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3/13/08 Technical Traders Report Update
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MARKET ALERTS
Targets hit alerts: Targets hit alerts: CHK (took some interim gain after a strong surge)
Buy alerts: BNI; CRK; DIA; DNA; IWM; PQ; UPL; WMS
Trailing stops: None issued
Stop alerts issued: None issued
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 was heading to test the January lows once again but once more government plans, S&P comments produce a reversal and put off the test.
- Representative Frank wants to take the Fed approach a step farther.
- Retail numbers weaken, but sector watchers say sales are improving.
- Market to try and hold a rally once more without fully testing the January lows.
On the way to complete the test the regulators get in the way again.
We are getting to the point where the Feds might as well tell everyone 'if you have a mortgage, don't worry; we've got your back.' If it gets to that point then there won't be any fear left, we can all buy stocks without concern and sip mojitos on sunny beaches.
Thursday the market was ready to give up the Fed-induced rally, failing its important test of the bounce created by the Tuesday Fed action. DJ30 and SP500 were heading lower to make that test and complete the washout. The market was giving it up with the selling on early as retail sales (-0.6%) were 1% lower then expected and Carlyle Capital, one of the most respected money managers, faced massive margin calls and the 'I' word was uttered: insolvency. Strong financial company one day, facing insolvency the next.
Those two issues helped bring all of the worries and fears front and center. Stocks opened lower and continued down with losses in excess of 1%. The Dow was down over 200 points as it and SP500 put the moves on the January lows. At last a test was coming and we could gauge what this bottom meant for the market. At a minimum the Fed-induced Tuesday rebound was toast and some bigger and more important work was about to be done.
Once more, however, concerned parties staged an intervention. A premature intervention. We hear (no personal experience of course) that interventions work best when rock bottom is hit. Just as they were moving to the lows S&P piped in and said the mortgage and credit write-downs were half over. Now S&P missed the credit issues, never warning of any looming problems on the horizon. Nonetheless, credible or not, the market bounced. Then Representative Barney Frank proposed the Feds post $300B in guarantees to give mortgage holders some comfort and thus forestall foreclosure proceedings. The market really bounced.
Once more a test of the lows was deferred in favor of a government-induced hope. Not that the government cannot put a floor in things. It is just whether it is doing the right things to insure that this does not happen again and it does not allow a clearing of the old damaged structures so a new, solid foundation is under any moves from here. At least the Feds have not gone to the next step, i.e. buying the garbage outright. Of course if this bounce fails I suppose the next step will be the Feds saying 'rest easy boys; we are now just going to buy your garbage.' That might put in the bottom but it won't be the foundation you want a new house built upon.
In any event the market rebounded once more after the Feds stepped in, and it was enough to turn significant losses into modest gains. Nothing spectacular on the close though small caps were up over 2%. The real news once more was the reversal from the early session levels, this time from low to high and the aborted attempt at testing the January lows on SP500 and DJ30.
TECHNICALLY there was not much to pick with over the action other than SP500 and DJ30 did not get a chance to finish the test of the January lows. Very low to positive. Not bad regardless of the catalyst even if it was another government-induced short covering, and yes, some long buying, surge.
INTERNALS: Breadth was nasty early on in the -5:1 range on NYSE. Volume was running high on the early selling. Didn't look good near term, but the market was sailing toward a test of the January lows on SP500 and DJ30. Then the rebound. Internals were so-so at 1.4:1 NYSE, 1.3:1 NASD. That indicates more of a short covering move, particularly since the market rebounded to positive at 12:00 and spent 2.5 hours moving laterally, plenty of time for breadth to play catch-up. Volume was big on the close (1.9B NYSE, 2.3B NASDAQ) as it held strong on the rebound as it did on the early selling.
CHARTS: As noted, SP500 and DJ30 were heading toward their tests of the January lows, but once again they had to take a detour via the federal government and this time a private rating firm as well. They rebounded to post modest gains. The failure to test the January lows yet again leaves the door open for another downside move once the momentum from this last bounce runs dry. Many are viewing this action, i.e. another almost test and bounce, as the bottom. It could be; the Feds have helped put in bottoms before. There are still issues such as the VIX still too low, no full test, and government action as the cause of the rally. On the other hand there is high bearish sentiment, repeated holds at this level, some leadership, and again, government that looks as if it will throw anything at the problem to put off the day of reckoning sometime into the future similar to how it has handled social security, Medicare, etc. Fore now it is going to try and bounce again.
LEADERSHIP: There is leadership emerging on the coattails of this last move. Energy held up very well all day despite the early selling. When the market came back, it exploded higher and brought many stocks with it, including the cadre of leaders that recently fell on bad times, e.g. the ag names. Metals ended up with a great session as did commodities in general and even some technology (e.g. RIMM).
In sum, not all of the indicators are on board as there had been no full test (though that is not always required but typically occurs) and VIX remained too low, but the Feds keep coming back in to try and support the economy and market to avoid any hint of recession. Government action is not typically the basis for a sustained rally, but with all branches of the Federal government attacking the issue the market has reason at least to try for a gain.
THE ECONOMY
Fed gets creative, government has yet to do so.
The Fed is worried about the dollar, inflation, and the economic health. It pushes on one part of the water balloon and knows another part is going to squirt out. Thus it is being quite creative in fashioning a remedy that gets the money where it needs to go, i.e. gets money into the hands of businesses trying to work their way out of a bad situation (kind of like a bankruptcy Chapter 11) while it avoids the rate cutting and money dumping shotgun approach that debases the dollar further.
Of course President Bush is doing his part. He came out Wednesday and said he was for a strong dollar and wanted the dollar stronger than it is now. With great eloquence and conviction he hemmed, ummmed, and stammered his way through four or five sentences on the subject. Nice to know that after the dollar hits record lows against the euro and the yen, and has done so for weeks, that he now thinks it is too low. Steady hand on the tiller. Again, like his father before him, Bush prefers a weak dollar to the detriment of the economy. A belated, half-hearted effort is not creative. It is almost specious.
Representative Barney Frank proposed $300B in federal loan guarantees in order to establish a market for the garbage no one wants. If the Fed are behind it then the hope is dealers in these mortgages will hold their noses and take it from those in trouble or if not, allow those left holding the garbage to get loans because now their garbage is backed by the full debt of the U.S. Combined with the Fed you could have a solvent company take some garbage then go to the Fed and get a 28 day swap to go about finding a solution. Could work. I wouldn't do it, but it could work.
As noted above, the next step is for the Feds to just take out the garbage, i.e. buy it outright and get on with business, saddling the consumer with paying the bill for more government entitlement and welfare. Sometimes things need to go bust or at least shakeout. Of course with all of the other issues in the economy, e.g. weakening data across the board being compounded by surging oil and gasoline prices and inflation due to a weak dollar, an outright bailout is looking better and better all the time, and we are afraid the government in an election year will do just that. It gets us through the near term, but it keeps the unstable foundation constructed during the past 15 years under Greenspan in place.
At least there is one bright spot here. If you have debt you will finally get to pay it off with low valued inflated dollars. The rule of thumb is you pay off debts when inflation is higher and the currency weaker. Something to consider though it hardly is the kind of advice that will spur the economy out of its travails.
Retail sales sink.
January sales fell 0.6% when expected to climb 0.4% in line with December. This is the second decline in three months as autos continued to fall along with other durables. Still, if you take those out there was still a decline (-0.2%). Autos were joined by declines in furniture, electronics, building materials, and, most surprisingly, gasoline prices.
The gasoline prices appear out of synch though there was some softening to start the year, and though February and March see surging prices, January prices did retrench modestly.
The message is still clear: retail sales are slowing, and were slower even with lower gasoline prices that month. As prices climb, more and more pressure is brought to bear on the consumer. These are not the month or two months spikes seen last year. With oil at literal record highs, gasoline is going to hit $4/gallon this summer just as we predicted $3 last summer. The price gains are becoming entrenched, and that will really dampen the consumer as the year continues.
Sounds pretty gloomy, but that is the hole we are digging with this weak dollar policy where we import inflation and create our own inflation with programs such as ethanol that don't solve the problem, just benefit corn farmers and harm about everyone and everything else.
THE MARKET
MARKET SENTIMENT
VIX: 27.29; +0.07. Hit near 30 (29.73) on the high and then backed off as the market recovered. Still not very high and not really a confirmation of capitulation. You can look at the two 37.5 readings and combine them for an argument of a reversal, but a move to the 40's would have been more or less conclusive.
VXN: 29.86; -0.19
VXO: 29.68; +0.53
Put/Call Ratio (CBOE): 1.22; +0.11. An even dozen sessions over 1.0 on the close as the put/call ratio has put in the time necessary to be considered a contrary indicator, in this case a bullish one.
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: +19.74 points (+0.88%) to close at 2263.61
Volume: 2.321B (+10%). Sparked up to easily top the Wednesday levels and match the Tuesday upside levels. Solid upside trade, no question.
Up Volume: 1.586B (+784.066M)
Down Volume: 854.17M (-438.962M)
A/D and Hi/Lo: Advancers led 1.54 to 1. Pretty modest even if it was a reversal session, but as noted, it had plenty of time to catch up. More of a short covering indication, but shorts tend to cover first in any recovery.
Previous Session: Decliners led 1.31 to 1
New Highs: 45 (0)
New Lows: 283 (+62)
NASDAQ CHART: http://investmenthouse.com/ihmedia/NASDAQ.jpeg
Gapped sharply lower on the bad news, hit the January lows again but held above the recent new lows for the year, and then jumped back to positive. Hit the 18 day EMA (2293) on the high and backed off modestly to close. This is the level that stalled it out since the start of the year. Looks as if it has more steam behind it right now given the more classic double bottom the tech index has formed. There were some large cap tech stocks acting well, e.g. RIMM, APPL (has formed a rounded bottom), and BIDU (took the day off but we have watched it set up). Very interesting action.
NASDAQ 100 looked weak but is showing the same action as NASDAQ overall, posting the identical percentage gain Thursday.
NASDAQ 100 CHART: http://investmenthouse.com/ihmedia/NASDAQ100.jpeg
SOX CHART: http://investmenthouse.com/ihmedia/SOX.jpeg
SP500/NYSE
Stats: +6.71 points (+0.51%) to close at 1315.48
NYSE Volume: 1.943B (+24.4%). Volume surged back above average as the NYSE indices reached lower and then rebounded for modest gains. Trying to make their cases for double bottoms themselves.
Up Volume: 1.128B (+641.954M)
Down Volume: 703.558M (-366.492M)
A/D and Hi/Lo: Advancers led 1.39 to 1. As with NASDAQ, pretty tame upside breadth even with the small caps surging higher.
Previous Session: Decliners led 1.65 to 1
New Highs: 39 (+2)
New Lows: 218 (+112)
SP500 CHART: http://investmenthouse.com/ihmedia/SP500.jpeg
Similar story, selling off early down to an old support line at 1282 and rebounding to positive, closing just below the 10 day EMA (1317) and the old up trendline. As noted above, SP500 is trying to make its case for a double bottom with the second test of the test of the January lows. Has a slug of resistance from here to 1365, but it keeps coming back even if it is caused by repeated government stabs at coming up with a solution.
SP600 (+2.1%) tested lower but screamed back up to close just below the 18 day EMA and some key resistance just a couple of points overhead. It too is trying its hand at setting a second bottom in a double bottom pattern. We bought some downside puts on the break lower, and if it holds a move through the 18 day EMA we will get out of them and see what happens at next resistance.
SP600 CHART: http://investmenthouse.com/ihmedia/SP600.jpeg
DJ30
Same story, different index. The blue chips were selling, heading back to try and really test the January low, but it only made it to 11,875 (low at 11,634) before the government action of the day brought it right back up. No big shakes of an upside close but the 270 points was impressive. It too tapped the 18 day EMA (12,219) on the high before fading some in the last half hour of trade. 12,250 is a key resistance point as its 12,500. Sure would have liked that full test of the January lows to take place. That leaves this still a question mark for us despite the stronger volume on the upside the past two out of three sessions.
Stats: +35.5 points (+0.29%) to close at 12145.74
Volume: 336M shares Thursday versus 288M shares Wednesday. Volume jumped back above average as the blue chips reversed course to the upside from a sharp early selloff.
DJ30 CHART: http://www.investmenthouse.com/ihmedia/DJ30.jpeg
FRIDAY
CPI, final Michigan sentiment, and Bernanke comments on how to help the foreclosure crisis are on tap. Inflation is a key worry. We are importing inflation with every drop in the dollar as Chinese, Japanese, European, etc. product costs rise due to our weak currency. Everything we eat is tied to corn and as we artificially push feed and food prices higher we suffer inflation. The Fed cannot control the latter, and it cannot control oil prices per se, but the diving dollar is its concern and that plays right into our inflation importation (kind of a neat catchphrase).
Thus the CPI is important as always. Sure the Fed is committed to printing money and has a fleet of helicopters tossing it out with the attached note 'from the Fed with love', but the market is not going to ignore surging inflation. Expectations are for another 'manageable' level at 0.3%, down from the 0.4% in January (core 0.2% versus 0.3%). If it is substantially higher in the 0.5% range that could hurt. If sentiment matches the decline in investor optimism the 70.0 expected could be a big overshoot and a 65ish reading could result.
More gloom, but don't shoot the messenger. Gloom is good at this stage of the game. It is always darkest before it gets darker, but eventually that darkness fades. Indeed, the market, despite our angst at the Feds heading off tests of the lows, is trying to put in a bottom with this repeated federal intervention. The market should bottom when the economic data looks like crap. The economic data does have a bad odor, but it isn't crap just yet.
If the CPI comes in hot and Michigan comes in low we may see the same cycle again, i.e. a fade after another induced rally. What would ultimately do the market good is to have the Fed cut rates less than expected next week and have the dollar start to rise as it did after the Tuesday Fed announcement (before it fell flat once more). The Fed has done what it needs to do. Now it needs to wean us off the rate cut teat and continue putting money where it is needed. Bush needs to step in and support the dollar.
The market would hurt near term, but that would likely be the plunge that flushes out the system if the Fed and the administration are believable. That would set a floor in the dollar and thus oil, and would likely do more and cause a rebound in the dollar and a $10 to $15/bbl drop in oil. Near term pain but in reality that is what all of the markets need to clear out the crud and start with a stronger foundation.
For Friday we will see how this last Federal bounce holds up. Each one has faded rather quickly, needing the next injection of aide to send it back up. Thursday we bought into stocks that have held the line and looked solid regardless of the selling. We have some downside we started on what was the dive to the January lows before it the feds committed testus interruptus. We will see how the market responds to the early data. If it is weak and does not bounce we leave them. If it is weak and bounces we will close some. If it starts strong we see if the indices can top near resistance; if so we close.
We will continue looking at some solid upside that continues to develop, a good sign for the attempt to double bottom. Credit spreads are still too wide and the effects of sky high oil has yet to be felt, and those weigh against a bottom, but the market will show us what it has in mind. Friday is the first session we look for follow through for the Tuesday rally off the March low. If the market holds its level to the weekend that is okay; we just roll the follow through watch to next week. If it blasts higher on volume, there is some follow through to the reversal and we will look at more upside and close the downside. The feds make it difficult sometimes, but that is all part of the game.
Support and Resistance
NASDAQ: Closed at 2263.61
Resistance:
The 18 day EMA at 2273
2281 is the trendline from the summer 2004/July 2006 lows, Q4 2005 consolidation
2340 from the March 2007 low
The 50 day EMA at 2359
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:
2252 is the early February low
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 1315.48
Resistance:
1317 is the early February low
The 10 day EMA at 1318
1320 is an ancient trendline
1325 from May 2006 peak prior to the summer 2006 correction
The 18 day EMA at 1328
The 50 day EMA at 1362
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:
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
1272.66 is the March 2008 low
1270 is the January intraday low
1260 from July 2006
1258 to 1255 from May and June 2006 lows
Dow: Closed at 12,145.74
Resistance:
The 18 day EMA at 12,218
The 50 day EMA at 12,468
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:
The 10 day EMA at 12,140
12,070 from the early February 2008 lows
12,050 from the March 2007
11,731 is the March 2008 low
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): -0.6% actual versus 0.2% expected, 0.4% prior (revised from 0.3%)
Retail ex-auto, February (8:30): -0.2% actual versus 0.2% expected, 0.5% prior (revised from 0.3%)
Initial jobless claims (8:30): 353K actual versus 355K expected, 353K prior
Export prices, February (8:30): 0.5% actual versus 0.8% prior
Import prices, February (8:30): 0.6% actual versus 0.6% prior
Business inventories, January (10:00): 0.8% actual versus 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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