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us stock market, trend trading stock
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2/07/08 Investment House Daily
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Investment House Daily Subscribers:
MARKET ALERTS:
Targets hit alerts: FLR
Buy alerts: SU
Trailing stops: None issued
Stop alerts issued: None issued
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SUMMARY:
- CSCO, jobless claims, same store sales take their shot but market recovers.
- Cisco's Chambers rather incredible 'never mind.'
- Same store sales are weak but retail bounces anyway.
- Trichet continues talking tough on inflation, but gives some ground.
- Jobless claims rubber match result is still very high.
- Expect more volatility within the trend, just like 2000
Lots of negatives but market salvages a gain.
In a move more characteristic of last week than this week stocks suffered through a triumvirate of bad news yet found some backbone and rallied back to close positive. No rip roaring rally higher, but a recovery from what could have been a very nasty session to finish positive. There was a lot of intrigue.
Three pieces of . . . bad news awaited the market in the morning: Cisco's miss and Chambers' "extremely challenging several quarters" ahead comments, jumping jobless claims (356K), and the weakest same store sales growth in 39 years.
As you would expect, futures were lower, but they were not as low as the trading late Wednesday would suggest. Indeed, they were on the rise into the open. That did not prevent the markets from opening lower, but they were moving back up right after the bell started. That quick burst, however, was short-lived. Stocks turned over and started to sell hard into the 10:00 hour.
At that point two things happened. First, December pending home sales came out. These are contracts signed in December; they won't see houses bought until January or February, if indeed they end up in purchases. Recall, many contracts were entered the past year only to be cancelled. At -1.9%, however, they were better than November, and the market took some heart.
Second, John Chambers of Cisco was giving his post-earnings interview on CNBC. After spending a lot of time in the Wednesday night conference call preparing investors for the earnings and guidance he sprung the "extremely challenging several quarters" and the stock and stock market fell like stones. After a night's sleep on it he had a change of heart. On CNBC he went out of his way to change his statements, emphasizing it was more of a "bump" in the road versus an "extremely challenging" environment. He mitigated his previous comments, saying it was the views of customers and other business power brokers in Davos that concerned him about the future.
As that 'just a bump' phrase hit the wires the market turned. Some are saying it was rumors that Mit Romney was leaving the GOP presidential race. Talk to traders and brokers; it was the Cisco CEO's comments. Stocks jumped positive over the next half hour, tested the early high, then were off and running into the afternoon session. Of course there was an attempt to sell that move and the indices tumbled lower and indeed flat to negative again before a modest climb in the last hour pushed them all positive on the close. Volume was up (CSCO didn't hurt that) and breadth was solid as the small caps enjoyed a good day.
TECHNICALLY the action was solid for the upside, but also another display of the volatility inherent in this market. Intraday the action was bullish with the lower start, the rise to positive, then fending off an afternoon selling attempt to bounce and hold onto some gains.
INTERNALS: Volume was sharply higher, driven in part by the Cisco volume that accounted for a quarter million shares. Even taking that out, however, NASDAQ volume still topped the Wednesday levels. NYSE volume was higher as well, moving back above average, but it was not blowout volume. Breadth was okay; just okay. The small caps had a good day once again, but without them the breadth would have been negative as NASDAQ 100, for example, was up 0.71% versus 0.63% for NASDAQ overall.
CHARTS: The indices are trying to make higher lows after three downside sessions that look to have started the third leg lower in the initial bear market selloff. After opening lower and starting a fourth day of selling they reversed positive on rising volume. Not a major reversal as they tapped toward the 10 day EMA on the high once more just as on Wednesday and faded back to close, but the strong volume, CSCO or not, is worth noting. It indicates the indices may try to bounce here just as they did in late December just after the second leg of selling got underway before that too died out and the carnage began anew. Maybe we get a bump higher; there were some issues pushing things Thursday, e.g. retail, energy, financials, but they have run out of gas before.
LEADERSHIP: As noted, retail, financials, and energy were the leaders once more. Retail was showing the same kind of strength it exhibited two and three weeks back when it reversed its downtrend after the Fed started slashing rates, rising while most of the market was just fumbling around. Energy found some life as oil rebounded; energy stocks are being led by the nose by oil prices. In short, there was leadership Thursday, and it was from the sectors that benefit from rate cuts. It was also from airlines as they rallied again on hopes of consolidation and takeovers. Overall, however, growth stocks are jumbled and in need of more work to construct good patterns to provide the foundation for sustained runs higher. There are more bringing their patterns around close to buy points, but there will have to be a lot more work done by a lot more stocks to affect a market recovery.
THE ECONOMY
Retail stocks may be sold out as they bounce positive from really bad same store sales.
As noted above, the January sales increase of 0.2% over January 2007 was short of the 0.7% expected. 57% beat forecasts, 42% missed. WMT missed big (0.5% versus 2% expected) as even the recession store had bad results. TGT missed as well, but it was not limited to discounters; JWN missed as well. There were bright spots as always: JCP beat, GAP, ANN, ARO, and SKS all beat. Further, the big winners were the wholesale clubs: COST, BJ racked up sales growth of 7% or better.
Basically sales were weak; hard to argue with a 39 year low for growth. What about the stimulus package? The senate passed its version tonight, bumping it up to $170M to include seniors. The question we could not get answered was whether it got rid of the House's version that allowed illegal aliens to get rebate checks. Will the stimulus help? The vast, vast majority of the giveaway is for rebates. A recent survey conducted over the past week shows that most respondents plan on using the money to pay down debt. If that turns out to be the truth then we are shooting $150B or so down the hole, leaving those of us who pay taxes and won't get any 'rebate' to fund those who did. Once more we are getting double taxed for giveaways and the like that we will never see any benefit from. Makes you happy to pay those taxes.
Europe may be warming up to rate cuts though the ice is still pretty thick.
If you watched the dollar the past two weeks you noticed it arrested its slide and started to rally first versus the British pound given the issues the UK is struggling with right now, issues that are very similar to those here in the US. Some smart economists say the UK is about 6 months behind us in its troubles. Nice to know.
The dollar has also started to rise vis- -vis the euro this week. This despite the ECB's continued dogma regarding the need to fight inflation that is getting out of control. Nonetheless, the dollar has continued higher, anticipating that the head in the sand view toward inflation and economic slowing had to change. Head in the sand is a bit rough; you can almost admire the steadfastness of the ECB, but then you look at its history of promoting weak economic growth in Europe you have to be thankful we have a bit more flexible mandate for our central bank.
Thursday some of the reason for the rise was confirmed. Trichet was out spouting fire and brimstone as usual regarding inflation, but then later he came out with a statement that quietly noted that there was an "unusually high" risk to growth in Europe. That was all; he did not elaborate. That, however, was a huge departure from the one-track dogma regarding inflation, and it vindicated to a certain extent the dollar's rise.
Jobless claims hold sharply higher.
356K was less than the 378K from the prior week (revised up from 375K), but it was still a whopper, toping expectations of 340K. Continuing claims rose to the highest level since October 2005. The weekly report has been all over the map thanks to seasonal adjustments that understated claims the first two weeks of January and then overstated them two weeks ago. This week, however, shows that claims are trending higher, and on top of the negative jobs report last week, indicate that there is more weakness to come in the non-farm monthly report.
THE MARKET
MARKET SENTIMENT
VIX: 27.66; -1.31
VXN: 31.56; -1.12
VXO: 29.61; -1.62
Put/Call Ratio (CBOE): 1.13; +0.07. Third session above 1.0 on the close despite the rebound to positive by the indices.
Bulls: 41.6%. Up from 40.2% as the rebound last week buoyed spirits some. Down from 56.5 seven weeks back. Fell below the 40.6% hit on the last significant round of selling but has bounced. A move into the lower 40's is a decline of significance, but it needs 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: 32.6%. Bears continued to rise, albeit modestly from 32.2%. Up from 31.5% three weeks back 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: +14.28 points (+0.63%) to close at 2293.03
Volume: 2.979B (+22.87%). Volume surged as NASDAQ gapped lower but then recovered for a modest gain. Cisco added over 200M shares above its average volume, but trade was still higher even backing that out.
Up Volume: 1.944B (+1.351B)
Down Volume: 991.506M (-815.926M)
A/D and Hi/Lo: Advancers led 1.36 to 1. Very narrow as NASDAQ 100 led the overall NASDAQ in percentage gain.
Previous Session: Decliners led 1.8 to 1
New Highs: 40 (-1)
New Lows: 183 (+54)
NASDAQ CHART: http://investmenthouse.com/ihmedia/NASDAQ.jpeg
Trying to make a higher low at the 2004/2006 trendline, gapping below that level Thursday but then recovering positive. It did close 27.5 points off its high, giving back the bulk of its mid-session gains. Again, trying to make a higher low and a short double bottom, but it will have to prove it. As noted above, it may try a bounce as it did in December after that leg started lower.
NASDAQ 100 (0.71%) gapped lower, basically matching the January opening low when NASDAQ 100 was selling off back then. Trying to double bottom similar to NASDAQ. We will see.
NASDAQ 100 CHART: http://investmenthouse.com/ihmedia/NASDAQ100.jpeg
SOX CHART: http://investmenthouse.com/ihmedia/SOX.jpeg
SP500/NYSE
Stats: +10.46 points (+0.79%) to close at 1336.91
NYSE Volume: 1.736B (+12.22%). Volume was back up above average as the NYSE indices turned back from three days of selling, showing some buying but modest overall.
Up Volume: 1.11B (+641.737M)
Down Volume: 619.251M (-444.547M)
A/D and Hi/Lo: Advancers led 1.73 to 1. A mirror image of the Wednesday declining breadth.
Previous Session: Decliners led 1.73 to 1
New Highs: 16 (+1)
New Lows: 100 (+20)
SP500 CHART: http://investmenthouse.com/ihmedia/SP500.jpeg
As with the other indices, some higher volume as it tries to bounce back from the three days of selling. A bounce, but a rather weak attempt, finishing as many points off the high as it gained. It may bounce further toward the 10 day EMA (1353), but we still anticipate a further decline to at least test the January low.
Once more SP600 (1.35%) showed the best gains, rising through the 10 and 18 day EMA on the highs before fading to close just below those levels. Acting better post-FOMC action, but still in a wicked downtrend and as with the other indices, still likely to test even lower on this third leg.
SP600 CHART: http://investmenthouse.com/ihmedia/SP600.jpeg
DJ30
Laggard of the group, bouncing but stalling well shy of the 10 day EMA (12,393) on the high (12,332) and then fading for a modest gain. Volume was up as well. It is trying to make a higher low here and may bounce again after this three session selloff, maybe even making 12,500 again. We are not looking for that and, to sound like a broken record, we still expect it to test lower toward the January lows as a necessary minimum of selling.
Stats: +46.9 points (+0.38%) to close at 12247
Volume: 326M shares Thursday versus 296M shares Wednesday. Got a volume bump and the close was positive, but with the wide trading range and the close well off the high (85 points), it does not look like a lot of buying volume.
DJ30 CHART: http://www.investmenthouse.com/ihmedia/DJ30.jpeg
FRIDAY
Wholesale inventories are not really going to move the market right now given it is still on the high side of an economic slowdown. Inventories become more important when you come out, but it certainly doesn't hurt this time around that inventories are much leaner going in. In 2000 there were hundreds of billions of dollars of inventory written off as worthless junk when the Fed choked off the economy almost overnight. They have avoided building such huge inventories this time around. As with the lower PE's and earlier Fed action, that will help mitigate the effects of this economic slowdown.
The key for the market is whether it is going to do so now. Not likely. The market showed some signs of holding the line Thursday and reacted well to a bevy of bad news, but bigger picture it is still in the selloff and still trying to find bottom in what is the first part of the bear market selloff. Thus there may be a bounce test resistance similar to late December when the market bounced after the first week of selling in the second leg lower, but after that the probabilities are very high that the market will head lower once more, this time to test those January lows.
Just as the market bounces up and down inside its trend as it trends higher, it bounces up and down within its trend as it trends lower. There are very few straight, uninterrupted shots up or down. Thus after the Dow lost 565 points in three sessions it is bouncing a bit. The market won some style points in overcoming bad news to close positive, and while that is always a positive it does not trump the overall picture of mostly jumbled patterns still in the process of forming up. Indeed the thrashing around volatility in the market is part of that process as the bulls and the bears fight it out, the swings weeding out (wearing out?) many in the process.
Thus we need to expect volatility day to day and intraday, and keep the big picture in mind as we do it. There is a lot of noise about January being the bottom, meaning the bottom of the selling. It was the bottom of the second leg lower, but for many reasons discussed he past week, it was not the bottom of the selling. That has to be shown still with another test; it will either hold and the market moves higher, or it doesn't and there is more selling. The former seems less likely given the economy is still heading downhill. The market does discount recoveries in advance, however, so you cannot ignore what the market does. We do know there is more downside to come as the market at least tests the January lows.
So we may get some more upside from the Thursday close before a further test. There are stocks setting up to the upside, and we keep looking at the good ones; at some point they will lead higher and not come back, and if they are already in a good pattern now after all of this downside they are showing something of the right stuff. At the same time we continue looking at downside opportunity as that is the main trend at this point and another 600 points lower on the Dow is necessary to test the January low.
Support and Resistance
NASDAQ: Closed at 2293.03
Resistance:
2315 to 2300 is a range of support from old peaks
2340 from the March 2007 low
The 10 day EMA at 2340
2370 from the April 2006 peak
The 18 day EMA at 2373
2379 from the October 2006 peak
2386 is the August intraday low
2451 is the August closing low
The 50 day EMA at 2484
Some modest resistance at 2500 from interim August lows.
2540 is the November closing low
2553 is the August 2004/April 2005/October 2005/March 2007 up trendline
2550 to 2540 from May/June consolidation and the November lows
Support:
2275 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 1336.91
Resistance:
1353 is the 10 day EMA
1365 is the 18 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
The 50 day EMA at 1407
1411 is a longer term trendline from the August 2003/September 2004 lows
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 1482
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 12,247.00
Resistance:
12,250 from late March 2007 lows
The 10 day EMA at 12,394
12,518 is the August intraday low
12,743 is the November low
12,786 is the February 2007 peak
The 50 day EMA at 12,800
12,845 is the August closing low
13,050 to 13,000 range
13,092 is the December low
13,250 from price points from June through December 2007
13,351 is the 200 day SMA
Support:
12,050 from the March 2007 low is trying to hold.
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): 1.8% actual versus 0.5% expected, 6.3% prior
Crude oil inventories (10:30): 7M actual versus 2.6M expected
February 7
Initial jobless claims (8:30): 356K actual versus 340K expected, 378K prior (revised from 375K)
Pending home sales, December (10:00): -1.5% actual, -2.6% prior
Consumer Credit, December (3:00): $4.5B actual versus $8.0B expected, $17.1B prior (revised from $15.4B)
February 8
Wholesale inventories, December (10:00): 0.3% expected, 0.6% prior
End part 1 of 3
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