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investment help, financial investment
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4/15/08 Investment House Daily
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Investment House Daily Subscribers:
MARKET ALERTS:
Targets hit alerts: JASO
Buy alerts: BHP
Trailing stops: TNE
Stop alerts issued: MA; SIAL
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SUMMARY:
- No major earnings misses or warnings and market manages a gain on better trade.
- PPI is hot on food, oil, animal feed while computers and electronics cool.
- New York PMI is positive. Hardly a landmark reading but for the terrible expectations.
- Intel revenues, margins and guidance propel an after hours tech rally. Catalyst may be at hand.
Earnings, economic data palatable, stocks pull out a gain.
The data was more or less familiar: PPI was too hot at 1.1% overall (0.6 expected) and core was in line with another 0.2% gain. No surprise. New York PMI was not negative; at 0.6 it did not wow anyone, but anything positive was a moral victory given expectations ran -17 and March was an abysmal -22.2. Earnings were the key, and with JNJ, STT, and USB all actually posting solid results there was more of a sigh of relief move higher in the futures. There was more M&A activity on the heels of the sizzling hot BBI/CC deal. That could only be topped by something big, something in say . . . the airlines. In a surprising announcement, DAL and NWA announced plans to fly the friendly skies of United together. May work, may not. Did it help stocks? Nah.
As noted, it was not so much a matter of good news just the lack of bad news on the earnings front that has hounded the early earnings season. Foreclosures may be up 57% year/year, but again, that was known. Stocks started higher, but as is often the case on early pops that are not driven by really key news, they could not hold the gains. There was the obligatory selloff to midmorning, then a hold and a steady, rather unspectacular rebound into the afternoon. Didn't put in any new highs for the session but stocks managed a positive close on some better volume. A bit of short covering head of the Intel earnings? Sure. Turns out that was likely a starting ramp for Wednesday as INTC margins were solid and the company raised guidance. Techs were up smartly after hours. This could be the catalyst the market has been looking for.
TECHNICALLY it was no barn burner but there was improvement. The intraday action was up and down, literally. Higher start, midmorning selloff to negative, then a steady recovery to close positive though below the early session highs.
INTERNALS: Breadth recovered but was still light into the close. Volume showed a nice improvement, rising on an upside session. It did that last Thursday as well, showing promise before the aw GEE earnings undercut what looked to be the start of a break higher. Decent price/volume action is showing up despite all of the concerns you hear on the financial stations and on the floor about a failed rally.
CHARTS: There was nothing special in the day as there was no breakout and no breakdown either. Basically they were on the ropes and bounced where they had to and frankly where they to. SP500 tapped its old trendline and bounced. DJ30 tapped at 12,250 support and bounced as well. NASDAQ held the late March low and rebounded, keeping the try for a higher low alive.
LEADERSHIP: Metals and energy were smoking again, providing the market with the real leadership. Financials bounced but that is all they did, coming back from the overall beating taken the past week. Some key financials struggled; MA may recover, but it was fading from a low volume peak and with its compadre V falling, we were not going to wait for a potential gap lower. Techs were modestly lower in nervous trade ahead of the Intel results. After hours techs were strong on the report. The stage is set for them to move in as leaders once more. After hours they were, but the proof is in the actual session.
THE ECONOMY
Food and energy continue pushing prices higher.
Producer prices, as with consumer prices (and we will see the latest iteration of those Wednesday morning) continue higher as food and energy continue their climbs. The 1.1% gain was far in excess of expectations. The core maintained its 0.2% climb, still not feeling the food and energy rise.
And there is a rise. Food was up 1.2%. Heating oil 13.1%. Animal feed (and that of course shows up in our feed) jumped 4.9%. Painful. They cannot keep this kind of rise indefinitely and not feel the pain in other areas. Thus far the core has been insulated, but it is creeping, and that has many wondering if the Fed is going to be aggressive at all at the next FOMC meeting.
Indeed, the Fed Funds Futures are whittling away the likelihood of anything over a 25BP cut. Many are calling for the Fed to place a stay on the rate cuts for now, and the dollar bucked up on that prospect Tuesday. Not much of a move, however, as the dollar remains in a two week lateral range. It is off its lows hit in mid-March as there is this idea the administration may actually do or say something to support the dollar. Of course every time there is that kind of talk or rumor the old school in the administration squelches it. At least they will be gone next year.
New York on the comeback or maybe just a blip.
You always have to keep an eye on the regional manufacturing indices as an early indicator of the economy, up or down. The regions were the first to turn lower and they have struggled the past quarter, and the national ISM followed them. Everyone still expects things to continue lower, but then you have New York turning the tables and pulling off a gain, albeit modest, in April. The 0.6 reading was not going to scare any of the recession police, but it is a lot, a whole lot, better than the -17.0 expected and the -22.2 in March.
Question is: a turn back to the positive or just a blip on the way lower. The sum of all the data is that the economy is in recession, and thus the easy call is to say things are heading lower still and that the April reading was an anomaly. That is always the way it goes, however. The economy trends one way and the forecasts all line up with the trend. They stay that way until the trend is very clearly broken. Thus there are a lot of missed calls in the data when the economy is turning.
That makes April very interesting. One data point does not change the trend of course, but it means you have to watch what happens next. The next month can revert to the trend or mean, but then what about the third month? That is often the key and you typically see another surprise where the actual numbers are better again and a trend is forming. It takes the analysts awhile to come around, and indeed the trend has changed before they do.
In this case it is a hard call to make that there is change. The PMI is a sentiment poll and it can change rapidly. As noted above, however, you watch for subtle changes, maybe not next month, but over the next three months. That will tell more of the tale.
THE MARKET
MARKET SENTIMENT
VIX: 22.78; -1.04
VXN: 27.46; -0.82
VXO: 24.52; -0.99
Put/Call Ratio (CBOE): 1.06; +0.05. Third consecutive session over 1.0 on the close after a brief hiccup last week. Still a backlog of closed over 1.0 indicating a lot of worry about the downside continues.
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: +10.22 points (+0.45%) to close at 2286.04
Volume: 1.862B (+15.3%). Volume was up on an upside session, a good thing, but it was also still way below average and was a bit lower than the Friday selling volume on the GE issues. Still, price/volume action has improved and that is a positive underlying this attempt to make a higher low.
Up Volume: 1.055B (+550.302M)
Down Volume: 784.828M (-311.21M)
A/D and Hi/Lo: Advancers led 1.17 to 1
Previous Session: Decliners led 1.72 to 1
New Highs: 36 (0)
New Lows: 193 (+10)
NASDAQ CHART: http://investmenthouse.com/ihmedia/NASDAQ.jpeg
Gapped higher this time and then lost the move. Managed to recover for a modest gain on some rising trade, bouncing above the late March lows. That keeps NASDAQ in the game for making a higher low here and the INTC results are going to do their best to send it higher at the open. Then we see if it can stick. The first move is over the old 2004/2006 trendline (2292) and then the 50 day EMA (2329). Now we see if the large cap techs can carry the load.
NASDAQ 100 (+0.21%) tested the 50 day SMA on the low and rebounded for a modest gain. AAPL, RIMM et al were up nicely after hours and as noted Monday, NASDAQ 100 is in good shape to make a move higher and now it has the catalyst.
SOX CHART: http://investmenthouse.com/ihmedia/SOX.jpeg
SP500/NYSE
Stats: +6.11 points (+0.46%) to close at 1334.43
NYSE Volume: 1.234B (+4.97%). Volume was up on the upside but it was still in the same old below average trough of the past month.
Up Volume: 784.867M (+350.818M)
Down Volume: 418.752M (-309.931M)
A/D and Hi/Lo: Advancers led 1.47 to 1
Previous Session: Decliners led 1.51 to 1
New Highs: 61 (+13)
New Lows: 85 (-8)
SP500 CHART: http://investmenthouse.com/ihmedia/SP500.jpeg
As with the other indices SP500 tested lower then rebounded to hold its early gains. That keeps it in the higher low game as well though it is under a layer of resistance up to the 50 day EMA at 1350. That even before it hits the February and April highs at 1387. One day at a time when you are digging out of a hole.
The small cap SP600 (+0.79%) bounced as well as it too is trying to put in a higher low after breaking down from its very nice lateral consolidation. The after hours news did not have a lot to do with the small caps; they may follow along but they are likely not to lead the action.
SP600 CHART: http://investmenthouse.com/ihmedia/SP600.jpeg
DJ30
There is support at 12,250 and the blue chips tapped at that again on the low and rebounded for a modest gain on very low volume. Same story as the other indices, i.e. trying to make a higher low and then tank on that key resistance at 12,750 once more. INTC is a Dow component so there will be some upside impetus early and then we see how it can hold the move.
Stats: +60.41 points (+0.49%) to close at 12362.47
Volume: 208M Tuesday versus 216M shares Monday. Still on volume on the upside.
DJ30 CHART: http://www.investmenthouse.com/ihmedia/DJ30.jpeg
WEDNESDAY
CPI, Industrial production, housing starts, oil inventories and the FOMC minutes. All important and will have an impact, but the key for the market right now is earnings. The first earnings were pitiful. Intel's earnings may not have been blowout but the beat on revenues and the raised guidance were music to a weary market. The market knows the economic woes; if earnings guidance is solid that is the real story for investors.
This will be the catalyst the market is looking for to try the next run at the resistance. It likely won't be enough in and of itself; Intel will need more help from other techs with good guidance. The market will make a stab at it on Wednesday, and there will be three important features: will it hold the gains, will volume surge up to respectable levels, and will the leaders that have set up make the breakout. Just a few minor details, right?
We are going to continue looking to pick off solid stocks as they make breaks higher from good bases or tests of prior breakouts. As noted the past week, many stocks have developed nice patterns, just needing a catalyst to send them higher. They will likely post strong moves and gaps at the open, and that is always a more difficult play, particularly when the market has had a penchant for false moves early on. With the market set up leading into this session, however, there is a foundation for a strong move higher. Thus we will be willing to take some positions on strong stocks as they make moves through resistance. It is also nice that we already have many positions in stocks ready to make this run higher as well. Have to like that.
Support and Resistance
NASDAQ: Closed at 2286.04
Resistance:
2292 is the trendline from the summer 2004/July 2006 lows, Q4 2005 consolidation
The 50 day EMA at 2329
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 2540
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 1334.43
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 1377
1387 is the April 2008 intraday high
1396 is the February 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 12,362.47
Resistance:
The 50 day EMA at 12,442
12,518 is the August intraday low
12,573 is the mid-February high
The 90 day SMA at 12,610
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 13,106
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): 1.1% actual versus 0.6% expected, 0.3% prior
Core PPI (8:30): 0.2% actual versus 0.2% expected, 0.5% prior
NY Empire state Index, April (8:30): 0.6 actual versus -17.0 expected, -22.2 prior
Net foreign purchases, February (9:00): $72.5B actual versus $60.0B expected, $57.1B prior (revised from $62.0B)
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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