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world stock market, us stock market
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12/17/07 Investment House Alerts
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IH Alert Subscribers:
MARKET ALERTS:
Targets hit alerts: None issued
Buy alerts: None issued
Trailing stops: PCLN; TKC; STLD
Stop alerts issued: BGC; BHP;CHL; COST; DRYS; EDU; FCX; MR; NYX; RIMM
SUMMARY:
- Worldwide slowdown fears add to market's woes.
- New York PMI crashes as manufacturing reports showing volatility amongst themselves.
- Monday action shows the Fed missed its opportunity, starting back when it went from aggressive to pensive.
- Still awaiting the Fed auction
'Twas the week before Christmas and no relief in sight.
The new week started weak. Last week and over the weekend more news about economic slowing in Japan, worries in Germany, and slowing in Europe added to last week's inflation worries flamed by the PPI and CPI. Greenspan was talking about recession again, and he put a 50% tag on the chances here in the US. He also indicated that inflation was rising and could get to a problem point. With his recession forecast he uttered the 'S' word, indicating there were early signs of stagflation in the US as well.
If that was not enough you have OPEC hemming and hawing about what to do with production, the latest word being it is worried that a production cut to prop up prices would negatively impact already weakening world economies, drive demand lower, and thus send price even lower even with the production cuts. CAT was downgraded based on the general idea the world economy is slowing. Weekend holiday sales in the US were termed 'sluggish' by those keeping track (though we hear from our spot checks that people were parking on the grass to get into malls). All of this Fed the idea we were hearing from trading desks and brokerages, i.e. that the world economy was now a concern.
Some M&A activity was not enough to turn the tide (IR buying TT; NOV buying GRP). Good to see some deals going through, but let's face it, the day of the deal is trumped by the economic futures. Twin 'town hall' speeches by President Bush and Treasury Secretary Paulson talked about why their bailout was the best bailout, but that lacked any 'wow' factor and the market yawned. The Fed auction went off as planned, but there was no major movement in LIBOR rates that wasn't seen before the auction. The dollar was stronger again and oil was off just under a dollar.
The news was not enough to entice buyers into the market but it was enough to keep them away and let the sellers, even though still relatively few in number judging by the volume, control the action. Emerging markets and indeed foreign markets in general where the 'rest of world' play kneels in homage, were hammered back. There were gaps lower by many stocks from around the world as well as many indices from around the world. The US followed suit, gapping lower with clean breaks below support by DJ30 and NASDAQ. The Fed may have had its first auction in a series of auctions, but the market found no solace in this process, i.e. it found no confidence in the Fed's policies.
Technically the action had the same bearish tone of Friday as well as last Tuesday when the FOMC under-whelmed the market. The market started lower with gaps, broke through some key support, failed a test, and closed at the session lows. The market tried a couple of times to rebound off the lows last week, but that has folded up and the bearish intraday action showing the sellers are back in control continues.
Internals: Breadth was impressively weak once more (-4.3:1 NYSE, -3.8:1 NASDAQ) as the holiday rally was officially killed off. Volume was mixed, rising on NYSE back toward average while NASDAQ trade remained well below average as that index imploded. Financials on the NYSE equal more selling volume for now, but again we note that NASDAQ volume compared to NYSE trade on a relative basis is falling. Typically when the more speculative index sports lower trade that is bullish as it shows things are getting sold out. There is a wildcard in the mix this time, and that is the credit and mortgage mess. Okay, two wildcards. In any event, they are driving much of the selling and as most reside on NYSE, volume to some extent is skewed in favor of that index. That makes this less of a mechanical or black box determination as is the typical case.
Charts: DJ30 and NASDAQ broke sharply and rather easily below their 200 day SMA. SP500 is a long time below its 200 day SMA having broke back below that level last week. The large caps managed to hold above the summer 2000 up trendline, but whether that holds is problematical. They have all basically given up the chance of a higher low after stalling out and rolling over on the FOMC meeting. They tried to hold, but Friday and Monday broke the holiday rally's back.
Leadership: The selling in the indices was pervasive enough to start chop-blocking market leadership. After holding up admirably all last week, the Monday selling was violent enough to crack some leaders, notably many that are tied to the 'rest of the world' trade. Emerging market stocks (e.g. Chinese stocks), metals, and energy were hammered. Techs were clubbed as well as NASDAQ 100 gave up its attempt at holding the line. It was not a total breakdown by the leadership, but the sludge that is taking down the indices is starting to gum up the leadership.
THE ECONOMY
New York PMI thumps lower after Chicago PMI recovered: volatility in the manufacturing sector.
The first economic data for the week was pathetic. The New your region showed a 27.7 reading in November, better than expected as it surged back up. It was expected to show 21.0 for December, but that was more than 100% optimistic. New York limped in at 10.31. Up big one month, down big the next. Remember, these indices are basically sentiment indices, i.e. they are compiled by asking purchasing officers and employment officers what their purchasing and hiring plans are. That changes with the economic sentiment, and thus if there is doubt or indecision you get these swings in the results that are basically swinging with the emotions of the time.
Nonetheless, just because it is sentiment we do not want to ignore it. We have all seen what happens when the market shows a lot of volatility after long runs or after long declines. Volatility signals a shift in direction. In our seminars we refer to it as the change of seasons: in the spring and fall when the weather transitions you get the blustery, more violent weather, and then it settles down as the season becomes entrenched only to turn violent when the season changes yet again. The most recent example is the past few months when the indices turned volatile in day to day swings. That started the initial leg lower. Same thing in the early 2000 trade that preceded the initial market sell off in that long downtrend.
The same thing can be said for economic indicators. They set up trends and show steady action inside of that trend. When the action, i.e. the data, starts to swing back and forth that is a sign there is change in the making. The New York PMI is showing month to month volatility AND the regional indices are showing volatility amongst themselves. Chicago is bouncing up and down similar to New York; it even turned to contraction three months back and then bounced back. Some are showing strength while others show weakness.
There is transition ongoing in manufacturing. Combining that with other economic indications, including the stock market, the picture coming together is not that pretty. The question is just how much of a slowdown; that is always the hard part to gauge. That is why we never have understood the Fed's historical bias to strike quickly to head off inflation at the first hint (or not even the hint, just the belief it could show up a la Greenspan in 1999 and 2000 and the classic case study that set up how all subsequent Fed act, i.e. the foibles of the 1929 central bank that crashed the stock market with a series of heavy rate hikes culminating in a 100BP hike) yet take its sweet time in heading off an economic downturn when it shows it is in the wings. Unfortunately it looks as if the Fed has waited too long this time, though we will keep an open mind as we wait for the results of its auctions and how they are perceived with respect to helping credit flows.
THE MARKET
MARKET SENTIMENT
VIX was up but it is still well below the November level at 31.50ish and the August intraday peak at 37.50.
VIX: 24.52; +1.25.
VXN: 27.89; +1.98
VXO: 26.58; +1.06
Put/Call Ratio (CBOE): 1.13; +0.07. After the hiatus during the holiday rally, the ratio is well back over 1.0 on a consistent basis with four of the last five sessions showing that kind of performance. As noted over the weekend, 10 or so makes things interesting.
Bulls: 53.3%. Uncool. Up from 49.4% as bulls continued their run higher, bouncing before it got to 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: 25.6%. Also uncool, falling from 27.6%. That is 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. It is 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: -61.28 points (-2.32%) to close at 2574.46
Volume: 1.909B (-2.63%). Volume remained low, even declining, as NASDAQ sold off without resistance. No heavy selling just absolutely no buying.
Up Volume: 198M (-385.899M)
Down Volume: 1.653B (+298.777M)
A/D and Hi/Lo: Decliners led 3.82 to 1. Very negative breadth returns as the selling takes hold again.
Previous Session: Decliners led 2.82 to 1
New Highs: 46 (-16)
New Lows: 330 (+79). When it gets to 500 or so that will get interesting.
NASDAQ CHART: http://investmenthouse.com/ihmedia/NASDAQ.jpeg
Gapped lower below the attempts to hold the line last week, crashing the 200 day SMA (2600) along the way. It is set to test the November low (2540) and 2525 from the May and June lows. As noted above, no volume, but right now there are no buyers to stop even the few sellers that are selling techs. With technology breaking lower you see a growth area and an overseas area in trouble. The test of the November low is of course critical as it is the neckline in a large 7 month head and shoulders.
NASDAQ 100 (-2.48%) could not hold the lateral move above the 90 day SMA, gapping lower and crashing through that support level also marked by the July peak. With the large cap techs giving up, NASDAQ found it easy to undercut its 200 day SMA.
NASDAQ 100 CHART: http://investmenthouse.com/ihmedia/NASDAQ100.jpeg
SOX CHART: http://investmenthouse.com/ihmedia/SOX.jpeg
SP500/NYSE
Stats: -22.05 points (-1.5%) to close at 1445.9
NYSE Volume: 1.438B (+10.19%). Volume climbed up toward average as the NYSE indices dove lower. Not a ton of sellers, but they were growing in number over Friday, and if the price losses did not show it, the rising volume tells you the holiday rally is well past over.
Up Volume: 262.854M (+80.349M)
Down Volume: 1.156B (+45.48M)
A/D and Hi/Lo: Decliners led 4.37 to 1. Ugly breadth returns to the NYSE as well.
Previous Session: Decliners led 3.62 to 1
New Highs: 28 (-20)
New Lows: 387 (+145). As with NASDAQ, look for close to 500 new lows to watch to see if the other indicators (e.g. VIX, put/call) are lining up with it. That can indicate a relief bounce readying .
SP500 CHART: http://investmenthouse.com/ihmedia/SP500.jpeg
Gapped lower and sold to the close. SP500 broke its 200 day SMA last week and this is the aftermath. It managed to hold the June/July 2006 on the close, but with this downside momentum it looks to test lower before it tries to make the bounce. 1432 are the two lows bracketing the mid-August plunge, and that seems a likely point to test before the large caps can find support. With the financials still trending sharply lower and not finding any bottom, SP500 is not finding bottom either.
SP600 (-1.84%) is in a dive toward the November closing low now just a point away. Doesn't really look as if it is going to hold at that point though it is worth a relief bounce or at least a pause after 28 points down in the last 5 sessions (-6.8%).
SP600 CHART: http://investmenthouse.com/ihmedia/SP600.jpeg
DJ30
Gave up the 200 day SMA, failed an intraday test, and then rolled over to break through 13,250 and close at the session low. That leaves the blue chips in the middle ground below that former support and above next support at 13,000. That general level looks to be next support that will try to bounce the blue chips after falling from 13,750. That would put it down 5.5% in just over a week. That is getting pretty harsh.
Stats: -172.65 points (-1.29%) to close at 13167.2
Volume: 243M shares Monday versus 245M shares Friday. Volume remained below average for the third consecutive session. Not a lot of dumping, but simply no one willing to buy.
DJ30 CHART: http://www.investmenthouse.com/ihmedia/DJ30.jpeg
TUESDAY
While waiting on the Fed auction results market saves time and sells.
There is a lot of skepticism regarding the Fed's auction plan and whether it can provide the liquidity needed to free up the credit market and get things growing again. The results of Mondays auction won't be released until Wednesday; if the results are not up to snuff maybe the Fed can announce some other add-on plan at that time as well. Yes that is a cheap shot. The Fed's plan addresses the problem at hand. If it is not working then we are in for real problems.
Not that we are Scott free. The Fed under Bernanke set itself up to do right. It stopped the Greenspan money supply growth to curtail inflation pressures and that worked even though inflation itself kept rising as it always does (it is lagging). Bernanke knew to stop the hikes even when inflation measures were still rising. When things showed signs of slowing and the credit issues jumped into the picture it cut aggressively right away. Looking good.
Then it caved. It was under pressure from the inflation hawks at home and abroad. Europe and other countries and regions that would rather drive their economies into mediocrity versus tangle with any whiff of inflation hounded our central bank, threatened the dollar, etc. Bernanke turned timid and cut just 25BP on the next round and indicated it was done. We know the result. Last time we saw this was in 1999 to 2000 when Greenspan clamped down on the economy and choked it until it passed out (for three years). There was a lot of international worry that the US was getting too strong and pulling away from the rest of the world. Without the USSR people feared the US just as much. Thus Greenspan came up with creative ways to justify rate hikes even when there was no hint of inflation. He created (a.k.a. dreamed up) the new inflation indicators that could potentially lead to inflation (e.g. a strong stock market though he borrowed that from the 1929 Fed, the wealth affect that he later said the Fed lacked empirical evidence supporting it) so he could hike rates and slow down the US a bit. Of course it backfired and we will pay the price for 50 or more years as it led to our loss of technological advantage and shipped out hundreds of thousands of jobs overseas as a result. Nice going.
The Bernanke Fed could have acted in time. It WAS acting in time. That came to an end, and this latest action, at least from the first reactions of the stock market, shows it is not enough. As we have noted, the first reaction is typically an overreaction and thus we have to see how the auction goes. The market is selling off in advance just in case, but we note that volume is not surging higher as the indices head lower. The market is selling but it is not a unanimous decision as the volume shows. There are simply no buyers at all to stem the tide.
The indices are getting clocked point-wise and they are going to be ready for a relief move before too long. After DJ30 gets to 13,000 it will have cut 5.5% from its December high in short order, and that is typically good for a bounce to come up for air. There is still downside momentum with this negative close, particularly with the Fed auction results still to come on Wednesday. There will be more hedging of bets ahead of that, but also after this selling there will be some short covering as well just in case the results are blockbuster and show the Fed hit the right notes. The dollar is stronger, bonds have risen, and LIBOR showed initial improvement. There will be some 'just in case' covering that will help to stall the selling and then we will see what the Fed results are. The market will likely take its direction after that from the auction results, at least near term. Remember, the market always overreacts at first.
Unless the news is so blockbuster it is market turning, the market is likely, after any near term moves, to continue its move lower. The action in the leaders on Monday, particularly NASDAQ 100, was telling. There are still stocks in good shape even after Monday, but more showed they could not hold their own without the market on Monday.
Thus we look for some more downside Tuesday on continued momentum and then some short covering ahead of the Wednesday auction results. On another push lower we can look at taking some gain on our IWM, SDS and SPY downside positions. If the market can put together a strong bounce, we ride it for what it will deliver and then decide if it was strong enough to change the market's character that revealed itself on Monday. With the breakdowns Monday that makes the road all the harder. We will continue to look for strong stocks that hold up during this selling because when the bounce comes they will bounce nicely and we can play that bounce. For now, given the Monday action, we have to look at them as just plays on a bounce. Then we look at the downside again when the move shows signs of breaking down.
Support and Resistance
NASDAQ: Closed at 2574.46
Resistance:
The 200 day SMA at 2600
2634.60 is the June peak
2673 is the early July high
The 50 day EMA at 2671
The March up trendline at 2705
2725 is the July high
2752 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:
2550 to 2540 from May/June consolidation
2525 is the February closing high
2522 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 1445.90
Resistance:
1459 is the February peak
1475 from peaks in December 1999 and January 2000
The 200 day SMA at 1487
The 50 day EMA at 1484
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
1547 is the July 2006/March 2007 up trendline
Support:
1446 is the June/July 2006 up trendline
1440 - 1437 from January and March peaks
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 13,167.20
Resistance:
The 200 day SMA at 13,304
The 50 day EMA at 13,419
The 90 day SMA at 13,479
13,650 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 is where it stalled in early December
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:
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 17
Current account, Q3 (8:30): -$178.5B actual versus -$183.0B expected, -$188.9B prior
NY Empire State Index, December (8:30): 10.3 actual versus 21.0 expected, 27.4 prior
Net Foreign Purchases, October (9:00): $114.0B versus $15.4B prior (revised from -$26.4B)
December 18
Housing starts, November (8:30): 1.175M expected, 1.229M prior
Permits, November (8:30): 1.150M expected, 1.170M prior
December 19
Crude oil inventories (10:30): -722K prior
December 20
GDP, Q3 final (8:30): 4.9% expected, 4.9% prior revision
Deflator, Q3 (8:30): 0.9% expected, 0.9% prior revision
Initial jobless claims (8:30): 335K expected, 333K prior
Leading Economic Indicators, November (10:00): -0.3% expected, -0.5% prior
Philly Fed, December (12:00): 6.0 expected, 8.2 prior
December 21
Personal income, November (8:30): 0.5% expected, 0.2% prior
Personal spending, November (8:30): 0.7% expected, 0.2% prior
Core PCE Inflation, November (8:30): 0.2% expected, 0.2% prior
Michigan sentiment, December revision (10:00): 74.5 expected, 73.5 prior
End part 1 of 3
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world stock market
us stock market
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