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world stock market, us stock market
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10/16/07 Investment House Daily
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SUMMARY:
- Another slog through uninspiring earnings and rising oil prices, but after hours things brighten
- Net monthly inflows were actually outflows from the US.
- Tech earnings trying to reignite the upside after hours.
Another sluggish downside session as earnings fail to light any fires.
The litany of earnings has begun. Tuesday investors were greeted with earnings from across the economic spectrum, both good and not so good. JNJ and FRX beat. DNA was in line. KEY and WFC from the financial sector missed. ERIC and VCLK warned. The beats were not that great of beats, the misses were somewhat expected, but the warnings were, as usual, what caused the most pain. With these tech related issues warning about their results NASDAQ, the leading index in this rally, was going to be under pressure.
There was more than just earnings. Oil was on the rise again, topping $88 intraday before settling at 87.61, +1.48. The catalyst Tuesday, other than continued demand, was the Turkish/Kurdish dispute. In addition, India was talking about limiting foreign investment within the country, another country joining the long list of more protectionist talk that threatens to undo some of the gains over the past few years. There were also capital outflows from the US in August instead of the inflows we get month after month. More people wanted out than in, and that raises the question of where the funds are going to come from to support our trade gap.
That was more than enough to keep the pressure on stocks. Indeed, stocks continued lower, carrying over the Monday selling. As is often the case when stocks start lower, they bottomed midmorning and rallied into lunch, even turning modestly positive. The could not, however, hold positive or even a part of the bounce. They turned over and sold back as the session moved into the afternoon. The pressure remained and they sold into the last hour before a modest bounce attempt. That did little to change the complexion, however. The action was no mystery though; just more of the same as the indices test back after a solid move higher and ahead of earnings that show questionable promise.
Technically the market showed the same action in two of the prior three sessions, i.e. a weaker open, a rally attempt, but then a failure with a close in the lower half of the intraday range. Tried to step out of the mold with the rally into lunch that turned things briefly positive, but the weakness remained as stocks sold back into the afternoon. The internals remained poor, basically on par with Monday. Breadth at -2.5:1 on NYSE, -1.8:1 on NASDAQ. Volume was mixed with NYSE lighter while NASDAQ showed some of that nagging distribution once more with volume climbing above average for only the third time since mid-August.
As for the charts, the big indices slipped lower once more, falling just through the next support level. For NASDAQ that was the 10 day EMA, for SP500 and DJ30 that was the 18 day EMA. No real breakdowns or sudden drops, just further slippage.
Leadership is still in the pullback mode, at least for the most part; AAPL was back up again. Even with oil soaring, energy was mixed as to whether it gained or lost ground. Overall, however, most stocks were lower as the leaders continue their pullbacks to test the prior run higher. That included metals, industrials, most techs, shipping, and others. Earnings, before the close, were not exciting enough to generate buying just yet, but after just a week or less of testing that is not surprising.
After hours INTC and YHOO topped expectations and INTC had a particularly rosy outlook. That bounced those stocks and they had some coattails for others to ride. Internet stocks were up as were stocks related to PC, telecom and other tech areas. Futures were up 5 after hours and the question now is whether this news has staying power and can reignite the upside rally. Pretty short test and still a lot of earnings to hit the wire as earnings are just getting rolling.
THE ECONOMY
Net foreign purchases report has to change its name to net foreign sales.
The report had shown some volatility the past year with some months the purchases coming in lower than expected but then surging the next month. Volatility always indicates change taking place, and after months and months of volatility, there was more disinvestment in the US than investment. $163.0B flowed out of the US versus $94.3B flowing in. That left a $69.3B net outflow.
The problems with this number are many. It is part of the weakness seen in the dollar; as US investments are sold more dollars come back to the US as dollars are sold in favor of other currencies that are used for investments outside the US. A weaker dollar means more expensive imports and the start of importing inflation into the US. Oil is higher because of demand, but also because the dollar continues to fall and thus oil has to rise in price just to make up that shortfall in dollar buying power.
More and more countries, led by our enemies, are requiring payment in euros or currency other than the dollar. That means even more dollars coming home, reducing the demand for the currency and further reducing its value. It also means not only do our imports cost more, but that inflation is stoked in another manner, i.e. the classic definition of too much money chasing the same number of goods.
In short, in pursuing a weak dollar policy as its unofficial stance, the Bush administration has accelerated a process that would have taken much longer to come about. As is always the case, this type of meddling (seen with the Fed as well) meets unexpected circumstances that makes the actions all the worse. The rest of the world is enjoying a boom and we weaken the dollar into that boom. That makes overseas investments even more attractive than they would already have been. Add onto that our enemies pushing for another standard currency than the dollar and you spark problems that would likely not have sparked up until much later and indeed we may have been able to avoid what with changing political currents from year to year.
THE MARKET
MARKET SENTIMENT
VIX: 20.02; +0.77
VXN: 23.56; +0.1
VXO: 20; +0.56
Put/Call Ratio (CBOE): 0.94; +0.14. Not jumping right back up to 1.0 on this selling as it did in times past. That indicates there is more work to be done, but the after hours action is trying to change that.
Bulls: 60.2%. Streaking higher and now well above the 55% level considered bearish. Third week above that level, indicating that the market is getting overdone. The Thursday sharp selling is an indication of that. The theory is that when too many investors or advisors are bullish then most of the money is in the market and there is nothing ready to come in off the sidelines to drive prices higher. On a steady climb from a low of 40.6%, the low for this round. Never made the thirties. Hit 56.7% in June and now it has blown past that. The market peaked about a month later. For reference it bottomed in the summer 2006 near 36%, and 35% is considered bullish.
Bears: 21.5%. Tanked from 25.0% the prior week as bears slide steadily lower toward the 20% level considered bearish. It peaked at 37.4% on this move. Closer to the 18% hit in August, 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: -16.14 points (-0.58%) to close at 2763.91
Volume: 2.074B (+2.39%). Volume cracked average for only the third time since the August selling, and two of those times the index moved lower.
Up Volume: 627.013M (+57.993M)
Down Volume: 1.43B (-15.79M)
A/D and Hi/Lo: Decliners led 1.79 to 1. Not as bad as Monday, but not great either, easily tipping negative.
Previous Session: Decliners led 2.38 to 1
New Highs: 37 (-13)
New Lows: 77 (+19)
NASDAQ CHART: http://investmenthouse.com/ihmedia/NASDAQ.jpeg
NASDAQ gapped lower, tried to recover, but did not have any gas to do so. Three downside sessions in four, and all three downside sessions on rising volume. NASDAQ still holds its breakout; it has given little ground despite the selling. It closed below the 10 day EMA and looked to fill the gap from two weeks back down to 2733. INTC and YHOO have sparked a rally and now we will see how strong that is, i.e. is it enough to overcome the need to test back and fill the gap while at the same time testing the July high (2725). Ahead of these earnings we would have anticipated that move, and indeed, even with the earnings we are still concerned that a test still has to be made.
SOX (-0.10%) tried to rally but it failed to hold a move over the 200 day SMA once again. INTC is going to help it and we will see what kind of coattails INTC brings to the table.
SOX CHART: http://investmenthouse.com/ihmedia/SOX.jpeg
SP500/NYSE
Stats: -10.18 points (-0.66%) to close at 1538.53
NYSE Volume: 1.285B (-0.16%). Volume was on par with Monday and still well below average as the NYSE indices slide back. The only high trade was on the reversal session last Thursday.
Up Volume: 294.588M (-13.725M)
Down Volume: 984.164M (+16.137M)
A/D and Hi/Lo: Decliners led 2.55 to 1. More crappy breadth.
Previous Session: Decliners led 2.62 to 1
New Highs: 34 (-19)
New Lows: 54 (+15)
SP500 CHART: http://investmenthouse.com/ihmedia/SP500.jpeg
The selling picked up speed as SP500 continues lower after the Thursday reversal on high volume. Giving up the breakout and falling into the June peaks. Logical place for it to hold, but that is not an exact point; SP500 could fall on down to some support in the 1525 range as it makes the test. Some tech components on SP500, but it will also need the help of the financials to pull out of this test.
SP600 (-0.90%) dove through the 18 day EMA (432.15) and toward some support at 425. The small caps lagged on the way higher, they did not make the breakout, and now they are falling harder and well off the chance of breakout for now.
SP600 CHART: http://investmenthouse.com/ihmedia/SP600.jpeg
DJ30
The Dow slipped as well, falling through the 18 day EMA along with SP500. Volume was up as INTC and IBM traded ahead of their after hours earnings. DJ30 has undercut its breakout point from the July peak and it had some downside momentum. With the INTC results it will get some help, but IBM will work to negate that strength. Thus we see if there is a standoff of sorts tomorrow or if the industrial index can put together a rebound from this rather modest test.
Stats: -71.86 points (-0.51%) to close at 13912.94
Volume: 229M shares Tuesday versus 220M shares Monday. Some more distribution on the Dow as volume reached up to average as the blue chips undercut the 18 day EMA. Three of the last four sessions were to the downside.
DJ30 CHART: http://www.investmenthouse.com/ihmedia/DJ30.jpeg
WEDNESDAY
The market showed nothing to indicate upside during the regular session, but after hours INTC and YHOO topped the charts by beating expectations. After so many disappointments from these two there was some genuine after hours excitement, and as noted above, some coattail effect as well. The INTC CEO, after several quarters of solemn television postscripts to yet another lackluster earnings report, looked a few years younger. He noted strong demand and no inventory build. With a client such as AAPL now, I suppose he does have reason to smile. By the way, Apple was up as well; no secret there as it must be selling a lot of computers with INTC doing so well now that Apple is using its chips.
The question to be answered is whether it is just the laggards finally catching up or whether the laggards are leading the next economic run. Have to say that we don't view it as the latter, but again, we have to see how the majority of the investors see the results with respect to future growth. Of course that means how the leading stocks respond, i.e. if they come off their tests with some volume, showing buyers are interested in them in number.
There have been some good tests in progress with several strong runners coming back to near support. Overall we would prefer to see more testing and consolidating before another move. On the other hand the main indices just made new breakouts, and a modest pullback shows they are stingy with their gains and it also shows continued strength in the breakout move. Thus if we see stocks rebounding on solid trade after these tests we are not going to quibble because the test was not exactly as long as we felt it should be.
There are still a lot of earnings ahead and there can still be a lot of disappointment if say some of the stronger runners on this move cannot show the same upside outlook as INTC and YHOO, laggards in most of the advance by the stock market over the past 7 years. If they show the same earnings ahead of INTC and YHOO, the bounce could be short lived. Thus we look for solid stocks in position to buy, and we move in as they move up.
Support and Resistance
NASDAQ: Closed at 2763.91
Resistance:
The 10 day EMA at 2769
2778 from a July 1999 peak
2887 from a September 1999 peak
2920 from an October 1999 peak
Support:
2759 is the November/February up trendline
2725 is the July high
2712 is the November/December/February up trendline
2673 is the early July high
The 50 day EMA at 2671
2634.60 is the June peak
The 90 day SMA at 2627
The 200 day SMA at 2549
S&P 500: Closed at 1538.53
Resistance:
1541 is the early June high
The 10 day EMA is at 1548
1553 intraday high from March 2000 used to be the all-time peak
1556 is the July intraday high
1576 is the Thursday intraday high.
Support:
1539 is the mid-June intraday high
1534 is the early July high
The 50 day EMA at 1513
1512 is the July 2006/March 2007 up trendline
The 90 day SMA is at 1501
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 1475
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
Dow: Closed at 13,912.94
Resistance:
The 18 day EMA at 13,926
The 10 day EMA at 13,996
14,005 is the old channel line
The July high at 14,022
14,088 is the early October closing high
14,198 is the Thursday intraday high.
Support:
The August high at 13,696
The mid-June high at 13,689
The 50 day EMA at 13,693
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 90 day SMA at 13,553
13,285 is the July 2006/March 2007 up trendline
13,121 is minor support from the April peak
The 200 day SMA at 13,117
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 15
NY Empire State Index, October (8:30): 28.74 actual versus 14.0 expected, 14.7 prior
October 16
Net foreign purchases, August (9:00): -$63.9B, $19.2B prior
Industrial production, September (9:15): 0.1% actual versus 0.1% expected, 0.2% prior
Capacity utilization, September (9:15): 82.1% actual versus 82.1% expected, 82.2% prior
October 17
CPI, September (8:30): 0.2% expected, -0.1% prior
Core CPI, September (8:30): 0.2% expected, 0.2% prior
Housing starts, September (8:30): 1.285M expected, 1.331M prior
Building permits, September (8:30): 1.3M expected, 1.322M prior
Crude oil inventories (10:30)
Fed Beige Book (2:00)
October 18
Initial jobless claims (8:30): 315K expected, 308K prior
Leading economic indicators, September (10:00): 0.3% expected, -0.6% prior
Philly Fed, October (12:00): 7.0 expected, 10.9 prior
End part 1 of 3
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world stock market
us stock market
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