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investment help, day trading
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2/19/08 Investment House Daily
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SUMMARY:
- Strong start on the heels of Monday gains in foreign markets loses its bid and its gains.
- Inflation fears send commodities higher, bonds lower.
- Dollar weakens on steadfast ECB, helping oil's climb to $100.
- HPQ earnings outlook tries to turn techs back up as some big names sag.
The market goes up, the market goes down, but it remains in the same place.
Strong foreign gains on Monday helped pus US futures higher. They overlooked some more hawkish ECB comments about interest rate cuts ('niet', i.e. 'no way'), a WSJ journal article about LEH and its holdings, and the biggest jump in Chinese inflation (7.1%) in 11 years and moved right on up. It didn't hurt that WMT beat earnings by $0.02 and commodities were on a tear, finding buyers and sending commodities stocks racing higher yet again (have to like the DBC play).
As usual of late, however, if you were willing to wait you were going to see a change. That started almost immediately after the opening bell as the market started to fade following the gap higher, and just kept selling all session long. There was an attempt to bump higher over lunchtime, while indices were still easily in the green, but that failed with just over an hour and a half left in the session. A precipitous drop leading into the last hour, took DJ 30 lower by 150 points, and that was well after it was off its high of the session. While most stocks turned over with the market, the materials and commodities stocks were surging on the session, and they mostly held their gains. The techs did not, however, and along with the major indices, they closed at their session lows. Never did try the put in the floor in the last hour, and they did move laterally into the closing bell, stopping the nasty afternoon plunge. Another day, another reversal, but no volume, and no relative change in position.
TECHNICALLY, there was another intraday reversal, this time from high to low. As you know, that is the more bearish of the potential intraday movements. It seems that if the market starts higher it will sell lower. If its starts lower it is going to rally higher (Friday the market's sole loss, but then reversed late in the session to close flat). With all of the up-and-down motion in the past two sessions, on the close of the market still finished flat.
INTERNALS: the breadth matched the session, i.e. strong early, but flat on the close. Volume again faded, remaining "freakishly" light according to one of our researchers in the office. The light volume shows no surge by the sellers as the market reversed intraday and sold off, just that the bids that pushed it higher earlier in the session ran out and they never came back.
CHARTS: yet another session that saw the market move solidly in one direction only to reverse and move right back in the opposite direction. Once more, the indices rallied, reversed, and closed just below the 10 day EMA. It was a reversal on the day for sure, and that can be one of the worst intraday moves you can have, but the volume was very light. Bigger picture, the NYSE indices basically moved laterally once again, just below the 10 day EMA. NASDAQ was a bit worse off as it gapped higher to fill Friday's gap lower, but then reversed to close a significantly lower, at least compared to the other indices. Overall, there was no real change in the market: higher low, lower high, low volume, and working laterally as it tries to base over the mid-January low.
LEADERSHIP: commodities were out of control on the session. Inflation fears, given China's 7.1% rise in inflation are driving them higher. Energy, metals, and chemicals were the stars. For in telecom continues to look solid as well as some of its components broke out while others are still building solid bases. Large-cap tech, however, doesn't look so good, e.g., Google, Intel, Intel. After hours, however, Hewlett-Packard is injecting some excitement back into the technology sector. It looks as if that sector will try to move higher once more tomorrow, and lead NASDAQ with it.
THE ECONOMY
On Tuesday, the big story was inflation. With the CPI out on Wednesday, the report from China that inflation ran at 7.1%, its highest in 11 years, was not welcome news. Bonds sold on inflation worries, pushing bond yields much higher than we've seen over the past month. The two-year bond closed at 2.08% after trading near 1.85% on Friday. The 10 year bond yield rose to 3.90%, after trading at 3.76% on Friday. The market is playing something of a tennis match between potential Fed cuts that would reduce interest rates versus inflation fears across the world that would raise interest rates.
That inflation fear helped turn the early gains in the equity market back to flat and even negative. When the ECB came out and began chided the US for its interest rate policy, the dollar sank further as the recent gains based upon a belief that the ECB would raise interest rates dissipated. If ECB was going to cut rates, that would make a dollar more valuable vis- -vis the euro. With Trichet saying once more than no rate cuts were forthcoming, the gains in the dollar were backed out.
That weakness in the dollar contributed to oil rising to close above $100 for the first time ever ($100.01, + $4.51). The dollar is not the only contributing factor to oil's rise, as it was rising even as the dollar gained strength against the euro. On Tuesday, wherever, it definitely gave all prices the push they needed to breach that $100 mark. So we're left with the US Fed cutting rates, while the ECB Central Bank threatens the opposite. The dollar, stuck in between, is a mere pawn in the games of the central banks. How poetic.
THE MARKET
MARKET SENTIMENT
VIX: 25.59; +0.57
VXN: 27.99; +1.3
VXO: 27.55; +0.22
Put/Call Ratio (CBOE): 1.01; -0.15. Held above 1.0 from Friday, but expiration Friday is always out of whack. In any event, the ratio was back above average the second half of the week after dropping on the rally the first half. It has logged over a week of 1.0+ closes, so it is getting to the point it needs to be to provide an indication of some excessive anticipation of more downside.
Bulls: 36.7%. Big plunge, the larges of this run lower, falling from 41.6% the prior week. Not a straight decline, but It has finally turned serious, approaching the 35% considered bullish. Down 20 points from the 56.5 nine weeks back. 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. It is just about there. Moreover, with bears surging over 35%, they are making that 'kiss' that is quite bullish (even more so if they cross over one another). 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: 35.6%. Nice surge from 32.6%, moving nicely from a low of 19.6% on the last rally. It is over 30% and indeed 35%, 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).
NASDAQ
Stats: -15.6 points (-0.67%) to close at 2306.2
Volume: 1.97B (-2.99%). About the only good thing with respect to the session was that volume was lower as NASDAQ gapped higher and reversed to close lower and indeed lead the market lower. At least no distribution.
Up Volume: 615.704M (+14.524M)
Down Volume: 1.33B (-54.088M)
A/D and Hi/Lo: Decliners led 1.09 to 1. Well, at least they were flat as the index fell over a half percent.
Previous Session: Decliners led 1.77 to 1
New Highs: 44 (+6)
New Lows: 148 (-1)
NASDAQ CHART: http://investmenthouse.com/ihmedia/NASDAQ.jpeg
The light volume continues with NASDAQ unable to garner any volume on early upside, but at least volume didn't ramp up as it rolled over and closed lower. On the high, NASDAQ gapped up to the 18 day EMA (2347). Unfortunately for the Bulls, it couldn't do any better than that and faded from net near resistance point. It again close below the 10 day EMA, but found support at a potential soft support point at 2300. It continues tightening its range as it moves laterally, making that higher low early in the month and now that lower high just last week. With that low volume, it is continuing working on a base despite the Tuesday rollover.
Same action from the NASDAQ 100 (-0.87%) as the large caps gapped higher to the 18 day EMA and then rollover to close with a market-leading loss. Big names such as Google and Dell were serious drags on the index. After hours, Hewlett-Packard was trying to inject some life into the beleaguered sector, and it was successful in doing so. Question is, will it hold over to the open, and if it does, will we once again see a higher open thrown back in the face of investors.
NASDAQ 100 CHART: http://investmenthouse.com/ihmedia/NASDAQ100.jpeg
SOX CHART: http://investmenthouse.com/ihmedia/SOX.jpeg
SP500/NYSE
Stats: -1.21 points (-0.09%) to close at 1348.78
NYSE Volume: 1.428B (-4.78%). Low volume once more as the large caps rallied, faded, then managed to close flat. No buying, no selling, just basing.
Up Volume: 718.606M (-15.943M)
Down Volume: 700.369M (-47.007M)
A/D and Hi/Lo: Advancers led 1.32 to 1
Previous Session: Decliners led 1.25 to 1
New Highs: 56 (+38)
New Lows: 87 (-41)
SP500 CHART: http://investmenthouse.com/ihmedia/SP500.jpeg
The large caps started the session higher and rallied right up to last week's highs were they made that lower high in their lateral move, and we're looking pretty good. After bumping that lower high the move died. The volume was simply too light to sustain the move and the index closed once more below the 10 day EMA (1350). As with NASDAQ, this is not a major issue as volume remains low and the index continues its overall lateral move following the mid-January lows. In short, as with NASDAQ is working on a base. This is very good action for upside in the long run, but it still will likely come back and test those January lows once more before it is ready for a sustained move higher.
Very similar action in with the small-cap S&P 600 (plus 0.20%). It rallied early in the session, but not nearly as high as the large-cap indices, then it turned lower but managed to hold some gains just below the 10 and 18 day EMA. It too is making lower highs and higher lows as it works laterally in a narrowing range, basing out and testing the move off of the January lows.
SP600 CHART: http://investmenthouse.com/ihmedia/SP600.jpeg
DJ30
The Dow fared better, more in line with SP 600 than S&P 500. It rallied through the 10 and 18 day EMA, tapping 12,500 on the high, just below last week's peak where it made the lower high. It reversed to close just below the 10 day EMA, basically flat with Friday, and still moving laterally in a narrowing range. As with the other indices, this is a lateral base attempting to form after the January lows. It is still likely come back and test those lows at some point, but for now is trying to set up to make another bounce up toward 12,750.
Stats: -10.99 points (-0.09%) to close at 12337.22
Volume: 257M shares on Tuesday, versus the 289M shares Friday. Volume slipped back below average as the blue chips continued their lateral basing move.
DJ30 CHART: http://www.investmenthouse.com/ihmedia/DJ30.jpeg
WEDNESDAY
Tuesday the market was a bit nervous about inflation, and it's going get another dose of inflation data on Wednesday when the US releases its CPI report. Inflation is expected to rise at roughly the same pace it is risen over the past several months, but as the Fed has indicated, it is going to look at headline inflation now as well as core inflation. That means the rise in energy prices and food prices as a result of our ethanol boondoggle are somehow now under the Fed's review. As we've discussed before, the Fed cannot control energy prices by raising or lowering interest rates, nor can it control food prices when we are subsidizing farmers to shift their corn production and other food production to help feed the ethanol mandate. Nonetheless that's the car of the Fed is dealt the market in and now we'll see how the market reacts to some likely stiffening the overall prices.
That inflation data, has us a bit worried about how the markets going to react. The market has done a decent job of working laterally, trying to consolidate that bounce off of the January lows. The tightening range we see is a good thing, but the lower high technically is not so great. The inability to break a string of lower and lower highs is one of the characteristics of a down trend and particularly one in a bear market when the economic data has yet to make a turn for the better.
Well, there is no cornucopia of growth stocks in good bases ready to break out, as reported last week, there are more and more forming up in nice bases that could lead to solid breakouts. Some are ready to make a break while some still have some work to do. With Hewlett-Packard's earnings out already and the CPI out before the bell on Wednesday, we will get a better read on how investors view that data.
If the Hewlett-Packard earnings results when House, and the market is ready to open higher once more, we will again have to be very careful about jumping into the action to quickly, lest we see a reversal similar to Tuesday. With the worry regarding inflation, if the CPI comes in less than expected, the combination of that and the Hewlett-Packard news could lead to a more sustained break higher on the session. After all, the market is trying to work laterally on low volume in a narrowing range, trying to set up the next move higher. As noted over the weekend, in the Caesar upon where they can easily break higher or break lower from here. With the light volume, however, it is going to take something significant to make them make that next break lower toward the test of the January lows. A hot CPI would likely do that as it would worry the market with respect to the Fed's ability to cut interest rates further.
Thus the market remains somewhat bifurcated was some solid upside action building, but with most of the market still deep in the basing process. Thus we are forced to look at those solid upside plays as well as be ready for downside action in the event the market gets news that rattles it and drops it out of this light volume rally experienced over the past three weeks. With oil running to $100, the outlook for the world economies simply can't be that positive. After all oil rose for almost 2 years into the $90 range and the US economy finally softened. Sure it was likely not just due to higher oil prices alone as the mortgage issues and credit crisis played their role. With all of those extraneous issues, however, the combination was enough to stall the economy. The mortgage and credit issues are still with us and oil is still climbing. That leaves the market vulnerable to another downside run, but that is always the case when it is in the process of finding a bottom.
Support and Resistance
NASDAQ: Closed at 2306.20
Resistance:
2315 to 2300 from old peaks
The 10 day EMA at 2329
2340 from the March 2007 low
The 18 day EMA at 2348
2370 from the April 2006 peak
2378 is the mid-February peak
2379 from the October 2006 peak
2386 is the August intraday low
2119 is the January 2008 peak
The 50 day EMA at 2445
2451 is the August closing low
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
2559 is the August 2004/April 2005/October 2005/March 2007 up trendline
Support:
2282 is the trendline from the summer 2004/July 2006 lows, Q4 2005 consolidation
2252 is the early February low
2216 from August 2005 peak
2202 is the January intraday low
2175 from the December 2004 peak
S&P 500: Closed at 1348.78
Resistance:
1351 is the 10 day EMA
1356 is the 18 day EMA.
1370 is the August 2007 intraday low
1374 is the March 2007 closing low
The 50 day EMA at 1393
1396 is the January 2008 peak
1406 is the August and November 2007 closing low
1413 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
1469 is the June/July 2006 up trendline
1475 from peaks in December 1999 and January 2000
The 200 day SMA at 1477
Support:
1325 from May 2006 peak prior to the summer 2006 correction
1317 is the early February low
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 12,337.22
Resistance:
The 10 day EMA at 12,367
12,518 is the August intraday low
12,573 is the mid-February high
The 50 day EMA at 12,690
12,743 is the November low
12,768 is the February 2008 peak
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
13,363 is the 200 day SMA
Support:
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 20
CPI, January (8:30): 0.3% expected, 0.4% prior
Core CPI, January (8:30): 0.2% expected, 0.3% prior
Housing starts, January (8:30): 1M expected, 1.005M prior
Building Permits, January (8:30): 1.03M expected, 1.06M prior
Crude oil inventories (10:30)
FOMC minutes, January 30 (2:00)
February 21
Initial jobless claims (8:30): 345K expected, 348K prior
Leading economic indicators, January (10:00): -0.1% expected, -0.2% prior
Philly Fed, February (10:00): -10.0 expected, -20.9 prior
End part 1 of 3
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