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world stock market, us stock market
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10/29/07 Technical Traders Report
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MARKET ALERTS
Targets hit alerts: None issued
Buy alerts: FMCN; MR; MT; RIO
Trailing stops: None issued
Stop alerts: DIA
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/alertttr.html
SUMMARY:
- Stocks continue the gains into the new week but volume takes a holiday as market preps for the Fed.
- Slowing leading indicators begging the Fed for a 50BP rate cut.
- Looking for a ride up into the Fed and prior highs and then it is up to the Fed: 25BP or 50BP, a.k.a. the lady or the tiger?
Stocks rise again, sporting some great individual moves, but overall the action slows.
There was news of course, given the market is still in the midst of earnings season, and the stories were not bad but they were not earth moving either. HUM, VZ and RSH beat while LPX (lumber) missed and K (cereal) guided lower given the high cost of grain. It was Monday so the analysts were at work with a DELL upgrade (the INTC, MSFT earnings news having its impact) while NVDA was the victim of piling on with another downgrade. Chip sales rose 5.9% year over year, and that was good for a dead cat bounce in the chip sector. Yee hah. Oil rose to 93.53 (+1.67/bbl) on the close after topping 94 intraday, and that move pushed it past the all-time highs of the early 1980's in inflation adjusted dollars. Delving into uncharted waters is never that good for markets, particularly with a universally necessary product such as oil
That did not stop the market's advance as it continued its recovery off of the expiration Friday selling just over a week ago. The indices all closed higher outside of the small caps as they hung onto the early jump higher after the usual midmorning test pushed them back to flat and threatened the early upside. Trade was very lackluster as the indices did not recapture the early highs in the afternoon, instead putting in a drift higher to the closing bell. Stocks were up, but the session definitely had a sluggish feel as investors are looking out to Wednesday, looking for a rate cut but quite uneasy about the move higher in stocks ahead of the meeting. In other words, the market has started pricing in a cut, and if it continues higher to 2:15p.m. ET Wednesday and the Fed cuts just 25BP, the market will take back that move higher.
Technically the action matched the feel of the day: decent but hardly blowout. There was some more low to high action, but not much differential between the low and the high. Moreover, the day started high to low as the market opened higher but sold off into midmorning. Of course it bottomed there yet again and stocks rebounded into the afternoon session. They did not, however, power higher, instead just putting in a slow steady rebound into the afternoon and then struggling to hang on.
The internals were bland as well with mediocre breadth (1.4:1 NYSE, flat on NASDAQ) and sharply lower volume. Stocks moved higher, but the moves were in rather specific sectors once again as opposed to the market overall getting a lift.
The charts show the continued move higher, one that is getting in the realm of threatening the prior peaks. Indeed, NASDAQ closed at a new post-2002 closing high. The NYSE indices are not that far along as they lagged NASDAQ on the last run, and while they can still move higher on this run, they are likely to pause before they can make the break higher that takes out the October highs. While the recent move had its roots in some good volume that turned these indices higher, the subsequent volume has steadily declined, falling below average for the NYSE on Monday. Hard to keep a move going with declining volume unless something such as a 50BP rate cuts pops up.
Leadership was still present, and it was still in some old and familiar names. Energy rode the back of high oil again, metals had another solid session, Chinese stocks were very strong once more, and the stock index companies (e.g. NDAQ, NYX) had super days yet again. As one commentator noted, they appear to be the 'financial' play for the market while the true financials continue to languish (outside of GS which was up yet again Monday). Leadership remains solid but it is also still a small part of the market when you look at the rather squeamish breadth on Monday. As we have seen in this market thus far, however, it does not take a lot of stocks to make us a lot of money, because those that are leading are really leading well.
THE ECONOMY
Slowing global leading indicators make a strong case for the Fed to be pre-emptive once again.
There are lots of discussions on the financial stations every day about economic reports and what they mean for the economic future. There is nothing wrong with the data in general, i.e. with what statistics are being reported. The problems arise when attempts are made at interpreting the data. It can show a trend, but typically by the time the data is released it is old news and tells us nothing about the future other than if a trend is still in place or not. The only really decent human indicator so to speak is the one compiled by ECRI. It uses a proprietary mix of indicators and it has accurately called the ups and downs since its creation, and backtesting the method shows it would have done the same for prior cycles.
The US leading indicators are showing another slowdown in the US economy ahead after that recovery in the second and third quarters. Yes Q3 GDP is not out yet, but it is going to show a 3%+ growth rate. Some are saying that will keep the Fed from hiking, but the Fed under Bernanke is forward looking; it would have never paused back in the late summer of 2006 if it wasn't because inflation rates were still rising at that time.
Most are looking for the global economy to continue its run higher and thus act as a bridge while the US economy slows once more. We reported on some anecdotal evidence of slowing in other parts of the world a few weeks back, and the ECRI data with respect to the rest of the world is indeed indicating that the world growth will slow as well.
The data is not suggesting recession in the US or in the world as a whole, but the gangbuster growth seen the past few years is going to slow. Of course avoiding a recession means avoiding 2 consecutive quarters of negative growth rates. Thus things could slow to anything above zero and a recession would be avoided. At this juncture the data is not suggesting that kind of slowing, but if the powers that be continue their course it could very well get there.
What is the cause?
How could this be given that the world economy is so reputedly strong, driving up prices of oil, metals, materials, and everything else? ECRI follows central bank actions closely as it tracts economic cycles, and it is seeing the slowing to come as a direct result of the hard money policies of many foreign central banks, e.g. the ECB.
Recall how the ECB was hiking rates as the US Fed went into pause mode? The US Fed and Bernanke in particular were called inflationist, market whores, etc. by the IMF, foreign central bankers, you name it. As it turns out, however, the US bank was prescient in its actions, anticipating the slowdown and starting to take corrective action after it had mostly successfully dried up the Greenspan excess liquidity after Bernanke took over as chairman.
Europe is resisting still, however, just as it always does. The new French president implored the ECB to ease up on money strictures, but Trichet in rather typical French fashion implied not very indirectly that this upstart president knew nothing about economics. Seems Trichet is the one that knows little about economics, or at least economics that apply in the real world. You see, Europe is part of the old school when it comes to monetary policy. You know, the old school from back in the dark ages. It has cut short just about every economic cycle European countries have had for the past 100+ years because of some morbid and irrational fear of inflation.
Thus Europe has never reached its potential due to overly restrictive monetary policy and of course socialism that inherently stymies any real profit motive and thus innovation. Ironically but not surprisingly, 'new Europe' in the form of the old Soviet states is leading the way with its lower tax rates. Ireland and Italy are there as well, and we can only hope that the French president is successful in getting Trichet to un-pucker a bit as a strong world economy is, contrary to the protectionist move sweeping the US and other countries, good for us all. Trade restrictions ushered in the Great Depression, and we have spent over 70 years undoing that debacle. Now we are talking the same kind of talk once more. Foolishness.
THE MARKET
MARKET SENTIMENT
VIX: 19.87; +0.31
VXN: 25.83; +0.82
VXO: 19.46; -0.66
Put/Call Ratio (CBOE): 0.92; +0.1
Bulls: 56.5%. As you would expect after a two-week pullback, bullishness declined among investment advisors, falling from a peak of 62.0% last week. This was the fifth week above the 55% level considered bearish. The action this week will likely drop the Bulls a bit further, but it won't do significant damage to the rise. If the market continues to rally that will leave the Bulls still at an elevated level. 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: 22.9%. Back above 20% level that is considered the thresholds between bullish and bearish conditions. Bears fell to a low of 19.6% last week, after falling rapidly from 25% just couple weeks ago. Bearishness peaked at 37.4% on this move and it fell to 18% in August. 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: +13.25 points (+0.47%) to close at 2817.44
Volume: 2.051B (-22.74%). Major drop in volume back to near average though still holding above that level. Not a bid accumulation session but rather normal after the break higher off the 50 day EMA from last week.
Up Volume: 1.273B (-502.556M)
Down Volume: 727.08M (-119.111M)
A/D and Hi/Lo: Advancers led 1.01 to 1. Flat, flat, flat.
Previous Session: Advancers led 1.97 to 1
New Highs: 93 (+12)
New Lows: 77 (-8)
NASDAQ CHART: http://investmenthouse.com/ihmedia/NASDAQ.jpeg
Gapped higher, tested and filled the gap, and then rebounded to close positive. NASDAQ tapped at the October high (2834) and faded back. Nice run up to the prior high and now NASDAQ may just have to wait around and see what the Fed does on Wednesday. Good break higher from the volatility of the past week, and now we see what the move was made of.
SOX (+1.47%) rebounded as global chip sales were reported to have risen 5.9% from 2006. That really brought about a surge as SOX recaptured a whopping two-thirds of the Thursday loss. In other words, definitely a rebound but from a deep plunge lower and that means it is still in trouble.
SOX CHART: http://investmenthouse.com/ihmedia/SOX.jpeg
SP500/NYSE
Stats: +5.7 points (+0.37%) to close at 1540.98
NYSE Volume: 1.218B (-13.36%). Volume slumped below average as the NYSE indices advanced (at least the large caps did). Good volume as the indices tested key support and bounced. Not so great Monday, but that was after a bounce that started on that strong volume, and that gives the move some credence despite the lower Monday trade.
Up Volume: 774.765M (-380.935M)
Down Volume: 425.002M (+189.979M)
A/D and Hi/Lo: Advancers led 1.4 to 1. Not bad breadth given the small caps were lower on the session and the nice upside advance Friday. Other than that it was not that great.
Previous Session: Advancers led 2.83 to 1
New Highs: 178 (+14)
New Lows: 21 (+5)
SP500 CHART: http://investmenthouse.com/ihmedia/SP500.jpeg
SP500 gapped higher yet again as buyers wanted stocks early. Typically not that many gaps from the large caps, but with stocks such as GS gapping higher it can happen. Volume faded below average on the move; after the strong volume on the bottoming at 1490 last week the lower volume was not that big of an issue. It made it to the June highs (1941) on the peak and stalled. It is still 25 points off the October closing high and below the lower July peak (1556); lots of work to be done still even with this start. Thus SP500 is likely to find 1950 as some resistance given the volume tapering off as it rises to these resistance levels. A pause is no issue, just want it to make a higher low again and them continue the move up toward the next two peaks.
SP600 (-0.17%) rallied to some resistance at 430 and then faded to close flat. Not a lot of strength on the small caps still as they turned back at the first pass at the September peak.
SP600 CHART: http://investmenthouse.com/ihmedia/SP600.jpeg
DJ30
Another move higher as the blue chips continued the move off of last week's test of 13,500. Strong volume on that move higher but not on Monday; common affliction. Nothing in the Monday action to change the diagnosis over the weekend about the Dow's formation of an ascending triangle of sorts. It will take time for it to complete, there are plenty of pitfalls along the way, etc., etc. Okay with the disclaimers out of the way it looks much better than it did to start last week and we won't freak if this move stalls at 14,000 as that is where it should stall more or less and then make a dip to form a lower high. That will get it close to the point where it tries the breakout move.
Stats: +63.56 points (+0.46%) to close at 13870.26
Volume: 208M shares Monday versus 311M shares Friday. Volume dropped below average, but after three upside days on strong volume it could take a day off.
DJ30 CHART: http://www.investmenthouse.com/ihmedia/DJ30.jpeg
TUESDAY
Consumer confidence and more earnings for Tuesday, but the Fed is also starting its 2-day monetary policy meeting that will trump the earnings and economic data to this point. As noted over the weekend, while there are still a plethora of earnings report to come, the market has the gist of the reports and is living with them just fine even though earnings are on the decline.
The explanation of course is the outlook toward the future, and the market is, despite the Fed funds futures showing just a 25BP rate cut, looking for 50BP from the Federal Reserve on Wednesday. The market has bounced ahead of the decision, and it is likely to feel its way higher ahead of the announcement, but after that, earnings reports and economic data notwithstanding, it will take 50BP to keep the drive alive.
We have laid out the case for why a 50BP cut is needed, why the Fed should be leaning that way and give us one, and thus why the market is really expecting a 50BP cut if it is to keep rallying. The near term rally is relying on a 50BP cut and indeed we feel the continued overall market advance is relying on that size of a cut because if it is not delivered the economy is not going to stave off a deeper decline. The Fed tried to get ahead of the curve when it paused while inflation figures were still rising. It cut 50BP as many said it would be inflationary. It may be, but the Fed made the decision it would rather grow out of inflation than to push the US economy lower and, as Bob McTeer has often said, exacerbate inflation pressures.
Thus we are looking for another 50BP cut from a forward looking Bernanke who wants to get ahead of the curve; it is obvious rates are not there yet. While the Fed does not make its moves with the financial markets totally in mind (though it does with respect to whether the markets are able to function with the current liquidity levels), this meeting decision has as its result the ability to keep the stock market moving higher or ending the run.
That reminds me of a story in school titled 'The Lady or the Tiger.' The very general idea is this fellow befriended the princess but through circumstance had to break it off, leaving the princess rather miffed with him. He was later imprisoned and by custom he was put in the arena with a choice of two doors. One had a lady behind it, the other a tiger that would devour him. The idea was justice would be done as the pure of heart would chose the correct door. The man looked at the princess before he chose and she indicated one door over the other. He went over and opened the door. That was the end of the story. At the time it left us all hanging, but as we became older and wiser we men learned about a woman scorned and of course we all concluded that the princess sent him to the tiger.
Back to the issue at hand, when we approach Wednesday afternoon the Fed can give the market the lady or the tiger. We think the tiger, but if we get a rally Tuesday and another one into the number on Wednesday, we will be taking a bit of gain off of the table just in case the Fed feels a bit scorned by the market's reaction to its prior 50BP cut.
Support and Resistance
NASDAQ: Closed at 2817.44
Resistance:
2834 is the October intraday peak
2887 from a September 1999 peak
2920 from an October 1999 peak
Support:
2778 from a July 1999 peak
2773 is the November/February up trendline
2725 is the July high
2714 is the November/December/February up trendline
The 50 day EMA at 2704
2673 is the early July high
2634.60 is the June peak
S&P 500: Closed at 1540.98
Resistance:
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:
1534 is the early July high
1520 is the July 2006/March 2007 up trendline
The 50 day EMA at 1517
The 90 day SMA at 1502
1490.72 is the early June closing low and early August peak.
The 200 day SMA at 1480
1475 from peaks in December 1999 and January 2000
Dow: Closed at 13,870.26
Resistance:
The July high at 14,022
14,040 is the old channel line
14,088 is the early October closing high
14,198 is the Thursday intraday high.
Support:
The 50 day EMA at 13,704
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 90 day SMA at 13,574
13,335 is the July 2006/March 2007 up trendline
The 200 day SMA at 13,176
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 30
Consumer Confidence, October (10:00): 100.0 expected, 99.8 prior
October 31.
GDP, Q3 (8:30): 3.1% expected, 3.8% prior
Chain Deflator, Q3 (8:30): 2.1% Expected, 2.6% Prior
Employment Cost Index, Q3 (8:30): 0.9% expected, 0.9% prior
Chicago PMI, October (9:45): 53.0 expected, 54.2 prior
Construction Spending, September (10:00): -0.3% expected, 0.2% prior
FOMC policy statement (2:15)
November 1
Personal Income, September (8:30): 0.4% expected, 0.3% prior
Personal Spending, September (8:30): 0.4% expected, 0.6% prior
Core PCE Inflation, September (8:30): 0.2% expected, 0.1% prior
Initial Jobless Claims (8:30): 331K prior
ISM Index, October (10:00): 52.0 expected, the 2.0 prior
Pending Home Sales, September (10:00): -6.5% prior
Crude Oil Inventories (10:30): -5.28M prior
November 2
Nonfarm Payrolls, October (8:30): 90K expected, 110K prior
Unemployment Rate, October (8:30) 4.7% expected, 4.7% prior
Average Hourly Earnings, October (8:30): 0.3% expected, 0.4% prior
Average Work Week, October (8:30): 33.8 expected, 33.8 prior
Factory Orders, September (10:00): 1.0% expected, -3.3% prior
End part 1 of 3
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world stock market
us stock market
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