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us stock market, stock watch
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4/01/08 Technical Traders Report Update
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MARKET ALERTS
Targets hit alerts: AKS
Buy alerts: CAT; CHRW; CSH; IIVI; MANT; TMX
Trailing stops: None issued
Stop alerts issued: IWM; SDS
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 capitalizes on the new quarter money, good technical position and rallies sharply.
- Biggest bailout in history in the making: Congress set to pass another federal backstop for basically everyone.
- What will the market do after the money's gone?
Blast off shows strong price moves, more light trade.
There were many reasons pinned to the market's shot higher on Tuesday. As always there is the game of pin the tail on the reason for the rally. UBS was writing down $19B but raising $12B in a rights issue. LEH's offering of preferred convertible stock was oversubscribed by 10:1 according to LEH (what was that about the fox and the henhouse?); surely the bottom in financials is at hand, eh? The dollar was up, gold and oil were down, bond yields were up. The ISM was weak but not as weak as expected. The feds are ready to spring for a massive mortgage bailout that will surely cost more than estimates as we try to keep air in the bubble. Take your pick.
Could it be that the market had made its move, tested, and had set up this move already from a technical perspective? Yes, you could say that. Could it be that the first of the month brought about a lot of new money in just at the point the test had retraced 50% of the rally off the lows? Yes, you could say that as well. The combination was catalytic. The other news was icing on the cake, adding a bit of nitrous oxide to the move.
Stocks rallied early and they rallied late. They rallied in between. They closed at the high. Biggest gain for the first day of Q2 since 1932 or some similarly ridiculous comparison. A 3+% gain across the board will cause that sort of analysis given everyone wants a stat to put on the screen.
TECHNICALLY the action was of course overall solid, but you already know where we are going with this. Intraday it was solid for upside action: gapped higher and never took one look back. With 3+% gains you would expect that.
INTERNALS: Breadth was solid as Sears used to be at 5:1 NYSE, 3:1 NASDAQ. That is follow through/breakout caliber. Volume was up on both NYSE and NASDAQ. But, here is the rub: it was up, but it didn't match the massive point gains. NYSE volume did not quite make it to average. NASDAQ volume was up. Biggest point gain for the first day of the second quarter since 1932 and volume was below average? That's like a Beatles reunion with only two Beatles, a homerun record by a user of performance-enhancing drugs, a 50th wedding anniversary celebration when the couple divorced for 10 years in the middle of the 50 and remarried. It just isn't right. It also makes the move kind of what we were concerned about: all first of quarter money, maybe no staying power.
CHARTS: The index action was cool. All broke over the 50 day EMA, NASDAQ and SP500 for the first time in quite awhile (other than when they failed at that level just a week back). They all cleared the March peak. A higher high is always a very nice thing to see, and the indices made their first one since the January dive lower. One small step for the indices, one giant leap for the next bull run . . . well, not really. A first good step in continuing the rally is about as good a label as you can put on it. Great price move, broke key levels, lacked a real volume punch.
LEADERSHIP: Breaking higher from many different areas including technology, transportation, telecom, heavy machinery, pawn shops - a mixed bag. You like to see nice breadth in leadership; helps make up for the lack of volume. Doesn't replace it one for one, but it helps it out.
THE ECONOMY
You know it's an election year when . . .
A political, election year tragedy is looming in America as a relative sliver of the mortgage market known as sub-prime is undergoing a series of foreclosures. Some blame the lenders for 'preying upon' unsuspecting and unwitting buyers. Others point to the buyers who signed contracts that scream 'CONSULT AN ATTORNEY!' yet did not and signed contracts requiring them to pay more when the initial 'what can I do to get you into this home today' rate expired.
We don't mean to make light of the plight of those in this situation. It stinks. The blame can be spread all around the town, including Capitol Hill. I recall President Bush touting how home ownership was as high as it has ever been with more low income people in homes than ever before. 1% interest rates held artificially at that level for a couple of years will indeed get people into homes. When the worm turns as it inevitably does, there will be those who cannot make the payment. There was a lot of money to be made in mortgages and when the faucet started to turn off as the housing market dried up, the lenders needed that mainline cash injection so they came up with all of these no money down and 'no doc' loans. Buyers lined up to get them. It was too good to be true and they knew they were getting something that they shouldn't, but with lenders and the federal government saying it was okay to do so, why not?
Ah yes, the Feds. Maybe it is appropriate that they are stepping in now with even more aide for those in distress. Of course the plan won't help anyone who was responsible, staid within their means and then had an illness or other real tragedy that has put their home in jeopardy. No in the US we always want to reward bad behavior. So there is a bill that will likely pass that will allow those who took out these mortgages and who are in distress to get federal aid in the form of guaranteed loans if lenders reduce the loan amounts down to current market values and let owners pay on that reduced level. It would also do a lot of other things if everyone gets their wish. One would have let bankruptcy judges cut interest rates and principal, effectively re-writing the mortgage contract. That one was booed out of Congress but the sponsor is going to try and get it in on the floor. Another proposal is to lend stats $4B to buy and refurbish foreclosed properties; talk about a bailout for the lenders.
There is more, but it is all the same. It is a massive federal bailout of bad decisions that should be allowed to crash just as the rest of us would all have to endure if we got into financial difficulty and had to risk foreclosure. What people HATE about these plans is that they are not for everybody, but mostly just those that acted irresponsibly. All the rest of us who do our jobs, raise families, create jobs, support the government with our taxes, etc. have to pay for it. The polls vastly disapprove of this kind of bailout, but it is going to happen because . . . it is an election year. Candy from the sky. Next time you plan on getting into financial trouble, do it in an election year!
THE MARKET
MARKET SENTIMENT
VIX: 22.68; -2.93. Never bounce on the selling and imploded to the 200 day SMA on the market gains. It fell to this level in October, December, and in early March. The market peaked in October (its high on the post-2002 run), hit another peak in December (though lower), and another peak in February. Leads you to believe the Tuesday move was driven by new quarter money and you need to be watchful for a burn out.
VXN: 26.56; -2.48
VXO: 23.61; -2.88
Put/Call Ratio (CBOE): 0.9; -0.13. Back below 1.0 on the close for only the third time in about a month. Wow.
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: +83.65 points (+3.67%) to close at 2362.75
Volume: 2.146B (+23.34%). Volume was up on the strong price move but it was still below average. Not commensurate with the price gains and that makes it disappointing.
Up Volume: 1.934B (+718.194M)
Down Volume: 199.477M (-297.482M)
A/D and Hi/Lo: Advancers led 3.01 to 1. Excellent.
Previous Session: Advancers led 1.46 to 1
New Highs: 48 (+13)
New Lows: 99 (-30)
NASDAQ CHART: http://investmenthouse.com/ihmedia/NASDAQ.jpeg
Blasted through the trendline on the gap higher and then took out the 50 day EMA (2329) and the March peak hit last week. Solid price move that posted a higher high, always an important first in a recovery. If it had been on strong volume it would have been nirvana. As it is, it is a very nice price move with momentum to try next resistance at 2400. From there we will see how what is left in the tank from the start of the quarter.
NASDAQ 100 (4.13%) bolted off the nice test of the 18 day EMA, clearing the 50 day EMA on the gap higher and surpassing the March and February closing highs. A pair of new closing highs in one move.
SOX (4.22%) rallied just past its 50 day EMA, the first time it has done that since October 2007. First time it has come close. Very interesting, but it has more false starts than a deaf and blind offensive lineman.
SOX CHART: http://investmenthouse.com/ihmedia/SOX.jpeg
SP500/NYSE
Stats: +47.48 points (+3.59%) to close at 1370.18
NYSE Volume: 1.703B (+8.05%). Volume was up and was relatively stronger than NASDAQ though it still just missed average trade. Better, but nowhere near as strong as in mid-March when it made the initial move. Not going to complain too much about this one and will see how things unfold over the next couple of sessions.
Up Volume: 1.536B (+479.895M)
Down Volume: 155.609M (-354.723M)
A/D and Hi/Lo: Advancers led 5.3 to 1. Really excellent.
Previous Session: Advancers led 1.6 to 1
New Highs: 30 (+14)
New Lows: 21 (-36)
SP500 CHART: http://investmenthouse.com/ihmedia/SP500.jpeg
Gapped higher, something rarer for the NYSE indices and forced its way through the 50 day EMA (1349) and past the March high. It did not take out the February highs as did NASDAQ 100 but it was a solid move in price and not too bad in volume. Lots of momentum for the move on up to the November low just over 1400. One step at a time.
SP600 (+3.27%) jumped as well with a solid move through the 50 day EMA that cleared the March peak. Still below the key 383 level hit in February and the November lows, but as with the other indices, a higher high and an important step.
SP600 CHART: http://investmenthouse.com/ihmedia/SP600.jpeg
DJ30
The blue chips were not left out of the action with a break back over the 50 day EMA and the March peak, running up to the 90 day SMA (12,676) on the close. Nice move with a bit better volume though still below average. Approaching the very important 12,750 level that marks the November low and the twin February peaks. We will see what kind of guts this move has as it tests and trades around that level. Might take more than a session to see the end result of how it handles this resistance.
Stats: +391.47 points (+3.19%) to close at 12654.36
Volume: 295M shares Tuesday versus 273M shares Monday. Up again, and this time without the MRK news, but it was still below average.
DJ30 CHART: http://www.investmenthouse.com/ihmedia/DJ30.jpeg
WEDNESDAY
Another day, another federal bailout. Congress may conceivably vote on the mortgage bailout Wednesday. Bernanke is also set to speak and who knows what he will say at this point. After all of the activity the past month there is speculation he may adopt a bit more hawkish tone about future rate cuts. At this juncture anything is possible though with the economic picture still up in the air it would be highly surprising if he changed the 'we have your back' theme song just now.
As for the economic data, the ADP jobs guess is out pre-market followed by factory orders at 10ET, and crude oil inventories at 10:30ET. Crude has been on the decline but still managed to close over 100 on Tuesday (100.75, -0.83). Gold clunked lower to 885, down 36 and change and well off the 1033 hit just a couple of weeks back. Gold tends to fall like a . . . gold brick when it does fall. Look out below.
Despite all of the political intrigue and Bernanke speech, the market will tell the real story. It set up well technically for the Tuesday move with the second bottom at the March low, the bounce on rising trade, the emergence of leadership, and the low volume test. The catalyst was the new money put to work to start the second quarter.
Now we have to watch and see how the move plays out as the rest of the first of quarter money is spent. At that point we will see if more buyers step in and continue the push up to and through next resistance. Indeed, it won't take much at all to get the indices to the next key resistance level, 12,750 is what we are really watching for DJ30, and SP500 still has the February highs near 1400 to deal with. First of the month moves, especially blast offs, are always something to watch with a bit of skepticism just because they are new money driven. This one had the extra goose of being set up perfectly from a technical standpoint to make the next break higher. It did.
It did, and now we will see if it can continue. A move up to next resistance, maybe a break through it, and then we see how the test holds up. The market is a bit a victim of its own success; this move was too much too soon. It runs the risk of a flameout. If it does not, well, we will still have plenty of opportunities to participate. Indeed, as you have seen we have been able to buy good stocks at good prices on the way up here, and if we get another good session or two higher we can look at banking some more gain as this next move in the break higher off the March low runs out of steam.
It will be important to watch volume as the move slows and then tests. Just as with the late March test we will want to see lower volume as it makes the move, indicating that the sellers are not coming in with more force than the buyers; the latter would be very bad news for this bounce given the volume on the charge was questionable.
With the big move a lot of stocks surged beyond where we want to buy them. Others surged Tuesday but we didn't like the volume so took a pass. We will continue to look for opportunity as the move progresses; not all stocks move up at once but instead move in waves. That gives us opportunity to pick up positions in other stocks as they make their moves, but we won't load the boat totally; this volume was still iffy and we will get another opportunity to pick up positions on the next test if it is orderly and holds up as in late March.
In sum, a good start though with its shortcomings. The shortcomings were big ones, but you cannot argue with the price gains or the technical pattern and breaks to higher highs. We will be watchful of the volume as the move continues and on any test; the move was good but it was not unequivocal as a good pattern will do a lot of work for a stock or an index.
Support and Resistance
NASDAQ: Closed at 2361.24
Resistance:
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.
The 200 day SMA at 2553
Support:
2340 from the March 2007 low
The 50 day EMA at 2329
2287 is the trendline from the summer 2004/July 2006 lows, Q4 2005 consolidation
The 18 day EMA at 2284
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
S&P 500: Closed at 1370.18
Resistance:
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:
The 50 day EMA at 1349 is key resistance on a rebound
The 18 day EMA at 1330
1325 from May 2006 peak prior to the summer 2006 correction
1323 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
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 12,654.36
Resistance:
The 90 day SMA at 12,676
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
The 200 day SMA at 13,154
Support:
12,573 is the mid-February high
12,518 is the August intraday low
The 50 day EMA at 12,414
The 18 day EMA at 12,317
12,250 from late March 2007 lows
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
Economic Calendar
These are consensus expectations. Our expectations will vary and are discussed in the 'Economy' section.
March 31
Chicago PMI, March (9:45): 47.0 actual versus 46.7 expected, 44.5 prior
April 1
Construction spending, February (10:00): -0.3% actual versus -0.9% expected, -0.1% prior (revised from -1.7%)
ISM Index, March (10:00): 48.6 actual versus 47.5 (lowered from 48.2) expected, 48.3 prior
April 2
ADP Employment, March (8:15): -45K expected, -23K prior
Factory orders, February (10:00): -0.8% expected, -2.5% prior
Crude oil inventories (10:30): 88K prior
April 3
Initial jobless claims (8:30): 365K expected, 366K prior
ISM Services, March (8:30): 48.5 (revised from 49.2) expected, 49.3 prior
April 4
Non-Farm payrolls, March (8:30): -50K 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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