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us stock market, trade stock
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12/05/07 Stock Split Report Update
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Stock Split Report Subscribers:
MARKET ALERTS
Targets hit alerts: AMR
Buy alerts: AAPL; BHP; CHL; VIP
Trailing stops: None issued
Stop alerts issued: NETL
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 adopts the 'more is better' mindset and rallies on better economic data.
- ADP jobs report helps spark rally, but it consistently overshoots
- Productivity surges and unit labor costs fall. The Fed has cutting cover.
- Rally has good foundation, but to get the shorts to cover and really take off, SP500 needs to blow through 1490.
Market gets the trigger and the second leg of the HO-HO rally is on.
After a 2-day low volume test of last week's rally got enough pessimism up just enough, the market got the trigger it needed to the second leg of the Ho-Ho rally. A surging ADP jobs report (despite its checkered past at predicting the government number), the best productivity gain in 4 years, and a Wall Street Journal article suggesting 80% of the sub-prime mortgages were current with respect to payments pumped up investors and kicked off the next phase of the holiday rally.
Futures were up and holding and the market jumped higher out of the gates. It shook off an 8M bbl drop in oil inventories (especially after oil fell in the afternoon to 87.49, down 0.83, despite the drop) and surged into the afternoon. It then had its test for the day. Moody's reported that MBI, a big mortgage insurer, may not have sufficient capital reserves. The market took a hit on that news, and NASDAQ sold close to its opening levels by mid-afternoon. In a sign of the return to more bullish action, the market held and rebounded off that news-induced pullback and rallied back to close at or near session highs. Ho, ho, ho.
Technically the action returned to its bullish ways. The market opened higher and rallied higher to the close. It shook off a negative news story that was right on point with the worries regarding the economy and recovered to close near the highs. After two days of testing and less than bullish news, the more bullish intraday action seen during last week's rally returned.
Internals: Breadth returned with a nice, crisp 2.9:1 on NYSE and 2:1 on NASDAQ. Not huge as some of the numbers the past couple of months, but it topped the downside breadth the past two sessions, showing the buying has the upper hand once again. Volume was up as well, showing there was accumulation in progress once more. Volume was not huge, however, just making it up to average on both NYSE and NASDAQ. Thus it was not a blowout session; but it was not bad at all.
Charts: On the good side SP500 rallied through its 200 day SMA and its 50 day EMA. DJ30 cleared its 50 day EMA on the session after its prior test of the 200 day Monday and Tuesday. Very good to see. On the other hand this puts the indices up against the next important level, specifically the SP500 against the 1490 to 1500 level that stalled it the second week of November and on the first leg of this rally. NASDAQ may have led the large cap indices, but it was unable to move through its 50 day EMA after hitting it on the high. Higher lows on all of the indices, however, and after a nice easy 2-day rest this puts them in good position to take on that resistance.
Leadership: As with the first leg of the rally, the large cap technology stocks were out in the lead. We already bought some more GOOG, and on Wednesday we scooped up some more AAPL as well. The large caps were cooking again but so was foreign tech (VIP), agriculture, and metals to name a few. The holds at the 50 day EMA discussed last weekend came into play again, and that support was providing a springboard for the next wave to rise and catch up with those that took off the week before.
In sum, the attributes of the start of the rally were back in force on Wednesday, and indeed the market shot higher with positive leadership and technical indications. Looks as if leg two of the Ho-Ho rally has started.
THE ECONOMY
ADP jobs report helps investors feel better about the economy.
The monthly ADP report surfaces just ahead of the government's jobs report that issues the first week of each month. As the craving for data has grown, the coverage of this report has grown as well. Wednesday it showed an increase of 189K jobs in the economy in November with construction down just 6K and finance actually up.
The news buoyed investors as they are taking the 'more is more' theory of economics and the stock market right now. Fed rate cuts are nice, but a strong economy is even better. As the reality of slowing has hit, investors are cheering for better economic news because they know the Fed is usually too late to the scene of the crime to do any good.
Problem is, they may be in for heartache come Friday. The ADP data was good. It was a bit too good. Finance jobs increasing even as companies announced layoffs the past two months? Construction improving with home starts falling more and more rapidly? The ADP report tends to overstate to the upside. It has had some big overstatements of the jobs market. Or you could say the government report has understated the case. As the latter is what the decisions are made off of, however, it is the key. With the ADP report's rather weak track record, investors could be disappointed on Friday. Likely the market is factoring in that the report is an overstatement, however, at least to a degree. That will help soften the blow in the event the government report is as light as expected (77K).
Productivity surges.
Jobs jumped and so did productivity? Seems that the latter would somewhat preclude the former, but that is more over a longer time period than a month. Even if the ADP jobs report is a known deceiver, the productivity report filled in any worry holes in the ADP report. At 6.3%, productivity growth hit a 4 year high. Moreover, unit labor costs fell 2%.
That is viewed as positive as it gives the Fed room to cut and not worry about any 'wage-led' inflation. That is total nonsense from a historical perspective, but it still gets a lot of print in the financial rags as a cause of inflation. Nonetheless there is no doubt that increasing productivity is a boon for the economy longer term. Shorter term, however, it can mean that employers are squeezing more out of existing employees and implementing more productivity-enhancing equipment and procedures. That can mean lower job results nearer term. Food for thought as we head into another jobs report with the APD forecast well above expectations and what appears to be economic reality.
THE MARKET
MARKET SENTIMENT
VIX: 22.53; -1.26
VXN: 26.91; -1.94
VXO: 23.81; -1.48
Put/Call Ratio (CBOE): 0.89; -0.18
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: +46.53 points (+1.78%) to close at 2666.36
Volume: 2.273B (+9.34%). Not a huge surge in volume, but a solid increase to average as the rally started its second leg. Strong trade on the break higher, nice low volume test, then a solid rebound as stocks broke higher once more. Just the kind of price/volume action you want to see.
Up Volume: 1.554B (+941.158M)
Down Volume: 703.987M (-742.186M)
A/D and Hi/Lo: Advancers led 2.06 to 1. Nice solid rise in breadth that was stronger than the two days of downside breadth. Another indication that the bullish underpinnings held up during the pullback. It was still lower than NYSE and the large cap techs were still the clear leaders (+1.95% on NASDAQ 100).
Previous Session: Decliners led 1.87 to 1
New Highs: 79 (+17)
New Lows: 170 (-96)
NASDAQ CHART: http://investmenthouse.com/ihmedia/NASDAQ.jpeg
Gapped higher and rallied to the 50 day EMA (2674) on the highs hit midday. The afternoon selling took NASDAQ back, but it held its gains and rebounded. It failed to retake the highs on the close, but the rebound of 15 points off the afternoon low shows the bullish bias of the session as the rally returns. Still a lot of resistance ahead, but looking at the July peak at 2725 as an important resistance point on this move.
NASDAQ 100 gapped over the 50 day EMA and has moved up to some interim resistance at 2100. Nice short double bottom with handle looks ready to yield a run toward 2150.
SOX (+2.45%) posted the best percentage gain on the session, and it looks to have made a higher low in a 'flying W' double bottom. It stalled at the 18 day EMA on Wednesday, but it looks ready to make a run up toward 450.
NASDAQ 100 CHART: http://investmenthouse.com/ihmedia/NASDAQ100.jpeg
SOX CHART: http://investmenthouse.com/ihmedia/SOX.jpeg
SP500/NYSE
Stats: +22.22 points (+1.52%) to close at 1485.01
NYSE Volume: 1.431B (+7.41%). Volume rose close to average as the NYSE indices posted solid upside gains. Just the kind of action you want to see.
Up Volume: 1.148B (+741.902M)
Down Volume: 277.97M (-637.583M)
A/D and Hi/Lo: Advancers led 2.9 to 1. Very solid upside breadth as the upside run continues.
Previous Session: Decliners led 1.8 to 1
New Highs: 95 (+51)
New Lows: 136 (-66)
SP500 CHART: http://investmenthouse.com/ihmedia/SP500.jpeg
Bounced off the 10 day EMA and moved through the 50 day EMA and the 200 day SMA on the close, though just barely. Still has the May and June lows directly ahead to contend with (1491 to 1493), and that is an area that has proved problematical for SP500 both as support and resistance. If it clears that level it can rise to 1525 - 1535 on this move.
SP600 (+1.35%) brought up the rear as the small caps continue to lag all other indices outside of SOX. Similar to SOX, however, the small caps are making a higher low and a move over 400 (closed at 397.59) opens the door up to 410 to 415.
SP600 CHART: http://investmenthouse.com/ihmedia/SP600.jpeg
DJ30
Held the 200 day SMA (13,259) on the low during the pullback and then surged higher Wednesday on rising, above average volume. Nearly all Dow components were higher as the Dow made a higher low at key support and moved up through the 50 day EMA and to the 90 day SMA. Next resistance is at the June peaks (13,640 to13,676), but DJ30 can run to 13,750 on this second leg.
Stats: +196.23 points (+1.48%) to close at 13444.96
Volume: 256M shares Wednesday versus 205M shares Tuesday. As with the other indices, this is the kind of price/volume action you want to see on an advance.
DJ30 CHART: http://www.investmenthouse.com/ihmedia/DJ30.jpeg
THURSDAY
The day before the jobs report and not much on the agenda outside of jobless claims. While mostly overlooked, this report has told a story of weakening jobs rates. It too is lagging, but it is less lagging so to speak than the monthly jobs report. In reality, regardless of what the Friday jobs report says, the information bears nothing on the current economic situation as hiring and firing decisions lag the economic cycle by many months if not quarters.
Thursday also sees the start of same store sales reports for November. Yes it is already that time again and everyone keeps waiting for the next shoe to drop. Last month they were much better than expected, though expectations were quite low. Retail stock charts are trending lower overall though there is strength in names such as COST and even GPS. In addition there has been some recent improvement in the charts of many retailers though the turn is in its early stages.
We view the Wednesday action as starting the second leg of the holiday rally, and outside of some really divergent data, we anticipate the market to end higher over the next week though there could be some interim chop along the way given the data that is coming out. We have taken positions heading into this second leg in addition to the ones taken on the first run, and we are going to let them run to the upside as far as this leg will take them and then look at banking the gain. We still view this as a relief move in the midst of a market that is factoring in an economic downturn, and thus we will play this very tradable rally, but we won't get unrealistic expectations about it lasting on into next year and setting off another large rally. It may do that, but we are not going to count on that.
For now we are going to watch how SP500 deals with the 1490 to 1500 resistance. If it punches through that and is holding toward a close then the shorts will start to cover, adding fuel to the upside fires. That could really get the second leg of this rally heated up. Accordingly, for now we let our plays run and we will also look at other prime candidates to take us higher over the next week or so. After this pullback there are many stocks testing, and not all surged beyond points where we can buy into them on the Wednesday run.
Support and Resistance
NASDAQ: Closed at 2666.36
Resistance:
2673 is the early July high
The 50 day EMA at 2674
The March up trendline at 2685
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:
2634.60 is the June peak is bending
The 200 day SMA at 2590
2550 to 2540 from May/June consolidation
2525 is the February closing high
2520 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 1485.01
Resistance:
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
1542 is the July 2006/March 2007 up trendline
1541 is the early June high
Support:
The 200 day SMA at 1484
The 50 day EMA at 1483
1475 from peaks in December 1999 and January 2000
The 18 day EMA at 1465
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.
1417 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 13,444.96
Resistance:
The 90 day SMA at 13,470
13,585 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 50 day EMA at 13,398
The 200 day SMA at 13,259
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): 6.3% actual versus 5.8% expected, 4.9% prior
Factor Orders, October (10:00): 0.5% actual versus 0.0% expected, 0.3% prior
ISM Services, November (10:00): 54.1 actual versus 55.0 expected, 55.8 prior
Crude oil inventories (10:30): -7.9M actual, -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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