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us stock market, trade stock
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3/01/08 Stock Split Report
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Stock Split Report Subscribers:
MARKET ALERTS
Targets hit alerts: None issued
Buy alerts: None issued
Trailing stops: FMX; STLD
Stop alerts issued: CMED; DRYS; ISRG; NOK; RTN; SPN
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:
- Typical pullback on Thursday becomes a typical tail kicking on Friday.
- Friday economic data closes out a week and month showing a weakening picture.
- Market trying to discount an economic recovery, but will have to hold the January lows to do so.
- Commodities take a breather, setting up a new buy opportunity.
Bad news, end of month, end of the recent leg higher.
Whatever was typical about Thursday's pullback is academic. Friday was a rout. Okay, that is out of the way. After leading the market with a surge higher, energy, agriculture and commodities were ready to take a breather after their run. That took a major upside force in the past week's rally off the table. Strike one. There was some bad news from the mortgage sector in the pre-market as USB predicted another $600B in write-downs still to come versus the $160B expected. The ABK bailout deal that sparked last Fridays short covering rally and the start of this week's rally hit . . . surprise . . . a snag. That started things on the downside. Strike two.
After the open some weak Michigan sentiment data (70.8 was better than the 70.0 expected though less than January's 78.4) and some really bad Chicago manufacturing data (44.5 versus 49.5 expected, 51.5 prior) really got the selling going with a dive right off a cliff. Strike three.
That was not the end of the action, however. The market tried a three hour lateral consolidation, even moving up and showing signs it might make a run into the close. Nope. With a couple of hours left the selling renewed with another big leg lower. Another bounce attempt, another leg lower. Then it got really ugly in the last hour.
The sellers finally came out from hibernation, pushing the market lower on rising volume and quite negative breadth. Of course it was the end of the month and that usually has one of two effects: an exaggerated move to the upside or an exaggerated move to the downside. Pretty clear what it opted for Friday. Maybe a leap year thing.
TECHNICALLY it was as ugly as it seemed. A lower open, some selling, a consolidation attempt, then some more selling. Little doubt this is what you would classify as a negative session, more bearish than bullish.
INTERNALS: Massively negative, and if they keep doing this you could start calling it extreme. -6.3:1 breadth on NYSE, -3.6:1 on NASDAQ. When the leaders of late took a break, the negatives really piled up. Volume jumped as well, moving above average for the first time in three weeks. Just had to be on a downside session, meaning some distribution, i.e. the sellers were stronger than the buyers. They were a lot stronger than the recent buyers. As noted above, some of this had to do with the end of the month jacking up the trade. Keep that in mind as next week unfolds; if things recover nicely then chalk it up to end of month activity. If it doesn't, well then it really won't matter.
CHARTS: A hard break lower but even with the 2.5+% losses the indices still maintained their trading ranges and are above the February lows. Sure they gave up the break higher out of the short lateral consolidation, not to mention the consolidation itself, but they are still in the trading range above the February lows, at least for now. A big chunk to the downside was taken, and it is interesting to note that the large cap indices all made a short double top the past three weeks immediately preceding the Friday break lower.
LEADERSHIP: Most of the leadership for the past two weeks decided to take a break. Energy, metals, agriculture and commodities in general tested back. They had held the market up, and when they went off their feed the market struggled. It did more than that as described above. The selling snowballed with the end of month effect. Leadership is making a pullback, something it needed to do. If the market can hold above the prior lows in February or even January then the leaders in commodities, ag, etc. will present us some good buys. If the indices cannot hold then even the leadership is going to be tested.
THE ECONOMY
Friday data caps a week of continued eroding economic activity.
The PPI was hot thanks to our boondoggle into ethanol that is taking wheat acreage out of production to feed ethanol, consequently helping triple the price of wheat. Even without food and energy (after all, man cannot live by wheat bread alone) PPI was still stoked. While the PPI was hot, consumer sentiment was not, still above surefire recession levels, but declining at a pace that that indicates recession is coming. Durable orders were down 5%, housing sales were lower than expected, and jobless claims jumped to 373K, showing the rise is not a fluke due to adjustments.
Friday data presents good and not so good.
Friday the personal spending and income figures were better than expected, and the PCE rose in line with expectations leaving the year over year core at 2.2%. Something of a relief given the stronger CPI and the jumping PPI on Monday.
After that the data was not so friendly. Michigan sentiment final showed 70.8, a bit better than the 70.0 expected, and rebounding from the 69.6 previously reported. Still heading too low, too quickly.
Manufacturing is struggling.
While the US economy is not the manufacturing giant it used to be, it is still no slouch. Thus when the manufacturing sector climbs or falls it is worth taking notice. Back in 2002 manufacturing was a key leading indicator. It started to firm and even improve ahead of most anything, other than the market.
Over the past four months the regional reports and the overall ISM have softened considerably. Sub-50 readings started to surface. There were the usual suspects that were weak, namely the Philly Fed. The weakness has spread, however, with the national index showing a month below 50 and now Chicago moving below that level as well.
It was not just a move lower, it was a plunge from 51.5 (hanging on) to 44.5. That is the lowest level since late 2001 when the economy was trying to bottom. Every component to the report was at contraction levels except the prices paid (of course). New orders actually rose to 48.8 from 44.7. Production fell to 46.5 from 51.3. Employment continued tanking, falling to 33.5 from 47.0. It has been below 50 for three months now.
Chicago is considered a harbinger of the national number, and after that 50.7 showing nationwide in February, expectations are the national number will fall below 50 again. Again, manufacturing is key as we learned in the last recession when the consumer remained healthy but businesses, burdened by a huge overhang with inventories and a collapse in venture capital, did not invest for three years.
Thus we don't want to see business sentiment (that is what the PMI reports are) become firmly entrenched. That would mean a longer recession and that the economy is still on the downswing and not ready to bottom.
Market discounting economic improvement or just a bounce higher in continuing selling?
That is what is being decided right now. The market sold hard in January and then bottomed into this lateral trading range here in February. Some believe the January lows were the bottom brought on by unusual circumstances relating to the rogue trader in Europe. Right. Nothing to do with the mortgage crisis, credit crisis, slowing economies, surging oil, food or commodity prices.
The market made a recovery, but as we have noted, the move was on low volume. Not bad for a consolidation, and even with the Friday selling the indices are still in their trading ranges for November. Moving toward the bottom of those ranges, but still holding in them for now.
They are also still well above the January lows though with this kind of selling they will get there without too much effort. If they hold and can move back up and continue the base, that indicates the recession is not going to be that deep and the market is already discounting the bottom of the rather shallow decline. If the prior lows give way with a serious break lower, then the clock starts again for a market recovery, and it also indicates the economy has not bottomed and has further to decline.
Either way there is more work to be done near term before the current market condition and thus the economy show there hand. It is a stretch to believe that the slowdown seen thus far and maybe a bit more through summer is all we are going to get out of such a huge housing bulge that is deflating, a credit freeze, inflation, surging oil prices, and election, and worries of protectionism, tax hikes and more regulation.
THE MARKET
MARKET SENTIMENT
VIX: 26.54; +3.01. VIX moved higher but it is still very low in its range, well off the 37.50 hit during the January selloff and the 40 to 50 level it needs to show before a bottom is set. The January level, as indicated at that time, was not enough. It bounced the market, but it likely did not bottom it. It will take a stronger reading, and that means more selling and more time in finding a potential bottom.
VXN: 28.44; +1.84
VXO: 28.9; +3.92
Put/Call Ratio (CBOE): 1.27; +0.03. Four straight sessions above 1.0 on the close. Plenty of 1.0+ closes to help set a bottom in the market, but it cannot do it alone.
Bulls: 42.0%. Basically moving laterally, up slightly from 41.6%. That followed a big bounce back up the prior week as the market rebounded from the early February selling. Hit 36.7% two weeks back, the low for this selling round. 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 eleven 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: 36.4%. Bulls might be heading up, but bears are still growing in ranks, up from 33.7% the prior week when the bulls and bears stared at each other. Bears are chasing the bulls right now; another dip and they may cross, a very bullish indication. Up sharply 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: -60.09 points (-2.58%) to close at 2271.48
Volume: 2.522B (+21.76%). Volume above average for the first time since the early February selling. There was a rebound session on strong volume to bounce out of that selling, but a dry spell since. Then it kicks up on the downside, not a good sign the low volume lateral move is holding up.
Up Volume: 254.405M (-199.54M)
Down Volume: 2.185B (+610.55M). Extremely skewed to the downside.
A/D and Hi/Lo: Decliners led 3.61 to 1. Sharply to the downside as smaller techs and the large caps sold together.
Previous Session: Decliners led 2.16 to 1
New Highs: 36 (-20)
New Lows: 203 (+82). Starting to jump, but still well off a 500 level that would be extreme and start to indicate a bounce coming.
NASDAQ CHART: http://investmenthouse.com/ihmedia/NASDAQ.jpeg
NASDAQ made a slightly lower high on last week's bounce. It showed some decent price/volume action, but trade never scratched above average. Then the Friday selling hit and volume jumped back above average. Not a blowout as seen in the January selling, but definitely a return of the sellers. NASDAQ is approaching its February low (2252), the last stop before a test of the January lows (2202). Now Friday may have just been a month end overreaction, but with the strength of the selling it looks as if it is heading toward a key test that will tell us about the economy as well.
SOX (-2.73%) continued its fade from the 50 day EMA, falling back to the lows in its W formed over the past 8 weeks. So much for another bounce by the semiconductors. Just as in early February the upside move has been scuttled.
NASDAQ 100 CHART: http://investmenthouse.com/ihmedia/NASDAQ100.jpeg
SOX CHART: http://investmenthouse.com/ihmedia/SOX.jpeg
SP500/NYSE
Stats: -37.05 points (-2.71%) to close at 1330.63
NYSE Volume: 1.76B (+20.27%). Volume jumped above average, even topping the early February selling volume. That makes this more substantial.
Up Volume: 96.617M (-296.108M)
Down Volume: 1.66B (+593.071M). Impressively lopsided.
A/D and Hi/Lo: Decliners led 6.29 to 1. Getting extreme already in just a session.
Previous Session: Decliners led 2.22 to 1
New Highs: 41 (-38)
New Lows: 217 (+106). As with NASDAQ, it jumped, but is still a long way from 500 that would mean something significant.
SP500 CHART: http://investmenthouse.com/ihmedia/SP500.jpeg
Gapped lower and sold near the February low after turning back below the 50 day EMA and just below the early February peak. Something of a double top here in February after that low volume rise to that point, and then an ugly break lower. Still above the early February low (1337) and the old trendline at 1316, but with this selling it looks ready to take it on and likely this is the start of a test of the January low.
SP600 (-2.89%) sold more than the other indices on Thursday, and it was out in front again Friday, bombing down toward the February low. It is also still in its lateral range and could bottom here and go about its basing, but it looks ready to make a test of the January low what with the issues with respect to the economy.
SP600 CHART: http://investmenthouse.com/ihmedia/SP600.jpeg
DJ30
The point loss on the Dow was impressive but it was the smallest percentage loss of the indices. Volume hit its highest since the first day of February; that session was up as money was put to work while this one was down as it was yanked out. As with SP600, the Dow turned over at its 50 day EMA, making a double top in February and breaking lower. As with the other indices it is still above its February low, rather easily so (12,069), and that keeps it in the February trading range. The Dow still has 860 points before it gets to the January low, and that means it can sell more and still end up holding the January low. That means it could have a successful test and bottom. For now it is indicating it is going to sell back and continue working on its base. It is going to test at some point, and getting over it now is just as well.
Stats: -315.79 points (-2.51%) to close at 12266.39
Volume: 351M shares Friday versus 247M shares Thursday. Big jump in volume, the best of the month outside of the first session of February.
DJ30 CHART: http://www.investmenthouse.com/ihmedia/DJ30.jpeg
MONDAY
New month and we have seen violent reactions the past couple of quarters when a month changes. November started with a dive while December rallied. Then January dove lower as did February. With the violent end to February, the indices falling from a low volume bounce to the 50 day EMA, and weakening economic data, it is not too hard to envision more downside as the market eventually has to test the January low and the rise off of that level was on very low volume.
There is plenty of economic data to push things along. The national manufacturing report on Monday, ADP employment, factory orders, Beige Book, and the jobs report to hit the high spots. The data has consistently deteriorated and we are not expecting any significant changes this week.
The big question at this point is whether the market holds the February trading range, tests the January lows and holds, or tests them and folds. By implication that means there is not likely to be a lot of upside in the near term though the market typically doesn't go straight down, but stair-steps similar to the way it works higher. Unless the market nips the Friday selling in the bud and thus shows it was simply and end of month allocation selloff, there is not likely any steady upside move near term as the market is going to have to find a bottom either at the nearer trading range or at the January low.
We are going to use this selling to let our downside positions run and to let the recent leaders in the commodities, energy, metals, agriculture, chemicals test their runs and set up new buys. Many of our positions are making nice tests, and we could get some solid new entry points on a hold of near support. This is definitely going to weed out the weak, and if positions start breaking support levels we will close them, see where the selling lands, and then see what is worth buying to the upside if anything. We will also use any relief bounce following this initial downside burst to take some more downside positions.
When you look at the pattern of the Dow you see a breakdown in January from a head and shoulders top, then a rise to the 50 day EMA, basically where it failed in December. Then the break lower on volume. There was hope engendered with the rebound move, and indeed there are some excellent stocks and sectors that are in bull markets still. Overall, however, the failure of the indices at the 50 day EMA after a low volume rise indicates the bounce was just that.
Support and Resistance
NASDAQ: Closed at 2271.48
Resistance:
2286 is the trendline from the summer 2004/July 2006 lows, Q4 2005 consolidation
The 10 day EMA at 2320
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 2411
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
2568 is the August 2004/April 2005/October 2005/March 2007 up trendline
Support:
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 1330.63
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 1384
1396 is the January 2008 peak
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
The 200 day SMA at 1471
1474 is the June/July 2006 up trendline
1475 from peaks in December 1999 and January 2000
Support:
1325 from May 2006 peak prior to the summer 2006 correction
1317 is the early February low
1316 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 12,266.39
Resistance:
12,518 is the August intraday low
12,573 is the mid-February high
The 50 day EMA at 12,635
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
13,290 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.
March 3
Construction spending, January (10:00): -0.8% expected, -1.1% prior
ISM Index, February (10:00): 49.0 expected, 50.7 prior
March 5
ADP Employment survey, February (8:15)
Productivity revision, Q4 (8:30): 1.8% expected, 1.8% prior
Factory orders, January (10:00): -1.5% expected, 2.3% prior
ISM Services, February (10:00): 48.5 expected, 44.6 prior
Crude oil inventories (10:30)
Federal Reserve Beige Book (2:00)
March 6
Initial jobless claims (8:30): 373K prior
Pending Home sales, January (10:00): -1.5% prior
March 7
Non-farm payrolls, February (8:30): 40K expected, -17K prior
Unemployment rate, February (8:30): 5.0% expected, 4.9% prior
Hourly earnings (8:30): 0.3% expected, 0.2% prior
Average workweek (8:30): 33.7 expected, 33.7 prior
Consumer credit, January (3:00): $7.5B expected, $4.5B prior
End part 1 of 3
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