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01/02/08 Technical Traders Report
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We aplogize for the late delivery. We experienced a computer breakdown to start the new year, something of a Y2008 bug.
MARKET ALERTS
Targets hit alerts: None issued
Buy alerts: BG; CAM; HUM; SLB; SMH
Trailing stops: AAPL; DE; ESLR
Stop alerts: GILD; STLD
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http://www.investmenthouse.com/alertttr.html
SUMMARY:
- Year starts fine until weak manufacturing data, surging oil send it reeling.
- National ISM tumbles below 50
- US indices in trouble as stocks with foreign ties try to establish the leadership
- Early year action typically volatile, but the first session is in line with the trend.
Weak economic data brings out the first of year blues.
The year actually started out on the upside even with a very active analyst sheet and surging oil prices. BAC downgraded the entire chip sector and those stocks were down from the open, but upgrades of AMZN, PCLN and YHOO had the internet sector on the upside, and that more than offset the semiconductor weakness. The indices still opened nicely with NASDAQ posting a 10 point gain. Nothing huge, just a solid, steady start.
Half an hour into the session the national manufacturing report was released, and it did not track last week's bump in the Chicago region report. Instead, it fell below 50, tracking a couple of months behind the regional reports, and indeed Chicago was below 50 two months back. Oil was surging as well, moving to $100/bbl intraday. It was just one trade, so it was no surge through that level. Indeed, it traded back, but not by much, closing at 99.62, +3.62.
Even though construction rose instead of falling as expected, that was no match for the negatives. The indices rolled over, giving up their gains within 10 minutes. NASDAQ stripped 63 points off its high as the selling continued into lunch. After such a drubbing there was a relief bounce heading toward the FOMC minutes at 2:00ET, and when the Fed seemed more concerned (albeit not by much) about a weak economy versus inflation, the market picked up some speed toward the upside. That ran out of gas, however, after less than an hour of rallying back. The indices rolled over, sold to session lows, and then managed just a meager late bounce to the close.
Financials dragged SP500 lower once more, but the large cap techs were not immune as they showed some cracks once more. The selling was interesting in that stocks you would consider defensive in an economy heading toward recession (JNJ, MCD, PG, KO, PEP) were all down. Of course the losses brought out rather ridiculous comparisons. The most interesting was the Dow's loss: it was the worst percentage loss for the first session of a year since 1932. You can make what you want of that. In the end the results were pretty clear: early strength was flattened by a rush to the door on some more weak economic data.
Technically the action was not pretty. The market started higher, tried to rally from the open, but then the upside was run out of the building. An intraday bounce was dispatched and the indices closed near session lows. Bearish intraday action to start the year.
Internals: The indices were flattened, but the internals did not show the downside gutting you would expect given they looked like refried (for the fourth time) beans. NASDAQ breadth was weak at -2.1:1 but NYSE was a rather modest -1.4:1. That strength in energy as well as some first of the year bargain shopping helped the small caps outperform and thus better NYSE breadth. Volume was not great as it jumped substantially on both NASDAQ and NYSE, approaching average on each. That still put it just at the levels of the last rally just before Christmas. Thus there was no massive surge in selling, but it was clear the sellers were in control and were at least as strong as in the last rally attempt.
Charts: These were pretty ugly as the stocks with foreign ties held up reasonably well, but they could not offset all of the other stocks tied to the US economy. SP500 dumped to its December lows. NASDAQ undercut its 200 day SMA, recovered, then gave it up. DJ30 blew out its December low and dumped down to the next level of support at 13,000. The US major indices were clubbed, and SOX undercut its November low as it renewed its nasty downtrend.
Leadership: It was getting shaky Wednesday as you would expect, though there was strength in familiar sectors. The large cap techs showed some cracks once more though the downside was not the rule in those stocks. Energy was up and looking solid as oil rose; even with worries of recession in the US oil was up and energy stocks were not showing the signs of recession fears given the continuing world strength. China was not bad though a bit mixed. Foreign telecom picked up 2008 strong once more. Solar was down but it was coming back. Coal and commodities were solid. Leadership remains though it is mostly has ties outside of the US.
THE ECONOMY
US Manufacturing survey shows same slowing as the 2006/2007 turn.
At the start of 2007 the ISM slipped below 50 as the slowdown in the second half of 2006 dragged manufacturing lower. It snapped back, and in June it was sporting a 14 month high. Then six months of backsliding to 47.7, below the 50.5 expected, and more importantly, back to contraction. After the regional indices stiffened and held in expansion the past month, the national index slipped.
Maybe that makes it a bit suspect given the regions were positive. Maybe. The manufacturing report is basically a sentiment survey. It does not represent hard data, just the pulse of purchasing managers. If they feel good it is better; if they are glum, it is worse. December they were feeling pretty glum about the future.
Indeed, they were. All but two of the sub-categories turned to contraction. New orders were hammered to 45.7, down 6.9 points. That is the lowest since October 2001, just after 9-11 when things were understandably negative. Production dove to 47.3 from 51.9. Employment was already below 50, notching its second month below that level. Deliveries rose to 52.3, but inventories fell to 45.5; products are moving out the doors but not many new orders are taking their place.
Pretty crappy, and that litany of negatives in the report set the downside tone for the market. The ISM is considered a more leading indicator, and it is showing the future is basically as bad as anticipated back in November when the selling got ugly.
THE MARKET
MARKET SENTIMENT
VIX: 23.17; +0.67
VXN: 27.14; +1.24
VXO: 24.99; +1.8
Put/Call Ratio (CBOE): 1.17; +0.1. Above 1.0 for the second straight session, and outside of the holiday rally it was stacking up the 1.0+ sessions. The other indicators have to come around, however, before this starts to mean anything (e.g. bulls/bears). That means more downside work before the contrary indicators 'get right.'
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: -42.65 points (-1.61%) to close at 2609.63
Volume: 2.076B (+40.76%). Big percentage jump but still below average. Not a downside blowout as volume roughly equaled the pre-Christmas rally volume, but it was clear the first salvo of the year was dominated by sellers.
Up Volume: 459.719M (+42.676M)
Down Volume: 1.587B (+545.874M)
A/D and Hi/Lo: Decliners led 2.13 to 1. Not good but frankly better than you would expect given the drubbing the chart shows.
Previous Session: Decliners led 1.19 to 1
New Highs: 65 (0)
New Lows: 210 (-35)
NASDAQ CHART: http://investmenthouse.com/ihmedia/NASDAQ.jpeg
After equaling the early December high on the last rally (and the July peak), NASDAQ has not shown the backbone you have grown accustomed to. Techs were showing some wear and tear Wednesday after trying to hold the market up over the past couple of months. NASDAQ broke its 200 day SMA (2614), recovered, but then saw it slip away on the close. Not a massive break, but there was not enough support to hold it. Has to hold here to make another higher low and near key support. We will see but we did not like the way NASDAQ started to show some of the weariness of SP500.
NASDAQ 100 gave up its 90 day SMA, unable to keep up the relative strength. It did not undercut the December lows as it is holding right at the July peak. This would be a great place to hold if it is going to. The start of the year sees a lot of mixed action and we will have to see how this pans out though the early action is not favorable.
SOX (-2.77%) was hit hard on the downgrades as it undercut its November low after failing at near resistance at the 18 day EMA. It looks ready to head into another downtrend similar to that in October through November before it bounced to start December toward the 50 day EMA as it came up for air.
NASDAQ 100 CHART: http://investmenthouse.com/ihmedia/NASDAQ100.jpeg
SOX CHART: http://investmenthouse.com/ihmedia/SOX.jpeg
SP500/NYSE
Stats: -21.2 points (-1.44%) to close at 1447.16
NYSE Volume: 1.422B (+24.01%). Volume jumped toward average, and as with NASDAQ, it matched the levels on the pre-Christmas rally. In any event, volume jumped as the index sold once more.
Up Volume: 309.201M (-163.367M)
Down Volume: 1.104B (+444.899M)
A/D and Hi/Lo: Decliners led 1.37 to 1. Surprisingly light, aided by the strength in the energy sector (many are on the small and mid-cap indices) and some first of year buying in smaller issues in general.
Previous Session: Decliners led 1.14 to 1
New Highs: 58 (+28)
New Lows: 239 (-25)
SP500 CHART: http://investmenthouse.com/ihmedia/SP500.jpeg
Thump. SP500 has the albatross around its neck in the form of financials, and it was yanked lower to the mid-December low on rising trade. It undercut the Summer 2007 trendline though it did not blow it out to the downside. Made a lower high and at best here it can match the prior low and try again. Does not look as if it is ready to do so, and we are still looking for a test near the November low at 1406 to give our SPY puts and SDS calls a good boost.
SP600 (-1.2%) was not gutted, thanks to the energy gains as well as some early year bargain hunting in smaller names. It is still technically crappy as the double bottom attempt off the November and December lows has basically failed with a lower high in late December that could not hold up and form a handle.
SP600 CHART: http://investmenthouse.com/ihmedia/SP600.jpeg
DJ30
The blue chips were ground up as none of the big names were working. Even MO was down as the Dow picked a fine time to give up smoking. It blew out the December low, holding at some support at 13,000. Will that hold? The Dow needs to test that 12,750 November low from the look of the lower high and now lower low. In short, it has some consolidation to do as the sellers are not wrung out yet.
Stats: -220.86 points (-1.67%) to close at 13043.96
Volume: 239M shares Wednesday versus 167M shares Monday.
DJ30 CHART: http://www.investmenthouse.com/ihmedia/DJ30.jpeg
THURSDAY
ADP employment, initial claims, factory orders and oil inventories. More economic data, but none with the ISM impact potential, though weak factory orders would only drive the point home more emphatically. Friday is the jobs report, and that will keep investors nervous Thursday given the response to the ISM to start the new year trade.
There is an old saying that as January goes so goes the year and as the first three days go, so goes January. The first day was crappy and there is not a lot right now to alter that though the first sessions of a new year are always volatile as the new money elbows into the market and positions are shuffled as the year end tape painting is reversed some with institutions moving out of some stocks and into 'value' stocks, etc. In short, it takes a week to pan out.
Nonetheless, the first day of the new year was in line with the way 2007 ended, i.e. trending lower. The US indices simply do not look healthy, following the volatility and selling that started in late summer as the credit issues hit. The market started to show recession at that time and the inability to push the holiday rally past key resistance coupled with this lower high and turn lower to start the year is only reinforcing that recession mindset. That certainly was a driver on Wednesday.
The bright spots continue to be those stocks with international ties. They were not immune Wednesday to the selling but they held up nicely in their patterns. Indeed even stocks such as GOOG maintained nice accumulation bases and are still building for a breakout move. We are going to continue looking at opportunity with these stocks while the US continues to languish.
Support and Resistance
NASDAQ: Closed at 2609.63
Resistance:
The 200 day SMA at 2614
2634.60 is the June peak
The 50 day EMA at 2667
The March up trendline at 2724
2725 is the July high
2735 is the December intraday high
2763 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 and the November lows
2535 is the August 2004/April 2005/October 2005/March 2007 up trendline
2525 is the February closing high
2451 is the August closing low
2386 is the August intraday low
S&P 500: Closed at 1447.16
Resistance:
1452 is the June/July 2006 up trendline
1459 is the February peak
1475 from peaks in December 1999 and January 2000
The 50 day EMA at 1480
The 200 day SMA at 1491
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
1560 is the July 2006/March 2007 up trendline
Support:
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 13,043.96
Resistance:
13,092 is the December low
The 200 day SMA at 13,360
The 50 day EMA at 13,388
The 90 day SMA at 13,504
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
13,725 is the July 2006/March 2007 up trendline
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 31
Existing Home Sales, November (10:00): 5.00M actual versus 5.00M expected, 4.97M prior
January 2
Construction Spending, November (10:00): +0.1% actual versus -0.4% expected, -0.4% prior (revised from -0.8%)
ISM Index, December (10:00): 47.7 actual versus 50.5 expected, 50.8 prior
FOMC Minutes, December 11 meeting (2:00)
January 3
ADP Employment survey, December (8:15)
Initial jobless claims (8:30): 349K prior
Factory Orders, November (10:00): 1.0% expected, 0.5% prior
January 4
Non-farm payrolls, December (8:30): 70K expected, 94K prior
Unemployment rate (8:30): 4.8% versus 4.7% prior
Hourly earnings (8:30): 0.3% expected, 0.5% prior
Average workweek, December (8:30): 33.8 expected, 33.8 prior
ISM Services, December (10:00): 53.5 expected, 54.1 prior
End part 1 of 3
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