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6/09/08 Stock Split Report Update
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Stock Split Report Subscribers:
MARKET ALERTS
Targets hit alerts: None issued
Buy alerts: CLB; MOS
Trailing stops: PSEM
Stop alerts: MSCC; PKI; SINA; VRSN
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:
- Mixed market relief bounce has no strength, but certainly no 'Black Monday.'
- Two year bond yield surges: signal of Fed hikes to come, stronger economy to come, both?
- Pending home sales jump on lower prices, showing another recovery building block for the housing market.
- Market starts basically where it left off last week with technical issues, money moving back to old standbys for safety.
Market avoids a 'Black Monday,' posts half of a relief bounce.
Oil was lower (closed at 134.65, -3.89 after trading over $4 down), and while that made everyone feel a little better despite gasoline hitting over $4/gallon nationally, it did not undo the Friday spike or rectify the damage to the stock market. There was a bounce in stocks, but you can hardly say 'thanks lower oil prices' given that energy stocks were one of the main and few leaders on the session even with lower oil prices. No, the move higher in the market, and it was limited to DJ30 and SP500 (and barely the latter), very much resembled a typical post-drubbing relief bounce in all respects as volume was lower, breadth was weak, and leadership was in safety stocks.
Financials were clubbed as LEH reported $2.8B in losses and was giving away chunks of the store to raise $6B in funding. Techs were sluggards as the large caps struggled as AAPL produced nothing new with its developers' conference on the new iPhone. Fed presidents came out and said inflation pressures would cause Fed to tighten its policy, and that really dropped stocks right after lunch. Tech was down and small caps were weak. Growth suffered.
On the other hand, the old Big 3 (energy, ag, commodities) further entrenched their leadership roles. Ag is the comeback kid of late even as the other indices moved higher. When tech et al collapsed, ag kept moving. At the same time Treasury yields jumped, particularly at the short end, meaning money was coming out of bonds, i.e. out of traditional safety, and into the Big 3. Those three sectors are acting as a flight to safety safe harbor. Good given that money is not totally bailing out of the market, but in the past that trade has acted to the detriment of the rest of the market.
Ultimately the day meant little for changing the technical picture after Friday crushed the Thursday breakouts, but as noted, it did rebut the Black Monday prognostications out Friday and through the weekend. Indeed a lot of reporters were at the exchanges to catch the carnage at the open and in typical market style, it snubbed them. Classically hilarious.
TECHNICAL. As far as rebounds this one wasn't even that great as the indices were widely divergent in result. Indeed, they were divergent at the open with the Dow moving up and NASDAQ moving down. They all sold after the New York Fed president warned of tighter policy ahead. There was a rebound in the afternoon by all indices; some backbone developed, but the indices still act more like invertebrates right now.
INTERNALS: Volume fell so no surge in selling on NASDAQ but no surge in buying on NYSE. Basically the story of the session: nothing really changed or impacted the Friday result. New lows did bump up over 200 on NASDAQ, something not seen in quite some time. When there is a selloff, one of the indications you watch for is new lows. If they hold in low numbers as the prior lows are tested that shows more strength. If there is a hard selloff and you are watching for a bottom, a surging number of new lows in the 500 range can also mark a potential floor. Right now the ratio of lows is well above that hit at the November, January, and March lows. In short they are showing nothing right now.
CHARTS: As noted, there was no real change in the position of the indices despite the Monday action. Friday ravaged the Thursday breakouts in the growth sectors and pounded the NYSE down further. The Dow's bounce did nothing. The NASDAQ just added to its selling. Sure it reached down to the 50 day SMA on the low and rebounded nicely to recover two-thirds of its losses, but it did not change that near term double top formed by the reversal of the Thursday breakout. All indices have more to show. It is interesting that the mid-cap SP400 closed flat with a doji at the 18 day EMA. There are some possibilities there.
LEADERSHIP: The Big 3 (energy, ag, commodities) were riding the range once more Monday, with energy continuing its recent run and agriculture showing its renewed vigor. Techs and small caps were down while financials were hammered again. Financials were relatively weak on the strong upside session; they cannot catch a real bid. The leadership in the three is not bad given that it shows money staying in the market, and that may help keep things alive after the growth sectors received the setback on Friday.
THE ECONOMY
Short bond yields explode higher.
Bond yields are generally stronger the past couple of months, though the past couple of weeks they were buffeted back and forth as rising oil and worries about mortgage and credit issues appeared again. The 2 year had hit up over 2.5% on it yield before breaking lower Friday on the market scare that pushed investors into treasuries once more in a flight to safety. Monday that move reversed and explosively. The 2 year yield rose roughly 35BP to close at 2.71%, a strong breakout. The 10 year yield rose as well, climbing from the 3.9's to 4.02%; not new ground for it on this move, however.
Without going into detail again as I have several times the past couple of months, rising interest rates are feared because they are presumed to indicate inflation. The general assumption is rising interest rates make stocks less attractive because money can be put safely into interest bearing accounts and higher rates make it harder for companies to get the capital they need and thus are a drag on growth. Or there is the companion view that rising interest rates mean inflation is here or is coming. If that was the case, however, why would the TIPS (Treasury Inflation Protected Securities) showing less likelihood of inflation in the future as their spreads are narrowing?
That is the conventional wisdom, or more accurately the 'scared at every shadow' wisdom. In the truest sense, rising interest rates reflect more of a demand for money. More demand for money is implied by a stronger economy in the future. Thus longer term money is worth more than short term, and even with this strong move the yield curve is still proper, i.e. with longer term money commanding more return than shorter. That is indeed the case right now. As a matter of fact, the 2 year is still a bit of a laggard as the curve is usually 75BP or so in a 'normal' curve showing expansion.
The higher move in the short end can also indicate the higher likelihood of a Fed rate hike coming. The Fed controls or influences the short end, and when the Fed is perceived ready to hike or will start hiking at some point, the 2 year rises in anticipation. In a way it can do a lot of the Fed's work for it as it moves higher ahead of the Fed.
Okay so higher rates are here and are likely going higher. Will the stock market suffer as a result? Again the conventional wisdom is that stocks do not perform well when interest rates rise. History says 'not true.' Stocks performed well in the 1990's as rates rose. They did so in the 1980's and the 1960's as well.
So much for conventional wisdom. With the Fed finished cutting rates and standing behind the dollar (kind of) rates are rising. The economic data is showing slow but steady improvement. That is an environment for rising rates. What is hard to reconcile is the action of rates and TIPS when oil prices are spiking. That leads you to conclude that there is some inflation in the mix as well. Or, a governor on the ability to grow. High energy prices are a restraint on growth and as we know, when growth is stifled inflation can indeed turn into a problem as supply dries up and demand continues to push.
That is the kind of environment we are currently in: signs of good economic activity or at least stirring economic activity, but also that overlay of surging energy prices with both an inflationary impact as well as a negative growth impact. The stirrings in the economy are good, but the likelihood of holding up against the continued rise in energy prices is a stretch; this is not a strong economy, just one trying to come off the mat. Oil basically has to crash down to 100/bbl in order to really help these signs of recovery turn into something more substantial.
Pending home sales rise 6.3% as prices fall.
May contracts for sale posted a nice month over month jump as the housing sector continues to show nascent recovery indications. Of course contracts were down 13.1% year/year, but they have to start the turn at some point. As seen in home sales (new and used), mortgages, etc., there are indications a bottom is trying to form.
Pricing is a key factor. Prices have tumbled as seen in the last home sales reports, but that is all part of the process: prices rise on increasing demand and fall when demand is slack. That is a market. You can lament that prices or falling or you can embrace the fact that they had to finally fall in order to allow for the inevitable recovery in housing. It is a start no matter how modest; a compilation of modest changes starts making real change.
THE MARKET
MARKET SENTIMENT
VIX: 23.12; -0.44. After the spike Friday, volatility backed off but it also closed well off the session low and held the 200 day SMA. History suggests there is still more to come before this indicates selling has hit some form of bottom.
VXN: 26.7; +0.66
VXO: 24.28; -0.52
Put/Call Ratio (CBOE): 0.94; -0.21. Back below 1.0 on the close, just the second time in the past seven sessions.
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: -15.1 points (-0.61%) to close at 2459.46
Volume: 2.134B (-0.1%). Lower trade but still above average. Shows no heavy dumping, but still more involved than in the spring, and that is somewhat unusual for summertime trade. Suffice it to say volume is above average and has been for both the upside and the downside of late.
Up Volume: 632.367M (+394.198M)
Down Volume: 1.403B (-541.787M)
A/D and Hi/Lo: Decliners led 2.13 to 1. Not just a large cap tech issue given the breadth.
Previous Session: Decliners led 4.33 to 1
New Highs: 50 (-14)
New Lows: 205 (+56). Actually moving higher after stagnating. Again, 500 or so on a serious selloff is good. In this situation, NASDAQ is not in a serious selloff right now. Could get that way, but not there yet.
NASDAQ CHART: http://investmenthouse.com/ihmedia/NASDAQ.jpeg
Broke out Thursday then crashed Friday. Continued lower Monday all the way to the 50 day SMA on the low and then a very respectable rebound in the last hour to cut two-thirds of the losses on the session. Recovered the 50 day EMA on the close (easily) and on the low it held the early and late may lows. Also held above the August low. That is not just minor noise as it shows those levels continue to harbor some buyers, enough to bounce the index back up. That double bottom (triple?) mirrors the near term double top in May and June. NASDAQ showed accumulation into that selloff so it was not just bouncing along with no buyers. Volume was lower Friday on the selling and lower still Monday. We are keeping an open mind re NASDAQ given where it held and the rebound; that is one reason we did not dump some NASDAQ large caps, etc. yet.
NASD 100 (-0.54%) showed the same action as NASDAQ, bouncing off the early and late May lows, but using the 50 day EMA on the low as support. As with NASDAQ, still in the range, still in the hunt, just kind of shot itself in the foot and is limping around.
NASDAQ 100 CHART: http://investmenthouse.com/ihmedia/NASDAQ100.jpeg
SOX CHART: http://investmenthouse.com/ihmedia/SOX.jpeg
SP500/NYSE
Stats: +1.08 points (+0.08%) to close at 1361.76
NYSE Volume: 1.35B (-9.09%). Volume fell off from the Friday flogging, but was still above average. Accumulation dare we say? Nah.
Up Volume: 490.739M (+375.738M)
Down Volume: 853.141M (-512.937M)
A/D and Hi/Lo: Decliners led 1.84 to 1. Compared to Friday this was roses.
Previous Session: Decliners led 4.46 to 1
New Highs: 65 (-73)
New Lows: 167 (+22)
SP500 CHART: http://investmenthouse.com/ihmedia/SP500.jpeg
Reached down to 1350 on the low (dubious support value outside of psychological) and rebounded to flat. At least it did not implode once more. Showed a tight doji on the candlestick chart and that suggests a potential bounce, but it will have to prove it. SP500 has a somewhat broad top the past 7 weeks, breaking down Friday. The first bounce point to watch is the 50 day EMA (1384). If it fails there we can look to play the downside.
SP600 (-0.54%) continued the Friday selling, tapping toward the 50 day EMA on the low and the bouncing modestly. Still below the 200 day SMA, stalling at that level on the Monday high. After all this it can still make a higher low here. Good for growth.
SP400 (-0.10%) undercut the 18 day EMA on the low but then bounced right back up to hold that level and maintain its uptrend. Despite all of the knocking around, not bad.
SP600 Chart: http://investmenthouse.com/ihmedia/SP600.jpeg
SP400 CHART: http://investmenthouse.com/ihmedia/SP400.jpeg
DJ30
Bounced modestly and managed to close just over 12,250. Volume was lower but still above average. Not really a great recovery; as noted above, more like a typical relief bounce after a flogging. Still looking to short it as this bounce stalls out.
Stats: +70.51 points (+0.58%) to close at 12280.32
Volume: 266M shares Monday versus 307M shares Friday. Not as much strength on the way back up.
DJ30 CHART: http://www.investmenthouse.com/ihmedia/DJ30.jpeg
TUESDAY
In keeping with our theme of Monday really changing nothing in the technical picture, we are going to look for money continuing to move toward the Big 3 as well as a stall in the bounce from the likes of DJ30. That likely means NASDAQ as well, but there are just a few tantalizing tendrils of upside hanging out there. NASDAQ holds the same support that has bounced it three times in six weeks. It rebounded and cut 2/3 of its session losses. The mid-cap SP400 held steady. Basically things are similar as they were after Thursday: the growth look better than the NYSE large caps, Dow upside on Monday or no.
Of course that is hardly a resounding affirmation. They didn't fold up the tent completely, burn all bridges, etc. They have an out, a safety valve they can pop for a long gain. Okay, enough weak clich s. The growth indices were rocked Friday and while it is mathematically possible they can still break higher, they will need help. That help is from oil blowing off in a crescendo top.
Oil broke out in late February to early March. It immediately came back to test in late March and early April. Then it rallied in April, and tested lower to start May. Rallied again in May then faded back to test in late May to early June. The explosion higher Thursday and Friday started the fourth rally off the breakout. As I teach in my seminars, after a breakout a stock or an index will make four to five runs before falling to test lower. On the fourth run and fifth run (if there is one), the action gets much more volatile, particularly if the move is running out of gas. Well, this kind of blast off in oil prices to start the fourth run is by far the strongest and most volatile with huge trade. All of this suggests the run is long in the tooth and will need to test deeper.
Maybe Monday was the start of the deeper test. It may be more than that, i.e. the blowoff top where there is tremendous volume, the strongest in the entire run and ballistic moves straight up. This fits that bill to the T. This has all indications oil has done itself in. If so, the breakdown will send it below the key 120 level, and that will be the savior of NASDAQ and SP600, SP400, etc.
Until then we will watch how the growth indices hold this support held on Monday. If things improve we will look to pick them up again. We are also, however, still looking to play the NYSE large caps downside as they are still showing no signs of life as we know it on earth. Monday was a reflex action in response to Fridays mauling. We will watch for the bounce to stall and then see what it yields downside. At the same time we look for possibilities in the Big 3 as over the weekend and what we picked up Monday.
Support and Resistance
NASDAQ: Closed at 2459.46
Resistance:
March 2008 trendline at 2479
2500 from interim August lows.
The 200 day SMA at 2513
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:
2451 is the August closing low
The 50 day EMA at 2443
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 2369
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 1361.76
Resistance:
1370 is the August 2007 intraday low
1374 is the March 2007 closing low
The 50 day EMA at 1384
1387 is the April 2008 intraday high
1396 is the February 2008 peak
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:
1335 is an ancient trendline
1324 is the April low
1317 from the February low
1270 is the January low
1257 is the March low
Dow: Closed at 12,280.32
Resistance:
12,518 is the August intraday low
The 90 day SMA at 12,520
12,573 is the mid-February high
The 50 day EMA at 12,625
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 12,965
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 9
Pending Home Sales, April (10:00): +6.6% actual versus -1.0% expected, -1.0% prior
June 10
Trade balance, April (8:30): -$50.0B expected, -$58.2B prior
June 11
Crude oil inventories (10:30): -4.8M prior
Fed Beige Book (2:00):
Treasury budget, May (2:00)
June 12
Export prices, May (8:30): 0.6% prior
Import prices, May (8:30): 1.1% prior
Initial jobless claims (8:30): 370K expected, 357K prior
Retail sales, May (8:30): 0.5% expected, -0.2% prior
Retail sales ex-auto (8:30): 0.7% expected, 0.5% prior
Business inventories, April (10:00): 0.3% expected, 0.1% prior
June 13
CPI, May (8:30): 0.5% expected, 0.2% prior
Core CPI, May (8:30): 0.2% expected, 0.1% prior
Michigan Sentiment, preliminary June (10:00): 59.5 expected
End part 1 of 3
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