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us stock market, trade stock
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11/17/07 Stock Split Report
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Stock Split Report Subscribers:
MARKET ALERTS
Targets hit alerts: CMI; SBUX
Buy alerts: FSLR; FLO
Trailing stops: None issued
Stop alerts issued: None issued
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
HOLIDAY SCHEDULE
Monday and Tuesday: Full report
Wednesday: Market summary, play tables.
Thursday through Sunday: No report
Report resumes Monday
SUMMARY:
- Up and down expiration ends positive with no real fanfare.
- Fed changes its focus on the week and was talking very tough on Friday.
- Foreigners still cool on US assets for the second straight month.
- Light holiday trade into Thanksgiving may allow stocks to make an interim bounce.
Stocks bounce up and down in typical expiration fashion.
We expected volatility on expiration and that was the case though it was not a violent whiplash session. Futures were flat in the very early morning, but they jumped sharply on news of a CSCO enhancing its buyback by $10B, and HPQ upgrade, and some dollar support from Paulson that was more than the now trite 'strong dollar is good for the US' one liner.
It was surprising to see the futures improve given the other side of the ledger that was less than inspiring for stocks. The earnings outlook continued to weaken as SBUX blamed higher milk costs due to higher grain prices due to using our corn for producing ethanol. Of course no one is going to cry because a $5 cup of joe costs a bit more. The story may change, however, as milk and other food staples surge in price because our government forces us to use our corn to produce fuel that won't only the corn producers love. In addition to SBUX, ANN and KSS provided weak outlooks as well. No word as to whether they blamed ethanol or not. Foreign purchases of US instruments was weak for a second straight month. The Fed-speak was negative with Krozner saying the Fed expected weakening economic data but that the data would not lead to rate cuts. Bummer.
The futures held up into the open, but as soon as the bell rang and stocks started higher, they started selling back. Before things even started expiration volatility showed up. Stocks started higher then sold to negative within the first half hour. Double bottomed, then rallied back to the opening high, a 44 point round trip for NASDAQ, 140 points or so on DJ30. Then it was back down in the afternoon with SP500 and DJ30 hitting session lows with a couple of hours to go. NASDAQ held well above its session low. They were set to close lower but a sharp short covering surge in the last hour pushed the large cap indices positive. That made the session look better, but there really was not a lot there.
We did not get too involved because expiration Friday is an untrustworthy mistress. Positions are shuffled, rolled over, closed, etc. There are many undercurrents driving stocks other than good old buying and selling just to own or to get out of a position. We did take some nice gain on some downside plays (SBUX and CMI), putting the early plunge to negative to use. After that we did not do much, just watched what sectors were trying to establish leadership, how support and resistance were holding, and how the indices reacted to same. NASDAQ and its large caps may be trying to set up for an interim bounce above the 200 day SMA, but the Friday action didn't change the outlook of the market overall.
Technical. The action was overall rather lackluster for an expiration Friday. As noted, it did not change the character of the market, but expiration rarely does. The indices bounced positive to negative all session, managing a positive close on that last spurt of buying. Decent intraday action.
Internals. Volume was stronger, but that is expiration's calling card. After a week of declining, but still above average trade, a bounce higher on options expiration was nothing unexpected. Breadth was negative even as the large cap indices closed positive. All that shows is that the move was led by a few large caps, i.e. a narrow rebound into the close.
Charts. The indices bounced off the lows for a positive close, holding the recent lows on the test. That holds out the possibility of an interim bounce on the light volume Thanksgiving week, particularly with NASDAQ still above its 200 day SMA. SP500 and DJ30, however, are still below that key level as the tug of war between NASDAQ and the NYSE large caps continues. For the moment the large cap techs look as if they could make the bounce, but after that there is more work to do before a sustained run can set in once more.
Leadership. Some of the alternative energy solar stocks are trying to shine the light to the upside. As noted, some large cap techs are trying to put in an interim bottom at the 50 day EMA; after some pretty nasty selling the pressure has abated for now. With the low volume Thanksgiving week they could pull off an interim bounce. After that the sellers will take their shot once more, and after any bounce we will be looking at some more downside positions to play another bout of weakness.
THE ECONOMY
Bernanke announces course change, Krozner drives it home.
With little coverage during the week the Fed changed its focus from the core PCE to the overall inflation number, i.e. including food and energy in its target as it battles inflation. Of course with the overall rate running in excess of 3% that puts inflation back at the forefront of Fed activity. Just when inflation at the core rate showed it was really under control with several months of the annual core PCE at 1.9% and 1.8%, the Fed changes the game and now all bets are off.
Why the change? Pressure. Bernanke just explained to Congress a couple of months back as to how the core was historically a more reliable inflation indicator. Yet now they are suddenly very important. Maybe it was oil flirting with $100/bbl and the 1% rise in food the past few months (thanks to ethanol) that pushed the Fed to the notion that energy was going to bleed over into consumer prices. It certainly is not the inflation data suggesting that. Outside of some specific areas inflation has been on the decline. Thus there is not a lot of bleed over from energy, at least as the government measures it. If you look at boat prices or basically anything that uses petrochemicals in a significant portion of its manufacturing prices you see the inflation. It isn't just education and healthcare; there is more though it is not surging inflation.
Doesn't really matter the reason. The Fed has made the change. If it was not enough that Bernanke announced it, Krozner filled in the gaps on Friday. Sure the Fed still saw the economy as heading lower near term. Krozner called it a 'rough patch.' The sub-prime and credit issues were going to cause further economic declines. The Fed anticipates the consumer will lower spending. Krozner clearly stated, however, that weaker economic data does not equate to rate cuts.
That makes a count of 3 Fed officials and the last FOMC policy statement stating that no more rate cuts are coming anytime soon. The market has never been the same since the 25BP rate cut, as it builds in a significant economic slowdown based on the sub-prime and credit issues and the Fed's response. The Fed has shifted from heading off economic slowdown as its first goal back to inflation fighting.
We will see if it is right as it was in August of 2006 when it paused its rate cuts. At that time, however, the stock market started a strong7 month rally. It tested in March, putting in a double bottom, then was off and running again. Now it looks to have peaked, however, with some twin peaks and extreme volatility even as the indices hit new highs. That first round of selling was when the credit issues piled on top of the sub-prime worries, resulting in the massive selling volume in July and August. The market recovered to a new high, but then the Fed, after starting with a 50 BP rate cut to stave off trouble, cut just 25BP, and the market saw that as not enough to make the difference, and the selling has resumed.
To recap: Fed announced a pause in August 2006 and the market runs 12 months. It announces a 25BP rate cut and says it is done cutting. Market sells off in heavy distribution as leaders break their uptrends. You make the call.
Industrial production plunges, no one wants US securities.
Industrial production is falling off again. It faded early in 2007 as that second half 2006 slowdown continued. It came out of the slump in Q2 and Q3 as the economy recovered. Now the credit issue has slowed the economy again and now production is down, falling 0.5% when a 0.1% gain was expected. Largest drop in 9 months.
Looks as if the slowdown just gave birth to a more serious slowdown. This is the latest in a series of key data that is really showing a struggle in the economy. Slower Chicago PMI, declining ECRI, plunging dollar, distributing stock market. With the Fed on the sidelines it is unlikely things will get all that more positive.
US Securities getting lonely.
On top of that, support from foreigners is waning. For the second straight month buying of US financial instruments is down. It was down $26B in September, but that was better than the $70B decline in August. It is a good thing exports are rising as rapidly as they are thanks to a still solid global economy and a still weak US dollar.
Unfortunately, they are not able to rise fast enough to get rid of the massive imbalance in the current account and thus the US still needs foreign investors to finance our buying. The Chinese and Indians realize that they are getting wealthier and that they can buy some of their own goods. Their governments are diversifying to other countries' assets in addition to the US as well. That means selling dollars to buy currencies of other countries, and that brings more dollars coming home, and that means lower dollar levels and the potential for more inflation. It is not a pretty picture, adding to the really bad pile of muck left by the last Fed that the current Fed has to mess with.
No Greenspan bashing tonight.
That opens the door to more Greenspan love notes about how that Fed printed too much money and has left the US with issues that are going to be painful to deal with. No doubt that is true, but does that mean Greenspan is to blame?
The Fed has a dual mandate: keep a steady currency (i.e. low inflation) while growing the economy at its fastest sustainable rate. With the Federal government running up huge tabs on Social Security and Medicare, just to name two entitlement programs, and amassing debts that we simply cannot pay as a result (surplus or no surplus), Greenspan HAD to print money to keep things going. He didn't like doing it. Think. How many times did Greenspan go before Congress and plead the case that the entitlements were out of control and had to be fixed? He spend his last several years doing just that.
Why did he do it? Because he knew what was coming in printing all this money. But his mandate said that was all he could do. Sure, he could have broken outside of his authority as authorized by Congress, but unlike the Federal courts, to his credit he did not. He pleaded with Congress to act, but it did not, and that left him no room but to print money. If he broke rank as many wanted him to do he could have let the economy tank and let the US suffer some pretty awful deflation as the unfunded entitlements wrote down the economy, forcing savings the old fashioned way after our financial markets collapsed as a result of the write down.
Greenspan stuck to his mandate to the end. Bernanke is doing the same, but the irony is, even as he talks of more reporting this week to open transparency, he is changing the focus to inflation when it is not really a major issue. We speculate he is setting up for some kind of epic fight to raise the currency and balance the current account. Could get interesting as the Chinese say. For certain the market does not like whatever it is smelling.
THE MARKET
MARKET SENTIMENT
VIX: 25.49; -2.57
VXN: 28.79; -4.12
VXO: 27.1; -1.92
Put/Call Ratio (CBOE): 1.27; -0.04. Another +1.0 on the close, but on expiration Friday that means nothing what with all of the positions getting rolled over.
Bulls: 51.1%. It is about time bullishness started to fall. Down form 54.5% after 5 weeks above 55%. It still is not low enough to make a difference at this point. 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. 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: 26.7%. Sharp jump from 22.2%. Has bounced up and down over 20 the past several weeks but now is making a significant move above the threshold 20% considered bearish. Fell to a low of 19.6% five weeks back after falling rapidly from 25% just couple weeks before that. 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: +18.73 points (+0.72%) to close at 2637.24
Volume: 2.508B (+7.32%). Volume jumped after a week of declining trade. Above average each session and rising volume on expiration Friday is nothing unusual. The unusual part is that it was well below the selling volume in the prior week.
Up Volume: 1.48B (+883.193M)
Down Volume: 1.007B (-711.769M)
A/D and Hi/Lo: Decliners led 1.16 to 1. Decliners held up even as the large cap NASDAQ 100 (+0.92%) was positive. Narrow move.
Previous Session: Decliners led 2.57 to 1
New Highs: 51 (-10)
New Lows: 251 (+32)
NASDAQ CHART: http://investmenthouse.com/ihmedia/NASDAQ.jpeg
Gapped higher, undercut the Thursday intraday low, then rallied back to close modestly positive. Volume was up but it was expiration; big deal. More important: it held the recent lows once more above the 200 day SMA (2582) and bounced. It has the makings of an interim bounce toward Thanksgiving, but after expiration Friday it is a crapshoot where it turns. It is in decent shape now to bounce, but the bigger picture is still overall weak.
NASDAQ 100 managed a gain as well, but it is still hanging around the 90 day SMA, not yet able to make a serious move upside after that distribution. The large cap leaders are at their 50 day EMA, and similar to NASDAQ, they look as if they want to put in an interim bounce. As for the entire NASDAQ 100, however, it is not that clear from the chart as of Friday.
SOX CHART: http://investmenthouse.com/ihmedia/SOX.jpeg
SP500/NYSE
Stats: +7.59 points (+0.52%) to close at 1458.74
NYSE Volume: 1.765B (+19.91%). Volume jumped on expiration as well, matching last week's selling trade. Again, it means little.
Up Volume: 929.791M (+649.84M)
Down Volume: 823.906M (-349.597M)
A/D and Hi/Lo: Decliners led 1.24 to 1. Decliners lower here as well on a move higher. Very narrow move.
Previous Session: Decliners led 3.56 to 1
New Highs: 38 (+7)
New Lows: 376 (+64)
SP500 CHART: http://investmenthouse.com/ihmedia/SP500.jpeg
Similar to NASDAQ, SP500 tested the Thursday low and rebounded positive, but it was also an inside session, i.e. the high and low inside the Thursday high and low. The next move will tell the direction near term. Maybe it can bounce as well near term, but the bigger picture is a further test lower, at least toward 1425 and 1400 is not out of the picture (August closing low).
SP600 (-0.38%) could not make it back to positive though it once more held near 395 on the low (the August closing low) and then rebounded to recoup most of its losses. Trying to put in some kind of floor here but after a bounce up toward the 10 day EMA at 405 it is likely to continue the downtrend below near resistance that set up after the early November breakdown from its head and shoulders top.
SP600 CHART: http://investmenthouse.com/ihmedia/SP600.jpeg
DJ30
DJ30 bounced some from the Thursday move back below the 200 day SMA (13,233), it too holding above the recent selling lows that slightly undercut the 13K level. It could put in a bounce as well, but we are looking for it to fail near the 200 day or the 10 day EMA (13,276) and head back down. Not much room upside, but it is weak pattern that looks ready to trend lower.
Stats: +66.74 points (+0.51%) to close at 13176.69
Volume: 315M shares Friday versus 242M shares Thursday. Big jump in expiration volume.
DJ30 CHART: http://www.investmenthouse.com/ihmedia/DJ30.jpeg
MONDAY
Thanksgiving week is upon us and the typical light volume that accompanies it. That opens the door to continue that volatility seen over the past couple of months though Thanksgiving often leads to some good cheer and higher prices. Not always, however. Last thanksgiving the market was in a dead run higher when it sold hard around the holiday. This year the market is in trouble. It has sold off ahead of the week, however, so a little relief may come with the turkey this week. As noted, NASDAQ is attempting to put in some sort of interim low and may try a bounce from Friday.
Outside of that, however, the overall picture is still weak. You either fall into the camp the economy is going into a moderate slowdown and thus a 10% correction by the market is sufficient to reset the clock (DJ30 fell 8.7% from its high; SP500 fell 8.8%; NASDAQ fell 9.7%), or you take the view that the very choppy and high volume action the past 4 months indicates something deeper still to come. As you can likely tell, we fall into the latter category based on many things, including the volatility on new highs, the market's reaction to the Fed's pullback from aggressive action to non-action to anti-inflation, a weak dollar, and the current political climate.
That means bigger picture we look for upside stocks that do well in a slowing environment, but we don't ignore the strong growers that are still in good shape and can continue to perform nicely well into a market and economic correction. We played stocks such as BRCM, BRCD and the like well into 2000, and had other huge runs in these stocks even after they corrected but had bear market runs. Eventually the leaders are killed off if a bear market gets grisly (or should I say grizzly?) enough, but until that time we do not wan to forget about the strong growth stocks because they can still provide outstanding returns on their runs. There is always upside action, and quite good upside action, as the market goes through a lower pricing event (a.k.a. a correction, bear market, etc.). There are still many leadership growth stocks out there such as the solar stocks that perked up toward the end of last week. And we don't think we have seen the last of the likes of AAPL, RIMM, BIDU, GOOG, EDU, SOHU, etc.
With this action, however, you cannot forget the downside. We are already into several plays and have taken in some nice gain on the declines in some of the positions. We will let them ride more if the market shows some more near term weakness as that will be a strong indication of the overall negative bias so soon after a bounce attempt tried to set up. It may be another situation as seen recently where NASDAQ and some of the recent leaders that broke lower to the 50 day EMA rally while the NYSE indices struggle under the pressure of more selling in the financials.
Thus as if often the case in a transitioning market, you end up with some upside plays that are very good and some downside plays that are very good, and you can make money off of both of them. You just keep a clear focus of what you are looking at with each play, i.e. what you are in it for. As long as it holds to that plan then you ride it for what it gives you.
It is no time to turn away from the market. These transition periods can provide us some barnburner plays both ways. All we have to do is continue looking at the technical positioning of the stocks. That is even more important during these periods as we take our cues from the technical action, i.e. if it is improving or eroding. When we see the latter on an upside we close it and vice versa. As always, you invest in the market with confidence. You move in with confidence, you exit when the move has run its course or when it is no longer acting as it should. As Kevin Costner described to Ebby Calvin 'Nuke' LaLoosh how you play the game of baseball in 'Bull Durham,' you invest the same way: "you gotta play this game with fear and arrogance." The fear is respect for what the market can do at any time, and not feeling you are smarter than the market. The arrogance is knowing what moves are the minor ones and sticking with a winner and letting it make you serious money. It is important in times like these to keep your eye on the big picture and then pick on the minor trends within that bigger picture, working on taking what the market is giving.
Support and Resistance
NASDAQ: Closed at 2637.24
Resistance:
2634.60 is the June peak is bending
The 90 day SMA at 2659
2673 is the early July high
The 10 day EMA and March up trendline at 2676
The 50 day EMA at 2707
2725 is the July high
2732 is the November/December/February up trendline
2778 from a July 1999 peak
2798 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 2582
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 1458.74
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 1498
The 50 day EMA at 1502
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
1438 is the November low
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 13,176.79
Resistance:
The 200 day SMA at 13,233
13,480 is the July 2006/March 2007 up trendline
The 18 day EMA at 13,405 is worth watching.
The 90 day SMA at 13,555
The 50 day EMA at 13,555
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
12,975 is the November low
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 20
Housing starts, October, (8:30): 1.16M expected, 1.191M prior
Building permits, October (8:30): 1.19M expected, 1.261M prior
FOMC minutes, October (2:00)
November 21
Initial jobless claims (8:30): 339K prior
Leading Economic Indicators, October (10:00): -0.4% expected, 0.3% prior
Michigan sentiment, revised November (10:00): 75.0 expected, 75.0 first iteration
Crude oil inventories (10:30): 2.814M prior
End part 1 of 3
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