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us stock market, stock prices
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01/07/08 Investment House Alerts
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IH Alert Subscribers:
MARKET ALERTS:
Targets hit alerts: None issued
Buy alerts: MO
Trailing stops: SID
Stop alerts issued: RIMM; SPWR; YGE
SUMMARY:
- Market runs in place as last week's strength leaders are Mondays losers.
- Investors again wait for President to deliver some economic salvation news, and again they are disappointed.
- Still showing signs of an oversold bounce, likely before the next big run lower..
Early bounce succumbs, but NYSE holds at November low.
Monday continued a familiar theme from last week: selling in a leading sector. Last week the new year started with technology rolling over after an iffy close to 2007. Monday the selling spread out further as the recession worries sparked (or more accurately exacerbated) by the Friday jobs report took a look overseas as the new week began. Metals, materials, heavy construction, and even energy sold to varying degrees. Energy managed something of a rebound, but the picture this is painting is a further deterioration in the stock market as relative strength areas slide. The market is still set for a bounce after a sharp sell off, but this spreading deterioration tells us it is just a bounce unless something quite dramatic occurs.
For the day the market started stronger, but it gave the move back and more with a fairly dramatic dive after the first half hour of trade. There was an equally strong bounce and then an equally strong decline back to the session lows. A late bounce brought things back to flat (or flattish). There was news but nothing to drive the markets. Analysts downgraded IBM. Citigroup is reported to cut 5% to 10% of its workforce. Earnings were interesting but those reporting did not have the stroke to really impact the market. The biggest news was the Bush/Paulson speeches that once more left the market with no idea what the administration has in mind or even really thinks about the current economic situation. At the end of the day there were no major losses and even some gains, but it was hardly a positive after last week outside of holding the November lows, still keeping a relief bounce off of those levels in play.
Technically there was more of the same but also some interesting points. A higher open was squandered and sold hard, but the market did rebound. Of course it lost it again and had to rally late to close flat. Quite volatile, and that tells us something as well. Volatility jumps ahead of swings, and after a hard fall the past two weeks this up and down action coupled with the chart patterns indicate a bounce before the selling gets really serious once more.
Internals: Boring considering the tennis match the market showed to open the week. Breadth was flat as the indices reached lower and recovered. Volume ticked higher as they sold and rebounded to flat. The combination suggests some short covering drove the indices back up from the lows, and sets the stage for a further rebound.
Charts: DJ30 and SP500, even NASDAQ to a certain extent, tested the November low and rebounded. Of course NASDAQ has already undercut that level but it tapped at the August closing low and rebounded. The rebounds showed a doji on the candlestick charts, and though that is not a guarantee of a rebound (look at last Thursday), but it is the kind of action you often see before a bounce starts. With the strong drive lower and the action on the charts, it looks as if some short covering is going to try and drive the indices higher in an oversold bounce.
Leadership: As noted above, last weeks relative strength leaders were under fire Monday. Energy, basic materials, metals, heavy construction were all under pressure as recession worries fanned out and money moved into healthcare and those stocks that work in a recession because people need to buy them (toothpaste, toilet paper, food - all of the really exciting stocks). It was not a total rout and it was good to see some comebacks late in the session by those leaders.
Some will certainly continue to rise, but the what this showed us was the pervasive and permeating nature of the recession worries in the US: if the US goes down will its tentacles drag down other economies such as China that rely on our purchasing to keep them going? If we do go into recession and do not consume as much from nations such as China, India and Brazil, then that will only accelerate their realization that they have wealth and can sell their goods at home. That strengthens them, ultimately, benefits those companies that can sell the products and materials that those people seek. Kind of a role reversal of sorts as the US grays and wants more hip replacements, Viagra and vitamins.
THE ECONOMY
Still waiting on something from the White House.
The Fed has taken its shot, apparently, and has missed the mark. That last 25BP cut and the swaps along with auctions did not resolve the credit issues and thus did not help the stock market at all. The administration is snorting about some fiscal stimulus to try and ward off a recession, but it has yet to produce anything.
Friday we figured nothing would come out, but Monday Bush was back on the stump and Paulson as well, and many were figuring this quick reprisal would bring forth some specifics. After all, the market tanked after nothing was proffered Friday. Nothing was coming Monday, but at least the market did not respond with a selloff.
It could have. Secretary Paulson followed up Bush on the speech circuit Monday, and he was quite negative, at least on the housing issue. He said the US faced an 'unprecedented wave' of sub-prime readjustments that could result in a market failure. Thus the deal with the mortgage industry to freeze certain mortgage rates for 5 years.
Paulson was gloomy, but maybe he is also setting the stage for the need for fiscal stimulus. Talking with some pollsters, however, there is no need to set the stage, just reinforcing what they already feel. While there is not a lot of brow furrowing angst out in the hinterlands, there is concern about recession. The average citizen is primed for some stimulus that helps the economy back on its feet. Contrary to what many in Washington, D.C. believe, they are not all thinking 'what is my take?' They just want to see the economy jumpstarted again to make sure it continues to grow and their jobs are secure.
Thus Paulson's gloom about the economy was likely somewhat staged. After all, you never get administration officials to admit anything negative unless they are doing so in order to promote something. Thus there is something to come as far as fiscal stimulus and Paulson even said that the President was 'deciding which' stimulus would be the best to meet the goals. Thus the market took some solace that it was indeed in the works.
The question is when will it be announced? Every day that the administration delays makes it harder to reverse the trend. Let's not forget that even with the announcement there still has to be a bill written and presented to Congress. Then the attempt to lobby its passage and the tweaking needed to make it palatable, if it can be made so, to the democrats controlling Congress. Recall in the early years of the Bush presidency the first run was a 'rebate' even to those that paid no taxes. It did nothing; nothing. After it was apparent more was needed Bush was finally able to pass meaningful stimulus, but we had to go through all of that downside angst in the interim.
Thus something has to be crafted that speaks to all interests. If Bush tries to make the tax cuts permanent the idea dies. If he gets creative and cuts some capital gains taxes (specific ones and not the hedge funds and the like), some corporate/business tax relief (investment credits, lower corporate and small business rates), and some payroll tax relief you have a winner. That takes time to cobble together, but that only means the administration better be burning the midnight oil on this one as time is key. If it doesn't you can be the congressional leadership will put something to their liking together, and then there is a long, long 'discussion' ahead.
THE MARKET
MARKET SENTIMENT
VIX: 23.79; -0.15
VXN: 29.39; +0.77
VXO: 25.14; -1.64
Put/Call Ratio (CBOE): 1.04; -0.08
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: -5.19 points (-0.21%) to close at 2499.46
Volume: 2.62B (+3.77%). Volume was stronger and well above average after it kicked back above that level Friday. NASDAQ sold off hard but then rebounded to post a modest loss. That rising volume on the rebound shows some shorts covering their gains. Now we see if that can translate to a relief bounce.
Up Volume: 983.917M (+792.727M). Pretty much a dead heat on the session.
Down Volume: 1.602B (-720.461M)
A/D and Hi/Lo: Decliners led 1.12 to 1. Flat, matching the action though once again the large cap techs lagged (NASDAQ 100 -0.31%).
Previous Session: Decliners led 4.37 to 1
New Highs: 60 (+11)
New Lows: 375 (-100)
NASDAQ CHART: http://investmenthouse.com/ihmedia/NASDAQ.jpeg
Gapped higher then collapsed 47 points by midmorning before it found a floor. A floor for the morning session. A rebound to a new high for the session and a modest gain, then another dive lower in the afternoon, pulling out of it just above the early lows. A very late bounce made it look respectable despite the air sick bag intraday action. NASDAQ waved at the August closing low at 2450 on the low (2471; not all that far when you consider how volatile NASDAQ is these days) and rebounded almost to flat, holding the August interim lows near 2500. After that hard dive lower it is showing signs of rebounding to try and fill that gap from Friday though it might take more downside to do it.
NASDAQ 100 and its large cap contingent undercut intraday but managed to hold the June peak (1950) on the close. There is other support there and that makes it a good point to try and bounce. Now we see if it can bounce to fill that gap before turning lower. That would be a gift in terms of upside sell points and downside plays after that test.
NASDAQ 100 CHART: http://investmenthouse.com/ihmedia/NASDAQ100.jpeg
SOX CHART: http://investmenthouse.com/ihmedia/SOX.jpeg
SP500/NYSE
Stats: +4.55 points (+0.32%) to close at 1416.18
NYSE Volume: 1.714B (+3.95%). Volume was up here as well, moving higher above average and quite respectable. Technically it was up on an upside session, but it is hard to argue any real accumulation. More likely the case is some selling to test the November low and the August closing low, them some short covering to push it back up. That can deliver a nice relief move, but just a relief move without something else.
Up Volume: 874.522M (+767.912M)
Down Volume: 828.244M (-709.201M)
A/D and Hi/Lo: Advancers led 1.27 to 1. Flat. Indicating some shorts moving in off that last low of the session.
Previous Session: Decliners led 3.44 to 1
New Highs: 39 (+4)
New Lows: 425 (-136). Still high.
SP500 CHART: http://investmenthouse.com/ihmedia/SP500.jpeg
As noted, a nice test of the November low and the August closing low and then a rebound to positive on rising volume. The last low in November was not going to be a double bottom low as we noted at the time: the intervening peak was higher than the original high in the base. What formed off of that was a head and shoulders topping pattern, and this last flop down to the prior lows completed the right should to the 7+ month pattern. That makes this THE test for the SP500 action since the summer. Overall it has a negative bias to it what with the economic conditions and their trend. It is set up to try a relief move here and that will tell the tale as to whether it rolls over or tries a double bottom from here. We are looking at it as a rebound to 1450 to 1475 to set up more downside and some good downside entry points.
SP600 (+0.38%) showed a doji as well on the candlestick chart after it broke below its November and December double bottom on last Friday. It will move with the market, following its large cap NYSE brethren. A bounce to 390ish would be a nice set up for another downside play for us on the IWM.
SP600 CHART: http://investmenthouse.com/ihmedia/SP600.jpeg
DJ30
Once more very similar to SP500 reaching down to the November low intraday and then reversing for a modest gain on rising, above average volume. Basically the identical head and shoulders top with the recent two lows setting up the right shoulder as well as a double bottom to try and bounce from. After the beating on the way down it is getting ripe to bounce in relief to 13K or 13,250ish, and from there it tells how strong it is. We are not expecting any breakout to the upside.
Stats: +27.31 points (+0.21%) to close at 12872.49
Volume: 306M shares Monday versus 304M shares Friday.
DJ30 CHART: http://www.investmenthouse.com/ihmedia/DJ30.jpeg
TUESDAY
Pending home sales and consumer credit are out, but the focus is turning to earnings and what kind of guidance it brings. Stock prices are based on future earnings growth and the market is anticipating earnings growth declines given the losses. In the bigger picture, even with stronger guidance it will take something extraneous to turn the selling to serious, sustained buying, e.g. more aggressive Fed action AND fiscal stimulus from the government. Neither of those are on tap for this week.
The market is oversold and with DJ30 and SP500 bouncing off their November and August lows they are primed for a relief bounce (gee, haven't heard that before). Again, just a relief bounce given the market action, the technical patterns of the indices, and this incipient weakening of the leadership, even those with ties outside the US.
There are still many of those overseas stocks that look good and energy recovered nicely into the close. We will continue to look their way, but Monday the strength was in healthcare, drugs, consumer staples. The first in the list can provide some great gains. The others, well, they work in declining economic conditions, but exciting they are not. We will have to look at some of them, however, as we see if the real leaders can pull it out and lead higher and as we wait for the indices to rebound and set up the next selling leg that we can ride as we did on the last decline.
Support and Resistance
NASDAQ: Closed at 2499.46
Resistance:
2540 is the August 2004/April 2005/October 2005/March 2007 up trendline
2550 to 2540 from May/June consolidation and the November lows
The 200 day SMA at 2615
2634.60 is the June peak
The 50 day EMA at 2652
2725 is the July high
The March up trendline at 2734
2735 is the December intraday high
2765 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:
2451 is the August closing low and is trying to hold for a bounce.
2386 is the August intraday low
2379 from the October 2006 peak
2370 from the April 2006 peak
2340 from the March 2007 low
S&P 500: Closed at 1416.18
Resistance:
1430 from the August interim lows
1440 - 1437 from January and March peaks
1454 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 1474
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
Support:
1406 is the August and November 2007 closing low
1404 is a longer term trendline from the August 2003/September 2004 lows
1374 is the March 2007 closing low
1370 is the August 2007 intraday low
1325 from May 2006 peak prior to the summer 2006 correction
Dow: Closed at 12,827.49
Resistance:
12,845 is the August closing low
13,050 to 13,000 range
13,092 is the December low
The 50 day EMA at 13,332
The 200 day SMA at 13,369
The 90 day SMA at 13,492
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
13,755 is the July 2006/March 2007 up trendline
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:
12,786 is the February 2007 peak
12,743 is the November low
12,518 is the August intraday low
12,250 from late March 2007 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.
January 8
Pending home sales, November (10:00): -0.8% expected, 0.6% prior
Consumer Credit, November (3:00): $8.5B expected, $4.7B prior
January 10
Initial jobless claims (8:30): 340K expected, 336K prior
Wholesale inventories, November (10:00): 0.4% expected, 0.0% prior
Crude oil inventories (10:30): -4.05M prior
January 11
Export prices, December (8:30): 0.8%
Import prices ex-oil, December (8:30): 0.7%
Trade balance, November (8:30): -$59.5B expected, $-$57.8B prior
Treasury budget, December (2:00): $52.0B expected, $42.0B prior
End part 1 of 3
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us stock market
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