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us stock market, stock split
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5/20/08 Investment House Daily
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Investment House Daily Subscribers:
MARKET ALERTS:
Targets hit alerts: None issued
Buy alerts: KWK; QQQQ
Trailing stops: None issued
Stop alerts issued: BRCM; YUM
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SUMMARY:
- After failing at the 200 day SMA, stocks test back as oil presses higher.
- PPI running hotter as Fed maintains its 'inflation will moderate' stance. What else can a Fed do? Learn from the past.
- Some solid leaders are testing back, and if the up and coming indices outweigh the Dow, they will give us some good buys.
DJ30 struggles as oil gushes once more, but other indices hold up well.
The futures were lower from the start, struggling after that intraday US market reversal and some impressive losses in the overseas markets. PPI added to the problems, piling on with a core jumping twice expectations and posting the highest levels since 1991. Nothing like some comparisons to other recession times.
Inflation in a recession? But of course.
Hold it. The last time core inflation grew that fast was in a recession? That flies in the face of all the Phillips Curve pundits and, sadly, the Fed's viewpoint (at least the one put out for public consumption), that a GROWING economy leads to inflation due to fancy phrases such as 'cost push' inflation or 'wage push' inflation. The idea is that demand heats up and creates bottlenecks, shortages, etc., and with that extra money to spend due to higher wages, inflation erupts. In a slowing economy, however, demand is down, wages are down . . . the pressure for inflation shouldn't be there.
And yet, in recessions, that is exactly what you get. The reason is because growth actually allays inflation pressures because supply is there to meet demand. As long as regulation and over-taxation does not hamstring manufacturers and service providers, supply will meet and exceed demand. If we are really creative and give incentives for R&D then we even have the situation where supply creates demand as in the 1980's and 1990's (who ever though you needed a personal computer after all?). No threat of inflation there no matter how strong the economy is.
What happens is you have supply producing but then the economy slows for reasons such as a credit crunch and too many free mortgages. When the noose tightens supply falls off quickly. This last time around we had rates at incredibly low rates, rates that were just being pushed higher when the housing market peaked in mid-2005. Low money rates with a peaking housing sector. Could have survived even that, however, but for the other issues that cropped up. As it was the low, low rates ramped up too much price pressure and when the economy slowed all of that excess money truly had demand well ahead of supply. We have been fighting the inflation pressures since, but at the same time having to battle deflationary forces from a slumping housing market that sharply brought down one of our main asset classes.
That leaves the Fed presiding over a very delicate balance or really imbalance as it tries to prevent a major recession yet avoid sparking inflation with easy money. That is why we have the dollar issues (down again Tuesday as it is having a hard time coming back from the test), gold back up (920, +14.40) over 100 points in the last week, and bond yields falling again (the 2 year started Tuesday at 2.42% and closed at 2.32%). It knows it needs growth to get out of the inflation (former Dallas Fed president McTeer often speaks of this) but it also knows that if it pushes too much money in then it only ignites further inflation. Thus the swaps, auctions, and open discount window in order to provide liquidity were needed versus dropping it from helicopters as Bernanke has said, tongue in cheek, in the past.
Thus the PPI put the market in a further dour mood and it opened lower while oil spiked higher (129.05, +2.33) and HD in the building sector refused to give any guidance. On Tuesday no guidance was bad guidance. All of this gave investors plenty of reason after the Monday reversal from above the 200 day SMA to go ahead and sell some more.
The indices sold down and then as has been the case during this rally, midmorning acted as the fulcrum for the session. The indices found support and started to bounce. Bounced, but not that strong. The indices finished off the lows, but not after undercutting that first low in the early afternoon before making a modest rally in the last two hours. They finished off their lows but there was no sure reversal. SP500 held the 10 day EMA, NASDAQ held the 18 day EMA and bounced. DJ30, however, was the anchor on the market. It was the leader in the early stages of this move and you can argue if it is not there to lead now the rally will fail. But leadership can shift and rotate. It has been doing just that the past few weeks. Techs, particularly large cap techs, are performing well. Chips continue to set up well. The mid-caps are stellar; they turned higher even as DJ30 struggled as money moved their way. Thus while DJ30 is in trouble, most of the other indices are fine. That begs the question, can they continue to set up and rally with such high oil prices?
TECHNICAL. Opened lower then posted a modest rebound, but it was nowhere close to turning positive on the session. It was not a great session but it was also hardly a reversal for most stocks and, outside of the Dow, most of the indices.
INTERNALS: A definite downside skew on the session, particularly on the NYSE. Breadth closed in on -2:1. Volume was up on NYSE (though still below average). Yes, a downside bias on NYSE, dominated of course by the large caps. NASDAQ's numbers were not as bad with -1.5:1 breadth and lower, below average volume. Very good to see that volume fall below average as NASDAQ tested back. Very good. The numbers do underscore something of a split ongoing right now: techs are pulling back just a bit while for the NYSE large caps it is not such a nice orderly test.
CHARTS: NASDAQ 100, SP400, and SP600 are in solid shape, particularly the first two. When small and mid-caps as well as growth stocks in NASDAQ are strong, that is good for the economy to come. Even NASDAQ is not bad as it is holding at the 10 day EMA on some low volume selling. And really, SP500 is not in bad shape at all even though it did not take out its 200 day SMA on this last rally. SP500 closed at the 10 day EMA and volume is still low overall. Very much the same kind of moves it is showing in this rally as it climbs higher. The Dow is the worst of the lot as it broke below its 18 day EMA on the close and on above average volume. It is still above the key support at 12,750 and its 50 day EMA (12,719) so there is no breakdown, but it has to right the ship. It will be tested again on Wednesday as HPQ's after hours earnings failed to provide any upside surge.
LEADERSHIP: It was a tougher session for stocks across the board but of course not all were struggling. Energy was not up across the board but most posted gains. Metals were mixed but fine and some large cap tech (e.g. AAPL, GOOG, RIMM) held up well, even moving higher. Transports once again are a question. Recall when oil made another one of its surges back in February and March the transport sector dumped hard. Looked as if the run was over. It held support, however, and was off again even as oil rallied higher as well. At some point logic suggests it will crack; maybe this last spike was it and this is the end of the transports. That still has to play out and how they hold up will be important for the market. It will also be important with respect to how techs hold up after the HPQ results.
THE ECONOMY
See discussion of PPI and inflation above?
THE MARKET
MARKET SENTIMENT
VIX is down at the October levels where the market peaked and started the sharp correction that pushed the indices into bear markets. This will be an important test for the indices: if the relationship is broken there may be some retrenchment but it should not lead to a wholesale dive that this level presaged in late 2007.
Keep in mind, however, 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: 17.58; +0.57
VXN: 21.37; +0.28
VXO: 18.42; +5.56
Put/Call Ratio (CBOE): 1.1; +0.25. Back over 1.0 on the close for the first time in two weeks.
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: 46.0%. Continuing the rise, up from 44.4%, slowing a bit as the week prior they jumped 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. 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: 29.9%. After rising the prior week the bears turned south, falling from 32.3%. 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: -23.83 points (-0.95%) to close at 2492.26
Volume: 2.018B (-5.94%). Volume fell below average for the first time in five sessions as NASDAQ gapped lower below the 200 day SMA. Good to see volume contract and move below average as the techs test back. That indicates no dumping, just some retrenching at this point though there was some churn and above average volume selling Friday and Monday. Thus it has not been just a free ride.
Up Volume: 549.61M (-311.837M)
Down Volume: 1.426B (+47.046M)
A/D and Hi/Lo: Decliners led 1.54 to 1
Previous Session: Decliners led 1.38 to 1
New Highs: 56 (-26)
New Lows: 113 (+17)
NASDAQ CHART: http://investmenthouse.com/ihmedia/NASDAQ.jpeg
Gapped lower below the 200 day SMA (2516), tapped toward the 18 day EMA and then settled just below the 10 day EMA. Could not hold the 200 day or 2500, the latter being a fairly significant interim support level. Needs to hold in this general range to keep the late April breakout moving. This is the second test of that breakout so you would expect more upside movement if there is an ongoing market change of character here. If the selling jumps up again and some big names start to crack near support we need to keep clear heads and remember that gap up down near 2350 in mid-April. Not there by any stretch but something to keep in mind if things deteriorate in price, volume, and leadership.
NASDAQ 100 (-0.79%) held up a bit better than NASDAQ overall thanks to those big names recited above (AAPL, GOOG, RIMM). They held up very well and are set to make new moves after a pause. Have to like how the large cap techs are acting even with some such as SNDK breaking lower.
SOX (-2.8%) led the downside but it also tapped at the 18 day EMA and bounced some. That is also at the 400 level where there is support from the November low resides. That makes it a perfect place for the chips to find bottom.
SP500/NYSE
Stats: -13.23 points (-0.93%) to close at 1413.4
NYSE Volume: 1.237B (+7.56%). Volume ratcheted up on the selling though in reality it was still well below average as the large caps tested back to near support. Some step up in the selling but no new wave of selling.
Up Volume: 328.138M (-256.128M)
Down Volume: 882.79M (+327.909M)
A/D and Hi/Lo: Decliners led 1.82 to 1. More trouble here than on NASDAQ as the US financials again had a tough session, and with the transports selling back, there was some downside bias.
Previous Session: Decliners led 1.12 to 1
New Highs: 87 (-80)
New Lows: 69 (+8)
SP500 CHART: http://investmenthouse.com/ihmedia/SP500.jpeg
After clearing the 200 day SMA but then not on Monday, SP500 continued lower. It undercut the 10 day EMA on the low but rebounded to hold it (1412). Volume was up but still well below average. Take out the 200 day SMA and the old up trendline and you have a nice easy pullback ready to move higher. There I go again, talking like an economist (take out this, that, and anything you don't like). Still, the pattern is good and it is making higher highs and higher lows, building pressure for another upside try.
SP600 (-0.54%) failed at its 200 day SMA as well, but it easily held above its 10 day EMA on the close as well as its February peak, keeping it in very good position to try another move higher as well.
SP400 (-0.15%) remains in excellent shape, testing back intraday but hen rebounding to close just modestly lower. It still has the 10 day EMA, another 4 points lower, it can easily test before resuming its move. Thus we could see a bit more softness in the market overall before it resumes the move higher.
SP600 Chart: http://investmenthouse.com/ihmedia/SP600.jpeg
SP400 CHART: http://investmenthouse.com/ihmedia/SP400.jpeg
DJ30
The blue chips were certainly blue Tuesday as the second try at the 200 day SMA brought out some sellers. Didn't help that HD's earnings were not satisfactory or that the Dow's financial components such as JPM and C sold on high volume. With that lack of support the Dow was in trouble. It undercut the 18 day EMA by a long shot, tapping toward key support at 12,750 on the session low. Looks as if it is going to test that once more just as it did two weeks back. Needs a higher low here or the Dow, the early leader in the rally, is heading lower. The question is whether it takes the rest of the indices with it or if they continue on without it, letting it take a rest after doing the hard early work in the rally.
Stats: -199.48 points (-1.53%) to close at 12828.68
Volume: 265M shares Tuesday versus 193M shares Monday. First above average volume in a month and it was on a sharp drop.
DJ30 CHART: http://www.investmenthouse.com/ihmedia/DJ30.jpeg
WEDNSDAY
Crude oil inventories (gulp) and later on the FOMC April meeting minutes. The market is already in one of its oil angst moods as it was back in early April, and if oil moves past 130/bbl that will likely add to some more selling pressure as investors try to get their arms around another round number in oil pricing . . . even before any storms for the season. The economy continues skating around on ice with oil bubbling up all around it. Economic activity has declined but the stock market is moving up, even transports (though they were spanked the past two sessions).
So we expect some more early sluggishness Wednesday as investors wait for a look at the oil report and see how much more money it will exact from US consumers, not to mention the weaker dollar driving up oil and other import inflation as well.
We noted the levels the indices need to hold and we will see how they continue the test, watching how our leaders perform. We will protect positions if need be; with the Dow out there breaking lower on volume and the financials lower while the transports have another 'mood' we don't want to get stretched downside. As noted above, how tech performs on this test will be very important as well; Tuesday they were quite solid.
Still looking for the upside given the continuing strength in NASDAQ 100, SP400, SP600, SOX and even SP500. That can change if the Dow is still a market leader, but has lagged behind over the past month as the indices moved up. Thus we are still alert for opportunity to find strong stocks that are in modest pullbacks to near support. We could not catch all of them as they broke higher and this test will give us a shot at them. Just need to be patient and let them come to us and not run after the bus.
Support and Resistance
NASDAQ: Closed at 2492.26
Resistance:
The 10 day EMA at 2493
2500 from interim August lows.
The 200 day SMA at 2516
2540 from November 2007 low
2576 represents a range of interim peaks and troughs from May 2007 into December 2007. At least 8 in that period.
2620 is an old trendline from summer 2004/summer 2005
2618 from a June 2207 peak.
2668 to 2673 from November/December 2007 interim peaks
2720 (July 2007 peak), 2724 (December 2007 peak) are key resistance points
Support:
The 18 day EMA at 2469
2451 is the August closing low
2419 is the January 2008 peak and the early February peak
The 50 day EMA at 2412
2392 is the April 2008 peak
2386 is the August intraday low
2378 is the mid-February peak; 2379 from the October 2006 peak
2370 from the April 2006 peak
The 90 day SMA at 2352
2340 from the March 2007 low
2305 is the trendline from the summer 2004/July 2006 lows, Q4 2005 consolidation
S&P 500: Closed at 1413.40
Resistance:
The 200 day SMA at 1428
1429 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
1446 from the December low
1460 is the February 2007 peak
1481 represents several peaks and lows ranging from April 2007
Support:
The 10 day EMA at 1412
1406 is the August and November 2007 closing low
The 18 day EMA at 1404
1396 is the February 2008 peak
1387 is the April 2008 intraday high
The 50 day EMA at 1383
1370 is the August 2007 intraday low
1374 is the March 2007 closing low
The 90 day SMA at 1359
1338 is an ancient trendline
Dow: Closed at 12,828.68
Resistance:
12,845 is the August closing low
The 18 day EMA at 12,871
The 200 day SMA at 13,010
13,092 is the December 2007 intraday low
13,133 is the May 2008 high
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 12,719
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 19
Leading Economic Indicators, April (10:00): 0.1% actual versus 0.0% expected, 0.1% prior
May 20
PPI, April (8:30): 0.2% actual versus 0.4% expected, 1.1% prior
Core PPI, April (8:30): 0.4% actual versus 0.2% expected, versus 0.2% prior
May 21
Crude oil inventories (10:30): 176K prior
FOMC Minutes, April 30 (2:00)
May 22
Initial jobless claims (8:30): 372K expected, 371K prior
May 23
Existing home sales, April (10:00): 4.85M expected, 4.93M prior
End part 1 of 3
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us stock market
stock split
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