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world stock market, us stock market
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1/28/08 Investment House Alerts
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IH Alert Subscribers:
MARKET ALERTS:
Targets hit alerts: None issued
Buy alerts: QID; SII; VVUS
Trailing stops: None issued
Stop alerts issued: None issued
SUMMARY:
- Market bucks foreign weakness, recovers Friday decline.
- Housing market continues in search of a bottom. Tell that to the property tax assessors.
- Indices bounce back up to near resistance on lower volume.
- Earnings continue to roll in mixed as market counts down to Wednesday FOMC decision.
Stocks bounce back from Friday, keeping rebound alive but on low volume.
Foreign markets were hammered on Monday with the Nikkei down 4%, Hong Kong 7%, and Europe looking relatively sold with just 1% to 2% losses. The reason given was more worries about a US economic slowdown leading to a world cooling. US futures were following along, but then started to recover ahead of the bell. You could say it was due to earnings, but those were not great shakes with MCD December same store sales flat, BDK (hand tools) seeing no recovery in 2008, and YRCW (trucking) complaining again about weakness for the foreseeable future. That made VZ's in line readings look decent and GLW's beat and increased guidance (lots of flat screen sales) along with ACV's easy beat (consumer products) look great.
It was enough to mitigate the downside and stocks moved higher early. Of course they quickly sold off, then bounced it was a volatile start. They started lower again and when the December new home sales came out down 4.7% the downside accelerated. The indices undercut the Friday low but then reversed and turned positive with energy of all types (oil, gas, solar, coal) and financials again leading. Even tech was higher, but it was a laggard all session. Stocks continued higher on into the late afternoon. The sellers came out and started to take the market back, cutting the gains in half. Didn't take; the market rebounded to session highs at the close, recapturing the Friday losses as the indices again bumped into near resistance.
TECHNICALLY the action was a good response for the upside to the Friday weakness that cropped up just 2 days after the Wednesday reversal session. The early weakness was met with some buying that carried through to the close, managing to beat back a couple of selling attempts along the way (half-hearted though they were).
INTERNALS: Breadth was solid at 3.5:1 on NYSE as the small and large caps posted 1.4% to 2% gains. NASDAQ was not bad at 1.9:1, improving dramatically in the lat half hour of rallying; before that NASDAQ was a clear laggard, particularly technology. Volume was the big question mark. Yes the market moved up broadly, but volume fell off the table, declining 13% on NYSE to 21% on NASDAQ. That pushed volume back to average on NYSE and well below average on NASDAQ. Simply no teeth in the rebound as there were very few players in the market with such low volume, the lowest in a month. Sellers were hesitant to step in with force ahead of the FOMC meeting, and buyers, what few there were, were left to bid up stocks. Case in point: it took very little to turn the market sharply back from its afternoon highs with just a few sellers hitting stocks.
CHARTS: The rebound took SP500 and DJ30 back up to near resistance at the 10 day EMA, effectively taking back the Friday, post-reversal slump. Nothing entirely out of the ordinary with that; we noted that the market may take a pause after that sharp reversal. The issue is that very light volume, and that could still give it trouble at this near resistance level. We have started taking some downside positions at this level, but we also know that this is still a pretty short bounce after such a rough decline leading up to last Wednesday's reversal and bounce.
LEADERSHIP: Financials, housing, and energy were back in the lead once more just as they were as the market rebounded last week. When you look at the market and what is leading to the upside on this bounce, however, you practically only see stocks that sold off hard and are bouncing back from that selling. That sounds good, but when a stock sells off this hard there is technical damage done that typically takes a new base to resolve. A quick rebound is typical, but it typically does not hold and results in new selling and base-building. Typically speaking. When you look past the rebounds you see a cadre of medical and healthcare stocks that are holding up and basing nicely while the former leaders get all of the attention (e.g. AGP, BAX, NUVA, OMCL, VVUS). Once this bounce stalls they will likely show more upside strength, but they are without a doubt flying under the radar right now. Outside of these pockets of strength the majority of the market is still in a downtrend that this recent rebound has not altered as of yet.
THE ECONOMY
Just when you thought housing might be stabilizing. . . .
There were some nascent signs that housing might be showing the slightest degree of putting in a bottom. Then the new home sales for November and December come along. November was not that bad (it wasn't great), but then it was revised lower when the December report came out. December fell 4.7%. Combined with the November downside revision, that makes for a 17% death plunge the past two months. Sales declined 26% in 2007 and are down 57% since 7/05 when new home sales peaked. Oh yes, inventories were up as well, rising to a new high at 9.6 months.
Prices are finally feeling the impact, falling 17% high from the March peak. With interest rates freefalling, the decline in pricing will eventually bring in some buyers. Of course they will have to have some confidence their jobs will hold in order to make the plunge, but throughout history, low prices and low mortgage rates equal increasing sales.
A flawed system (be warned: this has nothing to do directly with the stock market).
Prices likely still have a considerable way to fall, but a 17% decline is not chopped liver. Of course, tell that to all of the appraisal districts in states that raise revenue for schools, local governments, etc. through property taxes. Even as prices fell 17% from their peaks last year, tax appraisals rose in many areas that experienced those price declines. You are told your appraisal is based on the fair market value of your house and property, yet if you put it on the market at that price you won't sell it.
It makes no sense, but that is the systems, the 'game' that is played. Appraisals mean nothing; they are supposedly based upon comparable sales, but when there are no sales because no one can unload a house the appraisal districts don't consider that as part of the market. They know the governmental units need money, even more so in slowing economic times, so they won't bring valuations down with reality. Doing so would sap the local governments of tax revenues just at the time all of their grandiose spending plans enacted during the good times require that additional money.
This is on top of local sales taxes, and in some states, income taxes as well. Those in that situation know that of the three, property taxes are the most regressive. They never go down even as the economy and prices go down. It takes legislative fiat to cap them; otherwise the appraisal districts just keep the 'values' climbing. Income taxes will go down; they are tied to your income which is typically tied to the economy; if the economy declines, your income declines some, and thus your taxes as well. As for sales taxes, if you spend less you pay less.
Thus most every property-owing citizen in the US (and after this housing boom there are more than ever) has to pay twice: property taxes keep rising as real-world values keep falling. If you try to fight it you are playing a shell game between the appraisal district, the school boards, the city governments, and the county governments. They all blame the other and send you to the others when you go see one about these very tax issues.
The solutions are never pleasant, but the key has to be accountability. The property tax systems are designed to play hide the ball from the taxpayers: you go after one end and the other end squirts out. You have the legislature cap how much they can tax per $1K and they inflate the values. If you cap how much they can raise valuations per year and in total then they rise to that level and never go down regardless of real world events (that is what the latest property tax 'reforms' have taught us).
The income tax, though disdainful for many given the problems controlling our Federal legislators, is less regressive as noted above, and it is more easily accountable to the citizens. If they get mad enough they can throw out the legislators, something that is easier to do on a local level. At least there are a finite number of elected officials you can target versus the multitudes on the side of the property tax boards.
Of course, if you go to an income tax you need to get rid of property taxes entirely as caps on property taxes have not proven successful in controlling rising taxes. That is a major obstacle in any state government: they cannot envision making such a sweeping change and risk losing revenues. The way to do it is a phase out, but that has not occurred to many; we mentioned it to our legislators on the last round of elections and it was as if a lightening bolt hit. 'Never thought of that' was the response; and, based upon the lack of action, they never thought of it again, either.
This is all food for thought as we struggle through a really messy housing slump that only underscores how atrociously regressive and penalizing a traditional property tax revenue model is. There are states that 'get it,' i.e. that provide incentives for businesses to locate in their states and put their employees there as well, promising low taxes for both. Low tax rates yet high tax revenues. Of course, as with all governments, you have to control spending in the good times to have money for the bad; even know we hear of states in trouble when just two years ago the coffers were overflowing. That, unfortunately, will likely never change regardless of the tax system.
THE MARKET
MARKET SENTIMENT
VIX: 27.78; -1.3
VXN: 32.56; -1.25
VXO: 29.12; -3.44
Put/Call Ratio (CBOE): 0.93; -0.13
Bulls: 41.6%. Sharp decline from 45.6% as it continues its plunge from 56.50 on the high (48.4%, 52.2%, 54.9% and 56.50%). Very close to the 40.6% hit on the last significant round of selling. A move into the lower 40's is a decline of significance. A bigger move is to 35% which is a big bullish indication. If bulls and bears kiss or better yet cross, that is very bullish. For reference it bottomed in the summer 2006, the last major round of selling ahead of this 2007 top, near 36%, and 35% is considered bullish.
Bears: 31.5%. Massive jump higher from 26.7% as it finally kicked into gear. It has made it over 30%, meaning it is getting into the range that means business. Big move after falling 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). Still a bit more work to do to really set a bottom, and that means more selling before it gets there.
NASDAQ
Stats: +23.71 points (+1.02%) to close at 2349.91
Volume: 2.074B (-21.36%). The first below average volume in two weeks and only the fourth of the month. It of course occurs as NASDAQ bounced up after a Friday selloff. Not great price/volume action, but it did hang on to its reversal gains.
Up Volume: 1.39B (+656.115M)
Down Volume: 601.766M (-1.271B)
A/D and Hi/Lo: Advancers led 1.9 to 1. Improved dramatically from its 1.5:1 reading in the last hour as NASDAQ came more to life on the move after lagging all session.
Previous Session: Decliners led 1.14 to 1
New Highs: 45 (+3)
New Lows: 119 (+5)
NASDAQ CHART: http://investmenthouse.com/ihmedia/NASDAQ.jpeg
Gapped higher, sold to negative to fill the Thursday gap higher, then rallied with the rest of the market to the close. It lagged all session but picked up the pace in the last hour. It still closed behind all of the others, but with a 1% gain it is hard for the bulls to complain. There was a gap down a week back and a gap back up on Thursday; NASDAQ is trying to put in more upside on this reversal but as it did on Monday, it is lagging the other indices as the techs struggle. After hours some tech stocks reported and failed to impress the market, e.g. VMW down $22 on its results.
SOX (+1.48%) still looks as if it wants to make a break higher as it continues its three week lateral move at 350. Chips have been downgraded, sold, downgraded, and sold some more of late, but they continue to move laterally, a sign of some building strength. It has been months without a significant bounce and it is building toward a more sustained move if the rest of the market can continue the relief bounce.
NASDAQ 100 CHART: http://investmenthouse.com/ihmedia/NASDAQ100.jpeg
SOX CHART: http://investmenthouse.com/ihmedia/SOX.jpeg
SP500/NYSE
Stats: +23.35 points (+1.75%) to close at 1353.96
NYSE Volume: 1.639B (-13.05%). Volume faded back to average as SP500 bounced back up toward the 10 day EMA. As with NASDAQ, not great price/volume action, but it is in the backwash of a big relief bounce and some lighter volume is normal.
Up Volume: 142.101M (-359.279M)
Down Volume: 207.652M (-1.158B)
A/D and Hi/Lo: Advancers led 3.55 to 1. Very broad move with large, mid-, and small caps rallying 1.5% to 2.3%.
Previous Session: Decliners led 1.33 to 1
New Highs: 22 (+1)
New Lows: 81 (-3)
SP500 CHART: http://investmenthouse.com/ihmedia/SP500.jpeg
Sold off to start the session then mounted a steady recovery to the last hour where it too fought off a selling attempt and spiked to close at the session high. The move put SP500 back at the 10 day EMA (1355), the nearest resistance level following the selloff. It is struggling at this level, thanks in no small part to the light volume, but it is also holding up at this level, trying to consolidate the initial bounce and then move through toward the 1400ish level that represents some more serious resistance. Problematical if it can do it; with the FOMC meeting result on Wednesday and the hope of a 50BP cut, that is propping it up for now.
SP600 (+2.05%) moved through the 10 day EMA and on up to the 18 day EMA (367.81) where it tapped on the Thursday and Friday highs. This is the key resistance level between here and 380-382. Looks as if it wants to make that trip or part of it. Not great for the downside play, and if it seriously cracks the 18 day we will close it then wait for the bounce and reload.
SP600 CHART: http://investmenthouse.com/ihmedia/SP600.jpeg
DJ30
The Dow bounced back from the selling, moving in a 271 point range and closing at the session high. That move cracked DJ30 just over the 10 day EMA (12,368) that represents near resistance. As with the other indices, this keeps DJ30 in the game for another try at 12,500 as on the Friday high, maybe up to 12,750. The latter puts it in line with its rebound in November and December from the first leg of selling. if it cracks 12,500 with some significant volume it will likely make that move and we will close out short term downside and look to reload when the move stalls at that resistance.
Stats: +176.72 points (+1.45%) to close at 12383.89
Volume: 278M shares Monday versus 393M shares Friday. After some mild distribution Friday, the Dow rallied back but on very low, average volume. That does not indicate a lot of buying, but as noted above, that is not atypical for a pause after a big surge higher.
DJ30 CHART: http://www.investmenthouse.com/ihmedia/DJ30.jpeg
TUESDAY
Day one of the FOMC meeting, earnings pouring in, durable goods orders, and consumer confidence. The market may be rising ahead of the FOMC; one explanation heard for the rally Monday was the weak new homes sales raising the prospect for a 50BP cut. Sounds neat and tidy, but at this juncture, we don't want anymore bad economic news. The Fed is going to act; what the market needs is the economy starting to respond and the sooner the better.
After hours the earnings were not that great with American Express reporting in line with the median estimates but warning of slower economic growth ahead. VMW, the EMC spinoff, reported and was a penny ahead but was clocked down 21 points or 25% of its value. That will put it just 10 points above its price the day it opened trading in August 2007.
So earnings are mixed indeed. IBM great, TXN not bad, GLW solid. INTC bad, MSFT blowout but poor response, EBAY so-so, AAPL disappointing. The list goes on and on, and each day brings more insight. What things are showing now is slowing in the US with no signs of improvement (makes sense as we are still heading into the slowdown) but still growth in the rest of the world, belying the fear the rest of the world is slowing. Of course, guidance and projections are all based on human emotion. The market shows us what is the course for the future, and while many of these stocks are rebounding near term, they suffered a lot of technical damage and have not as of yet reversed their downtrends. As noted earlier, they typically need to base after such a sharp break lower after such a long climb higher.
Earnings would be the dominant factor right now but for the FOMC meeting and the 80% chance of a 50BP cut at the Wednesday 2:15PM announcement. Earnings will color the action but the FOMC is the main attraction. A 50BP cut is what is anticipated; there won't be more, but there could be less. Parish the thought that the Fed mirrors its prior action and cuts just 25BP after saying it would do what is necessary. Reading between the lines that means 'what the market expects.' So, 50BP is what is likely.
The market has built in that expectation to a certain extent, but not fully. When it becomes reality the market could find some more upside on this bounce that is for now struggling at near resistance. The question at the moment is not whether this bounce is going to stall, just where it stalls. Many are saying a bottom was put in on Wednesday. It would have to be a very, very mild economic slowdown for that to be the bottom. Bulls/bears are not there yet, VIX spiked but did not spike enough, too many growth stocks were severely damaged and need time to recover. Even if it is roughly the bottom, there will have to be more selling to drive up the fear levels more. It all is too fast, however, to be the bottom. Thus there may be more of a bounce here, but there will be deeper selling in our book.
Thus we will look for the defensive upside still with maybe a momentum upside rebound play here and there while we also continue to look at potential downside plays, getting them ready for when the bounce runs out of gas.
Support and Resistance
NASDAQ: Closed at 2349.91
Resistance:
2370 from the April 2006 peak
The 10 day EMA at 2370
2379 from the October 2006 peak
2386 is the August intraday low
The 18 day EMA at 2422
2451 is the August closing low
Some modest resistance at 2500 from interim August lows.
The 50 day EMA at 2536
2546 is the August 2004/April 2005/October 2005/March 2007 up trendline
2550 to 2540 from May/June consolidation and the November lows
Support:
2340 from the March 2007 low
2315 to 2300 is a range of support from old peaks
2275 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 1353.97
Resistance:
1355 is the 10 day EMA
1370 is the August 2007 intraday low
1374 is the March 2007 closing low
1378 is the 18 day EMA
1406 is the August and November 2007 closing low
1408 is a longer term trendline from the August 2003/September 2004 lows
The 50 day EMA at 1426
1430 from the August interim lows
1440 - 1437 from January and March peaks
1459 is the February peak
1464 is the June/July 2006 up trendline
1475 from peaks in December 1999 and January 2000
The 200 day SMA at 1486
Support:
1325 from May 2006 peak prior to the summer 2006 correction
1312 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 12,383.89
Resistance:
12,518 is the August intraday low
The 18 day EMA at 12,536
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 12,932
13,050 to 13,000 range
13,092 is the December low
Support:
The 10 day EMA at 12,368
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 28
New home sales, December (10:00): -4.7% (604K) actual versus 645K expected, 634K prior (revised from 647K)
January 29
Durable goods orders, December (8:30): 1.5% expected, -0.1% prior
Consumer confidence, January (10:00): 87.0 expected, 88.6 prior
January 30
ADP employment, January (8:15): 40K prior
GDP advanced, Q4 (8:30): 1.2% expected, 4.9% prior
Deflator (8:30): 2.6% expected, 1.0% prior
FOMC policy statement (2:15)
January 31
Employment cost index, Q4 (8:30): 0.8% expected, 0.8% prior
Personal income, December (8:30): 0.4% expected, 0.4% prior
Personal spending, December (8:30): 0.1% expected, 1.1% prior
Core PCE, December (8:30): 0.2% expected, 0.2% prior
Initial jobless claims (8:30): 320K expected, 301K prior
Crude oil inventories (10:30): 2.29M prior
February 1
Non-farm payrolls, January (8:30): 65k expected, 18K prior
Unemployment rate, January (8:30): 5.0% expected, 5.0% prior
Hourly earnings (8:30): 0.3% expected, 0.4% prior
Average workweek, January (8:30): 33.8 expected, 33.8 prior
Construction spending, December (10:00): -0.5% expected, 0.1% prior
ISM Index, January (10:00): 47.5 expected, 47.7 prior
Michigan sentiment, January revised (10:00): 79.0 expected, 80.5 prior
End part 1 of 3
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world stock market
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