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us stock market, trade stock
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6/05/08 Investment House Alerts
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IH Alert Subscribers:
MARKET ALERTS:
Targets hit alerts: SIM
Buy alerts: AAPL; AGU; AMSC; AMZN; CE; INFY; QQQQ; RS; WDR
Trailing stops: None issued
Stop alerts: None issued
SUMMARY:
- Oil on a rebound surge, but stocks pay no heed as NYSE large caps join growth indices, allowing growth to breakout.
- Same store sales stronger than expected but still skewed toward discounters though some high end performing well.
- Jobs report the big story to end the week, but note the weekly jobless claims are hardly at recession levels.
Growth stocks make a breakout move.
Thursday started to answer a couple of questions we pondered the past week. First, can the growth indices drag the large caps along with them. Thursday was an indication that is possible even with financials, the tackling dummies for the week, getting hit again (MBI, ABK credit ratings downgraded to AA from AAA). Second, is there more economic upside to come given that the growth indices moved higher in anticipation of the better economic news of late but started to stumble the over the past three weeks? Thursday the growth areas broke through resistance across the board and the large cap NYSE indices came along as best they could. Indeed, SP500 posted a better percentage gain than NASDAQ or NASDAQ 100. Growth broke higher and the NYSE large caps came along. Moreover, the strong breakout indicates more good economic news is to come. With the dollar on the rise, gold falling, and the bond yield curve steep, that appears to be the case.
Thursday things started positive with some decent economic news. Same store sales were better than expected though there was the lean toward discounters still as WMT more than doubled expectations, noting that stimulus checks were being spent there. Tax money from us goes to the government, it is passed back out to many who did not pay taxes, and then is given to the discount retailers. Talk about a long length of chain in the wealth redistribution game. On top of that, jobless claims were markedly improved (357K versus 372K expected), and just before the May jobs report that buoyed investor enthusiasm.
Stocks started higher, and though oil was up over a point early and surged into the afternoon (closed at 127.90, +5.60), it did not dampen the buying. The Bank of England and ECB left interest rates steady and praised Bernanke's talk about a stronger dollar. Ironically, that hurt the dollar, and after it jumped higher it closed lower on the session, failing a breakout, at least for this session, over the May rebound high. That in turn helped drive oil even higher; vicious circle.
Stocks held their gains into the afternoon but almost tripped. Standard & Poor's downgraded ABK and MBI credit to AA, basically a death sentence in their business. Nonetheless, stocks fought off the sharp dip and recovered only to post new highs for the session, holding them into the close.
TECHNICAL. The intraday action was solid as noted: high to higher, fighting off an attempt to sell, and surging back to score new session highs on the close. Very strong, very bullish action.
INTERNALS: Breadth was explosive as the small and mid-caps broke out with NYSE posting a 4:1 reading. NASDAQ was quite respectable at 2.9:1. Those are follow through levels. Volume was a bit disappointing, fading modestly on NYSE while climbing modestly on NASDAQ. Volume overall, however, is stronger and at least on NASDAQ showing more accumulation. Not explosive volume, but a solid increase in trade on the buying.
CHARTS: As noted, there were some breakouts, some important moves. SP600 cleared its 200 day SMA Wednesday and then exploded through the May highs Thursday. The mid-cap SP400, already well above its 200 day SMA, blasted through the May highs and even surpassed the December peak. Explosive move ready to take it to a new high. NASDAQ 100 cleared the May high, it too already well above its 200 day SMA. NASDAQ made a new closing high for the rally, just missing clearing the May intraday high. SP500 recaptured its 50 day EMA but closed just below the late May high that stalled at 1406 resistance. Still something to prove here. DJ30 roared back but it was so far down in the cellar it didn't put much of a dent into its resistance though it did clear near resistance at 12,500. We will see how it does at next key resistance at 12,750.
LEADERSHIP: There was leadership aplenty Thursday with the old guard such as steel stocks, agriculture, coal, and even oil and gas stocks surging. Some leading financials moved well. Techs were on the rally as well along with growth leaders in healthcare such as medical instruments continued their moves. Money has rotated around the market. Thursday it was coming into most sectors in the market.
THE ECONOMY
Same store sales hanging in though discounters still getting the lion's share.
May same store sales rose once more though there were no records set. Further, the gains were more at the extremes, and that makes sense in a slower economy. Expecting something else would be foolish. As with other economic indications and reports, however, sales do not match recession expectations.
The discounters got more than their share with WMT more than doubling expectations with a 3.9% gain excluding gas; add in gas and it was something like 4.4%. COST rose 5%; people like its stores more. Even FDO (Family Dollar) doubled its expectations. At the same time JCP (department store) missed as did most department stores (KSS dropped 7.2%). Teens were mixed; AEO missed badly while BKE soared. COH performed well. JWN sales rose 11%. Overall, Thompson's score of 27 retailers showed 13 beating, 7 missing, and the remaining 7 matching estimates. 20 to 7 were able to meet or beat. Not great, but not grim.
In an economic slowdown the discounters gain strength first while the luxury or high end stores lose strength last and regain it before anything other than discount. Even before the stimulus checks hit (and WMT said it sees them being spent at its stores) the shift was on to WMT. Its stock has not performed like this in years. In fact, it took the prior recession to get WMT out of the dumps. After the recession ended it went back to the dumps. The cycle for WMT is a peak in the downturn, a bottom as the economic cycle rolls over.
The question is, are the luxury retailers hanging on or are they coming back? Well, this has been a recession but thus far it is lighter than the one in 2000 to 2001. It dropped significantly but it was not the cliff dive in 2000 from 10% GDP growth to negative. Indeed it was solid 4+% growth to that fell but has yet to show a negative quarter. Still a recession when you consider the differential from the growth rates in 2007 to those the past two quarters, but not a textbook recession of two back to back negative growth quarters.
Thus, the high end market may never have died out at all. SKS stunk the place up with a -8.7% reading, but it ahs other issues it has been dealing with for several months now. JWN gained 11%. COH jumped. BKE rose 34%. You don't see a lot of these results in the news stories covering sales; they focus on the obvious and negative. Overall sales are down but as with other areas of the economy, they are not textbook recession levels. A slowdown is ongoing for sure, and $4/gallon gasoline is bleeding consumers, but even in May sales overall posted a 3% gain.
The problem is whether gasoline stays at $4/gallon and continues sucking consumers' lifeblood with a horse-sized needle. That will suck up those $600 stimulus checks in a hurry and spit out an empty consumer wallet and purse. It makes you wonder about the wisdom of one-time cash back stimulus attempts. Nothing new is created, i.e. no jobs, no investment in materials and equipment that requires people to work and produce more, no incentives to start new businesses. It is a one-time shot, and if it does not hit the economy when it is ready to turn, it will be wasted money. As the economic data has improved heading into the stimulus check mail outs maybe the timing is there this time unlike in 2001. That remains to be seen, but the real proof is if businesses start spending more again and consumers branch back out to the specialty shops. That is not going to happen in the next few months with, again, gasoline at $4/gallon.
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: 18.63; -2.17
VXN: 22.85; -1.16
VXO: 19.41; -2.17
Put/Call Ratio (CBOE): 0.98; -0.11. Fell just below 1.0 on the close after three consecutive over that level. Understandable given the broad move higher.
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: 44.8%. Despite the prior week's selling and the weak rebound, bulls surged higher from 37.9%. that quick drop lower from 47.3% the prior week seems to have evaporated. Did its job, however, as the market broke sharply higher. That quick decline occurred after a string of steady gains: 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: 31.1%. Bears fell but not nearly as dramatically as bulls (32.2% the prior week). This after a couple of weeks of surprising gains as the market bounced. Up from 30.8% the week before and 29.9% the prior week. During that strong three of four weeks saw bears rise. 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: +46.8 points (+1.87%) to close at 2549.94
Volume: 2.244B (+1.67%). Not a huge jump in trade but another steady, above average volume session as techs moved higher.
Up Volume: 1.854B (+263.56M)
Down Volume: 377.235M (-187.657M)
A/D and Hi/Lo: Advancers led 2.88 to 1
Previous Session: Advancers led 1.34 to 1
New Highs: 97 (+27). Want to see more new highs to get the ratio up. Need to see this higher as it was higher on the last few rally attempts. It can easily get there on this move.
New Lows: 89 (-51)
NASDAQ CHART: http://investmenthouse.com/ihmedia/NASDAQ.jpeg
Cleared the May closing peak though missed the May intraday high at 2551 but a gnat's b*tt. Solid volume as NASDAQ made the move and with strong 2.9:1 breadth you don't want to quibble too much. Higher low, break to a new closing high on rising volume. That is about as good as it gets as it maintained its trendline formed off the March low, rising on strong volume when it needs to make its move.
SOX (+1.05%) was the odd man out Thursday. It posted a gain and moved above its 200 day SMA, but it did not break new ground over the May peak. Need to see these boys and girls pulling their weight as the breakout in the other indices continues.
NASDAQ 100 CHART: http://investmenthouse.com/ihmedia/NASDAQ100.jpeg
SOX CHART: http://investmenthouse.com/ihmedia/SOX.jpeg
SP500/NYSE
Stats: +26.85 points (+1.95%) to close at 1404.05
NYSE Volume: 1.315B (-0.92%). Volume was a bit of a disappointment here as the small and mid-caps surged but overall volume was lower. Still above average, but lower than Wednesday. Wednesday, however, showed that higher volume at support that indicated a floor trying to form. What do you know? Solid volume though not spectacular.
Up Volume: 1.103B (+531.85M)
Down Volume: 180.837M (-544.768M)
A/D and Hi/Lo: Advancers led 4 to 1. Impressive as the small and mid-caps broke to new rally highs.
Previous Session: Decliners led 1.21 to 1
New Highs: 106 (+67)
New Lows: 82 (-2)
SP500 CHART: http://investmenthouse.com/ihmedia/SP500.jpeg
Climbed off of the late May low that matched and held the August 2007 intraday dive lower. Held where it needed to and bounced back up to test 1406 resistance. Still has plenty of work to do from here and its ability to do so is problematical. The financials will have to continue to play along and they were doing so Thursday. For now the large caps are coming along with the small and mid-caps, hitchhiking. No issues if that is what they want.
SP600 (2.38%) put some mileage on the 200 day SMA and cleared to a new rally high. Very solid breakout. Very solid.
SP400 (2.30%) cleared its May peaks and the December to boot. Even stronger as it is already well above its 200 day SMA.
SP600 Chart: http://investmenthouse.com/ihmedia/SP600.jpeg
SP400 CHART: http://investmenthouse.com/ihmedia/SP400.jpeg
DJ30
Posted a 200+ point gain, recovering 12,500 as it did. Nice but that still leaves it below the 50 day EMA (12,657). That is how far down it was in the selling, and it has to rally hard again just to get to key resistance at 12,750. Not holding out much promise DJ30 will return to leadership anytime soon, but as with SP500, if it wants to come along for the ride we are sure the small and mid-caps and NASDAQ as well will make room for it.
Stats: +213.97 points (+1.73%) to close at 12604.45
Volume: 236M shares Thursday versus 238M shares Wednesday. Big move and above average volume but still could not top the Wednesday trade levels.
DJ30 CHART: http://www.investmenthouse.com/ihmedia/DJ30.jpeg
FRIDAY
Jobs report on Friday and that has the focus as usual. Unfortunately hopes are rising that jobs will be better. There is that possibility; the other economic data is somewhat improved (though hardly the kind that lends to more job creation), and weekly claims were lower and not really at levels associated with recessions. Given the economic data, the price of oil and gasoline, etc. there shouldn't be much gain. Hope springs eternal of course, and thus we play the monthly game of 'hope for a miracle.' As seen in prior months, however, it doesn't take much of an improvement to get the market excited.
Jobs present a near term influence on the market, and thus a disappointment could undo some of the Thursday gains. Whatever the outcome, you don't want to see stocks thrown right back from where they came. That is what you call a worst case scenario. If oil shoots higher as it did Thursday, that will not go unnoticed as it was on the rally that session. Need to see the dollar strengthen again and thus dry up the oil spill from Thursday.
As discussed above, Thursday started to answer the questions we posed about this rally. It was a strong start but as this market has shown, the move needs to hold up beyond the next session. There are many solid stocks moving well, and that always provides the market with the leadership and strength it needs to hold moves. The volume was on par with some downside volume, however, and thus it is no done deal. Need to see the move continue with some strength. That may not occur Friday; after a big move Fridays can be rather tame even with a jobs report release.
Basically the market gave the upside what it needed, and now it has to hold onto it. We will still look for opportunity in good stocks if presented, but Friday is not always our favorite day to buy. We would love to see another run higher as that would let us bank some gain on some current positions and it may give us a new buy or two. Will have to see how it pans out, but for a move after stumbling around for a couple of weeks, we are not complaining.
Support and Resistance
NASDAQ: Closed at 2549.94
Resistance:
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:
2540 from November 2007 low
The 200 day SMA at 2514
2500 from interim August lows.
The 18 day EMA at 2489
March 2008 trendline at 2476
2451 is the August closing low
The 50 day EMA at 2441
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 2366
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 1404.05
Resistance:
1406 is the August and November 2007 closing low
The 200 day SMA at 1424
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:
1396 is the February 2008 peak
The 18 day EMA at 1393
1387 is the April 2008 intraday high
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 1363
1340 is an ancient trendline
Dow: Closed at 12,604.45
Resistance:
The 18 day EMA at 12,635
The 50 day EMA at 12,657
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 12,974
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 12,525
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): 357K actual versus 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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