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world stock market, us stock market
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11/03/07 Stock Split Report Update
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Stock Split Report Subscribers:
MARKET ALERTS
Targets hit alerts: None issued
Buy alerts: AMT; CMED; JOYG; NYX; SU
Trailing stops: PCU
Stop alerts issued: PCU; SNHY
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:
- Strong jobs number fuels an early bounce, then selloff, then bounce, then selloff, then bounce . . .
- In this corner, strong economic data. In the other corner, softening leading indicators.
- Earnings winding down, FOMC and jobs report in the bank: time for the leaders that have held support during the selling to take the lead if there is to be a year end run.
- Lessons from the week: Keep focused on the actions of leaders to hold emotions in check and stay at the top of your game.
Jobs report bounce is sold, but stocks come back for a positive close.
The jobs report with its 166K jobs doubled up expectations, and though the earnings menu for Friday was somewhat hit or miss (CI, NYX, DUK hit; CVX, LVS miss), futures jumped on the news and the market jumped on the open. It did not take long to sell it, however. From the open stocks started to lose ground. The market knows that jobs were great but they are also a lagging indicator, and with the Fed backing off from its pro-rate cut bias, that left the market feeling all alone, thus emboldening the selling on the early strength.
The morning trade was up and down but formed an intraday double bottom that broke higher during lunch, allowing stocks to rebound and recover the opening highs. Then a Legg Mason analyst issues a client note saying the techs and materials were at a top and that financials would emerge as the new market leader. This fellow also called a tech top before the 200 crash as well; only, the call was about a year and a half before techs peaked and rolled over. Sure techs and materials will peak and financials will at some point come back to life. No brainer. As with everything else in life, timing is everything.
For an already paranoid and fragile market, however, that was enough to kill off the rebound into lunch, and stocks started to slide in to the afternoon session. Indeed, even NASDAQ slipped just underwater right before the last hour started. A selloff did not result, however, as stocks fond some last hour interest ahead of the weekend, perhaps driven by some short covering, but also the fact that a lot of strong leaders held support and did not give in. Moreover, with about 20 minutes left Citigroup announced an emergency weekend meeting of the board of directors to oust its CEO. That shook up the financials some and helped boost stocks into the close.
The move closed the indices modestly higher but did little to change the bigger picture. The indices held the line without further selling, but that is about all you can say for the action. Leaders did well overall. No they were not rushing higher, but as with Thursday, they were testing and holding near support with some rebounding nicely. Big tech, some of the energy sectors that truly love higher prices (e.g. tar sands, independents as oil surged back up to 95.93, +2.44), and China (though not all here either) were again leading. There was the usual supporting cast as well: agriculture, chemicals, shipping. Some bounced of support and we took some positions; others are still ready to move, holding at support, waiting for the pressure to lighten up.
Technically the action was not all that inspiring with respect to the indices, but not bad at all for the leaders. The indices held where they had to, and the leaders either bounced some or held their near support once more. The intraday action, despite the yo-yoing through the morning, was high to low if you consider the rebound off the early selling. In any event, the indices came back from the lows and closed at the session highs. Not a powerful move, and it may have been some short covering ahead of the weekend, but it was up after the selling.
Internals: Volume was lower so it was no trump of the Thursday high volume selling, but it was hardly low a low trade session. Volume remained elevated as it has been for the past two weeks, though a lot of that accompanied the up and down volatility. Suffice it to say trade was again strong and it was so on an upside recovery. Breadth was crappy once more, negative on NYSE and flat on NASDAQ. Once again there was leadership, but it was narrow once again.
Charts: SP500 tested the key 1490 level on the low as it did two weeks back and it rebounded sharply just as it did at that time. DJ30 showed similar action, bouncing off the 13,500 as it did in October. That is good action . . . for now; the NYSE indices did what they had to do. Problem is, as discussed Thursday, they are already back at those key levels, testing again, just a couple of weeks after making a stand and bouncing higher. Made lower highs as well on the move. Can still make lower highs and continue their larger bases, but they are going to have to defy some odds to do so, and SP500 has to drag the financials with it. That means other sectors have to really outperform to overcome the financials' drag on the index. NASDAQ was more mundane and at the same time quite solid. It tested lower and held the November/February trendline and rebounded to close positive. It did not recover its recent post-2002 high, but it is hard to find much fault with its action.
THE ECONOMY
It's the economic data versus the credit and sub-prime issues.
It was a week of really strong economic data with GDP growing at 3.9% on top of Q2's 3.8%. Strength on strength. Then there was the jobs report doubling up on expectations. Lagging, but definitely the best reading since the start of the year. That puts job creation during the Bush presidency at 8.1M. Not chicken feed. Pretty stellar reports as well. Hopefully the jobs won't disappear in a sudden drop into recession as they did in 2000 when all of those jobs created during the tech boom in the latter few years of the Clinton presidency evaporated.
Great data can fool many just as it did in late 1999 and 2000. Do you recall how many times the phrase 'white hot' was used to describe the economy right on up to Greenspan's May 2000 50BP gut punch? Story after story cited strong data in jobs and other areas though we were pointing out the deflationary tendencies in the economy at the time (e.g. falling grain prices when the US was in a major drought). Of course the stock market seized up in March and sold off sharply after the Fed called back cold turkey all of the money it injected into the system ahead of Y2K. The combination of the rate hikes, the draining of the money supply, and the last round of the Clinton tax hikes took their toll. The stock market crashed, and within a year we were in recession with GDP falling from 10+% growth rates to flat in just three quarters. It was an incredible decline in a short period of time that killed off capital investment for three years and pushed millions of high tech jobs overseas to lower labor markets. Smoot move Mr. Maestro Greenspan.
Once more I digress, but you see the point. Strong data this week is in the past. The data that tells the future is not the jobs and is not GDP from the prior quarter. Look at what the manufacturing sentiment is showing. Chicago, the key region, went into contraction; the ISM held above 50 (50.9), but it lags the regionals by a couple of months. ECRI, the best man-made leading indicator survey shows not only the US but the world economies slowing down as well. Last week it fell for the third consecutive week and hit a two month low. Not at recession levels yet, but if the Fed stands down and the European central banks stick to their usual script of fearing inflation so much they tighten themselves into stagnation, it will likely come. Add to that the differential between the 3 month T-bill and the Fed funds rate, now at over 100BP, and you have a problem. Historically a 75BP differential indicates that money is too tight and portends a serious economic slowdown if not rectified.
The irony regarding inflation is that ECRI's FIG (future inflation gauge) fell again last week as it continues a 2 year decline (it called the peak in inflation pressures back in October 2005, and it was right). The PCE for October showed a continuing 1.8% annual reading and the last six months continue to fall at a faster pace. Nonetheless the Fed Thursday said the risks to inflation and a slowing economy were roughly equal; no, the Fed has plenty of room to act without worrying about ramping prices up even with oil at $96/bbl.
For now the stock market has ignored, more or less, these issues as it moves to new highs. It is not a clean and easy run higher, however. Volatility has returned even as the indices were hitting new highs over the past 5 months. The last time we saw this kind of action was leading up to the market top in March 2000. It is not an automatic indication of a top and subsequent crash, but it shows the market under strain as buyers and sellers are more closely matched. Leadership is still present and still quite strong, but after showing some signs of trying to spread out in late summer, it has narrowed as investors turn more cautious and put money into a smaller group of 'name' stocks and sectors that have outperformed. Thus the fade in the small caps as well as the large bifurcation in sectors: retail and other consumer-led sectors are in sustained downtrends while materials, large cap tech, and other sectors tied to the world economies are in sustained uptrends. These divergences cannot last forever, and they won't.
The question is when. When the Legg Mason strategist said they would not he was right. As noted above, timing is the key. These can last for quite some time, and with all of the liquidity in the world thanks to booming world economies, the momentum can run long after rational minds say it should not. As Art Cashen says, the market can remain irrational as far as investors are concerned long after their funds are depleted. And who knows? Maybe the Fed will reverse its course as we said on Thursday, and do so in time to forestall a serious US economic slowdown. With it changing course, however, it will take something to jolt it back to the other side, and by then it will likely be too late.
THE MARKET
MARKET SENTIMENT
VIX: 23.01; -0.2
VXN: 24.83; -1.43
VXO: 23.4; -1.05
Put/Call Ratio (CBOE): 1.15; +0.18
Bulls: 53.8%. Some more improvement, falling below the 55%, down from the 56.5% reading last week. It did fade after the pullback and is down nicely from 62.0% peak a month back. Five weeks above 55% and now dipping. The surge then purge this week may keep investors nervous, but after hitting over 55%, just falling back below it is typically insufficient. You have to go through the process of wringing out the bulls with a decline of significance, a.k.a. a move into the lower 40's. That means more selling, but that does not mean right away. The market can still rally on momentum for other reasons and then make the harder drop in the first quarter. 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: 23.1%. Up but marginally from 22.9%. That is two weeks back above the 20% threshold between bullish and bearish conditions. Fell to a low of 19.6% three weeks back 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: +15.55 points (+0.56%) to close at 2810.38
Volume: 2.462B (-4.75%). Volume was lower but not much, coming in well above average and right in the range of the Wednesday and Thursday sessions. Thus while it was not a clearly stronger session than the Thursday selling, it was a solid rebound from a test on some comparable volume.
Up Volume: 1.521B (+1.113B)
Down Volume: 821.828M (-1.327B)
A/D and Hi/Lo: Advancers led 1 to 1. Wow. Some kind of widespread move there. NASDAQ 100 rose 0.76%, and that tells the story of what was moving on NASDAQ (e.g. AAPL, GOOG, BIDU, INTC, DELL, RIMM)
Previous Session: Decliners led 4.28 to 1
New Highs: 37 (+8)
New Lows: 173 (-2)
NASDAQ CHART: http://investmenthouse.com/ihmedia/NASDAQ.jpeg
Gapped nicely higher but then sold off quickly, selling to the session low in the first half hour. It found support at the November/February trendline and that snapped it back up rather sharply, recovering 37 points to close near the session high. Once more a lot of intraday volatility as the buyers and sellers were slugging it out once more. Overall the chart still looks good: new high midweek, a nasty reversal on Thursday, but then a rebound off a further test Friday. That shows a series of higher highs and higher lows, and even that Thursday reversal has not done away with that yet. Recall that NASDAQ recovered from the expiration Friday torching and rallied to a new post-2002 high. Plenty of money still moving into the big techs as investors are afraid to put their money into many of the smaller issues.
SOX CHART: http://investmenthouse.com/ihmedia/SOX.jpeg
SP500/NYSE
Stats: +1.21 points (+0.08%) to close at 1509.65
NYSE Volume: 1.716B (-1.72%). Not bad volume at all, just a shade lower than Thursday's selling volume as the NYSE indices sold but then rebounded to close modestly higher. Good to see strong trade as SP500 tested key support and recovered.
Up Volume: 747.603M (+658.758M)
Down Volume: 941.001M (-714.229M)
A/D and Hi/Lo: Decliners led 1.13 to 1. Rebounded to close positive, but breadth did not make the turn with it.
Previous Session: Decliners led 6.51 to 1
New Highs: 64 (+35)
New Lows: 129 (+14)
SP500 CHART: http://investmenthouse.com/ihmedia/SP500.jpeg
Could not hold the early gap higher either and just before lunch it was back close to the 1490 support level that most floor traders, market makers, and institutional folks were looking at two weeks back to see if it could hold that key level. It did then, and on Friday it did once more. The session hardly changed the complexion from the Thursday close; SP500 still has to hold this support level and fight back up. Friday it did what it had to do.
SP600 (+0.15%) tested down to the lows hit two weeks back as well and it rebounded to close flat. Deep in it right now and not looking promising.
SP600 CHART: http://investmenthouse.com/ihmedia/SP600.jpeg
DJ30
The blue chips tested lower as well after failing to take out the 90 day SMA. As with the other indices, it tested down near the October lows and rebounded to the close. On the low it again tested near the July 2006/March 2007 up trendline and snapped back up. While a quick test of this support once again, it is still holding the trend well. Indeed, this is the lower trendline in its uptrend channel, and as noted all week, DJ30 is building a larger positive ascending pattern. That seems somewhat contradictory to the notion the economy is going to go into a significant slowdown: the market telegraphs what the economy is going to do. Thus if the blue chips manage to continue this pattern and NASDAQ continues as well, the market is speaking to us. As you know, we have to list to the market.
Stats: +27.23 points (+0.2%) to close at 13595.1
Volume: 279M shares Friday versus 335M shares Thursday. Lower trade but not bad at all.
DJ30 CHART: http://www.investmenthouse.com/ihmedia/DJ30.jpeg
MONDAY
There are more earnings though the bulk of the SP500 is in the book. Earnings season is not just a four month event anymore; it is more of an 8 month affair as many earnings run over into the next month. At this stage the 'gist' of the season is known, and as noted above, many of the stocks that led higher into earnings have advanced, and in the wake of the Thursday selling managed to hold near support. We said it on Thursday: if theses stocks can hold up so nicely at near support in a session such as Thursday, they should do quite nicely when this round of selling pressure abates.
Thus we were taking positions Friday in some of the leaders that tested, held, and started back up. Maybe no huge upside moves, but liked the way they held and started to rebound. We will be looking at more of these to start this week as well. As noted, NASDAQ and DJ30 are forming up decent patterns despite the Thursday selling and despite the potential for the economy to fold in 2008. In the end, despite all of the analysis, we have to take our near term cues from the market. We can be crackerjack information and number crunchers, yet the market can defy all of that analysis for an extended period of time before it actually takes place. If we head to the sidelines before the market leaders give it up we are going to give up a potentially big chunk of gain. Our trading accounts are way up this year, but we intend to ramp them up even higher by year end.
That brings me to another point, or more precisely a few points, to remember and try to put into practice when things take a turn as they did this past week. The market was volatile and had some whiplash action, and some stocks were rocked on their earnings reports. When that happens you can get distracted by the action, miss important signals, and then start reacting emotionally. Then you miss the big picture and make poor decisions.
This week it was easy to get too focused on the ups and downs of the indices, the bad news about the financials, and the negatives you keep hearing on the financial stations. When that happens, even the back and forth of some leaders as they test near support starts to look like a serious problem as you fret over a normal, orderly test and think about what was lost in the small pullback. That is why we take gain after good upside bursts. That puts you in a better mental position to deal with the inevitable pullbacks. You are not sweating a pullback that takes some money back because you cashed in on some of the move already.
It also lets you see the big picture better such as on Thursday and Friday. Thursday the indices were blasted, but looking across our positions and other leaders we could see that the strong stocks that had pushed higher were making very orderly tests. Friday showed the same action among these stocks. Despite all of the negative flying through the air on the financial stations these stocks were holding up well. When we see that action we don't sweat it. If they can ride through that kind of selling and just make a simple, typical test, they are in great shape to jump when the selling pressure lets up.
Despite the rough Thursday, by the close Friday my trading accounts were just modestly lower (less than 2%), some not at all as many positions rallied well to offset those that were under some pressure. I did not even look at my account totals during Thursday and Friday, however, because I saw the leaders holding up well and knew that was a positive despite all of the carnage.
The point: keep mentally tough so you can divine what the real story is. Everyone was panicking over the selling Thursday, but as we have seen on other 'oh no' selling rounds that the market rebounded from and moved higher, this fear helps drive things back up what with all of the market liquidity. By staying focused on what brought the market to this point, i.e. the leaders, we saw that they were holding, outside a crash here and there (and that is going to happen no matter what if you are in the market), as tough as nails. That speaks well for the future, particularly for these stocks, once the selling pressure abates. That is why we picked up some great positions toward the end of the week.
You have to be detached, stay as unemotional as possible, just executing as things unfold without letting your emotions take control. Ever see 'The Bird Cage', the modern remake of the French film 'La Cage aux Folles'? There is a scene where Armand (Robin Williams) is teaching his life partner Albert how to act like a man (the irony of a man, acting like a girl, trying to act like a man). They are eating lunch and trying to eat like men. At one point Albert breaks the toast as he spreads the mustard and shrieks 'I pierced the toast
!' Armand tells him 'So you pierced the toast. **** the toast; you can always get more.' The point: don't get hung up on the week. If your stocks are still holding support, great; after a tough week a stock holding near support is a strong stock. If a stock is breaking support on volume, as Armand said, **** it. Unload it, forget about it, and look at what is working and move that way.
In 'Bull Durham' Kevin Costner's final bit of advice to his young pitching charge is that he will get lit up when he gets to the show, but he cannot let that worry him. He has to play the game with a combination of fear and arrogance. That is EXACTLY how an investor has to approach investing in the market: respect it, but be ready and willing to act when the stocks tell you it is time to act. You need the memory of a good cornerback: short and selective. Short to forget plays that go against you; selective to remember what worked to keep your confidence up and what didn't to steer you correctly the next time you face similar circumstances.
With that in mind we are looking forward to this week watching how stocks react to a new week, and how the leaders respond. We anticipate we are going to get some good bounces given how they held up during the storm, and we will be ready to move in as they show us the moves.
Support and Resistance
NASDAQ: Closed at 2810.38
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
The 18 day EMA at 2786
2777 is the November/February up trendline
2725 is the July high
The 50 day EMA at 2721
2718 is the November/December/February up trendline
2673 is the early July high
2634.60 is the June peak
S&P 500: Closed at 1509.65
Resistance:
The 50 day EMA at 1518
1525 is the July 2006/March 2007 up trendline
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 October intraday high.
Support:
The 90 day SMA at 1503
1490.72 is the early June closing low and early August peak.
The 200 day SMA at 1482
1475 from peaks in December 1999 and January 2000
Dow: Closed at 13,595.10
Resistance:
The 90 day SMA at 13,590
The early July peak at 13,671
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 13,707
The July high at 14,022
14,055 is the old channel line
14,088 is the early October closing high
14,198 is the Thursday intraday high.
Support:
13,400 is the July 2006/March 2007 up trendline
The 200 day SMA at 13,197
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.
November 5
ISM Services, October (10:00): 54.0 expected, 54.8 prior
November 7
Productivity, prelim. Q3 (8:30): 3.1% expected, 2.6% prior
Wholesale Inventories, September, (10:00): 0.1% expected, 0.1% prior
Crude oil inventories (10:30): -3.89M prior
Consumer Credit, September (3:00): $8.5B expected, $12.2B prior
November 8
Initial jobless claims (8:30): 327K prior
November 9
Trade balance, September (8:30): -$58.5B expected, -$57.6B prior
Michigan sentiment, prelim November (10:00): 80.0 expected, 80.9 prior
End part 1 of 3
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