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us stock market, trade stock
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12/03/07 Stock Split Report Update
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Stock Split Report Subscribers:
Full report issues Tuesday.
MARKET ALERTS
Targets hit alerts: Took some interim gain: MON
Buy alerts: BLK; OTEX
Trailing stops: None issued
Stop alerts issued: ICE
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:
- Market consolidates after hitting resistance to end last week in its first big test of the holiday rally.
- ISM manufacturing not great, but hangs tough above 50
- Pessimism about the rally ratchets higher, & that could give it another run after this test.
Slow start, weak finish, but the action is contained and the technical indicators in line.
No new money moved in to start the month, leaving a rather run of the mill Monday with analysts somewhat active (downgrades of JCI, RIMM, ETFC), some acquisition activity (Vivendi and Activision), some warnings (ABC), and some buybacks (IBM accelerating its share purchase plans). Not all that exciting, though it did weigh on the already sluggish pre-market action. Oil was a bit stronger and finished solidly higher (89.31, +0.96) though it remained below that $90 level after running up close to $100 two weeks back, failing in its second attempt at that level.
In any event, it was not enough to energize stocks again after they ran into resistance Friday following a strong start to the holiday rally. Stocks started weak, tried to rally back and indeed were positive into lunch, overcoming a stronger than expected ISM manufacturing report (remember, there is still a less is more mentality as the market wants and indeed needs heavy Fed intervention to rally) along the way. It could not hold the gains, however. SP500 never really challenged resistance at the 200 day SMA and NASDAQ was the leading lagging index with many of its large cap techs struggling. With that the market lost what rebound strength it had and slid lower all afternoon right back to negative and right into the close.
That low to lower action with some struggling leaders was pretty bearish but for the tame technical indicators. It raised the pessimism level quite a bit as many expect this bounce to roll right back over. It may just do that, but there is no breakdown yet, and this type of pause and pullback after such a strong surge is rather typical.
Technically this is no doubt the first serious test of the holiday rally. As noted above, the technical action was a mixed bag. Intraday it showed low to lower price moves as stocks found no traction, sliding lower all session. That is more bearish action versus the low to high moves in the first rally leg, but you expect some downside action on the tests. Overall the action was rather contained, particularly outside of NASDAQ.
Internals: Breadth was modest on NYSE, but almost -2:1 on NASDAQ as the large cap techs and smaller techs struggled. The large cap techs were some of the early leaders in the holiday move and thus their weakness is noteworthy. Most fell on lighter trade, however, as they too took a breather after a good upside and strong volume run. Indeed volume overall was quite tame, falling 30% on NYSE, 21% on NASDAQ, both coming in well below average. No surge in buying to start the month as we thought might happen. Of all the indications that lighter trade was the most telling.
Charts: Another slog below resistance as on Friday afternoon when the first leg of the rally bumped into resistance and stalled. SP500 battled with the 200 day SMA once more; of course it never really challenged it, so 'battled' is not really descriptive. Just heavy, sluggish trade. On the other hand, DJ30, while also struggling with near resistance, held easily above the 200 day SMA it took back last week. Basically the indices are in the position of rallying to near resistance and now easing back some, attempting to hold most of the gains and set up for another upside leg to the holiday move.
Leadership: The early leaders in last week's rally, the large cap techs (GOOG, AAPL) showed the most wear and tear, but some others stood up in their place, e.g. energy, some chemical and agriculture stocks. Some financials held up quite well, particularly the asset management stocks, indicating that the financial worries that are discussed daily are not necessarily undermining the rally. Thus after tech completes its test there are substantial leaders in place to jumpstart a second leg.
Indeed, we are looking for some more consolidation on light internals and technical indications to help set up a second leg higher toward Christmas. With pessimism about the bounce running fairly high, the combination of rather light technical selling is working on setting up the next bounce.
ECONOMY
Manufacturing hangs in there.
It was the fifth consecutive decline but manufacturing managed to hold above 50 and keep the ball in the expansion category. A sub-fifty reading in January was followed with a sharp rally to a 14 month high in June at 56 as the economy recovered from the second half 2006 slowdown. Since that peak the economy has cooled yet again as the mortgage and credit issues took hold.
The decline is trying to level off (50.8 versus 50.9 in October) above those pre-recovery lows. From here it can break either way depending upon what the economy does. There is a pause as the Fed started cutting rates aggressively (at least for one meeting) to see what the Fed is going to do. The stock market is saying that without further and rather immediate aid the economic numbers are going to head lower.
It may already be too late, but stocks did start to rally back last week. Thus far just a relief move, but it was on the potential that the Fed was going to get back into the game of helping the economy. If it does not or if it takes too long we see the markets struggle again. Indeed, bonds are still rallying, pushing yields lower (2.86% on the 2 year, 3.85% on the 10 year), indicating the Fed is still way behind the curve. That makes the Fed's next move critical to the economy and thus the market. The market will have the immediate reaction as it anticipates where the economy will head based upon the Fed action (both when and how much).
THE MARKET
MARKET SENTIMENT
It doesn't show up in the VIX or the put/call ratio, at least it didn't on Monday, but there is a lot of pessimism about last week's rally and the ability to generate more upside. The Monday pullback was rather innocuous in terms of technical strength, however, and thus the concern we heard expressed about the inability to push higher may be overdone. There is that SP500 resistance at 1490 to 1500 that is key, and that will have to be taken out, but SP500 is simply setting up to make another run at that level right now. The proof is in the move back up and how it reacts to that resistance at that point, not after a week of rallying took it up to that level and it needs a rest before trying to extend the move.
VIX: 23.61; +0.74
VXN: 29.63; +0.98
VXO: 24.88; +0.07
Put/Call Ratio (CBOE): 0.83; -0.24. After a month end spike over 1.0 on the close the ratio dropped rather surprisingly given the downside and sluggish action. The trade was light, however, and that indicates the action simply was not that nefarious.
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: -23.83 points (-0.9%) to close at 2637.13
Volume: 2.008B (-21.62%). There was big volume on Tuesday as NASDAQ gapped higher. Volume was up Thursday as the index gapped higher and closed lower. Monday trade was well below average as NASDAQ slipped further but held near support. This lighter trade shows no real intensity on the selling.
Up Volume: 665.37M (-398.098M)
Down Volume: 1.327B (-154.907M)
A/D and Hi/Lo: Decliners led 1.97 to 1. It was not all large cap selling as breadth closed in on -2:1.
Previous Session: Advancers led 1.23 to 1
New Highs: 24 (-65)
New Lows: 115 (-3)
NASDAQ CHART: http://investmenthouse.com/ihmedia/NASDAQ.jpeg
NASDAQ started lower but did turn positive midday. It never challenged the 50 day EMA (2676) on the high before slipping lower in the afternoon to close at the low. No breakdown, however, as volume was very light as it sold toward the 10 day EMA (2633), holding that near support. Excellent place for NASDAQ to make a higher low on this test of the rally. There is that gap higher from Tuesday, but we are looking for more upside toward the July high (2720) or 2750 before this rally ends.
SOX (+0.10%) was the 'leader' on the session. We say that tongue in cheek because its bounce looks really anemic, moving up to the 18 day EMA on the highs last week but then slipping back below the 10 day EMA that acted as resistance in October through November as it sold off. In short, this gain was nothing really provocative on the part of chips. Maybe there is life here, but it has to firm up a bit more to demonstrate it is evolving from what is lurking at the bottom of the barrel of the market.
SOX CHART: http://investmenthouse.com/ihmedia/SOX.jpeg
SP500/NYSE
Stats: -8.72 points (-0.59%) to close at 1472.42
NYSE Volume: 1.33B (-30.85%). Volume fell well below average as the NYSE indices lost a modest amount of ground, coming back from a bump at resistance on Friday. Like to see the low trade as they pull back as that shows no heavy selling and belies the pessimism heard Monday about the prospects of any more upside in this rally attempt.
Up Volume: 447.371M (-975.077M)
Down Volume: 869.374M (+380.69M)
A/D and Hi/Lo: Decliners led 1.43 to 1. Pretty tame and led by the small caps that lost almost a point on the session.
Previous Session: Advancers led 2.43 to 1
New Highs: 30 (-52)
New Lows: 61 (-60)
SP500 CHART: http://investmenthouse.com/ihmedia/SP500.jpeg
After bumping at the 200 day SMA (1484) Friday, the large caps faded but the losses were modest and on much lower trade. After a big surge off of the August low that ran to the 200 day, the large caps are taking a rest on lower volume. Looks pretty typical and pretty well contained thus far. Have to like that for another attempt higher in the leg. The 200 day SMA is big as is the 1490 to 1500 range. If it starts again a run to 1500 will test it and if it can clear that level, 1525 to the June highs at 1535 to 1540 would be the likely cap.
SP600 (-0.91%) led the downside, finishing at the 10 day EMA after surging Friday and then giving just about all of it back. Still weak, and this is one of the canaries of the economy and the anticipated impact of any Fed action. Judging from the wheezing in the small caps, the Fed has plenty of work to do.
SP600 CHART: http://investmenthouse.com/ihmedia/SP600.jpeg
DJ30
Very similar action to SP500 as the blue chips faded back on very modest trade after bumping at the 50 day EMA (13,403) Friday and Monday. It is holding above the 200 day SMA (13,253), and we are looking for a test of this level to hold if the blue chips are going to continue their holiday rally up toward the June twin peaks at 13,690. That will be a key resistance point, and if does clear that level 13,750 will likely box in the rally, i.e. that would likely be the top.
Stats: -57.15 points (-0.43%) to close at 13314.57
Volume: 212M shares Monday versus 312M shares Friday. Volume fell off as no new money came in, but no selling in any volume came in either.
DJ30 CHART: http://www.investmenthouse.com/ihmedia/DJ30.jpeg
TUESDAY
No scheduled economic data so the market is on its own to continue the test of last week's rally. The main question is whether this is going to be the test that sets up the next and likely last leg of this holiday rally, or the end of the rally, i.e. the beginning of the next leg lower. If the technical action remains as it was Monday, then the likelihood of another upside leg to at least test 1500ish on SP500 rises. Indeed, with the pessimism about the rally combined with the light selling as indicated by the internals, if things remain the same that would set up the next leg higher.
Thus we are going to let the action play out, looking for more light technical selling to continue working off the froth from last week's strong surge upside. Another session similar to Monday likely won't be the end of the pullback, but it will go a long way to getting the market ready for a move later in the week. We will look to use this action to pick up some more positions on leaders that have come back in the selling, and then ride them higher on the next leg because they will lead once again when the buyers return. We don't have any problem with riding the same horse that brought us some nice gains and is taking a breather. They led once, and if the pullback volume is light they will very likely make another good run for us. No problem moving in on that action.
When that occurs, after another week of rallying that hits those resistance points noted above, we would look to take a lot more upside off the table. If the internals are very strong we will still take some gain off the table. That ties into our concerns about the longer term viability of the market even if the Fed blows in with both barrels blazing. It is likely to break through the lines just to find it is too late. Of course, if the market is blazing with strong technical indicators as well we will let part of some positions run even after we take some gain; if the market is showing a lot of strength we won't turn completely away from it. Bank safe gain, then let some speculation money ride higher.
We do have some downside plays on the report, and we are going to keep watching for them to break lower. Not all of the gains are being shared when they occur. Monday saw some stocks turn down in their downtrends and sell on some rising volume. Thus we will have plays at the ready in the event the market stalls out and rolls over on strong negative technical indicators (high volume, large downside breadth, leaders cracking). We are playing a relief bounce for now, and thus we want to be ready when it ends. That said, as we wait for the market to show whether this pullback is just a rest before another leg, we don't want to get overly aggressive to the downside if the market indicators remain overall light (lighter trade, narrow breadth, indices and leaders holding near support).
Support and Resistance
NASDAQ: Closed at 2637.13
Resistance:
2673 is the early July high
The 50 day EMA at 2676
The March up trendline at 2682
2725 is the July high
2748 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 2589
2550 to 2540 from May/June consolidation
2525 is the February closing high
2516 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 1472.42
Resistance:
The 200 day SMA at 1484
The 50 day EMA at 1485
The 90 day SMA at 1488
1490.72 is the early June closing low and early August peak.
1530 to 1535 are the June twin peaks
1534 is the early July high
1539 is the mid-June intraday high
1540 is the July 2006/March 2007 up trendline
1541 is the early June high
Support:
1475 from peaks in December 1999 and January 2000
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.
1415 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 13,314.57
Resistance:
The 50 day EMA at 13,403
The 90 day SMA at 13,469
13,580 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 13,253
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.
December 3
ISM Index, November (10:00): 50.8 actual versus 50.5 expected, 50.9 prior
December 5
Productivity, Q3 preliminary reading (8:30): 5.8% expected, 4.9% prior
Factor Orders, October (10:00): 0.0% expected, 0.2% prior
ISM Services, November (10:00): 55.0 expected, 55.8 prior
Crude oil inventories (10:30): -425K prior
December 6
Initial jobless claims (8:30): 335K expected, 352K prior
December 7
Non-Farm Payrolls, November (8:30): 70K expected, 166K prior
Unemployment rate, November (8:30): 4.8% expected, 4.7% prior
Hourly Earnings, November (8:30): 0.3% expected, 0.2% prior
Average workweek, November (8:30): 33.8 expected, 33.8 prior
Michigan sentiment, preliminary December (10:00): 75.0 expected, 76.1 prior
Consumer Credit, October (3:00): $6.0B expected, $3.7B prior
End part 1 of 3
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