|
|
us stock market, trade stock
* * * *
1/29/08 Investment House Alerts
* * *
IH Alert Subscribers:
MARKET ALERTS:
Targets hit alerts: SII
Buy alerts: IWM; NILE
Trailing stops: None issued
Stop alerts issued: None issued
SUMMARY:
- Another low volume drift higher ahead of FOMC decision.
- December durable goods orders shoot higher, but they do not herald the end of the slowing economic reports.
- Consumer confidence tops expectations but is still struggling at 2001 recession levels.
- Eyes on the Fed and its likely 50 BP rate cut.
Market marks some time ahead of FOMC policy statement.
Durable goods orders were strong, coming in much better than expected. Futures were up some ahead of the number and gelled a bit more after its release. The earnings data was not bad either as investors forgot about VMW in the face of bigger game such as DOW and MMM, both reporting strong overseas sales. It was plenty to push stocks higher early in what is thus far a light volume week ahead of the FOMC decision on Wednesday afternoon.
Of course after the initial higher open stocks did try to sell off. As noted in the pre-market alert, that is fairly typical action. When consumer confidence came out ahead of expectations, however, that helped stem the slide. Stocks firmed and started a slow, jagged climb higher into the close, putting them at or darn close to session highs. It also put them right up against resistance on some very quiet trade. Ahead of the FOMC neither side wants to step out in front with any real aggressive action. With that hesitation the bias remained upside with the remnants of the rebound momentum from last week keeping things modestly positive before the FOMC announcement.
TECHNICALLY the action was quiet, but the session was not a non-event. The action was low to high, though it threatened to be high to low after the modest open was pushed back to negative. A jagged climb back up through the afternoon and the close, however, showed another session of the low to high action that is more bullish, but it is also a very light volume drift as noted below.
INTERNALS: Not bad, but quite noncommittal compared to what the market has shown the past few months. Breadth was close to 2:1 on NYSE and a stagnant 1.3:1 on NASDAQ. Volume was low and though higher on NASDAQ, still below average. NYSE volume trailed off from average levels on Monday to below average Tuesday for the first time in two weeks. Very sedate as the market waits for the FOMC. Not atypical when WOF (waiting on the Fed), but it does show a lack of conviction on the drift higher.
CHARTS: The indices all closed higher except SOX, and that moved them up to resistance tested on last Fridays highs. DJ30 tapped at 12,500 and backed off while SP500 came close to Fridays 1368, just a hair below the August intraday low at 1370. As noted last night, the action in leaders, in rebounding stocks, in volume, and the patterns of the indices and rebounding stocks leaves the question of not whether the bounce will ultimately fail, but whether it will fail here or move up more to next resistance before failing.
LEADERSHIP: Very similar to the action on Monday as certain sectors continued their rebounds, trying to exhibit some leadership cache, e.g. homebuilders and financial stocks. They have been hammered and are getting some money thrown their way as investors try and figure out what is going to make money in the economic slowdown, at least with respect to stocks that did not participate in the last market run before the correction started. As for the stocks that surged in the rally, they are still struggling with the majority of issues as they rebound from the harsh selling. Energy had a slower session while techs moved up on the session. The techs, however, are not showing strength, just bouncing a bit further upside as they rebound in their new downtrends.
THE ECONOMY
Durable goods orders shoot higher, but are they coming or going?
December durable goods orders shot higher by 5.2%, easily topping expectations of a 1.5% gain. November was revised as well, moved up to 0.5% from the -0.1% originally reported. It was not all airplanes as is often the case; ex-out transportation and they still rose 2.6%. Machinery jumped 8%, computers and electronics added 5%. Capital goods orders surged 11% and the core capital goods (the business spending proxy) posted a strong 4% gain.
After falling 3 of the prior four months, the gains were nice to see. Still, while year over year gains increased 5% overall and 1.7% on the core capital goods side, most of the gain for the year was due to the outsized December gains. In short, without the big December boost the orders would have been rather meager in 2007 outside of the July record high. That is the pattern they followed all year: big spikes higher followed by three to four months of flattish growth that included a big downside spike with big upside gains interspersed about 1 per quarter.
It is not surprising to see durables orders jump in December; it is the end of the fiscal year for most companies, and they are buying goods to get the write-offs for the tax year. With still liberal expensing provisions from the 2003 Bush tax cuts, there is still that end of year surge in spending. We discussed this expensing last week, i.e. how increasing the cap to $200K won't make a business that was not going to spend $100K and expense it suddenly decide to spend $200K, but that is something our Congress does not seem to get.
The stronger durables report of course brought out those economists and pundits who believe the economy is strong and needs no help despite what the stock market has forecast. The problem with this view is that it does not take into account where the economy is going and what trend the orders have shown. As noted above, the trend for 2007 was not great; some big spikes here and there skewed what was really modest spending month to month. Moreover, with nearly all of the economic indicators trending lower, to pull out one month of a highly volatile data point and use it as proof of a strong economy is highly dubious. The economy is trending lower and has shown no bottom yet. Durables are volatile as seen through 2007, and a year end jump to take advantage of tax breaks explains the December spike amidst the other weak economic data. In short, the durables are not a leading indicator the economy is improving but a seasonal aberration due to the end of the tax year and tax incentives providing the impetus to spend before 2007 expired.
Consumer confidence hangs in but is struggling.
At 87.9 confidence is not in the gutter down in the 60's that suggest the consumer is going completely in defensive mode, and though it was down from December (90.6) that was mainly due to an upward revision in that month. Thus far no major complaints about the January number. Indeed with the slump in the stock market, the housing recession, credit crisis, higher oil prices, and economic doom on the television every night, the numbers are surprisingly high.
As to where confidence stands compared to the last recession and the intervening period, it is down 22% from the July 2007 peak that marked the high since the last recession. Speaking of the last recession, the current reading is lower than the average for the 2001 recession and is the lowest since the aftermath of the 2005 Gulf storms. Thus while the raw number is still livable and frankly surprisingly high given all of the turmoil, it is by no means strong. The thing that is keeping it up at this point is the jobs expectation which remains rather upbeat. The difference between those responding 'jobs plentiful' versus 'jobs hard to get' rose to 3.8 in January. Jobs are the key to confidence; if consumers continue to view their job outlook in a positive light, spending holds up.
THE MARKET
MARKET SENTIMENT
VIX: 27.32; -0.46
VXN: 32.85; +0.29
VXO: 29.31; +0.19
Put/Call Ratio (CBOE): 0.9; -0.03. Second consecutive session below 1.0 after a slew of 1.0+ closes.
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: +8.15 points (+0.35%) to close at 2358.06
Volume: 2.128B (+2.59%). Volume bumped higher but it was still below average for the second straight session in a month filled with massive volume. Thus this rebound from the Friday reversal from the gap higher does not have much backing it up.
Up Volume: 1.386B (-4.925M)
Down Volume: 780.844M (+179.078M)
A/D and Hi/Lo: Advancers led 1.34 to 1. Very mediocre, matching the upside on the session.
Previous Session: Advancers led 1.9 to 1
New Highs: 43 (-2)
New Lows: 89 (-30)
NASDAQ CHART: http://investmenthouse.com/ihmedia/NASDAQ.jpeg
Another gap higher then a selloff to negative, only to recover on the close. Volume was up, but as noted above, it was the second session of below average trade this week after a month full of heavy trade. NASDAQ is sitting just below the 10 day EMA (2368) and the April 2006 twin peaks (2371), the near resistance for NASDAQ after its selloff and reversal last week. NASDAQ is still positioned to move higher if it gets the impetus to send it up, but looking at the large cap tech patterns we see a series of weakening rebounds from the sharp selling preceding that reversal. Look at INTC, CSCO, DELL, AMZN, GOOG, EBAY; they are all struggling in downtrends and are not in position to race higher. That throws a wet blanket on NASDAQ's ability to rally significantly higher though it could bounce more near term.
If you have any questions about the large cap weakness, just look at NASDAQ 100 (+0.14%). It has rebounded as well but it languishing well below the 10 day EMA and the August closing low while it works in a severe downtrend. It can bounce yes, but a sustained rally? Not unless the market has been wholly wrong in its assessment of the economic future.
SOX (-0.51%) was the only index that was lower, but it did no harm to itself as it continues its lateral move.
NASDAQ 100 CHART: http://investmenthouse.com/ihmedia/NASDAQ100.jpeg
SOX CHART: http://investmenthouse.com/ihmedia/SOX.jpeg
SP500/NYSE
Stats: +8.34 points (+0.62%) to close at 1362.3
NYSE Volume: 1.588B (-3.09%). Volume fell below average for the first time in two weeks as SP500 and SP600 continued their modest moves higher. Pensive ahead of the Fed for sure, but all that means is you cannot put any real stock in this move one way or the other.
Up Volume: 1.04B (+897.831M)
Down Volume: 503.88M (+296.228M)
A/D and Hi/Lo: Advancers led 1.97 to 1. Not bad compared to the paltry gains. Many stocks were up, just not much.
Previous Session: Advancers led 3.55 to 1
New Highs: 28 (+6)
New Lows: 63 (-18)
SP500 CHART: http://investmenthouse.com/ihmedia/SP500.jpeg
Gapped higher, tested early , then closed up near the session high as the large caps moved through the 10 day EMA (1357) and up to last Fridays intraday high before the index reversed (1368) and the August intraday low at 1370. After the strong reversal the index is pausing, waiting on the FOMC decision. While it pauses, the momentum from the reversal is carrying it a bit higher as neither the sellers nor the buyers want to get out in front of the Fed. It is still in the downtrend from the selling though it is trying to hold the bounce and set up for a move post-FOMC. With its strong contingent of financial stocks that have priced in a 50BP cut tomorrow, finding more upside may prove difficult.
SP600 (+0.62%) moved up through the 18 day EMA as it moves up to some moderate resistance at the 272 level. As noted Monday, if it can continue higher it has a shot up to 380-82.
SP600 CHART: http://investmenthouse.com/ihmedia/SP600.jpeg
DJ30
The blue chips moved through the 10 day EMA (12,388) and through 12,500 on the high (12,503) but then slipped back to close just below the Friday intraday peak before it reversed that session. This is that same resistance DJ30 tested last week and leaves it below the 18 day EMA (12,530) and the August intraday low (12,518). Volume has faded the past two sessions as DJ30 bounced further from the Friday reversal. Key level for the blue chips after that initial rebound surge and a modest test.
Stats: +96.41 points (+0.78%) to close at 12480.3
Volume: 285M shares Tuesday versus 278M shares Monday. More low volume as the index recovers, some of the lowest volumes of the month.
DJ30 CHART: http://www.investmenthouse.com/ihmedia/DJ30.jpeg
WEDNESDAY
The FOMC decision finally issues at 2:15ET Wednesday. Before that we get the monthly ADP jobs guess and the first run at Q4 GDP. We also get some more earnings; after hours YHOO reported and disappointed, falling 10% after hours. Of course the after hours earnings from techs have not stalled the market this week as the large cap industrials with overseas connections are garnering the earnings attention. This week the market has overlooked the tech earnings shortcomings and drifted higher with the upward bias left over from last week's reversal.
After the durable goods orders there is the chance that a 25BP cut is back on the table, but the Fed is in the damage control mode and it likely won't make the 25BP mistake again as it did in the fall . . . or at least you would not think it would. We are assuming the Fed will cut 50BP and give what the market wants; to do otherwise would cause a tantrum and more damage, something the Fed wants to avoid.
The market and financials in particular have bounced back up in anticipation of a 50BP. The Fed Funds futures contract has priced in roughly an 80% chance of such a cut; the market is indeed anticipating that move. With that background we are not expecting a lot more upside, at least sustained upside, after the FOMC cuts by 50BP. That may be counterintuitive as rate cuts are what the market wants and will ultimately cure its ills. The question is timing. With this kind of selloff we think it is wrong to assume that last week was the bottom in the entirety of this selling. At a minimum it will be tested again to set the bottom but it will likely undercut that prior low and jack up the fear indicators even higher.
Again, given that viewpoint, for us the question is where the market turns back, not whether the market turns back. The indices made it to near resistance off the reversal and stalled. This week they made a low volume drift back up to that same resistance ahead of the uncertainty of what the FOMC is going to do with its next rate decision. The market could very well bounce higher off of that decision and take DJ30 on up to next resistance at 12,750ish before it runs out of steam. Why wouldn't it continue surging on up? Because rate cuts take time to impact the economy. The market will start discounting it ahead of time, but typically you have to have the rate cuts in place for a period and then you get the anticipatory move back up.
We don't mean to be negative on the market or the economy, just realists as to what it is showing. The patterns of most stocks have been seriously damaged and they need time to recover. After this rebound higher following the sharp selloff they are going to need more time to base and set up new rallies. It is still early in the selloff and time is the key.
What we are going to do is continue to look for opportunity on the upside in stocks that have held solid patterns through this turmoil as they will continue to move higher when the rebound attempt by the broader market stalls. We will also continue to look for and move into downside positions that set up, and look to add to positions we have taken where the market has subsequently drifted higher; when this rebound turns over it will likely drop rapidly once more as the third leg in the selloff takes hold. Out of that we may start to see a bottom set up, i.e. once there is some more downside, some more time, and then maybe, perhaps, a stimulus package that has some real stimulus elements in it other than the pork-laden bill the current package is turning into.
Support and Resistance
NASDAQ: Closed at 2358.06
Resistance:
2370 from the April 2006 peak
The 10 day EMA at 2369
2379 from the October 2006 peak
2386 is the August intraday low
The 18 day EMA at 2415
2451 is the August closing low
Some modest resistance at 2500 from interim August lows.
The 50 day EMA at 2529
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
2276 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 1362.30
Resistance:
1370 is the August 2007 intraday low
1374 is the March 2007 closing low
1376 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 1424
1430 from the August interim lows
1440 - 1437 from January and March peaks
1459 is the February peak
1465 is the June/July 2006 up trendline
1475 from peaks in December 1999 and January 2000
The 200 day SMA at 1486
Support:
1357 is the 10 day EMA
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 12,480.30
Resistance:
12,518 is the August intraday low
The 18 day EMA at 12,530
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 12,915
13,050 to 13,000 range
13,092 is the December low
Support:
The 10 day EMA at 12,388
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): 5.2% actual versus 1.5% expected, 0.5% prior (revised from -0.1%)
Consumer confidence, January (10:00): 87.9 actual versus 87.0 expected, 90.6 prior (revised from 88.6)
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
|
us stock market
trade stock
|
