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money investment, investment help
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5/08/08 Investment House Daily
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Investment House Daily Subscribers:
MARKET ALERTS:
Targets hit alerts: DRS
Buy alerts: MEA
Trailing stops: MOD
Stop alerts issued: Dumped some positions to free up some money. IMCL; LOW; NKE; PTNR; URBN
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SUMMARY:
- Retail sales help drive a modest rebound from the Wednesday selling.
- Retail sales show continued bias toward discounters but teen retail makes a comeback.
- Sales jump, driving wholesale inventories lower.
- Some good buys setting up if the market can bounce off near support.
Stocks rebound as commodities surge, holding near support.
Same stores for April are out and once more they favored the discounters such as WMT and COST with their low prices on goods and gasoline. There was a twist, however, as some teen retailers came back from a March slowdown. Jobless claims were improved at 365K (375K expected) as well. Even with oil surging again (124.43, +0.90) and the ECB holding EU rates steady at 4% and thus pressuring the dollar, stocks were up early.
It was very choppy trade, however, up and down all morning but managing to hold modest gains. Opposite of Wednesday, the market bottomed at the 'usual place,' i.e. midmorning, and then rallied into mid-afternoon. Of course with the undecided action it almost gave it up in the late afternoon. When the bell rang the indices hung onto a modest gain. Lower volume, modest breadth. Not much of a rebound from Wednesday, but it did hold near support.
TECHNICAL. A very choppy session with no real trend, just a loose move higher from open to close with a lot of mileage burned up in between. About all you can say is that the indices held near support.
INTERNALS: Very modest with flat breadth and lower volume on the upside, not a great response to the higher volume Wednesday selling when the indices stalled at resistance. Modest price gains, modest internals, basically pausing to catch its breath after the Wednesday selling.
CHARTS: The indices managed to hold above near support, and that is about all they could muster. Now with the downside momentum at the Wednesday close, holding at near support at the 18 day EMA is not a bad thing. It shows the sellers were not all that strong and it leaves the indices in good position to attempt a higher low and take on resistance yet again . . . if they get a reason to do so.
LEADERSHIP: Energy, metals - - basically all commodities - - took the point Thursday. Commodities were one of the few strong areas Wednesday, but even they were mixed on that session. Thursday they were back in the game in a big way. Some large cap techs were up as well, but they were not exploding upside, just rebounding a bit. Transports were not bolting higher either, but they were holding support and are set up well to move higher once more. Leadership is still poised to move and just needs a reason to do so. Earnings are just about over, so that leaves economic data such as improving reports and a stronger dollar. The latter is hanging in there and the former is showing signs of improvement. Thus the leaders are hanging in at near support.
THE ECONOMY
Teen retailers get a boost from Easter.
It was good to see stocks such as ARO post a 25% increase in April sales and BKE sales jump 34%, moving up to join company with WMT and COST with rising sales. Good, but likely not the return of others to sales growth just yet.
Easter was early and that helped boost sales and some pretty easy year over year comparisons as a result. Thus far this year sales are roughly running 1% growth per month, down from 2.6% in 2007 and 3.7% in 2006. If you combine March and April to account for the shifting Easter date you get 0.9% in 2008 and 2.1% in 2007. Just not that solid, though at least they are up. Soaring energy costs, lower home prices, 4 months of jobs losses, and higher food prices are taking their toll.
Stores noted a definite decline in discretionary purchases. Apparel and home-related purchases were two areas hit hard and many apparel and department stores suffered as a result. SKS reported a strong 24% increase in sales, but management lamented it was due to some serious price cutting; if it had not done so it noted sales would have been much lower.
Thus it is too easy to get overly enthused by the retail results. One month improvement is good to see. Two months is great. Three is pretty much confirmation.
Inventories decline as sales jump.
Wholesale inventories fell 0.1% in March the first decline in the past five months. Not just a decline, but well off the 0.9%, 1.3%, 1.0% and 0.7% gains in the prior months. Sales leapt back to +1.6% from -0.5% in February, driving the inventory to sales ratio to 1.09 mos., down from 1.11 in February.
Strong sales in March, January, and November have kept inventories low; it is not just function of companies producing less. Wholesalers are still able to sell what they are stocking, and that is one reason we saw that GDP hold at 0.6% in Q1 versus slipping toward or into negative territory.
As is always the question, can the chain from manufacturing to the consumer remain intact even as oil prices top $120/bbl and gasoline heads toward $4/gallon? It defies logic that the economy has held this well with the 100% climb in oil prices. Each time oil shows a sign of cracking it is driven higher by a combination of speculation and demand. It is not all speculation driving it. There are a lot more players in the world than in past times of spiking prices. In the 1970's, China, India, Asia, and Brazil were not in the game. They are in it big time now and that means more demand even when the US economy falters.
Thus there is little likelihood of prices diminishing just because the US slows (it has not done a thing to stop it as our GDP growth fell from 4+% to 0.6%). That will only pressure the US economy further as consumers have to put more disposable income into the fuel tank and continue what is turning out to be one of the greatest wealth transfers of all time, i.e. from western nations to oil producing nations, many of which would just as soon use that money to do us harm.
Do we ever need to incent the development of non-combustion engines to wean the vehicle fleet off of gasoline. The advantages of doing so are more than just getting off OPEC reliance. The technology would bring new wealth and increase our standard of living as we reap the benefits of technological leadership, reallocating oil money to other more worthy endeavors, health benefits, pollution reduction, etc.
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: 19.4; -0.33
VXN: 23.18; -0.33
VXO: 19.09; -1.2
Put/Call Ratio (CBOE): 0.89; -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: 44.4%. Bulls continue to rise, posting the sharpest increase in a month, rising from 40.9%. The rally is having its impact, pushing bulls higher, up from 39.1% 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: 32.3%. Interestingly, bears rose from 31.8% even with the market rising overall. Down from 35.6% the prior week and 38.9% the weeks 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: +12.75 points (+0.52%) to close at 2451.24
Volume: 2.058B (-9.77%). Volume faded below average on the modest gain, indicating there was no accumulation. Price/volume has turned a bit for the worse the past two sessions.
Up Volume: 1.261B (+838.367M)
Down Volume: 770.638M (-1.071B)
A/D and Hi/Lo: Advancers led 1.13 to 1
Previous Session: Decliners led 2.54 to 1
New Highs: 28 (-33)
New Lows: 114 (+14)
NASDAQ CHART: http://investmenthouse.com/ihmedia/NASDAQ.jpeg
Nice hold at the 10 day EMA (2443), showing a tight doji on the candlestick chart at this near support. Good recovery from the higher volume Wednesday selling, and the hold at the near support puts it still in position to make a new run at the 200 day SMA resistance (2519) again. While it did hold support it was not a strong session for NASDAQ; it would be no issue but for that higher volume selling Wednesday. As noted Wednesday, a day of distribution won't sink a rally, and NASDAQ's technical pattern remains very solid. Thus we will continue to look for opportunity if NASDAQ holds here and breaks higher once more.
NASDAQ 100 (+0.79%) gapped higher and showed a nice tight doji on the candlestick pattern, holding the 200 day SMA on the low and rebounding. Excellent position to make the break higher and take on 2000, the next key resistance level.
SOX (+0.57%) continues to move laterally at 400 as the 10 day EMA rises to push it further. Another session or two and SOX is ready to make the next break higher and challenge the 200 day SMA.
SP500/NYSE
Stats: +5.11 points (+0.37%) to close at 1397.68
NYSE Volume: 1.211B (-5.23%). Lower volume as the NYSE indices held near support.
Up Volume: 650.866M (+429.487M)
Down Volume: 551.282M (-496.78M)
A/D and Hi/Lo: Advancers led 1.38 to 1
Previous Session: Decliners led 2.56 to 1
New Highs: 80 (+52)
New Lows: 90 (+63)
SP500 CHART: http://investmenthouse.com/ihmedia/SP500.jpeg
SP500 started higher as well. It slipped negative midmorning with that dip lower, but it held near support at the 18 day EMA and rebounded for a gain, closing just below the 10 day EMA. Definitely struggling at the old 2003/2004 trendline, unable to punch through just yet. As with NASDAQ, the hold at near support gives the opportunity to make another run at resistance at 1424. The question now is will it take it or have to retrace more of that April to May gain.
SP600 (+0.25%) fell below its 18 day EMA intraday and then rebounded to close above that level though below resistance at 380 to 385. Still following versus leading.
SP600 CHART: http://investmenthouse.com/ihmedia/SP600.jpeg
DJ30
Similar to SP500, the Dow tested the 18 day EMA on the low, holding easily above 12,750 as well before rebounding for a modest gain. In position to take on the 200 day SMA (13,030) if it gets a catalyst, but the session lacked power and that leaves open a test of 12,750 or even the 50 day EMA (12,650) before it is ready to try again.
Stats: +62.43 points (+0.41%) to close at 12866.78
Volume: 195M shares Thursday versus 233M shares Wednesday. Volume declined considerably so there was no rush to buy the blue chips after they were sold on Wednesday.
DJ30 CHART: http://www.investmenthouse.com/ihmedia/DJ30.jpeg
FRIDAY
The trade balance is out before the open, and with oil surging and the dollar just now getting its feet under it, 'balance' is not really the word for it.
There were earnings after hours with AIG missing due to some big write-downs, but it upped its dividend. Didn't seem to help; AIG was off almost 4 clicks after hours. PCLN on the other hand posted nice results and exploded higher. Of the two AIG will likely have more impact as the financials continue to struggle, and with that, SP500 continues to struggle as well.
There are still many quality stocks setting up to break higher again, and if the indices find the catalyst they will take off and we can move in. Even if the indices don't some of these leaders will break higher anyway. That is one reason we closed some positions that were not performing so we could take advantage of these stocks as they break higher. Some we already own and are looking for more. Others are going to be new buys.
Patience is a virtue in many situations, and it will be here as well as we wait for the indices to get through with this pullback and tell us how far they are going to go, i.e. whether this test of near support is sufficient or if some further retracement is necessary. With DJ30 sitting on top of the peaks in its base and SP500 doing roughly the same, this is a great point to break higher as a show of continued buyer support. Of course a breakout over next resistance shows even greater support, but it is a one day at a time affair here.
Overall we still like what the market is showing. We like that many are resigned to the rally heading back down in the trading range at this point. We like that many good stocks are still in excellent position to move higher after this test. We like the modest improvement in economic data. We like that earnings didn't totally reek. Thus we are going to continue looking for opportunity to play a further move higher, but move in when there is a catalyst versus just stepping in and hoping things don't slide another few percent on the indices before they find the floor.
Support and Resistance
NASDAQ: Closed at 2451.24
Resistance:
2451 is the August closing low
Some modest resistance at 2500 from interim August lows.
The 200 day SMA at 2519
2602 is an old trendline from summer 2004/summer 2005
Support:
The 10 day EMA at 2443
The 18 day EMA at 2420
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 2379
2370 from the April 2006 peak
The 90 day SMA at 2355
2340 from the March 2007 low
2302 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 1397.68
Resistance:
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:
The 18 day EMA at 1389 held Thursday
1396 is the February 2008 peak
1387 is the April 2008 intraday high
The 50 day EMA at 1372
1370 is the August 2007 intraday low
1374 is the March 2007 closing low
The 90 day SMA at 1361
1335 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 12,866.78
Resistance:
The 10 day EMA at 12,886
The 200 day SMA at 13,030
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:
12,845 is the August closing low
The 18 day EMA at 12,816
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 12,650
12,573 is the mid-February high
12,518 is the August intraday low
The 90 day SMA at 12,500
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): 365K actual versus 375K expected, 383K prior (revised from 380K)
Wholesale inventories, March (10:00): -0.1% actual versus 0.5% expected, 0.9% prior (revised form 1.1%)
May 9
Trade balance, March (8:30): -$61.3B expected, -$62.3B prior
End part 1 of 3
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