was a lot of fear associated with that. That forced selling as hedge funds raised cash to avoid having to close the doors if there was a run on them as a result of the crisis fears and the resultant selling. Now the Fed has stepped in and has indicated it is now concerned more about the economy than inflation.
That is the wild card, the element that can take the market out of the purely technical world when there are financial events involved that have not already degraded the economy to the point of recession. The market is, right now, chewing that one over as it pauses after that initial rebound from the selling. How it reacts here tells us if it is going lower to test again or not. As pointed out before, even in the 1998 financial crisis when the Fed stepped in, the market still sold to test that first low. Thus even with the Fed in the game the near term result is not a done deal. Many are saying the market has put in a low at this point. It could very well have done that, but that does not mean it is not going to test that low once more. That is the typical case.
What will make the difference to the market is whether the Fed goes ahead and cuts the Fed Funds rate as opposed to just the discount rate. The odds of it doing that right now don't seem high; indeed, it would likely take the next dump lower to jack of fear for a cut. Thus you likely don't get the cut without more harrowing issues confronting the economy and financial markets. Hopefully, even if the market tests, the Fed won't cut at that point. That would help near term, but it would not be the best timing for credibility reasons. Bernanke is a Fed historian and he knows what has gone wrong in the past (little has gone right when the Fed intervenes, so it takes a lot of studying to know the results of Fed action), and a key one is losing credibility by either appearing to panic on the one hand or by refusing to acknowledge facts on the other hand. Thus far he has skated through his first two years similar to an Olympic champion so we are not expecting an overreaction here.
THE ECONOMY
July existing home sales continue to 'suck.'
Home sales fell 0.2% to 5.75M units. That was hair better than expected and a hair lower than June. Great, better than expected. Of course expectations are in the gutter, so a slight beat instills little gusto.
The numbers: the number of starts was the lowest since 11/02. Sales were down 9% from last year. Prices fell 0.6%. Inventories surged 5.1% to a 9.6 month supply (4.59M), the highest level since September 1990 when Bush I and his 'no new taxes' tax hike landed us in a recession. Good move dad. Wasn't much of a recession, but it was enough to hand the White House to Clinton who used the 'worst recession since the Great Depression' (oh brother) and was smart in not getting in the way of a recovery. He raised taxes as well, and that ultimately contributed to the end of the boom, but he did cut capital gains taxes to help the expansion survive a bit longer.
But I digress (man did I ever). The point is the housing market, despite some stronger new home sales in July is still struggling as the large part of the market, the existing home sales continues to struggle. Durables for July looked good despite the weakness in housing. The question is whether the rest of the economy outside housing can weather the downturn. Thus far the numbers say they are, but anecdotal evidence from other areas (e.g. the YRCW CEO in trucking) indicate that is not the case.
Interesting thing about trucking, however. Recall back in the fall 2006 we reported that trucking CEO's were lamenting the lack of strength in pre-holiday orders, and if they did not pick up the likelihood of a good holiday season and economy diminished. This was in the second half 2006 slowdown but it is interesting to note that the economy did make it through that pessimism that never saw the trucking levels hit what the CEO's considered good enough to sustain the economy. Point: it is not a given when a trucking industry CEO says things are not good enough.
THE MARKET
MARKET SENTIMENT
VIX: 22.72; +2
VXN: 22.63; +1.94
VXO: 21.95; +1.55
Put/Call Ratio (CBOE): 0.98; -0.09. Back below 1.0 on a downside session. That is only the third close below 1.0 in 26 sessions.
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: -15.44 points (-0.6%) to close at 2561.25
Volume: 1.342B (-19.13%). Volume was holiday low Monday, the lowest since the selling abated. Good to see on the downside as it at least indicates no increase in selling once again.
Up Volume: 482.687M (-878.313M)
Down Volume: 845.474M (+546.474M)
A/D and Hi/Lo: Decliners led 1.76 to 1. No slouch but much less than the advancing breadth Friday. Not a lot to hang your hat on but some firming.
Previous Session: Advancers led 2.23 to 1
New Highs: 68 (+10)
New Lows: 67 (-4)
NASDAQ CHART: http://investmenthouse.com/ihmedia/NASDAQ.jpeg
After clearing the 50 day EMA (2571) on the Friday close NASDAQ gave up that level and some ground, but trade was very light and it is not threatening an immediate rollover based on the session. The momentum it showed to end last week dissipated fairly quickly but it did not turn to heavy selling. NASDAQ is still in the lower reaches of its May to June consolidation range. Resistance remains overhead at 2600 and onto 2626 to 2632. On a continued test you want to see it hold near 2550 to 2540ish and then a new run higher. 2530 would do (the February high), but if it backslides too much it is going to find it easier to slide on down and test that prior August low.
SOX (-1.65%) faded back through last week's lows and undercut the February high. Heading back to the 200 day SMA (485.20).
SOX CHART: http://investmenthouse.com/ihmedia/SOX.jpeg
SP500/NYSE
Stats: -12.58 points (-0.85%) to close at 1466.79
NYSE Volume: 1.104B (-6.31%). Lower volume was well as the NYSE indices fell back. As with NASDAQ, holiday light volume. Really very, very light, barely cracking 1B shares.
Up Volume: 252.126M (-750.579M)
Down Volume: 840.517M (+671.565M)
A/D and Hi/Lo: Decliners led 2.44 to 1. Breadth was solidly negative here as the small caps struggled, but as with NASDAQ, the Friday upside breadth was stronger than Monday's downside move.
Previous Session: Advancers led 3.43 to 1
New Highs: 41 (+12)
New Lows: 63 (+8)
SP500 CHART: http://investmenthouse.com/ihmedia/SP500.jpeg
The large caps closed at the 50 day EMA (1480) and the July 2006/March 2007 up trendline. They peeled back from that Monday as you would expect from a low volume rise to such resistance. Testing on very low volume, heading toward a test of the 200 day SMA (1457) and that will be the key test of this rally.
The small cap SP600 (-1.07%) sold back sharply from the 50 day EMA test where it closed on Friday, landing on the 200 day SMA at the close. Back to the starting point for the small caps in the handle of their base.
SP600 CHART: http://investmenthouse.com/ihmedia/SP600.jpeg
DJ30
The blue chips fell back from the 50 day EMA (13,359) Monday as they tested the solid rebound from last week. Volume was lower as the Dow tested, and that is what you want to see, though at this level volume is barely registering. As with NASDAQ, DJ30 is in the lower reaches of its May/June consolidation range. If this move is going to hold you need to see the blue chips make a stand near 13,250, the bottom of that aforementioned range.
Stats: -56.74 points (-0.42%) to close at 13322.13
Volume: 152M shares Monday versus 186M shares Friday. Low volume turns lower. Really lower.
DJ30 CHART: http://www.investmenthouse.com/ihmedia/DJ30.jpeg
TUESDAY
Consumer confidence at 10ET and FOMC minutes at 2:00ET will not go unnoticed, but the meeting the latter transcribes was before the Fed's change of policy released contemporaneously with its cut of the discount rate. It will be interesting to see, however, what the Fed was saying in discussing the housing and credit issues at this juncture, and whether it felt they were of any greater concern.
Outside of that it is market action, particularly how it continues the test of the prior bounce. The indices have taken back half of the losses and investors are now surveying the field as the bounce pauses at resistance.
There are many good stocks that continue their positive ways. Monday saw more continue their recovery, several on strong volume (e.g. CTRP, CMED) while others broke out (BIDU, SNDA). Those tickers in themselves, however, are all Chinese related. That was not the only sector moving Monday (e.g. FTK, NVDA), but it shows at this juncture the market's selectivity: it is still focusing on the stronger earnings growers and they are getting new money versus having money pulled from them.
Thus we moved in when we saw good moves even as the overall market paused to test the recent rebound and remains below resistance. These stocks are working well, breaking higher on strong volume, and when the market shows you these stocks you act. With continued strength in a very decent range of leaders the market possesses some underlying strength even with that heavy volume hedge fund selling in early August. Thus even with a test by the overall market, this strength in a solid cadre of leaders suggests a test won't be a breakdown but a test and confirmation that the prior august low was the bottom.
That leaves us looking for more solid leaders breaking higher; we still have many of those on the report, and at the same time patiently watching to see if the indices turn back down and break support for another run lower to make that test. If they do we are looking to play that move as well; should be fast, and there are other stocks that are in excellent shape to fall quickly if the market turns back down again.
Support and Resistance
NASDAQ: Closed at 2561.25
Resistance:
The 50 day EMA at 2572
2601 is the mid-May intraday peak.
2632 is the October/December trendline
2634.60 is the June peak
2670 is the November/December/February up trendline
2673 is the early July high
2698 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 2506
2450 is some price support from November and December 2006
2400 is price support
2399 is that old trendline from August 2004 to May 2005
2386 is the August intraday low
S&P 500: Closed at 1466.79
Resistance:
The 50 day EMA at 1480
1485 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:
1475 from peaks in December 1999 and January 2000
1461.57 is the February 2007 high.
The 200 day SMA at 1457
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 13,322.13
Resistance:
The 50 day EMA at 13,359
The 90 day SMA at 13,423
The mid-May peak at 13,556
The early July peak at 13,671
13,690 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)
13,715 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
13,015 is the July 2006/March 2007 up trendline
The 200 day SMA at 12,876
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 27
Existing home sales, July (10:00): 5.75M actual versus 5.70M expected, 5.76M prior (revised from 5.75%)
August 28
Consumer confidence, August (10:00): 105.0 expected, 112.6 prior
FOMC minutes, August (2:00)
August 29
Crude oil inventories (10:30): 1.89M PRIOR
August 30
Q2 preliminary GDP (8:30): 4.1% expected, 3.4% prior
Chain deflator, Q2 (8:30): 2.7% expected, 2.7% prior
Initial jobless claims (8:30): 320K actual, 322K prior
August 31
Personal income, July (8:30): 0.3% expected, 0.4% prior
Personal spending, July (8:30): 0.4% expected, 0.1% prior
Core PCE inflation, July (8:30): 0.2% expected, 0.1% prior
Chicago PMI, August (9:45): 53.0 actual, 53.4 prior
Factory orders, July (10:00): 0.9% expected, 0.6% prior
Michigan sentiment, revised, August (10:00): 83.0 expected, 83.3 prior
End part 1 of 3
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world stock market
us stock market
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