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world stock market, us stock market
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11/26/07 Stock Split Report Update
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Stock Split Report Subscribers:
MARKET ALERTS
Targets hit alerts: GOOG; RIG
Buy alerts: AAPL
Trailing stops: ESRX;
Stop alerts issued: MO; ESRX
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:
- Friday rebound rally dumped as the indices roll back over, unable to sustain a positive open.
- If Fed cuts the dollar falls. If the Fed doesn't cut, the dollar falls. Takes the dilemma out of what to do.
- With no floor on the credit and housing markets, no floor on the stock market.
Market tries to extend Friday, post-Thanksgiving rally, fails miserably.
Friday was just a half session, but it was all upside with the indices posting 1.5+% gains. Thanksgiving for the bears, Christmas for the bulls. Looked to be working. On top of that, the Black Friday (day after Thanksgiving) numbers were not bad with an 8.3% increase, the best in three years. Of course the National Retailers federation or whatever they call themselves now said Black Friday shoppers spent 3% less per shopper (I guess that means 3% less overall as well). Pick your information provider. The market at first looked to be interested in the stronger numbers as futures were up nicely. Then the futures started to slip heading toward the open.
Stocks did start higher and rallied even further with many solid stocks surviving initial tests of the stronger open. Oil was a bit lower (closed at 97.05, -1.13/bbl) and that didn't hurt. The dollar was lower again; nothing new about that. Nonetheless, after that first 30 to 40 minutes the buying stopped. When it stopped prices started to slide. They slid through midmorning and turned negative. A bit of a rebound attempt through lunch took them back to flat. That was it. Then the sellers came out and it was a sprint to the close. More like a freefall of sorts. By the close 1.6% to 2.5% losses on the indices told the story.
Obviously the market was not looking at the Black Friday numbers or even thinking much about the Cyber Monday internet sales. Sales are hanging in there, even expanding according to some sources. So are other areas of the economy at least as measured by reports such as GDP. Problem is, the financial markets are always looking down the road, and thus the current sales and numbers are not as important compared to what the market thinks is coming. Based on the action in the financial markets, they are acting not as if they are worried about a possible recession, but as if one is on the way.
Bond yields are diving as money pushes into them looking for safety in US treasuries. The yield curve remains positive sloping with the 2 year at 2.89% and the 10 year at 3.85%, but look at where they are now: they are down 100 BP from their highs of a couple of months back, falling much faster than the Fed is cutting rates. Look at the dollar and commodities. The dollar was down again Monday yet commodities did not rise as the dollar weakened. That is opposite of what was happening as the markets viewed the US and world economies in solid shape. Even when the US economy was viewed as faltering, the relationship still held because the world economy was grown up now and did not need the US to stay afloat. Now that doesn't seem so clear. Now even with a falling dollar commodity prices are falling as well. Not healthy. That is why money, and not just from US investors, is rushing into US treasuries, looking for safety against potential world economic issues. People moan and whine about the US current account deficit, tin plated figureheads from hard-line countries call the US dollar 'worthless pieces of paper,' yet when the going gets a bit testy, money comes from everywhere into US bonds. As supposedly worthless as the dollar is, it is still preferred over just about every other currency or debt security in the world.
In any event, the Monday result was an early attempt to stick with the Friday rally that failed horribly with stocks closing at their lows. Regardless of the near term positives from the economy the buyers are not convinced the longer term effects are positive and that gives the sellers the upper hand.
Technically the action was once again a reversal of the prior session as Friday was of Wednesday. Stocks started higher but could not hold a gain. More than that, they were driven lower past the Friday gains and well into the red. Some buying early, then the sellers used it to attack once more.
Internals: Weak and were weaker into the close (-3:1 NYSE, -2.9:1 NASDAQ). Once more the downside breadth out muscled the upside breadth with ease. Overall, many more stocks are falling on down days than rising on upside sessions. Friday there was strong upside breadth, but that was a lone wolf and Monday the sellers were back in numbers again. Volume was of course higher given Friday was a half day session (and the financial markets should really do away with that half day as it costs more for everyone for no work than to just let everyone off), but on NYSE it was above average volume, and that gives it a bit more credence. NASDAQ was below average so you don't give it much of a second look.
Charts: NASDAQ gave up its 200 day SMA after a one-day recovery, and SP500 fell below its early 2006 up trendline, the line that bounced it last week. As noted last week, the selling once more returned very quickly, this after just a single, though big, upside session (or half session for the more particular readers). The lack of any real bounce shows no buyer strength. Sellers simply used the upside to their advantage and overran the buyers with ease. As with the quick correction on the heels of the summer correction shows weakness, this quick return to the selling after an upside surge is a shorter term view of the same issue.
Leadership: Thinner and thinner is the leader board. GOOG ran higher Monday, continuing its bounce that bucked the market trend and we took some gain after four sessions of gains. It could not hold the 16 point move, however, and reversed to close down close to 11 points. Same action on AAPL and RIMM. RIG held up nicely and we took some gain off the table on it as well after it gave us 5 gains in 6 tries, but it is more like the lone ranger at this juncture. Not a whole lot is working. The leaders on the last rally are trying to base, i.e. not selling off a lot right now, just trying to but in the bottom of this selling and work laterally for awhile. Most stocks, however, are heading lower even as these old leaders try to base out.
THE ECONOMY
Fed cannot cut for fear of undermining the dollar? Doesn't seem to matter right now.
We have discussed the Bernanke dilemma or his own conundrum if you want to go the Greenspan route, i.e. if he cuts rates to try and stave off a recession the dollar weakens further and raises inflation for the US as commodities prices rise so the producers can keep their profit margins. If he doesn't cut rates fast enough then the US flirts with recession.
As it has played out, despite some pretty tough talk by the Federal reserve about the 75BP in rate cuts already in the mix being the only ones coming, the dollar continues to tank. It was falling before the Fed cut, it fell after the Fed cut, and it is falling as the Fed says 'no mas.' It would seem that the only thing that will prop up the dollar is intervention by the Treasury and/or an economy that is rebounding versus one that is cresting.
Thus for those worried about the dollar falling if the Fed cuts, as Ron Insana says, it doesn't matter right now. It is falling regardless. Kind of a choice between two evils, but do you try to prop up the dollar by not cutting and let the economy fall into recession and watch the dollar follow it down as well?
That doesn't seem to be much of a dilemma anymore. The Fed can hold the line and watch the economy slide into recession and the dollar slide with it, and with that combination we will see a lot of foreign nations with a lot of money, e.g. Dubai, come in and buy all of our assets just as the Japanese did in the 1980's. That did not turn out so bad for us because the Japanese bought near the top of the market and Japan's own economy burst shortly thereafter. All of those assets they bought plunged in value and their own economic issues resulted in those properties turned back over to the US at low prices. The US also formed the Resolution Trust Corporation to bail out distressed lenders and their properties, and that helped put a floor into the market and brought in speculative money trying to bottom fish. That helped start the recovery.
Now if the foreign buyers go bust as well maybe we get the same benefit on the other side of the recession, but do we really want to go that route? Is it worse to try and prevent recession and grow the economy again and thus bolster the dollar or should the Fed let things continue to head down the current path and what the markets tell us is recession to try and keep the dollar from falling? Part of this is a political question, a lot of it is a fairness issue to US citizens: should we pay the price because the current administration tried and has failed (as all in history have done) to raise US prosperity by promoting a weak dollar policy (that is, do we have to pay the price for another policy blunder?). As is often the case when these issues arise, most of us have a hard time understanding how an unelected body can to a large part control the fate of our retirements when it decides one course is more important than another, and that course trumps the interests of US citizens. Food for thought.
THE MARKET
MARKET SENTIMENT
VIX: 28.91; +3.3. Highest close since the early November one-day spike and the mid-August closing high. It is ratcheting back up to an area that has resulted in rebounds and we may get a relief move out of this climb, but given the selling we are seeing, it will have to go higher to set a more permanent bottom.
VXN: 33.43; +2.94
VXO: 31.07; +3.37
Put/Call Ratio (CBOE): 0.98; +0.1. Pretty low A/D given the hard selling.
Bulls: 47.9%. Nothing like some selling to get the bulls down in number. Down from 51.1% and 54.5% the week before after 5 weeks above 55%. Still needs to move lower given the indications the market is showing, i.e. the strength of the selling. 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: 26.6%. Disappointing, moving a bit lower from 26.7% after that sharp jump from the 22.2% just 3 weeks back. 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: -55.61 points (-2.14%) to close at 2540.99
Volume: 2.008B (+143%). Looks impressive, but Friday was a half session and volume overall was below average. No real dumping on the selling and volume has backed off some over the past week, an indication techs may be getting a bit sold out, but with the renewed selling Monday that is not readily apparent.
Up Volume: 355.431M (-323.414M)
Down Volume: 1.646B (+1.506B)
A/D and Hi/Lo: Decliners led 2.87 to 1. Strong again and though less than the Friday breadth, that half session looks more like an aberration.
Previous Session: Advancers led 3.11 to 1
New Highs: 54 (+16)
New Lows: 287 (+147). Surprisingly few new lows on the session despite a new low for NASDAQ on this leg to the downside.
NASDAQ CHART: http://investmenthouse.com/ihmedia/NASDAQ.jpeg
Rallied to the 10 day EMA on the session high then rolled over and gave up the 200 day SMA one session after it recovered it. Of course the Friday move was on low volume so it proved nothing. The proof is the strength with which the sellers tossed it back below the 200 day on Monday. Head toward the August interim closing lows near 2500 and the very old August 2004/April 2005/March2007 up trendline at 2505.
NASDAQ 100 is key to watch as it is the last bastion of leadership. It broke below the recent range on Monday and is just over the early November closing low. Still looking for that run down to test the 200 day SMA for starters, and that is well above (well above) even the August interim closing lows.
NASDAQ 100 CHART: http://investmenthouse.com/ihmedia/NASDAQ100.jpeg
SP500/NYSE
Stats: -33.48 points (-2.32%) to close at 1407.22
NYSE Volume: 1.5B (+123.73%). Not the strongest volume of the month, but not the lowest either. It was above average as the NYSE indices jolted lower to start the week.
Up Volume: 204.479M (-417.09M)
Down Volume: 1.292B (+1.245B)
A/D and Hi/Lo: Decliners led 3.18 to 1. Similar to NASDAQ, not as strong as the Friday breadth, but continuing a string of ugly downside readings making the Friday number look to be an aberration.
Previous Session: Advancers led 4.84 to 1
New Highs: 45 (+21)
New Lows: 340 (+190). Would expect this to jump over 500 and 600 again soon (528 new lows last Wednesday) if this keeps up, and that starts to get a bit extreme.
SP500 CHART: http://investmenthouse.com/ihmedia/SP500.jpeg
Similar to NASDAQ, SP500 moved up to tap the 10 day EMA and then rolled over. It really rolled over, breaking below the November lows, the interim August lows, the summer 2006 up trendline, and is staring at the August closing low at 1406.70. Some are talking double bottom at this level, and it is likely to bring a bounce, but when you look at this double bottom, it is topped by a higher high in October over the July peak, and that is not a double bottom pattern. That is more of a topping pattern given the breakdown in November. Translated, that means while it might bounce off this level near term after it breaches it, that bounce is not going to set the bottom. Hate to say it, but that is the way it looks.
SP600 CHART: http://investmenthouse.com/ihmedia/SP600.jpeg
Small caps broke to a new low, closing or interim, on this leg, and undercutting the August lows and the March lows. The small caps are in a dive and they are pointing to recession. No, not pointing. They are jumping up and down and waving violently to get the Fed's attention.
DJ30
DJ30 undercut its Wednesday new low in this selling and again posted another new closing low below the August closing low. There is still the intraday low at 12,518 ahead, but the Dow is breaking the February peak, and after that it is going to be drawn to that that August low. As with SP500 there is talk of a double bottom, but it shows the same pattern as SP500 with that higher high then lower low, and that is not what double bottoms are formed by. INDEED, this is the pattern that many, many stocks showed in the throes of the selling leading to the last recession that broke down and sold more.
Stats: -237.44 points (-1.83%) to close at 12743.44
Volume: 265M shares Monday versus 122M shares in Friday's half session.
DJ30 CHART: http://www.investmenthouse.com/ihmedia/DJ30.jpeg
TUESDAY
The market is looking for relief and with SP500 breaching its trendline and ready to breach the August closing low, it will be ready for one as the breach of a key level is often followed by a rebound attempt as some short positions are covered. It likely won't come tomorrow though with just a one-day relief move last week the market will be oversold again rather quickly. SP500 looks as if it has some pretty good support near 1375 from the March 2007 lows and of course the August intraday low. That is where things really get interesting in our view as that could sustain a serious relief rally.
Nearer term it looks like more downside pressure ahead to get to those levels (though with a 33 point loss Monday it wouldn't take another such session to get it there). Thus we will let the downside positions run and will look for more downside, though after this round of selling they need to set up a bit better to give us some better entry points.
Some say the market is selling just to get the Fed to make an emergency rate cut. 'The market' doesn't work that way. It factors in the odds of growing or declining earnings and to what magnitude, then prices stocks accordingly. As things are currently heading, it is factoring in a pretty big slowdown. ECRI says it is not a recession indication . . . yet. But it could get that way if the factors it monitors continue to trend lower and these other shocks (oil, mortgages, credit) continue to run unchallenged. Thus investors are not going out and selling stocks in hope to get the Fed to act, they are selling because the current conditions do not look good for earnings growth in the future. It will take something to turn that around such as some Fed action, and at this stage of the game, some kind of Congressional/Administrative action. One that we heard today was a suspension of the payroll tax on the first $15K of wages. Maybe; that is a start. If combined with something to get businesses to spend as well that could be effective (along with some Fed action as well).
That is not likely to come anytime soon, so the market is left to its own devices, and the current trend is lower to probe those August lows on SP500. NASDAQ remains the great hope of the market, particularly NASDAQ 100, but it was weaker Monday and saw some big names roll over after early strength. Again we are looking for some more downside plays to take advantage of the selling, but for the most part they are overdone after this selling. Not all, however, so we will continue to look for opportunity there. As for the upside, there are the more defensive plays we can look at, but we note that even MO was hit hard late Monday and broke below near support. Many of the classic defensive stocks had a rough session (e.g. PG, PEP) though they all in all rather nicely held their trends despite the pullback. Not a lot of fun, but there are also some healthcare and similar stocks that will get some counter-market money as well.
Support and Resistance
NASDAQ: Closed at 2540.99
Resistance:
The 200 day SMA at 2585
2600 is some minor support.
2634.60 is the June peak is bending
The 90 day SMA at 2653
2673 is the early July high
The March up trendline at 2678
The 50 day EMA at 2684
2725 is the July high
2740 is the November/December/February up trendline
2778 from a July 1999 peak
2834 is the October interim peak
2861.51 is the October peak
Support:
2550 to 2540 from May/June consolidation
2525 is the February closing high
2510 is the August 2004/April 2005/October 2005/March 2007 up trendline
2451 is the August closing low
2386 is the August intraday low
S&P 500: Closed at 1407.22
Resistance:
1410 is the June/July 2006 up trendline
1425 is some minor support.
1430 from the August interim lows
1438 is the November low
1440 - 1437 from January and March peaks
The 10 day EMA at 1443
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 1491
The 50 day EMA at 1489
1534 is the early July high
1535 is the July 2006/March 2007 up trendline
1539 is the mid-June intraday high
1541 is the early June high
Support:
1406 is the August closing low
1375 is the March closing low
1370 is the August intraday low
Dow: Closed at 12,743.44
Resistance:
12,786 is the February peak
12,845 is the August closing low
12,975 is the November low
13,000 to 12,985
The 10 day EMA at 13,111
The 200 day SMA at 13,236
The 18 day EMA at 13,266
13,450 is the July 2006/March 2007 up trendline
The 50 day EMA at 13,484
The 90 day SMA at 13,521
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:
12,518 is the August low
12,250 from late March lows
12,050 from the March 2007 low
Economic Calendar
These are consensus expectations. Our expectations will vary and are discussed in the 'Economy' section.
November 27
Consumer Confidence, November (10:00): 91.5 expected, 95.6 prior
November 28
Durable goods orders, October (8:30): 0.0% expected, -1.7% prior.
Existing home sales, October (10:00): 5.00M expected, 5.04M prior
Crude oil inventories (10:30): -1.01M prior
November 29
Q3 GDP revision (8:30): 4.9% expected, 3.9% prior
Chain deflator (8:30): 0.8% expected, 0.8% prior
Initial jobless claims (8:30): 330K expected, 330K prior
New home sales, October (10:00): 750K expected, 770K prior
November 30
Personal income, October (8:30): 0.4% expected, 0.4% prior
Personal Spending, October (8:30): 0.3% expected, 0.4% prior
Core PCE Inflation, October (8:30): 0.2% expected, 0.2% prior
Chicago PMI, November (9:45): 50.5 expected, 49.7 prior
Construction spending, October (10:00): -0.2% expected, 0.3% prior
End part 1 of 3
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