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us stock market, trade stock
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5/22/08 Investment House Alerts
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IH Alert Subscribers:
MARKET ALERTS:
Targets hit alerts: None issued
Buy alerts: None issued
Trailing stops: GNK; IBM; MTL; MPWR
Stop alerts: GNK; IBM; KWK; NTES
SUMMARY:
- Stocks post a modest relief bounce after the stronger selling.
- Oil declines even as the media hypes the rise and predicts more upside. Another signal to watch for an oil top.
- Long weekend ahead likely means little movement and energy may be weak again.
Market posts a modest bounce after the Wednesday distribution.
After the Wednesday selling that pushed SP500 near its 50 day EMA and DJ30 on through, things were a bit overdone but that didn't mean stocks had to bounce. Oil was lower, however, closing at 130.59, off 2.58 after moving over 135 after the Wednesday close. Jobless claims were a bit better at 365K (372K expected, 374K prior). Earnings were not bad and indeed a pleasant surprise. ANN and LTD both beat and guided higher (after hours GPS beat while ARO disappointed; a split ticket). CSC beat and guided higher. That offset some clinker reports by BCSI and NTAP's weak outlook. It also helped investors shrug off a WSJ story about how oil is only going higher. WSJ says it is going higher but it heads lower. Interesting.
Futures improved to the open and stocks did open higher. They traded higher all session. Glory be; back on track after some harsher selling. It was not that great of course. The action was very choppy. Just when the indices would get on track they would sell back. All session long they chopped around, never able to get on track. The indices never made it over the support they broke Wednesday. Just frittering around the edges with a half-hearted, low volume bump. That is all. A bump. Nothing changed from Wednesday other than the market didn't sell.
Well, there were some changes. Stocks that were up early in the week (energy, metals, materials, etc. were lower) while those that struggled put in a modest bounce. They had no strength and thus no strength in the move overall.
TECHNICAL. The market closed higher but it went nowhere. High to higher, but not much; the range was quite narrow.
INTERNALS: Volume dropped significantly as the indices put in a modest bounce. Breadth was positive but as with the point gains, it was only a bump. No strength behind the move.
CHARTS: As noted, nothing was gained, at least by the large caps. SP500 is still below what was near support. Same on NASDAQ but not to the same extent. DJ30 remains below its 50 day SMA and didn't make any attempt at 12,750, the important level. Outside of the large caps things were not that bad. The mid-cap 400 still looks super with this pullback. The small caps are below the 200 day SMA, but they are ready to make a move. SOX is not bad at all, and NASDAQ 100 is sitting right on the 200 day SMA; that at least keeps it in the game.
LEADERSHIP: Energy, metals, commodities had a tougher day. Some large techs tested on stronger trade, showing a bit of distribution again. Transports were mixed but shippers were definitely lower and truckers, while up, have really struggled of late. Only rails are strong and even they had to take a day off. Energy was due for a rest after its run, but there were some bumps in the road even as oil surged higher the past couple of weeks. Oil surged but the stocks did not follow with the same gusto. Interesting again.
Oil is THE cover story after the surge higher: now that it is the topic of the day, is the run peaking?
Wednesday we discussed the spike in oil on volume as the strong rally higher took on an even steeper angle of ascent. We expected more gains on this spurt, but Thursday oil turned back down on some tremendous volume.
We opined that some empirical evidence of demand destruction might trip the run higher. Little did we know the Department of Energy was going to announce Thursday that US consumption was down 1.3% year over year. There's some empirical evidence.
You also have our great congressional leaders in their semi-annual (when prices are high) grilling of the oil company presidents, CEO's, vice presidents, etc. One of our most least favorite (and apparently least educated) representatives from the great state of California asked if the oil execs could promise gas prices would fall if companies are allowed to drill in US lands currently off limits. The response was that if they didn't get to drill $4/gallon gasoline would be looked at longingly a couple of years from now. Of course the representative threatened to nationalize the oil industry only, she could not remember the word. It was painful. It was shocking. That some of our elected officials are so ignorant of the country we live in, of the Constitution that governs us all and restrains the central government from doing just what she says she wants to do is appalling.
But there is more. The Wall Street Journal runs a front page story on oil and the ramifications of the high prices and the higher prices to come. CNBC airs a special on the 'oil crisis.' The surge in oil from $60 to $135 has finally hit the front pages, the headlines, and the lead stories of every periodical and news show. You know what they say: when it hits the headlines it is over.
No wonder oil turned tail the very session after spiking higher in a move to go vertical. Too quick to happen in our book; usually to get a serious turn you need a blow off to the upside, a vertical move for several sessions. Maybe oil is just going to die from overexposure. Gee, wish that would happen to some television personalities. But I digress.
Oil had a strong breakout. In February. It tested its 50 day EMA in March and took off again. It made two tests of near support and then gaped higher Tuesday and blasted off Wednesday. That puts it in the third leg higher from the 50 day EMA, the fourth leg from the breakout. It is getting a bit winded for this breakout, and what happens after 4 to 5 runs off near support after a breakout? The stock, commodity, currency, etc. tests back further, typically toward the 50 day EMA. Right now the 50 day EMA is roughly 12% below price, or down at 115. Not that big of a drop, and when a strong rally is underway that is kind of normal.
Thus without anything such as a blow off top, and as discussed Wednesday, this move is not there yet, the likelihood of a major meltdown in oil, one that takes it down to $100 or less, is slim. There are signs it could be in the works: demand destruction in the US, foreign countries waning ability to subsidize fuel and thus demand destruction there as well, Iran unable to sell its heavy crude and is thus parking it in tankers to drive up price, large vehicle sales plummeting; those are tangible consequences to high prices versus just speculation pushing prices higher.
Yes speculators are pushing it up, but they are not going to hold it up. Speculation will flee the building if real evidence of less demand shows up. It is starting to show. Talking with oil traders we sensed a change in attitude Wednesday and Thursday. This is a long weekend, and over the past 50 weekends or so the oil traders want to be long over the weekend because something would drive prices higher. This week many are talking about getting out over the long weekend because more evidence of slackening demand will show up, e.g. less travel in the US over the Memorial Day weekend. After all American Airlines announced it is cutting back flights and charging for all bags. Even if people want to fly it is not going to provide as many flights. That is demand destruction from an unusual source: the vendor.
With this kind of environment the traders are finally losing that bulletproof feeling. Once that is gone and they have to weigh the risks of their positions versus just going b*lls to the wall day after day the upward surge loses its strength as all of the latecomers cannot stomach anything other than a trend in their favor. With that out of the picture prices can experience an abrupt fall.
After that, however, it comes back to the old supply and demand and how much demand destruction there is in the US and more importantly beyond our borders in those emerging economies where governments are underwriting low fuel costs. If they have to back off, then oil will break sharply lower because there is no way their citizens can pay for the current cost of oil and gasoline.
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: 18.05; -0.54
VXN: 22.49; -0.47
VXO: 18.76; -0.53
Put/Call Ratio (CBOE): 0.98; -0.2
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: 47.3% versus 46.0% the prior week. 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: 30.8% versus 29.9% the prior week. Back up as not everyone believes in the rally as it butts against next resistance. Good, glad to see it. That makes two of the last three weeks to the upside for bears. 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: +16.31 points (+0.67%) to close at 2464.58
Volume: 1.955B (-11.88%). Volume fell back below average as NASDAQ bounced modestly. No real buying, just a relief blip.
Up Volume: 1.295B (+936.048M)
Down Volume: 636.299M (-1.174B)
A/D and Hi/Lo: Advancers led 1.53 to 1
Previous Session: Decliners led 2.21 to 1
New Highs: 51 (-23)
New Lows: 115 (-20)
NASDAQ CHART: http://investmenthouse.com/ihmedia/NASDAQ.jpeg
Rallied through the 18 day EMA intraday (2467) but then faded to close just below that level on lower, below average volume. The large cap index lagged as the smaller issues that have outperformed of late did just that Thursday. Not enough to drive the market cap weighted index, however, and it is still testing. Not in bad shape, just in a deeper, April-like test and likely to come back toward the 50 day EMA (2415) unless something really ignites it. With earnings season in the books it will have to look around for that catalyst.
NASDAQ 100 (+0.41%) held the 200 day SMA, showing a doji at that level on lower trade. Good to see it hold that level, but the next important move for the large techs is over 2000 with some authority. That is the early May peak as well as the November low range, and if NASDAQ 100 does not making it through that level on the next run it has set up a short head and shoulders and will go down to test the 50 day EMA.
NASDAQ CHART: http://investmenthouse.com/ihmedia/NASDAQ100.jpeg
SOX (+0.72%) held the 18 day EMA again after giving up a brief sojourn above the 200 day SMA. Nice hold at support at 400, and this is where it should make its next attempt higher if it is going to make one anytime soon.
NASDAQ CHART: http://investmenthouse.com/ihmedia/SOX.jpeg
SP500/NYSE
Stats: +2.64 points (+0.26%) to close at 1394.35
NYSE Volume: 1.207B (-13.11%). After bumping average on the Wednesday selling, volume was back below average, down in the gutter again. No strength on the upside bump.
Up Volume: 658.858M (+416.268M)
Down Volume: 537.661M (-602.368M)
A/D and Hi/Lo: Advancers led 1.24 to 1
Previous Session: Decliners led 2.37 to 1
New Highs: 40 (-90)
New Lows: 67 (-14)
SP500 CHART: http://investmenthouse.com/ihmedia/SP500.jpeg
SP500 rallied up to the March trendline and stalled. That was also the 18 day EMA as well. Not much of a move after the turn back down, and the large caps need to move higher here to put in another higher low and keep the uptrend pointing up.
SP600 (0.67%) held the 18 day EMA and looks quite nice, sizing up the 200 day SMA once more and in position to take it on with a higher low at the 18 day EMA. As noted often before, if they make that move that is a significant statement about the economy even with $130/bbl oil. Seems hard to believe that with all of the small companies getting squeezed. Of course, it still has to make that move. It is in position but that doesn't mean it is going anywhere.
SP600 Chart: http://investmenthouse.com/ihmedia/SP600.jpeg
SP400 CHART: http://investmenthouse.com/ihmedia/SP400.jpeg
DJ30
They talk of the dogs of the Dow, but what about the Dow being a dog? It is barking each session of late, tumbling Tuesday and Wednesday, then holding the line Thursday. Of course that meant a flat session on low volume that did nothing about retaking the key levels just given up, particularly 12,750. Woof.
Stats: +24.43 points (+0.19%) to close at 12625.62
Volume: 216M shares Thursday versus 265M shares Wednesday. As with the other indices, a low volume, rather pathetic attempt at bouncing.
DJ30 CHART: http://www.investmenthouse.com/ihmedia/DJ30.jpeg
FRIDAY
The session may be light volume given the 3-day weekend ahead, but there could be fireworks. Existing home sales are out at 10ET and there is the action in oil that it interesting the past couple of sessions to say the least. Eyes will be on whether home sales show more hints of picking up and thus more hints housing may not be the doormat it is predicted to be for the next year. Of course oil is spotlighted as well: will it resume higher or did it spew its last barrel on this move higher? With traders worried about being long over the weekend we would not be surprised to see more weakness in the sector and the commodity.
As for stocks, we are not expecting any major moves as many will be loathe to move in ahead of the weekend. The same points that make energy traders nervous will have equity investors wondering as well. If demand is shown to be lower via fewer travelers, etc. will that be a good thing (maybe lower oil prices) or a negative as consumers consume less. That will likely keep stocks wondering as well, and a choppy session similar to Thursday could present itself. Lighter volume will be the rule unless oil dives lower, so any moves will be subject to the following week or even the week after when the holiday ends.
We can guess and wonder as well, but our game plan is basically the same. If positions show action we don't like we will get out and not worry over it. We can always get back in at the next opportune time. We made a lot of money on this move higher, and if stocks have trouble holding near support we will bag them and wait for the next high percentage opportunity.
There are many stocks still out there that are looking mighty good, indicating the market is not done with this move. There are other forces at work right now, however, e.g. the oil debate, and if that takes over in a negative way no amount of good patterns will stop it. A good pattern is an indication of strength, but a stock still has to show it has the strength other than just what we used to call 'pretty muscle' in football. We want to see some strength on moves in this market, but given the likelihood of light trade ahead of the weekend we likely won't see much trade.
Thus we might not be doing much on the buy side Friday. If we get another bounce higher we will be looking at taking some more off the table in stocks that sold back and are bouncing but not with any enthusiasm. In the afternoon others will likely have that in mind, so on an early bounce we will take some off the table just to be lighter heading into next week and the oil ups and downs.
Support and Resistance
NASDAQ: Closed at 2464.58
Resistance:
The 18 day EMA at 2467
The 10 day EMA at 2481
2500 from interim August lows.
The 200 day SMA at 2515
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.
2618 from a June 2207 peak.
2624 is an old trendline from summer 2004/summer 2005
2668 to 2673 from November/December 2007 interim peaks
2720 (July 2007 peak), 2724 (December 2007 peak) are key resistance points
Support:
2451 is the August closing low
2419 is the January 2008 peak and the early February peak
The 50 day EMA at 2416
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 1394.35
Resistance:
1396 is the February 2008 peak
The 18 day EMA at 1402
1406 is the August and November 2007 closing low
The 10 day EMA at 1406
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 12,625.62
Resistance:
The 50 day EMA at 12,711
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
The 18 day EMA at 12,820
12,845 is the August closing low
The 200 day SMA at 13,002
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 12,498
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): 365K actual versus 372K expected, 374K prior (revised from 371K)
May 23
Existing home sales, April (10:00): 4.85M expected, 4.93M prior
End part 1 of 3
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