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us stock market, trade stock
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11/29/07 Stock Split Report
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Stock Split Report Subscribers:
MARKET ALERTS
Targets hit alerts: None issued
Buy alerts: ENR; FSLR
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
SUMMARY:
- After two strong session the rally takes a breather.
- GDP strong but a puny 1.5% expected in Q4
- Jobless claims jumping much too much.
- Bernanke echoes Kohn comments, swings back to economic protection from prior tough love stance.
- Dell earnings, Bernanke speech will be the Friday focus.
Big sprint then a day off.
Thursday the market took a breather. That is it. After two big upside sessions the buying was exhausted for a day. It happens. Pretty typical. It was not the end of the holiday rally just because stocks did not move higher for a third straight session. There are two important considerations that show this was just a respite in the rally.
First, there were things worthy of upsetting the market, but the market ignored them. There was a critical pipeline explosion in Minnesota that tragically killed two people. That is bad enough, but in addition while two of the pipelines were quickly reopened, two others were not. The US receives 20% of its oil imports from Canada through this quad of pipelines. Oil spiked over $4/bbl on the news. After a decline in crude, this looked to send it right back up. Earnings were not very good as SHLD (Sears) impressively missed ($0.01 versus $0.50 expected), ARO guided lower, and MW guided lower as well. Jobless claims spiked to 352K.
Second, the market opened lower, rebounded to positive, but then the sellers came after stocks again in the afternoon, pushing them lower through lunch and into early afternoon. Instead of giving up and heading to the exits as done over the past month, investors moved in and picked up a few more stocks and brought the indices back up to positive. No big gain for certain, but it was a day of rest after two big moves and a flat session on lighter trade is good. The key is that the selling did not snowball out of hand.
By the close the indices were basically flat on light volume and narrow breadth. Oil closed up just 0.45 at 91.01 after that $4+ spike early on. The market ignored the bad news and just milled around the flat line. If this sounds sleepy it pretty much was. That is just fine, however, and in fact is a positive development. As we have noted on many occasions in the past, when the market gets a mind to rally it puts its head down and rallies, pretty much ignoring the news unless it is really rather devastating. There was nothing Thursday to rebut the Kohn comments from Wednesday that helped trigger the holiday rally. Recall that the market showed signs of wanting to rally after the November drubbing. We pointed out NASDAQ 100 showing resilience, refusing to give in to the selling; leaders hanging around their 50 day EMA, also refusing to give up this key level. They hung in, looking for a rally, and Kohn sparked it up. This action makes it look as if the market is going to see the Ho-Ho rally through.
Technically the action was exactly what you would expect for a siesta session with continuing positive attributes. There was down to up action with stocks starting weaker but fighting back. There was no massive surge higher, just a good move up after a weaker open. More than that, the market came back from an afternoon selling attempt to close with modest gains. Instead of tailing off with selling building on itself into the close, stocks fought back and rebounded to the close.
Internals: They were light on a lighter session. Volume fell back below average on both NYSE and NASDAQ. Breadth was modestly lower. When the market rests so do the internals. There was nothing here to indicate anything nefarious, just a quiet session.
Charts: After two solid sessions the market paused on lighter trade. NASDAQ did run up to the 50 day EMA and stalled, but really it and the other indices just held their ground on a pause. You like to see that when a market rests, i.e. hanging onto gains as it catches its breath and gets its legs for the next move.
Leadership: Leadership was still present. Yes it did take something of a breather as well, but there were still good movers, e.g. AAPL and GOOG, and there were also new additions, e.g. AMT, ENR, FSLR. In short, even with the day off there was still leadership, and just as when NASDAQ 100 was holding up and looking to rally when the other indices were still trying to find the rip cord on their parachutes, these leaders show us that the market is not done here. Pretty cool how that works, huh? Just read those signposts the market puts out.
THE ECONOMY
GDP strong but slowing, jobless claims too high, but the real story is the Bernanke speech.
Q3 GDP was strong at 4.9%. What a quarter. A five year high. Housing fell 20% but was more than offset by consumer spending (2.7%), business spending (9.4%), and exports (19%). Big numbers.
Great news, but Q4 is expected to show puny, sub-potential 1.5% growth as the economy falls off a cliff. Seen this before back in 2000, but it was uglier given GDP was growing at twice the rate shown in Q3. A lot now rests on what the Fed and Congress do. As noted earlier in the week, as it is an election year coming, there is not likely to be much Congressional action. The money has to be on the Fed; hmmm.
Jobless claims were another important headline and unfortunately this leading yet lagging indicator has trended steadily higher the past four months. We discussed this creep higher on several occasions, and while it did improve here and there, the trend is moving higher and this reading is another indication of the economic weakness the financial markets have been screaming about. The fact that employment itself is a lagging indicator only underscores the need for the Fed to act fast and act large. It still may be too late to stave off serious economic weakness, but why not get started on rebuilding now? Why wait until things go completely down the toilet and into the sewer before taking aggressive action? No reason at all.
Bernanke speech echoes Kohn, highlights further deterioration in credit markets.
Thursday night Bernanke spoke regarding current economic and financial market conditions, and his comments echoed and dovetailed with those of Vice Chairman Kohn on Wednesday. Bernanke noted that the recent turbulence in the financial markets was affecting economic activity. He noted that spending was on the soft side and that high gasoline prices and housing issues were creating headwinds for the consumer.
Again, this echoes what Kohn said Wednesday, but it is very important because when Bernanke talks about oil prices as impinging the consumer and the economy he is getting off of the 'oil is inflationary' shtick (as if the Fed can affect the price of oil with rate hikes) and looking at reality, i.e. that higher oil prices are more damaging to the economy via consumption decreases than rising prices. The Fed has waffled back and forth on this for over a year, and at least now when it really, really has to it is using this as a reason for a rate cut.
Indeed that is what Kohn and Bernanke are telling us is going to happen, and the next question is whether it is 25BP, 50BP or more. It won't be more, at least at this meeting, but it needs to be at least 150BP in cuts in the short term. Why? Because the 90 day T-bill yield is less than 3%. With the Fed Funds rate at 4.5% there is a huge penalty for trying to use money right now. That is why the credit markets have frozen. This dive in yields over the past week is only exacerbating the financial crisis in credit. No one is going to take on this kind of interest spread as it is simply too risky. When the price of money gets so high that companies don't feel they can get enough return for the risk taken, they don't do anything. That is how recessions come about.
Historically anytime the 90 day T-bill gets more than 50BP below the Fed Funds rate, money is too tight, and if the Fed doesn't lower rates the economy slows significantly, typically into recession. Those worried about the dollar if the Fed cuts rates further are realizing it is too late to help it now that the economy is heading down. You don't get a strong dollar by holding interest rates at a level greater than it takes to get financial markets to clear and get deals done. When you are in the position we are in now, you get a strong dollar by fixing the economic issues and thus creating an environment for a strong dollar. Right now we need to get to work.
As a final comment, we are Glad to see Bernanke concerned about the financial markets and economic activity, but you can take issue with his statements. The financial markets can indeed impact economic activity; if things get out of control everyone pulls back to see how things play out. Before that happens, however, the financial markets forecast what the economy is going to do. Thus they start selling when the common perception is earnings are going to contract. How hard they sell depends upon how far it is anticipated earnings will fall. Thus the initial decline in financial markets is foretelling economic activity, not influencing it. Again, if things get bad enough in the financial markets then they do impact the economy even more and make things worse. Thus it is incumbent upon the Fed to act and act quickly.
THE MARKET
MARKET SENTIMENT
VIX: 23.97; -0.14
VXN: 28.27; -0.56
VXO: 25.65; -0.65
Put/Call Ratio (CBOE): 0.89; 0
Bulls: 47.3%, up slightly from last week's 47.9%. Really wanted a push down below 45% as it was 40.6% on the low for the last round of selling. Still it is well off the prior levels: 51.1%, 54.5%, 5 weeks above 55%. 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: 29.0%. Strong jump finally, up from 26.6%. It lagged the decline in bulls, but is now making significant progress. Up from 22.2% 4 weeks back after bouncing up and down over 20 for several weeks. Now significantly above the threshold 20% considered bearish. Fell to a low of 19.6% on this round. 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: +5.22 points (+0.2%) to close at 2668.13
Volume: 2.173B (-13.42%). Volume fell below average as NASDAQ tapped at the 50 day EMA and faded to post a modest gain. No issue with lower trade after two good sessions of upside volume.
Up Volume: 1.099B (-1.111B)
Down Volume: 1.056B (+764.32M)
A/D and Hi/Lo: Decliners led 1.19 to 1. Flat as a pancake which is what you want to see on a rest day.
Previous Session: Advancers led 3.63 to 1
New Highs: 35 (-38)
New Lows: 98 (-65)
NASDAQ CHART: http://investmenthouse.com/ihmedia/NASDAQ.jpeg
Rallied up to tap at the 50 day EMA (2679) and the March 2007 up trendline on the high, coming back after a weaker open started it out at the 90 day SMA. It did not close at the high and indeed balked at these resistance levels, but after the surge higher this was a logical place for it to take a breather. That is what we are viewing this to be, basically a pause in the holiday rally. Yes we keep calling it a holiday rally because it has not shown otherwise after some nasty selling.
NASDAQ 100 (+0.34%) tested the 50 day EMA on the open then rebounded to tap at the 50 day SMA on the high. Very similar action to NASDAQ and a good way to take a day off.
NASDAQ 100 CHART: http://investmenthouse.com/ihmedia/NASDAQ100.jpeg
SP500/NYSE
Stats: +0.7 points (+0.05%) to close at 1469.72
NYSE Volume: 1.332B (-24.29%). Volume was well below average and well off the strong trade from the Tuesday and Wednesday surge.
Up Volume: 603.128M (-1.07B)
Down Volume: 690.945M (+608.608M)
A/D and Hi/Lo: Decliners led 1.21 to 1. As with NASDAQ, very tame as it should be on a rest day.
Previous Session: Advancers led 5.92 to 1
New Highs: 47 (-11)
New Lows: 64 (-98)
SP500 CHART: http://investmenthouse.com/ihmedia/SP500.jpeg
Basically went nowhere, testing the 18 day EMA on the intraday low and 1475 on the high. Still looking for a move up to the 200 day SMA (1484) and the June twin lows (1490-1492) as its first real test on this move. Some good rest while holding the gains ahead of that is a good way to do it.
SP600 (-0.39%) struggled as the small caps could not get back on track after that huge Wednesday upsurge. Stalled at the 18 day EMA, but we are not really looking for leadership from the small caps on this pre-Christmas rally. If the economic activity is anticipated to change for the positive, i.e. if the Fed cuts a lot and does so rapidly, then we might see a change. It will show us if that is the case, but again we are not looking for the small caps to lead any charge or change in character.
SP600 CHART: http://investmenthouse.com/ihmedia/SP600.jpeg
DJ30
The blue chips held the line, tapping at the 200 day SMA (13,247) on the low and rebounding to post a modest gain on very low, below average volume. After clearing the 200 day on Wednesday you have to like the way it reached down and felt for that level on Thursday, found it, then rebounded. Nice day of rest for the large caps.
Stats: +22.28 points (+0.17%) to close at 13311.73
Volume: 201M shares Thursday versus 310M shares Wednesday on that big surge. Siesta volume.
DJ30 CHART: http://www.investmenthouse.com/ihmedia/DJ30.jpeg
FRIDAY
Lots of economic data Friday with personal income and spending and the latest read on the core PCE, the Fed's pet inflation measure. The Chicago PMI gives us a peak at a more leading economic indicator, and this one is expected to crack back above 50 after a 49.7 reading in October. Not so sure it is going to make that next move, and if it does not we can expect to see the national number weaken toward sub-50 as well. That would provide the Fed, if it cares about the future, all it needs to hack away at interest rates. A low core PCE won't hurt either. Indeed, the ECRI FIG (future inflation gauge) basically has buried inflation pressures.
The economic data is weakening, but the market views that as old hat; its actions over the past four months show it viewed the economy as weakening and when the Fed got stingy with the rate cuts the market gave up on a continuing expansion. Thus the key now is not what the back side of the hill data is on a declining economic cycle but what the Fed, Congress, and the Administration are going to do about it.
Based on the Bernanke speech Thursday night, the Fed is going to cut rates again in December. This echoing of Kohn's Wednesday statements should bolster investor confidence and help the rally sustain itself, though it may find it difficult to resume the move with any strength on Friday. One problem is Dell's after hours earnings; the earnings were good but the stock was down 7% as some took issue with margins and other particulars in the report. While this is likely limited to Dell (look at what HPQ and AAPL were able to do in their quarters), there were some coattails after hours as bug techs softened some. A weaker open on this news would not be a bad thing as it gives buyers a change to bottom feed a bit more and turn some softness into another rebound.
Thus on Friday we are going to do more of the same, i.e. look for opportunity in solid leadership caliber stocks in good buying position. A dip back early Friday would give us the opportunity to move into some more positions. Right now we want to pick strong stocks that break higher with nice solid moves and ride them for the rally. The rally could last us another week or so. If it goes further with great strength and broadening leadership, indicating something more is here, we will ride it as far as it will go. Some are saying this Fed change of heart marks a bottom; maybe. We are willing to accept that, but as always we let the market tell us that is the case as we watch how the leaders move. Again, market signposts lead the way.
Support and Resistance
NASDAQ: Closed at 2668.13
Resistance:
2673 is the early July high
The March up trendline at 2677
The 50 day EMA at 2679
2725 is the July high
2745 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
2515 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 1469.72
Resistance:
1475 from peaks in December 1999 and January 2000
The 200 day SMA at 1483
The 50 day EMA at 1485
The 90 day SMA at 1488
1490.72 is the early June closing low and early August peak.
1534 is the early July high
1538 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 13,311.17
Resistance:
The 50 day EMA at 13,408
The 90 day SMA at 13,475
13,575 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:
The 200 day SMA at 13,247
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% actual versus 4.9% expected, 3.9% prior
Chain deflator (8:30): 0.9% actual versus 0.8% expected, 0.8% prior
Initial jobless claims (8:30): 352K actual versus 330K expected, 329K prior
New home sales, October (10:00): +1.7% (728K) actual versus 750K expected, 716K prior (revised from 770K)
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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