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world stock market, us stock market
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1/24/08 Investment House Alerts
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IH Alert Subscribers:
MARKET ALERTS:
Targets hit alerts: Took some interim gain: DIA; SPY
Buy alerts: CSX; VIP
Trailing stops: None issued
Stop alerts issued: Got rid of some positions that bounced but stalled at near resistance: CHTT; GENZ; GILD; GMCR; HOLX; PDX; STE
SUMMARY:
- Quieter action following the reversal as indices test near resistance.
- Oil and gold recover: affirmation of central bank action or just another rebounding sector.
- Jumbo mortgages included as part of the stimulus package.
- MSFT earnings will try to drive the rebound move higher along with possible sub-prime buyout.
Stocks continue their rebound following the reversal on quieter action.
The data the market had to deal with Thursday was not bad at all even if not compared to the recent raft of bad news. Jobless claims posted a second consecutive week of low readings at 301K (last week was revised up to 302K from 301K), foreign markets were up on the heels of the US reversal, and earnings were quite positive with NOK beating and raising its dividend and buyback, LMT beating and raising guidance, POT beating and leaping higher, and GILD beating and guiding higher as well.
It was more than enough for the market to build upon the Wednesday reversal session and stocks did indeed start higher. It was not a return to low volatility, however. Stocks were up, but then they gave most all of the move back by the end of hour one. Then it was an up and down session through lunch with SP500 and DJ30 testing near resistance at the 10 day EMA early, fading, and then bouncing up and down through lunch.
Existing home sales were lower than expected, falling 2.2%. Didn't help, but didn't hurt that much either. Oil was up again, rising $2.41 on the session to $89.40. Our fearless leaders held a press conference to congratulate each other on agreeing to a 'stimulus' package that won't accomplish anything other than spend a lot of money on rebates. Ironically, I called one of my senators when both CNBC and Bloomberg reported an agreement among republican and democrat leaders was reached and a press conference was to be held shortly. The aide told me his office was unaware of any agreement. I suggested turning on the television and also proceeded to explain why the small business stimulus package would not stimulate anyone to spend (increasing expensing from $112K to $200K just doesn't get small 10 and under employee businesses already hesitant to spend $112K on capital equipment to suddenly open the wallet because they can expense $200K; 'Oh, I can expense $200K instead of $112K? We weren't planning on spending anything but now that we can expense another $88K, let's do it!' Dream on.).
It was enough, however, and after lunch the market rallied back up to the early session highs, putting SP500 and DJ30 right at the 10 day EMA. That pushed them back again, however, and it looked as if the rebound was running out of gas. Then a last half hour bounce took the indices right back up to the morning highs to close out the session led by the large cap techs ahead of Microsoft's earnings.
TECHNICALLY the market spent the session range trading but at a higher level than it closed on Wednesday. Not great action, i.e. not powering higher, but it rallied back late to close at the early morning and session highs. Nothing unusual after a strong reversal session such as that seen on Wednesday.
INTERNALS: Rather mundane, matching the rather lackadaisical session. Breadth was mediocre at 1.8:1 NYSE, 1.3:1 NASDAQ (large cap techs led the charge) and volume fell well off the strong recent pace. Upside action and lower volume. Not the greatest technical action, but again, after a strong reversal there tends to be something of a vacuum.
CHARTS: Stocks gapped higher as did NASDAQ, feeding off of the Wednesday reversal. SP500 and DJ30 moved higher as well, running into near resistance at the 10 day EMA on the initial run. After the Wednesday reversal and run higher, they did not have enough gas left in the tank to take out that near resistance. They faded, but held positive, bounding up and down in a narrow range until another run at those levels in the afternoon. Again they were repulsed, and without a rebound in the last one-half hour that took them right back up to those levels, the close would have looked somewhat weak. This rebound shows that after a pause here they are likely to continue on up to the next resistance level we were looking at as the target for this rebound move.
LEADERSHIP: Large cap technology, energy, agriculture, and materials all rebounded nicely. This action for the most part, however, looked a lot like just rebound action from stocks that were pounded lower in the selling or even before this last round of hard selling. With the reversal Wednesday that held to the close, many shorts were madly covering, and that gapped a lot of these stocks higher. Nothing wrong with that at all; that is how the market works. Makes it harder to enter positions on a rebound move, however, and that is why we were not big buyers Thursday. We were buyers Tuesday and Wednesday, and if we get a pullback to test this move before the next surge higher, then we will look at some of these great stocks in good position and pick up some shares if the rally's underpinnings continue to hold up.
THE ECONOMY
Gold and oil on the rebound. Does it mean anything?
As the market rebounds from the bloody selling and the government readies to throw over 1% of GDP to the economic winds, spirits are lifted along with prices. Typical ebb and flow of emotions when the market is in upheaval and worries the economy is next in line are high.
When spirits rise, so do theories about why things are rising. Surely the rebound in stocks is the bottom of the selling and the stimulus package will insure the economy leaps right back to 4% growth. Gold and oil both sold on the fear the world economies were going down the near term tubes with the US. On Wednesday and Thursday both gold and oil rose along with stocks. Thursday we heard the inevitable theories: oil and gold were rebounding because the world central banks had their arms around the credit issues and world economies were going to bounce right back up. 'Goldilocks is alive' was heard yet again.
This could of course all be true. Maybe the Fed's action and the 'stimulus' package here in the US will turn the US economy back up and thus the world economy despite the ECB's recalcitrance regarding lowering its rates. Anything is possible.
It will have to prove it, however. The type of selloff seen in the stock market typically portends a significant economic slowdown. The rebound this week is so nascent, so typical of any rebound in a larger selloff, that to call this the bottom of the selling is close to insane. As noted, it may turn out to be that way, and if it does there will be plenty of buying opportunities as stocks base out and then breakout. We are already using the bounce to profit, and if it continues higher we will get more and more buyside opportunities. In short, the market will tell us what to do and if the action turns back to positive accumulation we will shift from playing short term runs to longer term trend and position plays.
There is another possibility, one we didn't hear Thursday. That is the one that was more popular before this last selloff got vicious and made everyone wonder about the viability of the rest of the world: the US might have a slowdown but the rest of the world won't suffer to the same extent. That remains to be seen as well; the stocks attributed to the global story, e.g. agriculture, materials, metals and the like rose to incredible levels and are now having to consolidate gains. They are a long way from consolidating those gains at this juncture.
Raising Fannie and Freddie's caps: the other part of the stimulus package.
Somewhat behind the scenes of the stimulus package announcement today was the proposal to raise the mortgage caps that Freddie and Fannie Mae can handle. The proposal would raise the cap. We are hearing 50%, i.e. from $417K to $625K for FHA, but we are also hearing reports of increases to 125% of an area's median home price up to $730K. Either way it is a help though it is only to last until the end of 2008.
Of course no one bemoans someone in a 'jumbo' mortgage struggling to pay the monthly nut. As I used to say back in the early 1980's when I was fresh out of school in the rapidly imploding domestic oil business, no one was crying in Washington because some oil company types could not make the payments on their Mercedes.
Nonetheless, the housing plight of many strata of American life has garnered the attention of lawmakers, and they realize that is a big and important part of the market as well. The proposal would allow the two government-sponsored entities to buy these larger 'jumbo' mortgages. This would help free up weak 'high end' markets because lenders would have the comfort level of knowing that FNM and FMC can buy and package the loans into relatively safe securities. This is an important move for the housing market, something the Feds needed to do when the crisis started. In typical Washington fashion, it is late, but it finally got around to it after the blood has hit the streets.
THE MARKET
MARKET SENTIMENT
VIX: 27.78; -1.24
VXN: 32.22; -1.8
VXO: 29.26; -1.8
Put/Call Ratio (CBOE): 0.89; -0.24. First dip below 1.0 on the close in two weeks. The ratio put in the work to help set off this 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: +44.51 points (+1.92%) to close at 2360.92
Volume: 2.996B (-17.74%). Volume was lower but still strong as NASDAQ continued the reversal move. Not the same strength but in the bigger picture still a lot of solid trade.
Up Volume: 2.184B (+160.233M). Still solidly upside on the volume ratio.
Down Volume: 733.579M (-867.383M)
A/D and Hi/Lo: Advancers led 1.34 to 1. Weak, weak, weak as the action was in the large cap techs ahead of the MSFT earnings.
Previous Session: Advancers led 1.46 to 1
New Highs: 43 (+12)
New Lows: 130 (-337). Everything backing off as the market rebounds from that really ugly selloff that spiked all indicators.
NASDAQ CHART: http://investmenthouse.com/ihmedia/NASDAQ.jpeg
NASDAQ gapped higher as it continued the reversal off the Tuesday and Wednesday lows. It is just below the April 2006 double top peaks (2370) and the 10 day EMA (2386) as it approaches the first resistance range starting at 2370 and up to 2386 that is also the August intraday low and runs up to 2400. That is where NASDAQ will get its first test, and with the MSFT earnings after hours it looks as if NASDAQ will test those levels on Friday, a good point to shoot for and stall ahead of the weekend.
NASDAQ 100 (2.09%) led the market ahead of the MSFT earnings. It has cleared the August intraday low and is looking for a run to 1850 where there is initial resistance with some serious resistance from 1875 to 1900.
SOX (2.50%) is trying to make its break above the two week lateral move. The very aggressive can look at some upside call options on the index.
NASDAQ 100 CHART: http://investmenthouse.com/ihmedia/NASDAQ100.jpeg
SOX CHART: http://investmenthouse.com/ihmedia/SOX.jpeg
SP500/NYSE
Stats: +13.47 points (+1.01%) to close at 1352.07
NYSE Volume: 2.145B (-24.17%). Volume fell back as on NASDAQ but it still remained well above average as the NYSE indices continued the move higher.
Up Volume: 1.379B (-699.086M)
Down Volume: 789.528M (+42.595M)
A/D and Hi/Lo: Advancers led 1.78 to 1. Not bad breadth as the NYSE indices continued higher off the reversal.
Previous Session: Advancers led 2.54 to 1
New Highs: 16 (-13)
New Lows: 79 (-318). As with NASDAQ, NYSE new lows did the work before, hitting 1100 at one point.
SP500 CHART: http://investmenthouse.com/ihmedia/SP500.jpeg
SP500 continued higher off the reversal, bouncing up toward its 10 day EMA and the bottom of the March 2007 lows (1374) as well as the August intraday low (1371). It is going to find some issues at these levels given the size of the reversal move in such a short order. Still looking for a move more toward the 1400 level but likely to take a pause and a bit of testing as it hits the near resistance levels.
SP600 (+0.12%) took a back seat Thursday after leading the reversal gains on Wednesday. It rallied up to the 18 day EMA on the high and then faded to close below the 10 day EMA. That looks like some really weak action even with the stimulus packing - - telling us something we already know about that? In any event, it is likely to tag along with the other indices, following their lead as they rebound.
SP600 CHART: http://investmenthouse.com/ihmedia/SP600.jpeg
DJ30
The blue chips rallied to the 10 day EMA (12,399) on the high three times on the session, unable to break through. Recovered a lot of ground off the reversal, and this initial resistance is a natural pause position. We took some of our DIA gain as we had some good accretion and did not want a ball from right field to catch us unexpectedly, but we still look for a move higher up to 12,500 after a pause here.
Stats: +108.44 points (+0.88%) to close at 12278.61
Volume: 387M shares Thursday versus 536M shares Wednesday. Quite a slowdown but again, still well above average trade.
DJ30 CHART: http://www.investmenthouse.com/ihmedia/DJ30.jpeg
FRIDAY
Earnings are the focus and MSFT looks solid with its results, beating on the top and bottom line and putting out guidance that is acceptable to the street as it raised its guidance for the year overall even if the quarter to come was somewhat light. It was trading nicely higher after hours on top of its session gains, taking a lot of the market with it.
In addition there is a story (again) that Wilbur Ross is in 'serious talks' to buy the bond insurer Ambac. That is what the bond and housing market needs and it will provide additional boost to the market.
This goose to the market is going to send the indices up to resistance levels ahead of the weekend, a perfect place for them to pause and retrench some after the big reversal on the week. If there is a strong open that sees NASDAQ gap (as it will do with MSFT), the highs for the session will likely be hit early. Thus we won't likely be in there early buying, but instead, if we get another good jump from some of our rebound plays we could be taking some interim profits off the table; always a good idea to bank some gain anytime, but particularly so in this kind of market.
Thus far the week has gone pretty much as expected with the market finding the bottom to this second leg in the selling. It took an extra day to cement the reversal, but it did so. The initial move took the indices thus far to near support, and as noted above, the MSFT earnings are going to take the indices close to our targets for this rebound. It can go higher and still be in its downtrend, and if it does we will ride it as far as it will go on this bounce, but unless it shows a significant change of character we still anticipate another leg lower.
Thus we don't want to get too enamored if the market continues higher and chase too many new upside positions. If we get great buys on great stocks we will take some positions, we just are not going to chase everything higher. As for Friday, we are likely to see a gap higher, and we will need to see a test and then a further move to get involved in anything new. Again, there are stocks we will still buy at this juncture, but we have to go in knowing it is later in the bounce and we could see these positions thrown back at us. Thus we are not going to load the boat at this stage, just making controlled buys and ready to take gains when they are there. Case in point is MON; if we get another jump higher early we will be near our target and it is worth taking some gain off the table. The point: a few good days of moves in this market demands you take at least some of the gain off the table.
Support and Resistance
NASDAQ: Closed at 2360.92
Resistance:
2370 from the April 2006 peak
2379 from the October 2006 peak
2386 is the August intraday low
The 10 day EMA at 2386
The 18 day EMA at 2443
2451 is the August closing low
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 2553
Support:
2340 from the March 2007 low
2315 to 2300 is a range of support from old peaks
2268 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 1352.07
Resistance:
1362 is the 10 day EMA
1370 is the August 2007 intraday low
1374 is the March 2007 closing low
1386 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 1432
1440 - 1437 from January and March peaks
1459 is the February peak
1461 is the June/July 2006 up trendline
1475 from peaks in December 1999 and January 2000
The 200 day SMA at 1487
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 12,378.61
Resistance:
The 10 day EMA at 12,400
12,518 is the August intraday low
The 18 day EMA at 12,594
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 12,985
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): 301K actual versus 320K expected, 302K prior (revised from 301K)
Existing home sales, December (10:00): -2.2% (4.59M actual) versus 4.95M expected, 5.00M prior
Crude oil inventories (10:30): +2.3M actual versus 1.8M expected, +4.2M prior
End part 1 of 3
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world stock market
us stock market
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