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us stock market, trend trading stock
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3/05/08 Stock Split Report Update
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Stock Split Report Subscribers:
MARKET ALERTS
Targets hit alerts: None issued
Buy alerts: AKS; APC; CCC (bonus); IMO; STLD
Trailing stops: None issued
Stop alerts issued: CSX; FCSX
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:
- Market posts a gain but it was a rather weak session after the Tuesday reversal.
- ISM Services is up but still down.
- Factory orders stink as expected, ADP jobs report tips negative.
- Market still playing from a weak hand as it tries to bounce off the bottom of the trading range but already faces headwinds.
Market, flush with data, muddles higher.
The data parade started in earnest Wednesday, and the picture was again, not surprisingly, downbeat. Productivity was not bad, topping expectations with a 1.9% gain (1.8% expected). Factory orders met expectations, but when you match an expected 2.5% drop (down from 2.0%) that is not really inspiring. ADP's employment survey showed a 23K job loss, ISM services beat expectations but was still showed contraction, crude inventories fell pushing oil to $104.50/bbl, and the Fed's Beige Book gave a rather beige look to the economy.
Nonetheless, the market started higher but there was no launch off of the pad build after the Tuesday selloff then reversal. Stocks moved higher early on, stalled, then spiked just before lunch on news that ABK was halted pending news. Could it be that the 'deal' was finally done? That someone was going to bail out the poor unfortunates in the mortgage industry and thus put a floor in with respect to mortgage issues . . . no. The ABK deal didn't happen. Instead it announced it was going to sell some of this and some of that and raise $1.5B to fight off a ratings cut. Basically what this is saying is that no one thinks the price declines are near the bottom. The suitors were trying to steal ABK for far less than ABK was willing to knuckle under to. There are two situations right now, and neither shows there is a bottom. You have Warren Buffett 'offering' money to 'help' in return for the money making part of the businesses, a.k.a. cherry picking. On the other side you have the ABK type situation where the suitors try and steal the company. In short, no one wants to pay up to what the owners want because no one knows how low things can go. That means there is no market yet and no floor put in.
The market slumped in a collective sigh after the ABK announcement. Not that a deal would have been the end of the selling. There is still a lot more blood letting to go in mortgages, especially after how the ABK deal turned out. That sigh turned into an early afternoon selloff that pushed the Dow down 74 points; nothing major, but a definite deflation from the 135 point early gain. It took a late spurt higher after an afternoon of slowly crawling back to close the indices positive, but they did close positive.
What support the market did have clearly emerged after that midday swoon. Energy and commodities were stronger early in the session, but they really came into their own in the afternoon as oil soared along with every dollar based commodity, gratis of the dollar hitting a new low versus the euro. Exports are up as a result of the weak dollar, but as we export more cheap goods we import more inflation as it takes more and more dollars for us to buy the goods we need whether here or abroad. It is an old economic lesson, but no country every devalued its way to prosperity as we are finding out now. There is no active campaign to cheapen the dollar, it is just benign neglect. Like his father before him, President Bush is making the wrong dollar choice and the market is struggling in no small part because of this.
TECHNICALLY the intraday action was higher to lower to middling. The indices finished higher but it was not a great session given the promise of the Tuesday reversal. The indices closed well off their highs giving up more than half their gains. Not the best of sessions but not the worst. Basically in a trading range similar to the larger picture right now.
INTERNALS: Flat to flatter. NYSE breadth was 1.3:1; NASDAQ was flat. Volume backed off to below average on both NYSE and NASDAQ. Not much punch behind the move higher and of course not much behind the midday selling either.
CHARTS: The key feature of the session was the tap at the 10 day EMA by all three large cap indices and a retreat from that nearest resistance level. Not a lot of strength exhibited by that move. There was not the overall buying strength to sustain the early push. The close keeps the indices at the bottom of their trading range, still trying to find the strength to move higher.
LEADERSHIP: Friday and Tuesday the market lost leadership from the hard stuff, the commodities and energy. The market sold off. The only thing keeping the market up Wednesday was the hard stuff as oil hit a new high along with gold, copper and silver. That pushed the related stocks higher. Without their gains the market would have not closed positive.
THE ECONOMY
ISM Services beats expectations! Yes, and it is still contracting.
On Monday the ISM dipped back below 50 for the second time in three months. It followed the services sector lower as the latter had already hit contraction in January (49.3 February, 47.3 expected, 44.6 in January). Services, the purported backbone of the economy, are not in the best of shape as service companies pullback as well.
Many expressed relief that it jumped back up after the 9 point January decline. It is good that it did not drop further, but it is still, despite the improvement, below 50. Services have hit the skids along with the manufacturing sector for now, though there were components that showed promise. Business activity moved to 50.8 from 41.9. New orders rose but were still below 50 with a 49.6 showing. Employment contracted for the second d month at 46.9, but that was up from 43.9 in January.
There is some skepticism regarding the number as the component weighting changed to start the year and the fact that it covers such a broad spectrum of businesses. Nonetheless, the changes were made to more accurately reflect the economy, and you have to look at the trend the numbers show. Two consecutive months below 50 is never a great showing.
Factory Orders
Orders fell the 2.5% expected, down from the slightly weaker December reading (2.0%, revised from 2.3%). While orders have skirted near zero in Q3 and early Q4 2007, they rebounded in November and December. Then this dump lower. That is in line with the other economic data that has shown the wear and tear on the economy thanks to housing, credit, higher oil prices, and higher prices in general.
ADP Survey shows a drop in jobs, but who can you trust?
Last month ADP showed a 119K gain in private jobs while the government showed -17K net from private and public sectors. Thus it is not an apples to apples comparison so the ADP report is typically no indicator with respect to the government figures. Nonetheless, it didn't spread any joy around the market when it was released pre-market.
THE MARKET
MARKET SENTIMENT
VIX: 24.6; -0.92
VXN: 27.52; -0.74
VXO: 27.01; -0.95
Put/Call Ratio (CBOE): 1.14; -0.06. Sixth straight session back above 1.0 on the close. Keeping at an elevated level.
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: +12.53 points (+0.55%) to close at 2272.81
Volume: 2.146B (-20.48%). Back below average after the strong Tuesday showing on the reversal. Not enough to push it and it gave back over half its gain on the day.
Up Volume: 1.464B (+198.547M)
Down Volume: 782.134M (-565.942M)
A/D and Hi/Lo: Advancers led 1.01 to 1. Flat as a board.
Previous Session: Decliners led 1.56 to 1
New Highs: 51 (+7)
New Lows: 185 (-139)
NASDAQ CHART: http://investmenthouse.com/ihmedia/NASDAQ.jpeg
Techs were again one of the leaders though there was not much differentiation from the SP500 in terms of price gains. It tapped toward the 10 day EMA (2295) on the high (2290) but then faded to give up 17 points from its session high. Just not a lot of strength on this move as breadth was weak despite a 0.55% gain. Form but not a lot of substance; as my brother says, just what good lawyering is all about. Anyway, NASDAQ is hanging on at the bottom of its range, but the 10 and 18 day EMA are pressing down on it and the response to that reversal was just not that strong.
NASDAQ 100 (0.57%) showed the same action though it did manage to tap its 10 day EMA on the high. It was close to its January low on Tuesday as well, and it is attempting to hold the line at the bottom of its range as well, but it has a series of lower highs sitting on top of it.
NASDAQ 100 CHART: http://investmenthouse.com/ihmedia/NASDAQ100.jpeg
SOX CHART: http://investmenthouse.com/ihmedia/SOX.jpeg
SP500/NYSE
Stats: +6.95 points (+0.52%) to close at 1333.7
NYSE Volume: 1.619B (-9.32%). Volume fell back but unlike NASDAQ it was right at average and thus not a complete return to no volume.
Up Volume: 1.013B (+454.574M)
Down Volume: 597.746M (-609.004M)
A/D and Hi/Lo: Advancers led 1.3 to 1. Pretty flat as well as the small caps lagged.
Previous Session: Decliners led 2.1 to 1
New Highs: 38 (+3)
New Lows: 141 (-127)
SP500 CHART: http://investmenthouse.com/ihmedia/SP500.jpeg
SP500 tapped at its 10 day EMA (1346) as well and it too pulled the incredible fading index routine, giving up 11 points off the high. Hanging on at the bottom of the trading range as well but it too has the short term moving averages bearing down on it. In a weak position overall but it is holding in the range and as long as it does that it is basing and that keeps the move alive.
SP600 (+0.28%) posted a modest gain as well as it moves laterally at the lower rung of the February (and now March) trading range. Despite the negative economic data showing up day after day it is holding at some support, trying to mount the courage for another trip to the 50 day EMA. Not sure it is going to give it much of the old college try, however.
SP600 CHART: http://investmenthouse.com/ihmedia/SP600.jpeg
DJ30
The Dow held above the trading range lows again during the midday crisis, and it recovered for a modest gain. It too tapped at the 10 day EMA (12,366) intraday and turned away. Holding its range, trying to drum up the buyers to make another stab at the 12,750 resistance once again where it double topped in February. Those twin peaks suggest DJ30 is not going to make any serious upside surge, but it has shown pretty remarkable resilience despite the bad economic news.
Stats: +41.19 points (+0.34%) to close at 12254.99
Volume: 304M shares Wednesday versus 347M shares Tuesday. Volume fell back to just above average as the Dow basically ran in place.
DJ30 CHART: http://www.investmenthouse.com/ihmedia/DJ30.jpeg
THURSDAY
The data lightens up a bit Thursday with new jobless claims and pending home sales, calming a bit before the Friday jobs report. Jobs are always the hot button issue despite their lagging indication with respect to the economy. They are so visible and so near and dear to us all. They do play a big role in how our economy fairs: if consumers start to worry about the pink slip, their spending starts to slip (there has to be some good Jesse Jackson phrase in there somewhere). Jobless claims are on the rise and anything above 370K is approaching an important level for the overall economic health. But . . . we already know the economy is slowing down. The question jobless claims tell us is whether the consumer is going to add substantially to that slowing near term due to flagging confidence about hanging onto jobs.
As you can tell, we were not overly impressed with the market action Wednesday on the heels of the Tuesday reversal on ABK and CSCO. The news did not have much staying power, and of course the ABK 'news' was just a presage to another non-event. Thus the market is likely to face further challenges this week as it tries to rebound for another run at resistance.
The market is definitely bifurcated with energy and the commodities in their own individual bull markets while the rest of the market struggles to hang onto support. Indeed, but for the few sectors moving higher the indices would likely already have rolled over and we would be talking about the January lows holding or not.
As it is, commodities and those areas tied to the dollar as well as some other sectors tied to global economies and events (agriculture, chemicals, engineering, defense) have to remain the focus for the upside. There are other stocks here and there that look solid, and we are taking a look at those as well, but those are mostly special situation stocks that have done well in the past recession and are setting up nicely in this one as well. Downside is a bit aggressive here without more of a bounce given the Dow is down 500 points and held the bottom of its range for now, but there could very well be a lower high near 12,350 and then a break lower.
That would be worth buying into from various angles, e.g. index plays, ETF plays, and of course some individual stocks where the best gains are. We are going to take what the market gives. On the upside we will look to take gains if a stock puts in a good run over a few sessions; this market can turn a stock right back down. As for the downside, it is running in bursts as well as it usually does, and if we get another downside break off a lower high over the next session or two we will have some new positions to play as well as watch our current ones pump up the value again.
Support and Resistance
NASDAQ: Closed at 2272.81
Resistance:
2286 is the trendline from the summer 2004/July 2006 lows, Q4 2005 consolidation
The 10 day EMA at 2295
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 2394
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
2571 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 1333.70
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 1378
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 1468
1475 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 12,254.99
Resistance:
12,250 from late March 2007 lows is stretching
12,518 is the August intraday low
12,573 is the mid-February high
The 50 day EMA at 12,590
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
13,271 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): -23K actual versus 15K expected, 119K prior (revised from 126K)
Productivity revision, Q4 (8:30): 1.9% actual versus 1.8% expected, 1.8% prior
Factory orders, January (10:00): -2.5% actual versus -2.5% expected, 2.0% prior (revised from 2.3%)
ISM Services, February (10:00): 49.3 actual versus 47.5 expected, 44.6 prior
Crude oil inventories (10:30): -3.05M bbl versus +3.2M prior
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): 25K 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): $7.0B expected, $4.5B prior
End part 1 of 3
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