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world stock market, us stock market
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4/12/08 Technical Traders Report
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MARKET ALERTS
Targets hit alerts: None issued
Buy alerts: None issued
Trailing stops: BNI; HCBK
Stop alerts issued: BRKR; MBT; SKIL
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:
- GE shocks the market as its financial services division runs aground.
- Import prices surge as the US is in fact importing inflation.
- Sentiment falls to 1982 levels in the great north.
- Talk of a bigger bailout in the works.
- Volatility not budging with the Fed and the feds acting as the backstop.
- Low volume Friday holds out possibility market can heal itself, but more than ever it needs good guidance, a lot of good guidance, to pull things back together.
Market gets tired of swallowing bad news.
The market was looking for a catalyst and it got one, just not the right kind. The indices were set up well and Thursday showed indications an upside breakout was close. Then a big name issues a big surprise. You expect disappointments from AMD and AA, and they didn't disappoint by disappointing for yet another quarter earlier last week. But GE?
GE missed earnings by 7 cents and lowered its 2008 guidance. Just three weeks ago it said earnings would be in the 50 to 53 cent range with analysts expecting 51. 44 cents hurt. How was GE so wrong so late in the quarter? The financial services business hit the reef when BSC blew up. It is apparent that the entire financial sector came to a standstill at that point, and that left everyone wondering if one part of GE's business could drag earnings down so much when its other business units are in excellent shape, what is going to come out of the financial stocks whose sole means of income is form the financial sector.
Indeed, GE's revenues, while down from the financial unit, were up 8% overall. The overseas revenues rose 23%. Goodness gracious. Yet . . . GE warned for the year. Does it see things as that bad? Probably not. What it sees is that three weeks ago things looked super and then one business unit imploded with almost unprecedented speed. It simply does not know what lies ahead for that part of the company and thus it pulled in its guidance as a matter of prudence. Of course that doesn't mean everyone can let out a big 'whew' that all is clear. While it has been bad in the financial sector, GE is showing it could be a lot worse than everyone expects even with all of the write-downs at this point.
Maybe. While GE's results were hurt in the finance sector there are signs the credit crunch just in the past few weeks is better. The amount bid at the Fed auctions is on a rapid decline. Primary dealers bid only $39.5B last week of the $50B available. People who watch these say that is showing the dealers have liquidity again. Investment bank borrowing fell to $26.5B last week from $34.4B the prior week and $37B two weeks ago. Slowing at the discount window means improved liquidity. Seems opening the discount window was just in time. GS says there is a light at the end of the tunnel and that the credit crisis is in the beginning of the fourth quarter in sporting terms. MS CEO kept the sports analogy saying the crisis was in the final innings.
GE was bad and then there was piling on. Import prices surged with China jumping 148% year/year. Michigan sentiment for April flopped to a 26 year low. We wanted China to stop controlling its currency as much and it is doing so. As we said would happen over a year ago, when that happened the yuan would rise against the dollar and our imports from China would increase in price, basically importing inflation to the US. As discussed Thursday, we are doing this elsewhere as well with oil, metals, and other commodities priced in dollars. As the dollar falls foreign producers require more dollars to remain whole. We may export more but we pay more for just about everything. To top it off we are on this kick of burning food for fuel, driving world prices higher and helping cause food riots around the globe. That makes you really take a hard look at this ethanol issue and ask 'is this really the best solution to the problem given all the troubles in the world?' Sure doesn't look like it.
This was more than enough bad news to undercut the nice rally set up. Industrials were hammered but the weakness was market wide though not as intense as in the GE wannabes. Indeed many quality stocks held up well even as other big names (e.g. AAPL) took hits. It is definitely trouble when a big name that never misses, or at least has not missed in a decade, is blindsided because things turned so fast you have to wonder, and the market is, what is next? There was widespread downside but it was not an across the board wipeout. Volume was actually lower; there was no dumping overall and a lot of recent leaders held up well. There was some culling, and of course, GE was moving into leadership.
TECHNICALLY the action was weak as you would expect. The indices started low and moved lower, never able to put together a recovery as a midmorning attempt rolled over into a steady afternoon slide lower and lower. The market was overcoming bad news time and again, but there is a point where you are so full of bad food that you just cannot swallow another bite. If you are lucky it doesn't all come back up. It didn't Friday, but next week with all of the earnings reports is now even more important given the GE miss.
INTERNALS: Breadth jumped back to those levels seen during the selling and the up and down gyrations as the indices tried to put in that double bottom in January through March. Not surprising given the import of GE and the magnitude of its miss. -3.6:1 NYSE, -3.7:1 NASDAQ; it was not just GE and the industrials though many stocks were just weaker and were not selling off hard. Volume was the quite interesting technical aspect. It was lower on both NASDAQ (-11%) and NYSE (-1.6%), the latter even with GE trading 36M shares, 7 times its average volume. All of the heavy selling was in GE.
CHARTS: SP500, burdened by GE, had a bad day, blowing out the bottom of its lateral consolidation. It managed to hold some support at 1330. DJ30 also had to bear the yoke of GE, and it caved in its lateral consolidation a the 10 day EMA. It managed to hold its support at 12,250, not even getting there. NASDAQ did the same, making a new low on this pullback, but it did hold its long term trendline on the close and on very low volume. There is hope but it has to find the bottom here.
LEADERSHIP: There were definitely some implosions; you cannot have that kind of news and not see some stocks that were building nicely get plowed under. Overall, however, leadership held up well and our stocks mirrored that action. That is always good to see in a negative environment. Still, they cannot hold up if the market is not able to shake off GE and look to brighter futures elsewhere. Translated that means with all of these earnings coming out this week there need to be some big names with strong reports and upside guidance that is enough to wash GE right out of investors' hair. The market has no chance if other stocks don't show that GE was truly related to the March financial issues related to BSC financial decline.
THE ECONOMY
Import prices confirm what the trade deficit told.
Prices for foreign products rose 2.8% in March, surging back from the 0.2% February gain, and back on path more with the trend that saw January rise 1.6%, December fall 0.2%, but November surge 3.2%. A lot of that has to do with oil imports, but even if you take out oil foreign goods rose 1.1%, the strongest in the last five months.
A lot of that was due to rising Chinese prices, up 4% for the month and 148% year over year. Oil imports were not cheap, however, rising 9.1% in March. Volatile number that was down in February, up 4.8% in January, down again in December, and up 12.4% in November. Follow the bouncing ball, but that ball is still bouncing uphill.
Some say the falling dollar is just a normal correction after years and years of a rising dollar that took it out of a normal relationship to other economies. Is that a bad thing? We had a strong dollar and we could buy goods from all over the world and do so cheaply. That is called raising your standard of living, and that is not a bad thing in just about everyone's book. You don't suffer inflation because of your strength. Now we have to spend more for oil and gasoline leaving less money to go elsewhere for things we typically enjoy in our standard of living. We have to spend more for everything. Our economy is in recession, helped along by hugely surging oil prices, surging metals prices, food prices and goods in general gratis a weaker and weaker dollar. Again, this is a good thing? Used to be we just complained about the cost of medical care and education. Now you wonder whether you want two-ply or single-ply. THAT is the definition of a lower standard of living.
Michigan Sentiment is . . . how do you say it? . . . crappy.
At 63.2 sentiment was bad. Well off the 69.0 expected, the 69.5 in March, etc. Steady downtrend and still heading lower. A combination of high gas prices, higher food prices, rising unemployment, politics, and general gloom in the media. Feeds off itself.
Sentiment is at recession levels in an absolute number sense, but the decline from 78 to 69 in just two months shows the rate of change indicative of a recession even without hitting historical recession ranges. That is a moot point now; it is there.
Present conditions were the stalwart at 78.4. The outlook is a pathetic 53.4, truly a recession level.
Comparisons to the past are of course widespread and somewhat appropriate. The big one thrown out was the worst showing in 26 years. Back in March 1982 the US was suffering through a horrible recession after the 1970's, the worst period in economic history since the Great Depression. In 1982 the economy was starting to emerge from that truly disastrous period after the Reagan Emergency Economic Recovery Tax Act of 1981 was passed and in place.
While the economy is likely in recession right now, it is hard to argue it is emerging from it. If it is, it is a shallow one. If it is we will see the stock market emerge ahead of it as it was trying to do before Friday and the GE miss. May still do it, but as noted above, it will take other widely followed stocks to put up some good guidance. If not then there is likely more downside for stocks and the economy.
Resolution Trust Fund Part 2?
It was only a matter of time. The Feds are talking about a bill to bailout those mortgagors who cannot pay their mortgage and the builders and lenders who became overextended and are now in trouble. Once more our government, in order to ensure domestic tranquility and the pursuit of financial irresponsibility, is preparing to bail out those that knew better but didn't act accordingly.
Today we heard it: the feds need to form an entity similar to the Resolution Trust Corporation back in the early 1990's to clean up the mortgage mess. In the early nineties the RTC was in charge of the Resolution Trust Fund that was basically a mechanism to throw money at the savings and loan collapse that occurred after the real estate market fell to pieces all across the south and other parts of the country. An entire branch of case law developed in the courts to assist in expediting the clean up by limiting claims of borrowers against lenders to keep the hundreds of billions in losses from growing into trillions. At the same time the 'trust fund' (a.k.a. a tax dollar fund) was used to pay off both sides in order to keep the nation's financial sector from collapsing altogether (it was not only S&L's that failed but bank after bank was taken over by other banks to avoid outright failures).
It worked but it cost a lot of taxpayer dollars that went to the wrongdoers. Basically it was a decision to grease the system and get through the mess even if it meant assisting those that were major players in the problem in order to avoid a larger economic collapse. The feds meant business. The Federal courts were given jurisdiction (no invasion into state's rights there) and the judges knew what the legislation was enacted for: to clean up the mess and limit the losses, and that meant harsh rulings. I was a newbie lawyer at the time and the case law that developed in favor of the lending institutions was so strong I had no trouble starting off my career with several summary judgment victories for defendant financial institutions. I liked to think I was smart and resourceful, but I knew better: the deck was stacked in the lender's favor as long as the bank hadn't done something like promise to place gold coins in the borrower's account every Monday. Even then you could probably get them off.
Anyway, after GE's sudden and unexpected miss, many Friday were saying the mess is going to be much larger than expected, even with the billions already written off. Who can sweep billions of dollars lost due to inappropriate actions under the rug? The federal government, a.k.a. the candy man. Of course it would mean more if the dollar had some weight behind it, but why quibble. With talk of a second stimulus package already you can bet that an offshoot of that will be some sort of federal creation to deal with the issue if earnings guidance does not improve drastically in the near term.
THE MARKET
MARKET SENTIMENT
VIX: 23.46; +1.48. Bounced higher but still right at the 200 day SMA and at the lows that it hit to start April. The bounce was nowhere near commensurate with the point losses and the gloom you heard on the financial stations over GE's miss. It just goes to show that with the Fed basically promising to do whatever it takes, the federal government passing one stimulus package and talking about another even before the first checks are issued, and talk of a mortgage bailout similar to the Resolution Trust Fund in the early 1990's, and there is no reason for volatility to rise. If the Feds are willing to pick up the tab, why worry?
VXN: 27.54; +1.77
VXO: 25.94; +2.79
Put/Call Ratio (CBOE): 1.29; +0.32. Back in its comfort zone above 1.0 on the close. Lots of downside speculation and protection buying. Ironically, even as VIX refuses to rally due to the feds acting as a backstop, there is no lack of put buyers.
Bulls: 37.4%. Creeping higher, up from 36.4% after falling to 30.9% in mid-March. The indicator did its job with the dive below 35% and the crossover with the bears. They remain in crossover mode even with the rise in bulls as bears edged higher again. 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: 38.5%. Up a point from 37.5% as the bears are skeptical of a potential bottom in the market. Heading back up toward the 44.7% peak, but not likely to make it there of course. Like to see the continued pessimism even as the indices form up a bottom and leadership improves. As with the bulls the jump in bears did its job after hitting 44.7% in the third week of March 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: -61.46 points (-2.61%) to close at 2290.24
Volume: 1.913B (-10.83%). After bouncing close to average Thursday on that upside session volume dumped right back down to early April levels, i.e. well below average. That indicates no heavy dumping of tech shares overall, and despite the losses, that leaves open the ability to recover from this selling if the techs get some important names announcing strong earnings and upping guidance.
Up Volume: 268.995M (-1.383B)
Down Volume: 1.633B (+1.082B)
A/D and Hi/Lo: Decliners led 3.72 to 1. That stings.
Previous Session: Advancers led 1.48 to 1
New Highs: 32 (-3)
New Lows: 144 (+28)
NASDAQ CHART: http://investmenthouse.com/ihmedia/NASDAQ.jpeg
After recovering the 50 day EMA (2333) Thursday it gave it right back up as well as the 50 day EMA right at 2300. Managed to hold its old 2004/2006 up trendline on the close; minor victory. NASDAQ put in a closing low for the month on the move but volume did not ramp. This is a good point for it to hold and the TL did hold in February as it tested it. A higher low here would be very solid for the index and the market. For now, however, the onus is on the bulls to show they can make a stand at support.
NASDAQ 100 (-2.93%) was whacked as well and undercut its 50 day EMA, but it was in better technical position to start with and is still in position to hold support near 1800. AAPL and company were down Friday as the market took back some of the recent leaders with big names, and it will be up to them to turn the tide back up as they did in March.
SOX (-3.41%) showed signs of live last week and indeed this entire month, but the market weakness Friday kept it from breaking over the 90 day SMA and making this move meaningful. It closed at its 50 day EMA so there is still some life here or more accurately, potential life.
SOX CHART: http://investmenthouse.com/ihmedia/SOX.jpeg
SP500/NYSE
Stats: -27.72 points (-2.04%) to close at 1332.83
NYSE Volume: 1.263B (-1.64%). Even with GE selling at 7 times its average volume, trade on the NYSE was still way below average and was down from Thursday where the indices posted a gain. No dumping of shares, just a melt lower gratis GE.
Up Volume: 121.724M (-654.457M)
Down Volume: 1.128B (+635.824M)
A/D and Hi/Lo: Decliners led 3.62 to 1. With the small caps sulking over the GE miss, breadth was bad.
Previous Session: Advancers led 1.66 to 1
New Highs: 24 (-16)
New Lows: 56 (+8)
SP500 CHART: http://investmenthouse.com/ihmedia/SP500.jpeg
It was going to be a struggle from the get-go because GE accounts for 2.8% of SP500's movement as it is a market cap weighted index and GE holds the second largest weighting on the large cap index. The index sold through the 50 day EMA and down to 1330 where there is some support. There is also an old trendline at 1324ish where SP500 can try and hold similar to NASDAQ and its old trendline. Its work is cut out for it after failing to take out the late February high and now moving back toward 1320ish that many are looking at as potential support. We always say 'many are looking at' because that is true; the big houses do their technical analysis and will buy some at that level and see if any others join in. If so then the level holds. That is why it is always important to look at potential support levels on the way down and resistance levels on the way up.
SP600 (-2.53%) was hammered lower as the small caps did not like the specter of a weaker economy emerging given the GE guidance and they undercut the 50 day EMA and will now try and hold some support just over 360. Not promising.
SP600 CHART: http://investmenthouse.com/ihmedia/SP600.jpeg
DJ30
With GE pushing the Dow found it hard to hold its consolidation. It didn't, falling through the 50 day SMA and heading toward a support level at 12,250ish. Volume was up to average thanks to GE. If it is going to make the breakout move still, it has to hold near that support range and turn back up. If it cannot then it looks ready to trade lower in the range once more. Again, a key week of earnings that now has an even higher premium on good future guidance.
Stats: -256.56 points (-2.04%) to close at 12325.42
Volume: 286M shares Friday versus 227M shares Thursday. A jump in volume for sure but it was still just average on this bad news.
DJ30 CHART: http://www.investmenthouse.com/ihmedia/DJ30.jpeg
MONDAY
Too much economic reporting this week with retail sales, regional manufacturing indices, housing starts, and CPI. More important than all of the data are the earnings and they guidance. With UPS and GE warning re the future, quite a few stocks have to come up with the goods in order to turn the market back up and forget about GE.
It can turn things back up. Volume Friday was low despite the impressive point losses so there was not wanton unloading of shares. That could still develop, but at least the initial reaction was not for everyone to hit the panic sell button. That made the selling more palatable, but low volume alone is not the answer. Again, good guidance from important stocks is required, and even that may not be totally sufficient because the speed of the GE earnings decline casts guidance in doubt. Of course, C, JPM and MER all report earnings this week and that will give us a better idea of just how bad things got for the rest of the financial sector outside of WMT.
Leadership remains solid after a day of big point losses on the indices, but then again, it is just one day. The market already pulled back last week; leadership cannot be bled to death and expect to keep the market going. Thus while there is some room to work with, the market has put itself in the position of having to shake off GE and continue higher. Pretty tall order. That is why we were closing positions that were not holding support Friday, culling the stocks that the market was weeding out.
We like the number of stocks that are still in good shape after a pullback all week and then a hard downside price blow Friday. The majority of the market was not ready to chuck it all on Friday, just those that were active, and judging from the volume, there was no surge in those folks. Doesn't mean it won't happen; over the weekend the GE and consumer sentiment stories will be spun many different ways by Monday. We will stick with the leaders but we are going to be ready to close them out if the leaders start giving in. That would be too bad; they were on the verge of a good move. Still are, just had a log thrown in their way.
Support and Resistance
NASDAQ: Closed at 2290.24
Resistance:
The 50 day EMA at 2333
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
2392 is the April 2008 peak
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 2544
Support:
2291 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 1332.83
Resistance:
The 50 day EMA at 1352
1370 is the August 2007 intraday low
1374 is the March 2007 closing low
The 90 day SMA at 1380
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:
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 12,325.42
Resistance:
The 50 day EMA at 12,452
12,518 is the August intraday low
12,573 is the mid-February high
The 90 day SMA at 12,631
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 13,117
Support:
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 14
Retail sales, March (8:30): 0.1% expected, -0.6% prior
Retail ex-autos (8:30): 0.2% expected, -0.2% prior
Business inventories, February, (10:00): 0.4% expected, 0.8% prior
April 15
PPI, March (8:30): 0.4% expected, 0.3% prior
Core PPI (8:30): 0.2% expected, 0.5% prior
NY Empire state Index, April (8:30): -16.0 expected, -22.2 prior
Net foreign purchases, February (9:00): $62.0B prior
April 16
CPI, March (8:30): 0.3% expected, 0.0% prior
Core CPI (8:30): 0.2% expected, 0.0% prior
Housing Starts, March (8:30): 1.025M expected, 1.065M prior
Building permits, March (8:30): 970K expected, 984K prior
Industrial production, March (9:15): -0.1% expected, -0.5% prior
Capacity utilization, March (9:15): 80.4% expected, 80.4% prior.
Crude oil inventories (10:30)
Fed Beige Book (2:00):
April 17
Initial jobless claims (8:30): 357K prior
Leading economic indicators, March (10:00): 0.1% expected, -0.3% prior
Philly Fed, April (10:00): -14.0 expected, -17.4 prior
End part 1 of 3
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