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us stock market, trade stock
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4/30/08 Investment House Daily
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Stop alerts issued: FLR
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SUMMARY:
- Market likes eco data, earnings, but spits the bit as FOMC not hawkish enough.
- Investors use upside bounce to take some gains at month end
- Dollar falls post-FOMC, aiding the anti-dollar stocks
- GDP fights off technical recession
- FOMC does not toss out the hard work done to this point, but some wanted just that.
- Gold still telling inflation worriers to back off.
- First of Month New Money versus Friday jobs report. Who will lead post-Fed?
Fed plays Mr. Nice Guy but the inflation hawks wanted more.
There was plenty of good enough data with GDP solidly above negative (0.6%, 0.5% expected), ADP jobs at 10K versus expectations of -60K, the Chicago PMI ticked higher (48.3 versus 47.5 expected, though still contracting), and earnings were solid. FSLR, PG, GM, DF, K, CMI, PNRA, etc. all beat. GRMN the GPS maker seemed to be the only miss as it still tries to find out just where it is.
All was solid and the market started modestly higher and build strength into the FOMC meeting. It was a decent rally that really kicked in just before the FOMC meeting; some short covering no doubt. The Fed issued a 25BP cut that wasn't needed, then it released a statement that was not overly aggressive on the inflation front though it said it would keep watching for it.
It seemed to be a pretty good mix as the Fed said it was not going to undo what it had just done and would keep adding liquidity via its facilities, implying that it would not need any more rate cuts while it watched to make sure inflation didn't get out of control. That worked for about a half hour but then the inflation vigilantes took over and started selling the dollar once more. Apparently it was not enough to imply rate cuts were ending; they zealots wanted a statement that the cuts were over. The dollar was sold and with it equities lost their footing as the growth areas that were set up to move and were indeed moving higher were sold.
That burned a modest 25 point gain on NASDAQ and a 100+ point move on DJ30, turning the indices lower by the close. There was no threat to their patterns as they all easily held above the 10 day EMA, but you don't like to see a rally attempt squandered and then sold on higher volume. There were extenuating circumstances of course, not the kind you get every day. It was an FOMC meeting and it takes a couple of days for the real market sentiment to stand up. It was also the month end and with the surge higher intraday it was a perfect time to book some gains and then get ready to start moving back in May. Thus we are not reading too much into this afternoon reversal as an indication of the market's deep dark side; stocks continued the rally, and given the time of the month and the typical uncertainty post-Fed, some gains were booked.
TECHNICALLY it was not a great day but again it was a day with enough atypical influences to suggest you don't try to over-read what happened. The market started flat and rallied nicely but then gave it up late on rising volume. Not good action, but as noted above, there were reasons for this beyond a negative and nefarious foreshadowing of future events based on the Fed action.
INTERNALS: Breadth was flat on NYSE and NASDAQ. Volume rallied on both exchanges, moving to average on NASDAQ and matching last Thursdays trade on NYSE (higher but below average still). Some distribution on the reversal, and that needs to be watched but it also has to be put in the context of position shuffling at the end of the month following a Fed announcement and after a decent run in the market.
CHARTS: As noted, the indices did not give up near support, but they did give up some nice intraday moves, a move that pushed SP500 back below its February peak after clearing it once more. Disappointing to give up the move but again, no real damage done and the indices remain in good position to move higher.
LEADERSHIP: The Big 3 were rebounding some Wednesday after selling, and some gained some volume as they did. For the most part, however, they looked to be relief moves from some pretty serious selling, rebound moves aided by the dollar's fall after the Fed's rate cut. Transports remain solid. Techs sold back after intraday gains and are thus still in their patterns though it needs to play out just what that late selling meant for them. The session was a modest setback for stocks trying to set up to move higher what with the intraday reversal action, but it didn't wreck many patterns along the way. We will have to see what re-emerges when the new money for May gets spent.
THE ECONOMY
GDP holds positive but it sure feels like a recession.
The textbook says you have to have 2 quarters of negative GDP growth to have a recession. Without those two back to back negative quarters there simply is no recession. Figment of the overactive imaginations of television economists.
Right. If you are growing at 4+% and then you fall to the 0.6% range and the other data is bad enough to make you wonder if you are in a recession, guess what? You are in a recession. As one star-crossed teenager told her parent in response to a statement she just thought she was in love, if you think you are in love, you are in love.
So the politicians and textbook writing economists can all breath a sigh of relief; we are not in recession. Real finals sales were down, durables fell 6.1%, non-durables dropped 1.3%, equipment and software lost 0.7%, business investment fell 2.5%, and housing declined 26.7%, but there is no recession.
Why was the number positive then? Because exports were up 5.5% thanks to a pitifully weak dollar. Take out trade and GDP growth was negative for the first time since 2001. Wow. Trade due to the weak dollar 'saved' the economy. Well, as we have discussed in weeks past, that is not 'saving' us. The problems caused by a weak dollar and the inflation we are importing far outweigh the modest benefit a few derive from increased exports. Just look at earnings season: nearly all large cap companies reported foreign sales that far outweighed domestic sales. Here in the US things are not great.
Of course they are not falling off the cliff either. They are not in recovery mode yet, but the declines are not the kind that evoke severe recessions. Chicago PMI rebounded some as well; these regional results are showing some signs of firming after a spate of steady weakness. Modest improvement, but showing a bit of life.
The market is trying to continue its move, and its success is the best near term indicator of economic activity . . . to come. The market steps out ahead of the economy. We see it over and over again. In late 2002 the market made its second bottom amid cries that the traditional indicators just didn't work anymore. We were buying on that as well as the solid patterns setting up. When that move was tested and formed its handle in early 2003, it was called a bear market rally failure with more selling to come. The price/volume action did not match that conclusion, however, and there were solid leaders (e.g. EBAY, TSCO) setting up to move higher from nice bases. The market broke higher and rallied with fury. In Q3 of that year GDP grew 7.3%.
Thus, if this rally can gain strength and continue its move, that bodes better and better for the economy. Thus far it has moved up and there is leadership, but there is not power. We still need to see that raw strength come into this move for it to be really convincing. The leadership is great; it is a prerequisite for a successful move. But you have to see the strength take over at some point.
The Fed almost does the right thing; it was close enough.
It didn't need to cut 25BP given its success with the liquidity facilities it has come up with, but it did. One commentator said the Fed liked round numbers. Whatever. It gave an easy one it didn't need to give.
Outside of that we really liked what the Fed had to say. It did not turn from a Fed slashing rates and creating new and innovative liquidity creations one meeting to a hawkish, ready to hike rates at any moment vigilante the next (new word for the night: vigilante). Instead it said it had provided some very good liquidity with its rate cuts and facilities and said it would use its facilities as needed. That implied it would not be cutting rates anymore as the 25BP did as well: after 75BP, 25BP was basically a peck on the cheek goodbye. There was a 25BP cut in the discount rate as well (the overnight lending rate to banks) and that also signaled the Fed was not abandoning its new-found methodology for fighting the credit and housing crises.
The Fed also took out its reference to the downturn in economic growth ("downside risks to growth remain"). It also repeated its prior statements regarding inflation improving somewhat but that energy and commodity prices were rising and raising inflation expectations. It still believes they will moderate but will keep watching. Of course, it makes you wonder where they have been if the Fed believes inflation is improving, but it is also true that the Fed does not like to change a lot of statement language each meeting because it gets everyone doing what we are doing now: hyper-analysis of what was said and not said. Overall, however, the continuing language about inflation being an issue and the drop of the language about phrase regarding downside risks, it was clear the Fed is closing the book on rate cuts.
Gold falls again despite the Fed's easy talk.
Is there really inflation springing up anew in the wake of the FOMC decision? The inflation hawks would have you think so and they sold the market Wednesday. But look at gold: it fell another 11.70, down to $865. Down almost 14% from its peak, and that fall coming just as the Fed initiated its credit facilities.
It is no coincidence that occurred. The Fed's targeted approach put the liquidity where it was needed without dumping it in bundles from helicopters as is the case with rate cuts. Gold peaked at that point, the stock market started this rally, and the dollar started to base and break higher. Gold's action Wednesday, despite the dollar sellers and the market slump, tells us that one of the true measures of inflation didn't think the Fed's failure to mention it was done cutting was a sign of inflation ready to surge.
The dollar falls post-Fed, but was there damage?
The dollar sellers took their shot and sold the dollar once more. It slumped versus the euro. That led a lot of speculation that the recent dollar rally was done, over, dead . . . choose your favorite description.
It was down for the day, but the move did not wreck the dollar's recovery. It crossed the 50 day EMA intraday and looked solid, but it gave it up. It thus continued its 3-day lateral move below that next resistance point at the late March peak, holding its gains and basing out for another attempt at a break higher. In short, it did not do any technical damage to its pattern, and while it is still dicey, that leaves it in solid position to make the break higher. Just as you could say that the action Wednesday indicated the stock rally was over you could say it also meant the dollar rally was over. That does not mean you would be right.
THE MARKET
MARKET SENTIMENT
More talk on the financial stations about the failed rally at SP500 1400, especially given the rollover after the break higher intraday. Certainly it has not made that break yet and it remains in jeopardy until it does, and the FOMC edicts can bring about unwanted changes in market moves, but the action still doesn't suggest that is absolutely going to happen.
VIX: 20.79; +0.55
VXN: 24.41; +0.54
VXO: 21.16; +0.64
Put/Call Ratio (CBOE): 0.94; -0.14
Bulls versus Bears:
This is a reading of the number of bullish investment advisors versus bearish advisors. The reason you look at this is that it gives you an idea of how bullish investors are. If they are too bullish then everyone is in the market and it is heading for a top: if everyone wants to be in the market then all the money is in and there is no more new cash to drive it higher. On the other side of the spectrum if there are a lot of bears then there is a lot of cash on the sideline, and as the market rallies it drags that cash in as the bears give in. That cash provides the market the fuel to move higher. If bears are low it is the same as a lot of bulls: everyone is in and the market doesn't have the cash to drive it higher.
Bulls: 39.1%. Up significantly this time, rising above last week's 37.8% where it held for a few weeks. Has now crossed back above bears, the usual positioning of the two. Fell to 30.9% in mid-March. The indicator did its job with the dive below 35% and the crossover with the bears. 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: 35.6%. Sharp decline as the market makes a rally attempt stick for now, up from 38.9% last week and 38.5% and 37.5% the week before. 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: -13.3 points (-0.55%) to close at 2412.8
Volume: 2.102B (+20.47%). Volume jumped to average on the selling and you can say there was distribution as NASDAQ reversed. True, but it was also quarter end and after a move higher some gains were banked to show up on the statements.
Up Volume: 828.307M (-159.394M)
Down Volume: 1.286B (+549.464M)
A/D and Hi/Lo: Decliners led 1.02 to 1
Previous Session: Decliners led 1.42 to 1
New Highs: 14 (-1)
New Lows: 50 (+4)
NASDAQ CHART: http://investmenthouse.com/ihmedia/NASDAQ.jpeg
Tried to extend the move over the February peak but could not do so and actually gave it up on the close. It is still easily over the 10 day EMA (2401) and we still see solid techs in good shape, setting up to move higher even as the horses such as AAPL take a breather.
NASDAQ 100 rallied up to the 200 day SMA or within spitting distance, and then rolled over back into its range for the week, still holding over the 10 day EMA. A 0.82% loss was not great, but it also did not destroy it. After testing the 200 day, it may want to take a personal day or two to end the week.
SOX (-1.50%) faded back to the 10 day EMA on the close, falling from its tight consolidation. It still remains in excellent shape, just testing its breakout move.
SP500/NYSE
Stats: -5.35 points (-0.38%) to close at 1385.59
NYSE Volume: 1.442B (+17.38%). Volume moved up but was still below average, matching the trade last Thursday when the market moved higher.
Up Volume: 640.184M (+132.842M)
Down Volume: 788.492M (+75.531M)
A/D and Hi/Lo: Advancers led 1.12 to 1
Previous Session: Decliners led 1.4 to 1
New Highs: 17 (+4)
New Lows: 13 (-4)
SP500 CHART: http://investmenthouse.com/ihmedia/SP500.jpeg
Cleared 1400 but not the 1406 resistance, then faded back all of 9 points from the high to close at the 10 day EMA. Yes it failed to take that higher level out and yes it turned back on higher volume, but the technical pattern remains in solid shape.
SP600 (-0.31%) faded back from its intraday gains as well, holding over the 10 day EMA. Nice place for a higher low and a breakout. The mid-cap SP400 remained just below its 200 day SMA, and a couple of days off won't hurt it one bit, just give it a better point to attack the 200 day.
SP600 CHART: http://investmenthouse.com/ihmedia/SP600.jpeg
DJ30
DJ30 rallied up to 13,000 and just below its 200 day SMA (13,058) before it turned in the keys for the session and closed flat. Higher trade though still below average; it was, however, the highest trade in two weeks. DJ30 remains in solid position to break higher though it is somewhat cramped by the 200 day SMA.
Stats: -11.81 points (-0.09%) to close at 12820.13
Volume: 255M shares Wednesday versus 218M shares Tuesday. Volume jumped up on the reversal, not exactly what you want, but given the month end and post-FOMC turmoil, we are not taking this as any start of a dumping session.
DJ30 CHART: http://www.investmenthouse.com/ihmedia/DJ30.jpeg
THURSDAY
Even more data with personal income and spending, the core PCE, initial claims, and the ISM manufacturing index. More earnings as well. At least there is no Fed meeting. All of this ahead of the Friday jobs report which, as we have said before, is lagging and won't mean much to the actual economy whether good or bad. It is just subject to the inadequacies of the government's data collection for now as the rest of the economic sectors try to stabilize ahead of it, though they have shown no solid indication of doing that yet.
That leaves the market with a lot to digest and muddle through Thursday and again on Friday. It typically takes a couple of sessions to figure out what to do with a Fed decision, and we see that as the case here as the Fed gave a mixed performance with the rate cut yet also indicating or implying to put it more accurately that it was done cutting rates. The dollar has to mull this as well as stocks.
While it does this we are going to continue to look to see what emerges as the next leadership group given that we are taking the Wednesday reversal as just some month end juggling that used the pre-FOMC rally to take some gains once the news was out. We could very well see some new money come in first thing Thursday, and if that initial move sticks and some good stocks show buy points, we can pick up some shares. Some. The market still has to deal with all that transpired and what is going to transpire with the Thursday and Friday data, economic and earnings.
Of course we will watch how the Big 3 react; they tried some modest moves Wednesday, but we highly suspect those were relief moves given we believe the dollar has bottomed. At this post-Fed juncture, however, we want to keep our eyes open and not get cocky and believe that just because we think so it will happen. We will watch for volume moves in and out of stocks or sectors. We will be looking at plays that are in position to move and then see where the money goes. We are still expecting growth sectors to show life if this rally is really a precursor to an economic recovery. We will be ready and willing to buy if they show the moves. At some point, however, we also need to see simply, raw market power to the upside as discussed earlier if this rally is going to really make some wake.
Support and Resistance
NASDAQ: Closed at 2412.80
Resistance:
2451 is the August closing low
Some modest resistance at 2500 from interim August lows.
The 200 day SMA at 2526
2598 is an old trendline from summer 2004/summer 2005
Support:
2419 is the January 2008 peak and the early February peak
The 10 day EMA at 2401
2392 is the April 2008 peak
2386 is the August intraday low
2379 from the October 2006 peak
2378 is the mid-February peak
2370 from the April 2006 peak
The 90 day SMA at 2369
The 50 day EMA at 2355
2340 from the March 2007 low
2298 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 1385.59
Resistance:
1387 is the April 2008 intraday high
1396 is the February 2008 peak
1406 is the August and November 2007 closing low
1421 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 1434
Support:
1383 is the 10 day EMA
The 90 day SMA at 1365
1374 is the March 2007 closing low
1370 is the August 2007 intraday low
The 50 day EMA at 1362
1329 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 12,820.13
Resistance:
12,845 is the August closing low
The 200 day SMA at 13,058
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:
12,786 is the February 2007 peak
The 10 day EMA at 12,777
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 50 day EMA at 12,568
The 90 day SMA at 12,531
12,518 is the August intraday low
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 29
Consumer Confidence, April (10:00): 62.3 actual, 61.0 expected, 65.9 prior (revised from 64.5)
April 30
ADP Employment, April (8:15): +10K actual versus -60K expected, 3K prior (revised from 8K)
Q1 GDP first read (8:30): 0.6% actual versus 0.5% expected, 0.6% prior
Chain deflator (8:30): 2.6% actual versus 3.0% expected, 2.4% prior
Employment cost index, Q1 (8:30): 0.7% actual versus 0.8% expected, 0.8% prior
Chicago PMI, April (9:45): 48.3 actual versus 47.5 expected, 48.2 prior
Crude oil inventories (10:30): +3.8M, 2.4M prior
FOMC policy statement (2:15): 25BP cut in FF rate (2%) and Discount rate.
May 1
Initial jobless claims (8:30): 360K expected, 342K prior
Personal income, March (8:30): 0.4% expected, 0.5% prior
Personal spending, March (8:30): 0.2% expected, 0.1% prior
PCE core inflation, March (8:30): 0.1% expected, 0.1% prior
Construction spending, March, (10:00): -0.7% expected, -0.3% prior
ISM Index, April (10:00): 48.0 expected, 48.6 prior
May 2
Non-farm payrolls, April (8:30): -75K expected, -80K prior
Unemployment rate, April (8:30): 5.2% expected, 5.1% prior
Average workweek, April (8:30): 33.7 expected, 33.8 prior
Hourly earnings, April (8:30): 0.3% expected, 0.3% prior
Factory orders, March (10:00): 0.2% expected, -1.3% prior
End part 1 of 3
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