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2/04/08 Investment House Alerts
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IH Alert Subscribers:
MARKET ALERTS:
Targets hit alerts: None issued
Buy alerts: CREE; CVX
Trailing stops: None issued
Stop alerts issued: None issued
SUMMARY:
- Market takes a low volume, 'normal' breather after a record week.
- Google ready to 'help' Yahoo!
- More earnings and more economic data as market tests its last move.
Market sells back from last week's gains, but thus far no look of a rollover.
There was not a whole lot of news to start the new week, and the biggest story we kept hearing from traders, brokers, etc. was the Super Bowl. Not the commercials (they were a weak lot) but the actual game. I can hear it now: Bush's next address will talk about how the country has to be in good shape as, after all, we just had the best Super Bowl in years, at least in the fourth quarter; kind of sleepy to that point unless you liked watching Tom Brady get knocked down every fourth snap. Halftime was not bad either with Tom Petty belting out a greatest hits set. No wardrobe malfunctions, just rock and roll.
Outside of that there were some downgrades in financials (AXP, COF, DFS, WFC, WB) that weighed on that sector, but it was due for a pullback anyway after surging off the lows over the past two weeks. Factory orders were solid at 2.3% (2.0% expected), a nice gain from the nice 1.7% (revised from 1.5%) in November. And of course, GOOG had to weigh in on the biggest story of last week outside the FOMC rate cut, i.e. MSFT's bid for YHOO. Over the weekend the Google guys contacted the Yahoo yokels, offering to 'help' Yahoo with this hostile MSFT bid. Help? Hmmmm.
After last week there was not enough to drive the market higher. It started soft, and that can be good for the upside, but after driving nicely higher and with no new catalyst to start the week, the soft open only got softer as stocks faded quickly in the first hour, then spent the rest of the session moving lower, making lower and lower highs as a couple of rally attempts lacked any punch at all. They made a lower high in the last hour and closed at session lows. Not great, but no major selloff, no volume, no real issues. Just a pullback session after a strong surge.
TECHNICALLY, the action started flat to lower and finished well off that level. Low to lower is not great intraday action, but the action the prior week was solid. Thus no issues with this for the bulls as it simply looked like a fade back toward near support.
INTERNALS: The internal data back that up. Volumes were well off last week's levels even if those were inflated by the end of month reallocations exacerbated by the sharp selling and then the rebound. Suffice it to say that volumes on both NASDAQ and NYSE fell below average on the selling, and that shows no dumping of stocks. Breadth was modestly lower (-1.47:1 NYSE); there was no broad selloff, certainly not as wide as the gains from last week.
CHARTS: No major selloff despite the 1+% losses on NASDAQ, SP500, and SP600. NASDAQ came back to its 10 day EMA, SP500 to the 18 day EMA, and DJ30 is well above either the 18 and 10 day EMA. These losses were very well contained, hardly threatening the prior move.
LEADERSHIP: The market is still searching for steady, sustained leadership from stocks that are well-positioned to carry out sustained runs. Financials faded Monday, but as noted, they were due for a fade after the bounce. But financials are not really in leadership position. Yes there are some that are nicely formed up, but most sold hard and just made a reflex bounce, either leaving them still in downtrends or making a sharp turn back up without any good base under it. That is the story for the majority of stocks over the majority of sectors. There are stocks positioning for early leadership, e.g. BIDU, WFR as on the weekend report, but they are still not coming out of the woodwork, something they will do when the market has made its base and is ready to make the next move higher.
Google ready to lend a hand to Yahoo.
Over the weekend I wondered why it took MSFT to make the move on YHOO, the second big search monger out there, instead of GOOG just making the move and sewing up search. Of course as my lawyer friends tell me, that would cause a snoot full of anti-trust issues, but somehow I don't think that would stop GOOG from trying.
Anyway, over the weekend Google contacted Yahoo offering 'help' in dealing with Microsoft and its hostile bid. When you think about it, this is rather funny. Google sounds so altruistic, one search buddy to another. But is Google's interest really in 'helping' Yahoo or helping itself to Yahoo? Remember 'Romancing the Stone' with Michael Douglas, Danny DeVito, and Kathleen Turner (who also all starred in 'The War of the Roses')? Recall when Danny DeVito tells Kathleen Turner the hard facts of life, i.e. that Michael Douglas was trying to 'romance the stone' from her, making her think it was her decision to go for the stone versus just turning over the treasure map.
Same thing here. Google doesn't care about Yahoo at all other than that it is a competitor to its main business. It either wants to 'help' itself to Yahoo with a handshake with one hand and a knife in the back with the other. Or it wants to 'help' Yahoo to fend off MSFT and continue the YHOO decline. Either way Google has 'helped' Yahoo right out of the picture, strengthening Google's position over Yahoo and Microsoft. Help? That's a good one.
THE MARKET
MARKET SENTIMENT
VIX: 25.99; +1.97
VXN: 30.46; +2.21
VXO: 26.84; +1.2
Put/Call Ratio (CBOE): 0.98; +0.16
Bulls: 40.2%. Down yes, but the steep drop seen the previous weeks slowed (41.6% last week). Before this past week there were sharp decline from 45.6% the week before and 56.50 on the high (48.4%, 52.2%, 54.9% and 56.50%). Has surpassed 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: 32.2%. Up, but as with bulls, the strength slowed some as it managed less than a point gain from 31.5% after the massive jump higher from 26.7% the prior week. It is over 30%, meaning it is in 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: -30.51 points (-1.26%) to close at 2382.85
Volume: 2.075B (-33.14%). Volume fell off the table after surging to end January and being February. Below average trade as NASDAQ faded back, indicating no heavy selling at all.
Up Volume: 637.753M (-1.62B)
Down Volume: 1.406B (+581.841M)
A/D and Hi/Lo: Decliners led 1.35 to 1
Previous Session: Advancers led 2.07 to 1
New Highs: 54 (-8)
New Lows: 70 (-22)
NASDAQ CHART: http://investmenthouse.com/ihmedia/NASDAQ.jpeg
NASDAQ started flat then trickled back all session to close at the low and at near support at the 10 day EMA (2378). Low volume, narrow breadth, modest losses. There was no turn back over to scream lower, not based upon the internals and the chart. It has not proved this is just a modest pullback; sometimes selling starts slowly. It is, however, the way a bull wants to see the index test the run off of the lows. Don't want to get married to a relief bounce out of heavy selling, but thus far the test has been mild, one day though it is.
NASDAQ 100 (-1.43%) suffered a bit more than NASDAQ overall, and its chart is the more questionable of the two, indeed of all of the indices. It tapped the 18 day EMA on Friday then faded Monday, closing below the 10 day EMA. It has the most ragged pattern, and while volume was lower on Monday, this is still the one to watch in how it responds to the downside.
SOX (-2.17%) gave back a chunk of the Friday break higher, but with the low volume in the index it is not in too serious of shape. TXN after hours failed to please investors, however, and that will put some pressure on the index.
NASDAQ 100 CHART: http://investmenthouse.com/ihmedia/NASDAQ100.jpeg
SOX CHART: http://investmenthouse.com/ihmedia/SOX.jpeg
SP500/NYSE
Stats: -14.6 points (-1.05%) to close at 1380.82
NYSE Volume: 1.36B (-23.93%). NYSE volume slipped below average as the NYSE indices faded modestly. No distribution, just a nice, easy pullback to rest after a strong weak higher.
Up Volume: 412.604M (-1.085B)
Down Volume: 928.888M (+645.093M)
A/D and Hi/Lo: Decliners led 1.47 to 1
Previous Session: Advancers led 3.96 to 1
New Highs: 46 (-3)
New Lows: 54 (-3)
SP500 CHART: http://investmenthouse.com/ihmedia/SP500.jpeg
After the 4 of 5 up sessions last week the large caps gave some back as the financials had to take a breather. SP500 sold, but it easily held above its 18 day EMA (1377) on the close, still in solid shape on the test. 1400 to 1407 (August closing low, November closing low) is that immediate overhead resistance, and after that run, SP500 testing back from that level is normal. So far looks positive for the bulls.
SP600 (-1.23%) sold back through the 50 day EMA (382.24) after a 1-day move through it. It also turned back below the October/December down trendline. As with the other indices, no heavy selling on the move as volume was light, but it is a natural turning point for SP600 to test, and, if so inclined, to fall harder and into the third downside leg.
SP600 CHART: http://investmenthouse.com/ihmedia/SP600.jpeg
DJ30
The Dow stalled just about to the nickel at 12,750, the November closing low. It turned back Monday, but the selling was nothing. Low, below average volume, well above the 18 day EMA and 10 day EMA. This is where it should test back after a good run as it is natural resistance. The key is whether it is just a test of turns out to be another run lower as volume jacks up.
Stats: -108.03 points (-0.85%) to close at 12635.16
Volume: 237M shares Monday versus 379M shares Friday. Very low, below average volume as DJ30 makes a modest pullback.
DJ30 CHART: http://www.investmenthouse.com/ihmedia/DJ30.jpeg
TUESDAY
Earnings continue and after hours TXN failed to turn semiconductors back up from their day of selling. Of course, the earnings were not running the chips down overall after hours.
There are lots of earnings coming out, some hitting, some surpassing, some missing. Guidance is running the same obstacle course. ISM Services is out Tuesday as well, but with the ISM recovering above 50 some of the intrigue is gone from this particular report.
Regardless of what the earnings are, the key is how the market reacts to them as it continues its test of the sharp rally off of the reversal from two weeks back. As noted over the weekend, a lot are saying that was the bottom. With all of the Fed action it may have been. That does not mean that after this rebound there won't be another test. History says there will be.
Now that the market missed an upside session and with history saying there will be a test, the question is whether Monday was the start of another leg lower that will be the test (or beyond) or just a stopover before some more upside on this rebound bounce. There was nothing in the major indices to suggest it was more than a modest and rather typical test of a strong move. NASDAQ 100 is not so clear, and SP600 looks suspicious as well; they could lead the turn lower and thus bear close watching as the week unfolds. The second leg of selling was roughly equal to the first, the rebound is now roughly equal to the first leg, and the indices are at some resistance. Definitely a potential inflection point here.
Thus we continue to look for those upside plays where the stocks have set up a nice base already despite the weak market or are setting up to come off the bottom of a base that is currently forming. There are actually some of those out there as seen over the weekend, and they may turn into the next crop of early leaders when the market bottoms. Just as we are watching how SP600 and NASDAQ 100 test here, we are also watching these for upside potential as well as some indication that the bottom in the overall market is forming up.
In addition we are also watching for good downside action as we still view, thanks to history, that another selloff is coming down the pike. If NASDAQ 100 and SP600 do rollover, they will provide nice downside vehicles along with some individual names as well.
Support and Resistance
NASDAQ: Closed at 2382.85
Resistance:
2386 is the August intraday low
The 18 day EMA at 2405
2451 is the August closing low
Some modest resistance at 2500 from interim August lows.
The 50 day EMA at 2508
2540 is the November closing low
2548 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 2378
2370 from the April 2006 peak
2340 from the March 2007 low
2315 to 2300 is a range of support from old peaks
2280 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 1380.82
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 1417
1430 from the August interim lows
1440 - 1437 from January and March peaks
1459 is the February peak
1467 is the June/July 2006 up trendline
1475 from peaks in December 1999 and January 2000
The 200 day SMA at 1484
Support:
1376 is the 18 day EMA
1374 is the March 2007 closing low
1370 is the August 2007 intraday low
1369 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 12,635.16
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 12,871
13,050 to 13,000 range
13,092 is the December low
13,250 from price points from June through December 2007
13,362 is the 200 day SMA
Support:
The 18 day EMA at 12,565
12,518 is the August intraday low
The 10 day EMA at 12,523
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
11,634 is the January intraday low
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.
February 4
Factory Orders, December (10:00): 2.3% actual versus 2.0% expected, 1.7% prior (revised from 1.5%)
February 5
ISM Services, January (10:00): 53.0 expected, 54.4 prior
February 6
Productivity, Q4 preliminary (8:30): 0.5% expected, 6.3% prior
Crude oil inventories (10:30)
February 7
Initial jobless claims (8:30): 340K expected, 375K prior
Pending home sales, December (10:00): -2.6% prior
Consumer Credit, December (3:00): $8.0B expected, $15.4B prior
February 8
Wholesale inventories, December (10:00): 0.3% expected, 0.6% prior
End part 1 of 3
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