|
|
us stock market, trading system
* * * *
3/11/08 Stock Split Report
* * *
Stock Split Report Subscribers:
MARKET ALERTS
Targets hit alerts: None issued
Buy alerts: ODFL; SDA
Trailing stops: CNH; DXD; GRA; IWM; QID; SDS; TWM
Stop alerts issued: CCC; PCLN
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:
- Fed pre-empts regularly scheduled test of January lows.
- Still a Missouri rally but Fed could have changed things.
- Fed gets creative and the market likes it.
- Looking to ride the rally until it shows something else.
Fed pushes the right buttons, sends market higher.
The market was set to finish the test of the January lows and then start their rebound. One more good push would do it. Then the Fed announced a novel and quite large ($200B) plan to get banks to lend. It was a bit of the Taffy but also something new as it was not just banks, but now any primary lender could come to the window to peddle their junk to Uncle Sam. That pushed all the right buttons with the market: it attacked the source of the problem yet didn't require slashing rates further and thus more gutting of the dollar and fanning inflation. It was an action for all tastes.
Futures jumped on the news with a strong upside response and the market gapped higher. The trade gap hit an all-time record thanks to surging oil prices (and they were up to 108.60, +0.70 Tuesday), and that will only be worse this month as oil prices are even higher now. That didn't matter, however, because there was hope the Fed was shifting its focus from rate cuts and thus import inflation (e.g. oil). TXN and WLP earnings were complete misses, but that didn't matter either. The Fed was active again and in a big and better way, and that had shorts nervous and longs joyous.
After the gap, however, stocks spent three hours giving up ground from the open. That had the long players nervous as another Fed action was in danger of giving up the knee-jerk gains. They never threatened to go negative by any stretch, but it was worrisome to the longs nonetheless. Just after lunch the SEC chairman said he was not worried about BSC's cash position. That helped trigger the second run of the day. We watched the indices form something of a double bottom through lunch, and when they held that second low we started to close our downside positions as the post opening dip had run its course. Then we bought into some positions as the market rebounded through the afternoon to close at the session highs and impressive gains.
TECHNICALLY it was a strong session. Stocks started higher, outlasted the selling attempt, and surged into the close with DJ30 posting its strongest point gain since the 2003 rally. Strong start, strong finish, and that is more bullish.
INTERNALS: Strong as well, matching the upside though not as strong as the downside sessions. Breadth was 4.8:1 on NYSE and 2.9:1 NASDAQ. Volume surged back above average on both NASDAQ and NYSE, but was particularly strong on NYSE as it posted the best volume in over a month, and easily the strongest since the January selling and the lows put in at that time.
CHARTS: Not much you can add to the moves. SP500 and DJ30 were hovering just over the January lows and reversed on strong volume. They were selling hard and then recovered a lot of ground just as hard. The action left them at the 10 day EMA, near resistance for each. The chart patterns are double bottoms with NASDAQ in a classic one. Now they have to show continued strength, complete the patterns, then show the breakout move. That will take some time, and the first thing you want to see is a follow through session Friday or next week. That shows buyers coming back in after the initial surge.
LEADERSHIP: Lots of stocks were rebounding Friday, but after such harsh selling many were just bouncing in relief. That is often the case after a big selloff, i.e. relief bounces once the selling strength dies down some. These stocks have some near term upside potential, but longer term they need to work on their bases before they are ready for big runs. The commodities and even ag may get back into some decent patterns with just a bit of work, and energy held their patterns just fine. The rest, well, need some work. They can still form up from here, but for now we stick with some quality patterns to play the move higher.
Market will have to show a follow through session and more.
It was a big move but we expected a rebound after a test of the January lows. The Fed added to its strength. To us it is still a 'Missouri' rally, i.e. it has to show me it can hold. As noted above, that means some follow through Friday into early next week, a session where volume is up, breadth is strong, and the indices post 1.5% or better gains. It will need leadership, however, to come back into play. There are some still ready to lead, but after those some new faces need to emerge. That can take a few weeks to develop, and that is okay because many stocks look as if they will need those weeks to form up their bases.
That is assuming that the bounce is going to stick. Before the Fed it was just a bounce we anticipated. It is possible that the Fed changed the game with this move all by itself, but that is not likely. There are major issues that will need more tending than just some rate cuts; the Fed knows this and thus it is trying some creative solutions. Even those will need more help, and in this election year the idea of substantive stimulus after this first $170B is wasted won't sit well with many politicians.
Thus we are still viewing this move as a trading play to the upside, looking for good plays to ride the rally. We are willing to be convinced otherwise, but it will have to 'show me.'
THE ECONOMY
Fed tries to take things into its own hands.
Monday night I wrote of how the Fed needed help from the administration by ending this foolish weak dollar policy. The Fed was in an impossible position, having to cut rates to stimulate the economy but at the same time kill the dollar and have near term inflation jump higher as a result. We have already seen copper once again reach levels we never thought we would see again after the run a year ago. Oil is crazy, running higher and higher on speculation the dollar will continue falling lower and lower.
The Fed likely realizes it is not going to get any help from Congress with more meaningful stimulus, and Bush, like father like son, refuses to support the dollar. So, the Fed got creative, and it was a move that has most standing up and applauding.
Here is the deal. The Fed is expanding its poorly understood and underutilized TAF (aka Taffy) program. One of the first complaints about the program was the size. It has gone from $20B to $50B to now $200B. It also expanding those who can take advantage of the window to any primary lender, not just commercial banks. Thus any main lender can get help from the Fed. Third, the Fed is taking residential mortgage securities as well, basically the junk that everyone is worried about. Thus Uncle Sam is now willing to hold $200B worth of this stuff that no one wants. Very much the lender of last resort.
All of these are designed to get more money to where it is needed given that banks are not lending. If a primary lender cannot get a lone because no one knows how to value the mortgages it is holding, it can go straight to the Treasury window, offer up its mortgage backed securities, and the Fed will take them and lend out Treasury securities.
That last point is key: it is a loan and not a buy. That is important to the market because the financial markets, despite their woes, still want a market mechanism to work versus just a buyout. The Fed is thus offering these securities as a 28-day swap, i.e. taking the junk and giving in return rock solid Treasury securities for a 28 day period. During that time the primary lenders have some time to try and resolve their issues no longer burdened by the unmarketable mortgages they held.
This gets money right into the system and lets lenders operate and start putting together deals and packages. All of this allows the financial markets to get their arms around the problems better and thus start working on a solution. Pretty novel, very smart, and the market really liked it. It helps, but again, it likely won't be enough.
THE MARKET
MARKET SENTIMENT
VIX: 26.36; -3.02
VXN: 28.56; -2.82
VXO: 27.9; -3.65
Put/Call Ratio (CBOE): 1.12; -0.36. Ten days above 1.0 on the close.
Bulls: 41.9%. Modest decline from 42.0%, but still holding the line as the market moved basically laterally. That will likely change now that the market has broken its trading range and is heading for the test. The bulls and bears were eye to eye three weeks back, and that was enough to set a bottom. Hit 36.7% three weeks back, the low for this selling round. That put the bulls and the bears eye to eye. Didn't quite make the 35% range considered to be bullish for the market, but was down 20 points from the 56.5 three months 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. Bears surged over 35%, 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: 36.6%. Bears continue to rise, albeit much more modestly now, up from 36.4%. Up from 33.7% the prior week when the bulls and bears stared at each other. Bears are chasing the bulls right now; with the current dip 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: +86.42 points (+3.98%) to close at 2255.76
Volume: 2.526B (+17.58%). Strong above average volume though it was not the strongest of the month. A good start to a rebound attempt.
Up Volume: 2.185B (+1.806B)
Down Volume: 281.236M (-1.834B)
A/D and Hi/Lo: Advancers led 2.88 to 1. Solid but not as strong as the downside.
Previous Session: Decliners led 3.36 to 1
New Highs: 37 (+5)
New Lows: 303 (-175)
NASDAQ CHART: http://investmenthouse.com/ihmedia/NASDAQ.jpeg
After undercutting the January low (2202) Friday and Monday, NASDAQ gapped back furiously, gapping over the January low and rallying to just eclipse the 10 day EMA. It has the makings of a classic double bottom pattern but after the few initial sessions it has to hold the bounce, test some to form a handle, then make the next break higher.
SOX (3.18%) surged as well, but it is still just off the lows in the 8 week lateral range.
NASDAQ 100 CHART: http://investmenthouse.com/ihmedia/NASDAQ100.jpeg
SOX CHART: http://investmenthouse.com/ihmedia/SOX.jpeg
SP500/NYSE
Stats: +47.28 points (+3.71%) to close at 1320.65
NYSE Volume: 1.945B (+20.66%). Best volume since the last day of January.
Up Volume: 1.746B (+1.58B)
Down Volume: 190.385M (-1.245B)
A/D and Hi/Lo: Advancers led 4.87 to 1. Strong upside breadth, basically matching the downside strength in the preceding session.
Previous Session: Decliners led 5.06 to 1
New Highs: 28 (+3)
New Lows: 173 (-230)
SP500 CHART: http://investmenthouse.com/ihmedia/SP500.jpeg
Three points from the January low (1270) and then a gap higher and run on the FOMC actions. SP500 flew higher, closing at the 10 day EMA. Not the undercut of NASDAQ, but a nicely formed double bottom in the making.
SP600 (3.82%) never made the January low either. The Fed action really goosed the small caps though on the close they were still below the 10 day EMA. As with the other indices the small caps are trying their hand at a double bottom.
SP600 CHART: http://investmenthouse.com/ihmedia/SP600.jpeg
DJ30
DJ30 was heading to its January low as well (11,634) but the Fed ended that move as the blue chips put together an impressive 400 point gain. As with SP500 and NASDAQ the move put the Dow at its 10 day EMA (12,145) and working on its own double bottom pattern.
DJ30 CHART: http://www.investmenthouse.com/ihmedia/DJ30.jpeg
WEDNESDAY
The Fed has made an intermeeting move, one that unlike further rate cuts, had some immediate positive effects, e.g. moving interest rates higher and helping the dollar gain some strength. Of course the market liked it as well.
The question now is longevity. Such a strong move begs an attempt by the sellers, but this kind of move typically lasts more than just a session. Thus we are going to continue to play some upside as this rally continues, but as noted Monday and tonight, we are treating as a bounce and nothing more unless and until it can show something in addition, i.e. a solid follow through session that boasts some good leaders breaking higher. There are some great stocks in good position still, and we can use them as vehicles for the rally and if it develops further, these stocks will move further as well. Have to like that.
Support and Resistance
NASDAQ: Closed at 2255.76
Resistance:
The 10 day EMA at 2252
2252 is the early February low
2286 is the trendline from the summer 2004/July 2006 lows, Q4 2005 consolidation
2340 from the March 2007 low
The 50 day EMA at 2365
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
2451 is the August closing low
Some modest resistance at 2500 from interim August lows.
Support:
2221 is March low
2216 from August 2005 peak
2202 is the January intraday low
2175 from the December 2004 peak
2158 from May 2006
2164 From August 2006
2134 from August, September 2006
2100 from June 2006
S&P 500: Closed at 1320.65
Resistance:
The 10 day EMA at 1320
1325 from May 2006 peak prior to the summer 2006 correction
1368 is the high in this recent lateral consolidation
The 50 day EMA at 1366
1370 is the August 2007 intraday low
1374 is the March 2007 closing low
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
Support:
1319 is an ancient trendline
1317 is the early February low
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
1260 from July 2006
1258 to 1255 from May and June 2006 lows
Dow: Closed at 12,156.80
Resistance:
The 50 day EMA at 12,497
12,250 from late March 2007 lows is stretching
12,518 is the August intraday low
12,573 is the mid-February high
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
Support:
12,145 is the 10 day EMA
12,070 from the early February 2008 lows
12,050 from the March 2007
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 10
Wholesale inventories, January (10:00): 0.8% actual versus 0.5% expected, 1.1% prior
March 11
Trade balance, January (8:30): -$58.2 actual versus -$59.0B expected, -$58.8B prior
March 12
Crude oil inventories (10:30): -3.05M prior
Treasury budget, February (2:00): -$170.0B expected, -$120.0B prior
March 13
Retail sales, February (8:30): 0.2% expected, 0.3% prior
Retail ex-auto, February (8:30): 0.2% expected, 0.3% prior
Initial jobless claims (8:30): 355K expected, 351K prior
Export prices, February (8:30): 0.8% prior
Import prices, February (8:30): 0.6% prior
Business inventories, January (10:00): 0.5% expected, 0.6% prior
March 14
CPI, February (8:30): 0.3% expected, 0.4% prior
Core CPI, February (8:30): 0.2% expected, 0.3% prior
Michigan Sentiment, preliminary March (10:00): 69.5 expected, 70.8 prior
End part 1 of 3
|
us stock market
trading system
|
