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11/28/07 Stock Split Report Update
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Stock Split Report Subscribers:
MARKET ALERTS
Targets hit alerts: ISRG
Buy alerts: BTU; MA; MON; RIMM; WLT
Trailing stops: DIA
Stop alerts issued: CAT; QQQQ; TIF; TXN
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:
- The Ho-Ho rally takes off with a Fed assist.
- Existing home sales remarkably weak.
- Durable sales not showing durability.
- Rally shows tremendous strength. Going to enjoy it, but cognizant it is likely just a holiday rally without showing us more down the road.
First some speculation in the financials, then the Fed provides the next catalyst.
Durable goods orders were crappy for the third straight month (the longest losing streak in four years), existing home sales were horrid, Wells Fargo was taking a $1.4B Q4 charge, and FRE was cutting its Q4 dividend by 50%. On the other hand the dollar was up and oil was down and heading for a drubbing on the close (90.62, -3.80/bbl). You say tomato, I say tomato.
The deciding factor, the overwhelming factor, however, involved the entity that controls our retirements, the Federal Reserve. Those other items were mere chicken feed compared to what King Kohn of the Federal Reserve had to say. Was it a grand pronouncement that a rate cut was imminent? Nah. How about an indication the Fed was consulting regarding the market tumble? Not really. No, Kohn simply stated that the Fed, given the turbulence of the recent weeks, had to be flexible and pragmatic in its approach. Okay, he did say more. He noted the turbulence had undone some of the Fed's work previously done with the discount window and the Fed Funds rate cuts and that it could also tighten credit for both households and businesses. He was surprised by the market's recent troubles and hinted he was surprised by the weakness in housing in that it was even weaker than expected.
The clincher, however, was the general premise: since the Fed acted last there has been further deterioration in the credit markets to the extent it was once again difficult to complete transactions. That is the reason the Fed stepped in originally, and we wrote about this three weeks ago when the Fed was copping the 'okay we are done' attitude. This admission that credit markets were struggling once more was thus huge. If its primary goal is not being met, then the Fed is going to act. Kohn summarized this position and chastised critics when he expressly stated it was not the Fed's intention to bail out individuals, but the Fed was not going to let the economy swoon just so it could 'teach a lesson' to some bad actors. Pretty straight forward.
The market gapped higher, rallied hard, then made a series of surges up into the close. 2.5% to 3+% moves across the board for the indices. They are coming from deep downtrends, but strong moves without question. All of the financial shows were giddy as DJ30 posted its largest percentage gain in 4.5 years. The market overall posted its largest 2-day gain in 4 years.
Technically there is no way to look at it other than a strong session though one coming in a downtrend. Stocks started higher and finished strong. No afternoon fade this time, and that indicates the rally has some legs to it.
Internals: Volume jumped on both NYSE and NASDAQ. Breadth was strong at 6:1 on NYSE, 3.5:1 NASDAQ. Finally some upside breadth worthy to rub elbows with the recent downside breadth. Of course, all of these readings are extreme. They were extreme on the selling and now they are extreme on the rebound. If this was happening after a year or two of weakness this might indicate a bottom. Coming off highs and after a rather normal 10% correction (the second in 4 months), however, this is not the best longer term indicator. Not bad though for the short run, and as that is what we are playing right now that is just fine.
Charts: DJ30 moved back through its 200 day SMA. NASDAQ gapped higher and through its 200 day SMA as well, clearing several potential resistance points along the way. SP500 continued its bounce off the mid-2006 trendline and the August closing low. It remains below its 200 day SMA. Big, indeed massive, bounces, but they did not take the indices out of the woods. Given the selling preceding the bounce, however, it is hard to complain about the action.
Leadership: The move higher was broad and those that we anticipated would move, as well as those that started moving the past week that we took positions in, were rallying smartly. Many stocks were up on the session, but those prior runners that led the last rally were the strongest. We anticipate they will continue to move, but they will likely be joined by others as the rally continues.
In sum, it was a screaming start to the Christmas rally. Some are calling it the end of the correction, the bottom that sets up the next rally to new highs. That is always a possibility, but there is a lot of baggage the move has to carry with it as we have discussed over the past few weeks. Given the economic indications and the market action before this bounce, we still believe this is just going to be a relief move. The rally was building over the past few sessions as we saw stocks such as GOOG, AAPL, RIMM, etc. buck the market trend and show relative strength, even gaining ground. The Fed-speak triggered the move that was building when the Fed suddenly turned away from the 'tough love' posture it had taken. Oversold and ready to bounce, the Kohn speech provided the catalyst. Now we see how far the rally can carry.
THE ECONOMY
Fed is starting to catch up with the data.
The financial markets rattled the Fed again with the steady plunge since it said it was going cold on the rate cuts. Wednesday the financial data showed once more why the stock and bond markets are prognosticating a weaker economic future.
Existing home sales in October are again weak.
Sales fell 1.2% month over month and a whopping 20.7% year over year. Median prices fell 5.1% over 2006. Inventories rose to a 10.8 month supply, the highest level since July 1985 when the real estate bust was sweeping the sunbelt states. There were no shocks here. The housing market remains in the tank.
Durable goods orders lousy as well.
Durables continued the downside string, making it a quarter of losses with a 0.4% decline versus the 0.1% drop expected. Of course that was miles better than the 1.4% decline in September.
Computers and electronics took a big hit, sliding 8.4%, led in large part by communications. Non-defense capital goods, the business proxy, slumped 3.1%. After a one-month bounce back it is back to its slide. As seen in the 2000 to 2002 recession, business spending is as important as consumer spending. More evidence some action is needed.
Inventories rose 0.2%, not that big a move in itself, but at $314.3B it was the highest level since the index was started. Inventories are one of the glass half full or half empty indicators. GDP counts inventories as growth, but in reality when indices reach high levels that is an indication that consumption is lagging. Given the slowing economic indicators the economy is throwing off, it is pretty clear that this rise in inventories is not a sign of solid economic growth.
THE MARKET
MARKET SENTIMENT
VIX: 24.11; -2.17
VXN: 28.83; -1.93
VXO: 26.3; -2.17
Put/Call Ratio (CBOE): 0.89; +0.07
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: +82.11 points (+3.18%) to close at 2662.91
Volume: 2.51B (+17%). Nice solid volume, right in league with the early November trade on the selling. Like to see some solid upside trade on a gain for a change.
Up Volume: 2.211B (+469.607M)
Down Volume: 292.091M (-156.445M)
A/D and Hi/Lo: Advancers led 3.63 to 1. Showing some strength after playing second fiddle to the downside breadth over the past three weeks.
Previous Session: Advancers led 1.28 to 1
New Highs: 73 (+19)
New Lows: 163 (-119)
NASDAQ CHART: http://investmenthouse.com/ihmedia/NASDAQ.jpeg
Gapped through the 200 day SMA and rallied all session, closing just off the high. It cleared the 90 day SMA along the way. Good start to the rebound holiday rally though there are piles of overhead supply ahead of it. Digging out of a hole is never easy. Looking for a move to the July high (2720 closing) as a serious resistance point. That is less than 60 points away, and the way NASDAQ is moving it won't take long to bump into that level.
NASDAQ 100 gapped over the 90 day SMA and cleared the high in its two week lateral range. The large cap techs were showing the best indication a rally was brewing, and not surprisingly they enjoyed a strong session though its gain was in fact lower than NASDAQ overall.
NASDAQ 100 CHART: http://investmenthouse.com/ihmedia/NASDAQ100.jpeg
SP500/NYSE
Stats: +40.79 points (+2.86%) to close at 1469.02
NYSE Volume: 1.759B (+6.4%). Excellent volume as the NYSE indices turned to buying.
Up Volume: 1.673B (+435.049M)
Down Volume: 82.337M (-257.019M)
A/D and Hi/Lo: Advancers led 5.92 to 1. Outstanding upside breadth rivaling the best sessions on the downside. Broad-based buying is not the sign of short covering.
Previous Session: Advancers led 2.08 to 1
New Highs: 58 (+32)
New Lows: 162 (-222)
SP500 CHART: http://investmenthouse.com/ihmedia/SP500.jpeg
Familiar story as SP500 gapped higher and rallied into the close. Strong move after SP500 bottomed at the August closing low and the up trendline from the summer 2006. Good start to the run. Next resistance is the 200 day SMA (1484) along with the June twin lows near the same level. Just going to let it run and see how the strength holds up.
SP600 (+3.26%) posted one of the best gains but it was also way down in the dumps. It stopped at the 18 day EMA on the high; important point to clear on through 400 to get things going.
SP600 CHART: http://investmenthouse.com/ihmedia/SP600.jpeg
DJ30
Surged through the 200 day SMA (13,245) after recovering Tuesday from the break below the August closing low. Strong move to take it through the 200 day and some price resistance at 13,250). 13,500 to 13,650 is the next range of resistance the Dow has to deal with.
Stats: +331.01 points (+2.55%) to close at 13289.45
Volume: 310M shares Wednesday versus 296M shares Tuesday. Volume remains strong as the Dow makes a strong break higher.
DJ30 CHART: http://www.investmenthouse.com/ihmedia/DJ30.jpeg
THURSDAY
The second Q3 GDP revision is out before the open along with jobless claims, and new home sales a half hour into the session. The market may actually pay attention to the economic data as it looks around after that big surge and asks 'what's next?'
We don't think that means an immediate turn back down this time around. The market was oversold and itching for a rebound toward Christmas. Strong volume, breadth and leadership on Wednesday indicates there are some legs associated with the move.
Thus we are looking for some more solid upside plays to take advantage of the rally, not chasing strong movers (fortunately we had been buying into some of the solid stocks before Wednesday), but picking up other strong stocks that are in opposition to move but were not in the first wave on Wednesday.
We are not expecting this to be a run to a new high, but we can let the market show us if that is the case or not. The Fed looks to have been jarred back on track by reality and is back in the game. In the bigger picture the question is whether the Fed's hiatus took too much time off the economy's clock and if it can, or more accurately, if it will, cut rates fast enough and push enough liquidity to forestall a recession. Some help from Congress would be nice, but in an election year with the two sides peddling vastly different agendas, there isn't going to be anything exciting coming from D.C.
We need to keep that in mind as we play this move higher. We will still be looking for quality stocks in quality patterns to play the move, and if the selling comes back with any ferocity we will have to play it safe. Again, however, this move looks as if it has some leadership and they have the legs to carry it.
Support and Resistance
NASDAQ: Closed at 2662.91
Resistance:
2673 is the early July high
The March up trendline at 2678
The 50 day EMA at 2679
2725 is the July high
2744 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:
The 90 day SMA at 2651
2634.60 is the June peak is bending
The 200 day SMA at 2587
2550 to 2540 from May/June consolidation
2525 is the February closing high
2513 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 1469.02
Resistance:
1475 from peaks in December 1999 and January 2000
The 200 day SMA at 1483
The 50 day EMA at 1486
The 90 day SMA at 1489
1490.72 is the early June closing low and early August peak.
1534 is the early July high
1536 is the July 2006/March 2007 up trendline
1539 is the mid-June intraday high
1541 is the early June high
Support:
1459 is the February peak
1440 - 1437 from January and March peaks
1438 is the November low
1430 from the August interim lows
1425 is some minor support.
1413 is the June/July 2006 up trendline
1406 is the August closing low
1375 is the March closing low
1370 is the August intraday low
Dow: Closed at 13,289.45
Resistance:
The 200 day SMA at 13,244
The 50 day EMA at 13,412
The 90 day SMA at 13,480
13,565 is the July 2006/March 2007 up trendline
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
12,743 is the November low
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): 87.3 actual versus 91.5 expected, 95.6 prior
November 28
Durable goods orders, October (8:30): -0.4% actual versus 0.0% expected, -1.4% prior. (revised from -1.7%)
Existing home sales, October (10:00): 4.97M actual versus 5.00M expected, 5.04M prior
Crude oil inventories (10:30): -452K actual versus -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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