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us stock market, trade stock
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11/19/07 Investment House Daily
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Investment House Daily Subscribers:
MARKET ALERTS:
Targets hit alerts: C; SPY; TIF
Buy alerts: AMR; DIA
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 Daily alert service you can sign up at the following link:
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HOLIDAY SCHEDULE
Monday and Tuesday: Full report
Wednesday: Market summary, play tables.
Thursday through Sunday: No report
Report resumes Monday
SUMMARY:
- Holiday short week starts on the short side of the ledger
- Financial markets screaming for some kind of help. FOMC 'new' minutes likely not to help much.
- HPQ, JWN after hours earnings will try to spark an oversold bounce.
Market starts a new week with a continuing move lower.
There were a few positives in the morning such as CELG buying PHRM and upgrades of YHOO and DISH, but that was no match for the negatives. Analysts were also downgrading stocks, the big one being GS' downgrade of C. Some said it was too late, but the way the stock acted it certainly did not seem late as it peeled off 6% of its value. LOW warned on its earnings, concerned as always about the US home market. Moody's said that commercial real estate shows signs of slipping on top of the individual market. Great news. China is supposedly telling its banks to freeze lending until year end in an attempt to slow growth. That kind of intervention always makes free markets shudder, though with our Fed controlling our lives, what China tells its banks to do doesn't seem that much different. Then there was the Iranian president calling the US dollar a worthless piece of paper as he and some other OPEC nations push for valuing oil in another currency.
All of that was enough to tip the balance negative once more and stocks started lower and continued lower into the afternoon session. There were the usual attempts to bounce higher, the first at midmorning, a time that was the de facto bounce point when the market was moving higher. All it provided Monday was a way station for a modest bounce that rolled over into lunch. A more serious rally attempt started after lunch, cracking above the midday high. That looked pretty good technically, but on its first test it could not hold the break, and the indices slipped lower once more into the close.
Technically there was not much positive on the session. Stocks started lower on more mortgage worries and they sold lower from there. We hear every day how the mortgage issue is old news, but each new story seems to send the stocks in the sector lower as well as most financials in general. Once more the intraday action was bearish.
Internals: Breadth was again weak on the downside as the downside internals continue to overrun anything the upside can hang on the wall. -5:1 NYSE, -4:1 NASDAQ. Volume was lower, actually falling below average on NASDAQ for the first time in over a month. NYSE volume was more interesting. Yes it was lower, but still well above average and on par with the strong sessions of the past month. Thus while NASDAQ sold and tested its 200 day SMA (as I note below), the volume backed off. As SP500 broke below its November low volume was still strong. The former indicates the sellers may be getting worn out. The latter indicates the sellers are still strong.
Charts: The charts are pretty interesting. NASDAQ sold off but it held its 200 day SMA on the low as it did last week when it bounced off that important level. It also held above its November low. SP500 did not hold its November low, but it did hold the interim August lows (the ones on either side of that plunge lower mid-month), bouncing off that level intraday though it did not hold that bounce. DJ30 broke below its November low and unlike SP500, it could not hold the August interim lows. While it is not at its August low, it is following the DJ20 lower. The transports (DJ20) hit a new low for the year Monday, and that is a very negative signal for Dow Theory. Thus on the one hand you have NASDAQ trying to hold the line at the 200 day SMA while SP500 and DJ30 break below key levels.
Leadership: You are hard-pressed to find many growth stocks that have avoided a pretty nasty selloff. Over the weekend we noted a handful of leaders in the prior rally that were holding at the 50 day EMA support. Even after Monday they were for the most part still at that level, avoiding a hard selloff and thus keeping themselves in the game for a bounce attempt. They are mostly large cap tech, and as seen in the last rally, large cap tech was one of the key leadership areas. With NASDAQ 100 struggling but refusing to fade off its 90 day SMA toward the 200 day SMA as has overall NASDAQ, you see some attempt from these stocks at putting in an interim bottom to bounce from.
In sum, overall the market is quite negative, particularly on the NYSE indices. By holding its 200 day SMA NASDAQ is trying to signal it has something resembling a backbone here. Those large cap techs at the 50 day EMA are still holding that level, and NASDAQ 100 is not turning down hard from the 90 day SMA and matching overall NASDAQ's drop to the 200 day SMA. These are trying to brew up a bottom and a bounce for the short term and perhaps a Ho-Ho or Santa Clause rally.
The question is, can they carry the rest of the market or will it just be a handful of former high fliers trying to recapture some glory for a last gasp rally into year end. We were looking for a potential run to year end by the entire market, but the Fed with its 25BP rate cut versus something more daring and in line with what is needed did not provide the backdrop for such a move. Thus the selling versus a rally attempt. Now that there is a new sharp break lower we can look for another rebound attempt to start over the next week of trading, perhaps even this week as the market moves closer to Thanksgiving. That won't change the technical picture much, instead just providing a holiday bounce before some more serious issues after the first of the year.
THE ECONOMY
After flashing all the warning signals they could think of, financial markets are packing it in.
Larry Kudlow was on his red, white and blue soap box Monday, lecturing how he was sick of all of the economic pessimism, how it was un-American, etc. No doubt it grates on you to hear it day in and day out, but is it un-American to acknowledge the market, and not just the stock market, are all in serious condition? That is similar to President Bush calling those watching the borders and calling the Border Patrol when they see some illegal crossings vigilantes. In my community if I see some masked men run into a bank with guns and I call the police to come and stop the robbery I am considered a good citizen, not a vigilante.
You can look for good news all you want. Q2 and Q3 GDP were strong. Problem is, the financial markets are leading indicators while GDP is not. Wages are growing faster than GDP and unemployment is low. That is great. Forecasters are anticipating a Christmas on par with 2007, and that was a solid year. But those are not leading indicators. Everything always looks good, or at least you can find good things to argue about the economy even as it rolls over. The collapse in 2000 is the most recent case in point. The economy was described daily as 'white hot' even as the financial markets topped and dropped. The economy followed.
The Dow transports broke to a new low for the year Monday and the DJ30 is starting to follow though it is still well off its August low. The small caps, a growth index, broke to a new closing low whether you look at SP600 or Russell 2000. Financial stocks are in freefall. They looked as if they were trying to recover with this run higher in September into October, but that was just a bounce; they are heading lower to new lows since. The bond market yield curve is not inverted, but yields are moving lower and lower across the curve even as the Fed worries about inflation.
Financial stocks are getting crushed, retail is trending lower and lower, treasury yields are lower and lower on a run to safety, and the weak dollar, while helping us sell some more goods, is not engendering any confidence in its future. Perhaps the administration has some big, behind the scenes plan in progress re the dollar, but at this point there is nothing really positive indicated in the financial markets.
The financial markets typically lead the economic cycle, yet the Fed is now on hold after cutting 75BP. That would be fine if those cuts had stemmed the slide in the financial markets. Instead, the 25BP cut hastened the decline as the market realized the Fed, after a great start, was not going to see the mission through. The market always overreacts in the near term so maybe it will reverse this trend of distribution after this correction. The indices are still over their August lows and can always start basing there. If they do that then that will be the first sign in awhile that the economy is not heading toward a recession but just a lower couple of quarters as the Fed indicates. Given the higher volatility even as the indices hit new highs, the waning profit margins, etc., that would be rather surprising but welcome action.
THE MARKET
MARKET SENTIMENT
VIX: 26.01; +0.52
VXN: 30.11; +1.32
VXO: 26.88; -0.22
Put/Call Ratio (CBOE): 1.13; -0.14. Holding above 1.0 as the selling continues. That makes over a week of 1.0+ closes, moving this indicator slowly closer to suggesting a bottom is trying to form. Unfortunately the other indicators such as bullishness is not lining up with it. They need to be on the same page to start shaping up as a solid, meaningful indicator.
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: -43.86 points (-1.66%) to close at 2593.38
Volume: 2.177B (-13.21%). Volume was below average for the first time in over a month as NASDAQ tested its 200 day SMA. It was very strong on the prior test last week and this lighter volume on the subsequent test suggests NASDAQ is getting sold out on this move, preparing for an attempt at a bounce.
Up Volume: 346.572M (-1.133B)
Down Volume: 1.814B (+807.617M)
A/D and Hi/Lo: Decliners led 4.07 to 1. As usual, downside breadth revved back up, easily topping the upside trade on those few upside sessions.
Previous Session: Decliners led 1.16 to 1
New Highs: 50 (-1)
New Lows: 362 (+111)
NASDAQ CHART: http://investmenthouse.com/ihmedia/NASDAQ.jpeg
NASDAQ gapped lower and sold to the 200 day SMA (2583) on the intraday low. It bounced from there as it did last week though it faded back after moving 30 points off that low. Unlike the other large cap indices, NASDAQ has thus far held its 200 day and has held well above the any of the August lows. With the former large cap leaders still hanging on at the 50 day EMA, NASDAQ is finding support. It is trying to set up a short double bottom to bounce up off the 200 day.
NASDAQ 100 (-1.15%) has broken its 90 day SMA, but after that initial surge lower it rebounded and has hung on at that level, supported by the big names holding their 50 day EMA (AAPL, RIMM, GOOG). HPQ is not part of NASDAQ, but its earnings will influence many large cap techs Tuesday and try to give NASDAQ a bounce up off its 200 day SMA. As noted above, the NASDAQ and its large caps remain the last hope of the market for any kind of rebound attempt.
SOX CHART: http://investmenthouse.com/ihmedia/SOX.jpeg
SP500/NYSE
Stats: -25.47 points (-1.75%) to close at 1433.27
NYSE Volume: 1.676B (-5.07%). Volume was lower but remained well above average and quite strong as the NYSE indices sold off, breaking to new closing lows on this leg lower. That tells us that there is still downside pressure pushing the NYSE stocks lower.
Up Volume: 174.784M (-755.007M)
Down Volume: 1.494B (+669.763M)
A/D and Hi/Lo: Decliners led 4.9 to 1. Heavy downside breadth once more as the small and large caps sell off.
Previous Session: Decliners led 1.24 to 1
New Highs: 37 (-1)
New Lows: 545 (+169)
SP500 CHART: http://investmenthouse.com/ihmedia/SP500.jpeg
The large caps had more leadership from the financials, leadership right down past the recent November lows. SP500 closed at the August twin interim lows that bracketed the August low, i.e. the right and left shoulders to the reverse head and shoulders base that launched SP500 on its last run higher to a new high right before rolling over. SP500 may get a bounce here after breaking to a new interim low; It is falling down the 10 day EMA now and it has made a pretty significant run lower the past week. That makes it due for a bounce soon. It also, however, looks as if it is going to finish the deal at some point and test that August low, at least the closing low (1406.70).
SP600 (-2.24%) undercut its August closing low and threatened to take out the August intraday low on the Monday close. It held some support at 390. As with SP500 it may be ready to bounce a bit, but the downside remains the predominant strength of the move.
SP600 CHART: http://investmenthouse.com/ihmedia/SP600.jpeg
DJ30
The blue chips undercut their November low as well and also took out the August interim lows that SP500 managed to hold. The next test is the August closing low (12,845). That will likely try to give it a bounce though that may come later; HPQ earnings may give it a lift to offset the drag of C on Monday. Serious breakdown and after any HPQ-induced bounce we anticipate it continues selling.
Stats: -218.35 points (-1.66%) to close at 12958.44
Volume: 285M shares Monday versus Fridays 315M expiration shares.
DJ30 CHART: http://www.investmenthouse.com/ihmedia/DJ30.jpeg
TUESDAY
Just 3.5 sessions in this week and one is already down so to speak. Volume will trend lighter as the market approaches Thursday. Lighter volume always leaves the potential for skewed sessions when a few big buyers or sellers move in and paint the tape.
There is some economic data out: housing starts, building permits and the new and improved FOMC minutes. Those minutes have a few concerned given the Fed's shift to monitoring the overall inflation rate and lengthening its forecast.
The real early driver will be the HPQ and JWN earnings. Both were solid and both upped their buy back plans. That helped boost them after hours and the coattail effect was dragging some techs and retailers higher.
The issue is whether these earnings will provide a sustained move. The indices just broke to new near term lows on SP500 and DJ30, and that often leads to a near term bounce to test. NASDAQ held its 200 day SMA, and that puts it in position to bounce on the HPQ earnings. If the market opens higher, however, we are going to be careful; it is just these kind of bounces that the sellers, who are still in control as patterns show, will use to launch the next round of selling.
We are going to look at any bounce two ways. First, we will see how those former leaders hanging out at the 50 day EMA respond. If they can bounce we will look to take advantage of that if they can hold after the first test of the move higher. We will also look at a bounce in the rest of the market as an opportunity to set up some downside plays. With the downside trends, any upside move to resistance is finding sellers. We want to continue taking advantage of that.
Again, how the market responds to a bounce, if any, directs the next course of action. Overall the market remains weak, and any upside potential such as on NASDAQ is more of a near term bounce prospect versus a return to a sustained uptrend.
Support and Resistance
NASDAQ: Closed at 2593.38
Resistance:
2634.60 is the June peak is bending
The 90 day SMA at 2658
2673 is the early July high
The March up trendline at 2678
The 50 day EMA at 2703
2725 is the July high
2735 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 2583
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 1433.27
Resistance:
1438 is the November low
1440 - 1437 from January and March peaks
1459 is the February peak
The 10 day EMA at 1466.
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 1497
The 50 day EMA at 1500
1533 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:
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 12,958.44
Resistance:
12,975 is the November low
13,000 to 12,985
The 200 day SMA at 13,234
13,485 is the July 2006/March 2007 up trendline
The 18 day EMA at 13,358 is worth watching.
The 50 day EMA at 13,532
The 90 day SMA at 13,544
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 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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