|
|
us stock market, stock trading pick
* * * *
11/06/07 Investment House Alerts
* * *
IH Alert Subscribers:
MARKET ALERTS:
Targets hit alerts: None issued. Could have taken some gain, but liked the rebound so let them run higher.
Buy alerts: ABAX; EDU; ICE; IDC; SGR; STP; WFR
Trailing stops: FWLT
Stop alerts issued: None issued
SUMMARY:
- Relief bounce turns into the big afternoon melt higher we have been looking for.
- No news on the economic front was good news.
- Now we see if the market can further a rally instead of giving it right back.
Late surge turns a flagging relief bounce to a decent rally.
There was not a whole lot of news to confront investors Tuesday. Some earnings (ADM, LEA, CHD, JAVA), some analyst action (the entire retail sector received a downgrade from Morgan Stanley); basically more of the same. Or not. There were no new stories with respect to valuing mortgage portfolios or credit issues, at least none that could do more damage than Citigroup's 'it's $8B, no its $11B; do we hear $15B?' fiasco to start the week. Futures were up in Asia and that was bleeding over into Europe and the US. Oil was up again, defying those calling for a crash (closed at 97.01, +3.03/bbl); when it gets to $100 it will likely lose some of its bid, but until then it seems bent on getting there. The higher oil energized all energy sectors once more (oil, natural gas, alternative), setting up energy to lead again as it did on Monday. Large cap tech was stronger, of course, and so was China.
Outside of that same old lineup, however, the list was pretty thin. That has been the market's problem of late: a few strong leaders on the upside days, a lot more losers on the downside days, few new highs, troubles still in financials. Thus it has the look of a relief rally, and in the morning most traders and market makers we talked to were calling for just a relief move. Couldn't argue with them. Despite the solid performances of the leaders, i.e. surging higher then coming back to test and hold near support, there was just not a lot of other indications this was anything other than a relief move. In other words, the leaders were set to bounce, but they had to make the bounce and do it with some strength to change the overall complexion.
The market started higher on those futures. Energy was out in front along with the big tech. In the first hour and a half, however, they lost the gains. Very much the look of a relief bounce that just didn't have the mojo to really push the gains. Some of the old issues raised back up. Oil was surging. Gold surged higher $16.50 (closed at $827). Retail was dogged yet again. Sellers used the early strength to sell some more. As noted, about the only thing that was working after the first hour was energy.
So the indices sold to negative. Not promising. Then SP500 held well above the 1490 level and the financials firmed. When that happened the complexion started to change. No sudden rush to buy, but some shorts started to cover given SP500 once more held above that key support level. By midmorning (how many times have we seen that the past month?) the indices found the floor and started back up. Slow and steady back to positive and then higher through lunch. As the indices approached the opening highs the recovery lost its drive and flattened out. Again, looked as if the relief move might not have what it takes.
When stocks did not give back any ground, however, another round of short covering began. At that point buyers came in as well. That synergistic action surged the indices higher. Leaders jumped off support and started to run. Volume picked up on NASDAQ as it cleared the early October closing high. The snowball was rolling toward the close, and it picked up speed and size as it rolled toward the bell. NASDAQ gained 23 points in the last hour, 75% of its gain. By the close all but DJ30 sported better than a 1% gain. The relief bounce turned into a respectable rally.
Technically the action was more of what we have seen of late. Intraday the market started a bit higher, tried to give it up, then recovered above support and rallied to the close. Very solid high to low action, but it really took that last hour spurt higher to solidify the stronger session. Nothing wrong with that; rallies often catch fire late.
Internals: This is where the rally was hot and cold though more cold than hot. There was a solid volume rise on NASDAQ indicating some accumulation of technology shares. Very nice. NYSE volume was lower, however, indicating the lack of any serious buying in the financials and small caps. Breadth was quite mediocre once again on an upside session (1.8:1 NYSE, 1.3:1 NASDAQ); just not a lot of stocks getting the vote of approval (i.e. getting bought) from investors. NASDAQ cleared the early October closing peak but new highs remained paltry. Just not a lot of breadth and participation given the economic outlook and the impact that has on the small and mid-cap issues.
Charts: NASDAQ posted a solid technical move, clearing the early October interim closing high. It made a higher low given the move, and it took out some resistance on solid, rising volume. Solid technical move from a price/volume standpoint. DJ30 and SP500 continued to do what they needed to do after testing and holding their key support on the Monday low. Nothing spectacular with the lower volume, but they continue to work on a larger positive pattern, and they are trying to set up something of a short double bottom here. Interesting, but at this point that is about all you can say about it.
Leadership: After hunkering down at near support for the past few sessions, the leaders did move higher just as we expected. It took awhile, however, to get the move going. There were of course leaders showing the market the way to go early on, but it took the afternoon session for a lot of these stocks to come into their own on the session and surge. Regardless of when they did it, a lot of leaders did it and provided that bounce up off the near support and a run to close at the session high. Not all moved up, however, as some lagged, either still resting or hung over and not ready to make the next move. Not many breakdowns still.
THE ECONOMY
Bernanke spoke but said nothing about monetary policy. Gold surged. Oil surged. The dollar tanked to a new low on the dollar index and versus the euro. There are many economic issues confronting the market, but there were some positives.
The CAT CEO suggested that, after the dismal commentary regarding the US economy that helped tank CAT and many industrials at the start of the earnings season, the US looked to be in for a soft landing and a reacceleration in 2009. Didn't hurt, and given all of the negatives of late, it looked like a ringing endorsement of the US economic future.
Oil is heading to $100, likely tomorrow if inventories are again a bit low. Traders want to take it to $100. Often a commodity or stock will run to 100 when it gets within 10 clicks of that level, and with less than $3 to 100, they are going to take it there. After it gets there it will turn back down. It likely won't do so immediately, but after trading around that level, above and below, for a few sessions it will likely make a rather clear test. The alternative energy stocks that are riding the current spike higher will likely also experience some weakness at the point oil tests back.
THE MARKET
MARKET SENTIMENT
VIX: 21.39; -2.92
VXN: 23.91; -2.19
VXO: 20.95; -2.72
Put/Call Ratio (CBOE): 0.98; -0.04
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: +30 points (+1.07%) to close at 2825.18
Volume: 2.543B (+19.72%). Excellent volume surge, almost matching the Thursday selling trade. Finally a good response to the downside.
Up Volume: 1.422B (+625.946M)
Down Volume: 1.058B (-250.391M)
A/D and Hi/Lo: Advancers led 1.35 to 1. Once again weak upside breadth as just a few stocks are leading out of this index.
Previous Session: Decliners led 2.07 to 1
New Highs: 69 (+37). 37 lousy new highs as NASDAQ moved past the early October closing high. New highs were low when it broke to a new post-2002 high last Wednesday. Just not a lot of stocks taking the reins.
New Lows: 151 (-38)
NASDAQ CHART: http://investmenthouse.com/ihmedia/NASDAQ.jpeg
Gapped higher, filled the gap and more as it sold negative, but then recovered to close a gnat's butt off of the session high. Pushed it past the early October closing high, making a higher low above the mid-October consolidation lows. A very good start to try for yet a new post-2002 high over 2861.51. A ways to go, but a very good start even if there are just a few stocks leading. We are picking those that are doing just that.
SOX (+0.69%) is trying to set up a little double bottom here at the January low where it bounced back then. Very good place for it try and put together something just like that.
SOX CHART: http://investmenthouse.com/ihmedia/SOX.jpeg
SP500/NYSE
Stats: +18.1 points (+1.2%) to close at 1520.27
NYSE Volume: 1.499B (-1.69%). Volume was a disappointment. It remained above average but it was the lowest of the past five sessions as the NYSE indices bounced. Will need to show us something better than this.
Up Volume: 1.08B (+719.808M)
Down Volume: 403.411M (-740.145M)
A/D and Hi/Lo: Advancers led 1.82 to 1. Decent but hardly in the same league as the downside breadth. Without the small caps chipping in and the financials still struggling, the NYSE, similar to NASDAQ, remains somewhat one-dimensional.
Previous Session: Decliners led 3.16 to 1
New Highs: 126 (+95)
New Lows: 67 (-59)
SP500 CHART: http://investmenthouse.com/ihmedia/SP500.jpeg
After testing toward 1490 Friday and Monday, SP500 nodded toward that level Tuesday then was back to positive and rallying into the close along with NASDAQ. The move did not alter its current technical position dramatically, but it is putting in something of a short double bottom at 1490 over the past two weeks. Stepping back and looking at the 7 months and you see the action the past month mirroring the action back in June and early July. You can call that pattern a reverse head and shoulders, an accumulation pattern. Within each pattern there are smaller patterns, and this recent short double bottom could set it up for the break higher, but there is a long way to go.
SP600 (+1.36%) posted the best individual index move, but of course it has a lot of ground to work with after diving lower last week. It helps when it bounces, but it dies not change much just yet.
SP600 CHART: http://investmenthouse.com/ihmedia/SP600.jpeg
DJ30
After two sessions testing the July 2006/March 2007 up trendline, the blue chips bounced as well though the Dow did not move through its 50 day EMA (13,698) nor did it clear any other significant resistance. It is at the June twin peaks, and there is even more after that at 13,750, 14K, etc. Long road to recovering, but making a higher low here was the start it needed.
Stats: +117.54 points (+0.87%) to close at 13660.94
Volume: 252M shares Tuesday versus 259M shares Monday. Lower volume on the Dow as well as the large cap NYSE indices continue to struggle putting up the trade.
DJ30 CHART: http://www.investmenthouse.com/ihmedia/DJ30.jpeg
WEDNESDAY
The economic data returns with Q3 preliminary productivity, crude oil inventories, and consumer credit in the last hour. CSCO announces earnings after the close. As we have noted before, however, the market has heard what the Fed had to say and this economic data is not going to change investor views much unless there is a really weak productivity number; in other words, it takes something at the extremes to really move things at this juncture. Crude oil inventories could push oil to 100 if they are lighter than expected, rallying those alternative energy stocks (tar sands, solar) and the independents. We are even seeing the refiners recover as crack spreads widen again.
The real key tomorrow, regardless of what the news says or doesn't say is whether the market can hold onto a nice gain. Last time NASDAQ broke sharply higher it was thrown back hard the next session. Same for the other indices for that matter. Sustainability is the key. Outside of NASDAQ the indices don't look all that stellar near term, but SP500 and DJ30 are at least a work in progress in the bigger picture. Outside of the leaders on the report and others we are looking at stocks overall don't look all that great. As with SP500 and DJ30, however, many are a work in progress. Definitely a market to pick stocks as they say, but is it ever really different if you want to pick the winners that make big money versus the mutual fund approach?
So it comes back to whether this move can hold. As noted above, it was a mixed market with NASDAQ showing strength and the same sectors (tech, China, energy, alternative energy, biotech) showing strength as well. Those are pulling the train for the rest of the market, and while modestly successful the road has been rougher for the market and all stocks of late. The leaders were moving again on Tuesday after that rest, and we will see if they can hold the move and bring some more money into the market for that run higher to end the year. NASDAQ looks set to make that very move, and we are going to continue looking at leaders coming off tests or out of bases to capture whatever part of that move the market gives.
Support and Resistance
NASDAQ: Closed at 2825.18
Resistance:
2834 is the October interim peak
2861.51 is the October peak
2887 from a September 1999 peak
2920 from an October 1999 peak
Support:
The 18 day EMA at 2791
2784 is the November/February up trendline
2778 from a July 1999 peak
The 50 day EMA at 2728
2725 is the July high
2722 is the November/December/February up trendline
2673 is the early July high
2634.60 is the June peak
S&P 500: Closed at 1520.27
Resistance:
1527 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 50 day EMA at 1517
The 90 day SMA at 1503
1490.72 is the early June closing low and early August peak. Key support.
The 200 day SMA at 1483
1475 from peaks in December 1999 and January 2000
Dow: Closed at 13,660.94
Resistance:
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 50 day EMA at 13,699
The August high at 13,696
The July high at 14,022
14,065 is the old channel line
14,088 is the early October closing high
14,198 is the Thursday intraday high.
Support:
The 90 day SMA at 13,593
13,410 is the July 2006/March 2007 up trendline
The 200 day SMA at 13,209
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): 55.8 actual versus 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): 320K expected, 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
|
us stock market
stock trading pick
|
