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world stock market, us stock market
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01/08/08 Technical Traders Report Update
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Full report issues Wednesday.
MARKET ALERTS
Targets hit alerts: CMED
Buy alerts: IMA
Trailing stops: MOS
Stop alerts: APA; NDAQ
The market alert service is a premium level service where we issue intraday alerts relating to the general market conditions, when stocks hit action points (buy, stop, target, etc.), and when we see other information impacting the market or our stocks. To subscribe to the SSR alert service you can sign up at the following link:
http://www.investmenthouse.com/alertttr.html
SUMMARY:
- Market has its bounce . . . for the morning, then keels over on more recession fears.
- November pending home sales backslide after a couple of months of stabilization.
- Fed acting if there is nothing it can do to prevent a recession as it worries about inflation.
- Massively oversold but Tuesday bounce attempt folded like a put tent.
Thin-skinned market stumbles after a none-too-surprising comment from AT&T
First, the news. KBH (homebuilder) reported a loss of $9.99/share (originally reported at $18/share due to confusion with write-downs and charges). Staggering. Even more so when you consider it was to report a $1.08 loss. Again we heard comments such as 'challenging year ahead,' 'no bottom in sight.' You know they want to just hide somewhere and 'no comment' everyone, or at least say what they really feel ('only an idiot would build a home now', etc.). Pretty bad indeed.
Circuit City announced its December sales were far below expectations. Only CC could screw up the one area consumers actually spent a lot of money on during the past holiday season. The Fed's Prosser seemed indifferent about the Fed's ability to prevent a slowdown or even if it should. The Fed, as always in times of economic strife, shows its warm heart. Who can ever forget the comforting words of Mr. Moskow in 2000 when he opined that more US citizens needed to be out of work. Can you believe people got upset about that? Where is that great old American spirit? Where is the 'take one for the team' mentality? Jobs? We don't need no stinking jobs. Indeed, even with the market plunging lower again today the Fed Funds Futures contract only pegs a 50BP cut at 66% or so. It knows the Fed pretty well.
What else? Oil was up (closed at 96.24, +1.15/bbl), but at these prices what is the difference? Pending home sales at 10ET showed some backsliding, down 2.6%. Ho hum.
The market felt so as it shrugged off the bad news. It was in the mood to try a rebound from the selling. It started higher, ignored the litany of additional bad news for the economy, and even bumped higher after pending home sales declined more than excepted. It made the obligatory midday slump, but it was back at it over lunch and well into the afternoon session, riding easily back to positive, particularly on NASDAQ with the large cap techs leading back up after they led the slaughter lower.
Then 'THE NEWS' of the day hit. T (AT&T) through a Bloomberg story indicated it was cutting off more and more phone and broadband service accounts due to nonpayment. No surprise there: if foreclosures are up, i.e. people are not paying their mortgages, you think those people are paying their phone and internet bills as well? Dream on. Nonetheless, with this high strung market, the strain was more than it could bear. It slammed the market just as an SEC team slams Ohio State. From positive to negative in a few minutes and it only got worse as the last hour wore on. A modest bounce attempt was crushed. NASDAQ peeled off 78 points from its afternoon peak (not even the session high) to the close. Pain.
Technically it was bad though nothing topping what we have seen of late. Comforting. Once more an upside start was turned over. Not good action. Volatile once again and that tends to indicate change, but Tuesday the upside bounce attempt was simply overwhelmed by a return of recession fears.
Internals: With the selling breadth was back up as the negative side has dominated the upside, particularly when it counts, i.e. when the volume is up as on Tuesday.
Charts: After holding the November lows and looking as if a bounce was at hand, the NYSE indices blew out those levels as well as the August closing low. NASDAQ busted its August closing low as well. The March lows are just a day away for SP500. CNBC was noting the indices are in a correction, down 10% or more from their highs (DJ30 12%, NASDAQ 15%, SP500 12%). The patterns are bad, and that means there is more than just these 'correction' percentages ahead. Almost two weeks of downside has been logged, and the indices are very, very oversold. They can become more oversold, however, before they snap back. They will have a sharp 'correction' to the upside, and that will occur just about the time everyone throws in the towel.
Leadership: The erosion of the leaders continues. While many held support even as they tested lower again today, there were more breaks toward the 50 day EMA and to the 90 day SMA, as more stocks give up the nearer support levels. At the same time there was a further sift to the recession type stocks, e.g. the consumer staples: you still have to tend to hygiene, keep the house cleaned, take your drugs, drink and smoke, and those stocks were higher on the session. This slow wringing out of the leadership and the shift to defensive areas gives this the look of a grinding sell off that will take down most growth stocks, at least in the relative short term (group by group over a few months). After that they may recover in groups on the 'rest of the world' play. For now we will use rallies to close most but the strongest, see how they test for possible upside bounce plays (and indeed off of this selling as well), and even short some of the leaders that start to break their trends as the sellers start dragging them lower as well.
THE ECONOMY
Pending home sales backslide a bit.
The 2.6% decline was more than expected, and it was a return to negative after a 1.4% gain in September and a 0.6% bump in October. Sure the gains in the prior months were modest and nothing compared to the prior months: -5% in June, -10.7% in July, -6.5% in August. It can mean, however, some stabilization trying to take hold. Your guts says 'not likely,' but in these matters your guts can steer you wrong. It pays to pay attention; not all blips will mean something, but after a straight down drop, a two-month uptick is worth keeping track of, particularly when the December number rolls out.
Fed's Plosser not as sharply hawkish as usual, but hardly inspiring.
Some said Philly Fed president Plosser was softening his stance some. More than likely he was just not blowing out as much fire and brimstone with his comments. He is an inflation worrier, and there was nothing in his Tuesday comments to change that view.
Plosser not only continued his consternation over inflation (he sees "worrisome signs of underlying price pressures"), he also opined whether Fed rate cuts would do any good at all. Plosser said he believes the weak U.S. economy will "improve appreciably" by the second half of the year, before the effect of any additional rate cuts would be felt. Great. For the second time during this economic weakening the Fed is indicating it is basically going to punt because it simply cannot do any good.
The problem with this attitude is that the Fed is historically ALWAYS wrong in its assessment of the economy's strength. Indeed, it underestimates the slowdown, and by the time it realizes it screwed the pooch and cuts aggressively, the economy is in shambles and the cuts cannot 'de-shamble-ize' it as M*A*S*H's Henry Blake would say. Just look at the Greenspan Fed and its rate cuts starting in 2001: cut after cut after cut and no impact. Not until the second round of fiscal stimulus was passed did the economy recover.
Thus the Bernanke Fed has crapped out. It has admitted defeat. Worse, this admission is threatening to lull it into inaction at the very time it needs to act and act aggressively. It is already too late, but at that point we are talking forestalling deflation that some very, very smart people are talking about right now even as the Fed and the likes of Plosser fret over inflation that, with respect to all areas it can control, is waning. As discussed last week, the only inflation threats are rising food prices and rising energy prices. Food is rising because of the Bush administration's ethanol folly. Oil is rising because oil is in demand and speculation is pushing it. The Fed can control that . . . if it sends the US economy and others into recession. Now THAT is a course of action that us US citizens surely want a quasi-governmental agency that was created supposedly for our benefit, to take.
When you think about these comments on inflation the past several months, it is really absurd. The Bernanke Fed stopped hiking rates even before the inflation numbers peaked, knowing that they would indeed turn lower because the inflationary pressures peaked long before. They have continued to wane even with food and oil rising. The Fed cannot control food prices raised by ethanol mandates. It cannot lower oil prices by hiking interest rates without sending the world economy into recession and thus truncating oil demand. The inflation figures have indeed continued to fall into the Fed's comfort range outside of an aberration to the upside last month. Yet, the inflation rhetoric is on the rise. It makes absolutely no sense, and that is why so many are again frustrated, indeed damn angry, with the Fed.
It is sickening to see history repeat itself yet again. We gave Bernanke the benefit of the doubt. He made the right steps at first in tamping out the Greenspan inflation, stopping the rate hikes early, and then cutting rates aggressively at first. Then he started reading his press clippings I suppose, and now he is just one of the many robot Fed chairmen that follow a recession formula handed down by the 1929 Fed that triggered the Great Depression. To borrow a phrase from Ronald Reagan, 'there you go again.'
THE MARKET
MARKET SENTIMENT
VIX: 25.43; +1.64
VXN: 30.77; +1.38
VXO: 26.69; +1.55
Put/Call Ratio (CBOE): 1.38; +0.34. Of course another session above 1.0 on the close, making it three in a row. Lots more to come before the other indicators get where they need to be.
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: -58.95 points (-2.36%) to close at 2440.51
Volume: 2.67B (+1.91%). Another strong session to the downside as NASDAQ took out its August closing low.
Up Volume: 512.207M (-471.71M)
Down Volume: 2.092B (+490.594M)
A/D and Hi/Lo: Decliners led 2.38 to 1. The large caps were leading lower but overall NASDAQ was not far behind as techs sold off hard.
Previous Session: Decliners led 1.12 to 1
New Highs: 66 (+6)
New Lows: 444 (+69). Another 400+ session. After several of these 500ish readings this indicator will be right for a rebound move of some substance. Bear market rallies can be sharp.
NASDAQ CHART: http://investmenthouse.com/ihmedia/NASDAQ.jpeg
NASDAQ rallied up to the 2005 trendline on the high and then rolled over in a big, big way. An 87 point high to low swing. Big volatility as techs, the holdout to end 2007, were unloaded once more. Some support at 2400 from the March interim peak and some lows from 2006. It is in full selling mode, and thus support levels mean little now other than just points where, after 8 hard down sessions, it is oversold and looking for a bounce.
NASDAQ 100 (-2.41%) is down to some support at 1900ish. If this breaks it goes to 1870 to 1850. The large cap techs have lost their sponsorship as investors shift from growth to defense.
NASDAQ 100 CHART: http://investmenthouse.com/ihmedia/NASDAQ100.jpeg
SOX CHART: http://investmenthouse.com/ihmedia/SOX.jpeg
SP500/NYSE
Stats: -25.99 points (-1.84%) to close at 1390.19
NYSE Volume: 1.845B (+7.65%). Volume was by far and away the strongest of this selling leg, ramping up well above average. Outside of that once session on expiration, this is the strongest volume in over a month and shows once more the hard selling in the financials and the small caps.
Up Volume: 361.846M (-512.676M)
Down Volume: 1.464B (+635.561M)
A/D and Hi/Lo: Decliners led 1.87 to 1
Previous Session: Advancers led 1.27 to 1
New Highs: 58 (+19)
New Lows: 518 (+93). Back over 500, building up a backlog of new lows. This is an indicator of bottoms trying to set up but the other indicators have to come in line as well, e.g. bulls/bears, volatility.
SP500 CHART: http://investmenthouse.com/ihmedia/SP500.jpeg
Diving below the November and August closing lows as well as the 2003/2004 trendline. A major technical breach in progress and the March 2007 and August intraday lows are the next level it is ultimately heading for. As with NASDAQ, it has become very oversold, and a touchdown near 1375 could be the trigger for an oversold bounce. At this point we are just waiting to see where it lands. Too late to short it again and those puts we had sure would be nice to still have of course; at least the SDS is in there working for us. Technically broken for now and it is a question of how far it falls before a snapback of significance takes hold.
SP600 (-2.64%) broke more support as it has long left the November and December lows behind. 360, 350, those are potential support points, but the small caps are broken as well as the market prices in recession. Those IWM puts would still be nice to have, but the market did not bounce off support as the news just got worse.
SP600 CHART: http://investmenthouse.com/ihmedia/SP600.jpeg
DJ30
Plowed under the November lows and heading for the August intraday low near 12,500 where there is also some support from late 2006 and early 2007. It has consummated its head and shoulders pattern and the 'textbook' selloff from this pattern would put the in the 11,500 to 11,250 range. It won't go there in one swoop, and as soon as you start talking about how far down an index will go it will bounce. Nonetheless, it too has broken down technically and this is not over. On a bounce we short it with at least some DIA puts.
Stats: -238.42 points (-1.86%) to close at 12589.07
Volume: 322M shares Tuesday versus 306M shares Monday. Strengthening volume the past three sessions with the selling volume pushing stronger.
DJ30 CHART: http://www.investmenthouse.com/ihmedia/DJ30.jpeg
WEDNESDAY
The indices are in freefall, looking at the next support level to see if that will hold. As indicated in the discussion of the Dow, however, whenever we and others give up on the bounces and start talking about how the market has broken down and look down below to see how far it will fall, that is usually when it makes a bounce. That was part of the discussion in the offices today: we were looking for a bounce Tuesday, and the market started to do so, but it was easily brushed aside by a rather 'yeah, so?' report on phone subscribers not paying their bills. That itself plays into the 'the market is broken' theme of the analysts: an issue so simple causes a meltdown so everyone gives up. Just a that point the market often goes a different direction.
Thus we are not going to jump in and short at this level. We might get another run down to the next support before it surges back up to test that move with some heavy short covering. That is when we will move in, i.e. when that rebound stalls out, and add to the shorts once more. Of course when we see the bounce start we will close out our remaining short positions.
At this juncture we are still looking at the upside in some areas. As noted last night, if a stock has held up well during this downside onslaught it truly has some serious backing, and a relief bounce will send them higher along with the stocks getting covered up by the shorts. At the same time we are going to be looking at those leaders that held on pretty well but then DON'T make a good recovery move when the market shows its relief bounce. Those are likely the stocks that are losing their mojo, their leadership strength, and they are short candidates when a relief moves runs out of juice.
Indeed that is how you play the downside legs. We will look at stocks that broke down and rebounded to resistance and stall; classic shorts. We will look at those that have led but then lose their drive. We will look at those in continuing downtrends that rebound back up to resistance and stall. We get ready, and when they break we move in just the way you buy a breakout or a rebound when it starts its move.
On the upside, again we are still looking for stocks that can work upside for us. Those include some of those consumer staples, vice stocks, and related companies that are the better movers in their groups. There are also stocks that are more growth oriented such as the healthcare and medical stocks. And we can still see energy and other 'rest of the world' stocks perform quite nicely. We can also look go play some big movers to the upside, i.e. those stocks that ran down to the 50 day EMA and are set to bounce and can cover 10 points with ease. We own some of those right now for that matter.
The decline in leadership is the tell tale signal in the market. The US indices were in trouble but a lot of leaders, a lot, were solid. Now the ground is giving way under many, and that gives the market that inexorable downside look despite a strong world economy. As noted above, they may still rally again as many continue to withstand the market selling. We just have to be patient.
Support and Resistance
NASDAQ: Closed at 2440.51
Resistance:
2451 is the August closing low and is trying to hold for a bounce.
2535 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 2644
2725 is the July high
The March up trendline at 2738
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:
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 1390.19
Resistance:
1405 is a longer term trendline from the August 2003/September 2004 lows
1406 is the August and November 2007 closing low
1430 from the August interim lows
1440 - 1437 from January and March peaks
1456 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 1470
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:
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 12,589.07
Resistance:
12,743 is the November low
12,786 is the February 2007 peak
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
Support:
12,518 is the August intraday low
12,250 from late March 2007 lows
12,050 from the March 2007 low
11,670 is the May 2006 intraday high; 11,642 closing
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): -2.6% actual versus -0.8% expected, 0.6% prior
Consumer Credit, November (3:00): $15.4B actual versus $8.5B expected, $2.0B prior (revised from $4.7B). No drop off in the consumer credit as the consumer, for November, remained strong.
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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world stock market
us stock market
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