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12/27/07 Investment House Alerts
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IH Alert Subscribers:
MARKET ALERTS:
Targets hit alerts: None issued
Buy alerts: None issued
Trailing stops: None issued
Stop alerts issued: FWLT
SUMMARY:
- International issues pile onto a weak durable goods report, pesky jobless claims.
- Durable orders not very durable.
- Confidence higher than expected, somewhat of a relief but needs to break the trend lower.
- Leaders holding the line but market needs to make a move in the face of the Thursday selling.
International news on top of US economic issues give another reason to sell, and no rebound this time.
Futures struggled after the very weak durable goods results, the once again rising jobless claims, and GS' reporting that more banks would announce larger than expected write-downs. Then the Pakistani opposition candidate was assassinated. Futures were not trashed, but that seemed to add a glue to the action that the market could just not get out of all session.
Stocks started lower but tried to bounce back into the oil inventories report. It was expected to decline but it did so much more than expected, falling 3.3M bbl (-2.7M bbl expected). That itself would not do in the market, but with all of the other issues already weighing on stocks, that really hit the market. The bounce attempt gave way and so did stocks.
After a morning tail kicking stocks rebounded into mid-afternoon. Stocks were not really threatening to turn positive, but as with Wednesday, a late comeback would change the complexion. Not to be. A good test of the afternoon rebound as the last hour began, but then a dive lower in the last half hour send the indices to session lows. NASDAQ peeled off 26 downside points, DJ30 70 points. Losses ranged from -1.42% on DJ30 to -1.75% on NASDAQ to -2.61% on SP600 (small caps).
Technically the action was crappy all session. The indices stated lower on the bad economic and international news, could not muster much of any bounce, then really dove to the close.
Internals: Much stronger to the downside than the recent rally's upside offerings. Breadth was an uninspiring -3.4:1 on NYSE, and -3.1:1 on NASDAQ. Volume was up on both NASDAQ and NYSE as they sold. That shows sellers increasing in numbers, but we note that volume was still much lighter than it was on the upside move last week. A silver lining, but on Thursday with many of the veteran traders out on holiday, the younger less experienced traders manned the desks and panicked some. That lighter trade allowed them to sway the action. Thus late in the session they dumped stocks across the board and made things worse than they typically would have been.
Leadership: The leaders gave up some ground as you would expect with all of that selling, but overall they showed relative strength, again as you would expect. Energy was solid as oil continues its rise back to 100 (after two prior attempts that failed), steel is showing steely tenacity, some tech continued to perform well despite NASDAQ's losses (NASDAQ 100 lost less ground than NASDAQ), and the usual cadre of MA, BIDU, RIMM, etc. held up quite well. They will have to make the moves from here.
THE ECONOMY
Durable goods the latest economic report to show a serious miss.
It was the first gain in four months, but it was way, way off expectations (0.1% versus 2.2% expected). Ex-transportation sales tumbled 0.7% versus an expected 0.5% gain. Some pretty impressive spreads there. Now if you want to play the x-out game some more you can take out defense orders and orders were up 1.2%.
Shipments were flat but unfilled orders rose 1%; some activity yet to come. On the other hand, inventories rose 0.8%, showing a slowing in sales. Always a problem when the economy slows. Still a light level, but inventories are a killer when the economy starts to slide as seen in the last recession. Companies are leaner than then, so it won't be the same problem this time around. Talk about looking for silver linings.
As always the big issue is business investment. Core capital goods less defense and aircraft, fell 0.4% as the pullback in business spending continues. Businesses have strong balance sheets, but they turned pensive the past year even after the economy picked up speed in Q1 and Q3. Companies make long range spending plans but they also try to adapt more quickly now. With the credit issues still hanging over the economy, businesses are getting more reticent to spend once more.
Consumer Confidence shows a surprise bump, but it did not change the trend lower.
The 88.6 topped November's 87.8, a welcome respite from the rather precipitous decline from the August 105.6 reading. The raw number is not recessionary; readings in the low sixties and definitely in the fifties indicate recession. The rate of change, however, can indicate problems ahead if it remains unabated. This bump higher is a good indication even in the midst of the credit and housing issues. Perhaps the Fed action had more comforting affect than thought; yeah, right. We will have to see if this can hold up to start the new year.
THE MARKET
MARKET SENTIMENT
VIX: 20.26; +1.6
VXN: 22.46; +1.14
VXO: 21.22; +2.02
Put/Call Ratio (CBOE): 0.98; -0.03. Rather surprising to see the ratio fall back below 1.0 given the magnitude of the Thursday decline. Would have liked to see it spike and show fear or downside bets again. The lack of a jump is an indication there is some hold outs.
Bulls: 54.9%. Some life taken out of the bulls, dropping below the 55% threshold considered bearish. Down from 56.50% after a jump up from 53.3% and 49.4% the week before. Didn't make it below 45% (it hit 40.6% on the low for the prior 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: 23.1%. Improving a bit as well, up from 22.4%. Fell like a stone from 25.6% the prior week and 27.6% the week before. Down from 29.0% after one week at a higher level, jumping from 26.6% the week prior. Up from 22.2% 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: -47.62 points (-1.75%) to close at 2676.79
Volume: 1.432B (+16.3%). Volume moved higher, showing the sellers increased in strength over the buyers earlier this week. Overall the volume was much less than the upside trade last week. The light trade helped some inexperienced traders at the institutional desks push the market down when they panicked over the inability to rebound from the early selling as the market did on Wednesday.
Up Volume: 287.981M (-551.318M)
Down Volume: 1.131B (+764.74M)
A/D and Hi/Lo: Decliners led 3.18 to 1. Down across the board though NASDAQ 100 and its large cap techs performed better (-1.44%).
Previous Session: Advancers led 1.27 to 1
New Highs: 85 (-46)
New Lows: 170 (+44)
NASDAQ CHART: http://investmenthouse.com/ihmedia/NASDAQ.jpeg
NASDAQ faded from the July peak (2725) gapping lower and closing at the 90 day SMA on the session low. That leaves it above the 50 day EMA (2670) and still in decent position, but the turn back at the same resistance it failed at in early December is not a great sign. Has to hold at the 50 day EMA to keep the Santa Claus rally, that typically lasts through the first couple of sessions of the new year, alive.
NASDAQ 100 (-1.44%) sold as well but held at the 50 day SMA. It tool failed at the early December peak, but it and its tech leaders remain in very good shape here.
NASDAQ 100 CHART: http://investmenthouse.com/ihmedia/NASDAQ100.jpeg
SOX CHART: http://investmenthouse.com/ihmedia/SOX.jpeg
SP500/NYSE
Stats: -21.39 points (-1.43%) to close at 1476.27
NYSE Volume: 984.493M (+17.33%). Similar to NASDAQ, volume was higher on the selling vis- -vis the upside this week, but it was much lower than the rally volume from last week. A bit of a silver lining but not much given the weak technical pattern of SP500.
Up Volume: 111.005M (-306.683M)
Down Volume: 869.141M (+463.433M)
A/D and Hi/Lo: Decliners led 3.38 to 1. Pretty ugly; much stronger than the breadth on the upside last week.
Previous Session: Decliners led 1.02 to 1
New Highs: 60 (-42)
New Lows: 206 (+82)
SP500 CHART: http://investmenthouse.com/ihmedia/SP500.jpeg
Lower high by the large caps as the financials continue as the albatross around the index' neck. It could not punch through 1500, turning back below the 200 day SMA and the 50 day EMA, managing to hold the 18 day EMA on the close. Has to hold here or the rally on SP500 is history. With the financials and their dead weight, the index has a really hard road.
SP600 (-2.61%) was whacked as the small caps with their high economic sensitivity did not respond well to the weak durables report. Fell back through the 50 day EMA and the 18 day EMA. Not a lot of support for the small caps; they are taking the lead from the other indices.
SP600 CHART: http://investmenthouse.com/ihmedia/SP600.jpeg
DJ30
Could not push the next phase of the rally, stalling just over 13,500 and falling back to the 200 day SMA on the close. It spent several sessions trying to break above that level before last week's rally, and now it needs to make a hold here to keep the rally alive. Similar to SP500, it made a lower high on this last move as that overhead supply from July through early December is sitting on it, weighing it down. As noted, it needs to hold here to keep the rally alive, but you can bet that how NASDAQ responds will be the key for all of the other indices.
Stats: -192.08 points (-1.42%) to close at 13359.61
Volume: 145M shares Thursday versus 122M shares Wednesday.
DJ30 CHART: http://www.investmenthouse.com/ihmedia/DJ30.jpeg
FRIDAY
Now that the Santa Claus rally was rudely interrupted by some weak economic data and international angst (yet again), we will see if some calmer heads prevail on Friday ahead of the New Year's holiday on Tuesday. As has been the case most of the past three months, it looks as if NASDAQ will need to do the salvage work to try and keep this last bounce higher intact. The bump into resistance and the turn lower certainly makes the task more difficult.
Once more the market will turn to the tried and true leadership to try and make the stand. They were down with the market Thursday but as noted earlier, they were still holding up quite well, showing their typical relative strength. If the international issues were the tipping point Thursday, the leaders should try and show an upside response Friday.
Overall the market continues to struggle. The indices outside of NASDAQ 100 and to a lesser extent NASDAQ are technically weak. We got a holiday rally and then a Santa Claus rally, but after that 2008 looms ahead with unanswered questions regarding the credit and mortgage issues. That was apparent Thursday as GS weighed down the financials with its call of greater than expected write-downs to come.
At the same time look at the steel stocks. They are performing very well, and if the world economy was heading into the septic tank they would not show this kind of strength. Then you look at PG, MO and similar staples stocks and you see buyers there as well. Those are more anti-economic growth stocks. In short, the market is still showing growth leadership but money is also working into more defensive areas as well.
What this boils down to is a weakening economy that the indices have foreshadowed with the struggles since July. Money is on the move to defensive areas, but the leaders are still working, particularly those with ties overseas. As long as they show good patterns and good accumulation, we will continue to work them for gains though we also will be happier with smaller moves. Thus leaders with ties to overseas are still fair game, staples that have the ability to make decent runs versus crawling similar to snails, and a good looking more aggressive trade or two are in the cards. We are also still looking for opportunity downside in the weaker areas, i.e. some more SP500 puts if it cannot hold the line after this higher low.
Support and Resistance
NASDAQ: Closed at 2676.79
Resistance:
The March up trendline at 2718
2725 is the July high
2735 is the December intraday high
2757 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:
The 50 day EMA at 2670
2634.60 is the June peak
The 200 day SMA at 2609
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
2528 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 1476.27
Resistance:
The 50 day EMA at 1482
The 200 day SMA at 1490
1490.72 is the early June closing low and early August peak.
1524 is the December high
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
1559 is the July 2006/March 2007 up trendline
Support:
1475 from peaks in December 1999 and January 2000
1459 is the February peak
1450 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 13,359.61
Resistance:
The 50 day EMA at 13,410
The 90 day SMA at 13,502
13,685 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:
The 200 day SMA at 13,345
13,092 is the December low
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 27
Durable goods orders, November (8:30): 0.1 actual versus 2.2% expected, -0.4% prior (revised from -0.2%)
Initial jobless claims (8:30): 349K actual versus 340K expected, 348K prior (revised from 346K)
Crude oil inventories (10:30): -3.29M actual versus -2.7M expected, -7.5M prior
December 28
Chicago PMI, December (9:45): 52.0 expected, 52.9 prior. Will it slip back below 50 again?
New home sales, November (10:00): 715K expected, 728K prior
End part 1 of 3
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