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money investment, investment help
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5/28/08 Investment House Daily
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Investment House Daily Subscribers:
MARKET ALERTS:
Targets hit alerts: None issued
Buy alerts: CMI; SOHU
Trailing stops: None issued
Stop alerts issued: None issued
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SUMMARY:
- Oil down, stocks up; oil up, stocks down.
- Where indeed is the leadership on solving, really solving, our energy issues?
- Durables not as bad as expected, showing pockets of strength as with other reports.
- GDP on tap along with weekly oil inventory report as indices continue the struggle to recapture the upside momentum off this pullback.
Stocks give up early gains as oil reverses from losses to positive
Futures were up, threatening to continue the modest Tuesday bounce, and when durables beat expectations (that is, were not as bad as anticipated) and oil headed lower for the second session (down 2% early on), futures opened an upside lead.
The dollar was up again, the 10 year bond yield surged (closed at 4.02% near a 5 year high), and retailers continued posting much better than expected earnings and affirming or raising guidance (Wednesday it was AEOS and RL). That offset Dow Chemical and its 20% price increase given feedstock prices are up 42% year over year. Dow also carped about the lack of leadership in Washington; it was not really carping as it was true.
Who says we don't have an energy policy. It is called price fixing hearings.
There has been nothing out of Washington other than hearing after hearing each time oil and gas prices rise, trying to pin price fixing on the major US oil companies and threatening a another windfall profits tax. That is the extent of the US energy policy: do nothing when prices are tolerable, then posture and bluster at hearings accusing the major oil companies of something that the evidence always demonstrates they didn't do. Very effective.
We have no reserves, no alternatives other than raising food prices via the ethanol mandate, nothing in the pipeline, and nothing to help consumers sinking into a vicious hand to mouth to gas tank cycle. What about clean coal? What about natural gas? We have the world's largest reserves of both and we simply refuse to incent their use. What about geothermal? Not the 'Old Faithful' geyser type, but the kind I have, i.e. the loop fields in the ground that act as a large radiator to heat and cool the house and provide hot water? Then there is nuclear as well.
That, however, only takes care of the stationary uses (outside of natural gas). The largest usage element (and pollution element) is the vehicle fleet. We cannot change the fuel our jet fleet flies with, but autos and trucks are ripe for alternative uses. Where are the incentives to develop new technologies to get us off the internal combustion engine and give OPEC the finger, not to mention spring boarding us back into the technological lead? We are worried about paying for healthcare costs; just think what a national fleet of clean yet strong vehicles would do in reducing pollution and thus our healthcare costs. The benefits reaped for the rest of time would far outweigh any short term costs tax and other incentives would impose. There is nothing new or creative in Washington now, and there is nothing new or creative coming out of the campaign trail other than the usual 'we are going to fix it' BS. How? History shows if we incent our ingenuity and creativity we are unbeatable. We seem to have forgotten that.
Back to the up then down market
But . . . I digress. At least a bit; oil is the governor on our economy, and thus discussions of how we get off the oil mainline are relevant though they are not going to change the course of the market near term.
Stocks posted nice gains out of the gate, but almost immediately started selling back. Early moves upside are typically tested in the first hour, and in this case in the first 15 minutes. Why? Oil started up rather quickly after the open, and that started to gas the solid move higher. Techs were out in front along with financials, but as oil reversed they lost their bid. Stocks slid lower and lower into negative territory. Energy, materials, commodities, and even the former leadership agriculture stocks took over and moved upside. It was not enough, however, to offset the declines in the rest of the market sectors.
After five hours of lateral movement, however, the market broke higher in the last hour and the indices managed a positive close. That made things look a bit better than they actually were. Volume was up, but the charts show the indices could not take advantage of Tuesdays bounce and the early run higher. In the end there was no real net change as the techs fizzled and the old horses had to take over once more as transports, commodities, and energy rallied, joined by the agriculture stocks on some Geritol and industrial stocks that are coming back around after some good bases. In other words, just another session of 'I got it, you take it' among the various sectors in the market and consequently, no further movement on the bounce in the large cap indices.
TECHNICAL. Another day of indecision as the market rallied early only to give it up and then stumble back to positive in the last hour. Sure the market finished positive, but it squandered a very nice second session of upside after the last pullback that knocked DJ30 around and left the burden on the other indices to carry the move higher.
INTERNALS: Rising volume was the notable element of market internals, and with positive finishes on all of the indices, that suggests a bit of accumulation as stocks and the indices bounced off the last test. If not for that 5 hour dip to the downside, it would be a rather clear cut accumulation win. As it turned out with the intraday action, however, the upside volume on a modest bounce higher (that really didn't make a flip of difference in the chart patterns) was not any vindication the upside move is back on.
CHARTS: The large cap indices moved higher, but they did nothing to really change the status from Tuesday. Yes they bounced Tuesday and continued the move Wednesday, albeit taking a last hour bounce to do so. No change in the points necessary to take out with the failure over the 200 day EMA on the last move higher. For the other indices where many leaders reside (SP400, NASDAQ 100), they continued their move off of support, and they are on the upside of resistance and thus in much better position. Overall, however, the action did not change the chart patterns and some of the short term bearish indications in them (particularly the large cap indices), and that keeps this attempt at resuming the rally on some bumpy trails.
LEADERSHP: As noted, the techs and other more or less relative newcomers to the leadership game started higher once more but then couldn't hold the pace. It was up to energy, metals, transports and commodities to shoulder the load, but they also received some help from the former leading agriculture sector (though they are in questionable bases overall) and the up and coming industrial machinery and related sectors. In sum, the market needs others to step up and some did on Wednesday. Unfortunately most of those did not hold the line into the close, leaving the indices in limbo.
THE ECONOMY
Durable goods better than thought and without airplanes it is positive.
Durables were down 0.5% versus the -1.5% expected and that helped boost the futures. It was not positive and it was still less than March's 0.3% decline. Hardly seems like a victory, particularly with 5 of the past 8 reading in the red.
There are pockets of strength, however. Apparel rose 27.8%. Business investment gained 4.2%. Machinery matched that 4.2% gain. The real losers were in civilian aircraft (-24.4%) and autos (-3.3%).
Now if you take those two out you get a positive 2.5% build for the month. Of course there are those, and one is one of the co-anchors on one of CNBC's 'squawk' morning shows, who say you cannot take out airline sales. You have to; they are so variable month to month based upon when Boeing ships its orders they really don't give a good read for any one month (and Boeing has a record backlog of orders anyway; aircraft is not hurting one bit). They should be totaled over the year, averaged, and put back into the numbers. You cannot do that contemporaneously unless you use the prior 12 months, however, so it is not done for the sake of 'accuracy.' If you leave in aircraft, however, it so distorts the results to render the meaningless. Think of it this way: the vast majority of all measured components of durables show a nice gain for the month. One large component that swings wildly month to month skews it either up or down. What do you do in statistics? You throw it out. That is what we did with the co-anchor's comments.
With that you get a 2.5% rise on top of a 1.7% March gain. January and February were lower but December was up 2.0%. Durables are not escaping the economic slowdown, but they, as with many areas, are not in total retreat as you would expect in a recession.
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 still 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: 19.07; -0.57
VXN: 22.24; -0.75
VXO: 19.67; -0.32
Put/Call Ratio (CBOE): 0.82; -0.13
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: +5.46 points (+0.22%) to close at 2486.7
Volume: 1.863B (+8.24%). Volume was up but still below average as NASDAQ bounced further but without any real power. This is not going to be enough to make it over the 2500 initial resistance. Needs more buying.
Up Volume: 1.045B (-288.597M)
Down Volume: 778.77M (+409.068M)
A/D and Hi/Lo: Advancers led 1.06 to 1
Previous Session: Advancers led 1.91 to 1
New Highs: 64 (-3)
New Lows: 103 (0)
NASDAQ CHART: http://investmenthouse.com/ihmedia/NASDAQ.jpeg
Gapped higher but gave it away and more. On the low it held the 18 day EMA and that triggered a rebound. Good to see but still below 2500 where it stalled in early May, and that is the left shoulder to a potential short term head and shoulders top. Thus it has to get over that level and then the 200 day SMA just above it. As noted above, it needs more upside volume to do that. Still in the game, still a decent pattern, but near term it is making things difficult.
NASDAQ 100 (+0.23%) continued its bounce off the 200 day SMA test. Volume was up but it stalled right at the critical 2000 level that marks the early May high and the shoulder peak in a potential near term head and shoulders. That is why it is important for NASDAQ 100, a leading market index, to make the break through that 200 level and do so convincingly.
NASDAQ 100 CHART: http://investmenthouse.com/ihmedia/NASDAQ100.jpeg
SOX CHART: http://investmenthouse.com/ihmedia/SOX.jpeg
SP500/NYSE
Stats: +5.49 points (+0.4%) to close at 1390.84
NYSE Volume: 1.206B (+6.74%)
Up Volume: 717.563M (+41.191M)
Down Volume: 472.673M (+29.726M)
A/D and Hi/Lo: Advancers led 1.35 to 1
Previous Session: Advancers led 1.63 to 1
New Highs: 48 (+11)
New Lows: 92 (+13)
SP500 CHART: http://investmenthouse.com/ihmedia/SP500.jpeg
Bounced as well, then gave it up to test toward the 50 day SMA intraday. Rebounded and closed at the session high on rising trade; good to see volume move up as the large caps bounced. Still at the bottom of the pullback basically, and still a lot of resistance to get back through. Thus far all it is showing is the ability to hold on; now it needs to show it can move upside as a follow through to this test and bounce on rising trade.
SP600 (+0.48%) is moving toward its 200 day SMA (just 2 points away) where it stalled on the last run here in May. Interesting but more strength needed.
SP400 (+0.86%) continued the bounce up off the 18 day EMA. Looking solid to resume the uptrend after testing the next support level following a 5 week rally up the 10 day EMA.
SP600 Chart: http://investmenthouse.com/ihmedia/SP600.jpeg
SP400 CHART: http://investmenthouse.com/ihmedia/SP400.jpeg
DJ30
Wow what a move. Tapped the 90 day SMA on the low then rallied back for a modest gain on rising though still below average volume. Up the past two sessions, but not doing anything to offset the drop off the cliff last week after the second test of the 200 day SMA this month failed. It is holding 12,500 support, but that is all it is doing for now.
Stats: +45.68 points (+0.36%) to close at 12594.03
Volume: 213M shares Wednesday versus 201M Tuesday. Volume is improving on the upside but still below average.
DJ30 CHART: http://www.investmenthouse.com/ihmedia/DJ30.jpeg
THURSDAY
Another run at Q1 GDP (second iteration) is expected to remain in the black. Oil inventories an hour into the session could be the fulcrum; it is after all midmorning and that tends to be the point the second big move of the session occurs. A build of 800K is expected on some reports.
Oil was resilient Wednesday even after a large drop Tuesday. It held near support and rebounded; hard to keep it down. A large build might help put some more downward pressure on it; the sharp Tuesday drop makes this more interesting. Technically the chart is still in a strong uptrend despite the Tuesday hiccup; as noted last night oil has had these upsets in its trend higher and has recovered easily. It is still in its post-breakout run, and thus the trend suggests it will continue higher. The sharp drop, as noted, makes it a bit more interesting, but that is all it does for now.
There was no real change in the indices and thus there is no real change in the game plan. Still concerned about the large cap indices and their ability to gain some momentum on the bounce other than the modest attempt thus far. Even with that we still see stocks developing nice bases, and as this entire rally has been driven by pockets of leaders we are continuing to watch them as they develop and move in as they show us solid breaks higher.
Support and Resistance
NASDAQ: Closed at 2486.70
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 2468
2451 is the August closing low
2419 is the January 2008 peak and the early February peak
March 2008 trendline at 2425
The 50 day EMA at 2422
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 2355
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 1390.84
Resistance:
1396 is the February 2008 peak
The 18 day EMA at 1397
The 10 day EMA at 1396
1406 is the August and November 2007 closing low
The 200 day SMA at 1426
1432 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 1384
1370 is the August 2007 intraday low
1374 is the March 2007 closing low
The 90 day SMA at 1359
1339 is an ancient trendline
Dow: Closed at 12,594.03
Resistance:
The 50 day EMA at 12,692
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 12,742
12,786 is the February 2007 peak
12,845 is the August closing low
The 200 day SMA at 12,989
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 12,504
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): -0.5% actual versus -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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