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world stock market, us stock market
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11/12/07 Investment House Alerts
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IH Alert Subscribers:
MARKET ALERTS:
Targets hit alerts: None issued
Buy alerts: AMZN; CMI
Trailing stops: CTRP; RIG; SU
Stop alerts issued: CTDC; DE; JOYG; NDAQ; SGR; STLD; SU
SUMMARY:
- Friday part 2: Beleaguered try another relief bounce while recent leaders continue to tank and pull the market lower.
- "World Trade" stocks take a big hit: just the dollar or world economic weakness?
- Dollar bounces big without any Treasury commentary
- Market desperately seeking support for a relief bounce into expiration. Didn't show up Monday as the world trade selloff overran another financial relief bounce attempt.
Split market early ends up down once more.
There was some typical Monday activity. Some M&A with IBM purchasing COGN and STZ buying FO's wine business; looks as if the US wine market is going the way of Australia, i.e. a few big players owning all the wineries. There were downgrades with MSFT and ORCL getting the thumbs down. Credit Suisse said it was dropping its tech holdings from 40% to 20% after NASDAQ dropped 7.3% in three sessions. ETFC warned and lost a third of its value. TSN (chicken, beef, etc.) warned given higher costs of corn and thus feed for its animals; ethanol is not only sucking up 1700 gallons of water per gallon produced but is raising our food costs as well. Again you have to ask: is ethanol the best approach to solving our pollution and dependency issues related to fossil fuels? But we won't answer that now. We have made the decision to do so for now and we won't address it again until everyone sees the problems it is causing and realize it is the cause.
The real story was the dollar reversal, the continued selling in the recent leaders, and another attempted rebound in the thrashed and trashed of the market, e.g. the financials, retailers, airlines, etc.
The dollar showed the strongest gain against the euro in over a year. That impacted stocks in different ways. On the one hand, there are those stocks that are not directly tied to oil or benefit from oil declining. They rallied, or at least tried to. The financials tried another relief bounce, airlines rose on the drop in oil (93.77, -2.55/bbl), and retail tried a dead cat bounce. On the other hand, the dollar bounce accelerated the downside in stocks tied to the dollar's strength: metals, energy, and materials. Those stocks rose as the dollar fell because it takes more dollars to buy them when the dollar is weak, fewer when stronger. Then there are those stocks that are not directly tied to the dollar at all but got hammered anyway: large cap industrials (though you can argue a stronger dollar makes them less attractive), large cap technology, and basically all other leaders from the past several months (e.g. agriculture).
That last group was really telling. While the dollar directly impacted energy and the like, this last group was just hammered as the market was still taking down the leaders. It was the worst day for the leaders we have seen thus far. Not because AAPL, RIMM, BIDU and the like continued to sell, but because all of the leaders in all sectors, e.g. industrial equipment, agriculture, industrial construction, materials were sought out and sold. This is not really anything tied to a currency. It is what happens when a market is really weak and it is taking the last strong growth stocks down. Indeed, the leaders Monday were your defensive brands such as JNJ, PG, MRK, etc., though their gains were not anything great.
This continued flogging of these former leaders, many of them stocks tied to the 'world growth trade' and the rise of the defensive names could very well be the signal that the world economies are going to struggle ahead, following the US economy. The selling in these groups was so strong that the attempted relief bounce in the financials and other areas was swept away in the last hour as once more, just as on Friday, everything was tossed out in the late selling with the indices giving up any designs on bouncing for the session. SP600 still looks as if it is still in the ballpark to do so and with another downside burst tomorrow early the market will be sold out enough to start a relief move.
Technically it was more weak action. Part of the market tried to bounce from the selling it suffered even as the indices climbed while the leadership that pushed the indices higher was sold off. Kind of another bifurcation, just in reverse. In the end, however, even those that bounced early were pushed back with an all out downside run into the close. Low to low action for the former leadership and high to low for the laggards that tried their relief bounce.
The internals were not that bad but that is compared to how bad they have been of late (-2:1 NYSE, -1.4:1 NASD) and how weak the upside sessions have been. Volume was lower but still quite strong compared to the trade as the indices moved higher and hit new highs for the year back in October. Definitely no cathartic or climax selling on the session, just more steady downside pressure.
The charts are still very weak. If SP500 was trying to show some bottoming at 1450, it gave that up Monday. NASDAQ dove lower again though it did manage to close just over the 200 day SMA. It has dropped 8.5% in 4 days and is down 9.95% from the October high. Sitting over the 200 day SMA it is at a good point to put in a bounce. DJ30 is still trading around 13,000, and that is also a decent point for DJ30 to put in a bounce.
Leadership in the last rally is in real trouble. It was embattled last week. Monday these stocks were hammered lower with new ones added to the hit list. Agriculture was hammered along with industrial stocks tied to the world economy. Just about every leading sector is taking on a lot of water. Leadership is the basis of the market, either upside or down. The recent leaders are being cleaned out and right now there are none stepping up to take their place. PG, JNJ, CL, and the like are not strong growth leaders; they are defensive shelters to park money in and maybe scratch out a percent or two.
THE ECONOMY
Dollar starts to bounce even with a mum Treasury.
Over the weekend we noted that factors were setting up in the currency markets that indicated the Treasury might be ready to make some sort of statement with respect to its dollar policy other than the dogmatic "a strong dollar is in the best interest of the United States." The Canadian dollar turned down, dollar-linked stocks, at least those benefitting from a weak dollar, were selling off, financials were bouncing, and foreign officials complaining about the dollar's decline was growing into a chorus. We didn't get South Korea chiming in on Monday, though the week is young.
No announcement came Monday, but on the heels of the above indications the dollar jumped higher, posting its strongest gain against the euro in over a year. Definitely oversold, and that no doubt contributed to the bounce, but there is also that idea we are hearing that the Treasury may be forced to take a stronger stance to try and curtail the dollar's increasingly rapid slide. Of course any bounce in the dollar may take a reluctant administration off track from any such announcement. We will have to see how that plays out, but the dollar did post a big gain and that was in part in anticipation of some action by the Treasury. Of course that action would only be lip service for now, but that would take away the free punch for those shorting the dollar. Monday that definitely was having some affect on the dollar and the stocks tied to it.
THE MARKET
MARKET SENTIMENT
VIX: 31.09; +2.59. This was the highest closing high on VIX since first quarter 2003. Not as high as it was in August when it spiked intraday near 37.50. You know, it would not take a whole lot more selling to jump it into the forties which were the closing highs back in the 2002 bottoming process. It ran higher intraday but a run to the 40's as the indices sell in the 10% to 15% range would be quite interesting for this downturn, i.e. we would view that as potentially calling some sort of bottom. That does not jibe with an economy that is just turning lower, however, and thus the other factors would have to fall into place such as how stocks with strong growth potential are setting up to move higher.
VXN: 34.94; +2.42
VXO: 30.39; +1.38
Put/Call Ratio (CBOE): 0.93; -0.15. Below 1.0 on a day that, while not brutal for the entire market, was no sunset stroll in the garden.
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: -43.81 points (-1.67%) to close at 2584.13
Volume: 2.817B (-5.59%). Volume was lower but still very strong as NASDAQ continued to plunge lower. Still high volume, as high as the August selling volume.
Up Volume: 749.387M (+160.629M)
Down Volume: 2.046B (-334.279M)
A/D and Hi/Lo: Decliners led 1.42 to 1. Pretty narrow breadth, but that simply means it was the large cap stocks selling off hard (NASDAQ 100 declined 2.56% versus 1.67% on NASDAQ overall).
Previous Session: Decliners led 1.94 to 1
New Highs: 58 (+7)
New Lows: 267 (-68)
NASDAQ CHART: http://investmenthouse.com/ihmedia/NASDAQ.jpeg
NASDAQ gapped lower then spent the session through lunch trying to break higher, even trading positive on the session. The large cap leaders were under pressure early, however, and it only turned worse in the afternoon. NASDAQ peeled off 55 points to the downside from its lunch high, and that was not even the session high for the index. It flopped down at the 200 day SMA (2579) on the close, now resting in the so to speak in the May to June trading range. It has now given up just over 50% of its August to late October run and is at the 200 day SMA. That puts it down right at 10% off of its highs. All of this makes it a good candidate for a rebound move in the near term. An undercut of the 200 day SMA early Tuesday may just be the trigger.
SOX CHART: http://investmenthouse.com/ihmedia/SOX.jpeg
SP500/NYSE
Stats: -14.52 points (-1%) to close at 1439.18
NYSE Volume: 1.706B (-6.56%). Volume was lower but as with NASDAQ it was still well above average as the NYSE stocks continued their sell off.
Up Volume: 572.581M (+26.446M)
Down Volume: 1.101B (-164.009M)
A/D and Hi/Lo: Decliners led 2.04 to 1. Despite the upside in financials and some retail stocks breadth was weak as the NYSE indices continued lower. Still a lot of declining stocks.
Previous Session: Decliners led 2.71 to 1
New Highs: 21 (-12)
New Lows: 275 (-127). Despite the hard selling, not a lot of new lows. Declining new lows even as an index dives indicates it is getting sold out. Would have preferred a few sessions of 400 to 500 new lows to set it up, but this can show us a near term bottom is trying to set up.
SP500 CHART: http://investmenthouse.com/ihmedia/SP500.jpeg
Rallied off a modestly weak open and was positive through lunch, but as with NASDAQ, as the afternoon wore on the selling pressure intensified, and by the last hour SP500 was negative as it drove lower into the close. Broke through some support at 1450 and is looking to test some support in the 1425 range. If NASDAQ is going to try a bounce after its harsh selloff then SP500 is in position to do it as well.
SP600 (-0.81%) was positive most of the session but it too succumbed to the selling and closed near the session low. For the third straight session, however, it held at the August closing low, and it still looks ready to try a bounce after a very tough selloff.
SP600 CHART: http://investmenthouse.com/ihmedia/SP600.jpeg
DJ30
The blue chips sold in the end after holding positive well into the last hour. A weak close and unable to hold a gain, but similar to the SP600 it held at some support near 13,000 where it bounced in August a couple of times on either side of the plunge to the August low. It still has an open door down to the August closing low (12,845) and even the February peak at 12,786, and if NASDAQ continues lower it is likely to make a pass near those levels but then try to put in the rebound move.
Stats: -55.19 points (-0.42%) to close at 12987.55
Volume: 291M shares Monday versus 356M shares Friday. Continued above average volume as the blue chips trade near some support at 13K. Not much price move as it does. That can indicate it is getting a bit sold out here.
DJ30 CHART: http://www.investmenthouse.com/ihmedia/DJ30.jpeg
TUESDAY
No reversal action Monday though part of the market made yet another go at it. A very weak finish to a day that tried to start with some upside. What the market needs is all stocks trying to rebound versus just the financials. With NASDAQ diving to the 200 day SMA and a 10% decline things are setting up along those lines.
Right now the market is in full retreat with leadership breaking down. That pretty much means that this rally is toast and no immediate comeback is in the cards outside of what could be a pretty sharp relief move.
That means we basically use the rebound to unload what stocks we have left that cannot rebound and recover support that was lost. The Monday fall was basically out of the gates and rapid. If a stock broke support on that move and could not rebound above it we closed it. If it held we decided to keep it alive given our belief that a market relief bounce for at least a couple of sessions is coming ahead of expiration. That gives us at least a better exit point on them after that quick initial decline.
We see a few stocks that remain quite solid in this market, and if they can provide a good solid move from a solid support position we will entertain some upside positions. After all, if they held up during this selling there is something there.
Outside of that we will see how any rebound move plays out. When it reaches resistance levels we will see how strong the move is (i.e. the volume on the move, what leaders are doing) and then see if it is time to put in some more downside positions or look for a further move higher. Right now the latter seems less likely given the technical damage done on this selling to the indices as well as leading stocks. Ever since the Fed cut just 25BP the market has not responded well, and that indicates the Fed is behind the curve and the market is forecasting slowing economic activity. With that we have to be careful with the upside, and look rationally a any rebound to see if there is something of substance there or just a rebound. As noted earlier, a lot depends upon whether stocks with solid sales and earnings growth rates are setting up to move higher. A lot of damage has been done to them and that typically means they have to base out in order to make a sustained move higher once more.
With that in mind we look for a rebound from the market this week and see where it takes the market. We anticipate using it to close some upside positions and then play some downside when it stalls. The market will tell us which to do, but either way is basically the same. For the downside we will look at stocks and indices that bounce higher then stall out at resistance just as on the upside we look for stocks that test their breakouts or support and pick them up as they rebound. We simply take downside positions on the stocks after they rebound and stall, using put options to do so. When the stock falls and hits buy point we buy the options, let the stock fall to our target or as far as it will go, and then sell the put options and bank the gain. When stocks set up to the downside and trend lower it is the same action as stocks trending higher up off of near support at the 10 and 18 day EMA. On the downside they still use the 10 and 18 day EMA, but as resistance that stalls the move and starts the next leg lower. Same thing, just the other way.
Support and Resistance
NASDAQ: Closed at 2584.13
Resistance:
2600 is some minor support.
2634.60 is the June peak
The 90 day SMA at 2660
2673 is the early July high
The 50 day EMA at 2718
2727 is the November/December/February up trendline
2725 is the July high
2778 from a July 1999 peak
2794 is the November/February up trendline
2834 is the October interim peak
2861.51 is the October peak
Support:
The 200 day SMA at 2579
2550 to 2540 from May/June consolidation
2525 is the February closing high
2451 is the August closing low
2386 is the August intraday low
S&P 500: Closed at 1439.18
Resistance:
1459 is the February peak
1475 from peaks in December 1999 and January 2000
The 200 day SMA at 1484
1490.72 is the early June closing low and early August peak.
The 90 day SMA at 1500
The 50 day EMA at 1509
1529 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:
1440 - 1437 from January and March peaks
1425 is some minor support.
1406 is the August closing low
1375 is the March closing low
1370 is the August intraday low
Dow: Closed at 12,987.55
Resistance:
The 200 day SMA at 13,221
13,430 is the July 2006/March 2007 up trendline
The 90 day SMA at 13,575
The 50 day EMA at 13,616
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:
12,845 is the August closing low
12,786 is the February peak
12,518 is the August low
Economic Calendar
These are consensus expectations. Our expectations will vary and are discussed in the 'Economy' section.
November 13
Pending home sales, September (10:00): -2.0% expected, -6.5% prior
November 14
Retail sales, October (8:30): -$53.0B expected, -$49.3B prior
PPI, October (8:30): 0.2% expected, 1.1% prior
Core PPI, October (8:30): 0.2% expected, 0.1% prior
Business inventories, September (10:00): 0.3% expected, 0.1% prior
Crude oil inventories (10:30): -821K prior
November 15
CPI, October (8:30): 0.3% expected, 0.3% prior
Core CPI, October (8:30): 0.2% expected, 0.2% prior
Initial jobless claims (8:30): 317K prior
NY Empire State PMI, November (8:30): 21.0 expected, 28.8 prior
Philly Fed, November (12:00): 6.0 expected, 6.8 prior
November 16
Net foreign purchases, September (9:00): $-69.3B prior
Industrial production, October (9:15): 0.1% expected, 0.1% prior
Capacity utilization, October (9:15): 82.1% expected, 82.1% prior
End part 1 of 3
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world stock market
us stock market
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