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2/21/08 Investment House Alerts
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IH Alert Subscribers:
We apologize for the late delivery this evening. Jon Johnson is under the weather and had to send in his market comments.
MARKET ALERTS:
Targets hit alerts: COIN; KWK; MM; POT
Buy alerts: BABY; CSX
Trailing stops: None issued
Stop alerts issued: None issued
SUMMARY:
- CSCO upgrade helps spark early rally but Philly Fed tanks and market follows.
- Philly Fed follows New York lower, ratcheting up recession fears again.
- Jobless claims holding near 350K as the 4-week average steadily rises.
- Market consolidation flirting with its second test.
If this is Thursday the market must be down.
Thursday came close to have it all: some economic news, price hikes, earnings, pre-announcements, upgrades, and of course, political intrigue. The jobless claims were down, but they would have been up but for an upside revision in the prior week. Got that? Suffice it to say they came in at 349K, topping expectations but less than the revised 358K last week. Maybe not dire, but not giving any ground back to toward lower levels. MT in the steel industry said it was time to hike prices; no big news here as this is the time of year suppliers raise their prices. RIMM said its subscriber base was jumping, CSCO was upgraded, and the first real mudslinging of the campaign year started. I used to read Supreme Court cases that were 40 pages long and said a lot of nothing (if they cannot say it in three pages they are making it up), but rarely have I seen so many words backed by so little substance. The story was so bereft of facts it reminded me of the old trial lawyer's trick in asking an honest man 'so, when did you stop beating your wife?' It is of course untrue and unfounded, but it gets it out there and lets little minds start spinning. In short, it was just like the old days.
Despite all of that or because all of that, futures were up and the market started higher. It did not stay higher. The Philly Fed came out half an hour into the session and dropped a -24 reading on the market, well off the improvement to -10 expected and lower than the -20.9 prior. Obviously the January reading was not a fluke and that realization came home a half hour into the session. That started a long steady slide all session with only one attempt to bounce, and that failed just ahead of the last hour. Once again after a move higher, one that showed some promise Wednesday, the market finds a way to fritter it away. A lower close in the range threatened to turn the modest positives from Wednesday back to a downside bias.
TECHNICALLY the Thursday action did not quite get that far, however. The intraday action was the more bearish, squandering an early gain to close with losses over 1%. This is the same old stuff we have seen of late but the indices made lower closes than past sessions in this range. They have touched lower intraday, but they rebounded. Thursday they did not.
INTERNALS: After very quiet internals on the lateral moves in the range, this move lower woke up and was broad. NYSE showed -2.61: while NASDAQ posted -2.3:1 breadth. Ratcheting up the virulence a bit. On the other hand, volume was lower on both NYSE and NASDAQ, showing no new surge in buying. Once more the bids were dripped and prices fell. They fell harder because the leaders the past few sessions were taking a break, and without those buyers in the market there was no one stepping in to slow the decline. Thus the high to low flop.
CHARTS: The indices are still in their recent lateral range where they are attempting to consolidate the January bounce. The selling did not take them out of that. The close, however, was the lowest in this lateral move. They had tested lower but rebounded on the close. This time they could find the strength. Fortunately for the bulls the volume backed off. If it had been up the indices likely would have kicked out the bottom of the recent range. The Wednesday action left the indices with a modest upside bias. Thursdays trade threatened to take that away, cracking open the downside door. The weaker volume and the lack of participation by recent leaders, however, blunts what potential negatives there may be.
LEADERSHIP: As noted, the leaders of late (energy, metals, ag) took the day off. They did not tank, just took a personal day. Pretty normal stuff after some solid runs higher. There were some solid moves as well, but no general pattern to the few that gained. Without these to lead the upside the market fell harder.
THE ECONOMY
Philly is Fed up.
A rebound was expected, and it wasn't even a rebound to positive, but the Mid-Atlantic region was not going along. The -24 reading was the lowest since February 2001. Good old recession time back then. New orders fell to -11, shipments at -12, and a 6-month outlook at -17. Not stellar numbers even if you do tell yourself it is one of the more volatile regional PMI reports. It has not been that are off in more recent history, however.
The risk is clear, i.e. that the national number will show contraction as well, meaning that business capital investment is dwindling. We all learned what that means from the last recession: without business investment, even a solid consumer cannot forestall recession.
Again the question is whether the bad times are already on the wane or are bottoming. That would allow for a stock market rally even as the economic data continues to deteriorate given it all lags the real time economic action given the market rallies ahead of the economy actually showing it has turned. As discussed Wednesday, that position requires a big dose of hope, particularly as reports such as the regional PMI reports are a bit more forward looking.
MSFT to open its Windows code.
MSFT made a 'major announcement' Thursday, at least that is what the pre-releases to the press said. When the appointed hour rolled around MSFT announced it was opening some of its Windows code to third parties in order to cultivate creativity and speed up development (and hopefully the runtime) of Vista.
To say the least the market was under-whelmed. This move was necessary and expected if MSFT was going to try and sell produce in the EU. Thus there was no reaction from the market.
There WAS reaction from all of the Vista users out there wondering what all the hype was about and longing for XP Pro. MSFT should have told computer manufacturers that you need 2GIG of RAM to run the program. Yet they ship computers with 512M RAM loaded with Vista. They run like molasses; you have to go get a boost up to 2 megs to make the thing work close to XP. Case in point. We are buying new computers and wanted to go from 1 Gig to 2 Gigs on all. Well if you use Vista you lose the benefit of that extra Gig of RAM and have to go up to 3 or even 4 Gigs to get the extra performance you wanted to upgrade to. And it still is slow. Thus you can see why MSFT wants to get ideas on how to speed it up, and thus the opening of the code accomplishes, hopefully, two goals. If it was supposed to be something great for the stock, it wasn't.
THE MARKET
MARKET SENTIMENT
VIX: 25.12; +0.72
VXN: 26.92; -0.17
VXO: 26.74; +0.78
Put/Call Ratio (CBOE): 0.96; +0.1
Bulls: 41.6%. Big bounce back to positive as the market rebounded from the early February selling. Up sharply from 36.7% that put the bulls and the bears eye to eye. Didn't make the 35% range considered to be bullish for the market. Down 20 points from the 56.5 ten 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: 33.7%. Equivalent decline in the number of bears, down from 35.6%. It was a good surge from 32.6% the prior week, and that followed a nice move from a low of 19.6% on the last rally. It is over 30% and indeed over 35% the prior week, 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: -27.32 points (-1.17%) to close at 2299.78
Volume: 2.256B (-1.39%). Volume backed off from average trade on Wednesday, at least showing that sellers did not rush in. Elevated from the low volume seen prior, but not surge in sellers.
Up Volume: 470.449M (-986.673M)
Down Volume: 1.757B (+928.995M)
A/D and Hi/Lo: Decliners led 2.32 to 1. Stronger on this downside but not the -3:1 seen on the harsher selloffs.
Previous Session: Advancers led 1.3 to 1
New Highs: 54 (+9)
New Lows: 152 (-6)
NASDAQ CHART: http://investmenthouse.com/ihmedia/NASDAQ.jpeg
Gapped to the 18 day EMA just as it did Tuesday and then rolled over, just about as it did on that session as well. NASDAQ managed to hold above the Wednesday low, but it made a new closing low for this recent pullback. Nothing fatal at all, just another day in the consolidation for NASDAQ. It does not answer the question of the direction, but each day it holds out and bases some more helps set up a foundation for an eventual move higher.
SOX (-0.28%) rallied nicely through the 18 day EMA but then rolled back down to the 10 day EMA on the close. It is not giving in even after squandering the early February break higher. Chips look terrible individually, but this pattern still suggests another attempt to break upside, and last time it did that the rest of the market went with it. Didn't last, but they did go with it.
NASDAQ 100 CHART: http://investmenthouse.com/ihmedia/NASDAQ100.jpeg
SOX CHART: http://investmenthouse.com/ihmedia/SOX.jpeg
SP500/NYSE
Stats: -17.5 points (-1.29%) to close at 1342.43
NYSE Volume: 1.422B (-3.32%). Once more low, below average volume, now 9 sessions straight as the NYSE indices fell back in their recent lateral ranges.
Up Volume: 279.574M (-760.053M)
Down Volume: 1.137B (+714.929M)
A/D and Hi/Lo: Decliners led 2.64 to 1. Breadth was a bit more negative on the NYSE, picking up steam this move.
Previous Session: Advancers led 1.6 to 1
New Highs: 61 (+6)
New Lows: 96 (0)
SP500 CHART: http://investmenthouse.com/ihmedia/SP500.jpeg
Staying within the confines of its 6 session lateral move, SP500 tapped the top of the range on the high (1368) then turned over to run down toward the bottom at 1336.50. Volume remained light; no accumulation, no distribution, just consolidation action. It made a lower closing low in this range, taking back a chip from the Wednesday more positive session. No major change in the chart, however, just its turn to be down after the upside session Wednesday as it continues the up and down day to day action. Still consolidating, still setting up on low volume.
SP600 (-1.77%). The small caps surged up to the 50 day EMA once again just as it did two prior times this month. This time it really repulsed it, shoving it back below the 10 and 18 day EMA. Still within the lateral range for this month, but this rebound down from another test of the 50 day EMA is something to watch here. If the small caps lose their bottom and fall through, that means more economic issues and pressure on equities renews.
SP600 CHART: http://investmenthouse.com/ihmedia/SP600.jpeg
DJ30
Tapped the 12,500 near resistance on the high then turned over, posting your typical 217 point reversal from high to close. Still threatening to make a lower high here and if it closes below 12,250 that opens the downside door. Volume was lower but still bumping average. DJ30 may be ready to make a run lower here.
Stats: -142.96 points (-1.15%) to close at 12284.3
Volume: 293M shares Thursday versus 297M shares Wednesday. Volume remained fairly solid as the Dow sold back. Showing some wear but no major selling.
DJ30 CHART: http://www.investmenthouse.com/ihmedia/DJ30.jpeg
FRIDAY
Hearing there may be some Fed-speak Friday as the Fed updates the Fed minutes, but as for scheduled data we are done until next week. Friday is thus more or less on its own to play out this lateral consolidation that is up one session and down the next. As noted above, Wednesday looked more positive for the upside while Thursday took some of the edge off that move. Overall the action is not bad, considering we are talking about a modest lateral move after an ugly selloff that brought the indices down to bear market status.
The indices are still consolidating, but the Thursday action slightly opens the door for potential downside, particularly if the recent leaders in commodities and energy continue to sell, the market won't have much holding it up in this consolidation and that test of the January low could be on. It is getting to the point where this pattern is going to make its break one way or the other. May not do it Friday, but over the next week we should see a definitive move.
Thursday we took some gain on a good upside break by energy, ag, metals - - the stocks that have performed well of late and had some gain built in. Those stocks are likely to test and rest some more so we could see more weakness Friday due to a lack of leadership. If the indices break down out of the bottoms of the recent support levels the next test lower could very easily be on. The market has shown improvement but not vast improvement. There is still quite a bit of work to be done on a new foundation for a sustained run, and thus a test of the January lows is the minimum likely test.
Given that we are not going to look at chasing any upside plays here that have rallied and are in need of some rest. We will be very selective on any new upside plays, but of course, if the market makes the break higher from this consolidation, then we will take some gain on existing positions once more, buy into the tastiest plays on the upside, and ride it for what it is worth. There is an inflection point quickly approaching for the market in this pattern, and right now the balance is still at 50/50 on the direction. Hate those odds, and that means being careful with new money.
Support and Resistance
NASDAQ: Closed at 2299.78
Resistance:
2315 to 2300 from old peaks
2340 from the March 2007 low
The 18 day EMA at 2341
2370 from the April 2006 peak
2378 is the mid-February peak
2379 from the October 2006 peak
2386 is the August intraday low
2419 is the January 2008 peak
The 50 day EMA at 2435
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
2565 is the August 2004/April 2005/October 2005/March 2007 up trendline
Support:
2284 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 1342.53
Resistance:
1368 is the high in this recent lateral consolidation
1370 is the August 2007 intraday low
1374 is the March 2007 closing low
The 50 day EMA at 1390
1396 is the January 2008 peak
1406 is the August and November 2007 closing low
1414 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
1473 is the June/July 2006 up trendline
1475 from peaks in December 1999 and January 2000
The 200 day SMA at 1475
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 12,284.30
Resistance:
12,518 is the August intraday low
12,573 is the mid-February high
The 50 day EMA at 12,664
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
13,314 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): 0.4% actual versus 0.3% expected, 0.4% prior
Core CPI, January (8:30): 0.3% actual versus 0.2% expected, 0.3% prior
Housing starts, January (8:30): 1.012M actual versus 1.015M expected, 1.004M prior
Building Permits, January (8:30): 1.048M actual versus 1.03M expected, 1.06M prior
FOMC minutes, January 30 (2:00)
February 21
Initial jobless claims (8:30): 349K actual versus 345K expected, 358K prior (revised from 348K prior)
Leading economic indicators, January (10:00): -0.1 actual versus -0.1% expected, -0.2% prior
Philly Fed, February (10:00): -24 actual versus -10.0 expected, -20.9 prior
Crude oil inventories (10:30)
End part 1 of 3
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