|
|
world stock market, us stock market
* * * *
9/20/07 Stock Split Report
* * *
Stock Split Report Subscribers:
MARKET ALERTS
Targets hit alerts: BHP (interim gain)
Buy alerts: PCP
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:
- Market takes a day off after a strong move but you would think it crashed lower.
- Economic data comes in stronger, fueling concern of inflation.
- Nice market test is setting up some more upside.
Market shows a very nice post-rally day of rest.
We expected a sluggish session after the two-day surge higher following the FOMC surprise 50 BP rate cut. It was indeed a sluggish session. It doesn't mean there was not a lot of news. There were earnings with Goldman Sachs, crushing expectations even with large mortgage related write-downs. On the other hand, BSC missed its earnings and Federal Express, while beating on its earnings expectations guided lower. In the retail sector, Circuit City was unable to match best buys solid performance, posting another bad quarter.
Jobless claims were solid at just 311,000 versus the 320,000 expected. The Philly Fed PMI was much better than expected posting a 10.9 showing versus the 2.5 expected and the flat reading in August.
To top it all off, then Bernanke and Treasury Secretary Paul Sun were testifying to Congress with respect to the mortgage problem. Not a lot of new ideas came out of those hearings, but Paulson revealed that the ministration was willing to raise the cap on Fannie Mae mortgage amounts. Bernanke did a good job of sticking to the hard line that the Congress should not be in the business of regulating days, but letting the market work through its issues.
Lots of news, indeed, but the market was sluggish all session. That's quite typical after a very strong surge is seen following the FOMC rate cut decision. Volume was lower and leadership held up quite well. They indices, wall down, posted quite tame losses, again, what you would expect to see as the market takes a breather after a strong move higher.
The technical picture shows the same results. While breadth was a bit more negative than you would like to see (-2.3:1 on NYSE), volume was much lower as indicated, coming in well below average. But the markets posting rather modest losses, and volume shows there was no real selling, just a lack of buyers after all of that new money was pushed into the market following the Fed rate cut. As expected, SP 500, after surging up to the June highs on Wednesday, stalled in faded back. As noted, however, the losses were nominal and volume was low. It was then that sellers around force, it was just that buyers were not ready to buy again after two strong outside sessions.
As always, you have to look to leadership, and it performed well. Many leaders made low-volume tests of their prior runs higher, posting modest losses on modest trade. It was not a selloff on, however, as many continued higher showing excellent strength and an overall weak market. Thus far it has the look of a pause, a day of rest after a solid surge higher. After this test runs its course, we expect to see some leaders in good by position. Due to taking new positions are added to current positions.
Just a day of rest or a turned back to the selling?
You know our view from our look at the technical picture. Nonetheless, there were many pundits Thursday talking as to how this move lower was a return to the July and August selling. One even went as far to say that this was just a bear market rally in Thursday showed that this was indeed the end of that rally.
The underlying idea was that the Thursday selling after "just" two days of rallying following the Fed decision was some repudiation of the Fed action. With gold spiking higher, interest rates rising, even after the cut, and the dollar falling to lows not seen in 30 years (it is trading on par with the Canadian dollar for the first time since 1976), there is some merit to the argument that the financial markets view the Fed action as a problem and not a help. We will discuss the economic ramifications in more detail later, but the idea that Thursday in itself was the start of a new sharp downtrend is preposterous.
As outlined above, the technical underpinnings were strong, not suggestive of any kind of rollover in the market. Indeed, with the type of leadership that were it will be hard for the markets to go into free fall. Sure financials were lower again after the brokerages reported earnings, and technology remains a laggard on this move; if they don't improve, it will be difficult for S&P 500 to move higher. That does not mean that the market is going to tank, however, particularly based on the actions shown Thursday and the continuing solid performance in leaders in energy, metals, internet and tech. Remember, the market was able to move higher, with just these "global stocks" making the wake. Unless there is a much more serious breakdown, this action is not going to lead to a bear market.
THE ECONOMY
Continued solid economic data keeps inflation fears alive.
Gold continues to soar and interest rates in the United States are rising even after the Fed reduced the Fed funds rate by 50 basis points. All over the world, commodity prices continue to rise. Of these indicators, the Gold indicator is the most reliable. Historically, it rises and rises sharply when there is worry about inflation. The fact it is spiked higher leading into and subsequent to the Fed rate cut shows there is a concern of inflation in the gold market.
As for interest rates rising after a Fed rate cut, that is nothing unusual in the near term. Greenspan suffered the same problem the last round of rate cuts, as he tried to bring the long end of the curve lower by reducing short-term rates, but had a real problem with the "conundrum." Quite simply, the Fed does not have the same power over interest rates it used to have.
Some are pointing to the rise, more like a surge, in oil prices as another indication that the world fears US inflation. Oil prices are rising for a number of reasons, the primary one being demand in fear of inadequate supply. Oil closed at $83.32 up $1.39. Another factor pushing prices higher is the fact that the dollar is weaker and falling sharply after the Fed rate cut. As oil is denominated in US dollars in most parts of the world, a falling dollar versus other currencies raises the price of oil. Thus it cannot hard to argue that these commodity price increases are a sign that inflation is ready to surge.
Nonetheless, many are excoriating the Fed and its move to cut rates 50 basis points. Because this may lead to inflation. The Fed does remain concerned about inflation, but that is not the Fed's only concern. The US is suffering a credit contagion and as we've seen in history, if you do not contain such fears, they can spread and result in serious financial markets stress as well as an economic recession. Thus, the Fed is acting first and foremost to prevent the spread of this contagion and head off a potential recession in the US.
I find it quite ironic that the same people complaining of potential inflation are the ones saying that the US had the weakest economy of the major economic powers in the world, and thus was not a good place to invest. They admit the economic weakness, yet apparently would rather see the US go into recession in than attempt to forestall an economic downturn and continue to fight inflation on the backside. They really makes you wonder about the motives of those complaining so bitterly about the Fed's action.
The Fed has made it very clear that this move was made in order to restore confidence in the financial markets, and was made in conjunction with the discount rate cuts and the changes in allowed to collateral at the discount window that directly address the credit issues. All of this is a package deal to unfreeze the credit market and restore confidence in other US markets. Once the Fed is successful in doing what it set out to do, it is not going to keep cutting rates.
Thus, we don't believe there is much merit in the argument that the Fed action is going to result in a spike in inflation. There is the risk of inflation in the US as oil becomes more costly due to a weaker dollar. The Fed knew that going in. It also knew, however, that poor inflation in the US has declined over the past year, and is falling much more rapidly this year. It knows it has some room to work with lower inflation, and it is taking advantage of that wiggle room in order to forestall a potential recession in the United States. It's hard to argue there is anything wrong with that kind of action. Indeed, that is what the federal reserve, is there to do.
THE MARKET
MARKET SENTIMENT
VIX: 20.45; +0.42
VXN: 21.97; -0.54
VXO: 20.54; +0.74
Put/Call Ratio (CBOE): 1.01; +0.03.
Bulls: 53.9%. Another big jump higher, up from 48.3%. Much to bullish and much to quickly, moving toward the 55% level that is considered bearish. On a steady climb from 42.9% and 40.6%, the latter being the low for this round. Never made the thirties. Getting close to the 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: 27.0%. Big drop off from 31.0% last week and 10 points off the prior week (37.4%) where it held for 3 weeks. Still well off the very low 18% hit 8 weeks back, and it topped the June 2006 peak (36%) on this run. 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: -12.19 points (-0.46%) to close at 2654.29
Volume: 1.786B (-20.12%). Volume fell well off average, just as it should do on a test session. Strongest volume in a month on the upside move, weak again on the test.
Up Volume: 642.35M (-800.597M)
Down Volume: 1.108B (+385.844M)
A/D and Hi/Lo: Decliners led 1.66 to 1
Previous Session: Advancers led 1.99 to 1
New Highs: 43 (-138)
New Lows: 23 (-5)
NASDAQ CHART: http://investmenthouse.com/ihmedia/NASDAQ.jpeg
After bumping the old upper channel line on the Wednesday high, NASDAQ sold back some of the gain, but it also used the old lower channel line at 2650ish as support as it did, rebounding from there modestly to the close. May not mean a whole lot, but it caught our attention, and if NASDAQ starts using this as support once more that bodes very well for the current advance. Likely has a bit more testing and resting to do, and holding in this range would be excellent action for a higher low and then a run at the prior high. If it is not going to hold this trendline, then the September high at 2645 or the June peaks at 2635 will do nicely.
SOX (+0.08%) was up, but it was not a pillar of strength. The move did not change its pattern appreciably though we continue to see some semiconductors setting up better. Still residing in Missouri (the 'show me' state).
SOX CHART: http://investmenthouse.com/ihmedia/SOX.jpeg
SP500/NYSE
Stats: -10.28 points (-0.67%) to close at 1518.75
NYSE Volume: 1.273B (-23.8%). Similar to NASDAQ with the sharp decline in volume as SP500 faded back from the strong break higher.
Up Volume: 373.67M (-755.839M)
Down Volume: 886.814M (+360.054M)
A/D and Hi/Lo: Decliners led 2.37 to 1. A bit worse than the rest of the indicators.
Previous Session: Advancers led 1.88 to 1
New Highs: 57 (-61)
New Lows: 12 (+6)
SP500 CHART: http://investmenthouse.com/ihmedia/SP500.jpeg
After two strong moves the large caps tested back after tapping at the June highs (1535ish) on the Wednesday high. Lower volume so no dumping. The SP500's main problem was a lack of support from the financials after the brokers' earnings. There was no heavy selling, however, even if the brokers disappointed overall (outside of GS' stellar performance). A good point to pullback to is near 1512, an interim high from early May.
SP600 (-0.77%) led in percentage gains on the moves post-Fed and accordingly it fell more on the selling. It tapped and held the 90 day SMA (425.38) on the low and held. That is where you want it to hold and work laterally as it forms a handle to the break higher.
SP600 CHART: http://investmenthouse.com/ihmedia/SP600.jpeg
DJ30
The blue chips took the day off as well, fading modestly on low volume. Found resistance at the prior channel lines and is now coming back to test that move. A hold at the June peaks (13,692 to 13,688) on a test is just what you want to see. Still has about 120 points to that level, but a hold anywhere above that level is a good indication.
Stats: -48.86 points (-0.35%) to close at 13766.7
Volume: 200M shares Thursday versus 276M shares Wednesday.
DJ30 CHART: http://www.investmenthouse.com/ihmedia/DJ30.jpeg
FRIDAY
Expiration Friday tomorrow, and though there are no scheduled economic reports, we may see some more position shuffling before the close given the strong rally on Tuesday and Wednesday in response to the surprise Fed move. A lot of positions had to be adjusted, and likely many were waiting to do all of their positions until Friday just to see how the market responded. Thus though Thursday was a modest downside session, Friday could prove to be a bit more interesting.
With the market overall taking a breather after the surge higher it is time to be patient and let stocks make the test of near support. On this last move we bought into many stocks even before the FOMC meeting because they were showing us it was time to buy. We took a lot of nice gain off the table post-FOMC as stocks surged; in short we let the other people rushing in the market after us push our stocks up so we could take some gain.
After that run they are going to test back, and you know how we like the first test of a breakout as a point to buy new or add to positions. Not all stocks are making the first test; some are on extended runs. Those that are making a first or second test, and those that are setting up for their initial breakout are the ones we are focusing in on as the market makes this test. The test sets up new buy points and it also shows us whether the market is just resting in preparation of a new move higher or, if volume surges and leaders crash, it is heading lower again.
The latter case is one reason we are going to continue looking globally as a main focus for new buys over the coming week. Even with worries over the US economy, the global economy remains strong, and that is driving prices. We already see some stocks coming back into new buy range, and when they show the bounce higher, particularly if the market continues this slow easy fade that shows no heavy selling, we will be ready to move in with new buys and ride them back up.
Support and Resistance
NASDAQ: Closed at 2654.29
Resistance:
2673 is the early July high
2690 is the November/December/February up trendline
2720 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 10 day EMA at 2619
The 90 day SMA at 2592
The 50 day EMA at 2586
2531.42 is the February high (post-2002 high); 2525 intraday
The 200 day SMA at 2521
2509 is the January 2007 high
2450 is some price support from November and December 2006
2422 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 1518.75
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 1497
1496 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 1481
1475 from peaks in December 1999 and January 2000
The 200 day SMA at 1464
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 13,766.70
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 10 day EMA at 13,533
The 90 day SMA at 13,462
The 50 day EMA at 13,386
13,215 is the July 2006/March 2007 up trendline
13,121 is minor support from the April peak
The 200 day SMA at 12,975
12,845 is July closing low
12,796 at the February 2007 high
12,518 is the August intraday low
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.): 311K actual versus 320K expected, 320K prior
Leading Economic Indicators, August (10:00 a.m.): -0.6% actual versus 0.0% expected, 0.7% prior, revised from 0.4%
Philadelphia Fed, September (12:00 p.m.): 10.9 actual versus 2.5 expected, 0.0 prior
End part 1 of 3
|
world stock market
us stock market
|
