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6/12/08 Stock Split Report
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Stock Split Report Subscribers:
MARKET ALERTS
Targets hit alerts: None issued
Buy alerts: None issued
Trailing stops: ACI; NOV; RS
Stop alerts: Used the bounce to close some positions. BBD; BTU; FFIV; FWLT; MDR; RS; WDR; WGOV
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:
- Retail sales, falling oil, rising dollar try to spark a rally. Then oil rises . . .
- Dollar breaks out from its range despite Kohn blunder
- Retail sales jump on tax checks
- CPI likely to spike as market continues struggling under weight of oil.
Positives outnumber negatives in all but one big way.
LEH threw some of its management under the bus in an effort to restore confidence. When a 6-month CFO is sacrificed for issues that were entrenched when she showed up, however, that does not engender confidence; it simply underscores the very concerns and issues investors have about those in management that remained. KEY, a big bank, cut its dividend in half; it nearly cut is value in half. Nonetheless, futures were higher even with this news, rising on the back of stronger than expected retail sales, lower import prices, and QCOM boosting its outlook. Futures were lower after the LEH action, but they held enough ground to open the market nicely upside.
Stocks rallied early. Oil was down over 4 clicks and the dollar was higher. Things were working. NASDAQ moved up to the 50 day EMA and DJ30 moved up to 12,250 where it held its ground before the Wednesday selloff. In our early alert we said that the opening bounce had to be viewed as a relief move given the technical action in the market, and thus we needed to be careful with any new upside. Indeed we used the bounce to close some positions as they rebounded.
As NASDAQ bumped its 50 day EMA, oil began to rise, recovering lost ground. Stocks tried a second run after a modest pullback, but failed to take out the morning high. Oil rose some more. Stocks started to fall. The dollar broke out of its trading range. That could not, however, stymie the steady, inexorable slide lower. Oil closed just modestly higher (136.97, +0.59), but it was the sharp decline to recovery that just took the starch out of the rally. DJ30 went from up 180 points in the morning to flat in the last hour. Everything went negative briefly before a last half hour bounce brought them back to positive. That close, however, means basically nothing given the dive lower on Wednesday and the Thursday squandering of the early gains.
TECHNICAL. High to low action with a modest late bounce. Not the thing the bulls get all mushy over. It was another example of the weaker market character: bouncing back from selling only to let it slip away.
INTERNALS: Breadth was flat at best. Even at the height of the rally breadth was less than impressive as the large caps moved up but the important small and mid-caps could not get on track. Volume was again mixed, up on NASDAQ, lower on NYSE, both still above average. NASDAQ showed its best volume of the month; hard to call it accumulation, however.
CHARTS: NASDAQ held some support at 2400, bouncing up to the 50 day EMA on the high before it faded to give up two-thirds of its gains. DJ30 bumped 12,250 where it held before the last fall, and that kept it well below the 10 day EMA. The blue chips bumped resistance and fled. Similar action in SP500 as it rallied higher to where it held early in the week (1350) and then faded to give up most of its gains. SP600 tested its 50 day EMA as well and it gave it back as well. Only the mid-cap SP400 still has a technically decent up side pattern, showing a hammer doji at the 50 day EMA Thursday. It too, however, is not without its own warts with that hard selloff after the breakout move.
LEADERSHIP: The Big 3 struggled even with oil reversing ground and moving back up. After their runs, a bit of weakness is no big issue. Indeed stocks such as MON look quite nice in their pullback. Metals had some tougher times as well as some key players broke through near support (e.g. RS). There are some issues even in the 'safety' areas. We can take advantage of some pullbacks for some upside positions, but at this juncture you have to view them more as trades. Financials were cr*p given LEH and KEY. Techs tried to move but could not hold their gains. There were some decent holds in medical and industrial stocks, but for the most part it was more of the same, an attempted bounce and then a fade.
THE ECONOMY
Dollar breaks out.
Fed vice chair Kohn made some comments Wednesday that could be characterized as stupid. He definitely helped undermine the dollar that session as well as just about all other areas the Fed is attempting to impact. Gives new meaning to the word 'vice' in his title.
Thursday Kohn's comments were apparently discounted as a lone Fed official's fringe beliefs. The dollar, despite the disarray on Wednesday, broke out from its 6 week range formed after breaking up off its March and April low. In doing so the dollar index hit its highest level since the end of February.
Okay, that is not some record high or anything like it, but it is significant in that the dollar has moved off its low, held a consolidation of that move, and is now breaking higher again. It is still in a downtrend, it is still very low, and it is not enough of a move to really send oil into a decline to take all of that 'weak dollar' premium out of oil prices. It is a very important start, however. The move needs nurturing, it needs support from not only the Fed but the administration. Bush seems a bit more intent on helping the dollar, though after more than 7 years can you really be sure?
McCain came out and said the dollar needs support. As the first of the two candidates to broach the subject you can pretty much anticipate the other pulling some form of 'me too' shortly. While nothing concrete, the financial markets can at least say to themselves that the candidates appear to support a strong currency. Of course, after the neglect from the Bush administration, any comment to the effect that the dollar has not been supported enough would be a dramatic change and instill more confidence. That is what you saw happening Thursday as the dollar made its breakout.
Retail sales solid even without gas.
Sales rose 1.0%, doubling expectations. April was revised to +0.4% from -0.2%. One-third of the stimulus checks were delivered in May. Consumers spent, but how much was put in the gas tanks? Take out gasoline sales and spending was up 0.8%; still a very respectable amount.
The gains showed up in general merchandise (1.2%), department stores (0.8%), building materials (2.4%), and clothing (0.5%). Gasoline sales rose $1.1B. The average monthly gain in income thus far is $3.2B. Fiscal stimulus was roughly $33B in May. With the gains in income and the stimulus, even higher gasoline costs are not slowing the consumer and the discretionary income.
While everyone was high-fiving over the retail sales, the bigger question is whether this transfer of wealth to the retail stores is going to result in sustained economic growth. Typically money giveaways, while spent, are a one-off event, meaning once the money is gone things go back to where they were. Typically you need businesses to invest in new equipment to expand their businesses and create more jobs. That takes serious incentives and there are not that many here. There is more expensing, but as we wrote about during the stimulus debate, if small businesses are not using all of the expensing now, making the deduction larger won't result in more expenditures to use something they were not going to use anyway.
Thus we could get a few months of higher retail sales, but will it be enough to trigger a new supply/manufacturing/R&D surge? Historically no. There needs to be a reason for businesses to expand their business, and a series of one-time checks is not getting any businessmen I know to make long term plans based on sustained new sales. They are trying to get their share of the stimulus giveaway, but beyond that they are not planning much else.
THE MARKET
MARKET SENTIMENT
VIX: 23.33; -0.79
VXN: 27.4; +0.08
VXO: 24.85; -0.55
Put/Call Ratio (CBOE): 0.96; -0.18
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: 43.0%. Fading as the rally rolls over, down from 44.8%. Bulls dropped sharply to 37.9% before that bounce back up. That followed 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: 32.6%. Bears gained ground, up from 31.1%. Bears rose during the last part of the market move higher, somewhat of a contrary move, but they had reason to doubt the move. 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: +10.34 points (+0.43%) to close at 2404.35
Volume: 2.246B (+6.96%)
Up Volume: 1.32B (+1.089B)
Down Volume: 905.498M (-951.912M)
A/D and Hi/Lo: Advancers led 1.19 to 1
Previous Session: Decliners led 3.31 to 1
New Highs: 43 (+9)
New Lows: 183 (-50)
NASDAQ CHART: http://investmenthouse.com/ihmedia/NASDAQ.jpeg
Rallied up to tap at the 50 day EMA (2440) but then gave 20 points of the move back. Holding at some support near 2400 from the early February high, but nothing too impressive on Thursday. Volume was the highest for the month as NASDAQ ran in place under the 50 day EMA; some churn or high volume turnover at that point shows investor are still unloading some tech shares.
NASDAQ 100 (flat) churned below the 50 day EMA as well, showing stronger trade as it tested the 50 day EMA and was the only index to close just a hair lower. Not a good endorsement of the tech stocks right here.
NASDAQ 100 CHART: http://investmenthouse.com/ihmedia/NASDAQ100.jpeg
SOX CHART: http://investmenthouse.com/ihmedia/SOX.jpeg
SP500/NYSE
Stats: +4.38 points (+0.33%) to close at 1339.87
NYSE Volume: 1.332B (-3.9%)
Up Volume: 771.211M (+557.181M)
Down Volume: 546.989M (-622.807M)
A/D and Hi/Lo: Advancers led 1.04 to 1
Previous Session: Decliners led 4.18 to 1
New Highs: 32 (-6)
New Lows: 197 (-65)
SP500 CHART: http://investmenthouse.com/ihmedia/SP500.jpeg
Similar action on SP500 as it rallied early to test the recent support but then gave up the move, closing with just a modest gain. It may try to bounce once more after the selloff, but it tried to hold to start the week and failed Wednesday. The pattern indicates the path of least resistance is down.
SP600 (+0.20%) rallied up through the 50 day EMA then gave it all up to close flat. After trying to hold the 50 day EMA it broke lower Wednesday. Thursday's upside was merely a test of that break lower. Maybe it can recover, but its ability to do so is tied to the economy. As we have said, oil needs to break down for it to do so.
SP600 Chart: http://investmenthouse.com/ihmedia/SP600.jpeg
SP400 CHART: http://investmenthouse.com/ihmedia/SP400.jpeg
DJ30
After the Wednesday plunge the Dow was up nearly 200 points only to fritter away the gains, salvaging the upside with a late bounce. Higher trade as it rallied to some resistance at 12,250 where it held early in the week, but then it gave up the move. As with the other indices this indicates some churn as stocks were still sold as big investors used the bounce to unload stocks. It can bounce some here, but as noted Wednesday, it still has downside near 11,750 in it though its move to that level will be jagged.
Stats: +57.81 points (+0.48%) to close at 12141.58
Volume: 260M shares Thursday versus 247M shares Wednesday. Higher volume on the rally and reversal. As noted that shows some churn, i.e. unloading of stocks.
DJ30 CHART: http://www.investmenthouse.com/ihmedia/DJ30.jpeg
FRIDAY
CPI is out before the open and Michigan sentiment after a half hour of trade. The market rallied on good retail results, lower import prices, and a stronger dollar Thursday, but then gave it up on rising oil prices. CPI is going to be pretty high, and what oil does could be described as anyone's guess with all of this recent volatility, but the pattern is holding a higher low at the 10 day EMA and is trying to set up for another break higher. It is still late in its run, but it is trying to give it another go. To put it mildly, that would not be great for stocks.
As seen Thursday, more good economic data (retail sales, lower import prices) could not offset a recovery in oil prices. To sound like a broken record, as oil trades the market trades. More specifically, unless oil makes a serious break lower from these levels the market is going to continue struggling. Retail sales may still be strong enough to fight off oil and gasoline spikes thanks to the stimulus checks, but as for growth in the future, oil prices are going to have to come back in near $100/bbl. Seems strange to say: $100 oil would be good for economic growth. My how times have changed.
There are stocks out there still in good shape to move upside. The Big 3 may have taken a break Thursday, but they are still in good shape and some are even getting into good position for buys; maybe not for long term dating, but for some shorter term trades. We are going to keep looking for upside vehicles in the 'safe sectors', and will also look at bounces to unload struggling positions and to pick up some downside plays as they set up better for more downside with the upside moves to resistance.
The charts are still technically weak after the breakdown, even with the Thursday move higher. Oil has spoken and until it changes its story line it looks as if the indices will struggle. Hope we are wrong, but in the end we have to simply take what the market gives, both upside and downside.
Support and Resistance
NASDAQ: Closed at 2404.35
Resistance:
2419 is the January 2008 peak and the early February peak
The 50 day EMA at 2440
2451 is the August closing low
The 18 day EMA at 2465
March 2008 trendline at 2485
2500 from interim August lows.
The 200 day SMA at 2512
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.
2625 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:
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 1339.87
Resistance:
1350 where it held early in the week.
1362 is the 90 day SMA
1370 is the August 2007 intraday low
1374 is the March 2007 closing low
The 50 day EMA at 1379
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 1422
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, trying to hold.
1324 is the April low
1317 from the February low
1270 is the January low
1257 is the March low
Dow: Closed at 12,141.58
Resistance:
12,250 from late March 2007 lows
12,518 is the August intraday low
The 90 day SMA at 12,503
12,573 is the mid-February high
The 50 day EMA at 12,574
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 12,948
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:
12,070 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): -4.5M actual versus -1.5M expected, -4.8M prior
Fed Beige Book (2:00)
Treasury budget, May (2:00): $165.9B actual, $159.3B prior
June 12
Export prices, May (8:30): 0.4% actual, 0.7% prior
Import prices, May (8:30): 0.5% actual, 1.3% prior
Initial jobless claims (8:30): 384K actual versus 370K expected, 359K prior
Retail sales, May (8:30): 1.0% actual versus 0.5% expected, 0.4% prior (revised from -0.2%)
Retail sales ex-auto (8:30): 1.2% actual versus 0.7% expected, 1.0% prior (revised from 0.5%)
Business inventories, April (10:00): 0.5% actual versus 0.3% expected, 0.2% 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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