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world stock market, us stock market
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9/12/07 Stock Split Report Update
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Stock Split Report Subscribers:
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NOTE: Tropical Storm Humberto is aiming right at us so we have had to truncate the report this evening to get ready for potential flooding down here on the coast. Always a joy living near the water. We apologize for this, but nature calls so to speak.
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MARKET ALERTS
Targets hit alerts: BIDU (Took some interim gain); CELG
Buy alerts: BCSI; COP; CROX; DVA; FCX; FTK
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:
- Stocks overcome a soft start to rally, but cannot hang on as higher oil adds to the worries
- Serious issues still confronting the economy and market: will Fed go too slow again?
- Market waiting on the Fed but the globally tied stocks continue to receive a bid.
Stocks cannot hold a nice early rebound.
The open was modestly lower, just what you want after a nice upside price session as on Tuesday. It did not take long before the bids came back in and the indices turned positive. SOX was lagging what with the TXN update that was rather mediocre, but that did not hold back the market. In particular the energy, metals and materials, as well as Chinese 'tech' moved up well. Oil inventories were out at 10:30 and they were way down (-7.1M versus -2.7M expected) while gasoline was mostly in line (-700K versus -500K expected), but runs were well off, falling 1.6%. That did not seem to impact the market; it continued its advance into lunch.
Just before lunch the market took a breather and faded to the 15 minute MA and held. Normal pullback just as it did two times earlier in the session. Then it broke through that level and did not recover. That led to selling that took the indices back to flat. Stocks recovered, however, as the afternoon session started and pushed higher with SP500 reaching a new session high. Oil, however, hit a new all-time high (tapped $80) in unadjusted dollars, and the market lost its vigor. It started a slide into the last hour that continued to the close.
In the end only SP500 was positive, and that by just a measly fraction of a point. Just too many issues to continue higher: oil, Paulson badmouthing mortgage lenders even though it was the Fed that kept rates too low for too long and created the flood of home buying. Home buying which, by the way, the President lauded as such a positive for the economy. Now it is not? Of course not because that is how politics works. You get a supposedly nonpolitical entity such as the Fed meddling and tinkering with the economy and you get unnatural results. Nothing new or surprising about that. The only surprise is just how base the politicians can be when they take the politically expedient position.
Technically the action was great in the morning, disappointing by the close. A softer open after a strong session set up buying opportunities and the buyers came back in and started pushing stocks up. Could not hold it as noted, and that took the glimmer of positive action and tossed it. The market finished flat, volume edged up, and breadth was flat as well. The rising trade shows some modest distribution as stocks were pushed back after the early gain.
Overall, however, there was no real damage done. By the same token, there was no further positive addition to the bounce that put in a higher low. NASDAQ could not hold a move over 2600 and up toward the early August and early September high, but it also closed above the 90 day MA. We did not like, however, the action of some big names such as HPQ that sold on high volume. SP500 rallied up through the 50 day EMA but it could not hold either, closing below some resistance at 1475 but holding over the 200 day SMA (1461). SOX dove lower and once again has the look of a big head and shoulders pattern despite the nearer term double bottom. Despite all of the good news in the sector (STX, WDC, AMD, INTC) it looks rather smelly. The market definitely is at a crossroads on the rebound move and is looking toward retails sales Friday and more importantly, the FOMC on Tuesday.
Leadership was not surging all over the place though there were some good movers as the Chinese net stocks performed well (BIDU, CTRP, SNDA) along with metals and some relative strength in energy once more, though it was relatively quiet given the move in oil.
Basically stocks tied to the global economy performed better overall. Nothing new there. The market was basically weighed down by some heavy issues: high oil, weak dollar, continuing credit problems, rumors of attacks on Iran in the works, and just what the Fed has planned on Tuesday.
THE ECONOMY
Issues, issues everywhere.
As noted, record oil (in current dollars), weak dollar, mortgage problems, credit issues, and record highs for wheat, gold on a tear. It is a pretty ugly mix the Fed has to deal with and some are saying the Fed cannot ease without exacerbating the problems. True, but if it does not act to rectify the credit market AND the economy in the near term, the messes are such that no one in politics wants to own up to them. The Fed is not political some say? The Greenspan Fed was the latest to prove the opposite, and we are pretty sure Bernanke won't be different; it is the nature of the beast.
Wheat has snuck up on many though it has risen steadily all year. It is now trading at $9/bushel though it had an outside day and is ready to crash back down to $7, but that is still incredibly high. Corn has a reason to be high: government pie in the sky dreams that ethanol will solve our energy problems. Hard to picture that given it costs more energy to produce a gallon than you get from burning it. The entire Canadian and US landscape could be golden corn and it would not make a difference other than drive our food prices through the roof.
Credit, despite the Fed's liquidity injections and the discount rate cut, is still in a freeze. Some commercial paper is getting placed but the rates are extreme and frankly we are hearing the only reason they are getting placed is because the Fed may cut 50 BP on Tuesday. Outside of that the Fed still has a ton of work to do.
Even with this uncomfortable mix stocks continue to move higher. Just as with the commercial paper, a lot of this bid is based on a belief that Fed action is coming, and once the Fed gets involved it tends to stay involved for a long time. Look at Greenspan: rates were low forever after 9-11. The economy needs more liquidity, and it is surprising the Fed has not lowered the discount rate again given the issues with commercial paper. If the Fed is going for a 50 pointer on Tuesday you would almost expect it to lower the discount rate ahead of time just so not too much was done at once. The lack of that move suggests the Fed is going to lower it at the meeting and cut just 25BP. That would not be good for the market at all.
Why? We have talked about this in the past, basically the last time the Fed was in rate cut mode. The Fed likes to dribble the cuts out, not wanting to go too fast. If the economy was basically healthy and not on the verge of serious lockup in the financial arenas, that might work. With small incremental cuts during a time of financial squeeze, that just does not work. The Fed spends its time behind the curve, never getting out in front to really impact the market and take the problems head on. It follows behind and the economy does not slow its fall. It still falls and once it bottoms the Fed finally catches up. Too little, too late.
Part of the problem with the go slow policy is that companies wait for the Fed to finish with its rate cutting before investing in new business just to see how low it is going to push rates. It is foolish to lock in a rate when you are certain the Fed has 2 or 3 more rate cuts coming. Thus the go slow policy of the Fed works for business as well, and its effect is to slow the rate of investment as those with the capital wait until they can get it as cheap as they can, knowing also that the Fed is often behind the curve and things get worse.
Now if the Fed came out and said we see the 90 day Treasury way down below 4% and we need to keep the Fed Funds rate within 100 or so basis points from that rate to avoid the consequences of what history tells us will happen when that relationship occurs, the market would respond well because it knows businesses would do the same. That would signal to the business community that the Fed was going to put rates at that level with a goal of keeping it in that range. Businesses could then plan rationally rather than guess as to when the Fed would be done. Say what you are going to do and then do it. That is what we preach in schools, business, and basically everywhere but politics. If the Fed would apply that philosophy Bernanke would get the transparency he so often says he desires.
That would be the nice thing to do, the economically friendly thing to do, but it is not likely to happen. In the history of the Fed it has never done that and indeed in 12 out of the last14 downturns the Fed has failed to take the appropriate action to stave off recession. Maybe Bernanke, the student of the Fed's history just so he won't make the same mistakes, will do the right thing. We highly doubt it.
THE MARKET
MARKET SENTIMENT
VIX: 24.96; -0.31
VXN: 28.02; +0.5
VXO: 25.56; +0.6
Put/Call Ratio (CBOE): 0.86; -0.2. Looks as if the covering was completed in the put market.
Bulls: 42.9%. Up again from 41.7% and 40.6% before that, the low on this last round of selling. Wanted to see it crack into the thirties on this leg to really show some negativity. Still a good drop from 53.9% 7 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 flat for a third straight week. Bearishness is not falling as the market recovers; just pondering what it all means. Strong run from 18% just 7 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: -5.4 points (-0.21%) to close at 2592.07
Volume: 1.916B (+7.52%)
Up Volume: 814.26M (-658.866M)
Down Volume: 1.039B (+754.188M)
A/D and Hi/Lo: Decliners led 1.42 to 1
Previous Session: Advancers led 2.24 to 1
New Highs: 30 (0)
New Lows: 60 (+10)
NASDAQ CHART: http://investmenthouse.com/ihmedia/NASDAQ.jpeg
SOX CHART: http://investmenthouse.com/ihmedia/SOX.jpeg
SP500/NYSE
Stats: +0.07 points (0%) to close at 1471.56
NYSE Volume: 1.286B (-1.48%)
Up Volume: 581.858M (-516.02M)
Down Volume: 672.214M (+473.037M)
A/D and Hi/Lo: Decliners led 1.28 to 1
Previous Session: Advancers led 2.72 to 1
New Highs: 37 (+2)
New Lows: 52 (+36)
SP500 CHART: http://investmenthouse.com/ihmedia/SP500.jpeg
SP600 CHART: http://investmenthouse.com/ihmedia/SP600.jpeg
DJ30
DJ30 moved through the 50 day EMA on the high but could not hold the move fading modesty but on low trade and holding over a key area at 13,250. Still a wide range of resistance ahead of it, but trying to hang onto the higher low and make a new move higher.
Stats: -16.74 points (-0.13%) to close at 13291.65
Volume: 195M shares Wednesday versus 200M shares Tuesday. Very slow trade as DJ30 holds some key support and eyes a lot of overhead resistance.
DJ30 CHART: http://www.investmenthouse.com/ihmedia/DJ30.jpeg
THURSDAY
A day closer to the Fed meeting and the market, despite all of the issues discussed above, hangs onto its recovery off the August low. The Fed meeting is shaping up to be the fulcrum for the next major market move. The indices have set up reverse head and shoulder patterns, but they have been unable to push through. NASDAQ tried to start September but it faded after the jobs report and has yet to recover that level. Ditto SP500 and DJ30. With the raft of overhead resistance facing DJ30 and SP500 (all of those financial stocks as well), the Fed decision is paramount. Anything less than 50 BP on the Fed Funds rate (the discount rate will be dropped 50 BP either at or before the meeting) will disappoint the market and the financials will tailspin and take SP500 lower with them.
Thus Tuesday has the odds, if you look at history, of disappointing the market and causing more selling. Nonetheless we have been buying quite a few positions. For one, the ones we are buying have great patterns and are moving well. Second, most all have a global story behind them that is driving them higher. We are looking to ride them for what gain they give us, take some off the table (or all), and then see what the Fed brings. The thing about the global stocks is that they have already undergone nice bases, are breaking out, and even if the Fed does not live up to the US market's expectations, that is not going to impact the global growth story. Credit may be an issue here in the US, but as we reported Tuesday, China money supply great 18%; no issues getting any money in many places of the world as foreign economies continue to hum and suck up all of the oil, metals, and materials on the planet, and their tech companies make strong money as well. That is why we are buying them: they are showing they should be bought regardless of our intestinal or gastronomic beliefs regarding what the Fed will do and what the market reaction will be.
As for technology, it is still holding up well and with the likes of INTC, ERIC, AMD, STX, WDC, etc. saying business is brisk, prices are firming up, etc., it seems compelling. We saw some high volume selling Wednesday, however, and that suggests that when the Fed decision comes out technology could take a near term downside move. We will watch the closer the FOMC gets, but that is something to note. Likely not a major turnover, just might hit an air pocket which would, bigger picture, give us some decent buys.
There are many stocks that look very good for more upside. The global growth stocks dominate the list, but that does not mean the list is short. The plethora of solid patterns speaks volumes for what these stocks intend to do regardless of what the Fed does. That can change if the Fed does something really crazy such as just lower the discount rate; that would pretty much put all bets off. That, however, has about the same likelihood as the Fed cutting 50 BP or more; history pretty much rules that out.
What we are going to do is look at those that are lagging on upside moves and pare them back or close them. That is hard to do because most of them, even if they are pausing, have great patterns. Letting go is so hard in relationships, whether in life or in the market. In those moments you rationally look at your positions you see they are basing for another move and are content to hold onto them. Then you get impatient on a day and move out just to see it move higher. Everyone has been there and done that, and it is a constant battle to keep control. The pattern typically controls your decision process, but you also have to inject a bit of street smarts into it, say when you take some gains after a series of upside moves or when a downside play that is running lower its some support and holds. You take some profits even if the pattern is solid, particularly if you are in options. With some money in the pocket it is amazing how much clearer your decision process becomes.
In any event, there are a lot of good patterns out there and we have a lot of positions open heading into a seminal FOMC meeting. We are looking to pare down, but again, we are also looking for more positions in the strong global stocks that are set up nicely, whether new positions in stocks we already have positions or new stocks altogether.
Support and Resistance
NASDAQ: Closed at 2592.07
Resistance:
The 50 day SMA at 2594
2634.60 is the June peak
2644 is the October/December trendline
2673 is the early July high
2685 is the November/December/February up trendline
2712 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:
The 90 day SMA at 2588
The 50 day EMA at 2574
2531.42 is the February high (post-2002 high); 2525 intraday
The 200 day SMA at 2515
2509 is the January 2007 high
2450 is some price support from November and December 2006
2414 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 1451.56
Resistance:
1475 from peaks in December 1999 and January 2000
The 50 day EMA at 1475
The 50 day SMA at 1483
1490 is the July 2006/March 2007 up trendline
1490.72 is the early June closing low and early August peak.
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 1461
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 13,291.65
Resistance:
The 50 day EMA at 13,325
The 90 day SMA at 13,443
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)
The August high at 13,696
The July high at 14,022
Support:
13,121 is minor support from the April peak
13,120 is the July 2006/March 2007 up trendline
The 200 day SMA at 12,933
12,845 is July closing low
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.
September 10
Consumer Credit, July (3:00): $7.5B actual versus $9.5B expected, $11.9B prior (revised from $13.2B)
September 11
Trade balance, July (8:30): -$59.2B actual versus -$59.0B expected, -$59.4B prior (revised from -$58.1B)
September 12
Crude oil inventories (10:30): -7.1M actual versus -2.7M expected, -3.97M prior
September 13
Initial Jobless claims (8:30): 325K expected, 318K prior
Treasury Budget, August (8:30): -$190.0B expected, -$192.6B prior
September 14
Export prices, August (8:30): 0.0% prior
Import Prices ex-Oil, August (8:30): 0.2% prior
Retail sales, August (8:30): 0.5% expected, 0.3% prior
Retail ex-autos (8:30): 0.2% expected, 0.4% prior
Industrial production, August (9:15): 0.3% expected, 0.3% prior
Capacity, August (9:15): 82.0% expected, 81.9% prior
Business inventories, July (10:00): 0.3% expected, 0.4% prior
Michigan sentiment, preliminary, September (10:00): 83.5 expected, 83.4 prior
End part 1 of 3
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