|
|
us stock market, trade stock
* * * *
8/30/07 Investment House Alerts Report
* * *
IH Alert Subscribers:
MARKET ALERTS:
Targets hit alerts: None issued
Buy alerts: None issued
Trailing stops: None issued
Stop alerts issued: None issued
SUMMARY:
- After two volatile sessions stocks calm back down.
- GDP second run is stronger but it is all BC (before credit issues)
- Market trying to get out of the week and month for an always interesting September.
Tuesday and Wednesday volatility wears itself out.
Looked as if it was going to be another loser session. After Tuesday's dump lower and Wednesday's surprising rebound, futures were sharply lower to the tune of 12 points or so versus fair value. Investors apparently viewed the balance of the pre-market data negative. The second go round of GDP was strong at 4% versus the 3.4% originally reported. Jobless claims were up again (334K), S&P warned that investment banks were facing a profits collapse, and the WSJ reminded investors that the Fed may not rush in with a rate cut just for the market's sake, continuing that Greenspan Pavlovian response to financial crises. On top of that, most of the earnings were downright crappy. CHS, CWTR and SHLD, all in retail, all posted weak results. TIF was the bright spot, but luxury is not a good indicator during a slowdown; it stays stronger longer. Clearly the case in this latest round of retail earnings.
Plenty to send futures lower and in response the indices were all lower at the open. As soon as they opened, however, the started the comeback. A steady rebound into lunch turned the market positive. NASDAQ was in the lead once more, but unlike Wednesday, energy was sitting this one out and financials were back to their old ways, i.e. struggling. Then a rumor of nerve gas a the UN sent the indices negative. Turned out the rumor was truth, but that the vials were from a stock that was supposed to be destroyed. Clearly not terrorist related so the selling relented. Plenty of gas at the UN, just not the instantly lethal variety.
That softened what little enthusiasm there was, however, and stocks could not get back on track. By the close only the tech indices were positive with the NYSE down but not out of control.
Technically the action was not great, but given the pre-market look it was not bad at all. Indeed, after the quick return of volatility this week, the reversion to a quiet session was good given the indices are trying to base out and set up a break higher. Volume was mixed with NASDAQ showing its best trade in two weeks as techs showed some relative strength while NYSE trade was lower as the NYSE indices held steady. Breadth was lower but not horribly so. This is in line with what you want to see in a base, i.e. quieter behavior as the indices try and set bottoms.
The charts were similar. SP500 sagged back to its 200 day SMA, closing just below that level. After the quick trip lower and return the action was what the index needs to help better set up a base. NASDAQ tried to run higher and indeed did put in 14 point gain before it frittered it away in the afternoon. That leaves NASDAQ in similar position to SP500, still working on a decent attempt at a reverse head and shoulders pattern even as it fights off a head and shoulders patter. What intrigue. What confusion among investors. Hey, that is the nature of the basing process.
In the end, the market simply had a hard time getting traction ahead of Friday's latest PCE reading and the Bernanke speech. PCE needs to continue heading lower to give the Fed, as well as all Fed watchers the appearance of some wiggle room to cut rates. There are still those out there fearing inflation, and indeed if the economy slows significantly, inflation will be a real concern. Why? Because a slowing economy does not decrease inflation; just the opposite. Slower economies produce less supply and thus demand gets a leg up on it and then you start seeing the pricing issues. A humming economy keeps supply running to match demand. Thus those worried about inflation should worry about the Fed NOT cutting rates in an attempt to keep the economy in expansion mode. This is a completely different angle than those worried about bailing out the financial markets. Again, I say, do we want to teach a certain segment of the economy some lesson at the risk of all of us suffering as a result of the punishment? The answer is self-evident.
THE ECONOMY
Second round of Q2 GDP shows more strength.
Expectations were for a 4.1% gain versus the 3.4% originally reported, and thus the 4.0% was below the street's forecast. Still it is very solid growth, the best since mid-2005. Business investment surged 11.5% (2.1% in Q1, negative in Q4 2006) and exports jumped while imports fell; that really ramped up the overall number. The consumer was a real drag with spending falling to 1.4% versus 3.7% growth over the prior two quarters (and that was revised lower).
Thus the report was strong, but those worried about he consumer found reason to continue worrying. Of course, as we learned in the last recession, it takes two to dance this dance. Back then the business side shut down for three years while the consumer, driven by low interest rates and 9-11, continued to spend a lot on housing. Now housing has made its inevitable turn lower, but GDP remained strong thanks to very solid business investment. You need both to do well, but it is at least a situation where business is spending as the consumer slows. That blunts the effects of a slowdown if one does occur. As reported over the weekend, however, thus far the leading 'human' indicator, ECRI, shows slowing but no recessionary bent. How the market handles this test it is currently undergoing will tell a lot more about the economic future, more so than looking at GDP in the rearview mirror.
And that is basically how the market reacted to it. It was strong as everyone knew it was but it did not divulge any real new secrets. Moreover, it comes after the credit and housing issues really jumped feet first into the picture. Things have changed significantly since then, and Q2's 4% growth may be Q3's 2% showing.
Some good news was that the PCE was reported at 1.4%, well off the 3.7% pace from Q1, the 3.9% in Q4 2005, the 2.8% in Q3, and 2.4% in Q2. If it can continue with Friday's latest reading the Fed should have some wiggle room with respect to rates.
THE MARKET
MARKET SENTIMENT
VIX: 25.06; +1.25
VXN: 25.38; +1.77
VXO: 24.78; +1.43
Put/Call Ratio (CBOE): 0.93; -0.03. As the downside action cooled so did the put activity the past two sessions, coming in below 1.0 for two consecutive days.
Bulls: 41.7%. A rebound in the market, a rebound in bullishness, up from 40.6%. Looks as if 40.6% is the low barring a plunge back down to test the prior August low. Wanted to see it crack into the thirties on this leg to really show some negativity. Still a good drop from 53.9% 6 weeks back. Hit 56.7% hit in June. The 55% level is considered bearish, and it topped that level on this last run. 60% in December 2006. For reference it bottomed in the summer 2006 near 36%, and 35% is considered bullish.
Bears: 37.4%. Held steady at this level for the second week after a strong run from 18% just 6 weeks 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: +2.14 points (+0.08%) to close at 2565.3
Volume: 1.849B (+10.8%). Best trade in two weeks (since the heavy volume selling) as NASDAQ tried a move higher but gave it away in the afternoon. Looks somewhat positive but the close off the high takes off the shine.
Up Volume: 1.145B (-372.069M)
Down Volume: 640.884M (+512.884M)
A/D and Hi/Lo: Decliners led 1.36 to 1. Large cap move as breadth was negative as the index was positive. NASDAQ 100 advanced 0.46%, and that was the difference.
Previous Session: Advancers led 3.33 to 1
New Highs: 15 (-29)
New Lows: 28 (-56)
NASDAQ CHART: http://investmenthouse.com/ihmedia/NASDAQ.jpeg
Rallied up through the 50 day EMA (2568) to the 90 day SMA on the high (2587) and then gave it all back but 2 points. As the index gapped lower, the 45 point move from open to high was very impressive. Then nothing to show for it; at least there was a recovery from that gap lower. In the end, however, NASDAQ was in the same relative position, i.e. still forming up a nice reverse head and shoulders the past 5 weeks in an attempt to put in a bottom to the selling and disrupt the toppy pattern that formed and sent it lower in August. If it can get out of the week with this pattern that will be a good result and then we see if the buyers are still interested in techs to start September.
SOX (+0.15%) rallied intraday as well but it could not its move either. About all it accomplished was holding above the 200 day SMA as it fell back from another attempt at the February high.
SOX CHART: http://investmenthouse.com/ihmedia/SOX.jpeg
SP500/NYSE
Stats: +0.75 points (+0.15%) to close at 1457.64
NYSE Volume: 1.28B (-3.88%). Lower trade than the Tuesday selling and the Wednesday bounce higher. Given the indices lost ground on the session and are still in a base, no issue with that.
Up Volume: 393.401M (-874.971M)
Down Volume: 875.886M (+814.708M)
A/D and Hi/Lo: Decliners led 1.45 to 1. Lower than the price results would indicate, but still not bad at all.
Previous Session: Advancers led 6.05 to 1
New Highs: 15 (-6)
New Lows: 9 (-76)
SP500 CHART: http://investmenthouse.com/ihmedia/SP500.jpeg
Unlike NASDAQ, the large cap index held a pretty tight range on a relative basis and was simply quiet on the session. It held near the 200 day SMA (1458) on the close, keeping its attempt at its own 5 week reverse head and shoulders pattern alive. This is the kind of quiet action it needs to finish out the base attempt and is a good response to the up and down action of the two prior sessions.
SP600 (-0.39%) tested the 200 day SMA on the high and then reversed to close negative. It continues to struggle as it tries to get back into its base. May do it, but it does not look as promising and the small caps continue to come under selling pressure given the views of the US economy at this juncture.
SP600 CHART: http://investmenthouse.com/ihmedia/SP600.jpeg
DJ30
Very quiet on the Dow as well with a narrow intraday range, low volume, and a close at the 18 day EMA. DJ30 is working on its own little consolidation here after successfully bouncing off of the July 2006/March 2007 up trendline on Wednesday. As noted before, still a lot of thick ice ahead of it from the May/June consolidation on up to 13,690 - 700.
Stats: -50.56 points (-0.38%) to close at 13238.73
Volume: 192M shares Thursday versus 227M shares Wednesday. Nice quiet trade as the Dow continues its attempt at its own consolidation.
DJ30 CHART: http://www.investmenthouse.com/ihmedia/DJ30.jpeg
FRIDAY
The PCE is key because if it continues to fall the Fed has more open field to run in as far as a rate cut. His speech is important as well for obvious reasons. There is no Q&A, however, and that means Bernanke has to say it all in the text. That is a tough thing to do because he does not want to given the impression the Fed is circling the wagons but he also cannot afford too much tough love lest the financial markets, already under stress, throw up their hands and really freeze up.
Bernanke, labeled in the media the past few weeks as book-wise but lacking street smarts (kind of a back to the future situation as he was derided early on for the same reasons, even called an 'amateur' by some idiot in Congress), has shown a knack for pushing just the right buttons. This will be a true test of his skills. Greenspan would put out a string of mush that no one would understand and be safe because of it. Bernanke is more straight spoken, and thus he has to be even more of a wordsmith than Greenspan.
Even with his success in the past one has to wonder if expectations are too high for him to pull it off. His best bet is to parrot his letter to Schumer from earlier in the week; the old 'Fed stands ready to act' line may not be the 'we are going to cut' language the market wants, but the market is always unrealistic. The Fed has changed its bias, so if it is standing ready to act, it can conceivably act at any time.
Dell reported earnings after hours and it topped expectations but it also warned that the profit rise could be short-lived. Nothing like your team winning this week but in the post-game press conference the coaches say they will lose next week. That really stirs the troops. Thus no huge move on the beat after hours by Dell or much of the other tech names.
The market will do well to get out of Friday in basically the same shape as Thursday. That would leave the indices working on some bases that are trying to put an end to this selling. Leaders are still in good shape as well, and a similar close would put them in good shape as well. Of course, that simply leaves them set up for the return of more volume and the truer moves that brings when everyone gets back to work after Labor Day. While some leaders are moving on strong volume, these light volume days the past two weeks won't mean much when the big volume returns. At that time you see the true moves and whether the market comes back down to test the prior low or continues its basing action. Again, if the market can get out of the week basically flat as it did on Thursday, that is good work.
Whenever a page is about to be turned there is always some concern as to what it will bring. September is known as the hardest month on stocks because on many occasions it has set the stage for an August bottom with some pretty harsh selling. Last September was all upside while 2005 and 2004 started solid but ended up pretty ugly. Both of those years the month led into an October bottom.
This year the market is under pressure heading into the month and thus the stage is prime for some classic September downside to test the prior low and set the bottom. Again, that remains to be seen. The indices are trying to put together some neat little bases at the bottom of the selling and with the strength shown from many leader stocks the chances of success are better than usual. Not great, but better than usual. We still give another downside run more weight than an upside breakout from here, but the improvement in the patterns and the continued success of leaders makes this more problematical. We will thus approach the month still looking for good buys on quality stocks while we play some downside and get ready to play it more with some nicely set up downside plays on the report.
As for Friday itself we don't anticipate action that will give us a lot of opportunity to buy even with the Bernanke speech. If we see opportunity either way from really solid patterns (up or down) we will take it, but given that we are going to move from no volume to a return of volume, we don't want to start loading the boat. Overall the picture remains pretty positive given the test, the attempt to build bases, and the action of leaders such as AAPL, ZUMZ, CROX, GRMN, etc. If they continue to hold up whatever the market does, that indicates positives once this current correction has run its course. Friday is another page in the current chapter as Bernanke tries to keep the markets calm and the economy expanding, or at least get it past the current crisis.
Support and Resistance
NASDAQ: Closed at 2565.30
Resistance:
The 50 day EMA at 2568
The 90 day SMA at 2585
2601 is the mid-May intraday peak.
2634.60 is the June peak
2637 is the October/December trendline
2673 is the early July high
2676 is the November/December/February up trendline
2703 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
2405 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 1457.64
Resistance:
1461.57 is the February 2007 high.
1475 from peaks in December 1999 and January 2000
The 50 day EMA at 1477
1487 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:
The 200 day SMA at 1458
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 13,238.73
Resistance:
The 50 day EMA at 13,340
The 90 day SMA at 13,431
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)
13,705 is the November/February up trendline that marks the lower channel.
13,730 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
13,045 is the July 2006/March 2007 up trendline
The 200 day SMA at 12,892
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): 4.0% actual versus 4.1% expected, 3.4% prior
Chain deflator, Q2 (8:30): 2.7% actual versus 2.7% expected, 2.7% prior
Initial jobless claims (8:30): 334K actual versus 320K expected, 325K prior (revised from 322K)
August 31
Personal income, July (8:30): 0.3% expected, 0.4% prior
Personal spending, July (8:30): 0.3% 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): 3.0% expected, 0.6% prior
Michigan sentiment, revised, August (10:00): 83.0 expected, 83.3 prior
End part 1 of 3
|
us stock market
trade stock
|
