|
|
money investment, investment help
* * * *
6/10/08 Investment House Alerts
* * *
IH Alert Subscribers:
MARKET ALERTS:
Targets hit alerts: AMSC
Buy alerts: AMX; GTE; TITN
Trailing stops: SOHU
Stop alerts: SONU
SUMMARY:
- Fed revs up the inflation rhetoric and now investors have to worry about the Fed and energy prices.
- Oil Chart Update
- While dickering with China over its currency, the real trade issues continue to build.
- Market shows resilience, not by showing gains, but by not falling further.
Market avoids a big selloff and a rally.
Futures were pummeled early as Asia and Europe were lower. Oil was rebounding sharply, holding in the mid-130's, much too high for the economy to prosper. Bernanke was guiding Fed policy in a more hawkish direction; a much more hawkish direction. TXN did not help matters by narrowing its guidance and not towards the high end.
Fed officials were out en masse with the central theme that the Fed's new "focus" is on "blunting the rise" in inflation. Bernanke delivered a stern speech that has many uneasy, not so much because he wants to prevent inflation, but how he set up the parameters. He stated the "risk of substantial economic downturn" has diminished and that the Fed would "strongly resist" inflation. His concern is the perception that inflation is growing; he wants to take action to fend off that impression that starts consumers, investors, companies, etc. down the road of slower consumption based on concerns inflation will rise in the future.
The worrisome part to most is that with oil at $135ish and gasoline on average topping $4/gallon, Bernanke thinks the risk of a substantial economic decline is decreasing. Looking at the data before oil spiked to $135/bbl you can see the economic firming and find some basis for his statement, but with oil this high we have yet to see how the impact on the economic numbers. We understand why he wants to do this: in the 1970's huge spikes in energy and bad policy decisions entrenched inflation. Bernanke is going to avoid that at just about any cost.
Stocks started lower in what appeared to be a continuation of last Fridays selling given the sharply negative futures. Stocks quickly started back to the upside, however, as NASDAQ, SP500 and DJ30 bounced at the Monday low. They never sold as hard as the early indications suggested. The indices did not bottom and reverse. They bounced from that Monday low and then moved up and down in a very choppy session that rode a 4.7% intraday reversal (high to low) to the upside, but then gave away some gains once more after lunch. Once more the growth indices took the worst of it, all closing lower with the mid-caps showing the most weakness, while the NYSE large caps performed better for the second session. That didn't mean a whole lot to the market; kind of like saying a guy who struck out three times was more of a team leader than a guy striking out four times.
Some continued improvement in economic indications.
There was more decent news on the economic fronts, though what you hear on the financial and other stations typically clouds the issues, suggesting they are negatives. For those of us that lived through the 1970's, interest rates for instance are a sore subject. We fear rising rates because back then they just kept rising, and rising, and rising until they were 22%. Energy prices exploded and the Fed fed them so to speak. That is one reason Bernanke is putting on a show against inflation right now: he does not want the perception that higher energy prices are going to get out of hand as back in the 1970's.
Oil jumped 2.7% on the high (137.25) then reversed 4.7% to 131.10 on the low. It closed at 131.31 (-3.04/bbl). More on this later. Gold, after rallying last week, trying to make a higher low to counter the lower high, gapped lower and made a lower low as it closed at 871.70, down 26.90. It is setting up a potential bearish head and shoulders pattern after already tanking. The dollar shot higher 1.15%, its largest one-day gain since 2005. Bond yields jumped again with the 2 year vaulting another 21BP to 2.92% and the 10 year yield rose 11BP to 4.10%.
All of these are positives as discussed Monday. They were in part response to Bernanke's harsher stance on inflation, but they are also a continuation of what the economy was already showing. A potential decline in oil, tanking gold indicating less likely inflation (as Bernanke gets tough), a stronger dollar helping quell inflation as well, and bond yields pricing in more demand for money down the road.
TECHNICAL. Intraday it was a very choppy session trading in a relatively narrow range. Down at the open, rebounding immediately, turning positive but then unable to hold the move. A late bounce helped but could not turn the tide. About all you can say is that the pre-market weakness did not translate, again, into another hard selloff.
INTERNALS: Breadth was still weak at -2:1 NYSE, not so bad on NASDAQ at -1.4:1. Volume was mixed again, higher on NYSE, lower on NASDAQ, still above average on both. Not bad summertime volume, and not bad price/volume action on the indices. NASDAQ is selling but trade is a bit lighter as it holds some support. A modest positive.
CHARTS: NASDAQ, SP500, DJ30 held on the lows where they held Monday where there is some support, particularly on NASDAQ. Overall there was no significant movement in the indices, meaning they still show the damage from Friday though you could argue that the two quiet sessions are healing. Could argue it but you can just as easily say the market was unable to bounce after getting whacked over the head. Interestingly, SP400, the leader up through Friday, fell through its 18 day EMA on the close. It is building more of a toppy pattern here. SOX dumped to the 50 day EMA and SP600 held above that level for the second session. The latter is still in position to bounce as it has used the 50 day EMA as support since April for its bounces. All, however, are in the position of having to prove if they have any guts.
LEADERSHIP: The Big 3 gave back some ground on the session after three upside moves. Stocks, regardless of sector, that move up for several sessions suffer profit taking. Tuesday it was the Big 3's turn. Unfortunately no one else stepped up to fill the void. Techs were not leaders though AAPL and RIMM managed a rebound from the Monday weakness. Basically most growth areas are again waiting to see how the oil volatility plays out.
THE ECONOMY
Oil update.
As noted oil closed in the low 130's, posting a 2.2% loss. Not bad numbers, but the intraday swing from up 2.7% to down 2.2%, almost a 5% swing, was huge. Put that on top of the recent action I have discussed: The February breakout and the run higher, now just starting its fourth leg since the breakout. This last move is very volatile as the pullback was more than the prior pullbacks, followed by a rocket shot higher on huge volume, then immediately undergoing sharp selling on very strong volume as well. Very volatile and this latest 5% intraday swing is further evidence that oil is setting up for a deeper test. Extraneous events can change that, e.g. renewed Israel/Iran tensions, but left alone this action suggests some substantial price declines ahead.
Trade gap focus is still wrong as the cure is worse than the problem.
The trade gap for April: -60.9B, topping the -60.0B expected. China and its cheaper goods was a big part of that, but the larger part was oil, coming in at just about half the deficit. As we said in 2006 and 2007 when democrats and republicans alike were railing against China, crying about reducing the trade deficit is not only misguided, but foolish if we are unwilling to recognize that the lion's share of our wealth transfer is due to energy. Until we address that we will never, ever manage our deficit. Never.
Yet, as late as Tuesday, Treasury Secretary was again on the warpath with China about its currency, wanting further reduction in the ties between the dollar and the yuan. There is this idea that if the ties are cut the yuan will rise against the dollar and that will automatically reduce the trade gap through a currency adjustment. That is true. But what is the other result? As they yuan rises our costs rise as well. We are, as we have been doing since China started loosening its currency a year ago, importing inflation from China. Along with oil price increases, this bookkeeping change is a chief source of the inflation we are experiencing today.
Is that what we want? Reduce our trade gap with China, a country who has to have our markets in order to fund its economic growth, at the price of inflation here? Is China going to suddenly say 'we don't want to fund the deficit anymore' and suddenly stop selling to us? Only if it wants to undermine its economy and fall into anarchy. China is not stupid. It is not doing things that will hurt it. That apparently is our area of expertise.
Again, this is not just a Bush administration position; democrats and republicans like to beat on China as an easy scapegoat for trade problems. Jobs leaving the US for foreign shores are blamed in part on China. Never mind jobs in aging industries always move offshore and have done so for most of our history (remember when Japanese goods were considered cheap knockoffs of US goods?). It is always easier to point the finger overseas than at home. We created the environment for jobs to leave when we gave up our technological lead in the recession of 2000, one that was brought about on purpose to slow us down then got out of control as is typically the case. Investment went overseas instead of the US; now we are sad that happened, but blaming China and importing inflation does not make us more competitive and bring the kind of investment to regain our tech lead.
To do that we have to do what we have already discussed before: incent US entrepreneurs, businesses and individuals to come up with new technologies to take us into this twenty-first century to get the technological advantage. Instead of talking about raising taxes on those creating goods, services, and jobs, we should do what has always worked in the past: incent them to solve the problems confronting us. Incentives to replace the internal combustion engine or make it vastly more efficient will solve the problem more than raising taxes on fuel that consumers and businesses use or raising taxes on those with the capital to invest in the R&D necessary to solve the problem. If given the incentive we unlock the ingenuity of our people and solve problems. The benefits are huge: new technologies mean new jobs; we get off oil and stop the wealth transfer; we alter the power structure in the world for the better; our standard of living rises as we have better jobs, lower healthcare costs, economic security into the future.
Why do we fritter away time and effort on policies that do not help us such as the China currency issue? Why not get serious and get after solving the main problems that will dramatically impact our economic and social well being? We are a nation of risk takers that have no trouble taking risk . . . if the reward is there. Raising taxes on capital and those willing to take the risk reduces the reward and thus the likelihood of a solution. We need to get back to the Kennedy and Reagan ideals of removing restraints on capital and incenting investment and innovation. Think big, be big. We need grand dreams again, and not just 'feel good' general outlines about equality and fairness. We are a free enterprise, capitalist country. Everyone benefits when we allow people to succeed and reap the rewards of their hard work. Talking about 'wealthy versus hard working' people is absurd. I know of no one who is wealthy who does not work hard. If you work and are successful at your job you work hard. There is no line where they give away money so you can be wealthy. You have to earn it, and as soon as we get back to that ideal and allow those who work hard get ahead keep their reward we will solve our problems.
THE MARKET
MARKET SENTIMENT
VIX: 23.18; +0.06
VXN: 26.58; -0.12
VXO: 23.37; -0.91
Put/Call Ratio (CBOE): 0.96; +0.02. Holding near 1.0 on the close but below that level for the second session. In the range of showing enough anxiety to help drive things higher but will likely need to ramp more before it is ready.
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: -10.52 points (-0.43%) to close at 2448.94
Volume: 2.067B (-3.12%). Volume remained above average but lower as NASDAQ lost some ground after testing lower and holding the May lows. No heavy selling on this pullback.
Up Volume: 622.7M (-9.667M)
Down Volume: 1.414B (+11.318M)
A/D and Hi/Lo: Decliners led 1.38 to 1
Previous Session: Decliners led 2.13 to 1
New Highs: 35 (-15)
New Lows: 201 (-4). Another session above 200 as NASDAQ tapped lower again.
NASDAQ CHART: http://investmenthouse.com/ihmedia/NASDAQ.jpeg
Held again at the 50 day SMA and the May lows and rebounded to cut the losses after the opening gap lower. Still no change in the pattern meaning it is holding support below a four week double top. NASDAQ was gaining on rising trade until Friday. The selling has been on lower trade; just a bit lighter but there was no major distribution. That is keeping NASDAQ in the game as it holds support and waits out oil's move here.
NASDAQ 100 (-0.36%) is likewise in the same position as NASDAQ, holding over support at the 200 day SMA and the 50 day EMA, just below the recent double top.
SOX (-1.70%) fell to the 50 day EMA where it close, riding the TXN weakness lower. TXN narrowed its guidance lower and that took several key chips lower with it. Not a total breakdown, but not the very solid build higher that was in progress.
NASDAQ 100 CHART: http://investmenthouse.com/ihmedia/NASDAQ100.jpeg
SOX CHART: http://investmenthouse.com/ihmedia/SOX.jpeg
SP500/NYSE
Stats: -3.32 points (-0.24%) to close at 1358.44
NYSE Volume: 1.388B (+2.81%). Volume bumped higher, remaining above average, as SP500 held the Monday low and SP600 tested the 50 day EMA. Suffered distribution on the Friday selling and is still trying to recover.
Up Volume: 588.245M (+97.506M)
Down Volume: 790.824M (-62.317M)
A/D and Hi/Lo: Decliners led 1.99 to 1. Not a whole lot of improvement on basically a flat day. SP400 was down after holding out, and that took the breadth lower.
Previous Session: Decliners led 1.84 to 1
New Highs: 36 (-29)
New Lows: 198 (+31). Heading toward 200 itself though this is not really a significant level of new lows. Just shows there is some expansion to the downside for now.
SP500 CHART: http://investmenthouse.com/ihmedia/SP500.jpeg
Tapped 1350 for the second session then rebounded to close flat. Rising trade suggests it is trying to hammer out a floor here, but the pattern is still decidedly negative after breaking lower from a 6 week head and shoulders last Friday. If it cannot find footing still looking ot play it lower with the SDS play.
SP600 (-0.26%) held up again above the 50 day EMA, showing a doji over that level. That can suggest a bounce, but with the volatility in the market these signals are less than accurate right now. Bigger picture, SP600 has held at the 50 day EMA on its prior tests and continued on up. The difference this time is it broke out and then gave it right back up. Still in the game, waiting on oil to break lower.
SP400 (-0.71%) was the loss leader outside of SOX, and it fell through the 18 day EMA on the close. It did that in late May but bounced right back up, keeping the trend alive. It is right back at it on the heels of the breakout reversal. Needs to recover right back up again, but as with the other indices, it is watching what oil does.
SP600 Chart: http://investmenthouse.com/ihmedia/SP600.jpeg
SP400 CHART: http://investmenthouse.com/ihmedia/SP400.jpeg
DJ30
Another gain. Another relatively meaningless gain, that is. After getting crushed lower Friday on high volume the Dow has put together two modest upside bounces on lower and lower trade. All this suggests is a weak bounce ahead of more selling. As with SP500, the pattern is very weak and still looking to play the Dow to the downside if the selling does continue.
Stats: +9.44 points (+0.08%) to close at 12289.76
Volume: 240M shares Tuesday versus 266M shares Monday. Not a lot of trade as DJ30 attempted a modest bounce.
DJ30 CHART: http://www.investmenthouse.com/ihmedia/DJ30.jpeg
WEDNESDAY
There is a bit of fight in the market as the indices hold the same support. Might not be right to call it fight; more like fear of moving. After the Friday dump on spiking oil the growth indices are eroding away a bit more while the NYSE large caps try to hold the line. There was no immediate move to buy back in as oil, while volatile, remains in the 130's. Economic data for now continues to show improvement, but the impact of $135/bbl oil has not hit yet. Thus the holding pattern this week as investors look to see if oil will break lower and give the economy and thus stocks the opportunity to move higher again.
Oil looks promising in the sense it is showing indications of breaking after an overheated spike higher. It has not made the break, however, and until it does the market bias is down. DJ30 and SP500 are simply hanging on after breaking down while the growth indices struggle under the worry that growth won't occur with oil over $130/bbl. Not a great environment. Something called limbo.
Tuesday saw the Big 3 sell off but then start to bounce late. A few upside sessions and then some profits were taken. Problem with energy is, if oil collapses as its pattern suggests, some energy stocks become bricks. Thus we don't want to get too deep in them on this pullback. There are some great stocks and patterns that we can move into if the hold and bounce, but again, we don't want to get too deep. That leaves other commodities and agriculture as well on this pullback.
There is also the downside, and we are continuing to watch for opportunity there if the market, particularly the large cap NYSE, heads lower once more with its rather weak patterns. We will definitely take advantage of that near term as the break lower resumes. Same issue here was well, though in reverse: if oil does break sharply lower then most of the indices bounce.
What this means to us is no point being a hero right now as oil works through its volatility. We are going to look at some good upside and downside patterns and if they show moves take some positions. Don't need to load up, just start dipping in. The market needs a breakdown in oil in order to break higher, and moving slowly while it makes that decision only makes sense. The market has not decided its direction and we are big on following the market's lead as demonstrated by leadership. The growth sectors are under stress and the Big 3 are pulling back. There are still stocks in position to lead, and we will have those in our pocket, ready to move in, if they show the move. Again, time to be patient and let the moves develop.
Support and Resistance
NASDAQ: Closed at 2448.94
Resistance:
2451 is the August closing low
March 2008 trendline at 2480
The 18 day EMA at 2482
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:
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 1358.44
Resistance:
1370 is the August 2007 intraday low
1374 is the March 2007 closing low
The 50 day EMA at 1383
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 1423
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:
1336 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 12,289.76
Resistance:
12,518 is the August intraday low
The 90 day SMA at 12,516
12,573 is the mid-February high
The 50 day EMA at 12,612
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 12,960
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): -60.9B actual versus -$60.0B expected, -$56.5B prior (revised from -$58.2B
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
|
money investment
investment help
|
