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money investment, investment help
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5/27/08 Investment House Alerts
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IH Alert Subscribers:
MARKET ALERTS:
Targets hit alerts: PSEM
Buy alerts: AMSC; LMNX; MR; PKI; WGOV
Trailing stops: None issued
Stop alerts: None issued
SUMMARY:
- Back from the holiday with a gain as market bounces on weaker oil.
- Confidence erodes further into recession-esque levels.
- Techs and company trying to lead back upside in a pessimistic environment.
A bounce, by any other name, is still just a bounce.
After a downside week that pushed NASDAQ 100 to its 200 day SMA and NASDAQ to its 50 day EMA, those two led back to the upside Tuesday following the Memorial Day tribute. Futures were lower, but as oil started to weaken pre-market, futures started to strengthen. Opposite but totally not an equal reaction.
It got things stirring upside, however, despite another month of weak Schiller home price index data (-14.1%, another 20 year high). Stocks rallied at the open and through the consumer confidence number. It was worse than expected down at 57.2, truly in the recession area based upon readings when the US pulled other recessions. It rallied through that number, indeed, but only for about 10 minutes. Then the usual midmorning slump scalped the gains, sending SP500 and DJ30 negative. Looked very similar to last week.
There was the oil factor, however. As it weakened the market strengthened into the afternoon. As it became clear oil was going to close sharply lower ($128.48, -4.71) and the dollar nicely higher, stocks jumped higher to close at session highs. The techs led the rally higher even as there was the continued struggle for the commodities stocks, though the action in these is quite mixed and most are simply taking a necessary rest. The tech leadership, along with some solid moves in the small caps, made the difference Monday.
TECHNICAL. Not a bad low to high move, especially as it had to overcome some midmorning issues with weak consumer confidence. Low to high intraday is always preferable to a high to low reversal or a low to lower clocking. It is what you want to see, but it has to be backed up by the other technical underpinnings.
INTERNALS: They were not anything to write home about or to even instant message. NASDAQ showed some good breadth at 1.9:1 but volume was weaker from an already low Friday level. NYSE trade was up, but consider where it was up from: well below average. Thus the internals didn't really do anything to back up the price moves.
CHARTS: Everything bounced, but as with the volume, where did it bounce from? DJ30 blipped higher from its 90 day SMA at 12,500, a minor support level. SP500 bounced from its 50 day SMA, just managing to close over the 50 day EMA. Those two did what they had to do, basically show a pulse after last week. That is about all you could expect and that was all they showed. NASDAQ continued the Friday test at the 50 day EMA after a pretty normal pullback to test after a run up the 10 and 18 day EMA. NASDAQ 100 held its 200 day SMA and bounced. Small caps bounced from the 50 day as with NASDAQ while SOX used the 18 day EMA. Nice bounces keep them in the uptrend, but thus far it is the minimum and it is not a done deal this bounce pans out. Definitely need to see more strength.
LEADERSHIP: As noted, the techs are trying to pick up the torch for the commodities, metals, et al as those latter areas struggle with their own pullbacks after some ferocious runs higher. After these big moves you expect something of a retracement to find support and work off some excess gas. As noted over the weekend, the medical stocks were stronger again, giving us some interesting buys as they ran higher on volume. Those are a bit more defensive but the ones running were still growth stocks. With the tech index moving the pile forward as well, there is definitely still life here. Just needs a boost.
SUM: After a week of selling the market needed to show a bounce off of this support. It got it with techs, medical, large cap tech, and small caps . . . all growth areas . . . rising to the occasion. It was a start; they did what they had to do. The move, however, lacked strength outside of individual names, very similar to most of this move higher. As always we would love to see more volume as money moves outside of the commodities stocks, but it is late May and the summer is hot; may not see that higher trade for quite some time. In that situation it remains a market of individual leaders; remains is the key word.
THE ECONOMY
April new home sales tick higher.
If you look at a chart of new home sales from the peak in May 2005 you see just an every so slight tick higher at the lower right hand side. That is the 526K in sales for April over the 509K from March (revised lower from 526K previously reported). When you consider that sales peaked near 1.4M, the market is down close to two-thirds. That puts it down at late 1991 levels, but at that time sales were on their way back up. Right now sales are still in a massive and sharp downtrend.
The trend hardly suggests things are about to turn. Indeed to do so would require a knifepoint turn and that rarely happens. There are indications the market is trying to bottom, but it is a slow turn and not all of the data is doing so. It is good to see inventories down to 10 months from 11.1 months in March, but still higher than the 9.7 to 9.8 readings registered December through February.
Prices reportedly gained 1.5% for the month after falling 14.1% in March. That big drop preceded more modest but nonetheless significant monthly declines preceding it: 3.1%, 8.6%, 6.9%, etc. Perhaps a crescendo bottom there in prices, but with inventories still at 10 months, it is hard for prices to stabilize.
Of course, prices are the last thing to bottom. Sales always jump before prices because it takes lower prices and an improving economic outlook to get buyers to buy. Then the inventories are worked off and finally, after the recovery is well in its way, prices rise. So, despite the disappointing price data, there are still indications that the market is trying to bottom. That does not mean a surge back up, but a bottoming process. There are still more balloons to reset (with 5 year initial term rates), and that means time, but a lot of the decline has been logged.
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: 19.64; +0.09
VXN: 22.99; -0.37
VXO: 19.99; -0.44
Put/Call Ratio (CBOE): 0.95; -0.1
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: +36.57 points (+1.5%) to close at 2481.24
Volume: 1.721B (-0.38%)
Up Volume: 1.333B (+898.867M)
Down Volume: 369.702M (-890.183M)
A/D and Hi/Lo: Advancers led 1.91 to 1
Previous Session: Decliners led 2.2 to 1
New Highs: 67 (+24)
New Lows: 103 (-22)
NASDAQ CHART: http://investmenthouse.com/ihmedia/NASDAQ.jpeg
NASDAQ bounced up off its 50 day EMA and March trendline, though volume was holiday light. The key move coming up is the test of 2500, the early may peak. If NASDAQ reverses course near that point and sells on increasing trade once more that marks a short head and shoulders top though not a large one. That would be, however, near term bearish for the techs.
NASDAQ 100 bounced off the 200 day SMA after showing a pair of candlestick dojis at that level the prior two sessions. Nice bounce at a key level, and it is one of the strongest indices in the market. As with NASDAQ, it has to deal with the early May peak (2000) and move on through it to thwart a near term bearish head and shoulders peak.
NASDAQ 100 CHART: http://investmenthouse.com/ihmedia/NASDAQ100.jpeg
SOX CHART: http://investmenthouse.com/ihmedia/SOX.jpeg
SP500/NYSE
Stats: +9.42 points (+0.68%) to close at 1385.35
NYSE Volume: 1.129B (+2.16%)
Up Volume: 676.372M (+496.884M)
Down Volume: 442.947M (-478.268M)
A/D and Hi/Lo: Advancers led 1.63 to 1
Previous Session: Decliners led 2.67 to 1
New Highs: 37 (+15)
New Lows: 79 (-8)
SP500 CHART: http://investmenthouse.com/ihmedia/SP500.jpeg
Moved up off the 50 day SMA test and clearing the 50 day EMA (1383.60) on the close. A bit better trade, but still well below average and lower than most of last week's trade. It is a start after last week's selling that matched the early April decline.
SP600 (+1.36%) also bounced up off the test of its 50 day EMA on Fridays intraday low. Unlike the other indices, the small caps have cleared the early May peak, making a higher low as they head toward another test of the 200 day SMA. A nice looking pattern here.
SP400 (+0.83%) is hanging on at the 18 day EMA after a strong, market leading run through last week. It tested as expected, but it went a bit deeper on the low. Held key support at 850. Now we see if it can deliver the next break higher in its breakout run.
SP600 Chart: http://investmenthouse.com/ihmedia/SP600.jpeg
SP400 CHART: http://investmenthouse.com/ihmedia/SP400.jpeg
DJ30
The Dow led the market lower last week with a very weak performance that broke through 12,750 and at the end of last week it was ready to make the next break lower through 12,500, but Monday it turned back up to hold that level on a bit higher volume. Still has a lot to prove if it is going upside and recover from the small double top in May. It would be a great move to hold at this level but we don't have a lot of faith it will do that.
Stats: +68.72 points (+0.55%) to close at 12548.35
Volume: 201M Tuesday versus 190M shares Friday. A bit of upside volume but still quite low overall.
DJ30 CHART: http://www.investmenthouse.com/ihmedia/DJ30.jpeg
WEDNESDAY
Tuesday was a start but that is all it was. NASDAQ, NASDAQ 100, SP600 and SP400 still sport nice patterns, but they also have their own hurdles to clear near term as they try to extend the Tuesday bounce, mainly getting over that early May peak. If oil continues lower that will certainly provide a catalyst for a continued upside move, but even with the Tuesday drop oil remains in a very strong uptrend. It is showing signs of an interim top with the surge on strong volume last week and you have to remain aware of the potential for a trend break, but a similar dip in March and again in late April only set up further upside.
For now there remain pockets of strength and new emerging areas such as medical instruments. Kind of strange talking about pockets of strength in an uptrending market, but there is an attempt at rotation ongoing, i.e. the commodity related stocks retrenching while techs and medical instruments for example try to move up. That leads to choppy action during the transition attempt. If successful the market moves higher once more, the trend continues.
During this time you look for the stocks in good technical accumulation bases that make breakouts on solid volume. This makes it look like a market of stocks, and during this time it is, but the backdrop is a continuing uptrend. Of course it has to continue. The Tuesday bounce is the first day in an attempt to move back up and continue the trend. If successful, those early leaders really move well and we end up taking a lot of nice gain as others jump in and drive our stocks and options higher.
So, as on Tuesday we will continue looking at solid stocks in solid bases in position to make the move higher. While the market is mixed to the extent to give you pause, it is in these situations where there is significant doubt as to the outcome that the strong stocks help point the way. Despite the weakness last week the indices are still in an uptrend overall and the pullback has precedent in this rally. Thus while you have to view the action skeptically, you have to also appreciate the strength in many stocks. When they perform you need to take notice, particularly if many are negative on the market. That is the case now, so we continue looking at those good stocks that, despite how negative you hear the market is, keep improving and moving higher.
Support and Resistance
NASDAQ: Closed at 2481.24
Resistance:
2500 from interim August lows.
The 200 day SMA at 2514
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:
The 18 day EMA at 2466
2451 is the August closing low
2419 is the January 2008 peak and the early February peak
March 2008 trendline at 2424
The 50 day EMA at 2419
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 1385.35
Resistance:
The 50 day EMA at 1384
1387 is the April 2008 intraday high
1396 is the February 2008 peak
The 18 day EMA at 1398
The 10 day EMA at 1398
1406 is the August and November 2007 closing low
The 200 day SMA at 1426
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:
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 12,548.35
Resistance:
The 90 day SMA at 12,499
12,518 is the August intraday low
12,573 is the mid-February high
The 50 day EMA at 12,696
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
The 18 day EMA at 12,759
12,786 is the February 2007 peak
12,845 is the August closing low
The 200 day SMA at 12,992
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:
12,250 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 27
Consumer Confidence, May (10:00): 57.2 actual versus 61.0 expected, 62.8 prior (revised from 62.3)
New home sales, April (10:00): 526K actual versus 520K expected, 509K prior (revised from 526K)
May 28
Durable goods orders, April (8:30): -1.5% expected, -0.3% prior
May 29
GDP, Q1 preliminary (8:30): 0.9% expected, 0.6% prior
Chain deflator, Q1 (8:30): 2.6% expected, 2.4% prior
Initial jobless claims (8:30): 370K expected, 365K prior
Crude oil inventories (10:30): -5.3M prior
May 30
Personal income, April (8:30): 0.2% expected, 0.3% prior
Personal spending, April (8:30): 0.2% expected, 0.4% prior
Core PCE, April (8:30): 0.1% expected, 0.2% prior
Chicago PMI, May (9:45): 48.5 expected, 48.3 prior
Michigan sentiment, revised May (10:00): 59.5 prior
End part 1 of 3
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