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world stock market, us stock market
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11/08/07 Investment House Alerts
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IH Alert Subscribers:
MARKET ALERTS:
Targets hit alerts: STP
Buy alerts: A; ESRX
Trailing stops: AAPL; CIEN; EDU; FMCN
Stop alerts issued: EDU
SUMMARY:
- Market love affair with Bernanke is over if there ever was one.
- Stocks plunge as large cap tech cracks, but NYSE leads a big oversold bounce recovery.
- Bernanke and the Fed falling into the old trap of believing lagging economic reports foretell the future. Market tells us the Fed's failure to cut big enough and fast enough is leading to recession.
- Set for a relief bounce of the beleaguered.
Weak market gets another reason to sell as Bernanke talks of resilient economy, ignoring plunging markets.
After the Wednesday plunge the futures were not heading to the bottom even with Cisco's decent but not Apple-esque in terms of blowout power. Ford's earnings were better, solar companies were surging on strong earnings, the Morgan Stanley write-down was at the low end of the range, jobless claims fell to 317K in an indication that the jobs market is not yet ready to let the employee down, and a huge buyout attempt in the metals sector put some temper back in the metals, driving RTP up over $100 on its peak.
There were still some very big negatives that were somewhat overlooked at the open, but that came back to rip into stocks in a wicked midmorning to lunch decline. Pathetic same store sales that saw 70% of stores miss expectations. Sotheby's could not get bids on a Van Gough or a Picasso and the take on the auction was one-tenth of that anticipated. Looks like a weak consumer sector heading into the holidays.
Then Mr. Bernanke went to Washington and he basically stated the Fed's 75BP in rate cuts would be sufficient despite the slowdown he continues to see in the future. He talked of a resilient economy yet the threat of inflation from rising energy prices loomed. Basically his statement indicated everything was going to be just fine. Of course that opened him up to a lashing in front of Congress. There are many dissatisfied congressmen who don't know who to blame (a look in the mirror would help) for deficits, a weak dollar, trade deficits, etc. The Fed chairman is a good lightning rod and with his 'all is pretty decent' testimony he was open for attack.
Of course, even without the statement he was open for attack. Based on his comments one would presume that a plunging stock market, particularly in the financial issues, a plummeting short end of the bond curve that historically screams recession, a diving dollar, and indications the credit market is worse than it was at the time of the 50BP rate cut in the Fed Funds rate are signs of a 'resilient economy.' For a guy who was very much in tune with the mistakes of the past he has strayed from the path. Of course some will argue as Bernanke did Thursday that it is not the Fed's job to save the financial markets. Yes, but the financial markets are historically the best economic indicator. Bernanke is falling into the trap, being seduced by stronger lagging economic indicators just as Greenspan in 2000. Danger, danger, danger.
The market hated this stance. It wandered laterally during his testimony and grilling, and when it was over and it was apparent nothing positive was coming, the market rolled over. NASDAQ lost 80 points from the end of his speech (it was already down on the session) to the low of that selling run, putting NASDAQ at 100 points down on the session. A slaughter. Everything when lower early just as it did on the Wednesday close. After that big plunge, however, the bullets were used up on this downside run and a rebound ensued. It was strong enough on the NYSE indices to push all of them positive though the big ones, SP500 and DJ30, could not hold the gain to the close, leaving the green to the small and mid-caps.
Technically it was pretty bad, and then by the close it was not so much so, at least for the NYSE indices as NASDAQ, though it did rebound, never came close to scaring up a positive close. Thus the intraday action was not that bad with a big dive and a big rise once SP500 had put in 100 points to the downside for the week. That was too much for the shorts to stand and they had to cover some. Yes a lot of it was short covering in large part as the beleaguered sectors were making the comeback after getting crushed for months on end and particularly this week. Of course there were some great rebounds in some leaders as well. More on that later.
Internals: Not that bad at all with breadth basically flat on both NYSE and NASDAQ. A strong intraday reversal will do that. Volume was big, and if the NYSE indices closed positive that reversal would have meant more. On NASDAQ, of course, the high trade showed the dumping of technology that had been one of the leaders up to this week.
Charts: As noted above, a 100 point drop on SP500 for the week was enough to spark a recovery. DJ30 lost close to 900 points and undercut the 200 day SMA before it recovered to hold that key level. Hurray for the rebounds. They certainly put the financial station journalism majors in a better mood. Overall, however, they did little to help the pictures in the charts. There may be a near term rebound as a result given the harsh selling, but that would be normal and does not cure the patterns. A lot of volatility, a lot of selling that has to be worked through. NASDAQ is just in the early stages of its breakdown as it held out the longest. It too can provide a near term rebound, however, given its 127 point plunge this week and its 48 point recovery off its low (nearly half of its overall loss on the session).
Leadership: The techs started cracking Wednesday and Thursday they broke open. Technology is getting its licking right now after a strong run. The run was by a few big techs, and when CSCO did not wow the market all of the big names that had surged were taken out and shot. China was getting hit as well though it made some strong recoveries in the afternoon. Energy was thrown out early but it held the line and rebounded as well. The list has narrowed for sure. As noted Wednesday, it is hard for leadership to hold off the barbarians if the rest of the market is in full retreat. Even with that, however, when you move outside of the US there are still strong stocks in good position to continue higher, but thus far the downside pressure is not giving them much of a chance to move, at least not for more than a session or two before more selling hits.
THE ECONOMY
Bernanke finds walking the tight rope is not easy and is no fun.
Bernanke got it from all sides on Thursday as no one is happy right now with a weak dollar, worries of inflation, worries of recession, high oil prices, deficits, social security, medicare, Rangel's tax plan, etc. He sees how the rate cuts have gutted the dollar at an increasingly rapid pace, so he wanted to toe a bit tougher line, one that might help the dollar. By doing that, however, he further enraged the financial markets that see a recession ahead as a result of the sub-prime and credit issues, the former a creation of the Fed through Greenspan's too easy money for too long policy.
Thus when he saw resilience the market responded as with stocks and bond yields knifing lower. Sure they recovered, but that was some major short covering after a massive selloff in those stocks for the week and indeed the past four months. Traders were pointing to weak same store sales, ECRI, bond yields, the stock market, Chicago PMI as indications the resilience was on its reserve tank of gas.
Bernanke does not have a lot of choices. He cannot let the dollar fall too much, but he has absolutely no help from the administration that thinks exports will save the economy. That is like some thinking that raising tax rates will eliminate the debt. Sure it raises revenue in the short term if the economy is very strong, but then revenues fade as the economy stalls under the burden of higher taxes. Exports are helping for now, but no country in the history of the world has rise to prosperity by devaluing its currency. Ironically, if the federal government really wanted to support the dollar using reserves, it could only do it for a couple of months and we would exhaust all of our gold reserves. There are way too many dollars out there put in place over the Greenspan years, and the world market may be realizing this though maybe not knowing exactly what is uncomfortable about. The only way is to get the shorts who have been green-lighted by this administration to sell the dollar scared by tough talk of intervention. The stampede to the upside, at least initially, would be impressive.
Thus Bernanke is damned on one side and damned on the other. So you want to be the Fed chief? It is hard to clean up 20 plus years of easy money. So we are heading into something of a 2000 scenario where the economic data looks good, at least the big lagging reports, while the leading indicators are really flashing red lights. Bernanke tried to do the right thing based on mistakes of the past, but it looks as if the dollar's plunge really scared the Fed and it has thus diverted from its path.
That is the worst choice because it does not do the job either way. If he had stuck to his guns and just cut rates hard and fast the economy would avoid a recession and recover, and that would buy the Fed time to hike rates back. Moreover, there is nothing like a strong economy to pump up a currency. Right now the Fed has allowed itself to get sidetracked and judging from the action in the financial markets, it has missed its window of opportunity to avert a significant economic slowdown. Now whatever it does is likely too little, too late, i.e. right out of the Greenspan handbook of how to ruin a good economy.
There is also something very strange going on right now. The Fed is talking no rate cut in December, but it is pumping very large amounts of liquidity into the system. Maybe it is trying to do the trick without rates cuts. Liquidity is the ultimate drug for the markets, but psychology helps as well. Thus the rate cuts. Or perhaps the Fed sees something ahead in the next week or two that is going to be very ugly. Doubt that is it. More likely Bernanke got rattled by the dollar's plunge after the 50BP cut, opted to cut just 25BP to show the dollar he was not 'easy Ben,' but decided to ramp up liquidity and provide a 'stealth' rate cut and make sure there is plenty of cash for the markets to work. A bold gamble. Thus far, the financial markets are not picking up on it or, they have and don't think it will work. As I said, who wants to be Fed chairman? Not me.
THE MARKET
MARKET SENTIMENT
VIX: 26.16; -0.33. Hit 29.15 on the intraday high. Outside of the August spike for 4 days, this is the highest level since the crash.
VXN: 29.61; +2.47
VXO: 26.85; -1.02
Put/Call Ratio (CBOE): 1.24; +0.18. Another day above 1.0, making it 4 in the past 6 sessions. Starting to come around.
Bulls: 54.5%. Bulls bounced last week, rising from 53.8% the week before and that was a decline back below the 55% threshold. It will likely be down for this week. It is still way too high for this market. Five weeks above 55% and now dipping. 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: 22.2%. Fell as well, down from 23.1% and 22.9% the week before. Three weeks back above the 20% threshold between bullish and bearish conditions. Fell to a low of 19.6% four 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: -52.76 points (-1.92%) to close at 2696
Volume: 3.504B (+38.59%). Have not seen this kind of volume since . . . the August selling. Not good for NASDAQ as there was dumping of the stocks that led the move. Maybe they rebound off the recovery, but did not close positive. Indeed, it was way off that level so you cannot say it was good volume on a rebound.
Up Volume: 724.377M (+371.862M)
Down Volume: 2.769B (+600.341M)
A/D and Hi/Lo: Decliners led 1.15 to 1. Not bad, but it just shows you how the move was led by the large cap techs and those were the stocks gutted Thursday. NASDAQ 100 was down 2.92% compared to 1.92% on the index overall.
Previous Session: Decliners led 4.16 to 1
New Highs: 27 (+8)
New Lows: 219 (-79). Not many. Hmmm.
NASDAQ CHART: http://investmenthouse.com/ihmedia/NASDAQ.jpeg
Tanked to some support near 2650 on the low and then cut its losses almost by half. Not a whole lot of comfort in that move, however. Managed to hold near the July peaks but closed below that level, clinging to the December 2006/January2007 trendline. It can recover, but after this kind of selling it will have to be fast if it wants to trowel over this technical damage. If it cannot make a rapid recovery, it will take some time.
SOX (-1.52%) is heading lower and where it ends is conjecture. 425 is modest support and that might bounce it higher on a relief bounce.
SOX CHART: http://investmenthouse.com/ihmedia/SOX.jpeg
SP500/NYSE
Stats: -0.85 points (-0.06%) to close at 1474.77
NYSE Volume: 2.13B (+28.5%). Big volume but still not on par with the August selling. Nice rebound that can indicate a reversal. Probably will be given the drubbing to this point. After that likely more drubbing.
Up Volume: 1.121B (+1.024B)
Down Volume: 1.056B (-498.68M)
A/D and Hi/Lo: Decliners led 1.09 to 1. Not bad, helped by the small and mid-caps, but it is TEXTBOOK short covering: high volume, narrow breadth.
Previous Session: Decliners led 9.95 to 1
New Highs: 38 (+13)
New Lows: 205 (-65)
SP500 CHART: http://investmenthouse.com/ihmedia/SP500.jpeg
Nasty dive down to some support at 1450 (February peak, interim lows in July and August) and that, along with a 100 points to the downside this month, started some short covering. It is likely to be able to continue the bounce from here but a move up to 1500 to 1520ish sets up another downside leg.
SP600 (+0.75%) closed higher on the session after dropping to the August closing low. Good reversal and as with the SP500 it looks to recover some ground on a relief move up toward 415. After that we will see if it has any strength left.
SP600 CHART: http://investmenthouse.com/ihmedia/SP600.jpeg
DJ30
DJ30 showed similar action with an undercut of the 200 day SMA and then are recovery to positive that could not quite hold to the close. Volume spiked to August levels as it made the reversal. Some upside momentum may be left here but the upside is rather limited, say to 13,500 to 13,650ish unless it shows a lot of upside strength on the move.
Stats: -33.73 points (-0.25%) to close at 13266.29
Volume: 403M shares Thursday versus 273M shares Wednesday. Big volume on a recovery is good to see but it is not necessarily a guarantee of a reversal session. It will help bounce it, but after that bounce it looks like more selling unless it really breaks up this string of lower highs.
DJ30 CHART: http://www.investmenthouse.com/ihmedia/DJ30.jpeg
FRIDAY
There are still great leaders out there that moved up during the session and recovered nicely into the safe zone after selling, but as noted Wednesday, when the rest of the market leaves the theater, it is hard for the leaders to keep the crowd happy. Given the breakdowns in technology as it is finally dragged lower by the bifurcation to the downside found in most other sectors, the bounce by NYSE is likely just relief. That means after it bounces from this flogging we look for some downside positions. That simply means we look to buy put options on stocks that bounce and stall at resistance, then let them slide lower.
There are still some good upside positions to buy into and we will consider them, but with the understanding that the market overall is in trouble and in the process of forecasting a recession and thus if they start acting up in any way they are cut immediately. Remember, the market tends to overshoot in the short term. Thus we see how this rebound works, i.e. what kind of strength it has. Stocks are oversold and can bounce sharply, but if volume is equivocal and the indices and stocks stall at resistance, then there is likely to be more downside ahead and we play that.
On any relief bounce from the selling we will use it to unload some upside positions that were seriously damaged in the selling (e.g. broken trendlines, collapsed patterns). If we get good outs on those stocks, i.e. good bounces up to resistance (former support, 50 day EMA, etc.) and they stumble, we will close them and forget the upside, maybe looking at some downside action from there. If it doesn't happen we can always get back in on the upside if the stocks prove 'resilient' like the economy according to Ben.
We may take a few upside positions, we may take one, we may take none. There are many good patterns out there still, but with the index breakdowns all leaders are suspect to some degree. The selling is bringing some big movers back on breakout tests, and that will present buying opportunities. We see some of those tonight. If they give us the buy point we are looking for we can enter them but also know that if they don't act as we want we drop them like a bad date. Don't think about marriage, don't think about a long engagement. Just dump them and look for the next serious opportunity, preferably with both the individual stock and the market looking 'right.' Again, with this action in the indices the leaders are not getting much support. Just need to be cognizant of that as we look for opportunity in this market that has seen a definite break lower.
Support and Resistance
NASDAQ: Closed at 2696.00
Resistance:
2724 is the November/December/February up trendline
2725 is the July high
The 50 day EMA at 2728
2778 from a July 1999 peak
2789 is the November/February up trendline
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:
2673 is the early July high
2634.60 is the June peak
S&P 500: Closed at 1474.77
Resistance:
The 200 day SMA at 1483
1490.72 is the early June closing low and early August peak.
The 90 day SMA at 1502
The 50 day EMA at 1514
1528 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:
1475 from peaks in December 1999 and January 2000
1459 is the February peak
1450 from February and April interim peaks
1440 - 1437 from January and March peaks
1425 is some minor support.
Dow: Closed at 13,266.29
Resistance:
13,420 is the July 2006/March 2007 up trendline
The 90 day SMA at 13,587
The 50 day EMA at 13,666
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 July high at 14,022
14,088 is the early October closing high
14,198 is the October intraday high.
Support:
The 200 day SMA at 13,216
13,041 is some minor support
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): 4.9% actual versus 3.1% expected, 2.2% prior (revised from 2.6%)
Wholesale Inventories, September, (10:00): 0.8% actual versus 0.1% expected, 0.7% prior (revised from 0.1%)
Crude oil inventories (10:30): -800K actual versus -2M expected, -3.89M prior
Consumer Credit, September (3:00): $3.7B actual versus $8.5B expected, $15.4B prior (revised from $12.2B)
November 8
Initial jobless claims (8:30): 317K actual versus 325K expected, 330K prior (revised from 327K)
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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world stock market
us stock market
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