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4/22/08 Investment House Alerts
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IH Alert Subscribers:
MARKET ALERTS:
Targets hit alerts: ICO
Buy alerts: GNK; HCBK
Trailing stops: CHRW
Stop alerts issued: None issued
SUMMARY:
- TXN guidance rocks techs back on heels, surging oil sends market down overall.
- Down but for the most part still a nice controlled test.
- Existing home sales drop 19.3% year over year, but that is better than expected.
- YHOO barely beats but the earnings story after hours is in BRCM, YUM, CYMI, VMW . . . all beat and were up and taking tech higher with them.
Leading techs struggle after TXN and its guidance shortfall.
The chip sector is a problem because it is a commodity now. Unlike oil, copper, steel, and other commodities on a blistering bull run, however, chips are not in the same demand. Everything made today seems to have a chip in it, but that doesn't mean the need outstrips supply. Not by a long shot. Nonetheless, they are found in products of key manufacturing tech stocks, and thus when TXN issued subpar guidance those other stocks felt TXN's pain.
Didn't matter that MCD, DD, and T (burgers, chemicals and phones, the new sex, drugs and rock and roll) all announced fine earnings and guidance, the stench of chip guidance hung over the market, keeping techs down on the session. AAPL, RIMM, INTC, AMAT were all lower, dragging the tech index well below the NYSE indices and their losses.
Stocks were accordingly down at the open, but when existing home sales came out just a bit less crappy than expected (-2% for the month), stocks rebounded. They didn't get close to positive, but they were working on it when oil, thanks to an ever-plunging dollar (no thanks to the Bush anti-dollar administration), jumped over 119/bbl. That triggered some sell programs in the broad market, programs that sold across the board.
The indices dropped straight down into the lunch hour, falling similar to large stones. NASDAQ fell below its 90 day SMA, but SP500 held that level and DJ30 held the 10 day EMA, all managing something of a rebound throughout the afternoon. It was slow going, and the indices never put a scare into positive territory. Good to see the recovery, but it was not as clean as Monday: volume was up, losses were not recovered, there was some distribution in big names such as AAPL (though earnings are on Wednesday). Still, looking at SP500 and DJ30, it looked a lot like some more backing and filling with the tap at support and rebound, but the scattered distribution and the struggles by the large cap tech leadership put some rocks in the backfill material.
TECHNICALLY the action was not as constructive as a downside session could be. A midday tumble followed by a pretty lame recovery in the afternoon. Stocks did hold support to rebound modestly, but there was definitely more pressure on stocks on the day than on Monday.
INTERNALS: Breadth was weak (-2.5:1 NYSE, -3:1 NASDAQ) as stocks were hit across the board outside of the perennial leadership niche (ag, energy, metals). Large cap tech was a focus of some selling, but it was not the only group under fire. Volume showed some distribution as NYSE and NASDAQ trade moved higher, basically matching each other's gain. Pretty even volume gains on both exchanges; it was not just a one-sector phenomenon. NASDAQ did move closer to average, and that of course makes the selling look worse than on NYSE. A rally can suffer a day or so of distribution and resume the move, so you don't want to get too bent out of shape about such a day; just don't want to see it turn to a trend.
CHARTS: Overall the indices held up pretty well. The NYSE indices tested support and rebounded decently. They did not come close to positive but it was a good test and rebound, continuing the test of the run from Wednesday to Friday last week. NASDAQ undercut its 90 day SMA, and though it did not quite recover it on the close, it did hold the 10 day EMA on the intraday low and that helped trigger the rebound. It is filling the gap from Friday. All in all not a bad test back and rebound, and DJ30 looks the best in its test and bounce.
LEADERSHIP: As the dollar fell the usual suspects, i.e. energy, commodities, ag and even transportation jumped higher yet again. Oil surged but transportation continued its rise. Gasoline is going to hit $4 to $5/gallon this summer yet transports have broken out. Not the usual scenario as you would predict those high prices would send the consumer turtle and thus truncate the need for transporting goods and humans around the country. Shipping you can understand; it is going overseas. Trucking? That is pretty much domestic even with NAFTA. In short, leadership is still solid overall, there were some pullbacks, and some ahd tougher sessions, namely the big name techs.
THE ECONOMY
Existing home sales fall about in line.
The 2% drop for March was basically in line, about 10K better than expected. That was a 19.3% drop year/year. Now February posted a monthly gain, the first in a year, and thus the March decline was a disappointment, though hardly unexpected. Combined with all of the other housing data the past few months, however, it still suggests there is a bottoming attempt in housing right now.
It is an attempt at best. Inventories rose 3.1% as the slowdown continues. That means there were 4.06M homes for sale in March (sans new homes), equaling a 9.9 month supply. That is a bump up from February's 9.6 months but lower than January and November. Trying to slow the trend higher or at least slow down the pace.
Prices continued a pretty healthy decline, falling 7.7% over March 2007. That is a bit slower than the prior 8.2% decline, but that February number showed a jump in price declines far in excess of the prior months. Prices have to fall in order to get sales up and reduce that inventory. As the inventories continue to show strong levels, price is not at the point where it is causing large in-roads into the number of houses available for sale.
Continued slow sales combined with gasoline prices that are out of control and easily to reach $4+/gallon this summer are going to put a serious hit on the consumer. This would suggest the economy is going to struggle more, but how the market responds is the near term key, and that means how this rally attempt holds tells a bigger story for the near term.
THE MARKET
MARKET SENTIMENT
VIX: 20.87; +0.37
VXN: 24.54; +0.45
VXO: 21.32; +0.44
Put/Call Ratio (CBOE): 1.06; +0.11. Back over 1.0 on the close in short order with this selling, and that is what you would expect.
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: -31.1 points (-1.29%) to close at 2376.94
Volume: 1.927B (+18.29%). Volume jumped up as NASDAQ suffered some distribution Tuesday. Remained below average and well below the Friday expiration/rally trade, but don't want to see this turn into a pattern.
Up Volume: 430.079M (-452.185M)
Down Volume: 1.451B (+723.88M)
A/D and Hi/Lo: Decliners led 3.05 to 1. It was not just the large cap techs getting hit.
Previous Session: Decliners led 1.29 to 1
New Highs: 47 (-14)
New Lows: 158 (+52)
NASDAQ CHART: http://investmenthouse.com/ihmedia/NASDAQ.jpeg
NASDAQ could not hold the 90 day SMA (2383) early in the day or at the close, just missing out on that level on the rebound from the low. On the low it tapped the 10 day EMA and rebounded, holding over the early April closing high in the process. Not as solid a rebound as say on DJ30, but not a bad recovery.
NASDAQ 100 (-1.64%) sold back as well with AAPL and AMAT providing downside pressure. It held above the 90 day SMA easily and rebounded to also hold above the early April closing peak. Despite the higher trade and losses, it still remains in solid shape to continue higher after this test.
SOX (-3.26%) was hammered on the TXN earnings guidance, falling back to tap the 90 day SMA on the low and hold just over the 10 day EMA on the close. It can still recover from here and continue its breakout move from its 4 month flat base.
SOX CHART: http://investmenthouse.com/ihmedia/SOX.jpeg
SP500/NYSE
Stats: -12.23 points (-0.88%) to close at 1375.94
NYSE Volume: 1.329B (+18.17%). Volume was up here as well as the NYSE indices tested back held support. Some distribution as stocks tested back, but not anything out of control and as noted, it can handle a day or two of higher volume on the downside. Just don't want it to turn into a pattern.
Up Volume: 357.622M (-138.553M)
Down Volume: 961.56M (+348.837M)
A/D and Hi/Lo: Decliners led 2.54 to 1
Previous Session: Decliners led 1.27 to 1
New Highs: 88 (-34)
New Lows: 111 (+40)
SP500 CHART: http://investmenthouse.com/ihmedia/SP500.jpeg
Tested lower to the 90 day SMA, tapping that on the low and then recovery to hold above that level and the early April closing high. Volume was up, but it still has the look of a rather orderly test of the nice break higher last week, and at this juncture we are still looking for a continued move higher in this rally. It is not giving untested gains, but it is making solid moves and then regular tests, and this pullback still looks regular so to speak.
SP600 (-1.69%) had a tough day. It was not down more than some of the indices, but its technical pattern is hurting. It did not make a new April high on the break higher last week, stalling at the early April high. That keeps it hemmed in and you want to see the small caps follow the lead of the other indices and make the breakout move, particularly as they are the most economically sensitive. If they roll over here that is not a good sign for the rest of the market.
SP600 CHART: http://investmenthouse.com/ihmedia/SP600.jpeg
DJ30
Nice orderly action even with the more substantial triple-digit loss. It tapped just over the 10 day EMA on the low and rebounded to almost slip back into double digit losses. Volume was up, but just marginally. It held above the early April closing highs on the close and is just below the key 12,750 resistance level. Still a good test, still in solid position to continue its break higher.
Stats: -104.79 points (-0.82%) to close at 12720.23
Volume: 215M shares Tuesday versus 192M shares Monday. Some higher trade yes, but still very low and very far below average.
DJ30 CHART: http://www.investmenthouse.com/ihmedia/DJ30.jpeg
WEDNESDAY
Crude oil inventories are out Wednesday as the sole scheduled economic data point, but it is a huge one. Oil is on an irrational tear higher; there is a one-way ticket right now, and that is upside because the dollar sellers have an express ticket to the downside thanks to our government that feels a weak currency is good for the economy. As pointed out a couple of weeks back, while there are benefits from increased exports, the detriments from importing inflation are exacting a terrible toll on small businesses and consumers who are not a part of the exporting group. Add to that the decision to tie food prices to energy prices with the ethanol program, and we have the recipe for a real disaster ahead just when you would expect the economy to start coming out of the housing problem.
It is hard to imagine inventories driving prices higher, but when a market is as out of control as oil, anything is possible. We saw what impact $119/bbl oil had on the market midday; if it jumps higher we could see more sell programs hit and really start to crater the rally. If the build in gasoline and heating oil improves and prices decline, that could help stocks out.
Earnings are still in the drivers seat, and after hours there were some solid results. YHOO beat but it was not the effort most looked for given Microsoft's less than honorable intentions in taking it over. If that was the best it could do, it wasn't all that great and MSFT shouldn't have to raise its offer much.
YHOO's earnings won't have much impact on the market. It is a kept stock right now thanks to MSFT's bid. More to the point, VMW beat and exploded higher. YUM in the restaurant sector beat and guided higher; that flies in the face of a weaker consumer. CYMI beat after hours and screamed higher as well. BRCM beat and was up over 7%. BRCM is an effective counter to TXN because it makes integrated circuits that are in many devices. Unlike Monday night, techs were moving higher after hours in the wake of this last batch of earnings.
Stocks were coming back from the lows already on Tuesday afternoon, and this news will help . . . if nothing comes out in the morning wash of earnings that undermines them. We took some positions into the close Tuesday, and we are going to look for this pullback to generate more upside buys in solid stocks that pulled back in this test and are in position to buy if the pullback holds and the rally resumes. As noted, one day of distribution does not kill a rally, so we are still looking for those upside buys as the indices recover again.
Support and Resistance
NASDAQ: Closed at 2376.94
Resistance:
2378 is the mid-February peak
2379 from the October 2006 peak
2386 is the August intraday low
The 90 day SMA at 2383
2392 is the April 2008 peak
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 2533
Support:
2370 from the April 2006 peak
2340 from the March 2007 low
The 50 day EMA at 2338
2296 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 1375.94
Resistance:
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
The 200 day SMA at 1439
Support:
The 90 day SMA at 1371
1374 is the March 2007 closing low
1370 is the August 2007 intraday low
The 50 day EMA at 1355
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 12,720.23
Resistance:
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
The 200 day SMA at 13,085
13,092 is the December 2007 intraday low
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:
12,573 is the mid-February high
The 90 day SMA at 12,564
12,518 is the August intraday low
The 50 day EMA at 12,495
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): 4.93M actual versus 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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