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us stock market, trend trading stock
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6/16/08 Investment House Alerts
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IH Alert Subscribers:
MARKET ALERTS:
Targets hit alerts: ICO; MOS; TITN
Buy alerts: APH; CF; CHK; MPWR; SIM
Trailing stops: None issued
Stop alerts: None issued
SUMMARY:
- Market once more plays follow the bouncing oil price.
- Oil swings wildly: there is indecision once more, but still refuses to break.
- New York PMI bucks the regional manufacturing trend, slides further into negative territory.
- Market captive to oil, but again certain areas are getting money.
Stocks recover as oil falls, but not enough to overcome the recent selling.
The weekend G8 economic meeting failed to produce anything regarding a strong dollar. Nothing. The dollar broke out in anticipation of something concrete. When nothing materialized the dollar sold back on Monday. It did not implode, but it sold back to the breakout point where it will show us if it was more than just hopes pinned to the rather fickle leaders of the self-appointed most important economies.
That weak dollar gave oil an opening and it took it, spiking $4 in the pre-market despite a Saudi Arabia pledge to put an additional 200K barrels a day of heavy, sulfur-laden sludge on the market. That was pressuring the futures and then the New York PMI came out at -8.68, much worse than the -2.0 anticipated. Futures moved lower, oil moved higher (touched 140 on the high), and stocks sold at the open. Not all stocks, however. RIMM and some scattered techs, some industrial stocks (electrical, construction), some agriculture, and of course some energy moved higher at the open. Not widespread, but there was once again some money moving into these areas.
One characteristic of this market is that it changes direction quite a bit. Volatility is a sign of ongoing change and we have seen the market turn lower over the last month. This time it was oil changing. After gapping higher it sold lower. Indeed it posted a $7 high to low swing after hitting a new high, closing at 133.95, -0.91. As oil sold off stocks rebounded with all of the indices turning positive heading into the last hour, even DJ30, the session laggard. They could not all hold that move back to positive, however, not that it was that great of a move on the NYSE large caps. The session belonged to the large cap techs thanks to RIMM and AAPL coming back to life as well as the smaller caps (+1.15%).
The key, however, was the inability of SP500 and DJ30 to break over the 10 day EMA as they made their low volume recoveries following the two sharp, high volume sessions that took the indices out of their uptrends. The result is a market stuck in a range . . . at best . . . until oil breaks seriously lower. Indeed, SP500 and DJ30 are in downtrends as a result of the selling that started in mid-May.
TECHNICAL: A low to higher session as the market posted a decent recovery though it was not a recovery that made much of a difference to the upside. That makes the recovery a rather hollow victory for much of the market.
INTERNALS: Relatively weak breadth (1.6:1 NYSE, 1.4:1 NASDAQ) even with the small caps and mid-caps posting rather solid gains (1.15%, 0.82% respectively). Much of NASDAQ's gain was a large cap move with some big names coming back to life as noted above. There was just not a lot of upside movement generally; the 'safe sectors' were joined by some large cap tech stocks and that pushed the indices, for the most part, higher. Volume was rather pathetic, showing no heavy buying outside some individual names. Interestingly, when we talked to brokers and trading desks we heard that most were watching the US Open playoff as opposed to pushing trades. We have to admit the Open was on the big screen here in the office as well.
CHARTS: As noted, the key to the session was the inability of the large cap NYSE indices to move past their 10 day EMA. They rallied back up to them after the hard selling last Wednesday, but it was a low volume climb showing hanging man dojis on the candlestick chart. That suggests the rebound has pretty much used up the light load ammunition it had. NASDAQ cleared its 50 day EMA in a show of a bit more strength, but it has some serious resistance still ahead at 2500 and then at those twin peaks at 2550. Not all that promising yet.
LEADERSHIP: What leadership there was remained in the same sectors (energy, agriculture, metals), but again it spread out a bit more into industrial electric, construction, and growth healthcare (versus the traditional defensive healthcare plays in a downturn such as pharma). Scattered leadership but still money actively moving into these areas. It has not been enough to hold the market up, however, and thus while money is moving into these areas we have to tread cautiously with the upside even with the good plays that continue build to the upside.
THE ECONOMY
Oil remains volatile but is not cracking.
We have tracked oil the past month as it hit a new high in mid-May then almost immediately sold off and looked to be near the end of its run. Just when it hit its trendline, however, it bounced then gapped to a new high with that $11 single session move that broke the stock market's uptrend off the March lows. It moved laterally for a week, setting up for another break higher. Monday it looked as if it was making that move, gapping higher and running to a new high. Then it reversed all of the gain and lost ground. Volatile as the March wind, and it is now June.
Mondays reversal was interesting. Whenever a stock or index or commodity tries a breakout with a gap that reverses that is something to note. It was not, however, a breakdown as oil managed to hold near support at the 10 day EMA, still well above its tnredline and not really a threat to break lower. Volatility is always a sign a trend is starting to struggle, and you have to take note of that.
Pundits are split on oil; some say it is going to break down while others say 150 is next. The chart shows that volatility that has everyone talking, but the chart, while showing definite signs oil is overbought on this rally, has not broken down. It has set up for an interim move higher, and it may hit 150 on this move. That would likely do this move in as well, at least this leg of the move. The question would be whether it breaks down this time and sells back below 120 and thus gets stocks back into the upside game. Thus far it has refused to crack each time it comes under pressure even though everyone is waiting for that to happen. That indicates another upside spurt is necessary to crush the wannabe shorts and get them out of the way. When that happens then oil is going to head lower after this run.
THE MARKET
MARKET SENTIMENT
VIX: 20.95; -0.27
VXN: 25.02; -0.28
VXO: 21.7; -0.51
Put/Call Ratio (CBOE): 0.93; +0.02
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: +20.28 points (+0.83%) to close at 2474.78
Volume: 1.862B (-11.87%). Moved up but no volume to support the bounce.
Up Volume: 1.349B (-291.046M)
Down Volume: 497.041M (+35.431M)
A/D and Hi/Lo: Advancers led 1.42 to 1. All large caps as the breadth indicates.
Previous Session: Advancers led 2.52 to 1
New Highs: 70 (+16)
New Lows: 125 (-49)
NASDAQ CHART: http://investmenthouse.com/ihmedia/NASDAQ.jpeg
NASDAQ continued its move up over the 50 day EMA, clearing the 10 and 18 day EMA (2458, 2465) as it fights back from the hard week of selling that set a second peak in the May and early June highs at 2550. Before NASDAQ gets to those levels it has to get past 2500 and the 200 day SMA (2510). It is tough digging out of a hole, and there was not much volume on this move and not much breadth either, indicating not many stocks were moving. There are some tech stocks, however, that are set up very well and are moving very well. Hard to ignore those, but this is what you see over the entire market: very specific sectors and stocks getting the money.
NASDAQ 100 (+0.95%) was the tech leader as some big tech names moved well. Similar to NASDAQ overall with still resistance at the early May highs and the twin peaks further ahead.
SOX (+1.51%) posted a solid move but it ran into resistance at the early May highs and it very much needs to clear this level to put some damage into that topping pattern formed the past month and one-half.
NASDAQ 100 CHART: http://investmenthouse.com/ihmedia/NASDAQ100.jpeg
SOX CHART: http://investmenthouse.com/ihmedia/SOX.jpeg
SP500/NYSE
Stats: +0.11 points (+0.01%) to close at 1360.14
NYSE Volume: 1.164B (-5%). Second session of lower, below average volume as NYSE indices moved higher. Not much accumulation as they recover, leaving this in the category of a relief bounce.
Up Volume: 666.795M (-304.883M)
Down Volume: 483.709M (+242.815M)
A/D and Hi/Lo: Advancers led 1.6 to 1. Even with the small caps leading the NYSE indices higher, breadth was still mediocre. Not many stocks are rowing together.
Previous Session: Advancers led 2.69 to 1
New Highs: 80 (+38)
New Lows: 119 (-40)
SP500 CHART: http://investmenthouse.com/ihmedia/SP500.jpeg
SP500 edged higher on lower, below average volume, tapping at the 10 day EMA and the 90 day SMA on the high (1363, 1362) before easing back. On the candlestick chart it shows a hanging man doji. After a move up off some selling that chart pattern indicates the bounce is running out of steam. It is not a slam dunk, but this is a classic topping signal, especially given it is showing this below the early April high at 1375ish that is the left shoulder in a potential head and shoulders top.
SP600 (+1.15%) made an important move, breaking up through the early May high, clearing the 200 day SMA by a hair, and ready to try and challenge the mid-May peak. Still some key resistance to get past and not a lot of volume to drive it just yet.
SP600 Chart: http://investmenthouse.com/ihmedia/SP600.jpeg
SP400 CHART: http://investmenthouse.com/ihmedia/SP400.jpeg
DJ30
Very similar to SP500 the Dow butted up against the 10 day EMA (12,314) and stalled. DJ30 did managed to turn positive to start the last hour but it faded down the stretch. Lower, below average volume for the first time in two weeks, so it really did not have much of a chance to get on through the resistance in any case. Lower volume recovery to near resistance wehre it failed on its first bounce from the selling that started in mid-May and again in early June. It is also right at the April low; lots of ice to break through at this level and it certainly does not look ready to make that break without testing further and setting up a better base.
Stats: -38.27 points (-0.31%) to close at 12269.08
Volume: 222M shares Monday versus 247M shares Friday. Low volume, the first below average volume session since the start of June, suggesting not a lot of power on this move.
DJ30 CHART: http://www.investmenthouse.com/ihmedia/DJ30.jpeg
TUESDAY
GS earnings are out before the open, and GS is one of those seminal stocks in the market. It will likely report decent earnings as it tends to avoid stepping in the potholes, but the outlook is the worry. In addition to earnings, there is a loaded economic calendar with PPI, new home sales, production and capacity. Lots of data, but again, everything is hostage to high oil prices that keep the breakdown possibilities alive with its volatile price swings, but also refusing to give up ground.
That leaves the general theme of the market as one where there are overall downtrends leading the market lower while at the same time money continues to move into certain areas (ag, energy of all kinds, metals) and some newer areas in tech, industrial components/expertise, medical appliances and instruments. Play weakness overall, upside in specific sectors and stocks. Despite the high oil prices (and indeed in some cases because of them) certain areas continue to receive money and thus continue to build and move higher.
Thus we will continue to look for upside opportunity as it develops and shows good accumulation. It shows up in the gains we are taking off the table on days even when the market is so-so as on Monday. We are also going to look at more downside where the stocks show the same kind of action as DJ30 and SP500, i.e. the low volume rebound to near support after the selloff. Tailor made downside action.
Support and Resistance
NASDAQ: Closed at 2474.78
Resistance:
March 2008 trendline at 2500
2500 from interim August lows.
The 200 day SMA at 2510
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.
2626 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 18 day EMA at 2464
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
The 90 day SMA at 2373
2370 from the April 2006 peak
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 1360.14
Resistance:
1362 is the 90 day SMA
The 10 day EMA at 1363
1370 is the August 2007 intraday low
1374 is the March 2007 closing low
The 50 day EMA at 1378
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 1421
1433 from a pair of August 2007 lows and December mid-month intraday low
1434 is a longer term trendline from the August 2003/September 2004 lows
1446 from the December low
1460 is the February 2007 peak
1481 represents several peaks and lows ranging from April 2007
Support:
1350 where it held early in the week.
1337 is an ancient trendline that held last week
1324 is the April low
1317 from the February low
1270 is the January low
1257 is the March low
Dow: Closed at 12,269.08
Resistance:
The 10 day EMA at 12,314
The 90 day SMA at 12,505
12,518 is the August intraday low
The 50 day EMA at 12,552
12,573 is the mid-February high
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 12,939
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 16
New York Empire State Index, June (8:30): -8.68 actula versus -2.0 expected, -3.2 prior
Net foreign purchases, April (9:00): $115.1B actual versus $63.2B expected, $79.6B prior (revised from 80.4B)
June 17
PPI, May (8:30): 1.0% expected, 0.2% prior
Core PPI (8:30): 0.2% expected, 0.4% prior
Housing Starts, May (8:30): 980K expected, 1.032M prior
Building Permits, May (8:30): 950K expected, 978K prior
Capacity Utilization, May (9:15): 79.7% expected, 79.7% prior
Industrial production, May (9:15): 0.1% expected, -0.7% prior
June 18
Crude oil inventories (10:30): -4.5M prior
June 19
Initial jobless claims (8:30): 375K expected, 384K prior
Leading Economic Indicators, May (10:00): 0.0% expected, 0.1% prior
Philly Fed, June (10:00): -10.0 expected, -15.6 prior
End part 1 of 3
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us stock market
trend trading stock
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