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us stock market, trade stock
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6/04/08 Stock Split Report Update
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Stock Split Report Subscribers:
Jon Johnson is under the weather this evening so the report is truncated just a bit.
MARKET ALERTS
Targets hit alerts: None issued
Buy alerts: EQIX, NUVA; PX
Trailing stops: None issued
Stop alerts: COP; HES; SU
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:
- Oil falls, market rallies, but the stocks remain split.
- Productivity posts impressive gains.
- ISM Services continues in expansion
- Dollar taking on the May peak in a key showdown
- Techs manage to advance as NYSE large caps hold the line: growth indices can lead if the large caps can show any backbone.
Market gets more economic positives, rallies, but once more the NYSE large caps hold things back.
ADP jobs survey showed 40K versus the 13K expected. Productivity rose 2.6% versus the 2.5% expected and 2.2% previously reported. Oil fell (122.30, -2.01) even as inventories fell 4.8M bbl, the second week of big declines. Yet oil is falling as supply purportedly falls; that once more underscores the weakness in the energy market right now. Oil has not broken down, but it did break the March trendline Wednesday and looks ready to try the February trendline, the one this rally started. Very interesting. LEH, the market's whipping boy this week as credit concerns again plague the market and another brokerage house, received an upgrade and that along with the other positives above helped good the market higher from a negative start.
As you could almost expect, stocks struggled to hold the gains after NASDAQ hit its 200 day SMA. At least it challenged resistance; SP500 and DJ30 ran in place, giving up gains posted through lunch. The schism between SP500 and DJ30 with the rest of the market remained Wednesday. After posting a solid rebound from the early week selling, SP500 and DJ30 faded in the afternoon to negative territory. Techs and the small to mid-caps posted gains and some are calling their relative strength rotation.
There is certainly money coming out of energy and commodities stocks as those sectors struggle with mixed results. If this is going to be effective rotation we need to see NASDAQ and friends breakout through resistance on some solid trade and drag the others with them. With SP500 and DJ30 holding relatively steady Wednesday, that allowed NASDAQ and company to rally and hold gains. Without all oars in the water, it will take a cessation of the outright selling in the financials that make up a large part of SP500. Thus far this week the news on financials has instigated the financial selling once more. That leaves the market still having to prove it can work its way higher again at this stage of the rally, and despite the strength in techs, frankly there is plenty of doubt the market can pull it off.
TECHNICAL. Futures were negative and stocks start lower but they quick recovered to positive, riding the continued solid economic data and the decline in oil. Nice negative to positive action with 1+% gains on NASDAQ. Of course there was afternoon backsliding that took the luster off the move and sent SP500 and DJ30 negative. Techs positive, NYSE large caps negative; pretty much the nature of the beast of late.
INTERNALS: Very modest upside breadth so no real power there. Volumes on both NYSE and NASDAQ were up; definitely a mixed signal. NASDAQ showed some accumulation while the NYSE large caps showed what can be characterized as some distribution. Both SP500 and DJ30 held the same Tuesday lows and on rising volume. Higher volume as an index or stock holds after a pullback is an indication a bottom is trying to form. Interesting development. They are still fighting about which way the market will go off of this last selling, but there are some positives here.
CHARTS: NASDAQ, the large cap market leader, tested the 200 day SMA on the high, but faded back to the close. It is stretching laterally at this 2500/200 day SMA level, still with a higher low in place. SP600 moved through its 200 day SMA and held it though it closed off the high it is in great shape to make an upside break. SP400 mid-caps are holding the 18 day EMA and consolidating laterally as well, shaking off a double top look. NASDAQ 100 bounced off the 18 day EMA on solid volume Wednesday, trying to make a higher low itself and continue through 2050, the May intraday high. SOX moved over the 200 day SMA on the close as the chips look solid. That is not bad at all. Then you have SP500 with its head and shoulders look the past 5 weeks. It held steady Wednesday, notably right at the August 2007 intraday low (1415) as it did in late April, then in late May; that level is the clear neckline to its head and shoulders, and a hold above that and a new upside move would be important. DJ30 held the same low (12,338) as on Tuesday, holding above 12,250 next support. It is not strong and that is not much, but showing a toehold there. Could be interesting.
LEADERSHIP: Energy and commodities struggled in general as they have the past week. The action was still very much mixed with some performing just fine while others sold sharply. Techs were the clear leader but even the techs were not up across the board. Some of the big name large cap techs that led the move higher are still in the process of digesting their gains (AAPL, RIMM, GOOG) though they are starting to form up. If they break higher and give the rest of the smaller techs who are carrying the load right now a boost, NASDAQ could really fly. Once more the medical appliance, biotech and other specialties in the health and medical sectors are acting well; that is another growth area in addition to technology, and what we are seeing in the market is growth stocks in charge of the upside. With the improvement in economic data seen over the past two months, it is understandable to see the growth sectors that are leading the market.
THE ECONOMY
ISM posts second month back above 50.
After a sharp drop below 50 to start 2008 that contracted non-manufacturing growth for a quarter (44.6 January, 49.3, and 49.6 in March), May saw a second month of expansion with a 51.7 reading, slightly off form the April 52.0.
Overall a solid reading and two months returning to expansion is typically good news. The internal data was not perfect but it was solid overall. Business activity was the best in over 5 months at 523.6, up from 50.1 in April and 41.9 in January. New orders hit 53.6 as well, 10 points above January's level. Those indicate activity picking up. All was not roses, however. Employment contracted. Inventories rose to 54.0, indicating a bit of slack. Prices paid hit 77.0, a high for the year.
All in all a positive development. When recovering from a downturn not everything comes up aces; the recovery is piecemeal. That doesn't mean it is a recovery. Just as with the other data, the improvement continues. The question we raised two weeks back, however, is still as important today: has the market fully priced in this improvement in the data with the move to this point, or is there more to come and thus more upside market moves in anticipation. The strength in the techs and growth indices indicates the economic recovery is still on, but after this pause it needs to show a new strong upside move to tell us that indeed there is more recovery ahead.
Dollar index hitting a key point.
The dollar was up versus the yen, euro and pound Wednesday, continuing its rebound in strength spurred by Fed chairman Bernanke's comments early Tuesday. It is no picture of domination, just a recovery off of a long selloff. It is not even close to breaking its 2 year downtrend. It has, however, put in a higher low and on Wednesday the dollar rallied up to its May closing highs. It may pause here, but we want to see it blow on through with a clear break as that would signal the Fed has put a floor in under the dollar with its creative use of the Fed window, auctions and swaps and Bernanke's address aimed squarely at controlling inflation through a stronger dollar.
Kudos for Bernanke. Despite losing his nerve mid-2007, he has come back strong and has put a floor under many areas in the economy. He has proved it can be done without the Greenspan slow death methodology or the helicopter currency dump opined in Bernanke speeches in years gone by. Now we just see how much strength he injected into the greenback without the help of the administration.
Indeed, the administration appears intent on continuing its weak dollar policy called under the euphemism 'strong dollar policy.' It has said nothing to support or echo Bernanke's statements. That, however, is not the worst situation. Given that the administration could come out and directly undermine what Bernanke said, silence is golden, at least for the dollar. In this case that is golden for the economy as well and by implication the market. Recall that when Bush warmed up to protecting the dollar a couple of months back, over the weekend his advisors got hold of him and early the next week Bush retracted his statements by parroting the same old 'strong dollar' dogma. Again, given the administration's propensity to undermine the dollar, saying nothing is a boon for the dollar, at least compared to what it could be.
THE MARKET
MARKET SENTIMENT
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.
VIX: 20.8; +0.56
VXN: 24.01; +0.12
VXO: 21.58; +0.84
Put/Call Ratio (CBOE): 1.09; -0.05. Third session above 1.0 on the close. Like how the pessimism or anxiety about the market's prospects remains high. Contrary indicator.
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: +22.66 points (+0.91%) to close at 2503.14
Volume: 2.207B (+2.88%)
Up Volume: 1.59B (+817.342M)
Down Volume: 564.892M (-873.517M)
A/D and Hi/Lo: Advancers led 1.34 to 1
Previous Session: Decliners led 1.32 to 1
New Highs: 70 (0)
New Lows: 140 (+23)
NASDAQ CHART: http://investmenthouse.com/ihmedia/NASDAQ.jpeg
NASDAQ 100 CHART: http://investmenthouse.com/ihmedia/NASDAQ100.jpeg
SOX CHART: http://investmenthouse.com/ihmedia/SOX.jpeg
SP500/NYSE
Stats: -0.46 points (-0.03%) to close at 1377.2
NYSE Volume: 1.327B (+0.69%). Volume was up fractionally, still above average on the session. Held at 1375 again in a tight range. That higher volume at support often indicates a floor trying to form.
Up Volume: 571.174M (+51.172M)
Down Volume: 725.605M (-64.605M)
A/D and Hi/Lo: Decliners led 1.21 to 1
Previous Session: Decliners led 1.53 to 1
New Highs: 39 (-36)
New Lows: 84 (-3)
SP500 CHART: http://investmenthouse.com/ihmedia/SP500.jpeg
SP600 Chart: http://investmenthouse.com/ihmedia/SP600.jpeg
SP400 CHART: http://investmenthouse.com/ihmedia/SP400.jpeg
DJ30
Stats: -12.37 points (-0.1%) to close at 12390.48
Volume: 238M shares Wednesday versus 227M shares Tuesday. As with SP500, some higher volume as it holds the Tuesday lows indicates it is trying to find some support here.
DJ30 CHART: http://www.investmenthouse.com/ihmedia/DJ30.jpeg
THURSDAY
Initial jobless claims are the only scheduled economic data ahead of the Friday jobs report. Jobless claims are elevated, and though they are more forward looking than the payroll report, they are still a lagging indicator. Thus they have not reflected the improvement in the other economic reports and while that will worry the pundits near term the market focuses on the future once the kneejerk response runs its course.
Still looking for this dichotomy in the market to resolve itself, and with the patterns that have developed that time is approaching. The large cap NYSE indices held the Tuesday lows in a tighter range. The growth indices are building off of higher lows to make a run at the May highs. There is a lot of pessimism but there are positives in the patterns despite the weakness in financials and the stumble in energy and commodities. Have to like pessimism as positive patterns develop. We have trimmed positions to bank some gain and get rid of laggards to be ready for the market's next break. We see positives pointing to some further upside, but there are also negatives that are yet resolved in the large caps, and it does not appear they will be rectified with a single upside move. As noted above, however, if the large caps can put a lid on the selling, the growth indices look ready to at least pull them along with them given the nicely developing patterns in NASDAQ, SP600, SOX, SP400, and NASDAQ 100.
Support and Resistance
NASDAQ: Closed at 2503.14
Resistance:
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:
2500 from interim August lows.
The 18 day EMA at 2482
March 2008 trendline at 2461
2451 is the August closing low
The 50 day EMA at 2436
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 2364
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 1377.20
Resistance:
The 50 day EMA at 1385
1387 is the April 2008 intraday high
The 10 day EMA at 1389
The 18 day EMA at 1392
1396 is the February 2008 peak
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:
1370 is the August 2007 intraday low
1374 is the March 2007 closing low
The 90 day SMA at 1362
1339 is an ancient trendline
Dow: Closed at 12,390.48
Resistance:
The 90 day SMA at 12,523
12,518 is the August intraday low
12,573 is the mid-February high
The 18 day EMA at 12,639
The 50 day EMA at 12,659
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 12,977
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): 1.1% actual versus -0.1% expected, 1.5% prior (revised from 1.4%)
June 4
ADP Employment survey, May (8:15): +40K actual versus -30K expected, 13K prior (revised from 10K)
Q1 Productivity (8:30): 2.6% actual versus 2.5% expected, 2.6% prior (revised from 2.2%)
ISM Services, May (10:00): 51.6 actual versus 51.0 expected, 52.0 prior
Crude oil inventories (10:30): -4.8M actual, -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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