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world stock market, us stock market
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1/23/08 Investment House Alerts
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IH Alert Subscribers:
MARKET ALERTS:
Targets hit alerts: None issued
Buy alerts: BLK; CHT; DIA; MA; PBR
Trailing stops: None issued
Stop alerts issued: None issued
SUMMARY:
- Stocks dive again at the open but that sets the bottom for the rebound move.
- Bonds plunge to historic lows before stock rebound catches firm footing.
- Relief move set to continue, but there will also be continued volatility up to resistance.
- Interim bottom, final bottom, new bull market, new bear market? A discussion of the likely calendar of events according to history.
Another early selloff makes the market turn.
More worries to start the session sent stocks reeling yet again at the open. AAPL's earnings were a drag, but the keys to the morning blues was more recalcitrance from the ECB re rate cuts ('not now, not ever, NEVER!') and new worries that the US financial issues were infecting European financial institutions. Asia was up on the heels of the US rebound off the lows on Tuesday, and Europe was up as well until that double shot of negatives hit. Europe dove lower midday on the news, and the US followed them lower at the open. Not even strong UTX earnings and an affirmation of 2008 slowed the negative sentiment; no one was listening or no one cared about facts when there was speculation and hyperbole to panic over.
Stocks opened lower and sold off quickly to the Tuesday lows. A midmorning bounce and then another thump lower into lunch. That second trip lower held, however, and that encouraged traders: another test of the Tuesday low held and an intraday double bottom at that level as well. Stocks bounced off that level, and then the rumors hit, this time positive. They helped the bounce turn into a rampage back to the upside. There was a rumor, versus explicit statements earlier in the day, that the ECB was not as negative on rate cuts as it made out to be. There was another rumor that a bailout was imminent for the bond insurers as New York regulators were meting with banks to try and raise capital for a rescue. That double punch really stepped up the rebound move. Tens of thousands of long put positions on the indices were closed; the big money was ready to move things higher. The result was a massive reversal from the lows to the close with DJ30 swinging over 625 points and NASDAQ reversing 114. Such is the stuff of bear market selloffs and reversals.
TECHNICALLY, the intraday action was what you want to see, i.e. another low to higher session after another yank lower on the open. Stocks were under major pressure but then reversed in a huge way from lunch to the bell.
INTERNALS: Similar to the intraday action, breadth went from ugly to not bad. NYSE breadth was again the stronger at 2.5:1 while NASDAQ had issues with just 1.4:1. Apple had its umbrella effect and kept techs relatively quiet despite the big reversal even on NASDAQ.
CHARTS: Another test lower Wednesday, moving to the Tuesday panic lows, then a rebound and surge back up on high volume. Lots of shorts covering, lots of buying in 'prosperous economy' stocks such as homebuilders and retail. Tuesday's dive lower dug the foundation and Wednesday's dive lower and reversal on volume set the foundation for the rebound off this second leg of selling. Market is ready and indeed started the bounce, but given the ferocity of the recovery, the indices are not far from near resistance already.
LEADERSHIP: The old leaders had decent days, but they are not getting the serious cash. The financials are really starting to step out, even the good ones (e.g. MA, BLK). Retail continues to run higher, not just from short covering, but real buying given many have endured long selloffs and are either reversing trend or have set up decent bases. Energy came back to life along with materials, but they had more of the look of a rebound than a steady climb. Nothing wrong with that; you can play it but it may not be marriage material just yet. As strange as it seems, homebuilders, airlines, transportation (even trucking) rallied on strong volume some pretty decent bases or trend breaks as noted above. Big money is moving into them as bets are laid that the Fed and the federal government can provide the remedy to what ails the economy. That is a big bet, but there is big money chasing stocks from various economically sensitive sectors. Hard to argue with that. In sum, the old leaders are in bounce mode, but there are economically sensitive sectors and stocks that are getting long term capital thrown their way.
THE ECONOMY
Amazing bond rally continues early, then retraces as stocks recover.
As stocks sold around the world, investors from everywhere turned to the old standby, US treasuries. Despite all of the talk of the US current account deficit forestalling foreign investment, whenever there is a hint of trouble in the world, the US treasury sure looks good to investors whether domestic or foreign.
Thus in all of the recent market turbulence you can bet the treasury market saw more than its share of buyers. As they bought into bonds, yields moved lower. That is the fear aspect. There is another aspect, the 'flight to quality' issue, that arises when there is the threat of economic slowing. As stocks lose their luster as investment tools due to predictions of falling earnings and thus stock prices, bonds become more appealing as a place to safely park money. Thus we refer to bonds 'pricing in' a recession when they rally and yields fall.
Tuesday was a big day for the bond market, but Wednesday was even bigger, at least early on. As investors ran for cover and bought bonds, yields dove lower. The 2 year treasury yield fell to 1.85%. The 10 year hit its lowest level since June 2003. The 30 year bond hit its lowest yield ever, 4.13%, eclipsing the 4.15% level when the instrument was first introduced.
As stocks started to recover Wednesday, bond yields started to rise once more as the flight to treasuries abated and money was moved back into equities. Bonds closed lower with yields bouncing back. The 2 year closed at 1.98%, but in the aftermarket it was up to 2.15%. The 10 year closed at 3.43% (3.41% Tuesday); after hours it was all the way up to 3.62% as the shift from debt continued.
Even with the rebound to the close, yields still tell the Fed it has more work to do just to get even with market rates not to mention get ahead of them and create stimulus in the debt market. Treasury yields continue to forecast economic slowing and the Fed Funds rate is too high to change that outlook. Thus it is very important that the Fed remain aggressive next week and cut 50BP to get close enough to the short term rates so that banks can actually make money in a risky environment and thus have the incentive to borrow and lend to do it. If it fails to hold its stronger course it will fail once again.
THE MARKET
MARKET SENTIMENT
VIX: 29.02; -1.99. Rallied to 34.42 on the high, not far off that Tuesday intraday spike to 35.57. That early jump higher showed the holdover of anxiety from Tuesday, and worked to better set the bottom for a near term rebound off the hard selling.
VXN: 34.02; -1.61
VXO: 31.06; -2.18
Put/Call Ratio (CBOE): 1.13; -0.07. Two week backlog of closes over 1.0 shows enough downside betting to warrant at least a near-term bounce.
Bulls: 45.6%. Down further, falling steadily from 48.4%, 52.2%, 54.9% and 56.50% on the high. On the last trip down selling lane bulls did not fall below 45% (hit 40.6% on the low for the prior round of selling), a key. It is 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. 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: 26.7%. Climbing yes, but would like to see it climbing faster. Up from 25.8% and 24.5% the week before. Needs to get over 30% to really show the kind of washout fear to help start a run. Fell to a low of 19.6% on this round. Bearishness peaked at 37.4% in September 2007. It topped the June 2006 peak (36%) on that 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: +24.14 points (+1.05%) to close at 2316.41
Volume: 3.642B (+14.59%). Massive volume as NASDAQ sold off on the Apple earnings but then reversed off a new low for this leg of selling. Definitely enough volume to send the index back up on a relief bounce.
Up Volume: 2.024B (+1.385B)
Down Volume: 1.601B (-914.569M)
A/D and Hi/Lo: Advancers led 1.46 to 1. It was a reversal session and that can keep breadth lower as it lags, but it had all afternoon to build, and there was enough discomfort with Apple's earnings to keep techs, despite the rebound, under more pressure than on NYSE.
Previous Session: Decliners led 2.06 to 1
New Highs: 31 (-5)
New Lows: 467 (-515)
NASDAQ CHART: http://investmenthouse.com/ihmedia/NASDAQ.jpeg
Another gap lower to test the summer 2006 consolidation, and then another surge back up to close positive with a 114 point low to close swing. After a 3-week bludgeoning, NASDAQ looks ready to follow the other indices higher in a rebound from the second leg of the selling. The move brought NASDAQ right up below the Lctober 2006 and March 2007 consolidation lows. No real issue with them; the first real resistance of concern is at 2380 to 2400, the August intraday low along with some price points in late 2006 and early 2007.
NASDAQ 100 (-0.34%) reversed off a new low for this leg lower, making a stand at the October/November 2006 lows near 1700. Now it is in rebound mode as well, but it is likely to tag along rather than lead as it moves toward resistance at 1900.
NASDAQ 100 CHART: http://investmenthouse.com/ihmedia/NASDAQ100.jpeg
SOX CHART: http://investmenthouse.com/ihmedia/SOX.jpeg
SP500/NYSE
Stats: +28.1 points (+2.14%) to close at 1338.6
NYSE Volume: 2.829B (+9.26%). Massive volume on NYSE as well, the highest since the August intraday selloff and reversal. Good strong push for the reversal move to get underway.
Up Volume: 2.078B (+959.093M)
Down Volume: 746.933M (-704.536M)
A/D and Hi/Lo: Advancers led 2.54 to 1. Very nice breadth as the small cap SP500 led the charge higher once more. The small caps are really liking the monetary and fiscal stimulus actions and talk.
Previous Session: Decliners led 1.39 to 1
New Highs: 29 (-3)
New Lows: 397 (-703). Major decline after jumping over 1100 on Tuesday, a classic signal of a turn when coupled with the other indicators.
SP500 CHART: http://investmenthouse.com/ihmedia/SP500.jpeg
A second test of the upper reaches of the summer 2006 consolidation and a big reversal on high volume off of that level. After a tail-kicking selloff on this second leg of the initial bear market selloff, SP500 is surging back up to test some of those levels it plowed under on the way down. Looking at the 1400ish level as the main initial resistance on this move though it can get bumpy some at the August intraday low (1371) and the March lows (1374-77).
SP600 (+3.28%) surged off the recent lows as the selling slowed Tuesday and Wednesday, giving way to some strong short covering on Wednesday. Plenty of upside room to rally up to 380 (closed at 362) from this harsh selloff. You have to view this more as short covering versus serious, sustainable long-side buying given the likelihood the economy is still going to slow from here.
SP600 CHART: http://investmenthouse.com/ihmedia/SP600.jpeg
DJ30
Similar action on the Dow as it again reached down to the May 2006 peak and used that as the fulcrum for its rebound move. It easily moved back above the March 2007 consolidation lows and is locked and loaded to run to 12,500, the August intraday low and some price peaks from late 2006 and early 2007. It can move past that level and make further inroads toward 13,000, but we do not believe it will make it that far on this bounce.
Stats: +298.98 points (+2.5%) to close at 12270.17
Volume: 536M shares Wednesday versus 506M shares Tuesday. More tremendous volume in a week of tremendous volume, easily eclipsing that seen on the August 2007 intraday reversal when the NYSE and NASDAQ showed huge trade. Lots of short covering and some long buying are pushing this volume surge.
DJ30 CHART: http://www.investmenthouse.com/ihmedia/DJ30.jpeg
THURSDAY
Scheduled economic data (it has been a week with a lot of data, jut none of it on the calendar) returns (oil inventories, jobless claims, existing home sales) along with more and more earnings reports. Indeed, after taking a back seat to market forces that trump all news, they will come back and be more in play on Thursday.
What do we mean about market forces trumping all news? There are times that the market's die is cast and it is going to do what it is going to do but for the most important or shocking event the world has seen before (or at least in a few years). Thus when the market momentum careened out of control to the downside this past week we knew a rebound was coming. This kind of runaway train is nothing new, it just comes to town infrequently, and that means each time it does there are a lot of newbies who have never seen it before and they get run over by it.
As we have discussed the past several weeks, this kind of selloff moves in a pattern. The initial leg selloff typically has three legs of roughly equal size, broken by relief bounces in the 2 to 3 week range where the market rebounds to some resistance, makes a lower high, then rolls back down. Inside of each of those legs the selling crescendos and seems to get out of control and the world on the brink of the abyss . . . only to rebound at the height of the fear. Now that the rebound has started, the fear will abate as the sharp rally ensues, and just when investors feel pretty good about the move it stalls and gaps lower for the third leg. After that last leg the market will bounce again, and it can last quite some time. Then it fails and tests the lows on that third leg. At that point the market will either bottom (if the economic situation has improved dramatically and it looks as if recovery is less than a year away), or it will fail and more ugly selling will ensue as the market prices in a longer than hoped from recession. The latter is what happened in 2000 when that summertime rally failed and the test of the April lows failed and the market rolled over to new lows.
We are obviously not at that stage yet and the monetary and fiscal stimulus are coming down the pipe a lot earlier in the calendar than they did in that last episode. Plus, we can hope there will be no election turmoil as in 2000, no corporate scandals, no 9-11, etc. We already know there is no major monetary policy blunder a la Greenspan's flood of liquidity in 1999 ahead of Y2K even as he hiked interest rates, and then a cold turkey withdrawal of those finds. That set the stage for that 10% GDP growth to negative GDP growth dive in a time span of less than one year. That is hard to take. Yes Bernanke got sidetracked and is late to the party, but he did not start a fire first and then not show up to put it out until after the house had burned as did Greenspan.
What does this trip down memory lane mean for us? It means no one knows at this juncture how severe the economic downturn will be. The OMB says there will be no recession. No one I know believes anything that comes out of the OMB though they cite it whenever it puts out something they can use. What we have to do is play with what the market gives us. This much we know: the market just finished its second leg in a typical 3-leg selloff that starts an economic slowdown. We are playing the rebound with some upside plays taken the past two sessions. When the bounce plays out we close them and then play the third leg lower. After that third leg we can play that next bounce, then the downside test. At that point we see how the market prices in the economic condition.
Of course there can always be a wild card or outrider that changes the game. Maybe Congress and the administration push in some stimulus that ends double taxation on corporate earnings, capital investment and gains, etc. That would be a game changer. The likelihood? Low. Thus we play the odds and the historical trends of what the market does and what the big money buys into, and we adjust if there is a game changer.
For now we have picked up a decent number of upside plays and don't want to get too heavy into any new upside. There are some great looking stocks that still look good to bounce, and if we see a move we want we will take some positions, but as the rally continues, the window gets smaller and smaller with respect to the ability to move higher on the bounce. Again, we will still look at several upside plays to take advantage of, but we are not going to load the boat with them if they do show us some good entry points. We see some good possibilities still, e.g. CSX, VIP, BIDU, CMED, RIMM, and we would be quite willing to pick up some positions in these as they bounce higher.
Support and Resistance
NASDAQ: Closed at 2316.41
Resistance:
2315 to 2300 is a range of support from old peaks
2340 from the March 2007 low
2370 from the April 2006 peak
2379 from the October 2006 peak
2386 is the August intraday low
The 10 day EMA at 2391
2451 is the August closing low
The 18 day EMA at 2453
Some modest resistance at 2500 from interim August lows.
2545 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 2560
Support:
2266 is the trendline from the summer 2004/July 2006 lows, Q4 2005 consolidation
2216 FROM August 2005 peak
2175 from the December 2004 peak
S&P 500: Closed at 1338.60
Resistance:
1364 is the 10 day EMA
1370 is the August 2007 intraday low
1374 is the March 2007 closing low
1390 is the 18 day EMA
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
The 50 day EMA at 1436
1440 - 1437 from January and March peaks
1459 is the February peak
1460 is the June/July 2006 up trendline
1475 from peaks in December 1999 and January 2000
The 200 day SMA at 1488
Support:
1325 from May 2006 peak prior to the summer 2006 correction
1310 is an ancient trendline
1305 to 1302 from an August 2006 peak and matches a range of support from March and April 2006.
1294 from the January 2006 peak
1288 from June 2006
1280 from June and August 2006
1255 from June 2006 lows
Dow: Closed at 12,270.17
Resistance:
The 10 day EMA at 12,404
12,518 is the August intraday low
The 18 day EMA at 12,620
12,743 is the November low
12,786 is the February 2007 peak
12,845 is the August closing low
The 50 day EMA at 13,010
13,050 to 13,000 range
13,092 is the December low
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
11,317 is the March 2006 peak
11,228 from a July 2006 peak
Economic Calendar
These are consensus expectations. Our expectations will vary and are discussed in the 'Economy' section.
January 24
Initial jobless claims (8:30): 320K expected, 301K prior
Existing home sales, December (10:00): 4.95M expected, 5.00M prior
Crude oil inventories (10:30): +4.2M prior
End part 1 of 3
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world stock market
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