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money investment, financial investment
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01/03/08 Investment House Alerts
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IH Alert Subscribers:
MARKET ALERTS:
Targets hit alerts: MOS
Buy alerts: CF; ESLR; FWLT; HAL; HOLX; XTO
Trailing stops: None issued
Stop alerts issued: None issued
SUMMARY:
- Day 2: Market rallies, gives it back, closes flat. Less than impressive.
- Preliminary jobs reports setting up Fridays government data.
- Jobless claims improve, factory orders post a nice gain, but overall the data is heading lower.
- Weekly jobless data indicates employment report could disappoint and hurt US indices more.
Two days in and still down.
If you go by the old adage, the market needs quite a session Friday to be positive at the end of the first three days of January. Thursday stocks tried to start things higher as futures showed a modest upside bias, and after some early chop, posted nice gains through lunch.
The news was the usual. Weekly jobless claims showed some improvement though remain elevated. The ADP jobs forecast was weak but better than expected (40K versus 33K), Challenger said layoffs were lighter, earnings and guidance were solid (COP, MON, STT), factory orders posted a surprise gain (1.5%), and oil, despite inventories diving for the seventh straight week (-4M bbl), closed lower (99.19, -0.43).
After the Wednesday drubbing investors found solace in those numbers and rallied, particularly after digesting the oil inventory data and seeing oil's response (i.e., not a shot back up to $100). Stocks broke away midmorning and rallied through lunch. NASDAQ moved back above the 200 day SMA once again. It was not a great break higher but it was a good response to Wednesday. Unfortunately, the gains proved vaporous. Once more the indices started a long steady decline into the close. NASDAQ lost 32 points off its intraday high before a late bounce mitigated the damage. In the end NASDAQ, SOX, and SP600 were lower, SP500 was perfectly flat, and DJ30 posted a 0.1% gain.
In short, the US indices were again unimpressive. The attempt to bounce after the year opening drubbing faded to nothing, leaving them lower at the start of the year. Despite the continuing disappointing action in the indices, again there was solid leadership as oil and gas, solar, foreign tech and medical posted solid gains while other sectors (e.g. metals) are preparing to move as well.
Technically the day changed nothing. Once more stocks tried to rally and once more they gave it back. Not as dramatic as on Wednesday, but another high to low session that showed the buyside bid lacked any real legs.
Internals: There is a dichotomy developing early in the year. NYSE is basically showing flat internals despite the Wednesday selling. NASDAQ is faring worse as its breadth is much weaker (-1.76:1 Thursday versus NYSE's +1.1:1). Not a devastating drop by NASDAQ, but it shows the relative strength it enjoyed into year end is eroding. You could say NYSE is trying to set up for a bounce, but at this juncture it looks more like NASDAQ is simply playing catch up to the downside.
Charts: No real change after Thursday as the indices ran higher, ran lower, and finished flat. NASDAQ moved over its 200 day SMA again but could not hold the move. SP500 struggled just below its trendline. DJ30 showed a doji at the 13,000 support, trying to set up a bounce. Bigger picture, however, the charts remain quite weak.
Leadership: Once more there was leadership, and again it was mostly based in stocks with ties to the rest of the world versus the US. Energy was strong, some China, heavy building services/construction. Maybe these will crack if the US economy dives into deep recession, but for now they are not forecasting that.
THE ECONOMY
Pre-Jobs report jobs reports less than impressive.
Weekly jobless claims came in at 336K, down 21K from last week and better than the 345K expected. Break out the bubbly. The news was credited with helping stocks rally early on. Yes they were better than expected and the move higher of late, but in the bigger picture they are still well above the 300K level hit when the economy was improving in Q2 2007. Continuing claims climbed higher as well, moving to 2.67M, the highest since October 2005. The trend is in the wrong direction, and as noted above, it is hard to see the non-farms report improving with the jobless claims trending higher.
The ADP survey received its usual publicity, why no one knows. It is not accurate, or more specifically, it does not correspond with the government's report. You can decide which one is more accurate, but the government report is considered the definitive statement (as it determines in part governmental and Fed policy). ADP was way, way off last month. It shows a 40K increase in December, and though low, that was better than the 33K expected. Nonetheless, it too was credited with helping the early rally. Man, talk about grasping for straws when 40K jobs can translate into upside market enthusiasm. Some may argue it is the weakness that leads to more Fed cuts and thus ultimately a better market. As once commentator said, that logic is similar to saying in order to remodel your house you first burn it down.
The bright spot was the Challenger layoff report. Layoffs fell 39% over November, the largest decline in 2007. The conclusion by the firm is that the housing slowdown has not translated into widespread job losses outside of the financial sector. We will see.
A day of better economic data does not turn the tide.
Jobless claims were a bit better and factory orders rose 1.5% November after expectations of a 1.0% gain and an upside revision to October to 0.7% from 0.5%. The economic numbers are heading lower, but it is not across the board.
But we know that is how things work. Not everything collapses at once. As with all change there is volatility as things change. Thus while there are reports that some cling to with a 'see, the economy is not dead yet' mindset, but the trend is not good. Heck, it was a November report as well; most of the weaker reports we have seen of late are December data. Thus while it was good to see some continued strength in orders, it is significantly dated and thus not that instructive.
THE MARKET
MARKET SENTIMENT
VIX: 22.49; -0.68
VXN: 26.59; -0.55
VXO: 24.55; -0.44
Put/Call Ratio (CBOE): 0.91; -0.26
Bulls: 52.2%. Falling further after breaking back below the 55% threshold last week (54.9%). 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: 24.5%. Bears are rising with the market's inability to hold a rally, up from 23.1% last week. Improving from 22.4% before that. 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: -6.95 points (-0.27%) to close at 2602.68
Volume: 1.938B (-6.63%). Volume faded after bumping up Wednesday on that selling. Shows no buying on the upside early in the session and thus the fade when that bid ran out.
Up Volume: 885.968M (+426.249M)
Down Volume: 1.028B (-559.844M)
A/D and Hi/Lo: Decliners led 1.76 to 1. Again, NASDAQ breadth is much worse than the NYSE as NASDAQ starts losing some of its guts.
Previous Session: Decliners led 2.13 to 1
New Highs: 63 (-2)
New Lows: 264 (+54)
NASDAQ CHART: http://investmenthouse.com/ihmedia/NASDAQ.jpeg
NASDAQ rallied back up through the 200 day SMA (2615) intraday but it could not hold on and fell back to post a modest loss. Thing is, it gave up a nice gain to post that modest loss. Struggling to hold on at some support and make a higher low, but the twin peaks in December at the old July peak are weighing on NASDAQ right here as it loses some internal strength as noted above. The techs appear to be weakening, following the financials versus holding the market up as they did to end 2007.
NASDAQ 100 (+0.10%) is trying to make a higher low as well, but it is on top of the July peak versus struggling below it. The large cap techs caved some on Wednesday, and this is where the likes of AAPL and GOOG need to make a stand.
NASDAQ 100 CHART: http://investmenthouse.com/ihmedia/NASDAQ100.jpeg
SOX CHART: http://investmenthouse.com/ihmedia/SOX.jpeg
SP500/NYSE
Stats: 0 points (0%) to close at 1447.16
NYSE Volume: 1.323B (-6.92%). Volume was lower and remained below average though elevated over the recent, holiday light levels.
Up Volume: 522.698M (+213.497M)
Down Volume: 778.962M (-324.858M)
A/D and Hi/Lo: Advancers led 1.13 to 1. Flat as a board as NYSE breadth remains orderly and under control.
Previous Session: Decliners led 1.37 to 1
New Highs: 61 (+3)
New Lows: 309 (+70)
SP500 CHART: http://investmenthouse.com/ihmedia/SP500.jpeg
Tried to break back above last summer's trendline (1453) but could not hold the move. Showed a doji on the candlestick chart, but not putting a lot of faith in that signaling the bottom of this selling. Trying to match the mid-December low and rebound but it has a lot of overhead supply to combat. It has made a series of lower highs and some higher lows, but the downside leg is longer (11 weeks) than the upside attempts over the past 5 weeks, and the longer leg typically wins.
SP600 (-1.08%) continues to dive lower, heading back toward the November and December lows (382-83). It will try to hold the line and may bounce at that point; it has been down five sessions in a row and it will try a rebound after another couple of points puts it down at those lows.
SP600 CHART: http://investmenthouse.com/ihmedia/SP600.jpeg
DJ30
After getting whacked Wednesday the blue chips tried to make a stand at some support at 13,000, showing a doji on the candlestick chart. Trying to make a higher low here above the November low near 12,750, but as with SP500, there is a three month string of lower highs weighing down the index.
Stats: +12.76 points (+0.1%) to close at 13056.72
Volume: 200M shares Thursday versus 239M shares Wednesday.
DJ30 CHART: http://www.investmenthouse.com/ihmedia/DJ30.jpeg
FRIDAY
Friday is the jobs report that gets way too much attention, but at this juncture, with the more leading economic reports heading lower, the jobs report is something of a barometer as to just how weak the economy has become.
The weekly data certainly does not indicate any surge in strength in jobs to come. As noted, the trend in jobless claims is higher and higher, even with the drop last week. Continuing claims are jumping, confirmation of the uptrend in claims. With this leading data showing a weaker jobs market, it is just a matter of time before the economy turns up a goose egg or worse on job creation.
Certainly the market is anticipating a weak number; the indices have been the picture of no strength. Nonetheless, reality is always a cold slap in the face, and thus the market will likely show some weakness after a weak report. That push back would be bad for the US indices, but it would accomplish a couple of things for us. First, it will give the index puts we have another shove lower and we can use that to lock in some gain. Second, it will push back some of the leaders a bit, and we can use that to move into some of the positions that have bounced well but we did not yet enter. A bit of a pullback form then that holds and then gives way to a rebound would provide an excellent entry point on stocks in energy, construction, etc. as they have shown strength despite the rather pitiful performance of the big indices.
Thus we will keep our wits about us, use the downside to our advantage both on the downside plays and upside entry points as we look to play the US weakness and buy the overseas strength.
Support and Resistance
NASDAQ: Closed at 2602.68
Resistance:
The 200 day SMA at 2615
2634.60 is the June peak
The 50 day EMA at 2665
2725 is the July high
The March up trendline at 2727
2735 is the December intraday high
2764 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
2537 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 1479
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
1565 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 13,056.72
Resistance:
13,092 is the December low
The 200 day SMA at 13,365
The 50 day EMA at 13,375
The 90 day SMA at 13,500
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
13,735 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): 40K versus 33K expected
Initial jobless claims (8:30): 336K actual versus 345K expected, 357K prior (revised from 349K)
Factory Orders, November (10:00): 1.5% actual versus 1.0% expected, 0.7% prior (revised from 0.5%)
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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money investment
financial investment
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