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world stock market, us stock market
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3/12/08 Technical Traders Report
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MARKET ALERTS
Targets hit alerts: USO (took some interim gain ahead of inventories)
Buy alerts: CLF; IBM; XIDE; QID (bonus); SDS (bonus)
Trailing stops: None issued
Stop alerts issued: As some positions tested resistance and faded we closed them: ADM; ATW; BABY; ILMN; MON; OTEX
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:
- Market extends rally through lunch but reverses to losses.
- Fed provides more liquidity but financial markets still have to work through the issues at hand.
- Market moving into a couple of important sessions for the next move it makes.
Rally continues through lunch but runs out of gas for the session and fades.
Futures pointed to a modestly higher open but they were waffling from the get-go. The dollar was down again after a respite to the upside Tuesday in response to the Fed action, gasoline was reported to average $3.25/gallon according to AAA long before the driving season starts, and in the ongoing saga of managed healthcare, HUM warned. Now two majors warned in back-to-back sessions in what is traditionally a 'safe' investing area during recessions.
CAT upped its 2008 revenue estimates, however, citing continued strong demand overseas. Thus even with the downers and a bit of a hangover from the upside rush Tuesday the indices moved smartly higher with DJ30 posting a 130 point gain on the highs. There was no volume, however, and after a midday test tried to hold the line and failed, the indices slid lower and lower and into the red, some down over 1% into the close. The small caps were down over 1% and they are a continuing economic indicator; they were quick to crumble again after the initial FOMC euphoria ran out. They were not alone, however, as SP500 closed down 0.9% itself.
Was it oil hitting $109 intraday and running to 109.95 (+1.20) in the afternoon session? Was the market just tired after the Tuesday and half day Wednesday surge? Likely some of both. Oil is starting to kill small businesses as all petroleum products and materials are shooting higher, and consumers are looking around for ways to cut back on the large drain attached to their wallets and purses in the form of a gasoline tank and utility meter. Oil inventories surged 6.2M bbl last week, but that did not stop oil's breakneck ascent. Maybe that indicates a bubble about to burst; certainly with the US in or heading into recession and the strain such high costs have on the rest of the world economies such price surges cannot hold. High oil was swallowed when the economy was strong, but now that it is not, it is only jamming down harder on the accelerator and increasing the speed of the decline.
What can be done? Get the dollar stronger. As if on cue after our comments last night Bush came out today and said he was in favor of a strong dollar and wanted it stronger than it now is. Okay. After watching it slide from $0.80 to $1.50 against the euro now we want to do something about it. The cows are already gone so I suppose it is time to lock the barn door. News flash for the administration: no one believes you. Until you start buying dollars to support it you are not going to convince anyone you believe in a strong dollar.
In any even, the market turned over and closed negative on the session. A rollover yes, but no collapse. There was some good leadership from several sectors (energy, metals, commodities, industrial) and we bought some. There was a lot of general weakness once again, typical after a surge, but the rollover at resistance was rather classic, and we moved in with some alerts on downside plays using SDS and QID. Just starting a few positions, but if this rollover expands, we are going to expand those positions as well.
TECHNICALLY the intraday action was low to high, but then high to low on down to negative. Not a major dive lower, but a rollover that squandered a decent session of gains. We were not expecting a follow through but even just a modest pullback with no further rally would have been better.
INTERNALS: Volume declined so there was no major selling on the rollover. There was not buying on the upside either. For the session, breadth was in line at -1.6:1 NYSE, -1.3:1 NASDAQ. The new high to new low comparison is warranted given the market more or less just matched the January lows (NASDAQ undercut, SP500 came to 3 points from that low). Back on the January lows there were 1800 new lows in the US stock market. On the most recent leg to test that level the market racked up 800 new lows. That indicates the market is more sold out at this point, and combined with other indications this can show a bottom in the making. It is a positive though it is not determinative in itself. Right now it means you look for a follow through with some leadership in the week ahead.
CHARTS: The indices rallied up to or even up through the 18 day EMA on the highs but after roughly 550 points on DJ30 in two days they could not push further. It was an intraday rollover but not one with strong volume indicating the sellers were really piling on. Buyers ran out of cash and the bids dropped, and sellers to some advantage. It was a classic stall at the 18 day EMA, a typical resistance point where a downtrending stock or index finds resistance. How the indices respond here tells much.
LEADERSHIP: Once more energy held up well; maybe not strong gains across the board, but still showing strength. Metals jumped and commodities in general were in good moods as well. The CAT news jumped industrial machinery and equipment as the overseas trade was back to alive and well. Financials were a key and they held up well early on after the Friday gains, but then reversed as well. Market still needs them to perform.
THE ECONOMY
Liquidity yes, but what now?
The Fed's action of offering $200B in 28 day swaps for all kinds of garbage the financial institutions would love to unload sets the foundation for the liquidity injection into the credit markets the Fed seeks. If the primary lenders take advantage of it as they likely will then they will have the money needed to do business as opposed to running out of cash, losing their ratings, and going bust.
They still, however, have to find a way out of the mess. The facility is just a 28 day swap where Uncle Sam via Uncle Ben takes the garbage for 28 days but then wants its securities back. During that time the lenders can operate and make money so they can remain solvent while they work out a plan with someone to take some of the paper or at least to make some money for when they write down the garbage.
The latter is what has to happen before this all ends. Write-downs of the junk and maybe some acquisitions as rock bottom, fire sale prices will have to occur. This Fed facility is designed to allow companies to stay afloat while they take care of this. That means there is more bad news to come and that the financials are thus not free and clear of selling simply because no one yet knows just how worthless a lot of this paper is.
The process of writing it down has to runs its course, and unless the Fed steps in and actually buys versus just injects liquidity, the financials and by inference the market have further travails.
THE MARKET
MARKET SENTIMENT
Bullish sentiment plummeted over 10 points to break the 35% level considered bullish. Bears have surged past 35% and even 40%. They have crossed over at levels that are historically bullish for the market. That is one of the most powerful signals you can get from this indicators. The put/call ratio is there as well. If VIX would dust up to 40 that would make a good upside recipe.
VIX: 27.22; +0.86
VXN: 30.05; +1.49
VXO: 29.15; +1.25
Put/Call Ratio (CBOE): 1.11; -0.01. Eleven days above 1.0 on the close, showing plenty of downside speculation.
Bulls: 31.1%. Massive decline from 41.9%, one of the largest declines we have ever seen. The bulls and bears were eye to eye in mid-February. A move into the lower 40's is a decline of significance. A move to 35% is a bullish indicator. This is smashing that. 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: 43.3%. Another massive move, up from an already high 36.6%. 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 has blown past 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: -11.89 points (-0.53%) to close at 2243.87
Volume: 2.11B (-16.47%). Volume fell well below average once more as NASDAQ rallied but then could not hold the move. Obviously no buying on the run higher but no selling on the intraday reversal either.
Up Volume: 802.362M (-1.383B)
Down Volume: 1.293B (+1.012B)
A/D and Hi/Lo: Decliners led 1.31 to 1
Previous Session: Advancers led 2.88 to 1
New Highs: 45 (+8)
New Lows: 221 (-82)
NASDAQ CHART: http://investmenthouse.com/ihmedia/NASDAQ.jpeg
The Tuesday move continued Wednesday, right on up to the 18 day EMA (2274) where it stalled and turned back down for a loss. NASDAQ has stalled at the 18 day EMA three times the past 6 weeks; if it does so here that makes four. The action was not fatal at all; it still can hold near here and continue the rebound. It is a concern that it stalled so easily at the 18 day EMA, but other factors including sentiment indicate there is some more potential upside here.
NASDAQ 100 (-0.33%) showed the same kind of action, though it moved through its 18 day EMA on the high before reversing to close right at the 10 day EMA.
NASDAQ 100 CHART: http://investmenthouse.com/ihmedia/NASDAQ100.jpeg
SOX CHART: http://investmenthouse.com/ihmedia/SOX.jpeg
SP500/NYSE
Stats: -11.88 points (-0.9%) to close at 1308.77
NYSE Volume: 1.562B (-19.7%). Trade fell below average here as well as the NYSE indices rallied on no volume and then sold on no volume. Not much of a statement either way based on the volume.
Up Volume: 485.662M (-1.26B)
Down Volume: 1.07B (+879.665M)
A/D and Hi/Lo: Decliners led 1.65 to 1
Previous Session: Advancers led 4.87 to 1
New Highs: 37 (+9)
New Lows: 106 (-67)
SP500 CHART: http://investmenthouse.com/ihmedia/SP500.jpeg
The large cap SP500 rallied to the 18 day EMA (1330) on the high and then reversed to close below that near resistance as well as the 10 day EMA. The price action was ugly, much worse than the rather modest losses on NASDAQ. The reversal in the financials really gutted the SP500 move. At least volume was below average again as it tested and failed. Still in contention for another run higher off of this potential double bottom base.
The small cap SP600 (-1.05%) suffered the worst decline as it too failed at the 18 day EMA intraday and rolled back over to close below the 10 day EMA. The economic canary, its 'day after' response to the new and improved Fed facility did not instill a lot of confidence that it would turn things back up.
SP600 CHART: http://investmenthouse.com/ihmedia/SP600.jpeg
DJ30
The blue chips surged up through the 18 day EMA and some resistance at 12,250 before they too reversed to close negative. Not as strong a reversal as on NASDAQ and especially SP500. Gave up 193 points off the high, but volume lagged. Still in position to attempt the double bottom along with the rest of the market.
Stats: -46.57 points (-0.38%) to close at 12110.24
Volume: 288M shares Wednesday versus 370M shares Tuesday.
DJ30 CHART: http://www.investmenthouse.com/ihmedia/DJ30.jpeg
THURSDAY
Big day for economic data with retail sales and weekly jobless claims. In addition, the market is coming into the zone where it will show its colors with respect to the Tuesday rebound. Actually Friday through Wednesday are the key days, but that does not mean it won't run higher or sell off before then. If the market can survive the Tuesday rollover of sorts and hold up reasonably well Thursday it has accomplished the hardest part of any rebound rally, i.e. hold the initial move through some selling. That puts it in position to provide the follow through session where the buyers pick up after the shorts have covered, attempted to sell the market again but were unsuccessful.
Given the rollover on Wednesday, however, we are going to look at some downside positions. The ones taken at the end of the Wednesday session were just a start when we saw a rather unexpected rollover from gains. If the selling increases intensity there is still plenty of time to move into more downside.
As noted above, there were also several solid upside moves in sectors that have quality, leadership stocks. We will continue on the ready for those if the market continues building toward another leg higher. The leaders tend to move out ahead of the other stocks, hence the name, and thus we move into those positions as they flash buy signals as they lead the rest of the market higher.
In sum, the market is in that interim period where it has rallied sharply off a test of a prior low and is marking some time to digest the move and set up for more upside if it can get the longer term buyers back in. The indicators were good with sentiment hitting reversal levels, joining the others that already flashed extreme levels. The only thing that makes the move a bit suspect thus far is the intraday reversal from solid gains to a negative close as the sellers took control in the afternoon and spilled the gains. Suspect, but no rollover. Thus we continue to look for upside opportunity while aware of the Wednesday rollover and its implications.
Support and Resistance
NASDAQ: Closed at 2243.87
Resistance:
The 10 day EMA at 2250
2252 is the early February low
The 18 day EMA at 2274
2280 is the trendline from the summer 2004/July 2006 lows, Q4 2005 consolidation
2340 from the March 2007 low
The 50 day EMA at 2363
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 1308.77
Resistance:
The 10 day EMA at 1318
1325 from May 2006 peak prior to the summer 2006 correction
The 18 day EMA at 1330
The 50 day EMA at 1364
1368 is the high in this recent lateral consolidation
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:
1317 is the early February low
1319 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
1260 from July 2006
1258 to 1255 from May and June 2006 lows
Dow: Closed at 12,110.24
Resistance:
The 10 day EMA at 12,139
The 18 day EMA at 12,227
The 50 day EMA at 12,482
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:
12,070 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): +6.2M actual versus +1.6M expected and -3.05M prior
Treasury budget, February (2:00): -$175.6B actual versus -$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
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