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world stock market, us stock market
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12/12/07 Investment House Alerts
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IH Alert Subscribers:
MARKET ALERTS:
Targets hit alerts: None issued
Buy alerts: IWM; MR; SPY
Trailing stops: BLK; GSOL; ININ
Stop alerts issued: None issued
SUMMARY:
- More Fed action sends stocks higher, then lower.
- Stocks pop and drop Fed move, likely due to its complexity, but bonds show they like it.
- A cut, an intervention, and now stocks have to decide what they will do, but not all stocks are worried about the US . . . too much.
More Fed action just doesn't quite get the job done
Futures were up sharply Wednesday on the 'leaked' news Tuesday night that the Fed had something else up its sleeve other than a pair of 25BP rate cuts for the FF and Discount rate and a muddled statement. At 9:00ET the news was made official: the Fed was doing two more things. First, a series of 4 or more auctions of funds that would, being auctions, more accurately reflect the potential borrowers view of value versus the Fed's rate setting and thus bring more banks to the window to get the funds needed to transact business. Second, the establishment of swap lines with the ECB and the Swiss central bank that would allow European banks to go directly to Europe versus having to come to the US first for US related debt and credit. This is all to be facilitated by the Fed, the BOE, the BOC (Canada), and the Swiss central bank. Thus the reason for the delay with the announcement: it has been in the works for quite some time but it could not be completed by the FOMC meeting, and had to be delayed until the next session when the final okays were issued.
Hmmm. Timing is everything they say, and the Fed missed a golden opportunity to provide a one-two punch. As things worked out, the Fed's insufficient rate cut was met with a lot of selling and new downside positions put on only to have those people crushed the next morning with the second shoe. Makes it almost kind of fitting that the huge upward surge did not hold.
Ah yes. That takes us back to the action of the day. Futures burst higher on the actual release of the plan and stocks burst higher at the open as well. Then the financials started to stumble and then crumble. These are the stocks that should be the primary beneficiaries of this additional Fed action. They were up big but then they were down. When they started lower that was an indication that this second phase of Fed action was not going to be enough either, even in conjunction with that whopping 25BP cut in the FF and Discount rates. Ironic isn't it? The Fed creates this elaborate methodology for institutions to obtain funds at a lower rate yet it leaves the Discount rate at a penalty to the market. No wonder people were left scratching their heads and we are not just talking about those with chronic dandruff or the heartbreak of psoriasis.
That selling in financials bled over into the rest of the market, and by mid-afternoon some huge gains were squandered with the indices all negative. Big point swings. NASDAQ lost 73 points high to low. DJ30 swung 383 points. SP500 whipsawed 44 points. It took a last hour stand and then a 20 minute bounce into the close on some short covering to maintain any gains at all, and of course the closing gains were mere shadows of the early morning rush.
The Fed story pushed aside almost all of the other news of the day. There some downgrades (BA, JPM, BAC), some solid guidance in the construction machinery sector (MTW), a bit worse than expected trade gap (thanks to oil), and the bond market's rather positive reaction to the Fed's second phase plan of action. The only news outside the Fed that made any traction in the market was the surge in oil prices. After tumbling back twice from attempts at 100, oil caught fire the past few sessions and surged Wednesday (94.39, +4.37) despite some in line inventory data. Perhaps it too, as did the bonds, like what the Fed did as some assurance that at least the world economies will continue to expand and require more black gold? Hmmm again. Energy stocks certainly did not seem to mind
Technically it was not a great day as noted. If you just looked at the gains and then the volumes without knowing any of the particulars you would conclude it was a decent session. It is a bit more than that, however, when the Fed is pitching as wild as young Ebby Calvin LaLoosh in his first start in 'Bull Durham.' The market jumped higher. It stalled, it sold to negative, it limped back positive on some short covering. Not a great day.
Internals: Breadth was massively positive early in the session and then finished as did the market, i.e. flat. Volume was up, rising to average on NASDAQ and surging above average on the NYSE. Volume with gains is positive right? Not when they squander big gains and have to slink home just scratching upside. In short, not impressive and not the kind of volume you like to see.
Charts: SP500 ran up but didn't come close to breaking any resistance, at least none it was attacking on Monday and Tuesday. DJ30 showed similar action as it moved past the June peaks again but failed below the 13,750 level once more. Then it slid rather sickeningly lower to flat. NASDAQ gapped higher, coming close to the July peak once more, but then it turned south, rebounding late to hold above 2650 where there is a modicum of support. Basically nothing was achieved to the upside and that resistance was reinforced by the Tuesday and Wednesday action.
Leadership: Those stocks that have led the past two rallies mirrored the market action to a certain extent with an early surge and then a fade, but unlike the indices they once again held above near support. Not a great triumph, but they are hanging in there. Many of our plays have those global ties and are thus trying to fight off the US issues and the odds of a recession ahead. For now they are fending off efforts to sell, weathering what has been considered a disappointment from the Fed. That is a positive, but then again each session when they are hanging onto support is a new challenge if there is nothing out there to trigger a new move. For now we let them hold the line if they can do it.
THE ECONOMY
Consensus is the Fed's actions are again too little to make a difference.
There were many complaints with respect to the Fed's second phase action announced Wednesday morning ranging from timing, to focus, to size. The timing crushed many professional traders who entered based upon the FOMC meeting results only to get hammered on the Wednesday open. The size of the funding action, $40B to start, is considered a drop in the bucket. And of course, the stock market didn't seem to like it after the initial rush of hope.
There was not a uniform Bronx cheer, however. The bond market closed at 2.92% on the two year and 3.97% on the 10 year Tuesday. After the 'more to come' leak Tuesday evening following the market rout, yields rose to 3.10% on the two year and 4.06% on the 10 year pre-market. After the announcement the 2 year yield hit 3.19% and the 10 year rose to 4.13%. Nice 30BP surge in the 2 year on the news.
What does that mean? It means the Fed struck the right chords with this type of action. Once it became apparent that the Fed was going to push funds into the system and unclog the credit logjam rates started to rise and spreads started to narrow. Similar to the stock market there was some giveback by the close. The two year closed at 3.13% and the 10 year at 4.10%; off their highs but not much and still sporting solid yield gains as investors found no reason to rush to bonds for safety.
Hmmm. Does this mean the bond market sees this as a positive that the stock market did not see or simply did not understand (most market pundits we talked with didn't understand what the Fed was doing and I certainly had to wrestle with what it was doing)? True the bond market was not completely healed, but it certainly showed a better take on the news than the stock market.
Then there was the oil and energy market mentioned earlier. Oil did not recoil on the fear of a worldwide slowdown. It surged over $4 on the day. Ouch, but also wow. If there was a fear of a global slowdown, oil would not be surging. Also, look at US energy stocks. They were posting nice gains on volume and they were not frittering them away. US energy companies, indeed companies who get their oil from US properties, posting solid gains when the stock market fades on fears of recession. Again, oil doesn't surge unless there is some perceived increase in demand. Sure there is speculation as part of it, but why do energy company stocks rise as well?
What this tells us is that there are kernels of positives here that were overrun by the emotions on Wall Street. As usual the market overshoots near term, and with all of this information to digest, it was shooting from the hip ever since 2:15ET on Tuesday. Looking at the more stable markets, i.e. bonds, as well as the sectors that moved contrary to the market overall and you see two things. One, the Fed's actions are going to have some positive effect. It may not be fast enough for the market and indeed the economy, but it shows the Fed is going to try other things. Two, the world economy, and by extension the 'over there' stocks, are likely to remain in pretty solid shape. Energy stocks are a bit defensive, but not if you fear worldwide recession. Again, US and extra-US energy stocks were performing and performing on volume Wednesday.
THE MARKET
MARKET SENTIMENT
VIX: 22.47; -1.12. Opened sharply lower then surged past the Tuesday high before the late stock bounce pushed it back on the close.
VXN: 25.97; -0.49
VXO: 24.77; +0.3
Put/Call Ratio (CBOE): 0.99; -0.12. Faded some with the burst higher, but a respectable 'fear' close given the market did post a gain on the close.
Bulls: 49.4%. Right back up after the rally started two weeks back, rising over 2 points from 47.3%. Never got below 45% as we wanted (hit 40.6% on the low for the last round of selling). It spent 5 weeks above the threshold 55% on the last spike higher. 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: 27.6%. Down from 29.0% after one week at a higher level, jumping from 26.6% the week prior. Up from 22.2% 5 weeks back after bouncing up and down over 20 for several weeks. Still 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: +18.79 points (+0.71%) to close at 2671.14
Volume: 2.293B (+6.81%). Volume was up but it was also just average on the move, showing the initial rush didn't have total support, and the selling was not blowout either.
Up Volume: 1.338B (+979.037M)
Down Volume: 870.712M (-989.093M)
A/D and Hi/Lo: Advancers led 1.07 to 1. Well, it was solid early on, but then again, so were NASDAQ's gains.
Previous Session: Decliners led 3.68 to 1
New Highs: 69 (-27)
New Lows: 169 (+27)
NASDAQ CHART: http://investmenthouse.com/ihmedia/NASDAQ.jpeg
What can you say? Gapped higher, bumped toward (cannot really call it close) to the July peak at 2725, then faded. It did come back 32 points off the low late in the session, recovering a breach of some support at 2650. That is about all you can say positive on the session. NASDAQ remains at a very key resistance level at the July peak and then at 2750. There is leadership from AAPL, INTC, GOOG, BIDU and the like, and right now they are still showing something inside. Critical tests for all of the above, however.
NASDAQ 100 (+0.85) led the market and it took recovered off its afternoon low, but it recovered the 50 day EMA as well. As back in late November, NASDAQ 100 continues to look better than the rest of the market. Still has to work through the Tuesday and Wednesday action, but because of those stocks cited above, it is holding up pretty well.
NASDAQ 100 CHART: http://investmenthouse.com/ihmedia/NASDAQ100.jpeg
SOX CHART: http://investmenthouse.com/ihmedia/SOX.jpeg
SP500/NYSE
Stats: +8.94 points (+0.61%) to close at 1486.59
NYSE Volume: 1.731B (+11.78%). Volume on NYSE is running relatively stronger than on NASDAQ as trade was above average for the second consecutive session and much stronger Wednesday. Now it is an old adage that when volume on the more staid and stoic NYSE starts to outpace the more speculative NASDAQ trade (it is still significantly lower overall; you look for it to close the gap & if things are really out of whack, exceed NASDAQ), it is a sign a bottom is drawing nigh.
Up Volume: 992.063M (+890.618M)
Down Volume: 733.04M (-709.464M)
A/D and Hi/Lo: Advancers led 1.3 to 1. From really positive in the 5:1 range to pancake.
Previous Session: Decliners led 5.11 to 1
New Highs: 59 (-48)
New Lows: 138 (+20)
SP500 CHART: http://investmenthouse.com/ihmedia/SP500.jpeg
Gapped higher above the 50 day EMA (1486) rallied back through 1490 and 1500, but then gave it up to close at the 50 day EMA and a gnat's rear over the 200 day SMA (1485). Big tight doji on the candlestick chart. Hanging on but that is about it. At a crossroads after the Fed smackdown then the Fed reversal but not. We bought some SPY puts on the action just because the financials had such a crappy response to the Fed's phase 2.
SP600 (+0.50%) surged back up to the 50 day EMA and again failed in that general area. Closed below the 10 and 18 day EMA but near the mid-August closing low. Trying to hang on but that is all they are doing. Took some puts on the IWM, the Russell 2000 ETF, looking for another test toward the November low at some point in the not too distant future.
SP600 CHART: http://investmenthouse.com/ihmedia/SP600.jpeg
DJ30
Ended at the 50 day EMA on Tuesday, started there Wednesday, and just about finished there at the close. In between almost 300 points of swing. Volume was higher and well above average for the second straight session. The candlestick shows a doji just as with SP500. Once more DJ30 rallied toward resistance at 13,750 and failed. Still above some support at 13,250, and that makes some downside puts on the DJX or DIA (the DJ30 ETF) a bit more iffy than on the SP500. Same problems, however, as the blue chips are at the threshold of some serious resistance through 13,750 and thus far not finding the reason to blast through.
Stats: +41.13 points (+0.31%) to close at 13473.9
Volume: 310M shares Wednesday versus 280M shares Tuesday. Volume remains higher as DJ30 struggles to hold the 50 day EMA.
DJ30 CHART: http://www.investmenthouse.com/ihmedia/DJ30.jpeg
THURSDAY
Thursday already and not sure if it seems like a long week or a short week. If you count mileage, it has been a long week. On the other hand the news keeps things popping in a kind of 'you don't get bored if things are happening fast' kind of way.
More action Thursday with retail sales and the PPI. The economic news parade renews itself even as the market wrestles with the Fed and the perception that it is acting incoherently. It certainly is not acting with the majority of US citizens that are now stockholders, but there is some order to its moves if you look at it in an academic sort of way. Of course that does not typically mesh with the real world when put into practice, and that is one of the two basic roots of the displeasure with the Fed's handling of the past two days. The other was the size of the moves. The market wants more.
Thursday is something of the rubber match though both Tuesday and Wednesday were overall negative. The indices are below resistance and holding some support. Energy is trying to lead and many of the foreign telecoms and similar stocks are holding up very well; there is continued interest in these stocks that have their ties outside the US.
As always we will have to see what the indices do and act accordingly, but the US seems to be looking lower, particularly the NYSE indices. We are short some of them and are still looking at some downside plays on US stocks that are tied predominantly to the US economy. We are also looking upside for those tied to the rest of the world, particularly those that continue to show the strength even in the selling. Energy, telecom, some metals, medical/healthcare; these are all areas that look very promising to the upside.
The Fed has definitely thrown some egg onto stocks in general, and much of what we saw Tuesday afternoon and Wednesday was a revolt or tantrum of sorts as investors scrambled to adjust to a moving target gratis the Fed. Thursday things will 'calm down' in the sense that the market will likely not hear of any new Fed initiatives and can sort out what is left in the aftermath. As noted above, not all is wreckage though many would have you believe that is the case. We will continue to look for upside strength in the right places and take advantage of the weakness as it shows up, again likely in the heavily US business oriented stocks and the indices tied to them, e.g. SP500 and the small cap indices.
Support and Resistance
NASDAQ: Closed at 2671.14
Resistance:
2673 is the early July high
The 50 day EMA at 2677
The March up trendline at 2702
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
The 200 day SMA at 2595
2550 to 2540 from May/June consolidation
2525 is the February closing high
2521 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 1486.59
Resistance:
The 50 day EMA at 1486.21
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 early June high
1546 is the July 2006/March 2007 up trendline
Support:
The 200 day SMA at 1485
1475 from peaks in December 1999 and January 2000
1459 is the February peak
1440 - 1437 from January and March peaks
1440 is the June/July 2006 up trendline
1438 is the November low
1430 from the August interim lows
1425 is some minor support.
1406 is the August closing low
1375 is the March closing low
1370 is the August intraday low
Dow: Closed at 13,473.90
Resistance:
The 90 day SMA at 13,483
13,635 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
13,750
13,930 is the late October peak
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 13,430
The 200 day SMA at 13,286
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 10
Pending home sales, October (10:00): +0.6% actual, 1.4% prior (revised from 0.2%)
December 11
Wholesale inventories, October (10:00): 0.5% expected, 0.8% prior
FOMC policy decision (2:15): FFF say 25BP
December 12
Export prices, November (8:30): 0.8% actual, 0.5% prior
Import prices, November (8:30): 0.7% actual, 0.5% prior
Trade balance, October (8:30): -$57.8B actual versus -$57.0B expected, -$57.1B prior (revised from -$56.5B)
Crude Oil inventories (10:30): -722K actual, -7.9M prior
Treasury Budget, November (2:00): -$98.2B actual versus -$90.0B expected, -$73.0B prior
December 13
Retail sales, November (8:30): 0.6% expected, 0.2% prior
Retail ex auto (8:30): 0.6% expected, 0.2% prior
PPI, November (8:30): 1.5% expected, 0.1% prior
Core PPI, November (8:30): 0.2% expected, 0.0% prior
Initial jobless claims (8:30): 335K expected, 338K prior
Business inventories, October (10:00): 0.3% expected, 0.4% prior
December 14
CPI, November (8:30): 0.6% expected, 0.3% prior
Core CPI (8:30): 0.2% expected, 0.2% prior
Industrial Production, November (9:15): 0.2% expected, -0.5% prior
Capacity Utilization, November (9:150); 81.7% expected, 81.7% prior
End part 1 of 3
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world stock market
us stock market
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