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world stock market, us stock market
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5/07/08 Stock Split Report Update
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Stock Split Report Subscribers:
MARKET ALERTS
Targets hit alerts: None issued
Buy alerts: None issued
Trailing stops: HCBK
Stop alerts issued: AMZN; CELG
The market alert service is a premium level service where we issue intraday alerts relating to the general market conditions, when stocks hit action points (buy, stop, target, etc.), and when we see other information impacting the market or our stocks. To subscribe to the SSR alert service you can sign up at the following link:
http://www.investmenthouse.com/alertssr.html
SUMMARY:
- Sluggish start, early bounce turn into selling as financials lead market lower
- Pending home sales still pending as housing continues to trail off.
- Dollar higher again, gold is lower, but not oil
- Nothing wrong with consumer credit.
- Indices, leaders need to hold this general range to keep the drive alive.
Sellers show up as market loses its bid at resistance retry.
A nice quick and orderly test of near support through Monday and then a bounce back to resistance on Tuesday set the market up for a breakout attempt over that next step. It did not get the catalyst needed, however, to take that step. Cisco's Chambers was not gushing enough after the subdued outlook Tuesday afternoon, and even though productivity was much better than expected and suggesting, as is gold, that inflation is losing its momentum, that was not enough for investors to keep the wallets open.
There was an early attempt at a recovery as all indices rebounded off a sluggish open, and that pushed NASDAQ back up close to 2500 and DJ30 to the 200 day SMA even as pending home sales continued their slide (-1% as expected, -20.1% year/year). That is where the bounce ended, however, as stocks peaked midmorning and then turned lower. Rumors regarding AIG's earnings out Thursday circulated and that undermined the financials that proved an integral part of the Tuesday market rebound. The financials plunged toward the bottom and eventually dragged everything with them. Not attempt at a bounce. DJ30 peeled off 223 points high to close. NASDAQ 58 points. Pretty sharp drop.
Oil is ever-present right now as it trades over $123/bbl (123.84, +2.00). It was up again even as the dollar climbed back from some Tuesday retrenchment. It appears that demand is trumping the dollar as far as oil is concerned. While other commodities do not appear to have de-linked similar to oil, they may just do that as well. Wednesday many commodities were still strong even with the stronger dollar, same as oil. Demand trumps all, but the dollar weakness certainly revved up the gains in commodities the past year.
TECHNICALLY the intraday action was the reverse of Tuesday. Whereas the market bottomed midmorning Tuesday, Wednesday stocks peaked midmorning then sold all session. The downside action suffocated the life out of any attempt to move higher before it ever had the chance to spark up.
INTERNALS: Breadth broke its narrow range and it did so on the downside move. Volume was up above average on NASDAQ and up, though still well below average, on NYSE. That demonstrates some distribution as NASDAQ trade kicked up to the downside. NASDAQ is a key leader here, and we don't want to see the volume continue in this wrong direction. That said, a rally can survive a day of distribution; it did it so just over a week ago. It will have the opportunity to do so again.
CHARTS: The indices rallied back to resistance Tuesday and they continued higher early Wednesday, tapping those resistance points. That was it; they turned tail from there. SP500 and DJ30 fell to the 18 day EMA while NASDAQ managed to hold near its 10 day EMA, though it did fall through it on the close. They are still okay at this juncture but they need to hold the line in this range to keep the break higher on firm footing. Lots of talk on the financial stations about the SP500 testing the 1405ish level and then stalling. It may be that the market is in for another 50% retracement of the lat move as it put in on the prior pullback from the rally off the March low. That would put NASDAQ roughly back at its 50 day EMA, another 60 to 65 points to the downside. Watching the volume and how leaders perform on that move is, as always, key.
LEADERSHIP: The strongest sectors were energy and metals, and they were mixed in results. Most everything got nicked, but most of our positions in leading stocks in leading sectors easily held near support. Transports were hit but after a big run a bit of profit taking was no big deal for them, particularly as the pullback was on lighter trade. Indeed, that was the action for most of the leadership sectors. That said, it is important that they hold near these levels.
THE ECONOMY
Dollar has some strength to it.
Without any help from the administration, the dollar is putting together a decent bottom and a break higher. It has already formed and broken higher from an 8 week double bottom with handle. It faded early this week and many said the move was over. It has been in a nasty downtrend, and that is the easiest assumption.
The Fed, however, changed the game with its 'just right' combination of stimulus that targets liquidity where it is needed without flooding the world with more dollars and obviates the need for more sledgehammer-esque rate cuts. We didn't think it could do it on its own, but necessity is the mother of creativity, and the Bernanke Fed showed it has the brains and the guts (or the desperation?) to give new ideas a try.
The dollar broke higher off its base on the lows, tested, and was back up on Wednesday, continuing the breakout move. Not a huge breakout; this is just the start and it could very well just be a relief move in an larger, ongoing slaughter of the dollar. Certainly we have not changed our policies to warrant the rebound other than the Fed figuring out a way to do its job without unending Greenspan-like cuts. Thus any stock or currency can rebound from a flogging for a while. The dollar has yet to prove a long term recovery, but you take it as it comes.
There is something interesting about this move in addition to the dollar simply getting off the mat. As the dollar recovers gold continues to fall. Gold closed at 870.30, down $7.40 on Wednesday as the dollar closed higher.
This is no accident, i.e. the inverse moves in the two. As the dollar strengthens we reduce our inflation pressures. Not only does the Fed no longer need to cut and thus push the inflation button further, every tick higher in the dollar reduces our inflation factor. Many goods are priced in dollars, and as it strengthens it takes less dollars to buy it. A rising dollar reduces our inflation pressures from China as its currency is tied to our currency. Repeat that many times over with our trading partners. Even if the currency is not directly tied to the dollar, a stronger currency makes all good cheaper. Instant inflation relief. It is almost mindboggling that our administration would pursue its weak dollar policy with this obvious and very real relationship. Just as the old commercial about smoking said, like father, like son . . . think about it.
Consumer Credit surges well past expectations.
Consumer credit blew past the $6.0B expected, posting a $15.3B reading for March. Yes it is now May and oil prices are higher, but there certainly wasn't much keeping the consumer from using the old credit card and other forms of 'you don't need money, just a little bit a month' buying means.
Okay, so is that good or bad? Some would argue it is great. After all the consumer is out spending much more than expected and thus the worries of a recession or some downfall in the consumer as a result of imploding housing prices and exploding gasoline prices are completely misplaced. Or . . . the consumer is having a hard time coming up with the cash to pay for the things he and she want to buy or need to buy and are using the plastic to fill the need to buy. After all, a lot of us out in the hinterlands are just bitter and thus clinging to guns, closed borders, and religion. Guess that is why I bought a new Glock, sat on border watch as I read the Bible and gave to the church last week. All on credit cards of course.
The truth? While you would think we had run off a cliff economically, that is simply not the case. Yes there is a slowdown and a significant one, but even if it is going to be the worst since the Great D as some say it is not there yet. The wheels of commerce have not seized up yet. There is no doubt a lot of money is going into the gas tank and is not going into anyone's pockets other than the evil oil companies (who almost all went out of business during the bust of the 1980's; it is a wickedly cyclical business with true boom and bust cycles). Regardless of what you think about them, the money that goes to them is not being fully circulated back into the economy even if they are spending money on more exploration. Thus there is not the same stimulus you get from consumers spending disposable income on products and services.
Even with that drain, consumers were spending in March and likely in April as well and it was not just last ditch use the credit card and damn the creditors survival spending. There is still spending on wants and not just needs. With gasoline at $3.60/gallon nationally and going higher based on this oil spike and refinery run slowing the past two weeks, however, the pain at the pump is getting onerous. It won't take much more of an increase in gasoline prices before the line is drawn. Last month demand fell 7%. That is going to climb as oil and gasoline continue to climb. That will start to impact the consumer's psyche and that means more slowing in spending. At these levels that is inevitable.
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: 19.73; +1.52
VXN: 23.51; +1.63
VXO: 20.29; +2.47
Put/Call Ratio (CBOE): 1.03; +0.21. Back over 1.00 on the close after a week's hiatus, but still plenty of 1.0+ closings the past two months to keep a backlog of negative days.
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: -44.82 points (-1.8%) to close at 2438.49
Volume: 2.281B (+6.28%). Volume jumped above average as the techs pulled back from resistance. Some distribution, the third in the past six sessions though one of those was end of month trade and the other was marginal. Don't want to see anymore anytime soon, however.
Up Volume: 422.726M (-1.196B)
Down Volume: 1.842B (+1.338B)
A/D and Hi/Lo: Decliners led 2.54 to 1. Broke from the tame range and it was of course on the downside.
Previous Session: Advancers led 1.4 to 1
New Highs: 61 (-15)
New Lows: 100 (+44)
NASDAQ CHART: http://investmenthouse.com/ihmedia/NASDAQ.jpeg
NASDAQ tapped at 2500 and then fled lower, closing just below the 10 day EMA (2442) though managing to hold above the February peak quite easily (2413). Next is the 18 day EMA at 2416; a pullback to there down to the February peak would not be unusual. As noted above, if NASDAQ retraces 50% of its rally from mid-April and that low, that would take NASDAQ down near 2375 and the 50 day EMA.
NASDAQ 100 (-1.97%) sold through its 200 day SMA and closed right at the 10 day EMA at 1948 where there is also price support. Higher volume so some distribution, but also still in excellent position to move back up from this test, and this is a prime spot to do just that.
SOX (-1.36%) barely budged compared to the other indices, continuing its lateral move right at the November low and above the 10 day EMA. Still looks really solid, and along with the NASDAQ 100 represents solid positives for further upside without a lot of downside first.
SP500/NYSE
Stats: -25.69 points (-1.81%) to close at 1392.57
NYSE Volume: 1.278B (+3.6%). Volume edged higher but was still well below average. As with the upside, there was plenty of indecision on this downside session.
Up Volume: 221.379M (-615.838M)
Down Volume: 1.048B (+669.479M)
A/D and Hi/Lo: Decliners led 2.56 to 1. Yes the downside breadth broke out on its own as well here at the NYSE.
Previous Session: Advancers led 1.66 to 1
New Highs: 28 (-72)
New Lows: 27 (0)
SP500 CHART: http://investmenthouse.com/ihmedia/SP500.jpeg
Tapped at the 2003/2004 up trendline for the second time in a week on Tuesday, and that was all it had in it for now, falling through the 10 day EMA and the early February peak before landing near the 18 day EMA on the close. Not a great one session point loss, but technically it remains in solid position and volume was overall light. A hold at the 18 day EMA (1388) would be sweet, but the 50 day EMA at 1371 looks like a magnet unless some financial earnings are a surprise. Not holding our breath for that.
SP600 (-1.48%) fell as well; no surprise there. It did hold nicely at the 18 day EMA, and while that puts it below some of the peaks in its 4 month base it was no breakdown. Good range to hold.
SP600 CHART: http://investmenthouse.com/ihmedia/SP600.jpeg
DJ30
The blue chips turned back from the 200 day SMA without a fight, giving up the low hit Tuesday on that test and rebound, closing right at the 18 day EMA. Volume was up, matching the end/beginning of month volume from last week. Still above the key 12,750 level, and that is where we want to see it hold, or close to it, on this test.
Stats: -206.48 points (-1.59%) to close at 12814.35
Volume: 233M shares Wednesday versus 199M shares Tuesday. Volume running higher, though still below average, on a 1.6% downside session. Not the best scenario.
DJ30 CHART: http://www.investmenthouse.com/ihmedia/DJ30.jpeg
THURSDAY
Initial jobless claims will still be high enough to show no real recovery and wholesale inventories will be higher, indicating a slowdown in manufacturing, sales, or both. In short, not expecting much of a boost from the economic data, and frankly it is not the kind that is going to make a big difference unless weekly claims fall to 300K or so, but then no one would believe it. It is a lose/lose situation on some economic data for now. Well, not totally. The data is showing signs of trying to change, and a bit better than expected read will help foster that idea in investors' minds. Again, this is not the kind of data that will make a huge change in itself.
Earnings again were not lighting up investors after hours either. News Corp was so-so. CROX produced an upside surprise. Wow. After an abysmal start to the season some tech earnings got the rally going again. Now the rally is under some pressure and another catalyst is needed. Some good earnings would help but again, they were not there after hours.
Stocks were not tanking after hours and indeed showed an uptick on the QQQQ when all was digested. Nothing big, no real catalyst, and thus we can expect the sellers to take a few more shots Thursday given their success in pushing stocks lower on some stronger volume after trying next resistance once more and failing to make the cut. Don't really want to hang around for a deeper test, that 50% retracement, so if stocks cannot rebound from some early selling or if they try a higher open as the modest gains after hours suggest but cannot hold the move, it would be prudent to take some gain off the table, see how things shake out, and then step back in.
Note that many leaders and thus many of our positions held up just fine in the Wednesday selling. Yes they pulled back but for the most part volume was lower and they held near support. If they crack that and cannot recover it would, again, be prudent to bank some gain, see where they bottom out, and move back in when they start to rebound. Not too much damage done on the selling, but the market can give back quite a bit more and still be in a 'typical' technical advance.
Support and Resistance
NASDAQ: Closed at 2438.49
Resistance:
The 10 day EMA at 2442
2451 is the August closing low
Some modest resistance at 2500 from interim August lows.
The 200 day SMA at 2520
2602 is an old trendline from summer 2004/summer 2005
Support:
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 2375
2370 from the April 2006 peak
The 90 day SMA at 2357
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 1392.57
Resistance:
1396 is the February 2008 peak
The 10 day EMA at 1399
1406 is the August and November 2007 closing low
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 1430
1446 from the December low
Support:
1387 is the April 2008 intraday high
The 50 day EMA at 1371
1370 is the August 2007 intraday low
1374 is the March 2007 closing low
The 90 day SMA at 1362
1332 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 12,814.35
Resistance:
12,845 is the August closing low
The 10 day EMA at 12,890
The 200 day SMA at 13,034
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
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 12,641
12,573 is the mid-February high
12,518 is the August intraday low
The 90 day SMA at 12,506
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): 2.2% actual versus 1.5% expected, 1.9% prior (revised from 1.8%)
Pending home sales, March (10:00): -1.0% actual versus -1.0% expected, -1.9% prior
Crude oil inventories (10:30): 5.7M actual versus 1.6M expected, 3.8M prior
Consumer Credit, March (3:00): $15.3B actual versus $6.0B expected, $6.5B prior (revised from $5.2B)
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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