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6/02/08 Stock Split Report Update
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Stock Split Report Subscribers:
MARKET ALERTS
Targets hit alerts: None issued
Buy alerts: BG; COP; FWLT; HES; SU
Trailing stops: AAPL; ITU; VMI
Stop alerts: VIP
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:
- Mortgage and credit issues raise their heads again on management shakeup and S&P ratings cuts.
- Financials cower at more negatives, but the selling is not that horrid
- ISM sentiment survey shows stabilization, and that isn't bad.
- New money hard to find on Monday as indices try to find a foothold at next support, but more of the same as stocks continue to set up.
Credit worries . . . again.
The dollar has bounced, interest rates are rising, gold is breaking down. These positives are driving the market. They are not blasting it off in a rocket shot; just a solid steady move off the March low when the Federal reserve took out BSC and made it clear it was going to put money where it was needed without the need of further rate cuts.
Yet, even with that underlying the move from March, investors can still get rattled by a new story about mortgage and/or credit issues. Early Monday there was news out of the UK about mortgage issues still cropping up with some major financial institutions. Then on this side of the Atlantic WB announced its top man was no longer the top man in a management shakeout as a result of the mortgage problems. WB bought one of our old favorites (Golden West) at the peak of the market and has paid for it ever since. The board finally decided to shoot the head and start over.
That was kind of a lame reason for the market to sell off; by the time management decides to sack the man responsible for a bad business deal the water is well under the bridge. When the better ISM came out (49.6 versus 48.5 expected) and construction spending was not as bad as anticipated (-0.4% versus -0.6%) it seemed as if the market would overcome this worry about the WB head getting cut off. May have seemed that way but it sure didn't.
The market tried to bottom at lunch but then Standard & Poors cut ratings on LEH, MER, and MS. That chopped the attempt to hold and bounce through lunch off at the waste and the indices sank to the bottom with the indices undercutting next important support. Whatever new money that may have looked to come into the market to start June did not show up or was overwhelmed by the credit worries. There was a late, bounce, however, that pushed the indices back above those next support levels, keeping this in the category of a pullback from last week's bounce, keeping the upside alive.
Nothing was really holding together across the market. Oil (127.71, +0.36) went both ways and then closed basically flat. Gold was modestly higher (894.80, +3.30). Bonds rallied, pushing yields lower though the yield curve remains nicely steeper, an indication of improving economic conditions to come. The dollar was stronger against the euro and the pound. Even with these overall flat to decent economic readings, investors were rattled by the return of credit issues and fled to the safety of treasuries and the old leaders that led up to the past couple of months, e.g. agriculture, energy (especially coal), and some commodities (though not all). Even with that flight to 'safety' and the ratings cut of the brokers, however, financials did not perform that poorly. They were no picture of health, but there was no thrashing. An indication, modest as it was, that things are trying to bottom out for them.
TECHNICAL. Intraday action was not that encouraging with a low to lower selloff, particularly after the S&P ratings cut. The late bounce helped assuage the downside some, and that many stocks and indices held key support on the close was a nice silver lining though you had to get past the negativity on the financial stations to see it.
INTERNALS: Breadth was solidly weak at -2.2:1 on both NASDAQ and NYSE. Volume, however, was significantly lighter. Yes Friday end of month volume was higher that the volume for the week so you can argue that lower trade on this selling was not that big of a deal. Still, volume was not higher than the pre-Friday volume so there was no increase in trade even from those lower volume levels. Not bad especially as the indices managed to hold key support on the close.
CHARTS: NASDAQ gave up the 200 day SMA intraday but it held the 18 day EMA on the low and bounced back to close at the 10 day EMA. It did not recapture the 200 day, but a good hold at next support, and it is still in position to make a higher low. SP500 bounced off the 50 day SMA to close at the 50 day EMA. It is again below 1400 but is also in position to make a higher low. Liked how SP600 (small caps) held the 200 day SMA with its late recovery. The mid-caps remained solid as well. DJ30 on the other hand, still looks like cr*p. After the May double top it has sold to 12,500, rebounding Monday to hold there at the close. Now the optimists can say it looks as if a double bottom is attempting to set up. That definitely will need to prove itself.
THE ECONOMY
ISM survey a bit better than expected as it continues to stabilize.
The ISM is for all intents and purposes a sentiment survey as to how business is and is expected to be in the future. Hard data is only used indirectly, filtered through the views of those responding to the survey. Thus there are arguments that it does not mean much with respect to reality.
It is true that the results could be skewed more positively than they would otherwise be due to the success of exporters in growing their businesses while others tied to the domestic economy struggle to find customers. That caused some to discount May's 49.6 reading that topped the 48.5 expected. After a 50.7 reading in January that level shows a modest improvement from the 48.3, 48.6 and 48.6 from February to April. Indeed, there is no further selling, more of a stabilization just below the breakeven point at 50.
Maybe indeed it is the exports that are holding the reading higher, skewing the results. You cannot, however, filter that out given the way the data is acquired. Moreover, if that is the case, then they would have to be improving a lot more than the rest of the manufacturers were flagging. As with all of these reports, you can only really look at the number reported versus historical levels and trends and what the economy did at that time. Right now we have an ISM that slipped below 50 but has stabilized the decline and is showing a bump higher. Based on these numbers, all areas are stabilizing. Of course a single data point to the upside does not signal a change, but it perks up the radar receptors for the next couple of months to see if the bump higher in May continues to add to the upside. That will be more definitive as to this indication of improvement.
THE MARKET
MARKET SENTIMENT
VIX: 19.83; +2. VIX made a higher low and has rebounded to the 50 day EMA where it failed on the last move. It has started a modest climb off the lows, holding the gains made two weeks back. If the selling continues it will of course continue higher. VIX is still well above the lows hit before the last part of the 2007 run started to churn VIX higher. This underscores the fallacy of the argument about VIX being too low, etc. VIX climbed in the last part of the rally before this bear correction, and that is contrary to what those saying VIX is too low now are arguing. That is because at the end of a run upside, volatility climbs.
During this move higher since March, volatility has declined as it should when the market rallies. It has recently started to bounce, but not because the market is rising, because it is falling. Again, that is normal. Thus we are not stressing over what VIX is doing right now as we have had a selloff after the climb in volatility and that 're-set' volatility readings.
VXN: 22.88; +2.03
VXO: 20.01; +1.44
Put/Call Ratio (CBOE): 1.09; +0.25. First time over 1.0 on the close in a few weeks, and that shows a return of some fear, and that is a positive for the rally to try and continue.
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: 37.9%. Have to love this drop. Over the weekend we discussed how there was a lot of pessimism relating to this rally and its longevity, and this nearly 10 point weekly decline is an indication that the bulls remain very skeptical, and that is always good for the market. Down from 47.3% last week and 46.0% the prior week. A continuing rise from 44.4%, 40.9%, 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: 32.2%. Continued the gains from the prior week though not in the dramatic fashion of the bulls. Up from 30.8% last week and 29.9% the prior week. That makes three of the last four 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: -31.13 points (-1.23%) to close at 2491.53
Volume: 1.96B (-8.23%). Volume faded back below average, along the lines of last week, a positive underpinning of the day even with the selling. Higher volume on the way up, lower on the fade. Decent.
Up Volume: 473.282M (-940.912M)
Down Volume: 1.475B (+774.866M)
A/D and Hi/Lo: Decliners led 2.28 to 1. The large cap techs and NASDAQ overall faded equally.
Previous Session: Advancers led 1.2 to 1
New Highs: 73 (-2)
New Lows: 136 (+43)
NASDAQ CHART: http://investmenthouse.com/ihmedia/NASDAQ.jpeg
NASDAQ sold below the 200 day SMA on the open and then undercut 2500 support. It continued lower to the 18 day EMA where it found support and recovered to close right at the 10 day EMA. Okay, what does that mean? It did not hold the key 200 day SMA, but it did bounce off next support and is in position to make a higher low. Needs to do it, and overall the pattern is still quite a good one.
NASDAQ 100 (-1.27%) lost ground as well but it also held the 18 day EMA and recovered to hold the 10 day EMA support line on the close. Still below the May peak as NASDAQ overall, but also in solid position to make a higher low and continue on to a new rally high.
SOX (-1.42%) showed the same kind of action, posting a higher low at the 18 day EMA and rebounding to close just below the 200 day SMA. Still in a solid, very normal test of the run higher in April and into mid-May.
NASDAQ 100 CHART: http://investmenthouse.com/ihmedia/NASDAQ100.jpeg
SOX CHART: http://investmenthouse.com/ihmedia/SOX.jpeg
SP500/NYSE
Stats: -14.71 points (-1.05%) to close at -14.71
NYSE Volume: 1.166B (-17.65%). Lower volume on NYSE as well, down to last week's pre-Friday levels. As with NASDAQ, somewhat of a silver lining as it tests.
Up Volume: 268.279M (-482.615M)
Down Volume: 877.222M (+236.451M)
A/D and Hi/Lo: Decliners led 2.25 to 1. With large and small caps lower, breadth was as well.
Previous Session: Advancers led 1.28 to 1
New Highs: 59 (-11)
New Lows: 86 (+20)
SP500 CHART: http://investmenthouse.com/ihmedia/SP500.jpeg
Sold off to the 50 day SMA and closed a bit higher at the 50 day EMA. Still deep in so to speak as last week's bounce was not that strong and left it well below the previous bounce's peak near 1440. At a point where it needs to hold and reload for another move up. Doesn't have to bounce tomorrow, but it does need to hold in this range.
SP600 (-0.99%) sold off below the 200 day SMA it captured last week, dropping to the . . . 18 day EMA on the low and rebounding to close right at the 200 day. Not bad action at all, and similar to the last test. Great positioning still to continue the move higher.
SP600 Chart: http://investmenthouse.com/ihmedia/SP600.jpeg
SP400 CHART: http://investmenthouse.com/ihmedia/SP400.jpeg
DJ30
DJ30 continued its laggard ways, selling off less than NASDAQ, but also in worse technical shape than NASDAQ. It undercut 12,500 on the low, but held at the last May low and bounced back to close just over that 12,500 level. As noted above, optimists can look at this as setting up a potential double bottom. Realists say it is still in the throes of the selloff of its May double top and has to prove it has the stuff to make a double bottom here.
Stats: -134.5 points (-1.06%) to close at 12503.82
Volume: 199M shares Monday versus 210M shares Friday and 206M shares Thursday. Lower volume than the upside sessions last week.
DJ30 CHART: http://www.investmenthouse.com/ihmedia/DJ30.jpeg
TUESDAY
Actually kind of quiet Tuesday with only factory orders the schedule economic data of the day. Further, it is no longer Monday, and that likely means less on the downgrade and ratings cut bandwagon. Given the market's indigestion was tied to those items and it still managed to hold some support (though not the nearest such as the 200 day on NASDAQ), a dearth of reminders of the mortgage and credit problems could actually allow the indices to resume some upside after last week's bounce and Monday's fade.
Might be a bit too soon for that; after a week higher the indices might need a bit more backfilling here at support before moving back up. During the rally a 2 to 3 day pause after upside moves proves to be the pause that refreshes. Thus another mushy session only jacks up the negativity more, something this rally thrives upon.
There is a battle ongoing: will the Dow sink the entire market with its pathetic lack of strength or will the growth areas that look remarkably solid (though less than stellar) again led higher. The interesting thing about the Monday action was that even with the scare regarding credit and mortgages, money simply moved to the 'old' leaders in energy, ag, and company. That is also a positive, though again you have to dig a bit to find it. Hey, this isn't a strength move but more of a finesse rally; a bit of light tough is thus okay.
Things are still in doubt after this last bounce failed to take the rally to a new high, but that is when we have made the buys that turn into nice gains in this upside run. When the financial stations and their pundits are negative we have found good stocks moving higher and they have produced some solid gains. Thus we are again looking along those same lines and we were buying some Monday and will continue looking for more opportunity as the leading indices hold near support and produce more upside leaders making upside moves.
Definitely takes some intestinal fortitude right now, but as discussed over the weekend the macro economic picture is quite intriguing, and the market has rallied on this same kind of build in the data. With the jobs report out Friday the doubt will remain, but if we see good stocks moving higher ahead of the report we view that as continued deliberate buying by the big money. It is not across the entire market, but that is okay as we will just focus on those areas that have the blessing of the big money.
Support and Resistance
NASDAQ: Closed at 2491.53
Resistance:
2500 from interim August lows.
The 200 day SMA at 2514
2540 from November 2007 low
2552 is the May high
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 2479
2451 is the August closing low
March 2008 trendline at 2437
The 50 day EMA at 2431
2419 is the January 2008 peak and the early February peak
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 2360
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 1385.67
Resistance:
1387 is the April 2008 intraday high
The 10 day EMA at 1395
1396 is the February 2008 peak
The 18 day EMA at 1396
1406 is the August and November 2007 closing low
The 200 day SMA at 1425
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:
The 50 day EMA at 1385
1370 is the August 2007 intraday low
1374 is the March 2007 closing low
The 90 day SMA at 1361
1339 is an ancient trendline
Dow: Closed at 12,503.82
Resistance:
The 90 day SMA at 12,520
12,518 is the August intraday low
12,573 is the mid-February high
The 50 day EMA at 12,682
The 18 day EMA at 12,699
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 200 day SMA at 12,983
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.
June 2
Construction spending, April (10:00): -0.4% actual versus -0.6% expected, -0.6% prior (revised from -1.1%)
ISM Index, May (10:00): 49.6 actual versus 48.0 expected, 48.6 prior
June 3
Factory orders, April, (10:00): -0.1% expected, 1.4% prior
June 4
ADP Employment survey, May (8:15): -30K expected, 10K prior
Q1 Productivity (8:30): 2.5% expected, 2.2% prior
ISM Services, May (10:00): 51.0 expected, 52.0 prior
Crude oil inventories (10:30): -8.88M prior
June 5
Initial jobless claims (8:30): 372K expected, 372K prior
June 6
Non-farm payrolls, May (8:30): -60K expected, -20K prior
Unemployment rate, May (8:30): 5.1% expected, 5.0% prior
Hourly earnings (8:30): 0.2% expected, 0.1% prior
Wholesale inventories, April (10:00): 0.4% expected, -0.1% prior
Consumer credit, April (3:00): $7.0B expected, $15.3B prior
End part 1 of 3
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