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world stock market, us stock market
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1/15/08 Technical Traders Report Update
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MARKET ALERTS
Targets hit alerts: NILE
Buy alerts: MS
Trailing stops: APC; WFT
Stop alerts: CHL; CVX; HAL; SLT
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:
- What IBM gave, C, retail sales, PPI, etc. take away.
- Market provides no safe conduct on Tuesday as fears of US recession reach across to other continents.
- No bottom yet: Signs there is still too much froth.
- Intel to ignite another round of selling to take out the August and March S&P 500 lows that will then let the market catch another bounce.
Good news IBM bounce cannot withstand tolling of recession bell.
After a surge on unexpectedly good news from IBM, the same old specters came back to haunt the market. The PPI was a bit better overall but was at a 25 year high nonetheless, not the kind of news to calm a market worried that inflation would keep the Fed timid. Retail sales were the hammer, however, coming in much weaker than expected (-0.4% versus 0.0%), putting the year in the middle of the 2002 and 2007 range; weaker, but not quite recession level. Then there was Citigroup with its massive earnings miss (1.03 versus 1.99 expected) and a write-down and austerity program that just didn't do it as far as investors were concerned. The great white hope, the Jobs keynote address at MacWorld, also failed to impress as it produced no unexpected surprises; AAPL paid the price of overachievers as its stock was hammered $14 intraday before a late bounce cleaned up some of the blood.
No matter what the catalyst, the market was in the wastebasket from the open. It started lower, tried to bounce at lunch but failed, tried again in the last hour, but that too failed. Almost all sectors were hit as investors retreated into the recession trade, dumping what looked good on Monday.
TECHNICALLY the action was as bad as the number indicate. Stocks started lower and closed even lower. As noted, a couple of bounce attempts were steamrolled and thus the indices closed near the lows. The few buyers out there were handed their chestnuts, roasted of course.
INTERNALS: Breadth was weak as you would expect, running rough -3:1 on both NASDAQ and NYSE. Volume jumped right back up on the selling as stocks were dumped. Any question about investor intent as the indices bounced around the August closing lows the past week was pretty much answered by the internal weakness shown on the Tuesday selling.
CHARTS: NASDAQ and SP500 posted new January closing lows though they remain above the August intraday lows. DJ30 posted a January closing low as well, but it also took out its August intraday lows. What does that mean? The door to the downside is opened some more. Indeed, with the Intel news after hours, SP500 and NASDAQ are a snap to take out those August lows and challenge the March lows. With that undercut of key lows that have held to this point, we are likely to see some short covering in response. That won't change the direction, but the reflex bounces from such action can be sharp.
LEADERSHP: More casualties Tuesday as investors tossed just about everything out the window. China broke lower. Energy, a strong Monday leader, was under duress though overall these stocks managed to hold near support. Those stocks with overseas ties were not spared, however, as fears of a global recession continue to grow. Even traditional defensive sectors had a hard time holding up in the face of the selling. Of course, finishing flat in this session was a moral victory in itself. That is, however, about all you can say for the leaders on Tuesday.
THE ECONOMY
US recession appears baked in, but market is acting as we are not going to be alone.
I think it was the 'X-Files' that had the saying 'we are not alone.' Thus far with respect to recession fears, most viewed that the US was in fact alone. There has been some anecdotal evidence of slowing that we have reported on, e.g. weakening consumer sentiment in Germany and sluggish sentiment in the UK, but the hard evidence was not showing up.
Tuesday the picture in the UK came into clearer focus and you now see why the BOE has been more intent on cutting rates than the ECB and its French chairman, Mr. Trichet. While the US was reporting weak retail sales for December, one of Britain's largest retailers reported very weak December sales. Looks as if the US was not the only major industrial nation suffering from consumer-itis, and if the weaker UK consumer sentiment is now showing up in the hard numbers we could very well see it do the same thing in Germany and France.
The idea of a slowing world economy is not alien, but most are not expecting it. We need to be careful, however, because France and England have pushed for more leniency by the ECB. As we are seeing, there is a reason for that as the data starts to come in. Oil has behaved poorly after it again recovered from a run at 100 and surged last month. Then it faltered, and is sliding south ever since. Tuesday it closed at 92, down 2.20/bbl. It is a hiccup away from closing in the eighties. That is hardly a level indicating recession and there are other factors at work in the price such as the continued speculation adding a premium onto each barrel, but let's face it: the reason there is speculation is because of anticipated worldwide demand. If the perception shifts that demand will decline due to a fading world economy, price will follow. Indeed, we will see just how much speculation had built into the price because when that momentum leaves, it leaves in a hurry and lets things fall hard. When Saudi Arabia told President Bush it had another 2M bbl/day of production on the side, well, that only added fuel to the downside fire.
Retail sales fade to end 2007 and manufacturing continues to struggle.
Meanwhile in the US the economic data continues to weaken. As noted, December retail sales failed to meet expectations. For the year sales ran 3.7%, topping the 3.0% in 2002, a recession year, and 3.8% in 2003 when we emerged from recession. That is way down from the 6.4% in 2006 and the roughly 6% in 2004 and 2005.
Not a great scenario to start the new year as consumers were bombarded to end 2007 by waves of negative commentary on the economic outlook on the news in addition to the housing and gasoline price issues they were already dealing with. Cannot fault the news; it is what it is, and the market was selling off, forecasting the economic issues to come. The end result is the same regardless of the source.
CEO confidence is the next to go.
The saving grace for the past year and one-half, at least economically, was the US corporate climate with so much cash on the balance sheet, ready to spend and kept the expansion alive. Problem is, corporations are not just uncaring, unthinking profit machines as they are often cast in political debate and policy making fights. They tend to act rationally, particularly after the implosion in 2000 that many of today's CEO's either experienced first-hand or were witness thereto.
Thus they have played things closer to the vest this expansion, investing yes, but not getting too stretched out for when the inevitable downturn comes. The recent confidence data suggests they see troubles ahead. Some have been out in front for almost a year; the freight haulers were warning of an economic slowdown coming early in 2007. In Q4 2007 the confidence level fell to 39, down from 44 in Q3. The last time it fell below 40 was in Q4 2000 (31). Looking out over the first half of 2008 confidence falls to 16, down from 20.
So much of the talk right now in the political races and from the President is short-term, demand-side stimulus (the so-called rebates). That will in no way stimulate business, the part of the economy that invests in capital equipment and new ideas that makes the jobs that those demand-side consumers need. $600 in your pocket does not make you feel good about your job or your future. That only comes from companies spending on business and on workers. Unfortunately the politics have taken over and the useless giveaways are going to control most of the discussion on how to kick-start economic growth.
THE MARKET
No bottoms around here.
There are two very important points to note from the Tuesday market action with respect to the market's relative position in the current selling, and one anecdotal factor as well.
First, the Citigroup write-down, dividend cut, and staff reduction actions failed to produce a bottom in the financials. Financial stocks have shown some relative strength over the past week, slowing the losses and showing some gains as the market sold. That did not hold after the C announcements, however. Often a sector will bottom when a key player finally bites the bullet and makes the changes necessary to clear the decks of all the losses and focus on making money. When a new executive comes in he or she usually removes the deadwood that he did not cause, writing it all off to start anew. The Citigroup action simply did not satisfy investors that all of the skeletons were out, and the financials sold off once more.
Second, the VIX is AWOL. Oh it is still there, but it was up less than a point Tuesday even when the Dow was pushing 300 to the downside. It is entrenched in the low twenties, a level that historically means lethargy or apathy. In order to suggest a bottom in the selling it needs to be in the forties and even in the fifties. It has a long way to go.
Third, there are a group of annoying commercials by E-Trade I believe where some pasty-white mega-geek is frothing over being able to buy a stock at 2:30 a.m. on the Hong Kong exchange. There are other equally annoying commercials where 'real' traders/investors supposedly demonstrate their market acumen and toughness. These are the same commercials seen in 2000 where the 'average guy' was ruling Wall Street. As far as sentiment, that is a contrary indicator just as it was then. Combined with the other sentiment elements we see that there is still much work to be done before they all line up and signal a bottom.
MARKET SENTIMENT
VIX: 23.34; +0.44
VXN: 27.48; -0.6
VXO: 26.11; +1.09
Put/Call Ratio (CBOE): 1.25; +0.29. Back over 1.0 on the close after a couple of closes below that level.
Bulls: 48.4%. Hefty drop from 52.2% the prior week and 54.9% before that. Down from 56.50%. Didn't make it below 45% (it hit 40.6% on the low for the prior round of selling), a key indication, but on this run it may just do that. 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: 25.8%. Not bad, up from 24.5%. Bears continue rising as you would expect as the market continues falling. After a rather quick drop near 20% from 29.0% in late November. Significantly above the threshold 20% considered bearish but needs to get over 30% to really show the kind of washout fear needed. 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: -60.71 points (-2.45%) to close at 2417.59
Volume: 2.416B (+13.58%). Volume surged back above average as NASDAQ sold off. Some clear distribution, i.e. dumping, in the techs resumed.
Up Volume: 277.154M (-1.326B)
Down Volume: 2.097B (+1.539B)
A/D and Hi/Lo: Decliners led 3.12 to 1. Weak on the upside, surging on the downside yet again.
Previous Session: Advancers led 1.47 to 1
New Highs: 41 (-15)
New Lows: 411 (+187). Ramping back up once more. Levels of 500 or more suggest things get extreme levels, but it takes quite a while to build up sufficient backlog to make a bottom.
NASDAQ CHART: http://investmenthouse.com/ihmedia/NASDAQ.jpeg
NASDAQ plowed through the January closing low and is heading back toward the March interim peak (2402) and August intraday low at 2386. The distribution resumed, trashing any inkling that the rebound started last week had any legs. Intel will certainly send it down to test these next levels. The only question at this time is just when and where NASDAQ finally decides to put in a bottom on this downleg that officially starts the recession. After this leg it will start a recovery move that will last a couple of months or so before heading lower once more. Before that bounce it will likely move below the March low.
NASDAQ 100 (-2.82%) set a new January closing low and is still well above the August lows, closing (1846) or intraday (1805). NASDAQ 100 has held up longer than the other indices, and while there is no doubt it is in a selloff equal to those, it started from a stronger position and thus it can find support at the August lows or in that range and make a turn for that post-recession start rebound. That makes the NASDAQ 100, as always, worth watching as this selling plays out.
NASDAQ 100 CHART: http://investmenthouse.com/ihmedia/NASDAQ100.jpeg
SOX CHART: http://investmenthouse.com/ihmedia/SOX.jpeg
SP500/NYSE
Stats: -35.8 points (-2.49%) to close at 1380.95
NYSE Volume: 1.817B (+28.78%). Volume surging back above average again as the large caps and small caps turned over once more. Investors were cleaning out the cupboards again.
Up Volume: 133.496M (-870.184M)
Down Volume: 1.677B (+1.276B). -12.5:1 down to up volume. Extreme.
A/D and Hi/Lo: Decliners led 2.98 to 1. Not to the degree as on NASDAQ, but the downside breadth continues to outstrip the upside.
Previous Session: Advancers led 2.16 to 1
New Highs: 37 (-31)
New Lows: 386 (+199)
SP500 CHART: http://investmenthouse.com/ihmedia/SP500.jpeg
Diving lower to a new January low and ready to take on the August low and the March lows that are only points away (1374 March, 1370 August). Big umbrella top on the SP500, and the key here is that the financial stocks failed to put in a bottom on the C earnings results and write-downs despite the financial sector showing relative strength over the last week. SP500 certainly looks set to undercut those levels on Tuesday. After undercutting such key milestones there is typically a short covering spree. That would put SP500 down 13% from its October high; enough to start a sustained rebound, but a move down to the May 2006 peak at 1325 would not be out of the question as the point that turns things up for a more sustained rally.
SP600 (-1.98%) did not undercut the January intraday low either, though it looks to be a lock to move down near 350, the summer 2006 lows, before it is done with its selling. That puts it just over 10 points away, and with the kind of selling seen of late, it could be there before the weekend. For now it is six one way, half a dozen the other; it is selling hard and it is going to bottom at some point and rebound, likely near those summer 2006 lows.
SP600 CHART: http://investmenthouse.com/ihmedia/SP600.jpeg
DJ30
Unlike the other indices, DJ30 undercut the January intraday low on the close as volume shot higher. IBM helped Monday, C and JPM (along with all other DJ30 stocks) hurt it on Tuesday. Wednesday INTC is going to continue the pressure. DJ30 is entering a range of support from 12,500 down to 12,250, then to 12,100ish. That is where it based in March 2007, and while it is ready to test lower, the index will try to find some support there after this harsh round of selling. A sharp selloff to 12,500ish on Wednesday and we have to start looking for a rebound.
Stats: -277.04 points (-2.17%) to close at 12501.11
Volume: 339M shares Tuesday versus 245M shares Monday.
DJ30 CHART: http://www.investmenthouse.com/ihmedia/DJ30.jpeg
WEDNESDAY
When it rains it pours. PPI on Tuesday, now CPI on Wednesday. C on Tuesday, INTC ready to send things even lower Wednesday. The bad news overfloweth.
That news is set to open stocks lower again on Wednesday and take the indices down to those March levels, the last serious rung of nearer support before a much more significant decline. The news is bad and the market has sold sharply without any real relief; the bounces the past week were washed away as quickly as they appeared.
With the negative views and the long list of bad news, another sharp sell off on Wednesday that takes the indices to the March levels will likely bring about a rebound move. You see this just about every time a key level is hit and breached. Shorts cover and drive the market back up for at least a short period of time.
With the sellers firmly in control you have to view each relief move as a short bounce though as noted above, after the first downside leg in a recession selloff is in the bank there is typically a more sustained upside move that lasts just long enough and looks just good enough to draw most back into the market before the rug is yanked out once more. If we get that sharp selloff that cuts into the March lows and then rebounds sharply we are looking at the potential for a more sustained upside recovery.
Thus with a hard blow down as discussed above, we will look to lock in some gains on the SPY, SDS and other downside plays. After that we can look at the upside with those stocks that have held up reasonably well during the selling to ride higher in a recovery, knowing we are not entering into any long-term commitments when we move in. It is a recession market and we adjust our goals closer accordingly.
There is rumor that the Fed is going to come out and cut rates in an intermeeting move this week. That rumor was out this morning, and when it did not come to be the SP futures sold lower again and that first rally off the selling failed. The only specific data we hear is Friday morning given it is expiration and the Fed wants to kill the shorts and drive them out of the market. Crazier things have happened. Now the Fed won't be able to change the course of the economy and thus the market with a 50BP rate cut. That time is gone. It can impact it short term, however; intermeeting moves always have that added emphasis. All the more reason for us to be locked up with the downside on the index plays on the next really hard selloff we get.
Support and Resistance
NASDAQ: Closed at 2417.59
Resistance:
2451 is the August closing low
Some modest resistance at 2500 from interim August lows.
The 10 day EMA at 2515
2539 is the August 2004/April 2005/October 2005/March 2007 up trendline
2550 to 2540 from May/June consolidation and the November lows
The 18 day EMA at 2555
The 200 day SMA at 2616
The 50 day EMA at 2618
2634.60 is the June peak
2725 is the July high
2735 is the December intraday high
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 1380.95
Resistance:
1406 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
1432 is the 18 day EMA
1440 - 1437 from January and March peaks
1458 is the June/July 2006 up trendline
1459 is the February peak
The 50 day EMA at 1459
1475 from peaks in December 1999 and January 2000
The 200 day SMA at 1491
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 12,501.11
Resistance:
12,518 is the August intraday low
12,743 is the November low
12,786 is the February 2007 peak
The 10 day EMA at 12,800
12,845 is the August closing low
The 18 day EMA at 12,945
13,050 to 13,000 range
13,092 is the December low
The 50 day EMA at 13,192
The 200 day SMA at 13,377
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:
12,250 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 15
Retail Sales, December (8:30): -0.4% actual versus 0.0% expected, 1.0% prior
Retail ex-Auto (8:30): -0.4% actual versus -0.1% expected, 1.7% prior
PPI, December (8:30): -0.1% actual versus 0.2% expected, 3.2% prior
Core PPI (8:30): 0.2% actual versus 0.2% expected, 0.4% prior
NY Empire State Index, January (8:30): 9.0 actual versus 10.0 expected, 9.8 prior (revised from 10.3)
Business inventories, November (10:00): 0.4% actual versus 0.4% expected, 0.1% prior
January 16
CPI, December (8:30): 0.2% expected, 0.8% prior
Core CPI, December (8:30): 0.2% expected, 0.3% prior
Net foreign purchases, November (9:00): $114.0B prior
Industrial production, December (9:15): -0.2% expected, 0.3% prior
Capacity utilization, December (9:15): 81.2% expected, 81.5% prior
Fed Beige Book, (2:00)
January 17
Housing starts, December (8:30): 1.150M expected, 1.187M prior
Building permits, December (8:30): 1.140M expected, 1.162M prior
Initial jobless claims (8:30): 335K expected, 322K prior
Crude oil inventories (10:30): -6.7M prior
Philly Fed, January (12:00): -1.5 expected, -1.6 prior
January 18
Leading economic indicators, December (10:00): -0.1% expected, -0.4% prior
Michigan sentiment, preliminary January (10:00): 74.5 expected, 75.5 prior
End part 1 of 3
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