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us stock market, trade stock
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2/12/08 Stock Split Report
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Stock Split Report Subscribers:
MARKET ALERTS
Targets hit alerts: None issued
Buy alerts: ILMN
Trailing stops: None issued
Stop alerts issued: None issued
The market alert service is a premium level service where we issue intraday alerts relating to the general market conditions, when stocks hit action points (buy, stop, target, etc.), and when we see other information impacting the market or our stocks. To subscribe to the SSR alert service you can sign up at the following link:
http://www.investmenthouse.com/alertssr.html
SUMMARY:
- Berkshire feeding on the carcass of bond insurers sparks a move higher from the consolidation.
- NYSE surges, almost loses its gains; NASDAQ does.
- Bonds sell off on the Berkshire news, pushing yields up, but then they reverse as investors run back to treasuries.
- NYSE to try and continue the break higher while NASDAQ tries to shake off the Tuesday reversal.
Buffett does what Buffett does best: buy good assets at distressed prices.
Mr. Potter from 'It's a Wonderful Life' or altruist bailing out troubled companies? Tuesday Berkshire Hathaway offered $800B to three bond insurers (AMBAC, MBIA, FGIC), giving them some cash to try and keep their bond ratings and avoid a bond market meltdown. Futures jumped on the news. Bond yields rallied sharply (2 year went from 1.9% to 2.02% in short order) as investors sold bonds and embraced happy days again in the stock market. The market surged out of the gates with DJ30 sporting 200+ points to the upside. Then bonds reversed as buyers returned, pushing 2 year rates back down to 1.91% on the close. NASDAQ gave up a 30 point gain on the close. DJ30 gave up over 150 points of its gain before a late bounce kept things respectable.
What happened? Well it was not a total meltdown; as noted DJ30 closed over 1% higher; that is not chopped liver, but it was smelling like it with a half hour left in the session. The bonds told a lot of the story even if the NYSE indices managed to hold some gains. You see, Buffett was offering the $800B for a piece of the municipal bond business, not the troubled mortgage bond business. Thus what Buffett is doing is what Buffett always does: he takes the good assets from cash-strapped owners and leaves them with the chaff. In an interview Tuesday even Buffett admitted he was not going to curry any favor with St. Peter for offering this deal. Of course, Buffett is no Mr. Potter; Buffett smiles and eats popsicles.
The market responded upside as noted even with Credit Suisse writing down $1.9B in bad assets as profit declined 72%. Oil, despite the Chavez threats, closed lower (92.55, -1.04); after a four day thrust higher that took a lot of energy stocks with it the commodity and the sector gave back some gains, though the action was mixed. The market surged then almost gave it all back in the last couple of hours. Buying, but not absolute conviction. Indeed, it is expiration week and we see most of the fireworks related to shuffling and rolling over positions Tuesday through Thursday. The sharp upside then the rollover, while also consistent with the volatility seen of late, are indicia of that end of expiration positioning.
TECHNICALLY the action was good and it was not so good. Stocks jumped out of the gates and held the gains through the early afternoon. Then the market turned over. You knew it was going to happen by watching the bond market react to the main catalyst of the session, i.e. the Berkshire move, as well as the fact it is expiration week and given the volatility the market has shown. There was a complete rollover in NASDAQ and close to one on the NYSE, but then they sparked a bit in the last 20 minutes to keep a bit over half their gains on the session.
INTERNALS: Breadth was ho-hum at 1.6:1 NYSE, 1.3:1 NASD. Volume was up on the action, and that can be viewed as good, and as bad. Good on the NYSE indices as they sported gains, and that usually means accumulation. The significant closes off the highs left that questionable, particularly as it is expiration week and you get inflated volume midweek. NASDAQ volume was up and while suspect for the same reason, it is not good for the bulls to see an index reverse substantial gains in a session when volume rises. That shows the buyers were overrun by the sellers late in the day.
CHARTS: The next key level was the 10 day EMA for all three large cap indices. The blew by them early in the session and were hammering at the 18 day EMA. Then the afternoon came and so did selling, and the indices all fell below the 10 day EMA. It took an eleventh hour bounce on the NYSE indices to edge past that level. The still stalled at near resistance at the 18 day EMA, and they could not keep up the momentum though they did make a higher low. Big struggle ongoing right now and still a key level for the indices as they did not definitively break this resistance. And remember, this is NEAR resistance. We are not talking about making it up to the 50 day EMA. It is struggling tooth and nail at near resistance, the lowest rung of potential trouble for a bounce.
LEADERSHIP: Energy was out early once more and financials joined in given the Berkshire move. They were at best mixed by the close. Metals, another recent leader, were mixed as well; rather widely divergently mixed. Retailers paused after good bounces; didn't sell off, just paused. Large cap tech was in trouble, turning back over from their bounces from their sharp selloffs. Some rocks in the path but no major breakdowns.
THE ECONOMY
Bond yields bounce after Buffet then retreat again.
As noted above, bonds initially reacted to the Berkshire news as did stocks: they viewed it as good economic news and thus yields rose as investors sold bonds and moved toward equities. The reaction by the close, however, showed the swing in mood.
After two-year yields jumped from 1.9% to 2.02% on the news, they closed the session back down at 1.91%. Two things were at work. First, the Buffett story caused immediate excitement, but after it was analyzed investors realized it was no bond insurer bailout, at least nothing that would help the hemorrhaging mortgage side of the business, investors turned back to bonds as a form of safety and stocks fell. It was not a complete stock collapse as discussed, but there was a definite souring on them as the session wore on and nothing more came out with respect to the mortgage side of the equation. Heck, even the targets of the offer knew the deal was not in their best interests as AMBAC turned the deal down pretty much from the get go.
Second, bonds are low because they are still pessimistic about the economic future. The economy is likely negative right now in terms of GDP growth. It may have been negative in Q4 2007; revisions will tell that tale.
There is something CRITICAL ongoing. Just about everyone on the financial stations is talking the company line, i.e. 'don't fight the Fed', indicating that everyone should be buying stocks right now because the Fed is in the game. True the Fed is in the game earlier than usual and it is more aggressive than usual as 'Helicopter Ben' showers us with liquidity.
Problem is, with this really aggressive Fed action corporate bond spreads are widening. You know what wider spreads mean; when there is a lot of risk associated with an option or stock position the spreads are wide. The market maker wants a wide spread in case things get dicey so he or she can make a good return for all of the risk assumed. Wide corporate bond spreads mean the same thing: fear, risk premium, potential trouble. Wide bond spreads are a traditional indicator of economic trouble. The Fed is slashing rates and stands at the ready to do more, but corporate spreads are widening. That means there is something still at work under the surface that is very detrimental to the economy.
Thus do you fight the Fed? No, you look at the result of Fed action, and as in 2000 and 2001 when it tells you it is not having the desired impact by viewing bond rates you know there is still more work to do before this is over.
THE MARKET
MARKET SENTIMENT
VIX: 26.33; -1.27
VXN: 28.22; -0.87
VXO: 27.81; -0.88
Put/Call Ratio (CBOE): 1.14; +0.17. Back above 1.0 after a 1-day hiatus.
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: -0.02 points (0%) to close at 2320.04
Volume: 2.21B (+4.29%). Volume rose modestly but was still below average as NASDAQ surged and purged. Suggests some distribution, but rather light what with the below average volume. Light for expiration week as well.
Up Volume: 952M (-260M)
Down Volume: 1.176B (+357M)
A/D and Hi/Lo: Advancers led 1.29 to 1. Positive because most of the damage was done by the large cap techs that ell 0.7%.
Previous Session: Advancers led 1.03 to 1
New Highs: 53 (+28)
New Lows: 111 (-22)
NASDAQ CHART: http://investmenthouse.com/ihmedia/NASDAQ.jpeg
Gapped higher and rallied up to tap at, but not on, the 18 day EMA. It then turned over, gave up the 10 day EMA it took out on the open, giving back its gain. It took that last 20 minute bounce to prevent a loss of 15 points. Not the NASDAQ's best day as it again struggles at near resistance after rallying back to this level on lower and lower volume. Made a higher low this past week, but there was not a lot of strength behind the move.
NASDAQ 100 (-0.70%) gapped up close to the 18 day EMA and spent the first hour trying for that level. That was the apex. It rolled over and dove lower in the afternoon with a pretty impressive 28 point plunge in the last hour before a late bounce kept the loss below 1%. The large cap techs rebounded the past week from their dives lower, but on Tuesday they were turning back down.
NASDAQ 100 CHART: http://investmenthouse.com/ihmedia/NASDAQ100.jpeg
SOX CHART: http://investmenthouse.com/ihmedia/SOX.jpeg
SP500/NYSE
Stats: +9.73 points (+0.73%) to close at 1348.86
NYSE Volume: 1.53B (+9.81%). Volume was up as the NYSE indices moved higher, but as with NASDAQ it was up from really low levels and could not come close to average. Gains but on puny volume.
A/D and Hi/Lo: Advancers led 1.64 to 1. Not bad but down from 3:1 intraday.
Previous Session: Advancers led 1.13 to 1
New Highs: 51 (+10)
New Lows: 90 (-29)
SP500 CHART: http://investmenthouse.com/ihmedia/SP500.jpeg
Gapped higher, rather unusual for the large caps, but with Berkshire exciting the financials, it was a go. Moved over the 10 day EMA early and surged on up through the 18 day EMA as well. Looking strong. At least through the first hour and one-half. Then it sold into lunch. Bounced into early afternoon, but then went on an afternoon selling spree that took it to flat. As with NASDAQ, that last 20 minute bounce made things look rosy. Up for the session, but hardly rose as it failed at near resistance on low trade yet again.
SP600 (+0.70%) looked the best of this group, moving through the 10 and 18 day EMA and holding it on the close. Of course it gave back more than it gained, losing 3.6 points from the high to close up 2.60. It is trying to get back up to the 50 day EMA where it failed to start the month. Still have our doubts, but again, it looks better than the others.
SP600 CHART: http://investmenthouse.com/ihmedia/SP600.jpeg
DJ30
DJ30 closed up over 1% as it held onto most of its gains, but it needed the last 20 minutes of trade to regain 70 of those points. As with SP500, that made the day respectable; in the Dow's case, quite respectable. It rallied through the 10 day EMA, crossed over the 18 day EMA, but then dove lower. It took that last minute rally to recover and hold the 10 day EMA on the close. Not powerful but did not give up. There was definitely a buy on the components of the Dow in the form of a program buy. It was not enough to push up the volume; it was lower and still well below average. Thus there was some buy programs that, without any opposition from the sellers, was able to push the Dow higher. When the program ended after the Dow hit +200 points the bid was gone and it slid back into the last half hour. Then the program hit again and pushed it back up. It will be interesting to see if the program continues; often they do not.
Stats: +133.4 points (+1.09%) to close at 12373.41
Volume: 256M shares Tuesday versus 268M Monday. Low trade for the bounce as well as for expiration week.
DJ30 CHART: http://www.investmenthouse.com/ihmedia/DJ30.jpeg
WEDNESDAY
After hours AMAT beat the street and was trading higher, taking large cap techs with it. Not much but it was something for the bulls after a disappointing reversal from solid gains to pancake. Wednesday the bulls will try to push their NYSE gains and reignite techs.
They will need the bids. Despite the upside Tuesday the results were not powerful and the chart patterns were not that convincing. As noted above, the struggle currently underway is at near resistance. There is some leadership that is pushing the upside, but after three to four sessions of gains now they will be tested and we will get an idea of their strength. Large cap techs were starting to peel back from their brief bounce and others were starting to break a bit as well.
Thus there is the conflict between some improvement in some quality stocks with good patterns that are still holding the line and some others that are basically still in downtrends that bounced but are now looking for more buying in order to hold their positions or continue higher. Expiration week puts an overlay of additional volatility on the market, and expecting more volatility is a safe bet. Again I am struck by the dive lower out of nowhere in the afternoon when there was nothing but positives for the market. Last week it held the line on some bad news but on Tuesday it had the news it wanted, or so it seemed, yet it had to post a late rebound to keep things from looking like a rather pathetic rollover. This action in the afternoon definitely leaves the door open for a test of the January lows on this leg instead of a further rally from here.
Support and Resistance
NASDAQ: Closed at 2320.04
Resistance:
The 10 day EMA at 2329
2340 from the March 2007 low
The 18 day EMA at 2357
2370 from the April 2006 peak
2379 from the October 2006 peak
2386 is the August intraday low
2451 is the August closing low
The 50 day EMA at 2465
Some modest resistance at 2500 from interim August lows.
2540 is the November closing low
2550 to 2540 from May/June consolidation and the November lows
2555 is the August 2004/April 2005/October 2005/March 2007 up trendline
Support:
2315 to 2300 from old peaks
2278 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 1348.86
Resistance:
1358 is the 18 day EMA.
1370 is the August 2007 intraday low
1374 is the March 2007 closing low
The 50 day EMA at 1400
1406 is the August and November 2007 closing low
1415 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 1479
Support:
1348 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
1270 is the January intraday low
1255 from June 2006 lows
Dow: Closed at 12,373.41
Resistance:
The 18 day EMA at 12,415
12,518 is the August intraday low
The 50 day EMA at 12,739
12,743 is the November low
12,786 is the February 2007 peak
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
13,342 is the 200 day SMA
Support:
The 10 day EMA at 12,341
12,250 from late March 2007 lows
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 12
Treasury Budget, January (2:00): $17.8B actual versus $20.0B expected, $38.2B prior
February 13
Retail sales, January (8:30): -0.3% expected, -0.4% prior
Retail ex-Auto (8:30): 0.2% expected, -0.4% prior
Business Inventories, December (10:00): 0.5% expected, 0.4% prior
Crude inventories (10:30): 7.05M prior
February 14
Weekly jobless claims (8:30): 350K expected, 356K prior
Trade balance, December (8:30): -$61.5B expected, -$63.1B prior
February 15
New York PMI, February (8:30): 7.0 expected, 9.0 prior
Net foreign purchases, December (9:00): $90.0B
Industrial production, January (9:15): 0.1% expected, 0.0% prior
Capacity utilization, January (9:15): 81.4% expected, 81.4% prior
Michigan sentiment, preliminary, February (10:00): 76.5 expected, 78.4 prior.
End part 1 of 3
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