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11/15/07 Investment House Daily
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Investment House Daily Subscribers:
MARKET ALERTS:
Targets hit alerts: None issued
Buy alerts: C; CAT; MS; QQQQ; TXN
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SUMMARY:
- Soft start, negative close, but not another downside rout.
- Economic data not bad, but not enough to overcome more credit worries.
- Expiration Friday likely to bring back some intraday volatility as November shorts adjust their positions.
Stocks sell off again but not as virulent on the downside.
It seems somewhat strange to refer to 1% losses on the indices as not that bad, but all things considered, it was not. The indices did fade further from the Tuesday relief bounce, but the volume was lighter and it did not bury the indices after they failed to carry through on the strong Tuesday relief bounce. They just wandered lower through the session, threatened to get really ugly in the last hour, but then recovered modestly to blunt some of the losses.
Stocks started modestly lower after some not so great earnings outlooks from JCP and AMAT but some decent CPI and New York PMI reports. It tried to rally back on the stronger than expected Philly Fed report, then a better than expected oil inventory report at 10:30ET. That was the peak for the indices and they faded for the rest of the session with lower highs and lower lows that mark an entrenched downtrend. Though the day was lower and the indices sported 1% losses, it was a quiet session compared with those of the past month. Stocks eroded all session, but as noted above, they did not get run out of the building as has been the case on other down days in this sell off. That leaves the door open for another bounce attempt, and an expiration Friday is a day that can bring about a swing the other direction for the day though that will not change the current trend.
Technically it was another weak session to match the point performance. The indices opened down and closed much lower. The internals were mixed though leaning to negative. Downside breadth continued to swamp upside breadth on upside sessions with NYSE stocks down 3.5 to every one that rose. NASDAQ saw 2.5 down for every 1 up. The breadth shows a lack of enthusiasm for really any particular sector. Volume was lighter. Once more it was above average, but for the fifth straight session it was down. A lot of stocks were down but they were not getting sold any harder, just couldn't find any interested buyers.
Charts: There was no new damage done, but of course most of the breakdown is already in place. There was the dive lower, the rebound move Tuesday, then the gap and dump on Wednesday that took SP500 right off the 200 day SMA test. Thursday was just some more downside from that rebound. It leaves NASDAQ still above its 200 day SMA but DJ40 fell well below its 200 day as it failed to hold the break higher on the Tuesday move when it recaptured that key level. That leaves both DJ30 and SP500 (and SP600 for that matter, though it is so far from its 200 day SMA it is a moot point) below this important point, and only 35% of NYSE stocks above their 200 day SMA. Strength continues to ebb.
Leadership: There is a definite lack of leadership in the market. Nearly all of the leaders that pushed the market to new highs in October have corrected sharply and are likely in need of new bases before they can even attempt to take up the mantel once more. The market bias has shifted to down with the lack of market leadership.
THE ECONOMY
CPI palatable, New York and Philly Fed reports stronger. Market still gives more weight to the credit issues.
The economic data was not that bad. CPI was in line with 0.3% growth on the overall and 0.2% core. The regional manufacturing reports handily beat expectations (27.37 versus 18.0 on NY, 8.2 versus 5.0 Philly), and they are more leading than the recent reports that the administration and others have touted (e.g. GDP).
The market popped modestly on this news but it could not hold even the mediocre bounce. There are other issues at work outside of the overall still quite impressive economic data.
First there is the ever-present credit cloud on the horizon. It has yet to take any major sector down, but it is out there, sapping enthusiasm from the financial markets and the smaller businesses. Three to four times a week there is a new story about new write-downs or speculated write-downs for financial institutions. Thursday there were plenty with the carryover from GE's warning Wednesday night, Barclay's write-down (though it was much less than expected as with others announced this week), and speculation that UBS has a big write-down in the $7B range yet to come. On top of that WFC said the housing slump was the worst since the big one, the Great Depression, and that the game was definitely not in the ninth inning. With that kind of news day on the credit front, no wonder the market was at best sluggish and listing to the downside.
Second, the market is forward looking, and future issues always trump the recent data such as economic reports, though the market does tend to overshoot or get too excited in the short term. When you look out ahead you see economic slowing despite the current spate of solid economic reports. The indications are not for a calamitous selloff into deep recession, but a significant slowdown that has some type of recession behind it. Housing is already there; if it spread out more across the nation you could call it depression. As of yet, however, housing has not had as negative an impact on the economy as it has on itself. In other words, housing is in bad shape but the rest of the economy has admirably dealt with it.
Nonetheless, the stock market formed some toppish patterns and tanked. It has been unable to recover, and indeed with respect to DJ30, SP500 and SP600 it looks to have set up downtrends that will take awhile to resolve. That is indicative of a more serious economic slowdown to come regardless of what the current, dated reports indicate.
It is also indicative of the Fed's new stated position on inflation. No longer is it focusing on the core rate even though Bernanke went to such great pains to explain to Congress a couple of months back as to why the core was a much more accurate indicator than the overall CPI or PCE. No, it is going to consider the overall rate now in setting its monetary policy, and with the overall annual growth rate at 3.3% (core at 2.2%), it will be even less inclined than it stated a couple of weeks back to cut rates in December. It is talking loud and clear right now, and at least the market is picking up on it. The market views the Fed as out of the game with respect to staving off whatever economic slowdown that is coming, and it is taking out gains built upon expectations the Fed would act in sufficient measure to forestall the decline. The market sees that as not the case anymore, and thus the selling and the inability yet to find a bottom.
THE MARKET
MARKET SENTIMENT
VIX: 28.06; +2.12
VXN: 32.91; +1.59
VXO: 29.02; +2.27
Put/Call Ratio (CBOE): 1.31; +0.4. Back up above 1.0 after a day off. It is starting to pile up the 1.0+ days, and after a few weeks of that you can see if the other indicators are shaping up. VIX is getting there but bullishness needs more work.
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: -25.81 points (-0.98%) to close at 2618.51
Volume: 2.337B (-5.33%). Volume was lower again, down for the fifth session as NASDAQ fell back from the Wednesday selling. That takes some of the sting out of the selling, and with NASDAQ still above the 200 day SMA there is bounce potential of volume remains low as it comes back for a test of the Monday low that hit that level.
Up Volume: 596.634M (-212.716M)
Down Volume: 1.718B (+71.844M)
A/D and Hi/Lo: Decliners led 2.57 to 1. Breadth to the downside continues stronger than the upside strength.
Previous Session: Decliners led 1.49 to 1
New Highs: 61 (-16)
New Lows: 219 (+62)
NASDAQ CHART: http://investmenthouse.com/ihmedia/NASDAQ.jpeg
Gapped lower, continuing the Wednesday reversal from the high. NASDAQ tested some resistance at 2650 on the high and 2600 on the low, closing off the lows. As noted above, not the same harried selling and volatile action seen in prior downside runs, just a lack of bids and thus a slow steady slide lower as no one wanted to step in. That lighter volume silver lining discussed Wednesday is still there and helping ease NASDAQ's decline. The 200 day SMA is just 36 points lower, and with this lower trade it could fins some interim support there to attempt another bounce.
NASDAQ 100 (-0.54%) fared better than NASDAQ overall as it rebounded a bit better into the close. It is also well above its 200 day SMA and tries to hold onto some support at the July peak. It is just below that support level and has a bearish look to its pattern overall though some of the big names recovered Thursday to hold near their 50 day EMA after breaking below them earlier in the session. That was what was showing up in the overall NASDAQ pattern as the Thursday selling was not as harsh as in past selling sessions.
SOX CHART: http://investmenthouse.com/ihmedia/SOX.jpeg
SP500/NYSE
Stats: -19.43 points (-1.32%) to close at 1451.15
NYSE Volume: 1.472B (-0.99%). Volume held steady as the NYSE indices faded further. No resumption in distribution, just a drift lower on lower trade.
Up Volume: 279.951M (-236.032M)
Down Volume: 1.174B (+216.69M)
A/D and Hi/Lo: Decliners led 3.56 to 1. Needless to say downside breadth easily topped the upside in terms of strength.
Previous Session: Decliners led 1.64 to 1
New Highs: 31 (-13)
New Lows: 312 (+109)
SP500 CHART: http://investmenthouse.com/ihmedia/SP500.jpeg
Gapped lower and closed just off the session lows after testing close to the low hit on Monday as SP500 tested right in the middle of the August interim lows. This continues the Wednesday reversal off a rebound test of the 200 day SMA. Volume was lower so there was no renewed dumping; as noted with NASDAQ, just a lack of bids though the selling in the financials was on rising volume. If volume does not pick up again it might try to hold once more near the Monday low (1438), but the overall pattern is clear: a high volume break below the 200 day SMA, a rebound to test, and a failed test. A short bounce may occur, but overall the action and trend is negative.
SP600 (-1.03%) was the downside all session until the financials kicked in to the downside and pushed the large cap SP500 to the front. Interestingly, the small cap index bottomed intraday at the same lows at 396 hit the past week. That is the same area it bottomed in August, and of course it is trying to hold the line there. May do it if SP500 can put together a bounce as well, but even with that bounce, this is a precursor to more selling in the small caps because the large caps are not done yet, and the small caps are going to be weaker with the economic prospects continuing to soften.
SP600 CHART: http://investmenthouse.com/ihmedia/SP600.jpeg
DJ30
After retaking the 200 day SMA (13,331) Wednesday, the blue chips were pretty quick to give it up Thursday. The point loss was sharper than the volume, however, as trade fell to average. It is trying to hold 13,000 where it hit some interim lows in the August selling, and as with SP500 it may make a stand at that point for another bounce. Overall the pattern is still very negative after the collapse through the 200 day: it broke down from the topping pattern, sold off, bounced to the 10 day EMA, then started to slide back once more, giving up the 200 day SMA in the process. The action will be up and down, but the bias is still negative overall as DJ30 tries to find a bottom and form a new base.
Stats: -120.96 points (-0.91%) to close at 13110.05
Volume: 242M shares Thursday versus 267M shares Wednesday. As with the other indices, the volume continues to decline after that high volume selloff.
DJ30 CHART: http://www.investmenthouse.com/ihmedia/DJ30.jpeg
FRIDAY
Expiration Friday is here and there are a lot of index options on both sides of the ledger expiring. That almost guarantees a more volatile session than seen on Thursday where the market seemed rather calm about its 1% sell off. Volume is likely to expand after slumping for two sessions, though it won't be all that meaningful given it will be expiration driven as positions are shuffled for the new period.
There is more economic data in the form of net foreign purchases as well as production and capacity utilization. The net foreign purchases will be closely watched given the rhetoric from China about diversifying out of dollars and this weeks United Arab Emirates comments of the same. We expected Korea to be the next, but whether Korea or the UAE the point is the same: others are coming out and saying they are going to diversify. That at least keeps pressure on the administration to say something regarding the dollar, something we anticipated this week but that has not come about. In any event, the data is so old by the time it comes out it means little. If there is little purchasing, however, it makes these more current diversification comments all the more significant as they would occur at a later date.
We are basically expecting a volatile session Friday. There was not a lot of rebounding off the selling, just one very strong day on Tuesday and about an hour on Wednesday. Then it was back to selling, though it was lower volume selling, indicating things had called a bit. Given the fade back toward the week's lows and the lack of volume as they drifted back, we could see a lot more up and down Friday.
Indeed that is the way a selloff or a rally works, i.e. up and down action within the overall trend. The breakdowns were strong and serious on all of the indices. NASDAQ is still above its 200 day SMA, and that is going to try and give it some legs to rebound. The other indices have sold but are not selling very hard as the approach their recent lows. Thus we expect some volatility with the test of the recent lows and expiration.
Given that we are going to rely on the overall trend and let things sort through Friday without micromanaging positions on the session. If a position gets out of whack in such a manner that it is threatens to get to a point of no return, then we will act, but overall we intend to let positions in place while expiration Friday works through its issues and leaves the market to resume its trend in the coming week.
Support and Resistance
NASDAQ: Closed at 2618.51
Resistance:
2634.60 is the June peak
The 90 day SMA at 2660
2673 is the early July high
The 50 day EMA at 2710
2725 is the July high
2732 is the November/December/February up trendline
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:
2600 is some minor support.
The 200 day SMA at 2596
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 1451.15
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 1499
The 50 day EMA at 1504
1532 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
1430 from the August interim lows
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 13,110.05
Resistance:
The 200 day SMA at 13,230
13,470 is the July 2006/March 2007 up trendline
The 90 day SMA at 13,563
The 50 day EMA at 13,571
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:
13,000 to 12,985
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% actual versus 0.3% expected, 0.3% prior
Core CPI, October (8:30): 0.2% actual versus 0.2% expected, 0.2% prior
Initial jobless claims (8:30): 339K actual versus 325K expected, 319K prior
NY Empire State PMI, November (8:30): 27.37 actual versus 18.0 expected, 28.8 prior
Crude oil inventories (10:30): +2.8M actual versus -800K expected, -821K prior
Philly Fed, November (12:00): 8.2 actual versus 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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