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4/09/08 Investment House Daily
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Investment House Daily Subscribers:
MARKET ALERTS:
Targets hit alerts: None issued
Buy alerts: SPWR
Trailing stops: GOOG
Stop alerts issued: None issued
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SUMMARY:
- Finding no upside catalyst the market posts a deeper decline.
- Wholesale inventories continue their recent trend higher.
- Market has sagged and now needs a catalyst.
Downside pressure intensifies as earnings weakness adds to eco data weakness.
The market has dealt with bad economic data. After all the data is backward looking and investors know the economy is on the slide. The market shook off that data, but now earnings season and all of its baggage is here. Companies are warning and missing earnings results. No really big names have reported outside of RIMM, but that was a long time ago in market terms. The April reports are less than inspiring, and indeed UPS warned last night, putting a drag on transportation today, one if the new leadership groups. Those that have announced are relative lightweights and they are not inspiring, and you have a daily parade of downgrades (URBN, BBBY, INTC on Wednesday).
Stocks started flat but quickly gave up. Wholesale inventories jumped twice as fast as expectations, crude inventories fell when a rise was anticipated, and stocks continued to slide down into the afternoon. A late bounce kept them afloat above support levels. Just no catalyst to drive stocks higher, specifically a good report and guidance from a key player. Thus the slide. Overall, however, the damage was not bad as the indices held support and did again try a modest rebound move.
TECHNICALLY the action was weak as you would expect when the selling picks up a bit. A flat open looked decent, but when no one stepped up to the plate the market went from flat to negative and continued all session. Modest late bounce was good, but it was just a late bounce.
INTERNALS: They were much worse than recent history with breadth running 2.4:1 downside and worse. Volume was up on both NYSE and NASDAQ with the techs showing more selling intensity than the more staid NYSE indices. Some distribution as the techs tested lower toward the 50 day SMA but trade on both exchanges was still well below average so there was no run for the exits.
CHARTS: NASDAQ undercut its 50 day EMA, gave a halfway test of the 50 day SMA, then closed at the 18 day EMA. SP500 touched at the 50 day EMA on the low and recovered to hold that level and closed close to the 10 day EMA. DJ30 was the picture of health, tapping the 50 day EMA on the low and rebounding to close at the 10 day EMA. Very low volume remained; Dow looks good.
LEADERSHIP: The upside was basically left to the energy stocks as metals, ag, and commodities in general joined in the pullback with the rest of the market. Without their support, the transports in a brown fog thanks to UPS, and no other sectors ready to step in and take the reins the indices were easy targets for the downside as the selling pressure picked up some.
In sum, the market fade grew stronger on earnings worries piled on top of the bad economic data of late. Still no fatal damage but a new leadership group (transports) was hurt. On the other hand some key large cap tech names are in great shape to return to their upside ways, e.g. AAPL and RIMM, and they can provide the market with the leadership it needs.
THE ECONOMY
Wholesale inventories still rising as sales fall off.
Rises in inventories are one of those chameleon economic indicators that change color depending upon when they occur. In a recovery rising inventories show producers are getting orders and are comfortable with the future enough to ramp up production. Weak to recovering economy, higher inventories good.
When the economy has been rallying well but shows signs of slowing, rising inventories are a sign of trouble. Manufacturers have had plenty of time to ramp up production during the expansion, and rising inventories show sales are slowing and thus goods are starting to pile up.
Of course the economy has rocked along nicely since 2003, so we are not in the recovery phase, or at least have not been in one over the past few months. Thus after October's flat reading the steady four-month climb (0.7%, 1.0%, 1.3% and 1.1% in February) subsequent shows the slowing economic condition. No surprise, just the next pieces of economic data to fall into place.
THE MARKET
MARKET SENTIMENT
VIX: 22.81; +0.45
VXN: 26.61; +0.58
VXO: 24.36; +1.37
Put/Call Ratio (CBOE): 1.16; +0.02. Back over 1.0 on the close the past two sessions after a quick dip below that threshold level. Still very lop-sided in the high closes, and that indicates still a lot of downside speculation and protection buying by the big money boys.
Bulls: 36.4%. Slight drop from 36.7% after the big jump from a very low 30.9% two weeks back. 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: 37.5%. Substantial decline from 41.1%, but you knew that was going to come with the recovery. As with the bulls the jump in bears did its job after hitting 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: -26.64 points (-1.13%) to close at 2322.12
Volume: 1.92B (+13.59%). Volume moved up to last week's levels and that was still very low, below average trade. Some more intense selling and that is something to watch but it was not heavy selling.
Up Volume: 488.396M (-75.105M)
Down Volume: 1.419B (+335.911M)
A/D and Hi/Lo: Decliners led 2.82 to 1. The small caps were dinged and thus downside breadth expanded.
Previous Session: Decliners led 1.35 to 1
New Highs: 44 (+10)
New Lows: 103 (+16)
NASDAQ CHART: http://investmenthouse.com/ihmedia/NASDAQ.jpeg
Tried to move higher but couldn't hold on, undercutting the 50 day EMA (2334) before closing just over the 18 day EMA. It has given back a little over half the surge from last Tuesday. This is where it needs to hold if it is interested in extending that break higher. Makes the pattern something more along the lines of a reverse head and shoulders.
NASDAQ 100 (-1.08%) fared worse but it also had a better pattern to start with and thus even with the selling the large cap tech index looks solid. A tap of the 50 day EMA on the low and a modest rebound. Good shape.
SOX (+1.54%) held the 50 day EMA on the low and bounced, the only index to register positive. Good place to make a higher low.
SOX CHART: http://investmenthouse.com/ihmedia/SOX.jpeg
SP500/NYSE
Stats: -11.05 points (-0.81%) to close at 1354.49
NYSE Volume: 1.216B (+1.54%). Volume picked up, but it was just a slight tick higher in still very low, below average trade.
Up Volume: 257.851M (-199.684M)
Down Volume: 949.459M (+219.089M)
A/D and Hi/Lo: Decliners led 2.46 to 1
Previous Session: Decliners led 1.41 to 1
New Highs: 57 (+16)
New Lows: 38 (+13)
SP500 CHART: http://investmenthouse.com/ihmedia/SP500.jpeg
Sold as well, tested back toward the 50 day EMA (1352), undercutting it modestly, but holding it on the close thanks to that late rebound. Low, low volume continues, and that leaves SP500 still in very good shape to rebound from here as it sits right on top of the late February peak. Not bad at all despite the gloom.
SP600 (-1.87%) lost its very tight lateral pattern over the 90 day SMA. Don't like that one bit, but it still has 50% or so of the surge from last week intact, and a hold here at the 50 day EMA puts it in good position to take on that 380 to 383 level that is a resistance band.
SP600 CHART: http://investmenthouse.com/ihmedia/SP600.jpeg
DJ30
The blue chips sold as well, but a tap at the 50 day EMA (12,452) and a nice bounce back closed it at the 10 day EMA. Low volume once more, nice shakeout and bounce to near support, and still in excellent position to make the breakout move. Like it.
Stats: -49.18 points (-0.39%) to close at 12527.26
Volume: 195M shares Wednesday versus 197M shares Tuesday. Still very light trade as the Dow continues its nice test.
DJ30 CHART: http://www.investmenthouse.com/ihmedia/DJ30.jpeg
THURSDAY
Oil did in fact surge higher after inventories showed a 5.4M bbl swing between expectations and reality. Oops. Oil surged over 111 but closed at 110.90, up 2.40. Still, earnings are the driving force for the market now. The indices have put in a nice pattern to set the groundwork for a bear market rally or maybe something beyond that and there are a lot of great stocks setting up nicely and indeed moving higher.
All is poised for a move higher, but there needs to be a catalyst. Of course we all know what that catalyst is: something, anything positive re guidance from a major player. You have stocks such as AAPL and RIMM in excellent pullbacks in position to bounce again and many other stocks ready to do so as well. Again, a catalyst, just a catalyst.
There was nothing to help after hours. BBBY gave a weak forecast. There must indeed be something beyond the bed and bath, and it is not more profits for this retailer. Minor player, however. Indeed there are no major players out tomorrow other than DNA, but even it won't have a lot of market moving impact. Thus the market will still be looking for a catalyst to send it higher. The economic data, led by weekly jobless claims, is not likely to do it either.
That means the market is on its own outside of the potential of more warnings. Nonetheless we are watching key stocks such as AAPL to see if they can start the break higher. After all, they are leaders, and what do leaders do? Of course they lead. When they start to move we will move in as well as the patterns still remain solid in stocks and in the indices, and the talk of a fading rally starts to grow. That is what you want to see and hear because that typically leads to the continued move just when many give up on it.
Support and Resistance
NASDAQ: Closed at 2322.12
Resistance:
The 50 day EMA at 2334
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.
The 200 day SMA at 2546
Support:
The 18 day EMA at 2317
2292 is the trendline from the summer 2004/July 2006 lows, Q4 2005 consolidation
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 1354.49
Resistance:
1370 is the August 2007 intraday low
1374 is the March 2007 closing low
The 90 day SMA at 1383
1396 is the January 2008 peak
1406 is the August and November 2007 closing low
1420 is a longer term trendline from the August 2003/September 2004 lows
1433 from a pair of August 2007 lows and December mid-month intraday low
Support:
The 50 day EMA at 1352
The 18 day EMA at 1347
1325 from May 2006 peak prior to the summer 2006 correction
1324 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 12,527.26
Resistance:
12,573 is the mid-February high
The 90 day SMA at 12,651
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
13,092 is the December 2007 intraday low
The 200 day SMA at 13,126
Support:
12,518 is the August intraday low
The 50 day EMA at 12,452
The 18 day EMA at 12,488
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.
April 7
Consumer Credit, February (3:00): $5.2B actual versus $6.0B expected, $10.3B prior (revised from $6.9B)
April 8
Pending home sales, February (10:00): -1.9% actual versus -1.0% expected and +0.3% prior (revised from 0.0%)
FOMC Minutes, March (2:00)
April 9
Wholesale inventories, February (10:00): 1.1% actual versus 0.5% expected, 1.3% prior (revised from 0.8%)
Crude oil inventories (10:30): -3.1M actual versus +2.3M expected, 7.3M prior
April 10
Initial jobless claims (8:30): 383K expected, 407K prior
Trade balance, February (8:30): -$57.4B expected, -$58.2B prior
Treasury Budget, March (2:00): -$70.3B expected, -$96.3B prior
April 11
Export prices, March (8:30): 0.5% prior
Import prices, March (8:30): 0.6% prior
Michigan sentiment, preliminary, April (10:00): 69.0 expected, 69.5 prior
End part 1 of 3
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