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world stock market, us stock market
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10/04/07 Stock Split Report
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Stock Split Report Subscribers:
MARKET ALERTS
Targets hit alerts: RIMM
Buy alerts: None issued
Trailing stops: AMX
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 trade down, up, close flat ahead of jobs report.
- Jobless claims still indicate a solid trend, but continuing claims on the rise.
- Factory orders down as business investment continues flat: with all of the corporate cash, why?
- Jobs report will set the early stage, but expecting the market to break higher from this test whether Friday or next week.
Market trades flat ahead of jobs report.
Foreign markets were lower but the US market was rather oblivious with futures trading modestly higher. The ECB and BOE (the EU and UK central banks) left interest rates unchanged which was no real surprise though Europe could use a bit of rate cutting of its own. Central banker Trichet was hawkish at first, and then later in the day he was more dovish, apparently getting an earful from the French PM about his continued hawkish talk even as the European economies suffer some of the same issues in the US. Why else would the BOE find it necessary to pump liquidity into the system and bail out one of its lending institutions? Maybe Trichet is getting some of the woodshed action that Bernanke got when he called in the heads of various brokerages and financial institutions.
Jobless claims were up some and factory orders were weak after a strong showing in July. None of that really influenced direction, what little there was. Stocks moved up and down, but it was in a very narrow range. Fittingly they closed flat. Volume was lower so there was no distribution; no accumulation either. Breadth was nicely positive on NYSE despite the flat trade. It was up on NASDAQ as well; not much but all things considered, that was a moral victory.
Technically the action improved. There was not new surge in leadership, but energy, metals, and techs regained some lost ground, holding near support in the process. Indeed, with the early test lower, the rebound by these stocks was nice shakeout action, setting them up for a move higher. They have been doing that all along but we like how they gave a nice response to some pressure on Wednesday.
The indices tested lower as well, and they rebounded as well. NASDAQ undercut its July peak, but it rebounded to close above that level once more. Similar action on SP500 and DJ30 as they held steady. They are certainly set up to make the continued break higher they started on Monday. Now they just need a trigger to consummate the deal.
THE ECONOMY
Jobless claims jump right back up.
They won't impact the August jobs report to be released Friday, but the rise in weekly claims with the jobs report close at hand sparked up the debate about employment once more. After the July report showed a 4K decline and was used as some cover by the Fed to cut the Fed Funds rate by 50 BP, employment remains a hot button issue. No doubt it is key; the consumer spends or doesn't spend based upon his or her view about future employment. Thus far that view has remained solid, and frankly, the data suggest it will remain so.
Initial claims rose to 317K from 301K (revised up from 298K initially reported). That is down from the mini-spike seen in early September, and it continues a trend lower for the year. Heading into the latter part of 2006 and early 2007, however, jobless claims were trending higher after a low in early 2006. That mid-cycle slowdown that we saw reflected in the August jobs report showed up in the initial jobless claims more or less contemporaneously. That is what makes the initial claims so much more timely and accurate in gauging the jobs market versus the monthly jobs report.
The sore spot in the report is the continuing claims measure. While the 4-week average hit a 20 week high in early September, it has backed off and remains well below the levels from early 2007. Continuing claims, while down for the week (2.541M, -10K) and down from the August 20 month high, continue to trend higher overall. This is a chink in the armor, though it is of course well off the peaks hit in 2002 and early 2003.
Basically what the economy needs is to get past this credit crunch and mortgage malaise and jumpstart the expansion that started anew in Q2 as the mid-cycle slowdown from second half 2006 ended and the economy jumped higher. It was a nice start, but then the mortgage and credit issues pushed it back. Now with the Fed in the game we have to see if it was in time to forestall another and potentially deeper slowdown caused by the unavailability of credit for a couple of months.
Factory orders bouncing around as usual.
In July they were up 3.4%, a record level and that was part of an impressive 4.4% gain over two months. Living up to their 'volatile' billing, however, they fell 3.3% in August. After a steep decline from 2005 through late 2006, they have trended higher this year in a mini-uptrend (the last six months annualized is +10% versus a meager +1% year/year reading). Positive signs as the economy pulled out of that mid-cycle slowdown that hit in the second half of 2006.
Transportation, particularly aircraft orders, have provided much of the lift. Transportation had risen 21% over the prior two months, but it fell 11% in August. Thus when you factor out transportation (ex-transports) the loss decreases to -1.7% from -3.3% overall.
As with last month and indeed the past six months, despite the increase in factory orders overall, business investment is flat over that same period. Balance sheets remain strong and companies are flush with cash, but they have slowed their capital expenditures. Indeed, after a strong surge back up to late 1990's levels from 2003 to 2006, that second half of 2006 saw a trend lower. As noted, it has stabilized and traded flat the past six months, but that is hardly a resurgence of the investment this economy needs. Remember, it was a lack of business investment from 2000 to the end of 2002 (three years) that pushed this economy into recession even as the consumer remained strong. The consumer, while retrenching some, is still strong. The economy again needs the business side to start investing once more.
To invest or not to invest: it depends upon the powers to come.
Why are businesses not investing? Uncertainty as to the political future. They have the cash to do it, but there is a lot of talk on the political campaign trail from the leading contenders (the democrats) about raising taxes on capital, ending corporate loopholes, raising taxes on the 'rich,' increasing medical spending into basically a national healthcare level (a.k.a. a man-made disaster for the entire healthcare of the world). With all of that political turmoil they are not making long-term investments right now. While it makes sense to make some expenditures before the rules change, and no doubt that will happen before the election with regard to shorter-term projects, as for the long-term capital outlays, there is no rush to make them given that the rules of the game could change mid-project. This will likely only worsen as the election draws near if the democrats continue to lead in the polls and they continue this anti-business, anti-trade, anti-capitalistic approach to their vision of government.
Two points made above will no doubt raise the ire of many. First, many will criticize me for calling national healthcare a disaster for the US and the world. So many of our leaders in Washington, D.C. say we are the only major industrial nation without national healthcare and point to Canada, Australia, and others as some sort of shining examples of how it works. I have personal experience that shows it does not work. I have a dead brother who would have survived if he had been in the US but because of where he was (Australia) he did not. He was in the social program and could not get better care even if he had wanted to pay for it; his national healthcare plan would not allow it. In the first place, they were dilatory in treating him because he was too old; the cost expended to save his life would not be worth the additional years he had to live. When a donor was found that matched no one else, however, they finally relented and allowed the treatment. The time lost was costly in the effort. The treatment procedures that were 20 years behind the US were fatal. I have been told that if he had come back to the US he would be alive today. I have a similar story with respect to Canada, and how by virtue of getting the patient back to the US after too much time had passed and a botched attempt in Canada, the US doctors were able to save the patient.
Our system also produces the best drugs and medical equipment in the world. The entire world benefits from this because, 1) they have the equipment and drugs to use, and 2) they get it cheap because US citizens underwrite the entire world's healthcare because other governments demand our companies charge less. Thus, in order to get the great drugs and equipment that the world needs, we here in the US pay for most of it through higher medical costs that Canada, Australia, Europe, etc. refuse to pay.
Of course if we go to national healthcare that also limits what procedures can be done, what can be charged, etc., then we won't be producing all of these miracle drugs and equipment. There is no incentive to do so because the risk/reward ratio is too low. If you spend billions on developing a drug or product, you need to have the ability to recoup your cost in a commercially reasonable time period compared to what other opportunity costs you have for your money. If the ratio gets too low, you don't make the investment and we don't get the miracle drugs, the kind that cured Lance Armstrong and my wife last year.
Some may choose to deny this, but in case after case when a national plan is adopted and limits access and return the result is no further invention. Canada was the country that first synthesized the insulin we use to treat diabetics. That was pre-national healthcare. Know how many drugs Canada has invented, synthesized or otherwise since national healthcare? None. There is no incentive to do so because the billions required to do so could not be recouped in a commercially reasonable timeframe given Canada's requirements. Thus no invention.
We can provide national healthcare in the US. If we want to go against the Constitution (as we already do) we can tax some more and create another entitlement. We won't, however, have the gold standard of care that we all strive to achieve for our families. There is this idea that if the government takes over we will all get this great healthcare. First, as noted above, the level of care will decline because the rate of invention will fall sharply as capital is routed to other more lucrative areas. Sorry, but that is the history of economics. Second, we cannot afford to pay for the gold standard. We cannot pay for social security or Medicare now; adding on to those will strain the system and thus reduce benefits and put us all in waiting lines for drugs, procedures, etc. If you try to buy better care you are fined and the doctor fined or imprisoned.
Not the Fed's job.
That is not the US. That is not what has made us great. What we will have is a world with much slower progress in healthcare and cures because the incentive to get to the market first with the best will be gone. Just ask yourself what has the federal government taken over that has worked better afterwards? The mail? The fight against poverty? Social security with its 1% return on your 'investment?' Public education (as we fall behind all industrialized nations)? Government does some things well and those are set out in the Constitution (e.g. national defense IF it does not take its eye off the ball worrying about healthcare, welfare, social security, etc. and we miss an attack against us that we had all the information we needed to prevent). When it goes past those sage boundaries our founding fathers set, well, we suffer.
Some argue that the founding fathers were not all-knowing and indeed how could they foresee the problems we face today. For one, if they came back today they would realize they had failed, that the checks and balances did not work because the federal government had swallowed the state governments as the judiciary became too strong, Congress got the upper hand on the executive when the President's terms were limited but Congress' were not, etc.
Further than that, however, the founding fathers did foresee these problems. They had a model in the Roman Empire. The Roman empire prospered and dominated when it did what it did best, i.e. ruthlessly conquer and rule its opponents. It fell into malaise, lost its ability to defend itself, and ultimately fell to less powerful enemies when it became overly engrossed in social issues and neglected what made it strong. Healthcare, social programs, retirement - - these were all areas that Rome delved into and spent its time and fortune upon. When new enemies arose it did not have the capability to deal with them as it would have during its prime, and thus it ultimately fell.
Our founding fathers were learned men and they had this model to go by. No we were not a recreation of Rome, but our founding fathers knew from that history that when the Federal government was too powerful and deviated from primary duties it would be inefficient and fail. We are heading down this path now. The attack of 9-11 was a wakeup call that fortunately we could respond to though we still have not eliminated our enemy. It showed us that we had taken our eye off the ball with respect to the express duties of the government in the Constitution, namely defense, and let an attack occur that we had the information to sniff out. Too many agencies with divergent goals, too many areas of government at a federal level, and the feds ended up failing to protect us with respect to a primary duty set out in the Constitution.
No, the founding fathers were correct in leaving the healthcare, retirement and other issues with the states and local governments where they could be closely watched and controlled. Now they are so large and so corrupt there is very little bang for the buck as we waste billions each year that would otherwise go to help those needing help AND go into the economy and keep it healthy.
The irony of all of this is that the socialist and former communist block countries are the ones realizing this. They have jettisoned the old ways in Ireland, Australia, New Zealand and any number of former east-block countries in favor of capitalism and privatization. They have learned the lesson that we knew but that we have now strayed from, and based upon what we hear on the campaign trail, are going to stray further from. With that background, it is no wonder businesses are somewhat hesitant to plow a lot of capital into the economy at this juncture. They remember flush times from the 1990's were quickly hard times, and they want to preserve some of that capital just in case.
THE MARKET
MARKET SENTIMENT
VIX: 18.44; -0.36
VXN: 21.46; -0.09
VXO: 18.02; +0.38
Put/Call Ratio (CBOE): 0.73; -0.09
Bulls: 55.6%. Bulls jumped again , up from 53.9% and topping the 55% level considered bearish. Big jumps the past few weeks from a low of 40.6%, the low for this round. Never made the thirties. Hit 56.7% in June. The market peaked about a month later. For reference it bottomed in the summer 2006 near 36%, and 35% is considered bullish.
Bears: 25.6%. Falling, indicating bears are declining. Down from 27.0% last week and 31.0% the week before. It held at 37.4% for 3 weeks prior to that. 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: +4.14 points (+0.15%) to close at 2733.57
Volume: 1.726B (-8.37%). Nice low volume as NASDAQ tested lower and recovered. Good shakeout action.
Up Volume: 887.453M (+183.305M)
Down Volume: 814.919M (-343.093M)
A/D and Hi/Lo: Advancers led 1.28 to 1
Previous Session: Decliners led 1.59 to 1
New Highs: 64 (+4)
New Lows: 32 (+5)
NASDAQ CHART: http://investmenthouse.com/ihmedia/NASDAQ.jpeg
Traded in a 15 point range with an early test and an afternoon rebound. As noted above, nice shakeout action as NASDAQ undercut the July high (2725) on the low and then rebounded to easily hold that key breakout level. NASDAQ has refused to give up that level after the breakout, feeling for it on the lows and then recovering. After that low volume drift higher and then the Monday break to the new post-2002 high, it is hard to not like this test heading into the jobs report.
SOX (-0.24%) lost some more ground Thursday though it managed to bounce once more off of some support at 490. The chips cannot get out of their own way as they continue to stumble around, trying to find a bid.
SOX CHART: http://investmenthouse.com/ihmedia/SOX.jpeg
SP500/NYSE
Stats: +3.25 points (+0.21%) to close at 1542.84
NYSE Volume: 1.1B (-11.78%). Lowest volume in three weeks as the NYSE basically was on hold as it awaits the jobs report.
Up Volume: 650.063M (+181.617M)
Down Volume: 432.851M (-334.595M)
A/D and Hi/Lo: Advancers led 1.65 to 1. Not bat breadth at all given the modest gains in the exchange.
Previous Session: Decliners led 1.68 to 1
New Highs: 44 (+16)
New Lows: 8 (+1)
SP500 CHART: http://investmenthouse.com/ihmedia/SP500.jpeg
SP500 sold modestly lower but it closed positive as it continues the three-day test of the Monday surge higher. Low volume pullback is very good consolidation action as we have seen over the past month, i.e. stronger volume on the upside, lower volume on the downside. Very nice test and set up for the next leg higher after this test.
SP600 (+0.23) was by default the leader once more. On the upside sessions the small caps have led on a percentage basis, but they have yet to break to a new high. Of course they are also on par with SP500 and its attempt to make the breakout, so that is not bad at all. If the small caps can make the breakout move that is a very good indication for the market overall.
SP600 CHART: http://investmenthouse.com/ihmedia/SP600.jpeg
DJ30
Nice tight doji on Thursday as the blue chips test the old upper channel line in the test of the Monday breakout move. It is just below 14K but as noted earlier this week, 14K is not the issue. It is the pullback itself and how it shapes up. The low volume and modest losses indicate DJ30 is in solid position to make the next break higher.
Stats: +6.26 points (+0.04%) to close at 13974.31
Volume: 143M shares Thursday versus 178M shares Wednesday. Nice low volume doji is excellent consolidation action.
DJ30 CHART: http://www.investmenthouse.com/ihmedia/DJ30.jpeg
FRIDAY
Jobs report, jobs report, blah, blah, blah, jobs report. Last month it was shocking enough to rattle the market for a day, then it was over and the move higher continued. The fear Friday is that it will be stronger than the modest 100K expected. Too strong and the fear is the Fed will not be as generous in its October rate meeting.
Good surprise, bad surprise, no surprise, we still feel the market will handle it, if not Friday then the following week. The indices have maintained excellent positions in this pullback to test the NASDAQ and DJ30 breakouts, and that speaks loudly as to what investors believe longer term, regardless of what the jobs report reveals (or doesn't; it is quite the laggard indicator). Thus even if there is another adverse read, negative or positive, on Friday, we are still looking for this nice set up to ultimately give us the break higher to continue the breakout moves and then get SP500 and, if all goes well, SP600 to make the break as well.
We also cannot forget earnings season is here. Not fast approaching, but here. After hours RIMM announced results that were not as blowout as some had hoped and it was down. Just a couple of points in the late session, and there are some traders who are not so sure it will be down on Friday. That remains to be seen, but as far as the immediate impact even with some disappointment there was no bloodletting. Not a bad indication of some market strength.
That is what we will be looking for on Friday across the market in general. There were some downgrades in the energy sector and in the oil service companies, but after a weaker morning they were trading nicely higher by the close. More strength in the face of some adversity. Again, you have to like that.
Thus we are looking for some action on Friday after the jobs report works through the system. Many stocks are set up nicely to make the next move higher and if they make the move we are going to be all over them as they make the next moves higher. Thus far the market has stumbled around the past couple of weeks as it sets up for the move higher, but has been unable to make the break. Now it is set up to make the move and one the jobs report is in the bank, 'friendly' or not, the market will do what it wants to do regardless.
Support and Resistance
NASDAQ: Closed at 2733.57
Resistance:
2740 is the November/February up trendline
2778 from a July 1999 peak
2887 from a September 1999 peak
2920 from an October 1999 peak
Support:
2725 is the July high
The 10 day EMA at 2707
2702 is the November/December/February up trendline
2673 is the early July high
2634.60 is the June peak
The 50 day EMA at 2627
The 90 day SMA at 2609
The 200 day SMA at 2534
2531.42 is the February high (post-2002 high); 2525 intraday
2509 is the January 2007 high
2450 is some price support from November and December 2006
2425 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 1542.84
Resistance:
1541 is the early June high is waffling.
1553 intraday high from March 2000 is the all-time index peak
Support:
1539 is the mid-June intraday high
1534 is the early July high
The 10 day EMA is at 1531
1506 is the July 2006/March 2007 up trendline
The 90 day SMA is at 1498
The 50 day EMA at 1498
1490.72 is the early June closing low and early August peak.
1475 from peaks in December 1999 and January 2000
The 200 day SMA at 1470
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 13,974.31
Resistance:
13,975 is the old channel line
The July high at 14,022
7.0% above its 200 day SMA (13,038). When it gets near 10% it starts to struggle.
Support:
The 10 day EMA at 13,897
The August high at 13,696
The mid-June high at 13,689
The early June high at 13,676 (closing), 13,692 (intraday)
The early July peak at 13,671
The mid-May peak at 13,556
The 50 day EMA at 13,562
The 90 day SMA at 13,508
13,250 is the July 2006/March 2007 up trendline
13,121 is minor support from the April peak
The 200 day SMA at 13,053
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.
October 1
ISM index, September (10:00): 52.0 actual versus 52.5 expected, 52.9 prior
October 2
Pending home sales, August (10:00): -6.5% actual, -12.2% prior
October 3
ISM Services, September (10:00): 54.8 actual versus 55.0 expected, 55.8 prior
Crude oil inventories: +1.4M actual versus -400K expected
October 4
Initial jobless claims (8:30): 317K actual versus 310K expected, 301K prior (revised from 298K)
Factory orders, August (10:00): -3.3% actual versus -2.8% expected, 3.4% prior (revised from 3.7%)
October 5
Non-farm payrolls, September (8:30): 100K expected, -4K prior
Unemployment rate (8:30): 4.7% expected versus 4.6% prior
Hourly earnings (8:30): 0.3% expected, 0.3% prior
Average workweek (8:30): 33.8 expected, 33.8 prior
Consumer Credit, August (3:00): $9.5B expected, $7.5B prior
End part 1 of 3
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world stock market
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