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5/06/08 Investment House Alerts
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IH Alert Subscribers:
MARKET ALERTS:
Targets hit alerts: Took some interim gain on CRM, GNK; NUE
Buy alerts: CSIQ; GNA; HGT; WFT
Trailing stops: None issued
Stop alerts issued: PRGO
SUMMARY:
- Slow start with only energy & commodities up, but financials come around and so does the market.
- All quiet on the economic report front, but dollar, interest rates, gold still jockeying.
- Cisco posts solid earnings, but once more Chambers is cautious. Another a.m. switch to come?
- Still looking for a stronger breakout from NYSE.
Market comes around to the upside even as oil surges again.
The financial/mortgage/credit demons raised their heads early Tuesday. Fannie Mae posted its third consecutive quarterly loss, lost more than expected, and cut its dividend. UBS wrote off $11B more and cut 5500 jobs. More reminders that, despite some economic numbers showing a hint of promise that the worst is over, that the housing and credit issues are not close to ending.
That pushed futures lower, though not catastrophically. It did not help the overall market that oil surged over $122/bbl, hitting a new all-time high and the administration piling on with a prediction gasoline prices are going to surge another 11 cents in June. Not that energy stocks needed the help. They were up early on the surging oil prices. The dollar was off on the session as well, consolidating its recent run, and that only added some spice to the energy stocks. Many gapped higher while most of the market stumbled out of the gate. On top of that, other commodities when with them as copper moved again to a new high.
The market may have started sluggish, but by midmorning the market found bottom with the indices tapping at the 10 day EMA and then starting a slow steady rise into the afternoon. Classic rally and test action up the 15 minute EMA all session. Even with surging oil prices the transports were up and with them the rest of the market. Seems incongruous, but for now the market is rising in the face of major issues on the energy front.
As noted, there was a weaker dollar providing some catalyst to the commodities, but interestingly, even with the weaker dollar bond yields were up once more. That is not the action of a debt market that anticipates further weakness in currency and further Fed rate cuts. Thus even though the dollar took a rest, there was no change from the prior sessions that saw commodities rise even as the dollar rose.
TECHNICALLY the action was not bad. Not strong, but not bad. Intraday there was the soft start followed by a steady, all-day rally to close right near the session high. Not a great surge to new heights, but the market did have some limbs thrown in the road early on and it picked its way through them and managed a positive close.
INTERNALS: Similar to the day overall, i.e. modestly positive. Breadth was in the 3:2 range. Volume managed to creep higher on both NASDAQ and NYSE. It was a good intraday comeback on rising volume; nice action but still pretty weak on the move with NYSE volume still well below average. NASDAQ volume was a bit better, rising modestly as well but managing an average volume session. That makes average or better volume in 4 of the past 5 sessions, and overall the price/volume action is positive, i.e. more up sessions on rising volume than down sessions on rising volume. NYSE is showing positive price/volume action as well, but it definitely does not have the same strength NASDAQ is showing in terms of upside volume.
CHARTS: The indices held near support at the 10 day EMA on the opening weakness. From there they bouttomed for the session and moved right back up to close near the resistance hit on the Friday rally. That put SP500 just below its longer term trendline, DJ30 at the 200 day SMA, and NASDAQ moving back up toward 2500. Good quick test of the break higher last week and now looking at another try at that resistance. Some serious work to do after the shakeout.
LEADERSHIP: It was all energy and commodities early as they came out of the blocks riding the higher oil and copper prices. Everything was going there way with surging oil and metals prices and a weaker dollar on the session. Even with that scenario, transports rallied once again. After awhile the financials found a bid once more and came around as did the techs and chips. The market needs these areas to come to life once more to accomplish the next breakout. Cisco could have been a help but that guidance after hours was rather subdued. Will Chambers pull another 'mea culpa' tomorrow morning on CNBC as he did in February? We will see.
THE MARKET
MARKET SENTIMENT
Now that the Fed has entered the game with its credit facilities that actually work, the correlation with VIX that set up during the correction is broken. Volatility and hence VIX can decline and hold at low levels for a very long time and have no bearing on any continued rally.
VIX: 18.21; -0.69
VXN: 21.88; -0.55
VXO: 17.82; -0.56
Put/Call Ratio (CBOE): 0.82; -0.08
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: 40.9%. The rally is having its impact, pushing bulls higher, up from 39.1% last week and 37.8% where it held for a few weeks. Crossed back above bears last week, the usual positioning of the two. Fell to 30.9% in mid-March as the low. 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: 31.8%. Bears are tailing off quickly, down from 35.6% the prior week and 38.9% 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: +19.19 points (+0.78%) to close at 2483.31
Volume: 2.146B (+1.93%). Volume was up to average as NASDAQ tested lower then recovered for a gain. That shows some accumulation once more, though it was modest. Still showing good price/volume action.
Up Volume: 1.619B (+1.019B)
Down Volume: 504.219M (-978.213M)
A/D and Hi/Lo: Advancers led 1.4 to 1. Pretty tame, but it was a reversal session so not too worried about it.
Previous Session: Decliners led 1.3 to 1
New Highs: 76 (+34)
New Lows: 56 (-22)
NASDAQ CHART: http://investmenthouse.com/ihmedia/NASDAQ.jpeg
NASDAQ opened lower, found the 10 day EMA (2442) on the low and then rebounded for a gain. Volume rose to average. No great strength either way, but the action was positive with a shakeout to near support and a recovery back toward resistance at 2500 tested last Friday. Still solid action as it continues to build for its next try at the next resistance. Could have used some help from CSCO.
NASDAQ 100 (+0.75%) was running in the middle of the leaders Tuesday, showing excellent action with a test of the 200 day SMA intraday on the low and then a rebound to positive and bumping right at 2000 where it stalled Friday. Very good test and primed to break higher. If Cisco guidance was solid it would be a no brainer.
SOX (+1.55%) notched a new closing high on this rebound, moving up to the November low. Solid moves in an emerging leadership group.
SP500/NYSE
Stats: +10.77 points (+0.77%) to close at 1418.26
NYSE Volume: 1.234B (+15.61%). Volume was up but still anemic, unable to even approach average. Financials were up, but the volume again was modest.
Up Volume: 837.217M (+385.076M)
Down Volume: 378.583M (-262.082M)
A/D and Hi/Lo: Advancers led 1.66 to 1
Previous Session: Decliners led 1.33 to 1
New Highs: 100 (+67)
New Lows: 27 (+14)
SP500 CHART: http://investmenthouse.com/ihmedia/SP500.jpeg
The large cap index tested the 10 day EMA on the low then started getting some help from the financials. When they caught hold SP500 rallied to a gain, approaching the old up trendline that it tapped last Friday. It has tested the break higher, made a higher low, and now is facing that resistance. Will need some trade to make a really convincing move, but up to this point is has rallied on just so-so volume so you can rail at the shortcomings or go with the flow, just making sure you keep an eye out in the even the sellers strengthen.
SP600 (+0.43%) tested lower as well then rebounded to last weeks closing high. That puts it at the February peak, still looking for break above that level.
SP600 CHART: http://investmenthouse.com/ihmedia/SP600.jpeg
DJ30
DJ30 was the laggard on the session. It tested lower as well, holding near support and then rebounding to tap the 200 day SMA (13,040) on the high. It settled just below that resistance on the close, once again showing low volume. As with the other indices, a bounce, a test, and now facing the resistance again.
Stats: +51.29 points (+0.4%) to close at 13020.83
Volume: 199M shares Tuesday versus 197M shares Monday. Still well below average.
DJ30 CHART: http://www.investmenthouse.com/ihmedia/DJ30.jpeg
WEDNESDAY
Economic data kicks back in Wednesday with pending home sales, preliminary productivity, and consumer credit. Important but not the key data for the session. Though earnings season is on the wane the Cisco earnings topped the after hours discussion. Cisco beat by 2 cents while revenues topped expectations ($9.8B versus $9.75B). It was up until the guarded guidance that lamented the US economy. That brought it down to negative but it managed to move back to flat by the close of the late session. Similar action on QQQQ after hours.
In February CSCO looked to have brought about a new selloff in the market as Chambers talked of 'bumps' ahead. Stocks were down in the after hours. Then he came on the tube the next morning before stocks opened and backpedaled furiously (Did I say bumps? Gosh I sure didn't mean that!). It was enough to avert another serious selloff . . . at least until March.
Chambers will likely be on CNBC again (another 'first on CNBC') and we will see how he spins it this time around. Cisco, same as AAPL and MSFT, likes to manage expectations and thus typically puts out staid guidance with the intention of topping it. The market seems to appreciate and understand that, and thus after AAPL released its huge earnings and guidance that was just okay, investors figured it out and the stock is up almost 30 points since.
The indices are at a point where they need to make that next move upside. A good break higher last week by tech dragged the rest of the market up with it to next resistance. A subsequent test has held near support and bounced stocks back up to the resistance. Cisco would have been a good catalyst; may still be, but it will take something more than the after hours news.
Thus far the market has found the means to continue higher, surviving each test and gaining a bit of strength on the moves higher (at least on NASDAQ). As on Tuesday, techs and financials need to lend a hand to energy, commodities and transports to get the market over the next hump. We will continue tracking solid stocks in position to move higher, and when they show a solid break higher we can continue doing what we have been doing on this rally, i.e. moving into solid stocks as they break higher and taking some gain on early leaders as they continue their moves.
Support and Resistance
NASDAQ: Closed at 2483.31
Resistance:
Some modest resistance at 2500 from interim August lows.
The 200 day SMA at 2521
2601 is an old trendline from summer 2004/summer 2005
Support:
2451 is the August closing low
The 10 day EMA at 2442
2419 is the January 2008 peak and the early February peak
2392 is the April 2008 peak
2386 is the August intraday low
2379 from the October 2006 peak
2378 is the mid-February peak
The 50 day EMA at 2373
2370 from the April 2006 peak
The 90 day SMA at 2360
2340 from the March 2007 low
2301 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 1418.26
Resistance:
1425 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 1432
1446 from the December low
Support:
1406 is the August and November 2007 closing low
1396 is the February 2008 peak
1399 is the 10 day EMA
1387 is the April 2008 intraday high
The 50 day EMA at 1370
1370 is the August 2007 intraday low
1374 is the March 2007 closing low
The 90 day SMA at 1362
1330 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 13,020.83
Resistance:
The 200 day SMA at 13,040
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:
The 10 day EMA at 12,907
12,845 is the August closing low
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
The 50 day EMA at 12,634
12,573 is the mid-February high
12,518 is the August intraday low
The 90 day SMA at 12,511
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.
May 5
ISM Services, April (10:00): 52.0 actual versus 49.1 expected, 49.6 prior
May 7
Preliminary Productivity, Q1 (8:30): 1.5% expected, 1.9% prior
Pending home sales, March (10:00): -1.0% expected, -1.9% prior
Crude oil inventories (10:30): 3.8M prior
Consumer Credit, March (3:00): $6.0B expected, $5.2B prior
May 8
Initial Jobless claims (8:30): 375K expected, 380K prior
Wholesale inventories, March (10:00): 0.5% expected, 1.1% prior
May 9
Trade balance, March (8:30): -$61.3B expected, -$62.3B prior
End part 1 of 3
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