|
|
us stock market, understanding the stock market
* * * *
01/10/08 Technical Traders Report Update
* * *
MARKET ALERTS
Targets hit alerts: GME
Buy alerts: CPHD; STE
Trailing stops: SDS
Stop alerts: CYBS; ESLR; MA
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 shrugs on Mr. B rate cut advisory, then continues the relief rally on the CFC deal.
- Retail same store sales tell the economic slowdown story.
- Bernanke promises 'substantive' and 'timely' action to come, but economy needed it 4 months ago.
- Relief bounce trying to squeeze out another session
Relief rally on the skids, saved by Bernanke but more so by a deal in the mortgage sector.
After what looked to be the start of a relief rally with some staying power on Wednesday, Thursday looked shaky. Futures were not just a bit soft as is typical after a strong finish as on Wednesday; they were pretty ugly with NASDAQ fair value more than 10 points lower.
The foul mood was the result of more so-so economic news. December same store sales were the worst in a few years for the holiday season (up 2.2%) with 63% missing expectations. Of course the misses are in line with the past couple of months so the gloom was a bit of an overreaction. Gee, when was the last time the market did that? There was some strength, e.g. WMT and COST, but those are not the right places to see strength. More on that later. Jobless claims were better, but they did not change the trend. The BOE left rates as is; that did not induce much cheer for the upcoming Mr. B speech that would begin at the start of the afternoon session.
Things got a bit overdone early on with NASDAQ off 30 or so points. That is more than just a soft start that leads to rebounds. The Bernanke speech was leaked early, however, as some news agency broke the embargo on the speech. With talk of timely and substantive additional action the market took heart and jumped higher. As quick as it jumped back up, however, it slumped back with NASDAQ again returning to negative. The NYSE indices fared a bit better as they held just above the flat line. Man what a strong relief rally.
Things got interesting again, however. The WSJ reported that a deal was in the works where BAC was ready to take out CFC. That sparked real interest with investors. When companies finally feel the time is ripe to move in with takeovers and buyouts of distressed companies and assets that can mean a decline has hit a bottom. Coupled with the Fed promising some aggressive action (at least Bernanke; others were simultaneously saying inflation was an issue), investors recognized a pattern that tends to repeat throughout history when financial market issues lead to economic slowdowns. The last such event was in the early 1990's when financial stocks led the recession. The Fed finally stepped in when financial stocks started buying each other. That marked the bottom for those stocks and indeed the market. That is hardly the case here with respect to the market overall; there is still plenty of work to be done. It is an important and necessary step, however, on the road.
In any event, the market liked the turn of events and finished to the upside though it was no broad surge higher. It was shaky and tentative even to the close, and the indices are still way down in the canyon, trying to scale the sheer walls they fell into after their cliff diving episode. The market is in a relief bounce and nothing on the day changed that.
TECHNICALLY it was another weak to strong session as far as intraday action. Second in a row. That is always a positive, but it was no sure thing Thursday as the action was tentative and there was even a poor reaction to the potentially good news from Bernanke. A higher close yes, and it overcame adversity, but there was not a lot of momentum on the close. You can count Wednesday as the start of a new rally attempt, and mid-week next week will tell us more as to its efficacy.
INTERNALS: Volume was a bit lower on NASDAQ, up on NYSE. Breadth improved to 2:1 on NYSE and 1.5:1 on NASDAQ. Better for sure but still narrow compared to what the indices have shown in the volatile action over the past couple of months. With these readings you still have to conclude this is relief bounce material as the burden is on the upside.
CHARTS: SP500 cleared the November low and moved up tot the next resistance at 1425. NASDAQ showed similar action as it moved up to some resistance at 2500. Ditto DJ30. An upside move off the Wednesday intraday tests of the August lows that left all of the indices just below some resistance. A wicked selloff and two upside sessions with questionable underpinnings. Maybe some more upside Friday to bang into next resistance, and then we could see the end of this bounce.
LEADERSHIP: There were some nice breaks higher. China was on fire with many of the stocks gapping higher. Overall, however, leadership did not surge massively or close to massively. We would have preferred to see leaders surge higher as that would show money was flowing into them, meaning buyers were in buying long positions in addition to the short covering in the battered stocks that sold hard in the last round of selling. That was not the case and that left the bounce still in the relief category. The leaders that held their position will need to come to life as the shorts wind down their action. They have to take the torch from the shorts and carry the rally forward. Right now there is very little new money coming in as many leaders are just holding support during the rebound. Money has to start chasing the leaders or the relief rally ultimately fails to turn into something more 'substantive' to borrow a Bernanke term. Note that the defensive stocks such as MO paused on the session as well. As the weak stocks rally back, longer term money moves aside. When the shorts are done the money comes back to the defensive sectors if the money does not decide to pursue a rally in the leaders.
THE ECONOMY
WMT sales are up! The economy must be okay, right?
We heard it all day. WMT, the world's largest retailer, showed an unexpected 2.4% gain in sales (1.8% expected). Given its retail impact, that was viewed by many as a good sign the consumer is not weakening. Wrong, wrong, wrong. History tells otherwise.
Back in the last recession discounters were the only retailers that enjoyed rising sales and decent stock prices. When that recession ended and the US economy recovered, WMT sales and its stock price peaked as the economy recovered and slid lower and lower and just started to come back again over the pat four months . . . as the economy slid lower and the market started to forecast recession.
When the economy is expanding and consumers feel good they shun the discounters and shop at the more upscale brand name retailers. When they grow cautious they turn to the discounters where they buy the staples they need regardless of economic conditions, the products stocks such as CHTT, PG, JNJ, etc. make.
Because the economy is weaker, they buy as cheap as possible. Thus the improved sales in WMT and COST, another discounter that competes with WMT's Sam's Club. Both of those enjoyed nice earnings boosts above expectations while 63% of the sellers failed to meet expectations. WMT's improving sales and the lack of sales in the prior leaders does not show a healthy consumer. It shows a consumer that is worried.
Bernanke promises the action that was needed before the economy cracked.
Mr. Bernanke took the worries head on Thursday, and he used an old Fed trick, one he has had to employ twice, to do it. It is called 'using the available cover.' Bernanke started out good with his pause, his apparent understanding of history coming into play. Then he strayed, caving into the inflation mongers, and started talking tough. When the data suddenly weakened he had to change the Fed's tune and he cut aggressively, citing unexpected economic conditions. He seemed back on track to prevent problems. Unfortunately he again let the inflation hawks turn him aside and he cut 25BP when another 50 was needed. After the market dove again recently, he had to change course. The jobs report was the cover he needed; it was also what really rocked the market as this lagging indicator was tanking.
Thursday Bernanke used the "disappointing" jobs report and worries about the consumer going underground as reason for changing the Fed's stance back to worries about growth versus inflation. He noted that the 2008 outlook had worsened and the risks to growth were much more pronounced. As a result, he expressly stated additional policy easing may well be necessary and that the Fed was prepared to act in a decisive and timely manner. He said 'substantive' additional action would be taken if needed. Now Greenspan always used the 'additional action' phrase, meaning 25BP. By adding the 'substantive' adjective Bernanke was telling everyone if a cut was necessary it would be 50BP.
The language was all designed to calm the markets and to calm investors worried about higher oil prices, the housing market, and declining stock prices. Of course to do so he had to say the action would be timely. As we all know, however, timely action would have been several months ago when the credit markets froze up, i.e. back in July or August. As we wrote at the time, financial crises need to be addressed quickly and with massive firepower to allay fears, because those types of crises are fear driven. The Fed failed to do that and only angered (more like pissed off) investors with the 25BP cut and the 'TAF' auctions and swaps. The market is forecasting, and the economic data is starting to confirm, that the action is not timely. Bernanke could have announced a 50BP cut Thursday and the market may have still had the 'so what?' reaction it showed simply because the question would remain whether the Fed acted quickly enough. Right not the economy needs some fiscal stimulus as well as monetary policy stimulus given the sharp slide. The Fed action would at least provide some build in confidence, however, while we wait for the executive and legislative branches to get it together.
Indeed, as we noted in August, confidence is key in these kind of crises. The Fed has to regain the confidence of the financial markets. That is what made Kohn's comments so annoying when he noted any cuts would likely not impact the economy in time to do any good. When dealing with financial crises, confidence must be restored. It is not the impact of the cuts on the actual economy, but the impact on the confidence in the financial markets that is key. Thus ANY strong action will have immediate impact on the confidence. The problem here is the Fed waited too long to act and now there are impacts upon the economy because the Fed did not restore the financial markets' confidence and get funds flowing rapidly. That is one of the reasons the market gave a very muted response to Mr. Bernanke's speech.
THE MARKET
MARKET SENTIMENT
VIX: 23.45; -0.67
VXN: 27.78; -0.4
VXO: 24.94; -0.82
Put/Call Ratio (CBOE): 0.98; -0.18. The rally pushed it back below 1.0 on the close for the first time in four sessions.
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: +13.97 points (+0.56%) to close at 2488.52
Volume: 2.656B (-8.25%). Volume faded modestly but it was still quite high as NASDAQ continued its bounce from the selling.
Up Volume: 1.699B (+203.178M)
Down Volume: 857.684M (-304.701M)
A/D and Hi/Lo: Advancers led 1.49 to 1. Turned positive but was still quite contained. The large cap NASDAQ 100 (0.23%) lagged.
Previous Session: Decliners led 1.07 to 1
New Highs: 63 (+10)
New Lows: 315 (-345)
NASDAQ CHART: http://investmenthouse.com/ihmedia/NASDAQ.jpeg
Gapped lower and was looking rather sickly, but it held at the August closing low and then recovered in the afternoon to reach the August interim lows at 2500. It backed off of that modest resistance on the close. NASDAQ is still below the old trendline at 2535 and price resistance at 2540 o 2550, the next tests on this rebound. It will have to show more strength than what it is putting out to get past these first levels of resistance.
NASDAQ 100 (+0.23%) lagged even though the large cap techs took the majority of the beating in NASDAQ on the recent selling. It bounced off the interim August lows and closed at some resistance at 1950 after moving through it on the high. It has some serious resistance at 2000 and the 200 day SMA (1990) just in front of that. That will be a serious roadblock for the index on this relief bounce.
NASDAQ 100 CHART: http://investmenthouse.com/ihmedia/NASDAQ100.jpeg
SOX CHART: http://investmenthouse.com/ihmedia/SOX.jpeg
SP500/NYSE
Stats: +11.2 points (+0.79%) to close at 1420.33
NYSE Volume: 2.062B (+14.17%). Strong volume as the NYSE indices pushed upside to next resistance and backed off modestly. Hard to call it accumulation even with the strong trade and decent breadth.
Up Volume: 1.552B (+558.019M)
Down Volume: 494.011M (-280.464M)
A/D and Hi/Lo: Advancers led 2.09 to 1. Not bad, improving over Wednesday.
Previous Session: Advancers led 1.44 to 1
New Highs: 48 (+4)
New Lows: 216 (-509)
SP500 CHART: http://investmenthouse.com/ihmedia/SP500.jpeg
Continued the rebound off the March lows and the August intraday low. On the high it tapped at the 10 day EMA (1431) and faded back. That point also marks the August interim closing lows before that plunge lower. Already bucking at resistance. Would like to see it up closer to 1450 before it rolls over, but we have to see where it plays out and be ready when it rolls over.
SP600 (+0.84%) rebounded as well but it is so far down in its selloff it is not going to change anything. We are looking for a rebound up to 380ish to give us another opportunity to short the small cap indices.
SP600 CHART: http://investmenthouse.com/ihmedia/SP600.jpeg
DJ30
The blue chips also bounced past the November low, tapping at the 10 day EMA on the session high. Continued strong volume; it is elevated on the upside and downside sessions the past week. 13,000 is our first resistance level and the 10 day (12,947) is just below that level. We could see this relief bounce die at that point unless the Fed announces a big rate cut in the very near future.
Stats: +117.78 points (+0.92%) to close at 12853.09
Volume: 325M Thursday versus 332M shares Wednesday.
DJ30 CHART: http://www.investmenthouse.com/ihmedia/DJ30.jpeg
FRIDAY
Import prices, trade balance, and the treasury budget are on tap for Friday. With the Fed-speak, deals in the financial sector, and earnings starting up big time next week, those reports will be relatively low on the totem pole of importance.
The rebound rally bounced up to the next resistance point on Thursday, and we would really like to see it squeeze out another upside session, but it may not be able to. The rebound Thursday was tentative and needed plenty of help to stay on track. In the morning the market will have issues to deal with as AXP announced after hours its business was slowing due to a general economic slowdown. More fuel for the recession fires.
Maybe that will be the piece of data that forces the Fed's hand and it will fly in, dropping money out of Bernanke's helicopter. We are not holding our breath, and as discussed above, that would likely not induce a major rally because it is so late in coming.
Back from fantasyland, we will be watching Friday for a big more upside squeezed out of the relief move. We will use it to continue taking some positions off the table as we did Thursday, thinning out the laggards ahead of a likely turn back over by the major indices. As noted before, it will take something major to turn the negative tide. The BAC/CFC news was a good start but it was not definitive by any means just as Bernanke's promise of help does not mean rate cuts will help. Just look at what happened in 2000 and 2001; no amount of rate cutting helped after the economy nose-dived.
Thus we will use a further rally to close some positions that are not recovering support in very solid fashion and look to reload on some downside plays as the indices and some hammered stocks rebound to resistance. With any luck the AXP news won't derail the relief bounce on the open and the market can rally a bit more before some selling ahead of the weekend starts. That would give us a nice opportunity to set things up. Of course, futures are down 6 points on SP5 and 8 points on NASDAQ in the overnight market thanks to that AXP news.
Support and Resistance
NASDAQ: Closed at 2488.52
Resistance:
Some modest resistance at 2500 from interim August lows.
2535 is the August 2004/April 2005/October 2005/March 2007 up trendline
The 10 day EMA at 2541
2550 to 2540 from May/June consolidation and the November lows
The 200 day SMA at 2615
The 50 day EMA at 2631
2634.60 is the June peak
2725 is the July high
2735 is the December intraday high
The March up trendline at 2742
2768 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
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 1420.33
Resistance:
1430 from the August interim lows
1440 - 1437 from January and March peaks
1457 is the June/July 2006 up trendline
1459 is the February peak
The 50 day EMA at 1466
1475 from peaks in December 1999 and January 2000
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
1405 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 12,853.09
Resistance:
The 10 day EMA at 12,948
13,050 to 13,000 range
13,092 is the December low
The 50 day EMA at 13,264
The 200 day SMA at 13,372
The 90 day SMA at 13,473
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:
12,845 is the August closing low
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
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 9
Crude oil inventories (10:30): -6.8M actual versus -800K expected, -4.05M prior
January 10
Initial jobless claims (8:30): 322K actual versus 340K expected, 337K prior
Wholesale inventories, November (10:00): 0.6% actual versus 0.4% expected, 0.0% 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
|
us stock market
understanding the stock market
|
