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world stock market, us stock market
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9/17/07 Stock Split Report Update
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Stock Split Report Subscribers:
MARKET ALERTS
Targets hit alerts: CMED; CTRP; MON
Buy alerts: None issued
Trailing stops: None issued
Stop alerts issued: HMSY
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 market time ahead of FOMC with some modest losses.
- Greenspan endorses a 25BP rate cut
- So the Fed does what the market wants or doesn't. How long does the effect last?
Some more lender issues start the week flat as if the pending FOMC meeting was not enough.
Once more the negatives outweighed the positives and weighed down the futures. Mainly it was more mortgage issues. A 'run' of sorts hit the UK lender Northern Rock with $4B in assets withdrawn since it announced the closure of those funds on Friday. A US regional bank, National City, reported $160M in losses from its mortgage division. The New York Empire State PMI came in at 14.70, less than the 18.0 expected and the 25.1 prior. Not a collapse but definitely light in the shoes. Oil was on the move again, rising to 80.51, up 1.47/bbl. With the FOMC on the horizon this was more than enough to stymie any further move up after the bounce higher last week.
Stocks sold off form the open, tried to make a quick rebound, but could not hold the move. NASDAQ peeled off 20 points from its lower open as it and the SP500 undercut the 50 day EMA as the moved down all morning. Just before lunch the indices bottomed and tried the first serious bounce. No big turn back up, just a steady climb as seen on Friday after that intraday drop. It looked as if the indices might make a run at positive, but they wavered as the afternoon session started and traded in a range into the close. That left them negative on the session with the blue chips leading while small caps and techs struggled a bit more. The financials were not taking part in any upside so close to the FOMC meeting, and as such the market lost what little drive it had from last week. The result was a lackluster close and a definite lack of direction.
Technically there was no real change from the Friday close as the indices lost some ground but did not break down through any key support. The broke below the 50 day EMA early but recovered; unlike last week with those lower to higher moves, they could not finish the job but instead lost direction and wandered into the close. Breadth picked up to the downside, topping -2:1, but volume was even weaker ahead of the FOMC decision.
There was still some leadership as the China stocks continued to move very well (e.g. MON, CMED, SNDA, CTRP, BIDU), but with the energy and financial stocks sitting this one out there was not a lot pushing the action. Again that is no surprise given the FOMC meeting Tuesday and so much riding on it.
It left the indices in the same position, i.e. facing some strong resistance but making higher and higher lows as they moved into it, building pressure from below. That is a positive, but as noted over the weekend, with a major event such as the first rate cut in several years and the balance of the economic strength riding on it as many believe, the best laid patterns can get turned over when the decision comes out.
THE ECONOMY
Greenspan plugs his book, says current Fed doesn't have the luxury of wanton rate cuts.
Greenspan is on the circuit touting his tell all book giving his view of economic events over the past thirty years. Haven't read it yet but plan to; still want to see if he remains in denial with respect to some events such as the Fed's decision in the late 1990's to so doggedly pursue rate hikes and no money supply due to a theory of wealth effect that he later admitted lacked empirical evidence. That is the classic example of why we should not have a 'black box' central bank; we lost trillions of dollars in net wealth and retirement savings on a theory that if true might possibly lead to inflation, but had no more support that a cloud that just happens to be in the shape of a bridge.
Of course there were the questions of what he would do if he were Fed chairman, i.e. cut 25BP or 50 BP. Of course he did not come right out and say 25BP, but the way he couched the answer provided the answer. He indicated that currently the Fed does not have the same disinflation environment present when he was cutting rates in 2001, and with the impacts of globalization waning the current Fed had to be much more cautious, i.e. not cut rates to 1% and leave them there for several years.
In short Greenspan implied he would cut 25BP, i.e. take the 'go slow' approach and see what happens after each cut. Of course we all know that doesn't work. It is an excuse, a fallback position for those who don't want to take any risks and actually apply what we have learned about the interplay of economic and monetary policy over the decades. We know that the Fed is ALWAYS behind the curve with this approach; it only catches up after the economy hits bottom. That 'follow the economy lower' approach does nothing to prevent or stave off what we know will come if insufficient action is taken.
Thus we will see just how much difference there is between Greenspan and Bernanke, just how adamant Bernanke is in avoiding the same historical mistakes his predecessors have made since before the Great Depression. He has shown himself to stand a bit apart from Greenspan already when he went on pause in August 2006 when inflation was still rising. Greenspan would not have done that. He is a follower. He acts decisively in times of crisis, but in 'normal' times he follows the markets instead of leading, at least when it comes to cutting rates to fend off the recession he was causing or had caused.
Yep, we have a real test of Bernanke's stones so to speak. Everyone in the world, at least in the central banking circle, wants 25BP or no cut at all in Fed Funds. Of course, every central banker there is other than perhaps the new fellow in France would make the same mistakes all of their ancestors made simply because they resemble invertebrates when it comes to taking action to preserve an economic expansion.
Market doesn't want permanent cuts, just for the Fed to resolve the crisis before it gets out of control.
We fully expect 25BP in the Fed Funds and 50 BP in the Discount Rate; the Fed will think it has really pushed the envelope with that, but the market won't really take it that way, at least not at first. A lot of people think the market is simply greedy, that it wants rate cuts all the time no matter what the situation. They also think that if the Fed cuts too much, however, that the market, even with its rate cut addiction, will panic in the old 'what does the Fed know that we don't' mind game.
In reality, the market doesn't want a rate cut just for a rate cut's sake, it wants a strong move to show that the Fed is thinking about preserving the expansion and prosperity now that it has inflation under control. That is what the market believes: inflation is under control (and the data shows it is) and that the Fed has to cut to get ahead of the credit and mortgage issues near term and thus allow the expansion to recover its feet and get moving again. The Fed could cut 50 BP and say it was going to hike them right back up once the critical stage passed and the market would not mind that at all.
Again, the market wants quick, decisive action to resolve the credit freeze and mortgage issues. After that has stabilized and the economy is not going to seize up because of them, then moving the rates up again would be just fine. THAT would be the best outcome for the market and the economy both near term and short term when the Fed announces its decision on Tuesday.
THE MARKET
MARKET SENTIMENT
VIX: 26.48; +1.56
VXN: 28.74; +1.78
VXO: 26.57; +1.12
Put/Call Ratio (CBOE): 1.04; -0.06
Bulls: 48.3%. Major surge in bullishness, up from 42.9% and 40.6% as the low for this round. Wanted it in the thirties but did not make it. This is down from 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: 31.0%. Major drop in bears, plunging from 37.4% where it held for 3 weeks. It is still well up from the very low 18% hit 8 weeks back, and it topped the June 2006 peak (36%). That June peak eclipsed 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: -20.52 points (-0.79%) to close at 2581.66
Volume: 1.434B (-8.97%). That is some low volume. NASDAQ trade continues its slide, hitting the lowest of the month and close to matching the August low levels. That is all likely to change after the FOMC meeting and the week unfolds.
Up Volume: 303.455M (-500.474M)
Down Volume: 1.123B (+382.759M)
A/D and Hi/Lo: Decliners led 2.42 to 1. Got a bit uglier on the downside.
Previous Session: Advancers led 1.25 to 1
New Highs: 25 (-47)
New Lows: 61 (-46)
NASDAQ CHART: http://investmenthouse.com/ihmedia/NASDAQ.jpeg
Lost some ground but did not damage. It undercut the 90 day SMA on the close gain but it managed to hold over the 50 day EMA (2577) on the close, and if it holds and bounces, that puts in another higher low and sets NASDAQ in good position to make another try at the June twin peaks with a top at 2635 and the September high at 2645 hit on the first session of the month. As noted over the weekend, the index is working on a better consolidation with this lateral move; if not for the Fed and its wildcard action, this would be very good action setting up an upside breakout. As it is, everything near term depends upon the Fed's decision as to whether it makes the breakout or has to make another test in its bottoming process.
SOX (-0.55%) could not recover above the 200 day SMA on the close. Whatever wisp of upside potential it may have shown Friday pretty much evaporated in Monday's action.
SOX CHART: http://investmenthouse.com/ihmedia/SOX.jpeg
SP500/NYSE
Stats: -7.6 points (-0.51%) to close at 1476.65
NYSE Volume: 1.107B (-8.15%). As with NASDAQ, the lowest trade of the month, just missing the lows from August. Nice easy pullback to support shows no dumping, but of course that is ahead of the FOMC decision when everything changes.
Up Volume: 312.165M (-363.772M)
Down Volume: 774.448M (+255.356M)
A/D and Hi/Lo: Decliners led 2.16 to 1. Bumped up on the NYSE as well, but no serious breakdowns in the index patterns.
Previous Session: Advancers led 1.2 to 1
New Highs: 28 (-36)
New Lows: 48 (-67)
SP500 CHART: http://investmenthouse.com/ihmedia/SP500.jpeg
Undercut the 50 day EMA (1475) on the low but rebounded to hold it on the close. No volume so no dumping of stocks, just a lack of a bid, particularly in the financial sector. As with NASDAQ, SP500 has a couple of lower highs under its belt, and is trying to put in another one to build some pressure for an upside move. Lots of resistance still overhead, however, from 1490 to 1512 and beyond that on up to 1525 to 1535. It would take what Kudlow calls the 'Shock and Awe' approach to break SP500 through these levels short term. If not it likely comes back to between 1450 to 1425ish where there is support at the latter.
SP600 (-0.91%) turned down from below the 200 day SMA, threatening to lead the rest of the market lower even before the FOMC decision. Small caps have the most to lose as they depend upon growth to drive stock prices, and if the Fed is not going to get aggressive they are not going to price in better economic times anytime soon.
SP600 CHART: http://investmenthouse.com/ihmedia/SP600.jpeg
DJ30
Similar to SP500 the blue chips held up nicely, still unable to top the 90 day SMA (13,446) on the high but holding easily above the 50 day EMA on some very low trade. A series of higher lows along an old up trendline from August 2006/March 2007 has given the move a bit of backbone and pushed it into the resistance range from May and June. That is just a start, however, and now the Fed takes over as the near term driver of stocks.
Stats: -39.1 points (-0.29%) to close at 13403.42
Volume: 169M shares Monday versus 204 million shares Friday.
DJ30 CHART: http://www.investmenthouse.com/ihmedia/DJ30.jpeg
TUESDAY
The Fed is not the only game in town Tuesday, but it is the most important. PPI is out pre-market, and LEH starts the brokerage earnings jaunt. The latter is quite important as the market will be looking to see if the brokers are writing down losses already or are holding out, in essence keeping everyone guessing as to the impact of the credit and mortgage issues. Another thing to consider is that the Fed will already have the CPI in its hands (out to the public on Wednesday). Not that it will change matters, just something to keep in mind when the Fed makes its announcement.
25 or 50 BP? Logic says 25 but Bernanke has defied the 'logic' of the prior Fed boards before, e.g. when he paused when world central bankers said he should still hike. Turned out to be the right move, but more is needed now. Central bankers say no cut or 25BP at the most; Given past action, it is conceivable that Bernanke cuts 50. Conceivable but we are not betting on that one.
So what does it matter whether the Fed cuts 25BP or 50BP? Will one cause carnage, the other nirvana? The focus is always near term, and 25BP is already in the market so the market would pullback given nothing extra to drive it. While some say 50BP would cause panic and related panic selling, that level would give the market a shot in the arm, a clear signal the Fed wants to get to the heart of the credit freeze, deal with it, then move on. That instills confidence and bolsters the market.
Either way, what are the lasting effects? If the market perceives the Fed is too late and too light with its action then it will continue the selling, though the full analysis of whether the Fed is too late would come later. The near term effect would be to give back the recent bounce and to test to some degree the prior August low. If the market feels the Fed is going to be vigilant, the old low holds and the market rebuilds for a breakout move.
If the Fed cuts 50 BP the market responds upside near term but it still has to work its way past resistance and the prior high, setting up for a solid break. Thus some immediate upside and then some testing and continued base building.
In sum, the Fed decision is not the end all to the market action, just another necessary phase that has to occur regardless of whatever action the Fed takes. In that environment, our call to stick to the stocks with global profit reach is the one we are sticking with. As you saw Monday, even with the market lethargy we had some great gains in some 'worldly' stocks such as CMED and MON. We are going to stick with that because there is not much that is changing with that story regardless of the Fed action. We can look at some downside as well, some plays in the event the Fed disappoints the market. More aggressive given that a test will likely hold above the August lows (unless the Fed does something such as no cut in the Fed Funds rate), but definitely playable on a disappointment.
In any event, we are going to continue looking for opportunity in the worldly stocks, and a Fed disappointment may cause a hiccup that sets up some great buy points in these leaders.
Support and Resistance
NASDAQ: Closed at 2581.66
Resistance:
The 90 day SMA at 2589
2634.60 is the June peak
2647 is the October/December trendline
2673 is the early July high
2688 is the November/December/February up trendline
2717 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 50 day EMA at 2577
2531.42 is the February high (post-2002 high); 2525 intraday
The 200 day SMA at 2517
2509 is the January 2007 high
2450 is some price support from November and December 2006
2416 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 1476.65
Resistance:
1490.72 is the early June closing low and early August peak.
1493 is the July 2006/March 2007 up trendline
The 90 day SMA is at 1496
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 50 day EMA at 1475
1475 from peaks in December 1999 and January 2000
1461.57 is the February 2007 high.
The 200 day SMA at 1462
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 13,403.42
Resistance:
The 90 day SMA at 13,446
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:
The 50 day EMA at 13,336
13,134 is the July 2006/March 2007 up trendline
13,121 is minor support from the April peak
The 200 day SMA at 12,951
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 17
New York Empire State Index, September (8:30 a.m.): 14.70 actual versus 18.0 expected, 25.1 prior
September 18
PPI, August (8:30 a.m.): -0.1% expected, 0.6% prior.
Core PPI, August (8:30 a.m.): 0.1% expected, 0.1% prior
Net Foreign purchases, July (9:00): $120.9 billion prior
FOMC policy statement (2:15 p.m.)
September 19
CPI, August (8:30 a.m.): 0.0% expected, 0.1% prior
Core CPI, August (8:30 a.m.): 0.2% expected, 0.2% prior
Housing Starts, August (8:30 A.M.): 1.3 6 Million Expected, 1.3 8 Million Prior
Building permits, August (8:30 a.m.): 1.3 5 million expected, 1.37 3 million prior
Crude oil inventories (10:30 a.m.): -7.01 one million prior
September 20
Initial jobless claims (8:30 a.m.): 319K prior
Leading Economic Indicators, August (10:00 a.m.): 0.0% expected, 0.4% prior
Philadelphia Fed, September (12:00 p.m.): 2.0 expected, 0.0 prior
End part 1 of 3
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world stock market
us stock market
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