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money investment, investment help
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1/31/08 Investment House Alerts
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IH Alert Subscribers:
MARKET ALERTS:
Targets hit alerts: MA
Buy alerts: HD; PFCB; QID
Trailing stops: None issued
Stop alerts issued: NILE
SUMMARY:
- Stocks dive with good reason but then reverse off of bad news.
- Jobless claims surge, partly due to seasonal adjustments, but that does not explain all of the rise.
- Personal spending hits a 15 month low in December.
- Jobs report may miss the mark, but with the Fed at its back, market has managed to shrug off bad news on this bounce.
Sharp rally out of the early blood.
The market had every reason to sell what with the AMZN earnings disappointment, the Wednesday reversal from the post-FOMC rally, spiking jobless claims, and a pretty weak showing as far as spending by the consumer. In fact it did sell out of the gates and it sold hard. It showed, however, Cousin Eddy or not, that it had not used up all of its lives.
After the hard down open the market bounced. It then got what was perceived to be great news. In a four hour conference call MBI, one of the big mortgage insurers, emphatically stated it had plenty of cash reserves and was not in danger of insolvency. Manna from heaven. The market sparked higher, starting what was pretty much a straight shot higher into the last hour.
The move showed strong breadth and volume, showing more strength than indicated with the light rally bounce and then the Wednesday reversal to the downside in the last hour.
There were other things at work in addition to the MBI announcement. First, there are always gyrations back and forth following Fed action. Thursday some were saying the rally made sense while the Wednesday reversal did not. Some would argue just the opposite. The point, however, is that post-FOMC, particularly when you get a very big move in the Fed Funds rate (up or down). Think of it: 125BP of cuts in less than two weeks. The cost of money slashed by 30%. You bet you get hefty gyrations, both ways, when you have that kind of movement because positions have to be shifted to take the moves into consideration.
Second, there was end of the month money movement. It was the worst month for NASDAQ in 17 years (thanks to the Thursday rally; otherwise it would have been the worst ever). Ahead of some new money coming in to start February there was short covering for protection and to raise some cash for the new month. That combination turned out to be a powerful force.
With the volume jumping and the indices pushing past near resistance and back toward the resistance tapped at on the Wednesday high we were looking at the proposition of closing out the downside positions. As the indices reached the Wednesday peaks just before the close, however, a Reuters story reported that S&P cut FGIC's (a mortgage insurer) credit rating to AA and that it was putting MBI on negative review status. The indices reflexively reacted to the downside, falling back from the Wednesday intraday highs to close. After all of the upside generated in part by the MBI comments, the reaction showed the market was still on the knife's edge when it comes to this mortgage and credit issue. That was one of the reasons we held onto the downside to see how the jobs report comes out, what the reaction is to that report, and indeed and as strange as it sounds, what the reaction to that reaction is.
TECHNICALLY the session was strong to the upside. A blood-letting to the downside to start and then a reversal and run to the close. There was a hiccup at the close but that did not alter the overall picture. Bearish close Wednesday, bullish close Thursday.
INTERNALS: Much stronger on this upside session than seen in the recent upside moves. Breadth hit close to 3:1 on NYSE and topped 2:1 on NASDAQ. Volume jumped higher after jumping on the Wednesday high to low reversal. A bullish answer to that reversal. It is hard to argue with the numbers the session threw off but you do have to consider the end of the month shuffling after a brutal month as well as the history that strongly indicates there will be another test lower though this move may have pushed that back some.
CHARTS: The indices rallied right back up to the levels where they tested and failed on Wednesday. This time the move was stronger and the fact that it was right back at it after a reversal shows some underlying buying, end of month or not. Even with this move, it is still below the resistance at 12,750 for DJ30 and 1400 for SP500. In the big picture, looking at the charts you see two hard legs lower, and this the second rebound from that selling. Straight down, straight up the past two weeks. That is not a bottom. There is more work to be done. There will be another leg lower after this move runs out of Fed-steam. Maybe we are very fortunate and the lows hit 7 sessions back mark the bottom. That is not, however, the last time we will see that level, bottom or not.
LEADERSHIP: Thursday retail continued its rather impressive recovery, the early beneficiary of Fed rate cuts and talk of putting dollar bills into taxpayers', er, warm bodies' hands via the for lack of a better politically correct name, stimulus package. Financials were benefitting again and there are some really strong financial stocks such as WFC and JPM. They are not necessarily in great patterns as a group, but there are some solid bases here and there and they are getting some serious money thrown there way. Outside of that, however, our observations about leadership in the Wednesday report still hold: most former leaders and indeed most stocks are in bad shape and have plenty more work to do to set up for a new bull leg. They can run higher off of a knifepoint turn, but the life of the move tends to be shorter and when it does work for a longer move it is quite rare. Maybe the Fed has worked magic. Maybe I will fly to the moon this year as well.
In sum, the market showed more strength Thursday than it looked to have left in it as it limped to the finish line on Wednesday. It responded to the rate cuts, just a delayed response. The indices could not break above the Wednesday reversal highs, so there is no sure deal even this Thursday move will hold. Is it trying to make a faster comeback than the end of Q1 timeframe we mused about on Wednesday? Maybe, but the patterns in the indices and in the growth stocks are still in a mess and still need work before they can be the foundation for a sustained bull rally. That takes time and up and down sessions. Thus the market is not out of the volatility, and we have not seen the last of the selling. Thursday did make another breakneck run lower as seen in the second leg lower less likely in the near term . . . but we will still get another scary selloff before this is over, and if the jobs report is bad and the market gaps lower, we will see just how strong this upside showing is.
THE ECONOMY
Jobless claims jump 69,000.
The move to 375K was rather shocking given the 301K and 302K readings of late. The gain was so large it skewed the 4-week average to 325,750. Continuing claims jumped 47K to 2.715M. That is getting to 2001 recession levels. It didn't help futures one bit, but there is more at work here (so to speak) other than just a big spike in weekly claims.
The culprit was the post-holiday seasonal adjustments where the government figures retailers and the like are going to lay off a lot of workers. When the employers don't do as the adjustments expect, they 'over-adjust' the numbers. Thus it looks as of the 301K level was too much adjustment and the Thursday report was not adjusted enough. Thus most were pegging the number closer to the December readings that saw 340K (we heard 350K as a round number). That means a jobs market that, despite the January numbers continues to weaken and thus the bump higher in jobs expected in Friday (70K) may be, despite the meager levels, largely overstating reality.
THE MARKET
MARKET SENTIMENT
VIX: 26.2; -1.42
VXN: 31.08; -0.72
VXO: 28.33; -0.63
Put/Call Ratio (CBOE): 0.95; +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: +40.86 points (+1.74%) to close at 2389.86
Volume: 2.873B (+9.14%). Surging volume as NASDAQ rebounded from the Wednesday reversal and the Thursday gap lower. Bullish volume but also the end of the month and the corresponding higher trade at that time.
Up Volume: 2.192B (+1.069B)
Down Volume: 633.623M (-825.233M)
A/D and Hi/Lo: Advancers led 2.15 to 1. Much better breadth on the upside.
Previous Session: Decliners led 1.32 to 1
New Highs: 53 (+14)
New Lows: 147 (+24)
NASDAQ CHART: http://investmenthouse.com/ihmedia/NASDAQ.jpeg
Gapped sharply lower on the AMZN, jobless claims, etc. It held above the Monday low, however, and surged back. It cleared near resistance at the 10 day EMA and rallied up to next resistance at 2400, tapping at the 18 day EMA (2406) on the high before a modest fade to the close. That puts the index right at the August intraday low (2386). The action was strong and suggests it will try to move on through and toward next resistance at 2450 and then 2500ish. Has to get through here first, and GOOG was down after hour on its earnings though that was the case with AMZN before investors used that gap lower to buy.
NASDAQ 100 (1.82%) pushed to the August closing low where it stalled. Will get a test with the GOOG treatment after hours. How it responds will tell more but the large cap techs have lagged the NYSE stocks.
NASDAQ 100 CHART: http://investmenthouse.com/ihmedia/NASDAQ100.jpeg
SOX CHART: http://investmenthouse.com/ihmedia/SOX.jpeg
SP500/NYSE
Stats: +22.74 points (+1.68%) to close at 1378.55
NYSE Volume: 2.145B (+19.02%). Surging volume, the strongest since the reversal session two weeks back as the NYSE indices pulled something of a reversal themselves on the Thursday session.
Up Volume: 1.793B (+1.141B)
Down Volume: 376.749M (-758.208M)
A/D and Hi/Lo: Advancers led 2.79 to 1. Solid breadth as large and small caps rallied.
Previous Session: Decliners led 1.35 to 1
New Highs: 31 (+2)
New Lows: 92 (+18)
SP500 CHART: http://investmenthouse.com/ihmedia/SP500.jpeg
Similar story. Gapped lower, sold further, then reversed to close sharply higher, surpassing near resistance at the 18 day EMA (1374). SP500 hit and stalled at the Wednesday intraday high before fading back modestly to the close on that MBI news. Next resistance is up at 1400ish from the August closing low and the November low (1407).
SP600 (2.69%) surged higher off the 10 day EMA test, clearing near resistance and running toward the 382 level and the 50 day EMA. Looks like it is going to make that move on this run.
SP600 CHART: http://investmenthouse.com/ihmedia/SP600.jpeg
DJ30
The blue chips rallied higher on volume was well after the early selling took it down to 12,250 on the low. Nothing unusual, just another 400 point swing on the Dow. Volatility is the operative word of late. DJ30 has moved through the near resistance at 12,500 and is now looking at the November low at 12,750 as next resistance with 12,886 (50 day EMA) over that.
Stats: +207.53 points (+1.67%) to close at 12650.36
Volume: 394M shares Thursday versus 334M shares Wednesday. Volume jumped again as the blue chips reversed for a gain off of hard early selling.
DJ30 CHART: http://www.investmenthouse.com/ihmedia/DJ30.jpeg
FRIDAY
Thursday the market not only recovered from the news that would have sent it spiraling lower just two weeks back, but it managed to rally sharply positive on the news. Mid-month it could not have swallowed that kind of news without a log of indigestion. That is a sign the market is a bit sold out still despite the 1000 point run by Dow off its lows.
That means there could still be a further bounce higher from the Thursday close. As noted, DJ30 is still below 12,750 resistance, SP500 is below 1400, and NASDAQ is at next resistance already. How the market responds at those levels is key; something of an inflection point ahead on Friday.
Again, looking at the bigger picture the charts are showing you see this move is just a bounce for now. It may have put in the first part of the bottom with that selloff two weeks back, but the process is not over. There will still be downside to come after this move, and as noted, that makes this test of next resistance an important gauge of the strength of the move.
As for Friday there is the jobs report and we are concerned it might be much less than expected, ADP report or not. There is also the national manufacturing ISM report, and it is anticipated to come in at 48.5, up from the 47.7 prior when it fell back below 50, meaning contraction in manufacturing. If the jobs report misses and the market starts the session lower we will be watching closely to see if it can put in a rebound as it did Thursday. That makes the ISM a half hour into the session important as well; it could confirm or offset the jobs report. There are some factors working against if it on Friday, primarily a new month where investors may not want to commit a lot of new money until they see how a weak start to the month shakes out. Friday they were ready to use the lower open to cover ahead of the month end in anticipation of some possible new money coming in to start the month. Another low open may not attract that kind of covering. If it does and the market rallies again, that will confirm the gelling strength.
With respect to existing positions, for the downside we will have to see how the indices fare off of the open, whether upside or downside. The jobs report throws that extra bit of uncertainty into the mix, particularly given how nervous the market is still trading; it makes big strong moves, but it is jerking back and forth based upon the news of the day. Thus we watch how it reacts to the open; on a downside move that starts to reverse again, it would be prudent to take some of the downside positions back. If it jumps higher out of the gates, we see how the indices handle that next resistance; after this run there is still going to be some downside to pay and this run is getting longer in the tooth.
Support and Resistance
NASDAQ: Closed at 2389.86
Resistance:
2386 is the August intraday low
The 18 day EMA at 2408
2451 is the August closing low
Some modest resistance at 2500 from interim August lows.
The 50 day EMA at 2522
2547 is the August 2004/April 2005/October 2005/March 2007 up trendline
2550 to 2540 from May/June consolidation and the November lows
Support:
2379 from the October 2006 peak
The 10 day EMA at 2369
2370 from the April 2006 peak
2340 from the March 2007 low
2315 to 2300 is a range of support from old peaks
2278 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 1378.55
Resistance:
1406 is the August and November 2007 closing low
1409 is a longer term trendline from the August 2003/September 2004 lows
The 50 day EMA at 1419
1430 from the August interim lows
1440 - 1437 from January and March peaks
1459 is the February peak
1466 is the June/July 2006 up trendline
1475 from peaks in December 1999 and January 2000
The 200 day SMA at 1485
Support:
1374 is the 18 day EMA
1374 is the March 2007 closing low
1370 is the August 2007 intraday low
1360 is the 10 day EMA
1325 from May 2006 peak prior to the summer 2006 correction
1315 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 12,650.36
Resistance:
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 12,886
13,050 to 13,000 range
13,092 is the December low
Support:
The 18 day EMA at 12,534
12,518 is the August intraday low
The 10 day EMA at 12,444
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): 130K actual versus 40K prior
GDP advanced, Q4 (8:30): 0.6% actual versus 1.2% expected, 4.9% prior
Deflator (8:30): 2.6% actual versus 2.6% expected, 1.0% prior
FOMC policy statement (2:15): Cut FF rate 50BP to 3.0%
January 31
Employment cost index, Q4 (8:30): 0.8% actual versus 0.8% expected, 0.8% prior
Personal income, December (8:30): 0.5% actual versus 0.4% expected, 0.4% prior
Personal spending, December (8:30): 0.2% actual versus 0.1% expected, 1.0% prior
Core PCE, December (8:30): 0.2% actual versus 0.2% expected, 0.2% prior
Initial jobless claims (8:30): 375K actual versus 320K expected, 306K prior (revised from 301K)
Chicago PMI, January (9:45): 51.5 actual versus 52.0 expected, 56.4 prior (revised from 56.6)
February 1
Non-farm payrolls, January (8:30): 70K 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): 48.4 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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