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us stock market, trade stock
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4/14/08 Investment House Daily
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SUMMARY:
- Market still on hold ahead of earnings so the triumvirate rallies again.
- What if you announce a deal and no one cares?
- Despite the losses, low volume keeps the ball in play.
- Retail sales beat expectations, but after same store sales you take it with a grain of salt, particularly with gasoline station sales surging.
- Tax collections on the decline: best economic indicator you can get.
- The waiting is the hardest part.
Market still struggles after GE, turns to the same old leaders.
There was no GE earnings shocker on Monday, but there was more of the same seen last week. WB missed its earnings, slashed its dividend, and announced it was raising $7B via a stock sale. Could have been devastating, but once more the company seeking the funds said the deal was oversubscribed, meaning there were plenty of takers out there for the $24/share offering (given the stock closed Friday at 27.81, of course there would be takers if . . . they believed the company was going to make it.
A deal was announced with Blockbuster bidding for Circuit City. The only people that cared were the CC stockholders and they sold out on the news, evident by CC closing a dollar off its high, giving back half of its gap gains on the session. This deal is like the losers in a competitive bidding process holding their own round of bidding just to see which of the losers would have one the contract. No one cares. Indeed, the market didn't. The deal didn't mean any new interesting in M&A, just a couple of losers ready to join hands and jump off the cliff together. It is not an indication that more deals are coming down the pipe.
In short there was not a lot of news, at least good news or worthy news, to drive the market higher. Stocks started weak but were off their lows after a stronger than expected retail sales number (even though it was all gasoline sales). They rebounded flat midday but could not hold the move, fading back to session lows on the close. Even so, it was not a downside rout: modest losses, light trade, many stocks remained in good shape to rally. Indeed, while the majority of the market thought about whether to rally or sell (and basically did neither), the same old group rallied as the weak dollar trades continued: agriculture, energy, metals. That does show one thing: investors are still willing to put money to work if they have a reason. Right now they are waiting for a reason to spread it out beyond the favored triumvirate.
TECHNICALLY it was a mushy session but it could have been another ugly downside session. Stocks started flat to soft, sold, rebounded into lunch to flat to slightly positive, then gave it all back into the close. Weak intraday action but it could have been a lot worse. Left-handed way of saying things weren't so bad, but they weren't that great either: avoiding a big selloff is nice, but that does not mean the day's action was good.
INTERNALS: Basically there were three things that made the session palatable. First, avoiding another Friday-like point loss. Second, leadership outside of the triumvirate held up just fine, still waiting for the flag to drop so they can rally. Third, volume was very light once more, showing no dumping, just a lack of interest from the buyers. When bids were pulled stock prices drifted lower. Cause and effect. The key: low volume keeps the rally ball in play.
CHARTS: The indices crashed their nice orderly consolidations Friday but that did not end all chance of continuing the rally. Monday they sagged further, but again they can still make higher lows and resume the rally. They are, undoubtedly, at the lick log point, however, where they need to recover and continue from here.
LEADERSHIP: Once again a lot of new leaders and potential leaders are set up nicely to continue on or assume leadership as the case may be, but they didn't do it. Instead they remained as undecided as a democratic super delegate; maybe leaning one way but still haven't voted. With that background the triumvirate again took the reins and posted some outsized gains once more. Again, that shows there is still money going to work, but it is very, very narrowly focused, and that does not help the market overall. It keeps things working and in position to move, but it cannot do the trick on its own.
THE ECONOMY
March retail sales top expectations . . . on gas station sales.
0.2% was better than the 0.1% expected, and February was revised up to a mere 0.4% loss versus a 0.6% loss. Wow; things must be about to bust loose. Right.
Retail sales are in a way similar to inventories in that they can show one thing but mean something else. Inventories can rise, and that can be good at certain points of an economic cycle and bad at other times in the cycle. Retail sales can be up and still be bad if they are driven by the wrong elements.
What does that mean? You have to look at what retail segments are causing the gains. If it is apparel, home furnishings, jewelry and the like then that is a pretty good sign: consumers are spending on discretionary items. That is not the case right now. Autos are lower, clothing is lower, general merchandise is lower. Gasoline station sales, however, are up, and at 1.1% they were by far the biggest gainer in March.
That doesn't mean consumers were just buying a lot more gallons of gas. That might be a good sign as consumers would be traveling and spending money. No, sales are measured in dollars not units. Thus if gasoline prices spike near $3.25/gallon nationally as they have done, consumers can buy less gasoline and still gasoline sales would be considered higher because of rising prices. All this number shows is that consumers are having to spend more of their dollars to fill the tank just to get around town and conduct business and to consume.
Take out gasoline and retail sales were flat. That leaves just two gains in the past six months and those were a whopping 0.1% advantage. Not exactly strong. The market didn't punish stocks as a result of sales; indeed futures bounced after the number, apparently fearing something worse after the poor same store sales reported lat week. Chalk one up for sandbagging a bit, but there is no hiding the weaker trend and the weakening in the more trendy names and the rise in sales at the major discounters. That is retail in recession times.
Tax receipts are falling, the final economic test.
You can massage numbers any way you want to make a point. The government is accused monthly of holding back data or massaging the data to get numbers that are palatable to the masses. You know the drill: you know prices are higher but the data say they are not. Now there are times when some prices that rise are excluded because they are variable. But, when the government embarks on programs such as burning food in your gas tank, you cannot ignore the problem because it is not a natural market event. Thus we have higher prices even though the government excludes food prices from the core calculation of rising prices.
Tax receipts are basically immune from that kind of reshaping. No one, but no one pays more taxes than they have to. Think about it. Even those super wealthy people who want big government programs for just about every aspect of our lives (of course in direct contravention of the Constitution) and thus advocate higher taxes won't agree to voluntarily pay more themselves. Talk is cheap; paying taxes is for the other guy.
So in 2003 and 2004 when many were still saying the economy was weak (and indeed on into 2006), a look at tax receipts by the US Treasury told a different tale. Receipts were up month after month after month. That means revenues were up month, after month, after month. Again, no one, but no one pays more taxes than they are required. If tax receipts are higher, it inevitably means companies and individuals are making more money and that business must be good.
Now flip to recent data. It shows the opposite, i.e. tax receipts are falling. Particularly, business taxes are lower, running -16% year to date. They started peaking in late 2006, struggled in the first half of 2007 with that slowdown, then rebounded some in Q3. That did not last, however, and tax receipts are steadily sliding. There is no better pulse of the economy, and they basically confirm what we already know, i.e. that the economy is in some stage of recession whether it matches the textbook definition or not.
THE MARKET
MARKET SENTIMENT
VIX: 23.82; +0.36. Still hugging the 200 day SMA despite the selling in the market of late. Call it the Fed put or whatever, the Fed has taken the volatility out of the equation.
VXN: 28.28; +0.74
VXO: 25.51; -0.43
Put/Call Ratio (CBOE): 1.01; -0.28
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: -14.42 points (-0.63%) to close at 2275.82
Volume: 1.615B (-15.59%). Volume slid for the third session after that solid upside Thursday volume, coming in at lows of the past couple of months. No selling, just a lack of any buying interest on the session. That, as noted above, keeps the ball in play.
Up Volume: 504.593M (+235.598M)
Down Volume: 1.096B (-536.893M)
A/D and Hi/Lo: Decliners led 1.72 to 1
Previous Session: Decliners led 3.72 to 1
New Highs: 36 (+4)
New Lows: 183 (+39)
NASDAQ CHART: http://investmenthouse.com/ihmedia/NASDAQ.jpeg
Gapped lower, rallied back to test the 50 day SMA and the old 2004/2006 trendline (2292) but could not hold the move and closed at the session lows. That is not a great close, but the light trade keeps it alive as the NASDAQ is still above its late February low. That means it can still make a higher low on this move and keep the rally alive. Moreover, NASDAQ has filled the gap that started April, taking that out of consideration. The pattern doesn't look that great; holding near the 50 day EMA up at 2331 would have been much cleaner. As it is volume has remained low and there are still some big names holding up and looking for some upside. If they come around NASDAQ will bounce and try a run and it has about 120 points it can rally to get up to the April highs.
NASDAQ 100 (-0.43%) tested lower as well, but it showed a hammer doji over the 50 day SMA on lower volume. It started in better shape than NASDAQ, and it has thus weathered the selling a bit better. It is in excellent shape to move higher from here and just needs something to trip the wire.
SOX (-1.71%) was the whipping boy once more, falling through the 50 day EMA and landing on the 50 day SMA. That is the late March peak so maybe it can gut it up here and rally; if INTC surprises that would do it. Oh, what am I saying. Sorry about that.
SOX CHART: http://investmenthouse.com/ihmedia/SOX.jpeg
SP500/NYSE
Stats: -4.51 points (-0.34%) to close at 1328.32
NYSE Volume: 1.176B (-6.93%). Now honey, that is low volume. Very, very low trade on a modest pullback. As with NASDAQ, no selling just no buyers ready to step in without some catalyst.
Up Volume: 434.049M (+312.325M)
Down Volume: 728.683M (-399.168M)
A/D and Hi/Lo: Decliners led 1.51 to 1
Previous Session: Decliners led 3.62 to 1
New Highs: 48 (+24)
New Lows: 93 (+37)
SP500 CHART: http://investmenthouse.com/ihmedia/SP500.jpeg
SP500 sagged a bit more after the Friday selling on the GE earnings, but it is holding above an old trendline near 1325 and the downside was really slow on the large cap index Monday. GE took its shot and broke up the test of the 50 day EMA, but it did not push SP500 to a lower low, and it is holding at the February low and some peaks in March. As with NASDAQ 100, it has faded back and given up not quite half its rally off the lows, falling a bit more than the neat, simply pullback and thus getting the fear up a bit. This is where it needs to make its move if it is going to do it.
SP600 (-0.36%) slipped just modestly as well, holding just over the late March low. This is where it needs to hold the line and deliver on some upside and that would indicate the economy is overcoming its issues.
SP600 CHART: http://investmenthouse.com/ihmedia/SP600.jpeg
DJ30
Held its ground Monday after the Friday GE dump. Volume fell back well below average as DJ30 held above support levels at 12,250. That allows the blues chips room to make a higher low as well, and it just needs a catalyst to send it back up to try the 90 day SMA (12,620) once more.
Stats: -23.36 points (-0.19%) to close at 12302.06
Volume: 216M shares Monday versus 286M shares Friday. Toned trade down quite a bit without GE to kick around. That is good.
DJ30 CHART: http://www.investmenthouse.com/ihmedia/DJ30.jpeg
TUESDAY
PPI, New York PMI, net foreign purchases. Some interesting data, but we likely know the results: higher PPI, weaker manufacturing, and foreign purchases are a crapshoot though they have waffled over the past several months.
The real driver at this point, as we have seen, is earnings. Earnings thus far have not only failed to ignite excitement, they have instead fanned flames of fear that things are going to be really ugly down the road.
Ah, the perfect scenario. The prior pullback was nice and orderly, but it was apparently a little bit too perfect, a little too pat. It did not shake many out what with the VIX holding flat with the Fed put. VIX is still flat but the selling Friday and Monday pushed the worry level higher as many figure the rally is over.
Maybe it is; the upside certainly has not reasserted itself yet, but there are also some positive factors still in place. There are good tech and other stocks that have set up good patterns to rally from. Some have already made a move and are testing, still in position to move again. Others are setting up for their first move. The pullback Friday and Monday has not changed that. Further, while these stocks ponder whether they want to make the move, money continues to come into the current crop of leaders in energy, ag, metals, and other commodities. Money willing to come into the market is an important part of any rally attempt. Even with the pullback they are still in shape.
They are still in need of a catalyst, and of course that means something good coming out of earnings. Today we heard that the first batch of earnings were 'horrible' and that SP500 was going to 1100. That is a pretty good negative forecast given that stocks have held up pretty darn well in the face of the horror. NASDAQ 100 is in great position to rally after its pullback, and SP500 is not bad either; it will need some help from the financials, but after these beatings of late a lot of financials are still in a 7 week lateral consolidation. They look a bit sold out for now, though we admit that there are some in bad shape and still heading lower (e.g. GS, JPM, WFC).
The after hours news Monday was not providing anything for the upside. AFFX, already in an ugly downtrend, guided lower. CROX, imploding in value from its October high at 75 (closed at 17.79), warned it is going to post a loss and lowered guidance. Not a great set up for the morning, but what we are doing now is just waiting to see if a positive catalyst turns up that can turn the tide of the early negative earnings. Plenty of stocks are in position to move and we are looking at them as well as maybe some new buys on positions we are in. It all comes back to getting something to drive stocks higher and take advantage of this good set up in individual stocks and in indices such as NASDAQ 100.
Support and Resistance
NASDAQ: Closed at 2275.82
Resistance:
2292 is the trendline from the summer 2004/July 2006 lows, Q4 2005 consolidation
The 50 day EMA at 2331
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 2542
Support:
2261 is late March higher low
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 1328.32
Resistance:
The 50 day EMA at 1351
1370 is the August 2007 intraday low
1374 is the March 2007 closing low
The 90 day SMA at 1379
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 12,302.06
Resistance:
The 50 day EMA at 12,446
12,518 is the August intraday low
12,573 is the mid-February high
The 90 day SMA at 12,620
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 13,111
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): 0.2% actual versus 0.1% expected, -0.4% prior (revised from -0.6%)
Retail ex-autos (8:30): 0.1% actual versus 0.2% expected, -0.1% prior (revised from -0.2%)
Business inventories, February, (10:00): 0.6% actual versus 0.6% expected, 0.9 prior (revised from 0.8%)
April 15
PPI, March (8:30): 0.6% expected, 0.3% prior
Core PPI (8:30): 0.2% expected, 0.5% prior
NY Empire state Index, April (8:30): -17.0 expected, -22.2 prior
Net foreign purchases, February (9:00): $60.0B expected, $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): 1.01M 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): 375K expected, 357K prior
Leading economic indicators, March (10:00): 0.1% expected, -0.3% prior
Philly Fed, April (10:00): -15.0 expected, -17.4 prior
End part 1 of 3
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