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5/12/08 Stock Split Report Update
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Stock Split Report Subscribers:
MARKET ALERTS
Targets hit alerts: RIMM
Buy alerts: ANSS; GNK; GOOG; MAN; NSC; NTES; UTHR
Trailing stops: PCLN
Stop alerts: None issued
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:
- Stocks snap back to start the week with tech taking the point as it needed to.
- Oil set to slide back after this last run, but no major changes Monday in it, the dollar, or gold.
- A bounce by those needing to lead, but this just sets up the next key try at resistance.
- Plenty to complain about, but getting some more leadership from other areas again.
Headwinds again but stocks overcome them, snap back from last week's selling.
FDX left the market flat last Friday with its 'see if anyone is watching' warning late in that session, but even with MBI (mortgage insurer) and its 2x loss (twice expectations) and the 7.8 earthquake in China and its issues about Chinese demand, stocks found a way to rally.
Oil was lower as anticipated, selling 1.7% during the session (after hours trading at 123.76, -2.20), and that was widely cited as the reason for stocks' resilience to start the week. There were other issues working as well, one being the indices hit support and, if they were going to, they would bounce. They did. They had some help as well as the dollar was firmer once more, RIMM was strong with the announcement of its new 'Bold' (boldberry?), and retail jumped when ANN raised its guidance. On Monday this data trumped the worries about FDX and more of the same on the mortgage front.
The day saw some mixed news with respect to leadership. Energy and metals were mixed with some up and some down. Energy struggled last week even as oil ran to new highs; thus some more indecision from these stocks is not unusual. While these leaders tried to figure things out, others stepped forward just as needed. Techs moved up as we said they needed to do in the weekend report. Large caps such as RIMM and AAPL were out in front, but solid gains across the tech sector showed more than just a large cap jaunt. Transports, despite FDX, enjoyed a nice session from truckers to ships. That is about as clear a statement as you can have as to the impact of the FDX warning.
TECHNICAL. Flat to modestly higher open then a surge on through the close. Of course that is solid intraday action, and that has prevailed most sessions in the rally as it should. Of course on the down days it tends to run the other way. No brain surgery or rocket science there, but you look at how the market is acting overall, and in this rally the market has a tendency to face less than savory news with a run higher. Thus the rally that has occurred and is trying to resume after a 1-week hiatus following three upside weeks.
INTERNALS: Not bad breadth with 2.5:1 and 2.2:1 readings on NYSE and NASDAQ. Very solid moves that went beyond a few large cap names. Volume was okay as it was up on NASDAQ though down on NYSE. That still left NASDAQ volume well below average after several sessions above that level the prior two weeks. SP500 was not even scaring average trade and indeed has not done so for 2 months. Hard to get very excited about another lower volume session as the NYSE indices move higher. Still lacking any hint of power on the New York exchange, and NASDAQ is not an overwhelming blowout with volume though it has posted several above average sessions and scared that level a few times as well.
CHARTS: SP500 was back to 1400 and that brought out the '1400-birds' watching that level as if it was magical. If enough do that it is, but recall that last time SP500 made it to the more significant trendline and stalled there; that trendline is not basically coincident with the 200 day SMA; that will be the interesting test and that is another 25 points to the upside. As for the other two large caps, NASDAQ and DJ30 bounced off tests of the February peaks, the highs in the base. That is what you want to see if they test that far, and they did give that full test that has held for now. Now they have a bead on the prior resistance but it is a long way to see if they can take it out. NASDAQ has something of a nice cup with handle base set up as it measures 2500 once more. The mid-cap SP400 broke to a new rally high Monday; hard to complain about that. SOX continues its nice lateral move, setting up its next break higher.
LEADERSHIP: As noted, metals and energy, two of the steadfast leaders up to last week, struggled as the week ended and oil shot higher, and they were mixed Monday as oil faded. Others that needed to step up once again did so with tech, transports, retail and even some financial moving higher, though most of the financials are simply still in low volume rebound mode. There are exceptions of course, but as a group they are disappointing, and unfortunately ultimately the market needs them to make a sustained move. For now they seem to be more along for the ride when the rest of the market moves higher.
THE ECONOMY
Oil set to slide back but don't bet on it being a long dump lower.
Oil was overdone after last week, underscored by the fact that as it rallied late in the week the energy stocks failed to follow and even slid lower. Monday oil sold back, trading down to 123.76, -2.20. Lower but not much of a blip given the surge higher.
Some are suggesting oil's run is ending. That could always be the case; if the economy and consumer are cracking then it could easily turn over and keep heading lower as it anticipates lower usage. Gasoline consumption is already down, and price increases are only pushing usage lower here as well. Compelling but we have to wait and see if that is the case. Indeed, the economic data has firmed in the face of this rise, and that hardly suggests an economic downturn (or a further downturn) is imminent.
Technically we see oil coming back here, but it is not going to be a freefall unless something has snapped in the economy and oil breaks sharply to the downside. Oil broke out in mid-February from a 14 week base. It has made two tests of that breakout, launching higher two weeks back on this latest run as it finished that second test. Strong breakouts tend to have 4 to 5 runs. This would be the third run. Doesn't mean there has to be a fourth, but if nothing changes in the bigger picture oil should fade back for 3 to 4 sessions, find support, and then make another run. So much for a massive break. Again, it could happen, but nothing overall has changed (though the Chinese earthquake could impact demand as we find out more about how extensive the damage is) and thus the trend should remain in place. Again, that calls for a test back to near support and then a resumption of the breakout move.
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: 17.79; -1.62
VXN: 22.46; -1.02
VXO: 19.36; -0.47
Put/Call Ratio (CBOE): 0.87; -0.06
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: +42.97 points (+1.76%) to close at 2488.49
Volume: 1.758B (+3.2%). Good to see upside volume. Some accumulation but nothing major as it was still way below average.
Up Volume: 1.385B (+649.686M)
Down Volume: 354.572M (-585.372M)
A/D and Hi/Lo: Advancers led 2.27 to 1. Very nice.
Previous Session: Decliners led 1.09 to 1
New Highs: 65 (+3)
New Lows: 96 (+10)
NASDAQ CHART: http://investmenthouse.com/ihmedia/NASDAQ.jpeg
Nice price gains as the techs did what they had to do, i.e. bounce off the February peak and take some leadership to the upside. The large caps were up with RIMM bolting on its bold new blackberry. Good test and good rebound as NASDAQ takes aim again on the 2500 and 2517 (200 day SMA) resistance. If this rally is going to sustain, NASDAQ needs to make that breakout.
NASDAQ 100 (+1.87%) bounced off the 200 day SMA, matching last week's highs as the large caps are already back at the resistance level at 2000. Volume was up modestly but it was still too low. Very good action, however, and looking for NASDAQ 100 to breakout and lead the next leg of this rally.
SOX (+1.16%) added a gain on the session as well as it continues its tight lateral consolidation above the 10 day EMA and at the November low. Looks good for a breakout.
SP500/NYSE
Stats: +15.3 points (+1.1%) to close at 1403.58
NYSE Volume: 1.05B (-4.43%). Volume remained below average and slid lower on the gain. No accumulation here as the financials are just rebounding and not really being aggressively bought.
Up Volume: 792.301M (+398.7M)
Down Volume: 250.24M (-441.539M)
A/D and Hi/Lo: Advancers led 2.52 to 1. Very nice as well.
Previous Session: Decliners led 1.14 to 1
New Highs: 69 (+8)
New Lows: 71 (+35)
SP500 CHART: http://investmenthouse.com/ihmedia/SP500.jpeg
Held the 18 day EMA on last weeks test and bounced though no volume so no major buying. Nothing new with that for the entire move. Helped by a low volume bounce in the financials. Would like to see some leadership here, i.e. some real volume, but looks as if that is up to other indices.
The mid-cap SP400 (+1.16%) was in the lead once more, clearing last week's highs and looking the best of any index. This continues to be a very good economic indicator.
SP400 CHART: http://investmenthouse.com/ihmedia/SP400.jpeg
DJ30
Coming off the 50 day EMA test last week and showing better trade though still well below average. Did what it had to do for now, i.e. hold support at the February high and the key 12,750 level. Measuring up 200 day SMA but not the leader it was earlier in the rally. The blue chips seem content to let the techs and mid-caps lead the way.
Stats: +130.43 points (+1.02%) to close at 12876.31
Volume: 198M shares Monday versus 180M shares Friday.
DJ30 CHART: http://www.investmenthouse.com/ihmedia/DJ30.jpeg
TUESDAY
Export and import prices and retail sales are due Tuesday. We know import prices are higher, and that is really what our concern is here in the US, i.e. how much inflation we are importing. Retail sales are of course key as we saw some improvement from ANN contra to the dismal same store sales the prior week. WMT and COST are selling more discounted goods, but remember, sales are in dollars not units. Thus when we buy more discounted goods overall numbers drop; a sign of weaker economic times.
Maybe those are changing. The data has firmed up modestly and the mid-cap 400 index is breaking higher. NASDAQ is on track, and it will be the next key index to confront those recent resistance levels. Needs some continued help from the large cap techs as they were flying in several instances Monday.
All of this is leading up to a new test of the same resistance touched two weeks back. Very little is being said about how the indices held near support on this one week test after three upside weeks, making higher lows. The focus is on how SP500 rallied to 1400 again and did not just blow on through; naturally it is going to fail the rally.
You can get too clever, you can get too pat in your view of the market. Failed at 1400 so must fail again given the economy is in the tank, oil is at $124/bbl, consumer is negative. Or as seen again on one financial station, an analyst was all wrapped up on the VIX saying it was low and thus the market rally had to fail given the relationship between the market rallies and peaks based upon VIX. Yes that was true, but the Fed has helped break up that relationship for now, and historically, volatility as measured by the VIX can get lower and lower and lower. On a historical basis, it isn't that low.
We prefer to look at what the market itself is showing. We still like the leadership, how other stocks step up when energy and commodities ease. We like how techs are taking the point, how the mid-caps are breaking out, how the chips are consolidating nicely. While SP500 is having its issues they are building well.
With that background we are still looking for more upside. There are stocks in position, there is pessimism, and there are key indices showing strength. The market is still not showing power and that is frankly what is keeping everyone skeptical about this move. Cannot say we like it, but we also keep seeing good stocks break higher on strong volume and taking leadership. May just be a bear market rally ultimately, but as long as there is leadership it is going to keep moving higher and we can make good money off of that.
Support and Resistance
NASDAQ: Closed at 2488.49
Resistance:
Some modest resistance at 2500 from interim August lows.
The 200 day SMA at 2518
2605 is an old trendline from summer 2004/summer 2005
Support:
2451 is the August closing low
The 10 day EMA at 2452
The 18 day EMA at 2429
2419 is the January 2008 peak and the early February peak
2392 is the April 2008 peak
2386 is the August intraday low
The 50 day EMA at 2386
2378 is the mid-February peak; 2379 from the October 2006 peak
2370 from the April 2006 peak
The 90 day SMA at 2351
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 1403.58
Resistance:
The 10 day EMA at 1397
1406 is the August and November 2007 closing low
1428 is a longer term trendline from the August 2003/September 2004 lows
The 200 day SMA at 1429
1433 from a pair of August 2007 lows and December mid-month intraday low
1446 from the December low
Support:
The 18 day EMA at 1390 held Thursday and Friday
1396 is the February 2008 peak
1387 is the April 2008 intraday high
The 50 day EMA at 1374
1370 is the August 2007 intraday low
1374 is the March 2007 closing low
The 90 day SMA at 1359
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 12,876.31
Resistance:
12,845 is the August closing low
The 200 day SMA at 13,022
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 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 12,663
12,573 is the mid-February high
12,518 is the August intraday low
The 90 day SMA at 12,492
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 12
Treasury Budget, April (2:00): $159.3B actual versus $157.5B expected, $177.7B prior
May 13
Export prices, April (8:30): 1.2% prior
Import prices, April (8:30): 1.1% prior
Retail sales, April (8:30): -0.2% expected, 0.2% prior
Retail ex-autos, April (8:30): 0.2% expected, 0.1% prior
Business inventories, March (10:00): 0.4% expected, 0.6% prior
May 14
CPI, April (8:30): 0.3% expected, 0.3% prior
Core CPI (8:30): 0.2% expected, 0.1% prior
Crude oil inventories (10:30): +5.6M prior
May 15
Initial jobless claims (8:30): 370K expected, 365K prior
NY Empire State Index, May (8:30): 0.0 expected, 0.6% prior
Net foreign purchases, March (9:00): $62.5B prior
Capacity utilization, April (9:15): 80.2% expected, 80.3% prior
Industrial production, April (9:15): -0.3% expected, 0.3% prior
Philly Fed, May (10:00): -19.0 expected, -24.9 prior
May 16
Building permits, April (8:30): 912K expected, 927K prior
Housing starts, April (8:30): 940K expected, 947K prior
Michigan sentiment, preliminary May (10:00): 62.0 expected
End part 1 of 3
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