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5/21/08 Stock Split Report Update
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Stock Split Report Subscribers:
MARKET ALERTS
Targets hit alerts: NOV
Buy alerts: None issued
Trailing stops: AMT; ASIA; CX; DO; NUE; PX
Stop alerts: ACL; ATK; AXP; GOOG; NUVA; UTHR
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:
- Another round number in oil, a downbeat Fed team up on the market.
- A few weeks back a tougher Fed would have been cheered.
- Oil panic hits the financial stations, and in the afternoon, the markets as well.
- Nothing but oil and the Fed on tap for stocks as they try to slow the decline and hold next support.
Oil and a Fed economic downgrade take stocks lower.
Oil was up modestly early but stocks were not that bothered. Futures improved into the open and stocks took that modest start to the upside as the market opened. That didn't last too long, but the losses were not severe with the indices holding near support once more. The 10:30ET oil inventory report saw an unexpected decline in supplies of crude and gasoline while distillates (where we get diesel) rose less than expected (-5.32M versus +300K expected; gasoline -800K versus -200K expected; distillates +700K versus +1.3M expected). The market tripped over that report as oil spurted higher (closed at $133.25, +4.21), but it did not fall flat. Indeed, the indices climbed back up through lunch after once again finding an early bottom right at midmorning.
That recovery continued into the afternoon and started to spike higher just before the FOMC minutes. The Fed minutes, however, splashed ice cold water on that bounce. The Fed was downbeat on the economy, lowering its growth outlook to 0.3% to 1.2% for all of 2008, a point less than prior estimates. Even with that, however, it saw inflation as a problem, indicating the 25BP cut at the last meeting was a 'close call' and that it would likely be inappropriate to ease rates in the near term unless there was a 'significant decline' in the economy. That would have helped a few weeks back, but in a market already panicked by the oil spike on the session it was too much to handle. The market rolled over in a nose dive into the last hour. It broke near support and about all it could do was break the fall in the last hour, but it certainly did not find any bargain hunters late in the day.
The large cap stocks took the brunt of the selling as the Dow continues leading downside. It broke down early and it is trying to drag the other indices with it. The other indices were down, but not to the same extent, at least in the bigger picture (NASDAQ and SP500 basically matched the Dow's losses on this session) as the Dow broke down earlier this week ahead of the others. SP500 and NASDAQ indeed look ready to test their 50 day EMA, but the other economically sensitive indices are holding up quite well, not yet indicating that this rise in oil is the end of the economy.
TECHNICAL. The market tried to turn a soft open into gains and it did just that for about 15 minutes when it peaked for the session. Then it was a low to lower intraday move, finishing at session lows. Not great intraday action, something you would expect given the negative vibes, indeed almost panicked reporting on oil, on all of the financial stations.
INTERNALS: Volume jumped to average on NYSE as the large cap indices took the lead lower. Getting some distribution as they sell, indicating there is dumping of shares as oil spikes higher and the Fed gets bearish on the economy and its ability to stimulate growth without spiking inflation. NASDAQ trade rose as well, moving back above average as it turned south. Distribution here as well. That is never good for the market, but a rally can survive a bit of this. That will require the non-Dow indices to hold the next support and bounce. That remains to be seen though they look good even as the Dow dives lower.
CHARTS: The indices are making a deeper test. SP500 and NASDAQ appear destined to test their 50 day EMA even as DJ30 ripped through important support at 12,750 and its 50 day EMA on the session. Outside of the Dow, however, charts don't look bad. Again the mid-caps are solid though they did undercut the 10 day EMA on the Wednesday selling. Still a normal pullback for them. The small caps held the 18 day EMA, still in good shape as well. Even SP500 and NASDAQ, undercutting the closest support, still are capable of holding the 50 day EMA. Definitely a more serious test as investors worry about oil, but thus far not an overall market breakdown. If oil keeps rising they will be pressed to hang on; that only makes sense as oil is just about to price itself out of demand.
LEADERSHIP: That oil is doing that is somewhat evidenced by the energy stocks. They are still rising, but they are not rising uniformly and they are not moving to the extent oil is. Wednesday even the energy, alternate energy, metals, and materials came under pressure as investors worried that oil was so high it would damage economies around the world. You could feel that oil panic in the afternoon. That is fine for those stocks, however, as they needed a test to back and fill to set up another move. We sold some of our leaders to preserve some gain with the idea we are looking for the test to get back in again if they hold the line. Outside of these groups, and indeed because they were lower the market was lower as well, leaders were hurt with AAPL, RIMM, and GOOG selling in tech, financials were hit (though they are not leaders), and transports were mixed at best. Tech needs to hold the line for the rally to hold up; of course energy, metals, and materials need to hold for this rally to survive, and again, we are watching them for tests because when they hit near support and hold we want to be ready to move in as they bounce.
SUM: Market continued the selling with more damage done as volume rose on both exchanges. The reason things got out of hand was because the 'hard stuff' commodities stocks along with energy rolled over in the afternoon in the oil panic. Without those holding the line the sellers had easier game. A lot of our solid leaders, however, remain in good position above near support. Oil can sink the market but oil is also getting ahead of itself on pre-holiday hype. This spike will reverse and we are looking for the leaders to anticipate that and hold near support. It is getting to the lick log for both the oil spike and leaders at near support, and that means we will get a resolution pretty quickly.
THE ECONOMY
Fed forced to take the road it should take more often, i.e. the 'do nothing' fork.
A few weeks back the Fed saying it was not going to hike rates would receive cheers. With oil surging higher week after week, however, the market was in no mood for a Fed worried about inflation even as it lowered an already meager forecast for 2008, indeed indicating the US would not return to trend growth until well into 2009. Hard to be happy with that outlook and with oil at 134/bbl the market was ready to believe it.
The Fed went as far as saying it would not cut rates again unless the economy really deteriorated. That would have made the market happy early in the month as noted, but Wednesday the dollar was clocked even with the Fed's view on future cuts. Oil was a big reason for the glum outlook but strong numbers out of Germany yet again (for Germany) told investors that the ECB was not going anywhere with its rates but up, and thus despite the Fed's 'hold the line' attitude, it was not a match for a stronger Europe.
The Fed does have to be careful. Rising oil prices put more strain on the economy than inflation and you can argue the Fed should be more concerned with the detrimental impact of higher energy prices versus rising prices. It does not want to get into the 1970's Fed game of feeding the problem with a lot of easy money shotgunned at the economy via broad rate cuts.
But the Fed is not doing that. It is saying that it won't cut rates but it is still going ahead with its expanded swap and auction facilities as well as keeping the discount window open to more entities and more types of collateral. That is EXACTLY what the Fed should do because that has worked. The dollar rallied on that action, spreads narrowed, deals started to get done. The problem is the spike in oil and that is forcing the Fed to talk about inflation.
That is the problem as always: every word the Fed says confuses investors more. Instead of saying it doesn't need to cut rates in order to get the liquidity the market needs, it dwells on not cutting rates because of inflation instead of saying how well its facilities are working and that is the reason it doesn't have to cut rates. That perception or point of view is a HUGE difference from saying you cannot cut because of inflation. It is all in the packaging baby and Bernanke needs some splashy displays versus the plain old brown bag approach.
Thus we have investors worried about the Fed being too stoic and stingy with money when it is actually free with money . . . in the right places. We used to always say in the law practice if you have good facts argue the facts; if you don't, argue the law. The Fed has good facts and it is instead arguing the law. Argue the facts: the facilities are doing the job and thus there is no need for more rate cuts as long as the right places are getting the money they need. That would certainly help.
Oil panic gripped the market late.
The spike above $130/bbl was on the financial stations all day. CNBC ran an oil alert special all afternoon. Bloomberg and Fox were gooey with oil as well. Congress was grilling oil execs about their profits, blaming those selling the product for the high prices caused by huge new world demand and the fact that 80% of the product is owned by countries hostile to us. That is like beating the dog every time grandpa passes gas.
Then there was the blame on speculators driving prices higher. No doubt there is a rush into oil and other commodities. The oil ETF's and oil trading pits are seeing record volumes. There is always a rush of speculation when a market gets overheated. Heat begets more heat. Money chases money. Still it is not all speculation. When you look at the back end contracts they are even higher than the short end, indicating that the long term money sees prices higher well down the road. If it was all speculation the short end contracts would be higher than the long term.
It is something of a merging of storms of demand, supply, and speculation. That pushed oil past another round number and it is on the way to the next at 140. This looks as if it is getting to a choke point for the consumer and businesses. This spike is getting out of hand as there was no reason for oil to rise over $5 Wednesday other than the panic gripping the market in the afternoon.
Is it a blow off top then? This is getting similar to internet stocks in 1999: everyone on the street, even people with no investment experience, were talking about buying AMZN, DELL, etc. Right now people at parties and the cooler are talking about their favorite energy plays with many just going for the black gold itself. Volume has exploded on the ETF's as noted. It is getting overdone, but the problem is, markets can get way overdone before they break. If the US government would release 100M bbl or so from the SPRO, with this kind of oil spike, that could pop it. Bush has indicated that is not going to happen, however.
The trouble with tribbles . . .
Thus you can see oil continue this until there is some empirical evidence of demand destruction or if oil prices go vertical. Right now oil had a great breakout and has been making an orderly run higher up the 10 day EMA, now with its second test under its belt and on the third leg higher. It suddenly went vertical Wednesday versus its orderly steady climb. Volume has exploded as noted. If it continues vertical it may not make those orderly pullbacks again but might break as it runs out of fuel so to speak. It would take a move to 150 or so to do it and that would cause a lot of pain, but a straight shot to that level would likely exhaust oil for several months and we would see it retrace to the 50 day EMA, about a 15% retracement from where it is today. Of course if it runs to 150 that would be a 60% correction. We will see, but it cannot keep up this pace; its own strength would end up killing it kind of like tribbles on Star Trek eating themselves to death.
THE MARKET
MARKET SENTIMENT
VIX moved down to the October levels when the market topped and the initial response has been a market selloff, particularly on DJ30. The trick now is how the other indices hold on this test.
This is also a test of the credit facilities the Fed has incorporated and if they can hold sway with spiking oil prices. The Fed 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: 18.59; +1.01. Moved through the 18 day EMA for the first time in 6 weeks, but it did not happen until the late selloff when the Dow started selling into its second hundred points of losses. Took a lot to get it moving; that is the Fed effect still lingering.
VXN: 22.96; +1.59
VXO: 19.29; +0.87
Put/Call Ratio (CBOE): 1.18; +0.08. Second day over 1.0 as the put/call ratio starts to build another backlog over 1.0. Will take many but it is underway.
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: -43.99 points (-1.77%) to close at 2448.27
Volume: 2.219B (+9.94%). Volume moved back up above average as NASDAQ sold through near support. Definitely some dumping of techs as they move through the 200 day SMA failed.
Up Volume: 359.389M (-190.221M)
Down Volume: 1.81B (+383.586M)
A/D and Hi/Lo: Decliners led 2.21 to 1
Previous Session: Decliners led 1.54 to 1
New Highs: 74 (+18)
New Lows: 135 (+22)
NASDAQ CHART: http://investmenthouse.com/ihmedia/NASDAQ.jpeg
Headed lower again after an intraday test of 2500 and the 200 day SMA. Fell through the 18 day EMA but did hold above the February peak (2419). The sharp move lower indicates NASDAQ wants to test its 50 day EMA at 2413; the 2419 to 2413 range is thus the one to look for support to start showing up if it is going to hold the test and make a higher low. Note the chart and how this decline is similar to the one in early April. Note also the trendline off the March low is coincident more or less with the 50 day EMA. Double layer of ice makes that quite important as a support level as NASDAQ makes its test.
NASDAQ 100 (-2.19%) was hit as well, closing just a hair below the 200 day SMA and at support at 1950. Really don't want to see NASDAQ 100 fall much below this level. It can undercut it intraday but want to see it close back up and near this level if it does make that intraday move. That would be good; a nice shakeout and recovery. At this juncture the burden is on it to show that kind of move.
SOX (-1.25%) was one of the relative strength leaders, managing to hold the 18 day EMA on its pullback and right at the November low where it needs to find support. Thus far a good looking test. Thus far.
SP500/NYSE
Stats: -22.69 points (-1.61%) to close at 1390.71
NYSE Volume: 1.389B (+12.33%). Volume moved up to average for the first time since early April. Shows some dumping of the large caps on the downside move.
Up Volume: 242.59M (-85.548M)
Down Volume: 1.14B (+257.239M)
A/D and Hi/Lo: Decliners led 2.37 to 1. Not only the large caps but the small and mid-caps were lower but not to the extent of the large caps.
Previous Session: Decliners led 1.82 to 1
New Highs: 130 (+43)
New Lows: 81 (+12)
SP500 CHART: http://investmenthouse.com/ihmedia/SP500.jpeg
Broke 1406 and the 18 day EMA, heading toward the 50 day EMA (1383) on rising trade. That is where the early January low as well as the late February and early April highs reside, and that is where it needs to hold the line in order to keep the rally in tact. It is under pressure given the surge in oil and this is where we find out what the rally has in it.
SP600 (-1.16%) sold but to a much lesser extent, holding its 18 day EMA after it turned back from the 200 day SMA. That keeps it at the February and April peaks as well as the November and December lows, just where it needs to hold to keep this move going.
SP400 undercut the 10 day EMA but is still above its 18 day EMA and with another 6 points to test that level we then expect it to rebound . . . if oil has not damaged the economy further.
SP600 Chart: http://investmenthouse.com/ihmedia/SP600.jpeg
SP400 CHART: http://investmenthouse.com/ihmedia/SP400.jpeg
DJ30
DJ30 continues to lead downside, closing below 12,750 and the 50 day EMA. Looks to be heading toward some support at 12,500, the mid-August 2007 intraday low. The most recent low in mid-April was 12,250, so this 12,500 level is the perfect place for it to make a higher low. As with the other indices, that is where it gets interesting as they say.
Stats: -227.49 points (-1.77%) to close at 12601.19
Volume: 265M shares Wednesday, matching the 265M shares Tuesday. Volume remains high as DJ30 continues selling off the interim double top at the 200 day SMA.
DJ30 CHART: http://www.investmenthouse.com/ihmedia/DJ30.jpeg
THURSDAY
Jobless claims are out pre-market, but oil prices and the Fed commentary are driving the market for now, and that combination appears set on sending the indices lower to test next support, and for the rally that will be the key test. Volume is rallying as the selling picks up, meaning share dumping taking place. With the breach of near support by the large cap indices, a test to the next level appears in the cards as oil continues to wend higher. That will be the key test for the rally at least for NASDAQ and SP500 as this pullback is roughly equivalent to the April fade that found support and continued the move.
With oil spiking with no end there is an inevitable collision coming. Either oil is going to keep moving higher and crush the world economies or it is going to peak out, at least the speculation part of the move, and come back to better match supply and demand. Plenty of current supply is in place though there are players monkeying with supply the best as they can, e.g. Iran filling tankers and floating them out at sea in circles, tying up some supply and the ships to move it. Do you need a better reason to come up with an oil alternative for our vehicle fleet with these kind of shenanigans ongoing?
Whatever the reasons for the selling we are watching what the market does. DJ30 is hit and going down. The question is whether the other large cap indices can hold at lower support while the small to mid-caps test near support. That is basically all we are looking at. If they do hold and bounce we have buys to make. If they do not we close out positions, see where it bounces and what the quality of the bounce is, and if weak we look to play a new downside leg. That is it. Cannot get worked up about it, cannot get too emotional.
Speaking of emotion, there was a lot of panic trading late in the afternoon as oil ran higher post-FOMC negativity. That fueled a lot of that selling, and looking at many of our positions we see many untouched by that selling. Many stocks were down but many held up just fine. That indicates the selling was panic driven as some sold everything but most holding the leaders did not sell. That suggests the downside move can hit an emotional climax with a bit more selling that pushes NASDAQ and SP500 to next support. We will be watching that closely to see what kind of bounce we can get out of that and again, we will react based upon what the market shows at those levels.
Support and Resistance
NASDAQ: Closed at 2448.27
Resistance:
2451 is the August closing low
The 18 day EMA at 2467
The 10 day EMA at 2485
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.
2622 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:
2419 is the January 2008 peak and the early February peak
The 50 day EMA at 2413
March 2008 trendline 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
2315 is the trendline from the summer 2004/July 2006 lows, Q4 2005 consolidation
S&P 500: Closed at 1390.71
Resistance:
1396 is the February 2008 peak
The 18 day EMA at 1403
1406 is the August and November 2007 closing low
The 10 day EMA at 1408
The 200 day SMA at 1427
1430 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:
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 12,601.19
Resistance:
The 50 day EMA at 12,714
12,743 is the November low
12,750 to 12,768 is the February 2008 peak and a series of lows and highs from August 2007
12,786 is the February 2007 peak
12,845 is the August closing low
The 18 day EMA at 12,843
The 200 day SMA at 13,006
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:
12,573 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): -5.3M actual versus +300K expected, 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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