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us stock market, trade stock
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3/04/08 Technical Traders Report Update
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MARKET ALERTS
Targets hit alerts: None issued
Buy alerts: DXD
Trailing stops: AGU; MM; XTO
Stop alerts issued: BTU; CCC
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/alertttr.html
SUMMARY:
- Indices undercut February lows, give way to short covering helped by ABK, CSCO news
- Bernanke and his henchmen fill the calm before more economic data.
- Market seeking some new leadership as commodities take a breather.
Market continues its weather imitation.
There are more than a few places in the country where if you wait long enough the weather will change. This stock market is that way. All you have to do is wait for half a session or quarter of a session and you get a swing. Happened again on Tuesday.
The early action was sluggish at best. C had its ratings cut yet again and people wondered if its prince would come once more with bags of money to bail it out. INTC looked into the future and saw its gross margins falling. Interestingly, its stock price didn't even with that bad news. Those were drags, but Bernanke and his fellow Fed brethren were the real drags, as all took to the stump and talked of more foreclosures to come, more sluggish economic activity, but a light at the end of the tunnel was coming and it was not a train.
That was not much of a comfort to a weary market ready for a bottom in prices ahead of an economic recovery. Monday the market attempted a reprieve from the Friday selling, but the news just did not support the move. NASDAQ undercut its February low again, and it was joined by SP500. DJ30 finally joined them in the early afternoon. Within an hour and one-half of undercutting that level, however, DJ30 started to rebound.
As is often the case, once a key level is undercut there is a short covering move. That had just got underway when once more a story circulated that an ABK deal was imminent; not a done deal, but once again imminent. On top of that Cisco's Chambers was again taking back what he said on the earnings conference call, noting that it was a shallow dip and the bumps were relatively small.
That on top of the desire to cover helped turn a pretty impressive 1.5% loss session into a mixed one with losses less than 0.4% on NYSE while NASDAQ, NASDAQ 100, and SOX turned positive. The move turned an ugly day into a reversal session of sorts, though not a perfect one. NYSE indices finished negative, and a reversal is best when the close positive, but it was the same kind of action that started the recent bounce two Fridays back that the market gave back this past week. With this kind of rebound that held the range the market could easily put in another bounce.
TECHNICALLY the intraday action was positive with the low to high action, but frankly, as noted above, this kind of intraday weather change is almost a daily occurrence. It blows cold and the market sells off, then a warm front pushes in and spring is here again. More like global warming from what I read in some circles. Gee, you think it is affecting the market? Again, it was not a perfect reversal as the NYSE indices closed lower, but it was not a bad recovery either.
INTERNALS: Breadth was down big time intraday with NYSE showing close to -6:1 and NASDAQ at -4:1. Again pretty serious downside breadth, approaching the extreme levels. Then the rebound came and breadth rebounded to rather modest levels given the action since October (-2:1 NYSE, -1.5:1 NASDAQ). Volume surged. It was higher on the selling and it remained high on the recovery with both NYSE and NASDAQ volume jumping easily back above average. Plenty of volume on the rebound as well, and that can be good on a recovery move as it shows buyers stepping in. Of course these were short covering buyers and to sustain a move the longer term players have to pick up the torch. We doubt that will happen as that means the end of the lateral move and a breakout. What likely happens is a bounce higher that fails and leads to a test of the January lows.
LEADERSHIP: The reason for the market's struggles is that the commodities and energy were struggling again as oil was lower (closed at 99.67, -2.79), gold was down, etc. Without their leadership the market waffled and was in trouble. Then some covering bounced up the energy and commodities, and the Chambers' comments sent big cap tech higher, posting a market-leading 0.6% gain on the close. RIMM bounced nicely, ready to run again, and even AAPL looks as if it could shag a run higher here.
THE ECONOMY
The F-Men were out in force Tuesday starting with Bernanke's early session speech on mortgage foreclosures. While he talked of things the Fed and the government could do to mitigate the issues, he was quite frank about rising foreclosures and things getting worse before the got better. Kohn and Mischkin echoed the 'things ain't so great' theme. At least the Fed funds futures contract has an 80% chance of a 75BP rate cut built in.
Is that really a good thing, however? Do we want to debase the dollar even more and send commodities and food prices ever higher? It is bad enough we have helped triple the price of wheat with our ethanol program that has take more acreage out of wheat and into corn, only to be squandered on a plan that will do nothing to alleviate our energy problems but will exacerbate our water shortage issues (1700 gallons of water to produce one gallon of ethanol) and push up inflation in food prices.
The last time we had rising inflation and a slowing economy with rising unemployment was the 1970's. Those were the worst times for our economy since the Great Depression. The youngsters today following Senator Obama were not alive to see what resulted from the same type of policies he is postulating and the huge increase in Medicare spending President Bush foisted upon us. The huge regulation and spending increases of the 1960's and 1970's almost broke us and our economy. I remember 22% interest rates and wondering if I would ever be able to afford a house. Businesses were not investing in America as our auto industry proved with its cheap, shameful vehicles produced then compared to what our overseas rivals produced. Made in America had become a bad joke.
How did we get out of that morass? It took some well-placed tax cuts and . . . higher interest rates. We were in a horrible recession to end 1970 and to start the 1980's gratis the government spending and tax hikes that drove capital out of the economy and into tax shelters. President Reagan decided we had to reignite the US economic engine and used some well-conceived tax cuts and incentives to move capital from shelters into business investment. Investment tax credits if you bought some technology for your business or updated your equipment; you bought a piece of equipment and deducted the cost up to $1500 off the bottom line of your tax bill. You were a fool not to do it. I bought a strange contraption called a personal computer with mine. I also bought a new 4x4 SUV (though they were not called that at the time) and used the new-fangled 3-year accelerated depreciation that allowed me to deduct over 50% of the vehicle's cost in the first year. Then he cut marginal rates so people could keep more of what they made and put it into investments and consumption. Man did the money come flying in.
Not all tax cuts are the right kind. Too many espouse cutting any and all taxes. Laudable, but not all tax cuts are created equal. Reducing taxes on capital is always the best money maker whether lower rates, credits, faster cost recovery. Marginal rate reduction is a close second. Reagan hit the right ones.
Then Fed chairman Paul Volcker attacked the double digit inflation that occurred in the stagnant 1970's, something the supply siders said could not happen (my how reality messes up theory sometimes), by hiking interest rates even when interest rates were already high. Volcker managed to lower interest rates by raising interest rates and helping sop up all of the extra liquidity created in the 1970's when the Fed overreacted to the oil embargo and resulting price shock by feeding the fire with more gasoline so to speak.
The combination of higher interest rates and capital moving into business and increasing supply created entirely new technologies thanks to all of the investment. There was no demand for a personal computer. The first reaction to them was 'why would anyone need a computer?' We quickly saw how they could improve our lives and then everyone wanted one. Supply created demand. Innovation was again alive in the US and money came out of the closet and fueled a massive boom, yet one without inflation because supply was leading and the excess money was finally soaked up.
So, we now see that those talking of raising taxes on capital (increasing dividend taxes, ending corporate 'loopholes', increasing taxes on the 'rich' small business owner), closing down trade, etc. to help the 'hard working' American, don't understand history. Frankly, I don't know anyone making over $200K/year who does not work at least 12 hours a day. Small business owners? 15 to 16 hours a day. They don't give money away as some seem to believe. Nearly everyone works for their money. The only people who don't are the truly wealthy heirs, and raising taxes on those making $100K is not going to affect them one way or another. You know why we will never get a flat tax if it is more than 12%? Because if you have the money you can structure your businesses and finance so you only pay 12% in taxes even with a 34% top rate. Perfectly legal because that is they way Congress wrote the tax law.
In any event, before I digress too far, what we are getting to now is not the need for more rate cuts. That won't solve the problem. Rebate checks won't solve the problem; despite the self-serving 'research' the Bush administration puts out, rebates did not work last time and they have never worked. It was not until the reduced taxes on capital were passed that the money came in. Almost to the day of passage things started to improve because money was spent. We need to cut taxes on capital, lower corporate taxes (as I remind my mother, I am a corporation) and encourage investment again just as we did in the early 1980's. That will again increase supply and innovation, making the US a valuable place to do business once again and thus increasing the value of the dollar.
THE MARKET
MARKET SENTIMENT
VIX: 25.52; -0.76. Market may bounce here but VIX was never high enough to sustain any kind of bottom even with the mid-January spike to 37.50.
VXN: 28.26; -1.21
VXO: 27.96; -0.39
Put/Call Ratio (CBOE): 1.2; -0.04
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: +1.68 points (+0.07%) to close at 2260.28
Volume: 2.698B (+23.63%). Volume spiked above average again after a move over average on Friday. Stronger trade as NASDAQ was selling, but it held strong as it recovered as well to post a modest gain. Not bad for the upside.
Up Volume: 1.265B (+446.46M)
Down Volume: 1.348B (-2.117M)
A/D and Hi/Lo: Decliners led 1.56 to 1
Previous Session: Decliners led 1.73 to 1
New Highs: 44 (+3)
New Lows: 324 (+34). Was getting interesting on the downside as NASDAQ reached toward the January low.
NASDAQ CHART: http://investmenthouse.com/ihmedia/NASDAQ.jpeg
NASDAQ was definitely a laggard early on, or if you want to look at it the other way, a leader down toward the February and January lows. It undercut the February level rather quickly and came within 20 points of the January low (2202.5). Looked bad, then reversed and finished basically flat, positing a modest gain. Volume was up on the selling and up on the recovery; technically you can call that a positive day for the bulls. Now NASDAQ is going to see if it can put in a second bottom here near the prior low and mount a sustained rally. We doubt it will, but that does not mean it wont try another bounce up in the range formed the past 6 weeks.
NASDAQ 100 (+0.6%) led the market higher with its reversal after Chambers' 'golly gee' comments on the economic slowdown.
NASDAQ 100 CHART: http://investmenthouse.com/ihmedia/NASDAQ100.jpeg
SOX CHART: http://investmenthouse.com/ihmedia/SOX.jpeg
SP500/NYSE
Stats: -4.59 points (-0.34%) to close at 1326.75
NYSE Volume: 1.785B (+13.64%). Volume jumped on NYSE as well on the selling and then the reversal, just topping the Friday trade.
Up Volume: 558.658M (-178.561M)
Down Volume: 1.207B (+380.789M)
A/D and Hi/Lo: Decliners led 2.1 to 1. Really recovered from very weak intraday breadth when the commodities were selling as well.
Previous Session: Decliners led 1.19 to 1
New Highs: 35 (-10)
New Lows: 268 (+32)
SP500 CHART: http://investmenthouse.com/ihmedia/SP500.jpeg
Sold off below the February low (1317) but 10 points then reversed for a modest loss, recovering almost 20 points off the low. The move keeps SP500 in its trading range and sets it up for a bounce higher in the range once more as the basing attempt continues, meaning it will try to bounce but will likely not make any new ground before running out of gas.
SP600 (-0.4%) was down as well but then rebounded to close basically flat as it to recovered back to its trading range. After that last breakdown from the 50 day EMA it looked really weak, and we still don't think it looks ready to make a sustained move higher, but it will make an attempt from here.
SP600 CHART: http://investmenthouse.com/ihmedia/SP600.jpeg
DJ30
DJ30 has showed the relative strength in the market. It was a big deal for it to breach its February low (12,070), and that still kept it well above the January low. It reversed after that test and almost made it back to positive, still in the trading range and looking to try and bounce again once more toward that 12,500 to 12,750 range.
Stats: -46.1 points (-0.37%) to close at 12213.8
Volume: 347M shares Tuesday versus 259M shares Monday. Matched the Friday selling trade as DJ30 tested lower and reversed.
DJ30 CHART: http://www.investmenthouse.com/ihmedia/DJ30.jpeg
WEDNESDAY
The economic data starts back up on Wednesday with the ADP survey, factory orders, productivity revision, ISM services, and Fed Beige Book. A full plate, and an important one along with the other reports for the week.
That said, the market made a slightly lower low and reversed on volume. That is typical after a support level is breached. It is also typical for a modest bounce after that. Then you look to see if the volume continues strong or starts to really taper, especially as price heads toward resistance in the range. That tells more of the tale of the bounce.
You also have to look at leadership. The commodities look a bit tired, but then they find new buyers. At the same time there has been a month of lateral movement and that is setting some stocks for a move higher. As noted even some techs are in position to at least put in a bounce. We will see what kind of covering/buying pushes them higher.
Unfortunately, the market did not sell off in a really nasty plunge and get it out of its system. Instead it sold just enough to bounce, maybe more, maybe less than prior bounces. That means in all likelihood the basing and further testing is not over. There still has to be a test of that prior January low, and we are not convinced that will set the bottom. As always we have to let the market tell its story, and after that Tuesday reversal the next page is going to be a bounce led by some short covering, but it has to run the gauntlet of a lot of news that will try and derail it.
Support and Resistance
NASDAQ: Closed at 2260.28
Resistance:
2286 is the trendline from the summer 2004/July 2006 lows, Q4 2005 consolidation
The 10 day EMA at 2300
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
The 50 day EMA at 2399
2419 is the January 2008 peak
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
2570 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 1326.75
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 1380
1396 is the January 2008 peak
1406 is the August and November 2007 closing low
1417 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 1469
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 12,213.80
Resistance:
12,250 from late March 2007 lows
12,518 is the August intraday low
12,573 is the mid-February high
The 50 day EMA at 12,604
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
13,278 is the 200 day SMA
Support:
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): -1.7% actual versus -0.8% expected, -1.3% prior (revised from -1.1%)
ISM Index, February (10:00): 48.3 actual versus 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): 360K expected, 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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