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1/16/08 Investment House Alerts
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IH Alert Subscribers:
MARKET ALERTS:
Targets hit alerts: SDS; SPY
Buy alerts: AGP; GENZ; PDX; GRA; PCLN
Trailing stops: BG; CF; CMED; VIP
Stop alerts issued: APA; BIDU; CF; DRQ; GOOG; IMO; SOHU; VIP; XTO
SUMMARY:
- SP500 completes the test of March 2007 lows, stages a rebound, then lets it slip away.
- Economic data shows nothing we didn't know: 2007 CPI growth at a 17 year high, industrial production and capacity top expectations
- SP500 back at the March 2007 levels: third time might produce a bounce, but it will only be a prelude to a further downside move.
Decent answer to a weak start, but no cigar.
Futures were down after yet another Intel disappointment. Another you say? Didn't INTC beat in July and then again in October? Two quarters upside in an impressive string of misses. In two weeks it undid all of its gains for 2007, gapping lower Wednesday as the crowning move. Intel has some great products and it sells a lot of them, it just seems to have a really hard time managing its size. Thus another disappointment when the market could ill afford it.
It was not, however, the bloodletting that the after hours trade on Tuesday seemed to suggest. Stocks started lower, but they did not implode as you might expect after such a lopsided downside on Tuesday. The news wasn't great but it wasn't bad either. The CPI was a tad hotter than expected and for 2007 it posted a 17 year high. Industrial production and capacity utilization posted slightly better than expected readings, about the only economic data to do that lately. JPM, contrary to Citigroup, posted good results and a modest write-down that investors took as a positive, figuring JPM would have written down more now to avoid doing so later. Production was flat, and that was better than expected, while capacity rose to 81.4%, topping the 81.2% expected. There was also a 'new' deal where ORCL and BEAS finally tied the knot.
It was not all roses. The main issue in the market of late, i.e. the world recession theme, was back in the headlines as the EIA lowered its world oil demand outlook by 130K bbl/day based upon slowing world economies. Moreover, some ECB officials were talking risks to growth versus inflation, and that was interpreted as another signal Europe is slowing.
That recession worry on top of the Intel news helped stocks off to another weak start. SP500 undercut the March lows, then as expected a bounce ensued. It held the bounce and extended it after the Fed Beige Book came in with nothing new (never does, does it?). The lack of any excessive hawkishness or bearishness allowed the market to bounce higher and turn positive in the afternoon. Heading into the close, however, the large cap indices could not hold the gains. They posted modestly negative closing prices. It was a good reversal off of support and on volume as well, but the negative close that gave away a good rebound kept it from being a meaningful reversal.
TECHNICALLY, the action was solid but not great. A lower open, a lower midmorning, then a reversal to positive . . . almost. Not bad intraday action, particularly on the heels of the Tuesday plunge lower.
INTERNALS: Breadth matched the price action, basically flat. The big story was the volume. It exploded higher on both NYSE and NASDAQ, certainly enough to suggest a reversal session whether long or short term. The high volume shows a lot of buying on the rebound. It could be short covering, long buying, or both. It is expiration Friday ahead, and a lot of this trade is related to expiration given the harsh selloff. Thus a lot of position rolling. The action of course also suggests short covering after a breach of a key support level. As we often note, the breach of an important support level almost always brings on some short covering. The long buying is clear when the rally continues on strong volume several sessions later. Not holding our breath for that, but you have to keep an open mind.
CHARTS: NASDAQ and SP500 blew down to the March 2007 lows and then reversed to turn positive . . . at least for a few minutes before slipping back to negative on the close. Still massively oversold in the near term given the harsh decline, and that can lead to a rebound at any time. As for the bigger picture, however, SP500 and the other indices remain in seriously weak patterns. This is SP500's third visit to this level in the past year. The last visit here is off of a lower high in December. A big umbrella top has formed and that means more downside ahead. Might get a bounce off of this reversal attempt first; the market has been aching to put one in. After that, however, even with Fed action, there will be more downside before the bottom is hit and the base can start forming.
LEADERSHIP: Leadership continues to thin out. Energy was down Tuesday, and it was down again Wednesday, this time helped by more recession worries tied to the world economy. These growing world recession fears are hitting even the leaders with overseas ties. Defensive areas are still working fine, and fortunately that includes healthcare sectors, and they can produce nice gains similar to growth stocks. As on Tuesday that has to be the focus until the market changes its character or they stop working.
THE MARKET
MARKET SENTIMENT
VIX: 24.38; +1.04. As noted Tuesday, still way, way too low.
VXN: 28.87; +1.39
VXO: 27.16; +1.05
Put/Call Ratio (CBOE): 1.19; -0.06. A second straight close above 1.0 even with the reversal that almost brought the indices to positive.
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: -23 points (-0.95%) to close at 2394.59
Volume: 3.505B (+45.06%). Volume surged to its highest in two months on the reach lower and recovery. That can suggest a reversal is trying to take root. Even with expiration pushing trade higher, it was still impressive volume even with that factored in.
Up Volume: 1.536B (+1.259B)
Down Volume: 1.952B (-145.925M)
A/D and Hi/Lo: Advancers led 1.19 to 1
Previous Session: Decliners led 3.12 to 1
New Highs: 54 (+13)
New Lows: 348 (-63)
NASDAQ CHART: http://investmenthouse.com/ihmedia/NASDAQ.jpeg
Reached down into the middle of its short March double bottom and then rebounded, just missing a recovery to positive. As discussed above, this action suggests a relief bounce can take another try, but in this kind of bear market selling volatile action is the norm. NASDAQ is in position to rebound yet again off of this level, but still not expecting that to be a sustained move.
NASDAQ 100 (-1.15%) tested its August closing low for the first time, bouncing back to cut its losses on the session. As noted Tuesday, this is one worth watching closely as it has lagged the rest of the market. The reversal off the lows shows a doji on the candlestick chart, and that indicates it is ready to bounce higher in a new relief bounce.
NASDAQ 100 CHART: http://investmenthouse.com/ihmedia/NASDAQ100.jpeg
SOX CHART: http://investmenthouse.com/ihmedia/SOX.jpeg
SP500/NYSE
Stats: -7.75 points (-0.56%) to close at 1373.2
NYSE Volume: 2.107B (+15.92%). Strong volume on NYSE as well as the indices reach lower and then rebound to close flat. Again, higher because of expiration, but the high volume also suggests a relief move trying to set up.
Up Volume: 995.588M (+862.092M)
Down Volume: 1.096B (-581.411M)
A/D and Hi/Lo: Advancers led 1.02 to 1
Previous Session: Decliners led 2.98 to 1
New Highs: 35 (-2)
New Lows: 384 (-2)
SP500 CHART: http://investmenthouse.com/ihmedia/SP500.jpeg
The SP500 was the key for the session as it continued the Tuesday dive lower and undercut the March closing low (1374) and the August intraday low (1370) and then started to rebound as expected. It could not hold the turn positive by the close, but a nice tight doji on the candlestick chart indicates it may try to post another relief move off of this level it has tested three times. If it does that, however, we are still looking for another turn back down for some more downside before it finds the bottom and starts to base. There is still that May 2006 peak at 1325 that it will likely test before it finds bottom. For now it looks ripe for another relief bounce, but in a market this fragile, any news will send it to the downside.
SP600 (+0.42%) tested and held support again at the 360ish range. The real support is down at 350 from 2005 peaks and 2006 lows. When it gets to that level it will likely try to put in a more sustained rebound.
SP600 CHART: http://investmenthouse.com/ihmedia/SP600.jpeg
DJ30
INTC accounted for 24 points of the Dow's loss. Seems the rest of the index, while not surging higher, was finished selling for now with the test of the March peak. Don't get the wrong idea; DJ20 just broke lower from a key level at 12,750, and it likely has plenty more downside, moving below 12,000, before this selling leg is over. Thus any bounce is still a shorting opportunity what with key resistance close overhead at 12,750.
Stats: -34.95 points (-0.28%) to close at 12466.16
Volume: 500M shares Wednesday versus 339M shares Tuesday. Tremendous volume as JPM and INTC traded well in excess of their average trade levels, not to mention expiration on Friday and the need to adjust positions given the harsh selloff in January.
DJ30 CHART: http://www.investmenthouse.com/ihmedia/DJ30.jpeg
THURSDAY
Wednesday brought more selling and the reversal we were looking for, but it was not flush-out selling, i.e. the high panic selling that can lead to a more sustained rebound. Volume was high on the reversal, and that can lead to sustained bounces, but it was also pre-expiration trade.
Despite the attempts at rebounding last week and on Monday, the market remains heavily oversold, and thus this reversal on volume can produce yet another relief bounce try. The market is very fragile still, blown about by the most recent news story. Earnings are coming out rather quickly now, and they will continue to have their impact as well. Then there is the Fed; rumors persist that Bernanke will issue a 'tweener' rate cut this week. Each session the treasuries move up and down midmorning on the rumor and then the aftermath as it does not pan out.
What does this mean? The market is in the throes of pricing in an economic slowdown whether it is a recession or not. Regardless, it is a slowdown and prices needed to fall to account for lowered earnings expectations. The final level remains to be hammered out because there are some unknowns floating around such as when and how much the Fed will act, whether there will be a stimulus package, etc. Thus the market can and is bouncing around from news story to news story (IBM, C). One thing looks certain: after any bounce attempt here, the indices have more downside before they find bottom. It is still way too early to look for the bottom though everyone is looking for it. What we want to do is recognize when the more sustained moves, up and down, are coming.
Right now the indices could bounce off this big Wednesday reversal, but it looks short term if it can in fact pull off some upside. After that, a break lower will likely be sharp as SP500 has made its third trip to this current level with a broad top weighing down on it. That weight will push it lower. Thus if we get a new bounce over the short term toward expiration we will use it to set up some more downside positions on the indices and in individual stocks to take advantage of the next turn lower.
As for the upside, the healthcare stocks continue to look solid along with the ever wonderful consumer staples that move at the pace of geriatric tortoises. You have to take what the market gives, but that doesn't mean it is always going to be exciting.
Support and Resistance
NASDAQ: Closed at 2394.59
Resistance:
2451 is the August closing low
The 10 day EMA at 2478
Some modest resistance at 2500 from interim August lows.
The 18 day EMA at 2525
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 50 day EMA at 2601
The 200 day SMA at 2615
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 1373.20
Resistance:
1406 is a longer term trendline from the August 2003/September 2004 lows
1406 is the August and November 2007 closing low
1425 is the 18 day EMA
1430 from the August interim lows
1440 - 1437 from January and March peaks
The 50 day EMA at 1456
1459 is the June/July 2006 up trendline
1459 is the February peak
1475 from peaks in December 1999 and January 2000
The 200 day SMA at 1490
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 12,466.16
Resistance:
12,518 is the August intraday low
The 10 day EMA at 12,739
12,743 is the November low
12,786 is the February 2007 peak
12,845 is the August closing low
The 18 day EMA at 12,894
13,050 to 13,000 range
13,092 is the December low
The 50 day EMA at 13,163
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): 0.3% actual versus 0.2% expected, 0.8% prior
Core CPI, December (8:30): 0.2% actual versus 0.2% expected, 0.3% prior
Net foreign purchases, November (9:00): $114.0B prior
Industrial production, December (9:15): 0.0% actual versus -0.2% expected, 0.3% prior
Capacity utilization, December (9:15): 81.4% actual versus 81.2% expected, 81.6% prior
Crude oil inventories (10:30): +4.26M actual, -6.7M 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
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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