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us stock market, top stock pick
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6/17/08 Stock Split Report
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MARKET ALERTS
Targets hit alerts: PDO; RIMM
Buy alerts: DXD
Trailing stops: None issued
Stop alerts: None issued
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:
- Early strength fades as SP500, DJ30 turn back from near resistance.
- May housing starts disappointing, but the rate of decline continues to slow.
- Stimulus check update: some spending, some saving, but who do you believe?
- Senate votes down extending alternative energy tax credits.
- Yellow Trucking raises its forecast after hours but it won't turn the tide as weekly oil inventories are the focus Wednesday.
Early rally fails as NYSE large caps roll at near resistance.
Goldman and Best Buy both beat earnings as a leader (in the non-market sense) in financials and one in retail showed they can make money in trying times. Both were up on the news and so were the futures, enough so to offset some really hot producer prices that saw a 7.2% annual jump and weaker production numbers. Those are 1981 levels, the high levels hit before Fed Chairman Volker jacked up interest rates in conjunction with the Reagan emergency economic stimulus plan and broke inflation and simultaneously ignited the 20 year boom. The Tuesday PPI had the smell of stagflation, but with oil prices weaker by as much as 2% early on (though it closed at 133.77, -0.84) there was enough to get stocks rebounding early.
It was not enough to overcome resistance, however, as SP500 and DJ30 initially moved through the 10 day EMA but gave it up. There were too many negatives still circulating. The dollar weakened again, barely hanging onto its mid-May high. Housing starts dropped 3.3%, down to 1991 recession levels. Production and capacity both came in below expectations. Three million acres of corn lost for planting thanks to the Midwest floods. The Senate refusing to renew credits for alternative energy investments even as gasoline hits record highs. And of course, oil reversed from 2% losses to close basically flat.
All of that was too much. You expect Congress to act incoherently, but even these jokers should get it in an election year. Not the case as they are just as cavalier as ever. It was enough to stall the NYSE large caps at near resistance. The early rally broke its back on the news and on oil's recovery. Stocks slid lower the rest of the session then really dropped hard on the Senate vote. The indices closed at session lows in a classic turn lower from resistance for the overall market. Of course agriculture, energy, some metals, and even some tech performed quite nicely as money selectively moves into the same old areas as they have most of the rally.
TECHNICAL. Intraday it was a return to high to low action as a stronger open was sold with the indices finishing on session lows. Classic high to low, positive to negative where gains were used for selling.
INTERNALS: Modestly weak breadth at -1.4:1 NYSE, -1.7:1 NASDAQ. Volume was lighter and once more well below average so there was no distribution, i.e. no volume surge as SP500 and DJ30 turned back from resistance. That is something of a silver lining in an otherwise weak technical picture.
CHARTS: SP500 and DJ30 had our eye and they turned lower after flirting with the 10 day EMA once more. They did not collapse lower, just started higher and sold off after a low volume bounce. A classic turnover at resistance but no volume as the saving grace for the upside. That is, however, more of a last gasp hope than anything of major significance indicating some turn back to the upside.
LEADERSHIP: Agriculture exploded higher once more as the Midwest flooding takes its toll. You would think losing 3M acres of corn farmland for now would hamper the ag stocks, but it only makes the need for their products in other areas more important as farmers try and pick up the slack and increase yields to make up the difference. With feed corn at 15 year low levels, prices are just going to explode higher over the next year. Do you have your cow or two that you are fattening up as a hedge against $8/lb ground beef? Other than agriculture, energy was decent and some large cap tech was on the move once more (RIMM, AAPL). Overall, however, leadership was thin Tuesday.
THE ECONOMY
May Housing Starts slump back.
The 3.3% decline in May washed away Aprils 2% gain. A lower number was expected, but expectations were a tad high still. Housing starts continue in a straight plunge lower from the peak in 2005, but the rate of decline is easing bit by bit. The recent low was hit in March at 954K, then a rebound and even though May was lower it still is above that March low.
That is not changing the trend by any stretch but the rate of plunge declines before the turn. Again, there is that slowdown in the rate of decline, although you have to pull out the fine scale instrumentation to see it.
This slowdown is on the heels of a slowing in the rate of decline in existing home sales, the larger part of the market. Improvement in that the rate of decline in a number of indicators is slowing, but that that is a long way from recovery. These are 1991 levels the last recession in which housing really tanked. Recall it did not dive in the 2000/2001 recession given 9-11 and the 'cocooning' effect following that attack that kept US consumers focused on staying home. That combined with the implosion in tech and internet stocks burned many people and they invested money in a second home and fixed up the primary residence. Thus matching 1991 is significant.
It is also understandable. After all the 9-11 effect prolonged the housing boom well past reason. Remodeling and second homes kept the market running and running and running well past the norm. Housing is an early cycle recovery sector and typically dies out after the initial heated push in the economic recovery. This one went on and on, and then went even further thanks to Greenspan and his 1% interest rates for more than a year. That entrenched expectations of home ownership and spawned the absurd financing methods when the well started to run dry and lenders invented new ways to keep the flow of buyers coming and thus the money. Whenever that happens the payback is hell.
We are still paying for it and even with some improvement in the rate of decline the recovery is a long way off. Some say the market may bottom over the summer and improve in Q3. Prices have to fall more, however, before that comes to be. That means an ugly summer for housing as prices wend their way to levels that new buyers find attractive. Given that interest rates are running higher, that means prices have to come down much more to make homes affordable according to mortgage calculations given higher rates.
Are they spending or aren't they? Only your retailer knows.
Reports are coming in on what is being spent with respect to the stimulus checks, now in the second wave of mailings. Wal-Mart says it is seeing a lot of spending of those checks. A new survey, however, indicates something a bit different. According to the poll, 19% say they are spending that check, doing the patriotic thing as they head to Best Buy and put that money down on a flat screen TV. 69% say they are not heading to the mall, instead paring back their spending. As for the other 12%, no one knows what they are doing.
Just 19% spending it? You have to wonder about these polls. If you are being asked a sensitive question that has implications as to your integrity, your probity, or your financial responsibility, you tend to fudge a bit toward the 'pillar of the community' standard. In short, you lie. Do you believe everyone should have an equal chance at a college slot even if it means your child doesn't get one? 'Of course' is the answer, but of course the 'not' at the end of the sentence is omitted but implied. There are a million other potential examples, but I will only get into deep trouble if I pursue this line of logic further. You get the point, however: when people are polled they rarely tell the truth. In the few surveys I have agreed to take the questions are so obviously skewed to get to one result that I end up not completing the survey because it does not really reflect what you believe.
The point is that the WMT and BBY results indicate consumers are spending the checks. The next point: does it really matter? We pay taxes. The government gives $150B of it back, but not really as it goes to people who did not necessarily pay any taxes. Those people sign the money over to retailers and gasoline stations. Given the slowing economy the retailers have inventory piled up. The stimulus money helps cut into those inventories, but once the stimulus checks are spent there is nothing else coming. No incentive for retailers to order more goods; they are just happy to unload what they already have. Then the economy stagnates again and waits for the next stimulus to come along, hopefully stimulus that works such as incentives to invest in R&D, new technologies, new equipment, etc. Same thing happened in the last recovery: rebates that did nothing were finally followed by investment incentives that bottomed the market almost to the date they were passed.
No room for alternative energy tax credits with this Congress.
Okay. Oil and gasoline prices are surging and many in Congress want to investigate the oil companies, so-called speculators, and anyone associated with the fuel chain of custody. As noted a month ago, that is our official energy policy: when prices rise Congress holds hearings designed to prove the oil companies are fixing prices, yet the proof never materializes.
Congress won't allow offshore drilling in new areas, won't allow drilling in ANWR, won't allow drilling on federal lands in MT, WY or ND where there is estimated some trillion barrels of oil. Nuclear power has been hamstrung for decades. No new refineries built in 30 years.
Okay. Maybe there is some scintilla of a valid reason for disallowing all of these actions that together would not cure the problem but would put us on the path of impacting our dependence on foreign supply and also price. They are not my favorite solutions, but they would be part of a better solution in the future by buying us time and letting us keep some of our wealth at home to invest in R&D to come up with methods to get our ground-based vehicle fleet off the internal combustion engine.
When Congress is so adamant about disallowing using any federal lands for oil and gas exploration, why on earth would it not vote to renew tax credits for citizens installing or utilizing energy saving materials, systems, and vehicles? You prevent drilling to increase supply of the energy we use, and at the same time you remove incentives to switch to energy saving technologies. What the hell does Congress want? Other than power and self-adulation, who knows? What it needs is an evening locked up in a small arena with a lot of angry truck drivers, farmers, homeowners, commuters, etc. so they can explain just what the heck they are doing up in D.C. attending parties 4 nights a week, flying around in private jets, traveling in limousines - basically burning more fuel than any of us for frivolous reasons -- and yet killing worthy tax credits rewarding energy saving investments. If they cannot come up with plausible reasons and then solutions, the crowd can beat the hell out of them. Seems that is the only way they will listen given they have basically lifetime terms given the changes in election finance via the McCain bill that insures the incumbents win.
THE MARKET
MARKET SENTIMENT
VIX: 21.13; +0.18
VXN: 24.7; -0.32
VXO: 22.17; +0.47
Put/Call Ratio (CBOE): 1; +0.07
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: -17.05 points (-0.69%) to close at 2457.73
Volume: 1.83B (-1.71%). Flat volume, still below average, as NASDAQ squandered an early lead. No distribution so there is hope for the techs as the pattern is a bit better than the NYSE large caps.
Up Volume: 499.905M (-849.407M)
Down Volume: 1.28B (+782.856M)
A/D and Hi/Lo: Decliners led 1.73 to 1
Previous Session: Advancers led 1.42 to 1
New Highs: 68 (-2)
New Lows: 153 (+28)
NASDAQ CHART: http://investmenthouse.com/ihmedia/NASDAQ.jpeg
Gapped modestly higher in an attempt to continue the three day rally off the early April high. The peak was on the open, however, as NASDAQ turned south and never made the early session highs again after a midmorning rally failed. That led to a slide into the afternoon, a dump lower to start the last hour, and then a close at the low. That close, however, put it at the 10 day EMA and over the 50 day EMA (2442) as well. With the light volume that leaves it in position to test back a bit and still make a higher low and try to take on 2500 and maybe beyond toward the double top at 2550. One step at a time; it has to hold the pullback first, but if the large caps such as AAPL and RIMM continue to perform, that will help hold NASDAQ at the 50 day EMA on a test.
NASDAQ 100 (-0.60%) showed similar action with a gap higher and a turn back to the 10 day EMA. It could not take out the early May high at 2000 on the move, and that is a key resistance level with many highs and lows at that level.
NASDAQ 100 CHART: http://investmenthouse.com/ihmedia/NASDAQ100.jpeg
SOX CHART: http://investmenthouse.com/ihmedia/SOX.jpeg
SP500/NYSE
Stats: -9.21 points (-0.68%) to close at 1350.93
NYSE Volume: 1.094B (-6.03%). Lower and lower volume starting back when SP500 started the rebound form the last round of selling. Now volume did not ramp up on the turn back down from resistance, so it was not a downside rout.
Up Volume: 386.146M (-280.649M)
Down Volume: 696.768M (+213.059M)
A/D and Hi/Lo: Decliners led 1.4 to 1
Previous Session: Advancers led 1.6 to 1
New Highs: 104 (+24)
New Lows: 138 (+19)
SP500 CHART: http://investmenthouse.com/ihmedia/SP500.jpeg
SP500 turned back at the 10 day EMA and the 90 day SMA, right on cue. It sold, but volume did not surge higher as it did, leaving some wiggle room for the index to try another run, but to do so it will have to come up with something special, and that will take the financials turning around. No sign of that at this point even though you hear some saying buy them because they are so low. Sure are. Could be even lower as well.
SP600 (-0.59%) moved up further above its 200 day SMA but then reversed and gave it up on the close. Still below the May peak and still plenty of work to do in order to break up this short term topping pattern, but holding near the February highs as it is gives it some footing to consolidate to try another run. It will take lower oil to improve their prospects, however, given the small caps' ties to the economy.
SP600 Chart: http://investmenthouse.com/ihmedia/SP600.jpeg
SP400 CHART: http://investmenthouse.com/ihmedia/SP400.jpeg
DJ30
Similar to SP500, the Dow found resistance at the 10 day EMA (12,286) and faded, posting the largest loss outside the SOX. Double topped in May, and has made three attempts at rebounding, stalling at the 10 day EMA each time. It can make another two rotations lower before it needs to bounce higher. It could very well come back to test the prior lows at 11,750 before this is over.
Stats: -108.78 points (-0.89%) to close at 12160.3
Volume: 174M shares Tuesday versus 222M shares Monday. Very low volume as the blue chips stalled at near resistance and turned over. Not much of a silver lining.
DJ30 CHART: http://www.investmenthouse.com/ihmedia/DJ30.jpeg
WEDNESDAY
Crude oil inventories are all that is out Wednesday and expectations are for a 2M bbl decline, the fifth in a row. Oil is holding at its 10 day EMA, still in a lateral consolidation and still quite volatile.
There is still speculation about an oil breakdown but as it is still just speculation, SP500 and DJ30 are going ahead on and doing it themselves. NASDAQ is trying to find some leadership, but its pattern is not instilling a lot of confidence either. Pockets of strength continue with what we have dubbed the 'safe sectors' or the Big 3, and those are providing us nice returns. Outside of those, however, the upside pickings are rather slim and the overall index patterns indicate a further slide lower without something major such as a sharp break lower by oil THAT KEEPS IT DOWN more than just a few sessions.
Now YRCW in trucking raised its guidance for the current quarter. That may give some life to transports after they were heading down the tubes. Trucking was holding up decently, however, even as rails broke down. It is interesting that YRCW was the first to complain of a slowing economy and now it is raising its guidance.
Thus we are looking at a market that continues to struggle at the choke point from oil and gasoline prices. We are playing some downside, waiting for them to really catch fire as this next leg lower picks up speed. And while few leaders moved higher Tuesday, there are still many in position to move higher, still getting money pushed their way on the global story. Bifurcated action but you take what the market is giving you.
Looks as if the NYSE large caps are heading lower and the other indices are going to struggle to move higher as they do. The key for them is to hold up without collapsing while SP500 and DJ30 make this next run lower. If they do they have some upside potential. Have our doubts but willing to be pleasantly surprised. For now we play some downside as we have been, look for the upside moves in the Big 3 and 'safe sectors' (primarily ag, energy of all kinds, commodities, industrials, health, scattered techs) and just take what the market gives.
Support and Resistance
NASDAQ: Closed at 2457.73
Resistance:
2500 from interim August lows.
March 2008 trendline at 2502
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 2442
2419 is the January 2008 peak and the early February peak
2392 is the April 2008 peak
2386 is the August intraday low
The 90 day SMA at 2375
2378 is the mid-February peak; 2379 from the October 2006 peak
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 1350.93
Resistance:
The 10 day EMA at 1361
1363 is the 90 day SMA
1370 is the August 2007 intraday low
1374 is the March 2007 closing low
The 50 day EMA at 1377
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 1420
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 12,160.30
Resistance:
The 10 day EMA at 12,286
The 90 day SMA at 12,504
12,518 is the August intraday low
The 50 day EMA at 12,537
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 12,934
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): 1.4% actual versus 1.0% expected, 0.2% prior
Core PPI (8:30): 0.2% actual versus 0.2% expected, 0.4% prior
Housing Starts, May (8:30): 975K actual versus 980K expected, 1.008M prior (revised from 1.03M)
Building Permits, May (8:30): 969K actual versus 960K expected, 982K prior
Capacity Utilization, May (9:15): 79.4% expected versus 79.7% expected, 79.6% prior
Industrial production, May (9:15): -0.2% actual versus 0.1% expected, -0.7% prior
June 18
Crude oil inventories (10:30): -2M expected, -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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