|
|
us stock market, stock prices
* * * *
2/05/08 Investment House Alerts
* * *
IH Alert Subscribers:
MARKET ALERTS:
Targets hit alerts: None issued
Buy alerts: CNH; COIN; ESRX; SDS; XOM
Trailing stops: CPHD; CSX; FWLT; HUM
Stop alerts issued: FDP; VIP; VIVO
SUMMARY:
- Monday's 'normal' breather turns into a Tuesday downside rout.
- ISM Services downright sobering as it collapses below 50.
- Momentum is definitely downside, and this downturn should at least test the January lows.
Selling resumes with some fury.
Whereas Monday was a normal easy pullback after a solid run, Tuesday was downside rout. Things were weak to start as some cracks showed up in Europe, and we are not talking about the fellows running the European central bank. The Royal Bank of Scotland (RBS, the 'more action, less talk' commercials) found itself in some quicksand of its own (borrowing from its commercial) as it too is feeling the affects of the credit issues spreading around the globe.
That had futures lower, but nothing compared to when the ISM services data came out. There were many things 'interesting' about that data. First, it was released at 8:55ET versus 10:00ET as scheduled. Apparently there was a security breach and the data was leaked. Give them credit at least for going ahead and officially publishing it. Second, the data was horrid, coming in at 41.9 versus the 53 expected. That put the bullet in futures and they dove lower. The market sold at the open and sold often, finishing on the lows and roughly down 3% on all indices. Oil was lower as well as it seems to be settling below $90/bbl as more worries of recession ratchet up.
About the only thing up on the session was the dollar. It gained as the pound fell on the RBS reports: if Europe is weakening that will force the ECB to cut rates and thus make the dollar relatively more valuable. That is the logic chain, though the ECB leaders would rather go to the grave with economies showing 0.5% average GDP growth and low inflation versus a 3% growth rate and 2% inflation. Reminds me of a coach at Texas Tech in the 1970's; he said he would rather go 7 and 4 and beat Texas than 10 and 1 and lose to Texas. The next year he got his wish. He sure didn't seem too happy. Of course there was more up than just the dollar. Volume was up on the selling, showing shares getting dumped, and negative breadth ballooned as well. Of course, those are not the kind of indications the bulls prefer to see.
TECHNICALLY the session was something known officially as a butt kicking. The indices started weak, sold low to lower, to even lower to close the session. An early bounce attempt off the gaps lower was smothered, and the two token bounces later in the session were squashed like a grasshopper on a windshield. The indices tried a short intraday double bottom in the last hour, but that gave way to a race to the bottom at the bell.
INTERNALS: Massively negative breadth (-4:1 NYSE, -3.7:1 NASDAQ) and spiking volume. That shows the selling was as broad as the 3% losses on the indices indicated and that stocks that were bought on the recent rebound were getting dumped once more. The short love affair to the upside lost its bloom. More accurately, one partner left in the dead of night.
CHARTS: A modest pullback on Monday turned into a serious downside blowout on Super Tuesday. No new lows were hit on the move; after all DJ30 just rallied over 1000 points on the rebound. The losses were big, but they did not overturn that rally in one session. No, it was just a harsh rollover from the rebound after the second leg lower. There is still a lot of ground to cover to match the January lows, but this looks to be a critical move where the market tests that low and then decides whether to hold or to fold and sell deeper.
LEADERSHIP: It was hard to find. Indeed, there was no real group of leadership, at least to the upside. It was sporadic and stock to stock with no sectors showing a lot of strength outside of utilities. No, most of the leadership was to the downside.
THE ECONOMY
ISM Services sends a chill across the economy.
The January ISM manufacturing report seemed out of context with economic conditions as it rebounded from contraction to expansion. ISM services, the bigger part of the economy and expected to easily top 50 once more (53.0 versus 53.2 prior), however, imploded to 41.9. Even when calculated by the new measure that weights each factor equally, the reading was still just 44.6.
The reading was the lowest since 2001 and broke a string of 58 months above 50. The slide below that level indicates the service sector is contracting, though it is the first reading, in, as noted, 58 months. There are some that are actually making light of it, saying it was just one month, the size of the decline suggests inaccurate data, etc., but you have to take note when you interrupt 58 months above 50 whether the data was totally accurate or not. Indeed, none of the government data is totally accurate anyway; that is a standard that it simply cannot meet. Physically impossible.
No matter how you slice it, the data was ugly. New order 43.5. Employment 43.9. Deliveries 49.0. Inventories 44.5. Imports 41.5. Only exports (52.0) was above 50 AND it showed a gain from 50.0. Prices paid even fell, dropping to 70.7 from 71.5, but that is still way up from just October and its 66.1.
To us this data, despite it being just one month and sharply lower, means the economy has not hit its trough yet. Yes the data may have been inaccurate and skewed the result lower, but it was still way off pace, in contraction, and suggests there is more weak economic data to come because this is a more leading indicator. Thus the market is going to have a serious test when it gets to the prior lows. If this data is accurate, it suggests the January low will not hold, at least not longer term.
THE MARKET
MARKET SENTIMENT
VIX: 28.24; +2.25. Rather nonchalant move given the awesome size of the thrashing the indices were handed. As a refresher, it hit 37.50 on the spike higher at the January low. At the time we noted that the showing, while enough to start an interim bounce, was not enough to put a permanent bottom in the market. It is part of the process and we will see how it looks as the indices test those January index lows.
VXN: 32.44; +1.98
VXO: 30.1; +3.26
Put/Call Ratio (CBOE): 1.14; +0.16. Back over 1.0 on the close for the first time in a week. It compiled almost two straight weeks above 1.0 and three weeks overall during that last ugly selloff on the second leg lower. The third leg starts and bam, back above 1.0 on the close.
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: -73.28 points (-3.08%) to close at 2309.57
Volume: 2.512B (+21.04%). Volume spiked back above average as NASDAQ sold off. It did not match the month end/beginning volume, but it was an impressive jump in volume as NASDAQ sold. That is not what you like to see for the upside as it shows those stocks that were just bought on the bounce are getting thrown over the gunwales as soon as the market turned back down.
Up Volume: 185.409M (-452.344M)
Down Volume: 2.303B (+897.326M)
A/D and Hi/Lo: Decliners led 3.71 to 1. Impressively bad breadth.
Previous Session: Decliners led 1.35 to 1
New Highs: 41 (-13)
New Lows: 104 (+34). Not close enough to the January lows to really start ratcheting up the new lows just yet.
NASDAQ CHART: http://investmenthouse.com/ihmedia/NASDAQ.jpeg
NASDAQ gapped lower and sold off into the close. Volume up, breadth huge to the downside. As noted, no new ground was broken; it was just the first real day of selling after the relief bounce. It was, however, a decisive turn back lower from the rebound that many we saw on television were saying you should have bought into. We have a bad feeling that those who did are going to find out that the January lows were indeed not the lows in this selloff, and that all of the 'great buys' to be had are going to look quite a bit overpriced before this is all finally over. That is our gut; for now we see how the indices handle the test of the January low to see if we want to sell any of our downside at that point or let it ride further.
NASDAQ 100 (-3.02%) gapped lower as well and also closed on the low. NASDAQ 100 was one of the indices we were watching as the canary for the relief bounce. That canary keeled over Tuesday.
SOX (-3.87%). So much for the break higher as SOX gives back all of the Friday breakout. Back to the drawing board once more for the chips.
NASDAQ 100 CHART: http://investmenthouse.com/ihmedia/NASDAQ100.jpeg
SOX CHART: http://investmenthouse.com/ihmedia/SOX.jpeg
SP500/NYSE
Stats: -44.18 points (-3.2%) to close at 1336.64
NYSE Volume: 1.677B (+23.31%). Volume jumped up above average on NYSE as well though not the spike seen on NASDAQ. Still dumping on the move though not jettisoning all NYSE stocks.
Up Volume: 123.978M (-288.626M)
Down Volume: 1.548B (+618.64M)
A/D and Hi/Lo: Decliners led 4.18 to 1. You would expect the small caps to have led lower given the breadth. They were not pikers (-2.82%), but they did not lead SP500 or DJ30.
Previous Session: Decliners led 1.47 to 1
New Highs: 20 (-26)
New Lows: 75 (+21)
SP500 CHART: http://investmenthouse.com/ihmedia/SP500.jpeg
When you look at the candlestick chart the Tuesday decline is an impressive bar lower. Volume did not really match the intensity of the price loss or the downside breadth, but there is no mistaking the harsh turn lower and the rise in volume that accompanied it. The May 2006 peak and the old up trendline are next potential support, but before this is over SP500 is at least going to test the January low and likely lower.
SP600 (-2.82%) sold hard as well but it was not the downside leader, and that suggests that there is still some belief that the economy is nearing its trough. We will see how that holds up over the next couple of sessions as the selling continues. The small caps enjoyed the best gain on the rally after the Fed cut rates 125BP in 9 days; if the belief was the economy would bottom near term as a result that made sense. The ISM services data, however, put that in jeopardy.
SP600 CHART: http://investmenthouse.com/ihmedia/SP600.jpeg
DJ30
The blue chips dove lower on above average volume as well, stopping at some minor support at the 12,250 level. As with the other indices, this is not going to stop the selling and DJ30 has a date with destiny at the January lows before this is over, and that will be a key inflection point for them as well.
Stats: -370.03 points (-2.93%) to close at 12265.13
Volume: 334M shares Tuesday versus 237M shares of below average volume on Monday. Volume spiking back up above average as the blue chips sell off once more.
DJ30 CHART: http://www.investmenthouse.com/ihmedia/DJ30.jpeg
WEDNESDAY
More earnings and the Q4 advanced productivity read is out Wednesday. Basically more of the same as far as data is concerned in addition to the new downside pressure. With the virulence of the turn back to the downside on Tuesday this looks very much like the move lower to test the prior January lows in the next big test of the selloff and whether the market is factoring in a quickly bottoming economy or a more prolonged recession.
Again, there are positives such as relatively low P/E ratios and quick (compared to the norm) Fed action. The latter certainly helped lift the market on the last bounce from the selling, and we will see if it has any staying power and can hold the indices at the January lows, setting up the beloved double bottom out of harsh selloffs.
There has to be a lot more positive work in growth stocks and their patterns, however, before that can become a reality. As we have discussed the past week, there are so many stocks with patterns that are still in shambles after a sharp selloff and a fast relief bounce. It takes time to repair those although there are already some cropping up over the past week. The true test, as we have noted, will be on this next run lower: which stocks will avoid a big selloff and continue forming its base, setting it up for a breakout when the market recovers? Will enough fit that category that we can start considering a bottoming process at the January lows? That remains to be seen, and all in all we remain somewhat pessimistic that will indeed be the end.
Thus we are looking for more downside from the market toward the January lows. They will try to make a stand there regardless of whether they ultimately hold at that level or not. We are still looking at some downside plays on this move; if it is as strong as we think then they will have plenty of downside ahead. Even if the market holds at that prior low, however, that still gives us plenty of room to play the downside. Recall over the weekend we said the bounce only gives the downside more room to work with; that is what we are seeing now. Therefore, we look at some more downside plays on this move, i.e. those that have not already dive-bombed lower. Just as with buying waves, selling is in waves as well, and we will see more holdouts crack and drop lower as the selling continues.
Support and Resistance
NASDAQ: Closed at 2309.57
Resistance:
2315 to 2300 is a range of support from old peaks
2340 from the March 2007 low
The 10 day EMA at 2366
2370 from the April 2006 peak
2379 from the October 2006 peak
2386 is the August intraday low
2451 is the August closing low
Some modest resistance at 2500 from interim August lows.
The 50 day EMA at 2500
2540 is the November closing low
2550 is the August 2004/April 2005/October 2005/March 2007 up trendline
2550 to 2540 from May/June consolidation and the November lows
Support:
2280 is the trendline from the summer 2004/July 2006 lows, Q4 2005 consolidation
2216 from August 2005 peak
2202 is the January intraday low
2175 from the December 2004 peak
S&P 500: Closed at 1336.64
Resistance:
1363 is the 10 day EMA
1370 is the August 2007 intraday low
1374 is the March 2007 closing low
1406 is the August and November 2007 closing low
1411 is a longer term trendline from the August 2003/September 2004 lows
The 50 day EMA at 1414
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 1483
Support:
1325 from May 2006 peak prior to the summer 2006 correction
1313 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
1270 is the January intraday low
1255 from June 2006 lows
Dow: Closed at 12,265.13
Resistance:
The 10 day EMA at 12,476
12,518 is the August intraday low
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 12,848
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:
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): 41.9 actual versus 53.0 expected, 53.2 prior (revised from 54.4)
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
|
us stock market
stock prices
|
