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financial investment, Breakout test
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4/21/08 Investment House Daily
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Targets hit alerts: None issued
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Stop alerts issued: None issued
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SUMMARY:
- Market takes a personal day after the Friday surge, but leading groups continue higher.
- Oil continues to surge, aided by some actual events potentially impacting supplies.
- TXN starts the earnings week with a sour note as bulk of S&P earnings are out after this week
- Market will try to consolidate the Friday surge quickly, then continue the rally.
Leaders continue higher as the overall market rests.
Earnings were not as heartening to start the new week. MRK beat, but it failed to impress anyone. LLY missed and that really didn't impress anyone. BAC missed as well, but as a major bank it is already beaten down so it lost a mere 2.46% on the session and is still in its downtrend.
Oil moved higher once more (117.69, +1.00), this time on some serious issues other than just speculation prices will go higher. In Nigeria Shell is ready to declare force majeure due to an attack on a pipeline that stalled production. The bigger overall and future threat, however, was an attack on a Japanese oil tanker off Yemen, a haven for the peaceful and friendly. Tanker attacks are something that are talked about in hushed tones as the next real issue threatening western economies, and while this attack received surprisingly little coverage, we anticipate this is going to be one of the next drivers of oil prices at some point over the next year. When that starts, the cost of oil shoots even higher because of the threat of attacks hampering supply, AND the added cost of having to now provide some form of escort service (of the military type) to ensure safe passage of our oil lifelines.
The Bank of England renewed its attack on the same credit and mortgage issues plaguing the US, making available $100B in swaps for mortgage backed securities banks and other financial institutions need to unload to free up their balance sheets and get some needed capital. A reminder that it is not just a US problem. It is also in England, other parts of Europe, Australia and surely elsewhere. That is also something forgotten or overlooked as the talk of 'decoupling' of world economies from those experiencing a slowdown. There is definitely some areas of immunity, but there is no such thing as a complete bifurcation of economies from the US.
TECHNICALLY it was a somewhat sluggish session with foreign markets up early but backpedaling ahead of the US open. Futures were down but the market easily held near support after a lower open, rebounding into the afternoon to post basically a flat session. Bond yields were flat (2.17% 2 year, 3.72% 10 year) and gold was flat as well (919, +3.80). It was good to see a soft open post just modest losses followed by a steady recovery into the close.
INTERNALS: Breadth was modestly lower (-1.3:1). That was fine, but the interesting aspect was the dive in volume with both NYSE and NASDAQ trade dropping 24%. There was some expiration trade drop off on Monday, but it was simply a very low volume session. When the indices dip after a nice surge it is always good to see volume lighten up as it shows no heavy selling, just some profit taking after a strong move. Price/volume action thus remains in an improved position over the past few weeks.
CHARTS: Modest intraday tests and then rebounding into the close for either a modestly positive move or basically closing flat. NASDAQ tested the 90 day SMA and bounced right back to positive, led once more by the large cap techs with the names AAPL and RIMM. All in all a reach modestly lower and then a rebound to flat on low volume. Very nice action, kind of a nice easy shakeout and recovery after the Friday breakout move.
LEADERSHIP: Most of the market rested, but many of the recent leaders and leadership groups had a good session once more, e.g. ag, energy, large cap tech, metals. AAPL, RIMM, POT, BHP, PCU, APC are just some of the stocks we own that moved smartly higher Monday even as the market overall snoozed through a really rather constructive session.
THE ECONOMY
A light day of economics. Indeed, a day with no economic reports and no real stories in the sector other than the usual day in and day out issues: weak dollar, rising oil, higher bond yields, higher food prices, slaughtering livestock, etc. Just not a lot going on out there. Not all days can be exciting, huh?
THE MARKET
MARKET SENTIMENT
VIX: 20.5; +0.37. As noted over the weekend, there is no real point in micro-analyzing VIX right now given the Fed intervention.
VXN: 24.09; +0.51
VXO: 20.88; +0.14
Put/Call Ratio (CBOE): 0.95; +0.13. Another day below 1.0 on the close, making about a week of such closed in the past month. Lots of protection in place out there and we are not talking condoms, as big funds fear another selloff. Good contrary indicator.
Bulls: 37.8%. Barely budged up as the market faded last week, up from 37.4%. Fell 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 yet 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: 38.9%, up a fraction from 38.5% and 37.5% the week before as the bears are still 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. Still pessimistic 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: +5.07 points (+0.21%) to close at 2408.04
Volume: 1.629B (-24.04%). Volume tailed off dramatically as NASDAQ sold back then rebounded for a modest gain. Good low volume test lower as NASDAQ rested after the Friday gap higher. Not bad price/volume action.
Up Volume: 882.264M (-967.618M)
Down Volume: 726.955M (+355.05M)
A/D and Hi/Lo: Decliners led 1.29 to 1
Previous Session: Advancers led 2.61 to 1
New Highs: 61 (-18)
New Lows: 106 (+22)
NASDAQ CHART: http://investmenthouse.com/ihmedia/NASDAQ.jpeg
Gapped lower and tapped the 90 day SMA (2386) on the low before a modest rebound of 18 points closed it just positive. Gapped higher Friday, sharply so, and a modest test is normal after such a move, particularly given it was expiration Friday on the surge higher. Held the early April high on the low and remains in position to take out the early February high (2420) after this pause after the gap wraps up. Want to see NASDAQ back to the upside pretty quick here.
NASDAQ 100 (+0.68%) was again the clear leader of the large cap indices, overcoming a slightly lower open to turn and rally positive and closing at its session highs. Volume was weak on NASDAQ; there were just a few big names moving higher, and they are not going to garner enough volume to jack up the entire trade on the index. Hard to argue with the moves from these strong stocks as they make the same moves they did three weeks ago. Nice patterns on stocks such as RIMM.
SOX (+1.52%) extended its gains on this bounce off the 50 day MA, and it took out the early February peak to post its highest close since early January. A 15 week flat base and a solid break higher . . . that will be tested by the after hours earnings from TXN that were light on guidance. An important move that will be tested and has to stick.
SOX CHART: http://investmenthouse.com/ihmedia/SOX.jpeg
SP500/NYSE
Stats: -2.16 points (-0.16%) to close at 1388.17
NYSE Volume: 1.125B (-23.84%). Sharp drop off in volume as the NYSE indices tested and rebounded. Good light trade on a test and bounce back up; good shakeout.
Up Volume: 496.175M (-684.519M)
Down Volume: 612.723M (+330.159M)
A/D and Hi/Lo: Decliners led 1.27 to 1
Previous Session: Advancers led 3.59 to 1
New Highs: 122 (-15)
New Lows: 71 (+3)
SP500 CHART: http://investmenthouse.com/ihmedia/SP500.jpeg
Nice week last week, clearing the early April high on the move. Tested some Monday, backfilling modestly then rebounding to close flat. Nice low volume shakeout and still in position to continue higher. May take another session to pause and smell the flowers before starting higher once more to bury the late February high and crack through the early February high (1396).
SP600 (-0.74%) rallied to the April peak on Friday and Monday it could go no further, fading back modestly as SP600 wants to hold this level, pound out a support level here, then move higher to take out he early February peak just higher at 385 (closed at 377.44).
SP600 CHART: http://investmenthouse.com/ihmedia/SP600.jpeg
DJ30
The blue chips showed similar action to SP500, testing lower and tapping the early and late February peaks on the low at 12,750 (almost to the dollar) and then rebounded for a modest loss on low volume. Excellent, textbook test of the strong Friday breakout, leaving DJ30 in excellent position to continue higher. May want or need to test another session to solidify the level, but a good break higher and a good response on the Monday after.
Stats: -24.34 points (-0.19%) to close at 12825.02
Volume: 192M shares Monday versus 304M shares Friday. Definitely some expiration trade involved on Friday and thus the drop off on Monday, but regardless of the cause, it was the kind of action you want to see, i.e. sellers did not rush back in to sell the market after that move on expiration. That would have provided the perfect cover to sell, but no one, or not very many, dared try it.
DJ30 CHART: http://www.investmenthouse.com/ihmedia/DJ30.jpeg
TUESDAY
Existing home sales are out at 10:00ET, and that is all there is on the economic calendar, a rather light calendar for the week. Good thing as the bulk of S&P earnings are going to be out after this week and the flood of results bombarding investors.
Speaking of earnings, did you hear the one about Texas Instruments hitting its quarter but warning on the future? Hey, this is a win for TXN. The chip market is dog eat dog eat dog as most chips are now commodities. Don't know if you watched it, but the TV series 'The Dead Zone' based on the Stephen King book aired an episode about a plane going down with $2M in prized cargo some 10 years earlier. These pirates of sorts kidnapped the hero to have a psychic reading from a rag or something similar to lead them to the treasure. They found it alright. It was $2M worth of silicon chips that were now worth about 25 cents total. Dripping with irony and you get the point: chips are a commodity, and they are basically worthless six months after they are made because something else is out there or is just about to be released.
Thus the TXN earnings, while they did have a modest impact on techs in general after hours, likely won't have a major impact on technology or NASDAQ. It may not even hurt SOX that much. After all, just about everyone knows the skinny on the chip market and they are moving higher anyway. SOX and SMH will be worth watching for sure on Tuesday to see if the other chips shake off TXN's woes.
The overall market may try to consolidate another session given the breakout Friday, but after another session you want to see it start moving higher once more quickly after the breakout move. There has been a good move up to the breakout, so a pause for a couple of sessions is fine. With the resistance at the February highs on NASDAQ and SP500, however, you don't want to see any backsliding or too much time taken before moving on higher. Important level to go ahead and put away without too much more time lost.
In any event we are still looking at many good stocks in sectors that continue to move higher and continue to set up for the next move higher. Indeed there were leaders moving out ahead once more and we are looking for others to follow their lead. Again, it may take another session to digest the breakout, but we will be looking for early leaders to follow the first movers.
Support and Resistance
NASDAQ: Closed at 2408.04
Resistance:
2419 is the January 2008 peak and the early February peak
2451 is the August closing low
Some modest resistance at 2500 from interim August lows.
The 200 day SMA at 2535
Support:
2392 is the April 2008 peak
The 90 day SMA at 2386
2386 is the August intraday low
2379 from the October 2006 peak
2378 is the mid-February peak
2370 from the April 2006 peak
2340 from the March 2007 low
The 50 day EMA at 2336
2295 is the trendline from the summer 2004/July 2006 lows, Q4 2005 consolidation
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 1388.17
Resistance:
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
The 200 day SMA at 1439
Support:
1387 is the April 2008 intraday high
The 90 day SMA at 1372
1374 is the March 2007 closing low
1370 is the August 2007 intraday low
The 50 day EMA at 1354
1326 is an ancient trendline
1325 from May 2006 peak prior to the summer 2006 correction
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
Dow: Closed at 12,825.02
Resistance:
12,845 is the August closing low
13,092 is the December 2007 intraday low
The 200 day SMA at 13,090
13,250 from price points in second half of 2007
13,563 is the late December peak
13,780 is the early December 2007 peak
Support:
12,786 is the February 2007 peak
12,750 to 12,768 is the February 2008 peak and a series of lows and highs from August 2007
12,743 is the November low
12,573 is the mid-February high
The 90 day SMA at 12,571
12,518 is the August intraday low
The 50 day EMA at 12,485
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 22
Existing Home Sales, March (10:00): 4.92M expected, 5.03M prior
April 23
Crude oil inventories (10:30): -2.35M prior
April 24
Durable goods orders, March (8:30): 0.0% actual versus -1.7% prior
Initial jobless claims (8:30): 375K expected versus 372K prior
New home sales, March (10:00): 580K expected, 590K prior
April 25
Michigan sentiment, April revised (10:00): 63.2 expected, 63.2 prior
End part 1 of 3
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financial investment
Breakout test
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