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us stock market, trade stock
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12/04/07 Stock Split Report
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Stock Split Report Subscribers:
MARKET ALERTS
Targets hit alerts: None issued
Buy alerts: COST; FLIR; GOOG; GRMN
Trailing stops: HOLX; RIG
Stop alerts issued: FSLR; HMSY
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:
- Stocks sag for another session, but they had every reason to sell hard but did not.
- Canada jumps in with an unexpected rate cut to 4.25% as talk of a 50BP and even 75BP rate cut in the US gains momentum.
- Market still searching for bottom to start next leg but is confronted after hours with more weakening outlooks.
Another session of floundering around, but no heavy selling.
There were some guidance issues as MRK (drugs), NOK (wireless telecom), and PVH (clothing) failed to impress the street. Some key analyst downgrades in the financial sector with GS, LEH and BSC cut to sell. On top of that, GS was accused of wrongdoing in an editorial with some saying Treasury Secretary Paulson (the former GS chief) should be under investigation. A couple of Fed speakers were quite despondent over the economic outlook, and investors did not like that. Seems the 'less is more' mindset regarding the economy is getting replaced with the harsh reality of a weaker economy and what that means for stock prices if the Fed cannot get ahead of the curve and/or Congress gets too heavily into the 'we gotta' regulate that' mode.
The market was sluggish pre-bell and it was sluggish all session. A lower open led to a lunchtime rebound attempt that looked decent as it cut the losses to nominal levels, but in the afternoon the bid faded and so did stocks. Losses in the indices were well below 1% and closer to 0.5%, volume remained low, and leadership was left in decent shape. In short, the market showed another Monday, maybe with a bit more negative bias. That, however, was not that bad given the news was right on point with the worries about credit and earnings and gave the sellers every reason to ramp up their positions. Sure the put on some more downside, but there was no downside blowout, just that sluggish low volume trade due more to a lack of bids than any selling. Volume remained light, the indices held support for most part, and leaders overall held up. It was not a pretty session, but it was not a breakdown either.
Technically the intraday action was another bearish take with its low to high then back to low arch. Of course it was not the kind of start lower and close much, much lower seen in the heavy selling. At least there was an attempt, actually two, at recovery.
Internals: Volume was up, but it just edged up and remained well below average. That indicates that despite the losses, overall there was no stock dumping. Breadth was weaker at 1.8:1 but not the blowout to the downside seen on the selling sessions when the sellers controlled the action.
Charts: It was not a great day as noted, but DJ30 held at its 200 day SMA on lower trade while SP500 was steady, trying to form a bottoming pattern the past week. NASDAQ 100, the key indicator in last week's rally, sold back as well, but it held the 90 day SMA and the July peak. Critical point for it given these two support points merging, and how it goes will likely tell how the rest of the market goes as well given the large cap techs led the original move.
Leadership: There were some breakdown issues, but for the most part the leaders held up well, e.g. GOOG and AAPL, while others performed quite nicely, e.g. COST, SOHU, GRMN. As noted on Monday, the tech leaders took the biggest hits, but we noted that when they were done with the pullback the second leg could start. GOOG and AAPL are suggesting that the big techs are trying to find a bottom, so we will start looking for a bounce to start. Tuesday the problem was with the likes of GS and other financials that were pretty solid Monday; they were down while the techs stabilized. If they can both get on the same page again the second leg will start.
All in all we are still looking for another leg higher even with the continued slide on Tuesday. As noted the market could have sold hard but it didn't, instead recovering most of the losses before a late slide. With the leaders still holding the line as they did at the 50 day EMA last week we are going to continue watching for that next leg higher.
THE ECONOMY
Canada delivers a surprise rate cut.
In a preview of what is to come in the US next week, Canada's central bank cut its Fed Funds rate equivalent to 4.25%, a 25BP cut. That is not really a preview to the US action, however, at least not what the talk was the past day or two among more and more pundits.
There are calls now for a 50BP and even 75BP cut by the Fed next week. 75BP will never happen. 50BP is a solid possibility if the Fed is interested in getting ahead of the curve and providing some kind of stimulus to get lenders and customers together and get things moving in the economy again, i.e. unlocking the credit freeze.
The 90 day T-Bill yield is hovering around 3% while the Fed Funds rate is 4.50%. In order to stimulate activity, the FF rate has to be near the 90 day. At the current spread there is 150BP the Fed has to give if it wants to get ahead and provide incentive to free up credit. Further, looking at the FF Rate (a short term rate) at 4.5% with the 10 year Treasury at 3.87%, the yield curve as set by the Fed (not the market) is inverted. This is definitely failing to provide any stimulus in a slowing economy.
Perhaps there is too much angst over this state of affairs. The Q3 GDP was a whopper, and a little slowdown as a result of the excesses in the housing market is not going to kill off the US economy. Looking in the rearview mirror, however, never did anyone any good. The stock market is showing a lot of stress with two roughly 10% corrections in a 4 month period after a string of long, steady upside runs. It is our view, and frankly history's, that the market sells off months before the economy shows its mortal wounds. We are looking at a 5 year economic expansion, and, as was Lily the Teutonic Titwillow in 'Blazing Saddles,' it's tired. Do we necessarily have to fall into a recession just because an occasional recession is considered good by some? Greenspan still sees the 2000-2001 recession as very shallow, but it killed off thousands of businesses and put millions out of work as GDP growth fell from over 10% to negative. Shallow my rear.
Thus this action in the market along with the slowing in key indicators and coupled with what the bond market is telling us indicates the Fed, the Congress and Administration in D.C., or both need to get something together to provide a bit of stimulus to get the economy through this period because if some think the deficits are large right now (though at under 2% of GDP they are historically low), just wait until the economy slows to flat and tax receipts fall precipitously.
THE MARKET
MARKET SENTIMENT
VIX: 23.79; +0.18
VXN: 28.85; -0.78
VXO: 25.29; +0.41
Put/Call Ratio (CBOE): 1.07; +0.24. Bumped back above 1.0 on the close, showing some more downside activity that helps turn the market. Of course, it has not shown a lot of solid sessions above the 1.0 the past week after the gains, but before that it stacked up about a dozen. That is enough to get things turning.
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: -17.3 points (-0.66%) to close at 2619.83
Volume: 2.078B (+3.49%). Volume was up on the selling though still well below average. Some more selling pressure without a doubt but no clear dumping.
Up Volume: 612.65M (-52.72M)
Down Volume: 1.446B (+119.159M)
A/D and Hi/Lo: Decliners led 1.87 to 1. Right on spot with Monday though NASDAQ 100 was down -0.41% versus the -0.66% of overall NASDAQ. That indicates the large caps are trying to firm up.
Previous Session: Decliners led 1.97 to 1
New Highs: 62 (+38)
New Lows: 266 (+151)
NASDAQ CHART: http://investmenthouse.com/ihmedia/NASDAQ.jpeg
Gapped lower through the 10 day EMA and closed near the session low. That keeps it near the June peaks, splitting them. Of the large indices, it was the poorest performer, looking at that gap higher from last week. It will need the large cap techs to help jerk it back up from here.
NASDAQ 100 gapped lower as well, but it held the 90 day SMA and the July peak on the low (2048), managing to rebound modestly to close. Below average trade as well but a better relative performance than NASDAQ, filling some of the gap from last week and in excellent position to resume the move higher. As noted above, the large cap techs are likely the signal that the pullback has found bottom if they have in fact found bottom at this support.
NASDAQ 100 CHART: http://investmenthouse.com/ihmedia/NASDAQ100.jpeg
SP500/NYSE
Stats: -9.63 points (-0.65%) to close at 1462.79
NYSE Volume: 1.332B (+0.15%). Volume was flat as SP500 sold back some more to near support. No dumping, and that is good.
Up Volume: 405.903M (-41.468M)
Down Volume: 915.553M (+46.179M)
A/D and Hi/Lo: Decliners led 1.8 to 1. Small and large caps struggled equally and downside breadth was not that bad.
Previous Session: Decliners led 1.43 to 1
New Highs: 44 (+14)
New Lows: 202 (+141)
SP500 CHART: http://investmenthouse.com/ihmedia/SP500.jpeg
The large caps gapped lower and sold to the 10 day EMA on the low, managing the smallest of rebounds off the low. After bumping resistance at the 200 day SMA (1484) Friday it is making an orderly, low volume test; the 10 and 18 day EMA are good places to hold and set up the run at the 200 day once more. Financials were clubbed Tuesday but SP500 held up pretty well. If they get over those downgrades from Tuesday they could provide the large cap techs some companionship as they did last week in the rally.
SP600 CHART: http://investmenthouse.com/ihmedia/SP600.jpeg
DJ30
DJ30 sold back to close just below the 200 day SMA (13,255) on very low trade. Still a good fade back from last week's surge up to the 50 and 90 day MA and this test of the 200 day and other support at 13,250 puts it in position to make the run higher if it is ready to do so.
Stats: -65.84 points (-0.49%) to close at 13248.73
Volume: 205M shares Tuesday versus 212M shares Monday. More low volume indicating no heavy sellers.
DJ30 CHART: http://www.investmenthouse.com/ihmedia/DJ30.jpeg
WEDNESDAY
ISM Services Index is out Wednesday but that is all that is scheduled. Doesn't mean there won't be the rogue Fed governor spreading holiday cheer, more analyst calls, and more warnings. Indeed, after hours Comcast lowered its 2007 outlook from 12% to 11% and FNM cut its Q4 dividend by 30%.
Thus far this week the market has sold under this kind of activity, but it has also managed to keep it rather contained as far as point losses and volume. DJ30, SP500, and NASDAQ 100 are in position to rebound if they get the right catalyst. The large cap techs stabilized after the Monday weakness, and if the financials can catch a break they could both rally again, starting the second leg. Last week they rallied without concern for the news (of course after the Fed heads made their comments) and as they rested this week the negative news seemed to dominate. Now we see if the market can put its head down and move higher again after this 2-day fade to near support.
We will continue to look at potential bounce plays to take advantage of this second leg, looking at the large cap techs as on Monday as a good vehicle as well as the other leaders from the prior rallies that have come back to test support. As with last night, we still see many very nice albeit short bases that have set up to deliver that second holiday rally leg. The short bases may not provide any more than that, but a second leg is really all we are looking at in the near term; if it goes further that will be great. If not, we will be ready to take the gain and look the other way (downside, that is).
Support and Resistance
NASDAQ: Closed at 2619.83
Resistance:
2634.60 is the June peak is bending
The 90 day SMA at 2652
2673 is the early July high
The 50 day EMA at 2674
The March up trendline at 2684
2725 is the July high
2749 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 200 day SMA at 2589
2550 to 2540 from May/June consolidation
2525 is the February closing high
2518 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 1462.79
Resistance:
1475 from peaks in December 1999 and January 2000
The 200 day SMA at 1484
The 50 day EMA at 1484
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
1541 is the July 2006/March 2007 up trendline
1541 is the early June high
Support:
The 18 day EMA at 1463 is trying to hold
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.
1416 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 13,248.73
Resistance:
The 50 day EMA at 13,397
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 13,255 is trying to hold
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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