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world stock market, us stock market
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11/14/07 Stock Split Report Update
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Stock Split Report Subscribers:
Full report issues Thursday.
MARKET ALERTS
Targets hit alerts: None issued
Buy alerts: GYMB; SBUX; SPY; TIF
Trailing stops: GLDN; IMO; STP
Stop alerts issued: CMED; CNQ; CNX; FCX; GLDN; WFR
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:
- Investors aroused over some more positive financial news, but market can't keep it up.
- Fed adopts EU inflation targeting, now looking to overall inflation in addition to core, and that means it is off the table and the economy is own its own.
- GE news after hours not as bad as rumor and that may give some life to the market, but it still looks like borrowed time.
Relief rally arrived quickly then left through the back door at the first sign of trouble.
Early in the pre-market the futures were flat. After the big updraft on Tuesday that was not too surprising. Given the market is overall negative despite that big updraft, it really was not surprising. Things brightened, however, with BSC as the latest major financial player to indicate that the sub-prime issues were just not as bad as made out to be. It was taking a big $1.2B write-down on some assets in Q4, and that was much less than expected. Moreover it was cutting is problem assets and that was basically going to be the end of its troubles. The PPI was basically flat and retail sales, while down, were still up and in line with expectations.
With that news the futures turned from flat to sharply positive and held that into the open. Right as the session was getting started, however, Fed chairman Bernanke indicated that the Fed was now going to target not only the core inflation rate but the overall inflation rate as well, i.e. including food and energy in the equation. It did not receive much press, but as soon as the market opened, it was trading down from that open. The additional pre-market relief move was withering just as it got started. The market was positive, but gains were whittled from the open and continued heading lower all session. It weakened through the afternoon and then really dove lower into the close, finishing right at the lows.
Much of the last hour selling was attributed to a rumor that GE would announce some sort of write-off related to its sub-prime mortgage funds. It was a hard plunge to the close with SP500 losing 20 points from the last afternoon gasp higher (not even the session high) that failed to take out the 200 day SMA. The stone-like drop was correct in the rumor as GE reported its investors in a $5B fund would receive 94 cents on the dollar. Not great but not 9 cents on the dollar either. Thus there was some modest recovery after hours, but all in all the action was poor: gap higher, rollover, close at the lows. Hard to really see that as a positive.
Technically the session was a negative just looking at a gap higher and a negative close. On the other hand there was nothing massively out of whack on the early on the upside move or on the selling as the session progressed. It was must more of the same action we have come to expect, i.e. negative and with some big intraday and day to day swings. Indeed, regardless of the cause the market wanted to head lower as it gave away an early gain to close negative and on the lows.
Internals: Very middle of the road. Volume was lower so there was no accumulation on the early upside but there was no distribution either as the market rolled over. Small positive, but a positive compared to that nasty high volume selling. Breadth was -1.5:1; quite tame compared to recent results. The market was basically slack, but the key is that when the market was slack the bias was downside, enough so that a solid early gain was tossed aside with relative ease.
Charts: The indices all started higher. NASDAQ gapped higher. Then they all rolled over and closed at the lows. SP500 tried to take the 200 day SMA but failed. DJ30 managed to hold the 200 day SMA on the close. NASDAQ is still well above its 200 day, though it turned down exactly at the December/January trendline after gapping to that level. Not the kind of action that exudes strength. No GE on NASDAQ, and that hard drop to the close was just selling in tech.
Leadership: Pretty hard to find any real leadership, at least any widespread groups. Energy was up as oil rebounded (94.09, +2.83), but even with energy higher it as a relief move after some hard selling in the recent sessions. The recent leaders were paper tigers on the session, starting strong but not finishing. Well, they finished, just to the downside after gapping higher in a continuation of the Tuesday move (e.g. AAPL, RIMM). In short, leadership was thin and scattered, and the market acted as if it had no leadership.
THE ECONOMY
Bernanke goes continental.
Bernanke is caving in to the old school of Fed chairmanship. Wednesday he informed the world that the Fed was going to do two things. First, it was going to forecast 4 times per year versus just 3 times, supposedly to provide more transparency. With the Fed being so obtuse, however, do you really want it to hear more from it? Bernanke is a pro-transparency guy but things have not improved much under him as far as the Fed saying one thing and doing the other.
The big issue was the second point that was rather under-reported: the Fed is not going to target overall inflation, i.e. including energy and food in its inflation forecasts. Without much fanfare the Fed announced it was adopting the European model of inflation targeting, the very model that has choked off expansion after expansion in Europe, keeping its economies second rate. In sum Bernanke basically said that if it felt the economy was in good shape, as it apparently does now given that it backed off its rate cutting and has gone out of its way to rely on the out of date economic data to say the US economy is just fine, it would use the overall inflation rate in setting monetary policy. Applying that to what the Fed is saying now about the economy, there is not going to be any more rate cuts anytime soon.
Is it any wonder the market was strong heading into the open but then started to sell back right as the indices opened higher? The market did not like the Fed's 25BP cut and subsequent rhetoric, and this latest speech confirms it. There was no major sell off but when the market had every reason to continue the relief move it gave it all up and more. Our working hypothesis is that the market views the Fed as acting too little and too late with this last 25BP rate cut and that we are heading toward recession. This announcement by Bernanke only confirms the market's worry, regardless of whether the market is right or not.
No matter what you believe about the US' economic future, you have to agree that the timing was extraordinarily bad: the market is forecasting recession, the financial markets are very weak, yet Bernanke announces a European-like policy that has kept Europe in economic mediocrity for decades. Just when it is improving the past year its central banks jack up rates and are threatening to choke off this most recent expansion. At least they won't get far ahead of the US as we head into recession, but then again, if we are going European with our inflation views then we will all be in the mud together as China and India run the table and become the new economic super powers while our standard of living falls back to the 1940's level.
THE MARKET
MARKET SENTIMENT
VIX: 25.94; +1.84. Will see how fast it spikes up as the selling continues. Kind of slow today given the 'stealth' selloff, i.e. the quiet slide all session that was positive for most of the session then dove lower late.
VXN: 31.32; +1.61
VXO: 26.75; +2.52
Put/Call Ratio (CBOE): 0.91; -0.3
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: -29.33 points (-1.1%) to close at 2644.32
Volume: 2.468B (-8.76%). Volume continued its decline from the massive spike last Thursday. Still well above average but no real distribution on the rollover, a silver lining of sorts. Of course there was already massive distribution to this point.
Up Volume: 809.35M (-1.641B)
Down Volume: 1.646B (+1.41B)
A/D and Hi/Lo: Decliners led 1.49 to 1. Pretty middle of the road, but given it was a reversal session from high to low it was not all that surprising.
Previous Session: Advancers led 2.49 to 1
New Highs: 77 (+12)
New Lows: 157 (-28)
NASDAQ CHART: http://investmenthouse.com/ihmedia/NASDAQ.jpeg
Gapped higher to the 10 day EMA and the December/January up trendline at 2700 and the door was slammed in its face. AAPL, BIDU, RIMM, GOOG and all large caps were up early and then were down or damn close by the close. It was strong yet weak at the open, gapping higher then starting to sell immediately. It broke back through the 90 day SMA though that was no big deal, and slipped below 2650. It is still above the 200 day SMA down at 2580, but with this rollover there is not a lot to keep it from revisiting that level and perhaps lower once more. The saving grace was the low volume, kind of slow motion descent from the gap higher. The bid left but the sellers did not swarm in and sell with high volume. That is a pretty thin strand of silver lining to try and hold the index higher, however, when the pressure was to the downside immediately after the gap higher at the open.
SOX (-1.91%) looks ready to head sharply lower yet again after it fails at the weakest resistance of all at the 10 day EMA. Pathetic. On the other hand, after one more good hard fall it will have made 4 runs down the 10 day EMA on this decline and that will be more or less the point where it tries to hold and rebound to come up for some air. Another quite thin silver lining, at least near term.
SOX CHART: http://investmenthouse.com/ihmedia/SOX.jpeg
SP500/NYSE
Stats: -10.47 points (-0.71%) to close at 1470.58
NYSE Volume: 1.487B (-10.19%). Lower volume, holding just above average on the close in the lowest trade in a week. No distribution on the fade, but no life on the early upside either.
Up Volume: 515.983M (-1.024B)
Down Volume: 956.813M (+849.3M)
A/D and Hi/Lo: Decliners led 1.64 to 1
Previous Session: Advancers led 4.58 to 1
New Highs: 44 (+15)
New Lows: 203 (-11)
SP500 CHART: http://investmenthouse.com/ihmedia/SP500.jpeg
The picture of a selloff, a weaker rebound, and a turn back down. SP500 gapped higher to the 200 day SMA (1484) and rallied through that level, but it stalled at the October and early November intraday lows and the June twin lows and sold into the close with a hard 20 point dive in the last hour. That was blamed on GE, but when you look at GE's intraday chart, its late decline was nowhere near, indeed it is not even similar, to SP500's dive lower into the close. As noted, this is a pretty classic high volume dive lower, a weaker volume rebound to a key resistance level (old support becomes resistance), and then a failure at that resistance. That is why we moved into some SPY puts in the afternoon.
SP600 (-0.89%) showed similar action to SP500, just at a lower level, and indeed a level that indicates much more weakness. SP600 rebounded Tuesday to the 10 day EMA. It broke over the 10 day EMA on Wednesday. By the close, however, it turned lower and closed near session lows. Failed at this level two weeks back and is doing the same now, meaning it looks to turn back down and continue its new downtrend.
SP600 CHART: http://investmenthouse.com/ihmedia/SP600.jpeg
DJ30
More of the same as with SP500 and SP600, though with a bit of a twist. The blue chips were up early as well, continuing the Tuesday reversal and moving up through the 10 day EMA early in the session. By the close, however, the index gave up the 10 day EMA and sold back to the 200 day SMA. It at least managed to hold at that level and volume was lower (though still above average). It could very well hold the 200 day SMA. We don't think it will. We believe DJ30 is a rotation behind SP600 in its trend lower, meaning this is its first failure at the 10 day EMA after breaking lower a week back from a head and shoulders top. That means it still has more downside ahead, and we can look to play that move lower.
Stats: -76.08 points (-0.57%) to close at 13231.01
Volume: 267M shares Wednesday versus 298M shares Tuesday. Lower trade so no real distribution, but that does not change the character.
DJ30 CHART: http://www.investmenthouse.com/ihmedia/DJ30.jpeg
THURSDAY
PPI was out Wednesday and Thursday we get the CPI, New York PMI, and the Philly Fed. These are actually worth looking at though Bernanke said Wednesday the CPI was not the real Fed inflation indicator (he reaffirmed the PCE as that). The latter two, however, give a more forward look and recall that the Chicago PMI contracted last month. How these two pan out Thursday is very important in divining if the economy is indeed heading south a t a pretty rapid clip.
We will have to see how the data pans out. The market moves near term on the economic reports and the company statements, but the overall trend remains in place at this juncture and it will take some time to change the character; Tuesday did not do that. NASDAQ can still hold above the 200 day SMA and try to reassert some leadership but SP500 and its financials, despite the better news of late, is sagging once more, in the process of failing at the 200 day SMA. The financials are going through the process of trying to find a bottom, but they are not there yet and their troubles are the SP500's troubles.
The relief bounce may not be done yet; it was just a session and a few minutes of the next. After such selling there may be more upside, but with the strong Tuesday gains and the gap higher that stalled Wednesday, we stuck to the game plan and sold some positions that were lagging but gapped higher, and we moved into some downside positions as the move ran out of gas on the Wednesday session. With SP500 stalling at the 200 day SMA and moving lower the market was playing to the script. Maybe too pat, and there may be some more bumps, but the patterns are classically weak on DJ30, SP600 and SP500.
Thus we stick to the gameplan and continue looking at ripe downside fruit to pick as the market moves through this downside leg. We are continuing to watch developing upside positions for opportunity, and we are still letting some upside positions move higher as long as they will. Not all of them waffled on the session Wednesday, and if they can hold on that ultimately bodes well for the market.
Support and Resistance
NASDAQ: Closed at 2644.32
Resistance:
The 90 day SMA at 2660
2673 is the early July high
The 50 day EMA at 2714
2731 is the November/December/February up trendline
2725 is the July high
2778 from a July 1999 peak
2795 is the November/February up trendline
2834 is the October interim peak
2861.51 is the October peak
Support:
2634.60 is the June peak
2600 is some minor support.
The 200 day SMA at 2580
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 1470.58
Resistance:
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 1499
The 50 day EMA at 1506
1530 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:
1459 is the February peak
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 13,231.01
Resistance:
13,465 is the July 2006/March 2007 up trendline
The 90 day SMA at 13,568
The 50 day EMA 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 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 13,228
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): 0.2% actual versus 0.2% expected, 0.7% prior (revised from 0.6%).
PPI, October (8:30): 0.1% actual versus 0.3% expected, 1.1% prior
Core PPI, October (8:30): 0.0% actual versus 0.2% expected, 0.1% prior
Business inventories, September (10:00): 0.4% actual versus 0.4% expected, 0.3% prior (revised from 0.1%)
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): 325K expected, 317K prior
NY Empire State PMI, November (8:30): 18.0 expected, 28.8 prior
Crude oil inventories (10:30): -821K prior
Philly Fed, November (12:00): 5.0 expected, 6.8 prior
November 16
Net foreign purchases, September (9:00): $66.0B expected, $-69.3B prior
Industrial production, October (9:15): 0.1% expected, 0.1% prior
Capacity utilization, October (9:15): 82.0% expected, 82.1% prior
End part 1 of 3
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