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world stock market, us stock market
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12/13/07 Investment House Daily
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Investment House Daily Subscribers:
MARKET ALERTS:
Targets hit alerts: None issued
Buy alerts: CF; SDS
Trailing stops: WFR
Stop alerts issued: None issued
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SUMMARY:
- Stocks slump again but recover to cling to support as leaders continue to hold support as well.
- Retail sales surge on gasoline prices, but are still solid without them.
- Trying to limp to the weekend while holding this near support and looking for leaders to lead.
Stocks sell more, manage a recovery as some stocks won't give up.
On the third day following the FOMC meeting futures were significantly lower pre-market. Didn't look as if there would be any rising from the dead, particularly after they spiked lower following the morning data: solid retail sales (even ex-gasoline sales), a 24-year high in the PPI growth rate, pretty solid LEH earnings, and stabilizing jobless claims. Then, in a move that would somewhat mirror the regular hours market session, futures started to recover off the lows. They did not leap back to positive, just a steady recovery toward the opening bell, climbing out of the cellar.
There was of course more talk about the Fed's actions on Tuesday (some would say inaction) and Wednesday. The predominant commentary was again quite negative. As is often the case, the tendency is to be negative when you do not understand something. That is part of what the complaining was all about. Sure there are valid claims about a Fed that is not showing the kind of coordination and steady hand we like to see even if it is a fa ade when it appears that way, and in financial crises appearances can be 90% of the solution if the Fed can instill confidence once more.
The timing and appearance gaffes aside, however, the early results are showing that the Fed's second day actions are already having an impact. LIBOR spreads are contracting and we are hearing that financing is available and being used. What the Fed has done is make available financing at competitive rates regardless of what the Fed Funds rate and the Discount rate are. It is pushing the financing into the market and if a bank doesn't take it another one will because the rates are better than they can get anywhere else. It is very similar to tax incentives such as tax credits for purchasing equipment: you can either send the money into Uncle Sam and get whatever you get when you ship off a dollar to the feds (basically $0.40) or you can spend the dollar on something you want and get a tax credit right off the bottom of your tax bill for doing so. Duh. That gets people and businesses to act regardless of what they believe about the future of the economy or business. That is why it works. Why the Fed does not cut the Fed Funds rate as well is somewhat baffling, but the reason is it feels these type of arrangements are targeted to the problem, i.e. credit freeze and lack of liquidity, much more so than the Fed Funds rate.
Back to the market action. The recovery in the futures still did not come close to starting the market anywhere near positive, but it kept the market from opening at very ugly levels. There was an immediate attempt to continue higher on the open. That lasted roughly 10 minutes and then the indices slipped and slid back below the opening price, punching to fresh session lows. Midmorning the indices found themselves at the Wednesday lows. As they did that session, they held and started building a recovery. There was no immediate rush to buy stocks 'on sale' or some other rather worthless clich about low prices; the indices wandered sideways for 3 hours, at least managing to stop the bleeding.
With a couple of hours to go the indecision stopped and the indices recovered. The inability to continue the move lower brought out some short covering and there were many leaders that held near support once more and bounced. It was a steady recovery into the bell. It did not seem like much given there was no flash or pizzazz, no sharp volatility seen of late, just steady, almost plodding gains into the close. The recovery managed to close the indices mixed, hanging onto the same support that held Wednesday even if they are hanging onto it by a few threads. There was no sense of relief with the move, no sense the market made a significant turn back up. No it was more like just hanging on and surviving into the close.
Technically the action improved, though ever so slightly. There was finally some of that low to high intraday action that shows more bullish underpinnings. As there was no rush higher and the indices just barely managed to get within spitting range of flat you don't want to get too juiced by the recovery. We don't think anyone did.
Internals: Breadth was hideous early on but did recover by the close to -2:1 on NYSE and -1.4:1 on NASDAQ. With the NYSE indices making it back to flat, the two to one downside breadth shows the recovery was in the large cap issues. Hey, take what you can get at this juncture. Volume was lower on both indices, fading to average on NYSE, back below average on NASDAQ. Good to see volume tread lighter on this selling, showing there was no dumping of stocks even as they sold early on. There was not buying surge on the way back up, but with the indices closing mixed, lower volume was not that big an issue.
Charts: The charts show the indices holding at the Wednesday lows and clinging to support on the close. It is a narrow ledge of support they are holding as they try to make a higher low and continue the rally. Tough sledding given the heavy resistance just overhead.
Leadership: Overall we were impressed with the way leadership held up yet again at near support. There was some rotation on the day from energy, metals and China earlier in the week. Some large cap tech managed to step up later in the session after some big industrials managed to hold the line early on and prevent a collapse. We continue to see some very enticing patterns and pullbacks in many of the stocks that led the prior moves higher. If these can hold there will be stocks popping everywhere. It seems unlikely they would do that; it seems unlikely they would have even tried to hold up given the overall market reaction to the FOMC actions. It shows there is still life in the global story, and it shows there may still be life here at home with respect to avoiding a recession. How the leaders perform will tell the story, because, as we so often say. Leaders are leaders because they lead.
THE ECONOMY
November retail sales double expectations thanks to, but not only because of, gasoline sales.
Retail sales posted their ninth gain in twelve months and their fifth straight gain with November's 1.2% reading (0.6% expected). Ex-autos they jumped to 1.8% versus the 0.6% expected. Impressive on the face, and under the covers, even factoring out gasoline, there was still some good news.
If you ex-out gasoline with its average national price above $3 for the month, sales were cut in half to 0.6%. Remember, sales are calculated on total dollars spent, not units purchased. Thus price spikes in items such as gasoline pump up the overall retail sales numbers, skewing them because we all know that gasoline is burned and it takes away from other discretionary purchases. On the other hand, we are not parking our cars in the garage and staying home. We are driving them to go buy things as the numbers show.
For instance, the gains in sales were across the board with all but four of the thirteen major categories showing gains over 1%. Electronics, clothing, and sporting goods sported gains in excess of 2%. Year over year the gains stand at 6.9%; 8% ex-autos. Not bad.
Nonetheless the gains are slowing their growth rate. High gasoline, falling home prices, and some chinks in the consumer confidence readings are taking a toll. Employment and income growth remain solid, but the impacts of gasoline are cumulative, and with the daily barrage of negatives about housing, credit, a weakening economy, etc., there has been some pullback. If the Fed can re-inject some confidence, that would go a long way in bucking up retail sales and continuing the string of gains.
THE MARKET
MARKET SENTIMENT
VIX: 22.56; +0.09
VXN: 25.52; -0.45
VXO: 24.11; -0.66
Put/Call Ratio (CBOE): 1.07; +0.08. Back up over 1.0 for the second time in three sessions. Moving higher after the hiatus on the market rally. Before then there were over a dozen closes over 1.0, an indication things were getting overextended to the downside.
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: -2.65 points (-0.1%) to close at 2668.49
Volume: 2.147B (-6.4%). Lower volume on a gap lower and negative close. If you have to have the selling this is the best way to do it.
Up Volume: 907.593M (-430.62M)
Down Volume: 1.231B (+360.505M)
A/D and Hi/Lo: Decliners led 1.43 to 1
Previous Session: Advancers led 1.07 to 1
New Highs: 63 (-6)
New Lows: 197 (+28)
NASDAQ CHART: http://investmenthouse.com/ihmedia/NASDAQ.jpeg
Gapped lower and sold down to the Wednesday low, then staged a recovery once more. Trying to make a higher low over the June peak at 2634, but it is also fighting some major resistance at the July peak at 2725. Technology large caps helped pull the market's castanets out of the fire Thursday yet again as AAPL, MSFT, and the like managed to recover from the lows. It was enough to keep the index alive to fight for another session, but again, it has a thick layer of resistance overhead that is sitting on it. It has taken the Fed's disappointment and held on. If it can continue to do so, that ups the odds a bit that it can again take a crack at that resistance.
NASDAQ 100 (-0.32%) performed worse, but it also has an overall better pattern as it sits ON TOP of the July peak on this test rather than bumping it from the bottom side. The strength in the large cap techs, i.e. their ability to hold near support is keeping overall NASDAQ in the game similar to the way it did in November.
NASDAQ 100 CHART: http://investmenthouse.com/ihmedia/NASDAQ100.jpeg
SOX CHART: http://investmenthouse.com/ihmedia/SOX.jpeg
SP500/NYSE
Stats: +1.82 points (+0.12%) to close at 1488.41
NYSE Volume: 1.463B (-15.46%). Lower, average volume as the NYSE indices sold back but managed to recover most of the losses. As with NASDAQ, no heavy selling on this fade.
Up Volume: 529.561M (-462.502M)
Down Volume: 922.313M (+189.273M)
A/D and Hi/Lo: Decliners led 1.97 to 1. Not great, but not as bad as it could have been.
Previous Session: Advancers led 1.3 to 1
New Highs: 33 (-26)
New Lows: 210 (+72)
SP500 CHART: http://investmenthouse.com/ihmedia/SP500.jpeg
Similar to NASDAQ, SP500 managed to hold at the Wednesday intraday low and bounce, just as it did Wednesday. That allowed it to recover the 50 day EMA and the 200 day SMA on the close, keeping it on that narrow shelf of support at 1475. There it is trying to make a higher low as it too confronts some heavy resistance from 1490 to 1500 and beyond. The bigger pattern remains bearish given the major drag the financials are applying to the index.
SP600 (-0.38%) managed to recover from its lows as well, but could not move through the next resistance at 400 where the 10 and 18 day EMA currently reside. Not a good picture as it bumps against the first low of the August double bottom. Hard to find anything really appealing here, and thus we are short the small caps.
SP600 CHART: http://investmenthouse.com/ihmedia/SP600.jpeg
DJ30
Another index that tested lower to the Wednesday intraday low and then rebounded. The blue chips managed to turn positive given its now somewhat more eclectic lineup of stocks. HON was the big boost but UTX, KO and others provided some of the lift. The recovery kept it above the 50 day EMA and in the game for a higher low and try that resistance at 13,750 once more that slammed the door this week.
Stats: +44.06 points (+0.33%) to close at 13517.96
Volume: 248M shares Thursday versus 310M shares Wednesday. No volume on the selling, but then no buying on the rebound as volume remained low.
DJ30 CHART: http://www.investmenthouse.com/ihmedia/DJ30.jpeg
FRIDAY
CPI, Industrial production and capacity, and more indigestion over the Fed's actions. There was a small and not vocal enough group of reporters Thursday commenting upon how the Fed's actions, even in the short time they have been in place, are working. The chorus of boos and calls for Bernanke's ouster are mainly from some big investors who, as were many investors, were burned by the Fed's 2-legged plan of action that was, unfortunately, released a day apart. Despite chorus of hand wringing and gnashing of teeth, the market recovered from its early slump as leaders bounced again off of near support.
As noted Wednesday, the market was burned by the Fed and it likely overreacted somewhat in the near term. What it needs is to see more and more empirical evidence that the Fed's course of action is working. The point many are missing: if credit and liquidity is the problem and you want to go directly to the source to get banks to lend, this is the way to do it and thus it was classic Bernanke. The 50BP Fed Funds and Discount cut would have been very much symbolic of the Fed's desire to fix the problem, but they would not do what this second action can do. The Fed needs to keep the money coming however, as $40B is likely not enough to get the job done. A 'whatever it takes' kind of speech by Kohn or Bernanke would help get the deed done.
Before that happens, however, the market has to wade through the next inflation report. The CPI is not the Fed's preferred inflation measure, but it is in second place and thus cannot be ignored. When you look at longer term inflation pressures (the things that lead to inflation), you see a continuing decline that started in October 2005. That has not changed. This was one of the deflationary/weakening signals that was starting to flash but was not really an issue until recently. The Fed is worried about inflation based upon oil prices and food prices, but we know that it cannot lower oil prices with rate hikes, and our food costs are going higher because of the ethanol initiative. Rate hikes won't change that because we still have to eat. Thus the Fed is balking at going balls to the wall in fighting the slowdown. It shouldn't, even if there was a real inflation threat. Is it better to suffer a recession or inflation? The answer is neither if you can avoid it, but if you have to face them, at least fight inflation with a stronger economy.
Be that as it may, the Fed is in the game attempting to rectify the slowdown and it says it is working on more ways to help out. For now the question is will it be enough to shake off the jolt of disappointment at what it did and let the market get back to rallying ahead of Christmas? We don't put too much stock in that one, at least for the broad US indices. There is a lot of baggage from the financial stocks that still has to pass through customs, and there are going to be some surprises when it is.
Outside of the broad averages there is a rather large group of stocks that are in excellent patterns. But for all of the turmoil over the Fed, the patterns and pullbacks are great. If you did not look at the indices or read the headlines you would think things were pretty darn solid. Yes they pulled back over the past three sessions, but they continue to hold near support and volume was for the most part light on the decline.
Are they without a clue to the danger nipping at their heels, or are they foretelling strength to come, or more appropriately, continuing in many of the areas tied to the broader world economy? Arrogance would have you think it was the former, market signals and some arrogance as well would make you think it was the latter.
We always put a lot of stock, literally, in how the leaders perform. You cannot ignore the market overall as 75% of all stocks follow the direction of the overall market, but when so may quality stocks continue to hold above near support, that fact cannot be ignored. What this means is that the market has not made its definitive move yet on this leg, and thus we are going to continue looking at the strong leading stocks on the report and others that have pulled back and set up potential buy points and be ready in the event they give us the buy signal. We are also looking at downside plays because they are there as well. This rather unique situation is due to the bifurcation of stocks along the lines of what market they serve. If it is just the US the prospects are limited. If it is extra-US or those sales make up a sizeable percentage of sales, the prospects still look bullish. Thus we continue to play this bifurcation, all the while watching how the major indices perform at this important juncture. That they have hung on in the face of all of this criticism is in itself rather surprising, and that is worth noting.
Support and Resistance
NASDAQ: Closed at 2668.49
Resistance:
2673 is the early July high
The 50 day EMA at 2677
The March up trendline at 2703
2725 is the July high
2750 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 2597
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 1488.41
Resistance:
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
1548 is the July 2006/March 2007 up trendline
Support:
The 50 day EMA at 1486.21
The 200 day SMA at 1486
1475 from peaks in December 1999 and January 2000
1459 is the February peak
1440 - 1437 from January and March peaks
1441 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 13,517.96
Resistance:
13,640 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 90 day SMA at 13,483
The 50 day EMA at 13,433
The 200 day SMA at 13,292
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): 1.2% actual versus 0.6% expected, 0.2% prior
Retail ex auto (8:30): 1.8% actual versus 0.6% expected, 0.2% prior
PPI, November (8:30): 3.2% actual versus 1.5% expected, 0.1% prior
Core PPI, November (8:30): 0.4% actual versus 0.2% expected, 0.0% prior
Initial jobless claims (8:30): 333K actual versus 335K expected, 3490K prior (revised from 338K)
Business inventories, October (10:00): 0.1% actual versus 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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