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money investment, financial investment
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8/29/07 Investment House Alerts Report
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IH Alert Subscribers:
MARKET ALERTS:
Targets hit alerts: None issued
Buy alerts: IBM; RIMM; ZUMZ
Trailing stops: FTK
Stop alerts issued: None issued
SUMMARY:
- As fast as it started the Tuesday selling turns to Wednesday buying.
- Quiet economic day ahead of end of week rush and Friday Bernanke address
- Hard to stay away when the leaders keep showing such good stuff.
If this is Wednesday it must be an up day.
The market turned sharply lower Tuesday with SP500 undercutting its 200 day SMA as more worries of sub-prime defaults and recession were the headlines. The test was on. Wednesday there was a lack of such news. More than that there were some positive stories, good stories. STX, a disk drive maker, said business was good and it raised its guidance. Apple said it was going to announce some new products on September 5.
Futures were up on the news, but it had the look of a relief bounce after the Tuesday selling. Stocks started higher and within 10 minutes they were testing. So soon. Looked as if the bounce higher to open might die young. The market was still testing an hour into the session when the oil inventories were released. Inventories fell much more than expected, dropping 3.5M bbl (-1.25M expected) for oil and 3.6M for gasoline (-1.7M expected). That caused another shiver in the market, but it did not last. The indices made a higher low and then started back up. A half hour later and they passed the opening high. The test had held and the rally had survived.
Of course there was another test to come. No rally in this market goes untested. Just before lunch the market hit a new peak for the session and started to fade. Spent 2 hours doing so, but as the afternoon session got underway it touched and held the opening high. It bounced. At about that time news hit that Bernanke had given Senator Schumer a letter Monday that stated among other things that the Fed stood ready to "act as needed" with respect to the financial markets and the economy. After the talk of recession and an uncaring Fed the session before, this acted as a nice salve for the Tuesday wounds. The indices sprinted higher all afternoon, rising at a 45 degree angle into the close.
Energy started higher and the inventory data only gave it more strength. Early on the energy stocks combined with the techs (e.g. AAPL, NVDA, CSCO, HPQ) and provided the market backbone. That proved to be exactly what he market needed and it brought the other sectors around.
Energy is rather interesting. It has struggled the past two months, but that was after a 4+ month run that made us a lot of money on stocks such as SLB, DO, WNR, etc. In short, the sector surged and needed a period to rest and base out. Looks as that is what has happened as energy was up nicely. Some were saying that the weakness was a sign of the global economy weakening. Interestingly, though oil prices faded after hitting an all-time price high in current dollars (78.77), it never collapsed, holding near the $70/bbl level. If the world economy is tanking, oil would do so as well. What happened was oil hit something of a blow off top in that last run and corrected as did the energy stocks as well. Now oil and energy sector stocks have based out and from the look of the Wednesday action, they are ready to move higher. As opposed to casting negative dispersions on the world economy, it looks as if the energy stocks by their action are telling us the demand for their services is not declining.
There were some great breakouts in energy (e.g. SLB) and some other areas of the market, and a lot of solid stocks rebounded sharply from the Tuesday selling, but there was no overall surge back into the market by buyers. Instead it was more of a steady bid returning after there was none Tuesday. Leaders rebounded sharply from that selling as the likes of AAPL and NVDA posted nice gains and stocks such as RIMM resumed their moves.
Technically the action was almost the mirror image of Tuesday. Instead of breaking the 200 day SMA, SP500 and NASDAQ recovered the 200 day SMA. SP500 lost 34 points Tuesday, gained 31 points Wednesday. NASDAQ lost 60 points Tuesday, gained 62 points Wednesday. If it was lost it was found. NYSE breadth 6:1 Wednesday after -6.4:1 Tuesday. NASD 3.3:1 after -3.8:1. No bid Tuesday due to bad news, bid returns Wednesday as Bernanke says the Fed is watching and ready.
It was not surge back up, just a return of the bid. NASDAQ volume was higher, but that just returned it to some of the low volume levels from last week. Moreover NYSE volume was weaker and still quite pathetic.
Interestingly, though the market is still quite volatile as this week's action demonstrates (after the lull that hit the week before as the market rebounded from the selling), some interesting patterns are setting up. We noted the potential reverse head and shoulders on NASDAQ the past few sessions, and with this bounce off the 200 day SMA the right shoulder is forming. SP500 reversed right spot on at the early August closing low, and that has the potential of putting in a right shoulder in the same type of pattern. These are not foolproof at all, but they often form at the bottom of a sell off or they make the bottom of a cup base.
Given the volatility returning some this week, the market is hardly out of the woods. Indeed, the very volatility that created these patterns could still be a problem for the market overall. Thus we are watching leadership and how it reacts. When the market starts looking as if it is going to do one thing or another but has not made the turn yet it is always fruitful to look at the market leadership. It has been knocked around some as the market sold, but there is no denying leadership is holding its own. Again, how it responds during a test of that prior August low tells much of the story. Tuesday it was roughed up some, Wednesday it was right back in action.
THE ECONOMY
Another lull Wednesday before things heat up with the second iteration of Q2 GDP on Thursday and the PCE on Friday. A tame, indeed, lower PCE is very important at this juncture as the market wants the Fed to have all the space it needs to cut without having to appear it is playing fast and loose with its stated views on inflation even if those stated views are Phillips Curve nonsense.
THE MARKET
MARKET SENTIMENT
VIX: 23.81; -2.49
VXN: 23.61; -2.29
VXO: 23.35; -3.06
Put/Call Ratio (CBOE): 0.96; -0.34. Below 1.0, but that is what you would expect on a day when the indices bounced sharply positive. 24 of 28 above 1.0 during this last run.
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
Nasdaq
Stats: +62.52 points (+2.5%) to close at 2563.16
Volume: 1.669B (+5.52%). Volume picked up the pace as NASDAQ rallied off the 200 day SMA, but in the big picture it was still very, very light trade.
Up Volume: 1.517B (+1.364B). 11.8:1 upside to downside volume (-9:1 Tuesday). Either the bid is there or it is not. Wednesday it was there.
Down Volume: 128M (-1.256B)
A/D and Hi/Lo: Advancers led 3.33 to 1. Heavy down Tuesday, heavy up Wednesday.
Previous Session: Decliners led 3.79 to 1
New Highs: 44 (+3)
New Lows: 84 (+9)
NASDAQ CHART: http://investmenthouse.com/ihmedia/NASDAQ.jpeg
NASDAQ closed just below the 200 day SMA (2508) Tuesday but it did hold some support at 2500 as noted that night. Wednesday it jumped off of that level, reclaimed the 200 day and is back up to challenge the 50 day EMA (2568) and the 90 day SMA (2584). Coming back well but still has a mass of resistance from the 50 day on up to 2635 or so. We were not expecting this bounce after Tuesday, just more of a test of some degree toward the August low another 100 points from the Tuesday close. Now NASDAQ is trying to better set up its reverse head and shoulders try. The leaders got some more volume Wednesday, but it was not blowout. As noted above, it is trying to set up but it is still deep in the woods.
SOX (+2.79%) galloped back through its 200 day SMA as well but it is still so mired in its selling that it is hard to paint much positive. We were reluctant to talk much about the NASDAQ pattern that is forming because we don't want to paint a pretty tough picture as something rosy. You would really have to reach to do so with SOX.
SOX CHART: http://investmenthouse.com/ihmedia/SOX.jpeg
SP500/NYSE
Stats: +31.4 points (+2.19%) to close at 1463.76
NYSE Volume: 1.331B (-4.76%). After volume perked up Tuesday, it was down again on Wednesday as the NYSE indices recovered. You can parse it all you want but low is low and at these levels trying to determine if the Tuesday selling volume was really an indication of distribution versus the lower upside Wednesday volume delivers little value. It was high on the selling, it has been low on the recovery. That is not great price/volume action.
Up Volume: 1.268B (+1.205B). 20:1 up to down volume Wednesday, 20:1 down volume Tuesday.
Down Volume: 61.178M (-1.27B)
A/D and Hi/Lo: Advancers led 6.05 to 1. Don't even need to point this out. Tomato, tomato.
Previous Session: Decliners led 6.38 to 1
New Highs: 21 (+4)
New Lows: 85 (+10)
SP500 CHART: http://investmenthouse.com/ihmedia/SP500.jpeg
Down 34 points Tuesday, up 31 points Wednesday. Volume was lower but from yawningly low levels already. There is no real selling, no real buying outside of specific issues. The index is working through a low volume base, trying to heal the wounds from the late July and mid-August selling. As with NASDAQ, SP500 bounced and that gives the look of a reverse head and shoulders pattern trying to form off the plunge lower two weeks back. As noted above, this pattern tends to form at the bottom of cup bases, and thus we are not discounting what we are seeing. We may not be whole-hearted in our view of its success, but we cannot ignore it. How it responds when the volume returns will tell the story.
SP600 (+2.27%) is trying to pick up the pieces from the Tuesday selling that crashed the party it was trying to start with a break higher from a double bottom with handle base. Still below the 200 day SMA on the bounce, and the small caps, while helped by the energy sector, have a tough road ahead as many are selling out of them on the belief the US expansion has matured and that the growth will come from abroad and those stocks with the long reach (large cap multinationals) will profit.
SP600 CHART: http://investmenthouse.com/ihmedia/SP600.jpeg
DJ30
Down 280, up 250. Volatility returns. DJ30 bounced off of that July 2006/March 2007 up trendline, turning back up ahead of its 200 day SMA (12,886) as it tries to put in a higher low. The move brings it back up to the bottom of the May/June consolidation and a storm front of resistance up to 13,690 - 700. Lots of ice to break through in the weeks ahead, but volume was more up to the task; still below average and a hair lower than Tuesday, but much stronger. Sure looked ready to test the 200 day SMA after the Tuesday selling but now looks as if it will have to do it from a higher level once more.
Stats: +247.44 points (+1.9%) to close at 13289.29
Volume: 227M shares Wednesday versus 230M shares Tuesday. Volume showed up on the downside Tuesday, and fortunately it did not leave as the index rebounded from that drubbing.
DJ30 CHART: http://www.investmenthouse.com/ihmedia/DJ30.jpeg
THURSDAY
The second reading of Q2 GDP is released Thursday along with initial jobless claims. Barring some surprise it is not likely to move the market much. That kind of economic data is reserved for Friday and the PCE inflation indicator that comes out with personal income and spending, Chicago PMI, factory orders, and Michigan sentiment. Oh yes, and Bernanke delivers a speech Friday. Many are anticipating something regarding a rate cut, but that is not going to happen. It is a prepared text only with no Q&A. Bernanke is not going to come out and put in written statements that the Fed is going to cut rates if things get worse or anything remotely along those lines. Possibility of disappointment is high if you were using that as the basis for your investment decisions.
As noted above, the bounce Wednesday was nice but it was not definitive. Volume was still too low to really gauge what the last couple weeks of moves mean. A low volume response to high volume selling is never a great indication, but NASDAQ and SP500 are attempting bases on low volume. That is what you want in a base and typically the way it starts: high volume selling then finding the bottom on lower trade. Now you want to see volume pick up as they try to move up off the lows. Thus far no dice on that, and if not, then a test lower is still the likely result.
That said, you have to like the action of the leaders as they continue to set up and break higher. There were some good recoveries in the Wednesday action, and with the energy stocks starting to make their moves, their numbers are growing after thinning out in the recent selling. You have to like how strong stocks are hanging in there despite the assaults they have taken. The flip-flop action from Tuesday to Wednesday was somewhat disquieting, but they did recover nicely, taking back most if not all or more of the Tuesday downside.
Like the attempted bottoming patterns forming on NASDAQ and SP500, and like the action in the leaders and the addition of energy into the mix of leadership. We are going to continue looking at those for upside opportunity as the indices try and form up the bases. The market is hardly out of the woods in this correction and there is still as much a chance of downside to test the prior low as a continued formation of the base from here without another major drop. When the volume comes back in next week the picture will clear up considerably. In the interim, we are going to continue to cherry pick solid leadership caliber stocks as they give us good opportunities. When they show you the moves you act accordingly without a lot of debate. Debate is great, but too much when deciding how to act in the market gets you late to the table. Thus we look for strong stocks in position to move up and weak stocks in position to move down, and when they show us the moves we move in.
Support and Resistance
NASDAQ: Closed at 2563.16
Resistance:
The 50 day EMA at 2569
The 90 day SMA at 2584
2601 is the mid-May intraday peak.
2634.60 is the June peak
2635 is the October/December trendline
2673 is the November/December/February up trendline
2673 is the early July high
2701 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 2508
2450 is some price support from November and December 2006
2401 is that old trendline from August 2004 to May 2005
2400 is price support
2386 is the August intraday low
S&P 500: Closed at 1463.76
Resistance:
1475 from peaks in December 1999 and January 2000
The 50 day EMA at 1478
1489 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 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 13,289.29
Resistance:
The 50 day EMA at 13,345
The 90 day SMA at 13,428
The mid-May peak at 13,556
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)
13,700 is the November/February up trendline that marks the lower channel.
13,725 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
13,040 is the July 2006/March 2007 up trendline
The 200 day SMA at 12,886
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 actual versus 105.0 expected, and 111.9 prior (revised from 112.6)
FOMC minutes, August (2:00)
August 29
Crude oil inventories (10:30): -3.5M versus 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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money investment
financial investment
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