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world stock market, us stock market
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9/19/07 Stock Split Report Update
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Stock Split Report Subscribers:
Full report issues Thursday
MARKET ALERTS
Targets hit alerts: CTRP; MON. Interim: CVX; FCX; OIH; SLB
Buy alerts: CNH; NVDA; PCAR; RIG
Trailing stops: FTO
Stop alerts issued: FRPT
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 continues the post-Fed celebration to start, then takes a breather.
- CPI rides energy costs lower overall but that won't last. Core holds steady.
- Fed cut is good for the economy but the market will tell us if it was timely enough.
- Overall market ready to pause post-FOMC along with the early leaders, but new leaders trying to emerge.
Fed-induced surge continues but looks ready to pause.
There were some solid consumer related earnings once more (BBY Tuesday, DRI in the Red Lobster & Olive Garden genre today) that showed the consumer was not overly worried about the financial credit issues, and the CPI was, similar to PPI, tolerable given the large declines in energy and gasoline. The latter won't last given that energy prices have soared and oil inventories fell another 3.8M bbl (-1.5M bbl expected) while the core held again at 0.2%, but it was enough to continue the post-FOMC 50BP blast. At least for the morning.
After the inventories hit and even after a really lousy housing starts number (-2.6% for the month and a 12 year low) the indices still climbed higher, showing the real driver was still the FOMC decision. Indeed, it drove an estimated $10B into mutual fund coffers on Tuesday afternoon, and Wednesday that money was pushed into the market. Hence the gap higher and the strong early run.
The market ran higher until SP500 hit the June peaks, the ones NASDAQ and DJ30 cleared on Tuesday. That is where the market ran out of a sustained bid and started to backslide. It was a logical place to do so as noted Tuesday. Moreover, the early leaders in this move, the energy, metal, agricultural, and Chinese stocks, raced higher once more and then started to slip back. After 2 to 3 weeks of upside running that is okay. We anticipated this and we banked a lot of gain in that initial surge, taking some interim gain off the table as these stocks set up to make their test of this excellent run. Might have to stay another couple of weeks in Telluride this fall given those gains. In any event when these leaders started to slow so did the market. It slipped back to flat on SP500 and DJ30, but then bounced with a couple of hours left to keep the gains respectable near 0.5%. The small caps, however, once more posted the league leading batting average on the session with a 1.25% gain. They love an expanding economy, and they are attracting money like mad after that FOMC 50BP zinger.
Technically it was another solid though unspectacular day as far as the internals were concerned. Breadth was solid at 2:1 but that was a piker compared to Tuesday's 8:1 on NYSE and 3.6:1 on NASDAQ. Volume pushed up to average on NASDAQ, and with the inflated trade levels after the July and August selling, average isn't bad.
As noted above, however, the early zest in the wake of the FOMC decision faded once SP500 hit the next serious resistance level at the June peaks. At the same time the leaders over the past three weeks peaked as well (at least for this leg) and started to slide back. The early leaders are a bit winded with these very impressive runs that made us a lot of money and they are going to take a breather. The test for the market and just how much strength is in this move is whether new leaders step up. We saw that on Tuesday and we saw it some more Wednesday. Remember that breakouts in a bull run come in waves. There were the early leaders that surged and are ready to test back on some profit taking. There are others that are set up well to move higher and just need some money; as the money moves from the early leaders it looks to the next crop. This occurs time and again and that is how the market moves in waves. If the move is solid you will see new solid stocks move up into position and then break higher.
Even with the new blood so to speak the market still looks ready to pause after that initial surge and bump at next resistance as it figures out just what the Fed did and what its impact is. Again, the SP500 resistance at the June highs was a good place to figure it out.
THE ECONOMY
CPI falls for first time in 10 months.
It was not as dramatic as the PPI, but the -0.1% reading was better than the 0.0% expected, riding the month's lower energy costs (gasoline fell 4.9%) lower. Food was up 0.4%, however, and that kept the overall number stronger as the corn price surge thanks to 'cheap' ethanol is joined by higher wheat costs. Ethanol misses on so many promises; it won't cut our dependence on foreign oil and it is not cheaper: it takes more energy to produce than it saves and even if it were cheaper we pay for it through higher grain prices at the table.
Even with the higher than expected core reading, year/year core fell to 2.1% as apparel (-0.5%) and transportation (-1.2%) somewhat offset continued stubbornness in medical care and education, both +5.5% year/year. This keeps the annualized core above the 2.0% upper limit of the Fed's comfort zone, but as the PCE is now 1.9% for two months and is the Fed's 'favorite,' this stubbornness above 2% was not much of a detraction from the market momentum. After all, the Fed decided to pause when inflation indicators were still rising, and it is thus not an issue that it cut with the core CPI still over 2%. It is the direction that is the key when it comes to this Fed.
Of course the decline in the overall number won't stand up to the current month with oil prices moving into record territory in unadjusted dollars. That will push the overall number back up and even offsets in other areas such as owner equivalent rents soften. Prices are higher overall because world demand is higher, and with energy such a large portion of the number, it is going to fluctuate as energy fluctuates.
The debate rages: did the Fed do the right thing?
Rescuing the economy, bailing out bad lenders, ruining the dollar, reigniting inflation. You can find any number of pundits ready to praise or malign the Fed's action. I praise it more than hate it because the credit crisis engendered fears elsewhere and financial markets, economies and consumers needed a boost of confidence to get over this current credit crunch without it bleeding into other areas. That is the Fed's purpose and that is its primary purpose despite the inflation hawks who only think about inflation.
The pundits can argue until no one listens (they may already be at that point) but the determining factor will be how the economy responds, and of course, how the financial markets perform ahead of that as they anticipate the next economic move. Thus the early surge on the news though expected, does not tell us much. It is how the markets test the gain and then move from there.
Thus the fade off the high on Wednesday was not unusual at all. Big surge on the Fed news, a continued rally up to the next support on SP500, and then a slide back to start the test. Again, how they handle the test is the key. NASDAQ and DJ30 broke over some key resistance at the June highs while SP500 rallied up to that point. How NASDAQ and DJ30 test those June highs will tell a lot about how the market perceives the economic future. There are still calls for a US economic slowdown and the question is whether the Fed acted expediently enough. Again, how the market responds will be our best insight into that.
THE MARKET
MARKET SENTIMENT
VIX: 20.03; -0.32
VXN: 22.51; -0.77
VXO: 19.8; -0.95
Put/Call Ratio (CBOE): 0.98; -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: +14.82 points (+0.56%) to close at 2666.48
Volume: 2.236B (+5.63%). Volume moved up to actual average for the first time in a month as NASDAQ gapped higher but then showed a doji. Not going to read too much into that one, i.e. a reversal on volume given that close off the high and doji.
Up Volume: 1.443B (-460.049M)
Down Volume: 721.88M (+536.337M)
A/D and Hi/Lo: Advancers led 1.99 to 1. Not bad at all. Normally great, but kind of mediocre in the recent market action.
Previous Session: Advancers led 3.67 to 1
New Highs: 181 (+103)
New Lows: 28 (-8)
NASDAQ CHART: http://investmenthouse.com/ihmedia/NASDAQ.jpeg
Gapped higher on a continued post-FOMC run as NASDAQ tapped at the old November to February upper channel line and then faded back, giving back about as much as it gained on the close. Volume was up and the candlestick pattern shows a tight doji; that can indicate a pullback, but as noted above, while we expect a test we don't see this as any kind of reversal. As for the test we are looking for something toward the June peaks at 2635 or even better, the early September high at 2645. In short, after this breakout from the reverse head and shoulders base you don't want to see any major sell off that pushes the index back below those important support points.
SOX (+0.14%) once again played the wallflower, doing nothing and staying out of the action. It surged to the 50 day SMA on the high then turned over to close basically flat. Trying to put in something of a rounded bottom over the past six weeks to make the break higher, but it is going to have to show the move.
SOX CHART: http://investmenthouse.com/ihmedia/SOX.jpeg
SP500/NYSE
Stats: +9.25 points (+0.61%) to close at 1529.03
NYSE Volume: 1.67B (+1.07%). Another solid volume session, basically matching the Tuesday trade levels. Call it some modest accumulation as the small caps performed very well once more and the large caps, though off their session highs, hung onto a decent gain.
Up Volume: 1.13B (-465.705M)
Down Volume: 526.76M (+473.266M)
A/D and Hi/Lo: Advancers led 1.88 to 1. Rather mediocre given the gains in the small caps.
Previous Session: Advancers led 8.73 to 1
New Highs: 118 (-13)
New Lows: 6 (-9)
SP500 CHART: http://investmenthouse.com/ihmedia/SP500.jpeg
The large caps surged again, rising out of the gates. Once they hit the June peaks (1535ish), however, they lost their momentum and started to slide back and halved the gains on the session. This was pretty much as expected given this is the last resistance point ahead of the prior high at 1556 and the size of the run. A solid breakout from the reverse head and shoulders pattern, a nice run to next support, and now a breather to catch its breath or form a handle, then a run at that resistance and indeed the old high. That is how it should work if the market is pricing in future economic gains thanks to the FOMC action.
SP600 (+1.25%) continued their market leading moves of the past two sessions, clearing the 90 day SMA and banging into the May interim peaks before it too faded back. Unlike the other indices, however, it kept over 50% of its gain. As with SP500, this is a great point for it to pause and form a handle and then make the run at the breakout. This index will be a very good barometer for the way the market views the impact of the Fed action.
SP600 CHART: http://investmenthouse.com/ihmedia/SP600.jpeg
DJ30
The blue chips continued higher on another session of above average volume. On the high (13,867) they bumped into the old channel lines from the October to February channel (they have crossed now) and faded back modestly. Good time to make the test of this surge and hold near the June peaks (13,692 to 13,688) on a test.
Stats: +76.17 points (+0.55%) to close at 13815.56
Volume: 276M shares Wednesday versus 277M shares Tuesday.
DJ30 CHART: http://www.investmenthouse.com/ihmedia/DJ30.jpeg
THURSDAY
The focus on the Fed is fading a bit and the market will look at the economic data (jobless claims, leading indicators, Philly Fed) and earnings such as the brokerages are starting to show up once more. Of course those are all reporting during a period of mortgage and credit issues and pre-FOMC, but they will tell just how well stocks might do down the road after the Fed cut. In other words, if they are not bad during the 'bad time' they should be helped by the 'better times' after a Fed rate cut. Something like that.
The big event, the big driver, is still the FOMC decision. The other data is garnish, at least for now as the market and economy bask in the afterglow of the Fed's rate cut. A few weeks out the data becomes more important as investors start to look for positive impacts from the rate cut though that is much, much too early for the cut to have anything but a psychological effect.
Ahhh, the psychological impact. That is, in reality, what the 50 BP cut in the Fed Funds rate cut was about. The Fed had cut the discount rate, injected liquidity, agreed to take mortgage backed assets - - all steps designed to directly attack the credit freeze issue. The problem was the fear of contagion, of the spread to other areas. Thus with inflation measures falling and economic data showing some weakness here and there (namely the highly publicized jobs report) the Fed wanted a visible manifestation of its concern and willingness to do what was necessary to forestall the spread of economic issues.
Now that the initial impact has run its course we look for the indices to make their test along with those early leaders that were strong on the move higher. When stocks such as CMED, CTRP, FCX, SNDA make their tests of their breakouts we will be ready to move in with more positions. Love to move in on the first test of a breakout, particularly after we made a lot of money on the breakout move.
As they make their tests we see the move trying to spread out across the market thanks to the Fed. The small caps are coming back to life. That might be a head fake, a near term Pavlovian response to a rate cut. There are jewels in the group, however, and there are other non-small caps setting up to move nicely as well. While the first leaders test we will look to these to see what forms up the best and delivers a breakout that will make us some more money. Thanks to the Fed for putting in this bid across the market.
Support and Resistance
NASDAQ: Closed at 2666.48
Resistance:
2673 is the early July high
2689 is the November/December/February up trendline
2719 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:
2634.60 is the June peak
The 90 day SMA at 2591
The 50 day EMA at 2584
2531.42 is the February high (post-2002 high); 2525 intraday
The 200 day SMA at 2519
2509 is the January 2007 high
2450 is some price support from November and December 2006
2420 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 1529.03
Resistance:
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 90 day SMA is at 1496
1495 is the July 2006/March 2007 up trendline
1490.72 is the early June closing low and early August peak.
The 50 day EMA at 1479
1475 from peaks in December 1999 and January 2000
The 200 day SMA at 1463
1461.57 is the February 2007 high.
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 13,739.39
Resistance:
13,875 is the old channel line
The July high at 14,022
Support:
The August high at 13,696
The early June high at 13,676 (closing), 13,692 (intraday)
The mid-June high at 13,689
The early July peak at 13,671
The mid-May peak at 13,556
The 90 day SMA at 13,458
The 50 day EMA at 13,370
13,210 is the July 2006/March 2007 up trendline
13,121 is minor support from the April peak
The 200 day SMA at 12,967
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.): -1.4% actual -0.3% expected, 0.6% prior.
Core PPI, August (8:30 a.m.): 0.2% actual versus 0.1% expected, 0.1% prior
Net Foreign purchases, July (9:00): $19.2B actual, $97.3B prior (revised from $120.9 billion)
FOMC policy statement (2:15 p.m.)
September 19
CPI, August (8:30 a.m.): -0.1% actual versus 0.0% expected, 0.1% prior
Core CPI, August (8:30 a.m.): 0.2% actual versus 0.2% expected, 0.2% prior
Housing Starts, August (8:30 A.M.): 1.331M actual versus 1.36 Million Expected, 1.38 Million Prior
Building permits, August (8:30 a.m.): 1.307M actual versus 1.35 million expected, 1.373 million prior
Crude oil inventories (10:30 a.m.): -3.8M actual versus -1.5M expected, -7.01 one million prior
September 20
Initial jobless claims (8:30 a.m.): 320K expected, 319K prior
Leading Economic Indicators, August (10:00 a.m.): 0.0% expected, 0.4% prior
Philadelphia Fed, September (12:00 p.m.): 2.5 expected, 0.0 prior
End part 1 of 3
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