|
|
money investment, financial investment
* * * *
2/23/08 Investment House Daily
* * *
Investment House Daily Subscribers:
MARKET ALERTS:
Targets hit alerts: None issued. After a fertile Thursday, didn't take any gain Friday
Buy alerts: DRYS
Trailing stops: XLF
Stop alerts issued: VVUS
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 Daily alert service you can sign up at the following link:
http://www.investmenthouse.com/alertdly.html
SUMMARY:
- Market was leaving the building when word of another mortgage bailout triggered a massive pre-weekend short covering run.
- Will this bailout do the trick for the financial markets?
- Last hour comeback was impressive, but was it just a Red Bull moment with another selloff coming this week?
Late rally erases what was a breakdown in the making.
One foot was out the door for the weekend and the market, after the morning selloff and a 3 hour lateral slide, was starting to collapse into the close. A quick look back over the shoulder before slipping out the door, however, revealed a late afternoon story that a bailout of ABK, one of the mortgage insurers, was imminent. Yes we had all heard this before so it was nothing new. Each week a new 'just about there' story hit regarding a bailout. It was Friday, however, and the market was in the second day of some selling. You could almost hear the collective 'what if something big hits over the weekend?' at the NYSE. Whenever there is a 'what if' scenario you usually know what's next for shorts: they cover.
Did they cover. DJ30 just broke to new session lows with about 15 minutes gone in the last hour. It was down 129 points; not a rout but it was well below the range established the past week and a half. Same with SP500 and NASDAQ. Then swoosh. 40 minutes later and the Dow reversed 225 points to close up 97. SP500 26 points. NASDAQ 38 points. All closed higher. Not great, powerful gains as all were up less than 1% on the close, but it was a mad dash the bell and a wild finish to what was a very up and down (daily) week.
Before that last hour story it was a session of no real news. And as we debate below, even with the story it can be argued it was a session with no real news. MER downgraded FNM and FRE to sell, fearing there is more to come from these mortgage tenders. The October to December PPI figures were revised lower thanks to changes in the benchmarks. Oil was up again, gold was up again, platinum was up again. It was enough to start the market higher. Less than 10 minutes in, however, the highs were hit, at least until the last 15 minutes. Stocks rolled steadily lower into lunch, moved laterally all afternoon on light volume and -2:1 breadth, and the started another rollover just as the last hour was getting to business. Then the story hit. Then the covering. At the bell everything was back to green, the seas calmed yet again.
TECHNCALLY the action in the last half hour saved the market, at least near term. A higher start turned lower and broke out the bottom of the lateral consolidation range of the past two weeks and was heading even lower. Then the recovery. From high to low to lower and then back to high. Even with the high to low to lower to back to high action it is hard to call this great action. It was a short covering 'just in case' rally ahead of the weekend versus a rush back in by long term buyers sensing value and the bottom was at hand.
INTERNALS: They were pretty ugly to the downside again in the second say of selling that was breaking out the bottom of the range, but of course the reversal improved them (1.5:1 NYSE, 1.2:1 NASDAQ). Volume was light all session on the selling, again indicating the sellers were not overrunning the buyers but that the buyers had simply pulled the bids and were letting stocks fall. Then trade moved higher on NASDAQ in the rush to cover. As noted, not really new buying but a short covering move in the most classic sense: Friday afternoon, market gasping, low volume, then news of a possible deal, whoosh back up.
CHARTS: As noted above, the indices were out the door, breaking through the floor of the lateral range they had narrowed into over the past week or so. Then the swoosh back up and they were right back into the consolidation range. For whatever the cause, they are still in the range, still working laterally, still holding up after the surge higher off the January low. The real test is how they react to start next week after the news comes out, if it does or not, about the bailout. As of the close Friday, they were back in the range just as if the prior selling didn't happen.
LEADERSHIP: During the session all of the leaders of the week were coming back, testing those early week gains where metals, energy, and agriculture led the way. Then everything came back late with that last hour swoosh. In the end what the leaders got was a decent test, a shakeout of sorts. Leadership didn't change, it just took a break then rebounded. Financials moved up of course, one of the main beneficiaries of the late news story. For most of them, however, all they did was move up in their downtrends. The market was in trouble but the recent leaders were still in decent shape, just using the selling to their benefit.
THE ECONOMY
Market set for the financial bailout.
Maybe this is what has been holding the market higher since the early February selling threatened to take it back to the January lows: the knowledge that a financial bailout is in the works. It continued to show resilience in the face of the mounting negative economic data. You have the Fed cutting rates, the federal government throwing $170B out of a helicopter, and the prospect of a backstop bailout for those who went to excess in the last housing boom.
The idea is nothing really new. It has been out there floating about for over a month as the big financial institutions try to negotiate just how to do this. The Friday news was nothing new; everyone knew this was coming. After all, every week there are stories regarding just where the bailout negotiations are. This one, however, hit at the right time: after a 2-day market selloff late on a Friday. Timing is everything, and Charlie Gasparino at CNBC can walk around over the weekend and feel full of himself that he moved the market.
So what does the news and the related rebound mean for the market's health? It is no doubt part of setting the floor for the market overall. There has to be a resolution of this overhang with the mortgages and mortgage insurance in order for the market to start functioning smoothly once more, allowing the lending and borrowing needed to get money into the economy. That is a tall order, and thus this bailout in and of itself is not the last chapter. The economy saw some really bad news the past week, continuing a trend of worsening data. Regional manufacturing reports are not just turning negative, but in a big way. Jobless claims continue to hold higher. Sentiment is reaching recession levels. Sure the economic data is more rearview, but likely not all of the bad credit news or the ramifications of that news is out yet.
That said, stocks are in general stemming the losses and trying to build bases. Some of the sectors that led in the prior rally have recovered, based, and broken higher once more, e.g. energy, agriculture, metals. Then there is a chunk it the process of trying to build a base. After that, half the market is still fighting to get out of downtrends, including the financials. There is still a lot of work to be done before a sustained overall rally is ready, but you have to see the bottoming action taking place as seen the past few weeks and some solid leadership to start the process.
There are still some issues. Sentiment indicators are moving and in some cases have moved to levels considered extreme. The bulls versus bears reached significant levels two weeks back, kissing at 36. The put/call ratio has consistently topped 1.0 on the close. Volatility as measured by VIX was up, but it could not move past 37.50. Typically on serious selloffs and serious bottoms it needs to get into the forties and even the fifties. The action is good enough for a recovery, but these levels were seen in the bear market and while they produced upside they did not end the selling.
There was a similar jump in sentiment indicators after the initial selloff in 2000 and the market morphed into the summer rally of 2000. There was leadership with the former leaders picking up again and solid price/volume action. That was not enough, however, and at the end of summer the rally ended right at the early 2000 peaks and rolled over.
Take a look at the following chart that shows the 2000 peak and the current peak. VIX is the blue line imposed on the chart. VIX hit levels roughly seen of late, but that was not enough given the prior surge. The market peaked, failed, then peaked again in the summer before that rollover. The current market peaked in mid-2007, sold, then tested that peak with a rally back, then broke lower, taking out the prior lows. Similar action, similar excesses, just in different sectors.
http://investmenthouse.com/ihmedia/SP500LT.jpeg
There are differences from that time as well, however. We have discussed this before. This is not a 'this time it is different' hope, but based on true differences in how this has been handled. Despite our complaints that they needed to get after it, they were earlier to the game than most Fed moves in the past. It didn't take long to get some stimulus going as well. It took Greenspan until 2001 to start cutting rates and that was after a 10% GDP growth rate was wiped to zero. Economic stimulus did not come until well later either. Bernanke looks on the ball compared to that, Congress as well. Further, there are 1) relatively low P/E ratios heading into the recession so stocks don't have to fall in price much to become 'values', 2) corporate balance sheets remain flush, and 3) individual net worth is at record levels even when you include the housing decline.
All of these point to a shallower recession . . . IF the bleeding has stopped. We are still worried about the wide spreads in financial paper even with all of the Fed and fiscal stimulus. There is still something under the surface yet to come up, and that will tell us whether this is indeed going to be a shallow slowdown or is just the start of something longer and uglier as in 2000 through 2002.
THE MARKET
MARKET SENTIMENT
VIX: 24.06; -1.06
VXN: 26.3; -0.62
VXO: 26.51; -0.23
Put/Call Ratio (CBOE): 1.15; +0.19
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: +3.57 points (+0.16%) to close at 2303.35
Volume: 2.316B (+2.64%). Volume was running lower until the short covering surge late in the session. That pushed trade up to average as it was on Wednesday when NASDAQ sported a gain, showing a bit of accumulation. As noted above, hard to call it accumulation, but the bulls will take it.
Up Volume: 1.157B (+686.945M)
Down Volume: 1.055B (-702.397M)
A/D and Hi/Lo: Decliners led 1.24 to 1. Always hard for breadth to catch up to late reversals.
Previous Session: Decliners led 2.32 to 1
New Highs: 37 (-17)
New Lows: 210 (+58)
NASDAQ CHART: http://investmenthouse.com/ihmedia/NASDAQ.jpeg
Fell to 2265 on the low for a 35 point loss and was breaking lower in the last hour before that late surge. That put it back in the recent lateral range. At the bottom of the range, but back in it. It is still in an overall weak pattern, trying to hang onto the bounce off the January low, but refusing to give in and trying to set a bottom in this selloff. It has shown resilience in the face of all the negative economic news, and the market bottoms before the data improves. Techs are still a mixed batch, however, with not a lot of great bases and more work to do.
SOX (+0.45%) tried to make the break higher to start February but failed immediately. It managed to hold the January consolidation at 350ish, and has continued working laterally in a range similar to the other indices. It is trying to form a bottom itself.
NASDAQ 100 CHART: http://investmenthouse.com/ihmedia/NASDAQ100.jpeg
SOX CHART: http://investmenthouse.com/ihmedia/SOX.jpeg
SP500/NYSE
Stats: +10.58 points (+0.79%) to close at 1353.11
NYSE Volume: 1.417B (-0.4%). Despite the rush higher late in the session volume remained well below average. It didn't even top the Thursday trade as on NASDAQ. Volume has going on vacation for the month. This kind of quiet action is characteristic of consolidations.
Up Volume: 1.024B (+744.745M)
Down Volume: 383.063M (-754.27M)
A/D and Hi/Lo: Advancers led 1.49 to 1
Previous Session: Decliners led 2.64 to 1
New Highs: 28 (-33)
New Lows: 150 (+54)
SP500 CHART: http://investmenthouse.com/ihmedia/SP500.jpeg
Broke out the bottom of the consolidation, and just before the recovery it too broke lower to a new session low and testing the early February closing lows. 38 points later it posted a 10.5 point gain at the close. As with NASDAQ, the rebound put SP500 right back in its consolidation range, holding its higher low and still trying to set some kind of bottom for a further move higher.
SP600 (+0.12%) rebounded as well as it actually hit the early February lows before it made its rebound. Last week saw SP600 tap the 50 day EMA for the third time in February and reverse. It was selling off nicely but was saved by the news.
SP600 CHART: http://investmenthouse.com/ihmedia/SP600.jpeg
DJ30
The Dow is starting to outperform the other indices, though in this lateral move making that call is similar to judging a snail race. It took broke out below the past week's consolidation range but easily held above the early February lows and surged right back up to close with close to a 100 point gain. Volume was up as well, moving back above average as on Wednesday when it put in another upside, low to high reversal. Showing some resilience.
Stats: +96.72 points (+0.79%) to close at 12381.02
Volume: 307M shares Friday versus 293M shares Thursday. Volume back up on a second upside session in three. Showing a bit of accumulation here.
DJ30 CHART: http://www.investmenthouse.com/ihmedia/DJ30.jpeg
MONDAY
A week packed with economic data and the Friday recovery from a sure selloff face the opening of the week. The past week saw the market weather news that would have sent it reeling just a month back. Now it is taking the blows, and while not surging higher, it is working laterally on mostly lower volume and, until Friday, in a narrowing range. It recovered from that fade as well, however, maintaining its lateral range.
It will have plenty of opportunity to face down more data this week. PPI is out, but that is old hat as the CPI is already out. Consumer confidence is out Tuesday and Michigan Friday. Existing and new home sales, Q4 GDP revision, personal income and spending, and another regional manufacturing report from the Midwest (Chicago).
While the market works through this consolidation it continues to firm. Friday it was in serious trouble but once more it pulled its chestnuts from the fire. The patterns in the indices are not that pretty, but they never are when they have sold and are struggling to recover.
We are going to continue looking at those stocks that continue to set up their bases or are testing back after early breakouts. More are joining in on the basing, setting up potential buys. This may only be leading toward an interim rally, but Thursday we were already taking some gain from positions we bought into not too long back. Thus as more stocks join the move by putting together good patterns we won't turn away from them, particularly if they are solid leadership caliber stocks. We also need to stay ready for the downside as well as the market continues to struggle despite some better leadership. We like to keep some downside in the hopper as well to be ready given the transitional period here in the economy and thus the market.
Support and Resistance
NASDAQ: Closed at 2303.35
Resistance:
2315 to 2300 from old peaks
The 18 day EMA at 2337
2340 from the March 2007 low
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 2430
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 1353.11
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 1388
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 1474
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 12,381.02
Resistance:
12,518 is the August intraday low
12,573 is the mid-February high
The 50 day EMA at 12,652
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
13,310 is the 200 day SMA
Support:
12,250 from late March 2007 lows
12,050 from the March 2007
12,070 from the early February 2008 lows
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 25
Existing home sales, January (10:00): 4.80M expected, 4.89M prior
February 26
PPI, January (8:30): 0.3% expected, -0.3% prior
Core PPI (8:30): 0.2% expected, 0.2% prior
Consumer Confidence, February (10:00): 82.5 expected, 87.9 prior
February 27
Durable goods orders, January (8:30): -4.0% expected, 5.2% prior
New home sales, January (10:00): 600K expected, 604K prior
Crude oil inventories (10:30): 4.2M prior
February 28
GDP, Q4 2nd iteration (8:30): 0.8% expected, 0.6% prior
Chain deflator, Q4 (8:30): 2.6% expected, 2.6% prior
Initial jobless claims (8:30): 350K expected, 349K prior
February 29
Personal income, January (8:30): 0.2% expected, 0.5% prior
Personal spending, January (8:30): 0.2% expected, 0.2% prior
Core PCE, January (8:30): 0.2% expected, 0.2% prior
Chicago PMI, February (9:45): 50.0 expected, 51.5 prior
Michigan sentiment final, February (10:00): 70.0 expected 69.5 prior
End part 1 of 3
|
money investment
financial investment
|
