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us stock market, trade stock
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3/29/08 Stock Split Report
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Stock Split Report Subscribers:
MARKET ALERTS
Targets hit alerts: None issued
Buy alerts: AAPL; CSX; DRS
Trailing stops: None issued
Stop alerts issued: BKE; ESV; SDA
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 slides lower on no volume as no shorts rush to cover.
- Income up, spending lower: so what's new when the consumer is worried?
- Core annual PCE falls to 2%
- Michigan sentiment lowest since 1992. Some very interesting comparisons to that recession.
- The stage is set. Time to step up and rally.
Week ends down as buyers are on vacation and shorts see no reason to cover.
The economic data was not bad with income higher than expected and the PCE inflation indicator in line. Throw in an LEH upgrade and investors were feeling pretty good even with JCP (department store) warning on its Q1, providing more evidence of a pensive consumer (along with the 17 month low in spending). Stocks opened higher and rallied into the Michigan sentiment number that was also a low, the lowest since 1992.
After Michigan the market peaked and headed south, starting a long, steady descent through the close without any attempt to rally. The buyers were out for the weekend, and with no bids the shorts had no compulsion to cover. So much for getting the short covering pre-weekend bounce we wanted.
Financials were once more the hardest sellers. Oil (104.95, -2.63) and gold (930.60, -18.20) sold rather sharply, but there was no solace taken; even the transports slumped on lower prices for fuel feedstock. The market sagged to the close and the indices undercut the 18 day EMA. Not great action, but it was no implosion, no dive back into the chasm.
TECHNICALLY the intraday action was modestly higher to losses in the 0.6% to 1% range. High to low action is not great, but you have to look at the other indicators to see if the action has any fire inside.
INTERNALS: Breadth ran modest all session before falling off right at the close to -2:1 on both NYSE and NASDAQ as they again matched each other. It was modest enough to indicate there was no widespread exit. Volume told the same story, i.e. no sellers dumping shares in any quantity, just a lack of bids to end the session.
CHARTS: The indices did not hold the 18 day EMA, did not bounce. The move through that level is disappointing, but it was no breakdown. All of the indices are still in a range they can hold, make a higher low, and continue the rally attempt. SP500 and NASDAQ turned back at the 50 day EMA where SP500 failed in late February, just a month back. As noted Thursday, this is the point where they need to put up.
LEADERSHIP: This remains the most interesting aspect of the market. It was bifurcated on the week, but not a bad bifurcation where some leaders hold up and others break down. Some of the early runners are pulling back after good surges such as in transports and retailers. They are coming back but still holding support. At the same time, other solid companies see their stocks forming up nicely despite the overall market pullback. Tech is an example. These are really a positive as it shows money is still moving into these stocks despite the market pullback. Groovy.
IN SUM: This is the kind of drop that gets most everyone assuming another selloff is coming. People are not that comfortable with the market action given no signs of upside life after Monday. Friday we heard some old hands on the floor fearing another collapse lower for a number of reasons, e.g. a low volume rise off the lows. There were no less than six commentators Friday who said this was the toughest market, the scariest market, the most unpredictable market they had ever witnessed or had encountered over the past thirty years.
We have to admit that you always have doubts about a move that sells and then sells some more when the market is trying to recover. This pullback still seems too short and too shallow to account for all of the problems with housing and credit. Just doesn't seem to be enough of a flush out even with the Fed in the game. What you have to look at, however, is what the market is telling you. Is there anything more than just the sag back (yet again) that has everyone glum?
In this case, yes. The last rise off of the March lows was not on lighter volume. NYSE volume moved above average on that run, showing there was real buying off of that low. NASDAQ volume was spotty, but NASDAQ stocks are still setting up for leadership; NYSE stocks were definitely leading and that is where the money was going. Leadership as noted is not caving in, just pulling back to test while at the same time other leaders are developing for a break higher. Breadth shows no widespread selling, just parts of the market pulling back, some to test, others (such as financials) to try and find themselves again.
This is one of those times it is hard to be positive given the selling preceding the current pullback, but the market is not distributing after the bounce off the last March low. There is the big positive of leadership; even as the market pulls back the early leaders and the newly minted ones are holding up well as other stocks set up for upside moves. That completes the picture: higher volume on the move off the March low, lower volume on this pullback, and leadership holding the line, still setting up nicely. That means we are looking for the market will to soon turn from this pullback and continue the break higher . . . barring some big extraneous news story. With the credit issues still out there, that is always possible.
THE ECONOMY
Spending continues to slow but is not off the cliff.
Income beat growth expectations at 0.5%, pushing annual income to 4.6% year/year. Spending was up the 0.1% expected. Even with that more modest rise, annual spending growth rose 5.1%. The PCE rose 3.4% annually overall, and the core 2.0% year over year, back at the top of the Fed's target range.
With oil surging out of control still and food prices still rising, there is little solace from the lower annual core PCE. Those are of course beyond the Fed's control and its monetary policy reach, and with the Fed in full 'prime the pump' mode there is no concern about the Fed using those as a wedge to get back into the tightening game.
What is a sign of the times and worrisome is inflation adjusted spending (70% of the GDP) that was flat in February and indeed flat for the last three months. That high energy cost, weakening home prices, and general worries about jobs are wearing on consumers. When it costs $60 for 20 gallons of gas that is hard on consumers. I hire college students to help do some of the office work and to train them and groom them for later on, and to a man (or woman as the case may be) they are complaining how the rising gasoline costs are eating away their earnings. It is a real hardship, and on top of that, with more money going into the tank, less money goes elsewhere.
Michigan sentiment at recession levels. Well, at least one recession level.
Even with that, spending is still remarkable, holding flat even as prices climb and confidence falls. The latest read on the consumer mindset was Friday with the March revised Michigan report. Sentiment fell to 69.5 from 70.8 in February, less than the 70.0 expected. Still stronger than the Conference Board's read but it is at a level not seen since the 1992 recession.
Interestingly, when confidence was at this low level the economy was pulling out of the recession. Indeed, in the spring of 1992 the economy was on the comeback from a quite light recession even though, during a political year, it was characterized as the worst recession since the Great Depression. A lot of manure is thrown in a presidential campaign year, and that was one of the biggest buckets ever. Of course, the electorate bought it even as there were robins on the yard as far as the economy is concerned.
Interesting Recession Comparisons.
The similarities to past financial-based recessions are intriguing. Of course sentiment is heading lower still, but it doesn't take much to turn it if things improve. The stock market shows building leadership as it tries to build off of a nascent double bottom after five months of selling. There are hardly robins on the yard in terms of the economy, but the Fed is in full inflation gear and the Feds have already passed a stimulus package. There are also some tall tales being told with respect to how to handle the mortgage issues (e.g. 5 year moratoriums), trade protectionism, etc.
If the market can continue higher and leaders continue to build, it is a leading economic indicator, and perhaps this recession will be as shallow as in 1992 and the bear market of 1998. I noted at the end of 2007 and in January 2008 that this could be a shallow recession. P/E ratios were pretty tame heading into this recession, the Fed and the Feds were in quickly as noted, and financial crises can end quickly as seen in 1998 with the Russian meltdown that saw the SP500 plunge 22% in 4 months, making a double bottom and rallying higher. The current decline that is trying to double bottom is 5 months long and sports a 20% decline. DJ30 lost 21% in the 1998 recession; the decline on this low was 18%. NASDAQ is not as close; it collapse 33% in 1998, but is down 'just' 24.7% on this drop. P/E ratios, as noted however, were already in a reasonable range heading in, and thus the losses are plenty to support a recovery.
Financial crisis helped trigger this decline as in 1998. There is more here what with housing, so it is not a one to one comparison. The percentages are a bit off, but they are close. The Fed was a big actor back in 1998, and it is a big actor right now, and, despite the complaints, it acted in rather short order. Leadership fell hard, but it recovered with good bases in 1998, and we are seeing similar action here. There are parallels, there are some differences. There are enough of the former to make this very interesting, and this attempt to double bottom will tell the tale as to just how similar.
THE MARKET
MARKET SENTIMENT
VIX: 25.71; -0.17. Man, not budging at all as the market sells back, and this is the fly in the ointment, the monkey in the wrench, etc.
VXN: 28.87; -0.68
VXO: 28.41; +0.66
Put/Call Ratio (CBOE): 1.16; +0.04. Three straight after two days off, and it makes since given the market is selling again, there was a marked jump in negative sentiment on Friday, and the end of the month and quarter draws near.
Bulls: 36.7%. Well you knew it could not last with the rally off the March lows. Bulls jumped from 30.9% after a steady decline since January. Not really worried about it; the indicator did its job with the dive below 35% and the crossover with the bears. They are still in crossover mode even with the rise in bulls and the decline in bears. The bulls and bears were eye to eye in mid-February and have crossed. 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: 41.1%. Bears were fewer in number thanks to the rally, falling from a very high 44.7% that was up from an already freakishly strong 43.3% the week before. That was a surge from an already high 36.6% the prior week. 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). This is a huge turn, unlike any seen in recent history.
NASDAQ
Stats: -20.5 points (-0.9%) to close at 2260.3
Volume: 1.762B (-12.56%). Volume really tailed off Friday, the lowest of the week. Thus we are not too upset over the price loss, particularly with a lot of important NASDAQ stocks still in very good position.
Up Volume: 450.04M (+37.026M)
Down Volume: 1.285B (-303.891M)
A/D and Hi/Lo: Decliners led 2.01 to 1
Previous Session: Decliners led 1.63 to 1
New Highs: 26 (-13)
New Lows: 115 (+16)
NASDAQ CHART: http://investmenthouse.com/ihmedia/NASDAQ.jpeg
Tried to move up intraday, tapping the 50 day SMA on the high, but then it lost the early bid and faded, falling through the old trendline and the 18 day EMA (2275) and closing near the session low. A 3.4% decline after a 7.4% gain. Looking at just about at 50% retracement, and this is where you want it to get serious about moving back up.
NASDAQ 100 (-0.58%) of course was down as well, but note how it held its 18 day EMA on the close after a slight intraday undercut. Very nice pullback and in excellent shape to make the next move higher. As the large cap techs are the group that spearheaded the last market move higher, we are looking for them to provide the leadership to the upside this week as the market resumes its upside move.
SOX CHART: http://investmenthouse.com/ihmedia/SOX.jpeg
SP500/NYSE
Stats: -10.54 points (-0.8%) to close at 1315.22
NYSE Volume: 1.34B (-6.16%). As with NASDAQ, the lowest volume of the week as the indices faded a bit further. No distribution on this pullback, and that is a big factor.
Up Volume: 316.917M (-51.311M)
Down Volume: 1.007B (-47.697M)
A/D and Hi/Lo: Decliners led 1.99 to 1
Previous Session: Decliners led 1.64 to 1
New Highs: 13 (-11)
New Lows: 50 (+20)
SP500 CHART: http://investmenthouse.com/ihmedia/SP500.jpeg
Tried the old move higher early on as well but with trade rattling around at the bottom of the barrel it had no staying power. It too broke through a trendline and the 18 day EMA, but a 2.8% decline after a 6% move higher is right at a 50% retracement as on NASDAQ, and that is a great point to cut the decline and resume the upside move to take on that resistance at the 50 day EMA (1349).
SP600 (-1.08%) was the loss leader Friday, just giving up the 18 day EMA. That actually leaves the small caps still in a solid pattern to hold near 360 and then make a new run higher. Nice double bottom with handle.
SP600 CHART: http://investmenthouse.com/ihmedia/SP600.jpeg
DJ30
Same kind of action, i.e. a move through the 18 day EMA on the close but on very low volume. Double bottom and now the handle, giving back 2.5% of a 5% upside move; right at that 50% retracement. It is meeting all of the technical requirements to renew the upside move. Now it needs to put those into play.
Stats: -86.06 points (-0.7%) to close at 12216.4
Volume: 209M shares Friday versus 235M shares again Thursday. Lowest trade of the week. No sellers just a lack of bids.
DJ30 CHART: http://www.investmenthouse.com/ihmedia/DJ30.jpeg
MONDAY
Lots of things to consider for this week. Monday is the end of the month and the quarter, and that frequently causes volatility as money is shifted, and then money is put to work on the next session for a new month and quarter. There is a pile of economic data, but frankly, we know the economy is weak, and weak data is not going to scare anyone unless it is ready bad. Nonetheless there are some heavy hitters from the Chicago PMI to the ISM index, to factory orders, initial claims, and the jobs report. On top of that, earnings season starts as we saw this past week with ORCL's results and some warnings. More of that to come this week; much more.
With all of those undercurrents there is the market itself with this low volume pullback off the rally from the March lows, 50% retracement, and still solid leadership. The market is set to resolve this to the upside - we have spent a lot of time discussing that - but it does have actually make the move.
Despite all of the worry about the market, the misgivings we all have about a move higher given the selling, the history that says watch out for these rises off the initial leg of selling in a recession, you still have to go with what the market shows you. Yes it can be just a rally in a larger bear market as in the summer of 2000 when the market rebounded showing good action and leadership after that initial plunge lower only to roll over again on Labor Day. If it is similar to 1998, however, if you don't buy in when the leaders breakout and the market performs as an upside market should perform, you miss out on some big gains.
Thus we are going to continue to look for stocks in position to move higher out of developing patterns or after the pullback from a solid break higher. The low volume selling tells us there was no dumping of these stocks or in the market overall, and thus the accumulation seen in the middle weeks of March remains. We expect the market to turn up and these good leadership caliber stocks will be in the lead.
Support and Resistance
NASDAQ: Closed at 2261.18
Resistance:
The 18 day EMA at 2275
2285 is the trendline from the summer 2004/July 2006 lows, Q4 2005 consolidation
The 50 day EMA at 2330
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
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
2168 is the March 2008 low
2158 from May 2006
2164 From August 2006
2134 from August, September 2006
2100 from June 2006
S&P 500: Closed at 1315.22
Resistance:
1317 is the early February low
1322 is an ancient trendline
1325 from May 2006 peak prior to the summer 2006 correction
The 18 day EMA at 1326
The 50 day EMA at 1349 is key resistance on a rebound
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
1419 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 12,216.40
Resistance:
12,250 from late March 2007 lows
The 18 day EMA at 12,279
The 10 day EMA at 12,297
The 50 day EMA at 12,410 may try to slow it.
12,518 is the August intraday low
12,573 is the mid-February high
12,743 is the November low
12,750 to 12,768 is the February 2008 peak and a series of lows and highs from August 2007
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
11,731 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 31
Chicago PMI, March (9:45): 46.7 expected, 44.5 prior
April 1
Construction spending, February (10:00): -0.9% expected, -1.7% prior
ISM Index, March (10:00): 48.2 expected, 48.3 prior
April 2
ADP Employment, March (8:15): -23K expected, -23K prior
Factory orders, February (10:00): 0.7% expected, -2.5% prior
Crude oil inventories (10:30): 88K prior
April 3
Initial jobless claims (8:30): 366K prior
ISM Services, March (8:30): 49.2 expected, 49.3 prior
April 4
Non-Farm payrolls, March (8:30): -40K expected, -63K prior
Unemployment rate, March (8:30): 5.0% expected, 4.8% prior
Hourly earnings, March (8:30): 0.3% expected, 0.3% prior
Average hourly workweek, March (8:30): 33.7 expected, 33.7 prior
End part 1 of 3
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