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wise stock trade, us stock market
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10/25/07 Investment House Daily
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Investment House Daily Subscribers:
MARKET ALERTS:
Targets hit alerts: Took some interim gain on DSX
Buy alerts: BTU; BRCD; DIA; SLT
Trailing stops: MEA
Stop alerts issued: ALGN; BCSI
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SUMMARY:
- NASDAQ under pressure again as stocks sell early but large cap NYSE once more rebound from the lows.
- Oil rises to close above $90/bbl.
- Just as tech starts to struggle an old horse comes back to lead.
Large cap NYSE has to step in as NASDAQ struggles
There were more earnings as usual during this peak earnings week, but there was also some economic data to set the stage for the morning. Their names were overall quite solid once more with MOT, BMY, POT, and EMC all topping estimates. There were some key misses, however, as DOW and CMI, both big industrials, missing, and missing badly. As for the economic data, jobless claims bounced higher once more, while durable goods orders, volatile as usual, came in well below expectations (-1.6% versus plus 1.5%). There was even some political intrigue, as United States announced sanctions against 20 Iranian banks and individuals purported to be involved in terrorist activities.
The mix of news was enough to start the market soft over all. A half hour into the session, new home sales released, and though they were less than expected, they were better then originally thought, because August sales were revised sharply lower making September look better. The "worse than expected, but better than thought" report help bounce stocks back up off of their first our lows. Remember, we have an active Fed right now, and every piece of economic data that is less than stellar reinforces the chance of another Fed rate cut next week. Indeed, the only question at this juncture is whether the Fed plays it safe with a 25 basis point cut or goes "balls to the wall" again with a 50 basis point cut.
Even with the Fed did in the market, guys can not hold that bounce higher on the weak new home sales data. They rolled back over and sold hard route of the morning. This time there was no midmorning bounce to grain stocks back from the depths as on Wednesday. Wednesday morning was pretty ran as NASDAQ sold over 3% and the Dow is off nearly 300 points. We practiced an the old technique some wise market traders taught us many years ago: get up away from the computer screen. When things feel and sound as bad as they did on Wednesday morning, you can bet that they are usually over done in the short term. Sure enough, the market bounced right back that afternoon with the indices recapturing most if not all of their losses.
Stocks sold into the early afternoon, but there they found bottom. The selling was blamed on a rumor that AIG was about to announce a huge write-down. With the market is volatile as it is, it is the season for rumor. CNBC's David Faber, quickly debunked that rumor, and that helped markets fine bottom for the session. Stocks rebounded and closed with S&P 500 and DJ 30 basically closing flat on the session. NASDAQ bounced as well, but it was struggling and could not make it back to flat before the bell rang. After languishing for a couple of weeks, NYSE large caps are trying to find a bottom in the past few sessions. It really helped that the energy stocks, released a few sectors within energy, and started to rebound. Oil rising to $90.66 (+3.36) certainly didn't hurt that sectors rebound. In doing so, they have helped out NASDAQ as it is finally come under some selling pressure after leading the market higher the last two months.
Technically, it was decent intraday action as the large cap NYSE indices managed to rebound from the selling that lasted till early afternoon. Once again they showed some decent intraday action. NASDAQ, the leader in the market, however, lagged, unable to recover to flat and posting the largest loss of the large cap indices. Though the indices managed to close near flat, there was no decrease in volatility. Once more of the large indices along in wide price ranges on the session with NASDAQ swinging 50 points high to low and DJ 30 close to 200 points.
The internals showed rebound time numbers on Brett (flat on the NYSE, -1.4:1 on NASDAQ). Volume was again elevated, higher on the NYSE and posting the second above-average volume session on that exchange. Volume was lower on NASDAQ, but still well above average. Volume remains elevated as the indices struggle through this pullback. Of course that is not the best action that they can exhibit, but they are holding up at support.
Speaking of support, the chart show that the NYSE indices performs just fine for the session, though they were unable to change their rather bearish picture. They tested lower intraday once more, with S&P 500 holding easily above the 1490 key support level, before rebounding to flat at the close. They case them somewhat consolidating, but still in the rather bearish overall pattern. Intraday, not bad action; overall still fighting to hold the line and break up the head and shoulders pattern is trying to form. NASDAQ continues to struggle, but this is a rather new phenomenon, and the index is holding in its lateral range formed past two weeks. It continues to showed that distribution, however, and that is an issue that is trying to erode the foundation that is holding for now.
As for leadership, tech is trying to hang on but is not leading right now. There were no bad technology earnings, and MOT actually posted a good report. Nonetheless, tech struggled for a second consecutive day, this time unable to rebound as it did on Wednesday. With oil rising over $90 per barrel, energy, or at least some sectors of energy, took the leadership role. Drillers and coal companies performed well, and some metals took up the mantle of leadership once more. Outside of those areas, it was rather thin. There are still many stocks holding up very well, but on Thursday, not many were raised to step up and assume leadership. It is good to see that they are still holding support and consolidating as the market works through its reach in selling issues, and there is still time for them to make a break higher once the indices, complete the current pullback.
THE ECONOMY
THE MARKET
MARKET SENTIMENT
VIX: 21.17; +0.37
VXN: 25.77; +0.97
VXO: 22.05; +1.09
Put/Call Ratio (CBOE): 1.09; +0.1. Moved above 1.0 as NASDAQ was unable to snap back as it did on Wednesday. On this round of selling, the put/call ratio has been slow to respond as it did in the July and August selloff. That would indicate that there is more work to be done before the market is ready to pounce. Of course, this is just one aspect to consider, though it is in line with the overly bullish attitude of most investment advisors.
Bulls: 62.0%. Up from 60.2% the prior week and continuing the streak higher and well above the 55% level considered bearish. Fourth week above that level, an indication that the market is getting overdone. 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: 19.6%. Falling below the 20% threshold, continuing the sharp drop. 21.5% the prior week and down 25.0% the week before that. 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: -23.9 points (-0.86%) to close at 2750.86
Volume: 2.739B (-1.56%). Volume was lower, so there was technically no distribution on NASDAQ, but it remains much higher than it was during the gains in September. That tells us the NASDAQ is still undergoing some big money selling as it struggles to hang on to its lateral consolidation.
Up Volume: 692.64M (+74.704M)
Down Volume: 2.033B (-111.437M)
A/D and Hi/Lo: Decliners led 1.41 to 1. Not a bad reading given NASDAQ lost almost 24 points.
Previous Session: Decliners led 2.07 to 1
New Highs: 54 (+23)
New Lows: 114 (+9)
NASDAQ CHART: http://investmenthouse.com/ihmedia/NASDAQ.jpeg
NASDAQ actually started the session higher, but it quickly reversed with the rest of the market as techs were again under pressure. Everyone is rather panicked about NASDAQ sufferings of selling, but in the bigger picture is his lead the market higher, and it is only natural for it to suffer some consolidation after such a strong move. I'll melodiously held above the Wednesday low, and it did rebound to reduce losses. It was unable to recover all of its losses as with the NYSE large-cap indices, but in the bigger picture NASDAQ is still holding on to its two week lateral and slightly lower fade. The volume is an issue as it is elevated and has shown some distribution as NASDAQ made its pullback. Thus far, however, that has not undermined the move, and NASDAQ still remains in decent shape to do some more consolidation, hold the line, and then resume the upside move.
From the looks of SOX (-2.02%) you would never know that the other indices showed relatively decent action. SOX started lower and continue lower throughout the session. The semiconductors are showing widely divergent weakness respect to the rest of the market, even as the rest of the market pulls back and consolidate some itself.
SOX CHART: http://investmenthouse.com/ihmedia/SOX.jpeg
SP500/NYSE
Stats: -1.48 points (-0.1%) to close at 1514.4
NYSE Volume: 1.614B (+1.64%). Volume surged again for the second consecutive session as S&P 500 reached down to support at the 1500 level and rebound. That high volume at the support shows that there is indeed a lot of support for the index at that level. Thus, despite the higher volume on a down session, this higher via trade is actually a sign as it shows big buyers stepping in to support the index at this level.
Up Volume: 769.575M (+152.176M)
Down Volume: 827.91M (-126.077M)
A/D and Hi/Lo: Decliners led 1.06 to 1. Pretty much as you would expect, not bad given the NYSE indices had to rebound from losses.
Previous Session: Decliners led 1.66 to 1
New Highs: 95 (+46)
New Lows: 49 (+9)
SP500 CHART: http://investmenthouse.com/ihmedia/SP500.jpeg
The large-cap started slightly lower, then sold down to the 90 day SMA at 1500 on the low. They stuck the landing at that point, holding above the Wednesday low at 1490 key support. They rebounded nicely in the afternoon to close flat. The pattern remains somewhat bearish, but we like how S&P 500 is holding this key support and rebounding each session. As noted above, strong volume shown as it tests and then rebounds indicates that buyers are stepping in to support the large-cap stocks at this point. It still has to have the help of the financials, however, in order to recover from this somewhat bearish pattern and break higher once more. Thus far, the financials are snake bit, unable to sustain a significant move outside of Goldman Sachs.
S&P 600 (-0.47%) recovered off of its lows as well, but it too stalled at the 50 day EMA on the high and was unable to recoup all its losses similar to the large-cap NYSE indices. Recall that S&P 600 was setting up a nice cup with handle base until just two weeks back, when it dumped lower and broke up its nice pattern. It is now in recovery mode, trying to hold the line and set back up for a new breakout attempt. It is really struggling, however, waiting for a 50 basis point Fed rate cut.
SP600 CHART: http://investmenthouse.com/ihmedia/SP600.jpeg
DJ30
The Dow sold off once more, but it also rebounded after holding near some support at 13,500. It was unable to recaptured the 50 day EMA after treading above that level for a short time early in the session as well as late in the session. It was good to see a recover, and volume as high as similar to S&P 500, but the pattern remains much more bearish. Microsoft will give it some wives on Friday, and we have to see how well that move can hold up. Again, the overall pattern remains quite bearish and DJ 30 has its work cut out for it to move higher from here without testing lower.
Stats: -3.33 points (-0.02%) to close at 13671.92
Volume: 274M shares Thursday versus 259M shares Wednesday. Volume continues his one as the blue chips test 13,500 on the low, but struggle when they get back into the 50 day EMA. You could say that as with S&P 500 it is showing buyers stepping in when the blue chips hit the support level, but with the strong dump lower last week it looks more like churning below a key resistance point.
DJ30 CHART: http://www.investmenthouse.com/ihmedia/DJ30.jpeg
FRIDAY
NASDAQ was under pressure and can on Thursday, but it looks as if the after-hours earnings from Microsoft will bail it out once more. He could use the help giving the high volume distribution seen over the past week even with some rather strong earnings results being posted. As noted above, even with the selling, NASDAQ remains in a two week lateral move as it tests the break to a new posts-2002 high. It undercut the breakout on the Monday gap lower, but since that time it is held above that key level. The Microsoft earnings will push it higher in the morning, and in the key is whether or not NASDAQ can hang on to the gains. The market is well within this earnings season at this point, and the market basically knows the gist of earnings overall. That means it is time or NASDAQ to find support and continue to break higher. The Microsoft earnings should be the catalyst to do so, if that is in fact, what NASDAQ is going to do.
The market is getting to a make or break point what with all of the issues facing the economy, the most recent being a resurgence in oil prices. That helped push certain energy sectors higher including alternative energy; $90/bbl oil will do that, and OPEC's pledge to produce 500K more bbl/day in November just is not enough to make a difference when this much money is pushing into the commodity.
In any event, NASDAQ is getting to what should be the shank of this pullback; it is either going to wrap it up and break higher once more or it is going to sell further. Same with DJ30; it is in a precarious position with more bearish attributes than bullish. MSFT is a major component of each and it is going to help both out tomorrow. Again, the test is how well it holds the move after the initial rah-rah.
Many potential leaders remain in position to move higher and we are going to keep looking at them for upside opportunity if the market can work through the current bout of selling. The selling has not been that severe, but as noted Wednesday, it has occurred right on the heels of the July/August correction. Moreover, stocks are either treated famously on earnings beats or they are mauled if they show any weakness. That stock to stock volatility mimics the overall index volatility, both intraday and day to day. Again, this volatility shows investors using the runs higher to move out of stocks while others use the dips to move in. It is not yet resolved; it helps that there are many leaders that remain in position to move higher if they get the catalyst. Again, the MSFT earnings will help provide that catalyst Friday, and we will see if it can stick for that session and then hold on into Monday. The latter is the key; everyone likes to party on Friday (well, at least most Fridays; the last one was a bear), but the key is whether they are still ready to have fun on Monday.
Support and Resistance
NASDAQ: Closed at 2750.89
Resistance:
2768 is the November/February up trendline
2778 from a July 1999 peak
2834 is the October intraday peak
2887 from a September 1999 peak
2920 from an October 1999 peak
Support:
2725 is the July high
2713 is the November/December/February up trendline
The 50 day EMA at 2695
2673 is the early July high
2634.60 is the June peak
S&P 500: Closed at 1514.40
Resistance:
1518 is the July 2006/March 2007 up trendline
The 10 day EMA is at 1525
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 used to be the all-time peak
1556 is the July intraday high
1576 is the Thursday intraday high.
Support:
The 50 day EMA at 1515
The 90 day SMA at 1501
1490.72 is the early June closing low and early August peak.
The 200 day SMA at 1479
1475 from peaks in December 1999 and January 2000
Dow: Closed at 13,671.92
Resistance:
The early June high at 13,676 (closing), 13,692 (intraday)
The mid-June high at 13,689
The August high at 13,696
The 50 day EMA at 13,694
The 10 day EMA at 13,756
14,030 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 early July peak at 13,671
The 90 day SMA at 13,566
13,320 is the July 2006/March 2007 up trendline
The 200 day SMA at 13,161
12,845 is the August closing low
12,786 is the June peak
Economic Calendar
These are consensus expectations. Our expectations will vary and are discussed in the 'Economy' section.
October 24
Existing home sales, September (10:00): 5.04M actual versus 5.25M expected, 5.50M prior
Crude oil inventories (10:30): -5.2M actual versus +1M expected and 1.78M prior
October 25
Durable goods orders, September (8:30): -1.7% actual versus 1.5% expected, -4.9% prior
Initial jobless claims (8:30): 331K actual versus 320K expected, 337K prior
New home sales, September (10:00): 770K actual versus 775K expected, 735K prior (revised from 795K)
October 26
Michigan sentiment, October final (10:00): 82.3 expected, 82.0 prior
End part 1 of 3
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wise stock trade
us stock market
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