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us stock market, trade stock
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12/20/07 Investment House Alerts
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IH Alert Subscribers:
MARKET ALERTS:
Targets hit alerts: None issued
Buy alerts: CF; MOS; PZE
Trailing stops: None issued
Stop alerts issued: None issued
SUMMARY:
- NASDAQ sparks to ORCL earnings & holds gains while NYSE indices follow at a distance.
- Jobless claims, Philly Fed continue the more recent indications of key economic slowing.
- Bank borrowing at the Fed discount window hits a post-2001 high as banks seek funds.
- RIMM trying to pick up the torch from ORCL and continue NASDAQ's lead higher.
Large cap techs return to leadership yet again.
In a familiar theme to all of the recent rallies, large cap technology was back in the lead Thursday, rebounding from its recent trip to the doldrums. The ORCL earning energized the techs and started the market higher. This time stocks held their gains on the good news that popped the market versus the prior couple of weeks when good news was rewarded . . . for an hour or so and then the selling started anew as each bounced was used to sell into. Thursday, at least for NASDAQ, NASDAQ 100, and SOX, the bounce held. All of the indices closed higher, it is just that those three actually showed good action versus just rebounding from weakness.
There was not a lot of help outside of those earnings to push stocks higher. FDX guided lower for the next quarter. BSC missed earnings but fared better because its writedowm of $1.9B was not as bad as feared. Jobless claims continued their persistence to the upside. Core PCE rose in the last Q3 GDP iteration to 2.0% from 1.8% previously reported. On top of that the Philly Fed was downright weak with a negative showing and the lowest reading since April 2003. Not a very nice load of Christmas gifts for the market.
That may have been what kept a lid on the NYSE indices as DJ30 and SP500, while higher, really struggled to avoid tripping over their own feet. About all they could do was follow NASDAQ and NASDAQ 100 higher in the afternoon, but unlike those two indices, the NYSE stocks could not take out those early morning highs. Basically nothing changed for SP500 and DJ30 while NASDAQ broke through some resistance and is trying, though with a lot of headwinds, to make something of this nascent double bottom.
Technically there was more of that high to low and back to high action seen the past three sessions as the intraday action shifts from that lower open and lower close seen the second week of December as the second leg of the holiday rally was gunned down. NASDAQ was clearly the strongest as it moved to new session highs on the close while DJ30 and SP500, as noted above, followed along but were nowhere near the lead.
Internals: Breadth turned around a bit as stocks rallied to the close, but it was still just a shadow of the levels, upside and downside, seen to start the month (NASDAQ 1.6:1, NYSE 1.2:1). What that shows is that the move was narrow, with the lead keynoted by large cap techs and agriculture stocks that were leaders in all of the other legs of the rallies the market has put forth. Given the market is moving into Christmas and the new year, leadership by these names makes sense as funds want to populate their ledgers with the winners (e.g. AAPL, RIMM, GOOG, CF, MOS) so they show up on their Q4 statements. That is likely to drive these higher close to the end of the year.
Charts: NASDAQ broke through the 200 day SMA with a gap, tested it intraday, and then rallied to close at session highs. The double bottom trying to form off the November and December lows got a shot in the arm by this action. NASDAQ 100 mirrored the action with NASDAQ 100 actually putting in the better move. DJ30 is still dancing with the 200 day SMA, not making much of an effort to crack it. SP500 moved up further off its trendline, but still cannot muster anything with the financial drag.
Leadership: Large cap tech and agriculture were at the helm once more. Parts of the energy complex (drillers, foreign, independents) and some medical were also posting solid gains. It was rather narrow as the breadth shows, but it was solid leadership with most moving on strong volume. NASDAQ and NASDAQ 100 are riding the backs of a few. As seen in the mid-1990's that can go on for quite some time and lead the indices to new highs.
Maybe NASDAQ can make something more serious out of this move off the second low in its attempt at putting together a serious double bottom. RIMM earnings are giving the index another kick in the pants after ORCL got an modestly oversold index to bounce. We were looking for a rebound from the selling, and this is it. With the portfolio painting discussed above along with these solid earnings the market is likely to continue this bump higher, kind of a 'son of' the earlier holiday rally. That rally is still technically in place given the higher low, but the selling was intense and this is more like a new, smaller rally toward Christmas and year end as funds stock up on the best stocks of the year.
THE ECONOMY
Q3 was strong but Q4 has its issues.
The final Q3 GDP came in as expected, holding the prior 4.9% gain. There were some changes as the annual core PCE rose to 2.0%, the top of the Fed's comfort zone, after sliding to 1.8% over the past several months. The rate of change is still down faster than up, so this is likely an aberration more than a new trend.
Aside from GDP the big news was the Philly Fed. It came in at -5.7%, well off expectations; heck, it wasn't supposed to contract. Chicago contracted two months back and then rebounded. We thought New York was weak on Monday as it was half of expectations. Compared to Philly it was a tower of strength at 10. As discussed after the New York release, the regional manufacturing reports are volatile, and volatility means change. It can mean a pause or it can mean a real break or reversal of trend. Combined with all of the other signs of slowing, this should be front and center on the Fed's burner as a serious problem.
Jobless claims are also an issue that won't go away. Claims rose by 12K up to 346,000. We discussed this trend higher a month ago, and though claims faded for a couple of weeks, the trend remains in place. While the market felt good about the last employment report issued earlier this month, initial claims are a more leading indicator. The persistent rise, though slow, is concerning, particularly when, as with the PMI data, it is combined with other data.
Then the Fed reported that borrowing at its discount window, even with its 4.75% rate, surged to $4.6B. Banks need money and with the Fed's cajoling they are finally stepping up to the window. With the Monday Fed auction over-subscribed by a 3:1 ratio, this is pretty powerful evidence that money is tight. The Fed needs to bump up the auction amounts
The point: the Fed is worried about inflation as well as a slowdown and it is trying to sit the fence and treat both. More and more, however, this looks to be a recession story versus an inflation story. Indeed, if inflation follows money supply as it has done nearly 100% of the time throughout our history, then inflation is not an issue ahead for us and the Fed needs to focus on injecting some stimulus.
Larry Summers today suggested a tax rebate for consumers. We have seen that before. Carter tried it and failed. Ford tried it and crashed. In Bush's first term the only way he could get the initial tax cut passed was to include a $500 rebate per family. As one commentator noted, that plan couldn't stimulate a dog in heat. It was not until serious tax incentives passed on the second tax cutting bill that the economy got the money it needed and the investment it needed. Yes the legislative side of the government needs to do something on the fiscal side, but the Fed needs to get behind the idea it has to be more aggressive.
THE MARKET
MARKET SENTIMENT
VIX: 20.58; -1.1
VXN: 23.15; -1.73
VXO: 22.42; -1.08
Put/Call Ratio (CBOE): 0.68; -0.47. After 6 of 7 sessions above 1.0 on the close the ratio tanked to the lowest it has been in months. No doubt there is some expiration influence here.
Bulls: 53.3%. 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: +39.85 points (+1.53%) to close at 2640.86
Volume: 2.003B (+6.93%). Topped 2B shares as volume rebounded, but in the bigger picture that trade level is still well below average as NASDAQ bounced over the 200 day SMA. Like the rising trade, and with the holiday coming, it is not likely going to get stronger, i.e. above average. Thus you take what you can get and say that, for the circumstances (a continued holiday rally) this is not bad action. Beyond that, it is not that great.
Up Volume: 1.474B (+569.023M)
Down Volume: 477.673M (-464.431M)
A/D and Hi/Lo: Advancers led 1.62 to 1
Previous Session: Decliners led 1.01 to 1
New Highs: 73 (+18)
New Lows: 263 (+16)
NASDAQ CHART: http://investmenthouse.com/ihmedia/NASDAQ.jpeg
Gapped over the 200 day SMA and filled the gap in the same session only to rebound to close at session highs. You have to like that action as NASDAQ tries to cement the 7 week double bottom it is attempting. Still a lot of resistance overhead, but with the large cap techs back in the lead NASDAQ can make up some ground through this resistance toward year end.
NASDAQ 100 (+1.90%) gapped higher and tested as well intraday, recovering to close at the 18 day EMA (2071). Good start off of the second leg of the attempted double bottom as the large caps, as they did in November, show good relative strength.
NASDAQ 100 CHART: http://investmenthouse.com/ihmedia/NASDAQ100.jpeg
SOX CHART: http://investmenthouse.com/ihmedia/SOX.jpeg
SP500/NYSE
Stats: +7.12 points (+0.49%) to close at 1460.12
NYSE Volume: 1.374B (+1.56%). Hardly a noticeable rise in volume as the NYSE posted modest upside gains.
Up Volume: 765.645M (+177.035M)
Down Volume: 590.165M (-164.209M)
A/D and Hi/Lo: Advancers led 1.25 to 1. Very weak breadth yet again.
Previous Session: Decliners led 1.25 to 1
New Highs: 47 (+18)
New Lows: 325 (+47)
SP500 CHART: http://investmenthouse.com/ihmedia/SP500.jpeg
SP500 continues to hold the June/July 2007 trendline, tapping it on the Thursday low and then rebounding to close near the opening price. Holding at support for sure, but not showing any pop off of that level yet. Higher low in the making, but as with DJ30, the pattern overall remains quite bearish. In short it can give us more of a holiday move to the upside with the end of year relief move, but beyond that it will take something more.
SP600 (+1.33%) was not too shabby at all with a strong second move off the low that matched the November bottom. As with NASDAQ, it is trying to set the second leg of its attempted double bottom. Pretty solid action for this index as it tries to recover from the recession fear induced selling that hit it in October and November.
SP600 CHART: http://investmenthouse.com/ihmedia/SP600.jpeg
DJ30
For the third session DJ30 tapped at the 200 day SMA on the high only to fade back and leave the break for another day. Question is, based on the longer term pattern, that day may be some time coming. Perhaps it can tag along if NASDAQ and even SP500 continue higher.
Stats: +38.37 points (+0.29%) to close at 13245.64
Volume: 204M shares Thursday versus 208M shares Wednesday. No volume to push the attempt at the 200 day SMA.
DJ30 CHART: http://www.investmenthouse.com/ihmedia/DJ30.jpeg
FRIDAY
RIMM is ready to try and drive the action on Friday after ORCL jumpstarted Thursday. The Thursday gains stuck, at least on NASDAQ, and we are looking for similar action Friday. Likely not blowout given the holiday ahead, but we could see an early burst once more.
Two issues face the market. First, it is expiration Friday and thus far the market has not shown a lot of volatility this week, at least the kind usually associated with expiration. That might show some Friday. Second, and this plays into the first, is whether any early upside moves based on the RIMM earnings can hold on as it did Thursday. There is a big short interest in the market, and the shorts will try to use this rebound to sell into. If the gains can hold on as they did Thursday, the shorts start to feel pain and start to cover. That builds upon itself and can deliver a nice rally even if it is short-lived.
For right now we have to view this recovery as nothing more than an end of year mark up of the winning stocks of the year. While there are some great moves on strong volume by some leaders, the indices are not enjoying strong trade. Thus any rally to year end is likely to have a hard time hanging on when the new year begins.
We are willing to ride the big names higher in this rally, especially if they are showing the kind of trade CF and MOS delivered today. Indeed, those stocks with their global ties are the exception to the rule and can continue higher into 2008. We are also looking at the China stocks. China suffered a pretty sharp correction and the stocks traded on the US markets have been under cover while that selling occurred. They continue to hold great patterns, and thus we are looking at them to make a break higher in the next week or so.
In short, there are still upside opportunities we can play short term and indeed longer term based on their strength and their ties to other economies. We will play this year end rally for what gain it will give, bank some gain ahead of the new year, keep the strongest if they remain in good position, sell the others, and be ready for some downside on SP500 and DJ30 to start 2008.
Support and Resistance
NASDAQ: Closed at 2640.86
Resistance:
The 18 day EMA at 2642
2673 is the early July high
The 50 day EMA at 2664
The March up trendline at 2711
2725 is the July high
2755 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 2603
2550 to 2540 from May/June consolidation and the November lows, and that level held on the Tuesday low
2525 is the February closing high
2525 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 1460.12
Resistance:
The 18 day EMA at 1470
1475 from peaks in December 1999 and January 2000
The 50 day EMA at 1481
The 200 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 early June high
1555 is the July 2006/March 2007 up trendline
Support:
1459 is the February peak
1448 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 13,245.64
Resistance:
The 200 day SMA at 13,319
The 50 day EMA at 13,398
The 90 day SMA at 13,480
13,665 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:
Some support in the 13,050 to 13,000 range
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): 1.187M actual versus 1.175M expected, 1.232M prior (revised from 1.220M)
Permits, November (8:30): 1.152M actual versus 1.150M expected, 1.170M prior
December 19
Crude oil inventories (10:30): -7.6M actual versus -1.8M expected, -722K prior
December 20
GDP, Q3 final (8:30): 4.9% actual versus 4.9% expected, 4.9% prior revision
Deflator, Q3 (8:30): 1.0% actual versus 0.9% expected, 0.9% prior revision
Initial jobless claims (8:30): 346K actual versus 335K expected, 333K prior
Leading Economic Indicators, November (10:00): -0.4% actual versus -0.3% expected, -0.5% prior
Philly Fed, December (12:00): -5.7 actual versus 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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