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world stock market, trend trading stock
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6/24/08 Investment House Alerts
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IH Alert Subscribers:
MARKET ALERTS:
Targets hit alerts: DIA; DXD; SDS
Buy alerts: AMSC; BTU; ERES; TRMB
Trailing stops: MOS; NUVA
Stop alerts: BG; CSX; EQIX; MPWR; UTSI
SUMMARY:
- DJ30 finishes the test of March lows, setting up a relief bounce.
- Consumer Confidence withering under energy, housing, economic worries.
- Case/Schiller index tumbles once more but starts are at historic turning points.
- Set to bounce but will have to get through the FOMC decision.
NASDAQ plays catch up to the downside as large cap NYSE indices have found the prior lows.
Once more there were plenty of negatives weighing on stocks, but for once it was not necessarily oil finished flat (137.06, +0.32), and while that is not necessarily a great thing in that it is holding at high levels, it didn't jump higher and that was at least a neutral on the session. UPS warned about its profits thanks to energy, though as one subscriber noted, UPS implements fuel surcharges on a regular basis, so there very likely may be something else going behind those brown doors. Dow announced a 25% price hike and surcharges on truck and rail deliveries. The Case/Schiller home price index tumbled again. Consumer confidence hit 1992 recession levels. Things started lower and the confidence just greased the skids more.
More selling, but in the contrary world of markets, it was necessary. The continued move lower pushed DJ30 to March 2008 lows. SP500 fell to the January closing lows. NASDAQ filled one of its April gaps higher. That triggered the start of a rebound. Nothing strong yet, but the indications show things are oversold and ready to bounce back in their downtrends.
TECHNICAL. Intraday the action was low to lower, though just modestly. Then there was a midmorning to early afternoon rally that took things back to positive. Never was really heaving selling, just finishing off the selling that was underway to important levels. The market showed its weak colors, however, with an afternoon fade that gave up the modest gains to close in the red but basically flat. There was that rebound off the lows, and that was the saving grace as discussed below.
INTERNALS: Breadth was weak once more at -2.2:1 NSYE, -2.6:1 NASDAQ. Not pretty, but several sessions of this kind of reading shows things are getting oversold. Combined with some other factors, that is a near term upside positive. Volume jumped back above average on both NYSE and NASDAQ. Will higher volume on selling is typically a negative, in this situation it is not. As discussed below, DJ30 and SP500 touched key levels on the lows and held basically steady as volume jumped. That shows buyers were stepping in as fast as the sellers, keeping the indices flat after bouncing off those key levels. The buyers have caught up with the sellers and after such a tail kicking to the downside, that means they are massing to push things higher.
CHARTS: As noted, DJ30 touched down to the March lows, SP500 the January closing lows, and NASDAQ filled the second gap higher in April. The former, particularly the Dow's move, was the trigger point. That pushed stocks back up from those lows to close flat, showing dojis on all of those indices. After the selling seen to this point the chart patterns combined with the volume indicate a relief bounce is coming, and with the selling on the Dow it could be quite decent. NASDAQ has more selling to do and it would be better if it was down further right now. As it is, NASDAQ is likely to sell further before any serious move higher, but it can tag along on a relief bounce by DJ30 and SP500.
LEADERSHIP: There was selling in energy, metals, and agriculture as some profits were taken after those leaders were up again. That could continue and we did close some of these leaders if they were breaking support. If the market bounces these may go into some retrenchment, letting the other battered issues bounce while they test back and set up again.
THE ECONOMY
June Consumer Confidence weaker than expected.
Stimulus checks are not doing the job in bolstering confidence that the government and quasi-government entities have the situation in hand. $100 tanks of gas, falling home values, and nightly talk of inflation, the weak dollar, and political class warfare takes its toll.
June confidence fell to 50.4, much lower than the 56.0 expected and 57.2 reported in May. That is the lowest since 1992, another time of recession. Inflation expectations held steady at 7.7% where they have tread for the past three months, but a longer term chart shows that expectations have shot higher over the past few months. Expectations of inflation crimp spending, investment, etc. as inflation is a form of tax (parasite?) on all types of capital. As inflation has risen from 1.3% to the current 7+% levels, unemployment has jumped as well.
Correlation? It flies in the face of the Phillips Curve followers as that theory says that as the economy slows and unemployment rises, inflation falls. It didn't do that in the 1970's, and it is not doing it now: inflation is up as the economy slows. This shows, again, that the opposite is the case: growth lowers inflation.
There is a potential positive here though you have to really be an optimist to see a change anytime soon. Confidence is at recession levels hit in 1992, but it is also at levels hit AFTER the economy started to recover from the recession. The recession to start the 1990's was in 1991. History now shows the economy was recovering in 1992 as the confidence and other lagging indicators hit their lows. A positive, but you have to see improvement. In 1991 and 1992 the stock market had come off its lows. No the case here. So . . . nice comparison, but the market is not backing up any theory the bottom is in.
Case/Schilling housing price survey still falling.
Another month, another drop in the housing price index. This month a 15% drop on top of similar drops the past several months. Of course, that was better than the 16+% decline expected.
As we have said, prices have to get lower in order for the housing market recover. They are getting there though you cannot tell that to my local property tax assessor. How assessments can rise as the actual prices getting paid (or in may cases, NOT paid) show that fair market value is heading sharply lower is something only government bureaucrats can rationalize.
In any event, prices are getting lower and that makes homes more affordable. Well, if interest rates were not rising as much as they are, homes would really be affordable. They will get there, but the higher rates are not helping a lot right now.
Similarly, Mr. Case of the survey notes that historically when housing starts fall below 1M annualized units the housing market has hit its bottom. That has been the case for a few months, so based on the empirical evidence over the past 35 years, housing should have bottomed. We will see.
THE MARKET
From the weekend but worth repeating: NYSE short interest has moved to an all-time high. This is a contrary indication in that once everyone throws in the towel a move is over. Combine this with a surge in bears and a flop in bulls such that they have crossed over with bears more prevalent than bulls and you have some potent contrary indicators. VIX is still a laggard and has to spike up. It is likely to do that as the selling continues. The selling likely continues because the market bottoms after the sentiment indicators rally to extremes.
MARKET SENTIMENT
VIX: 22.42; -0.22
VXN: 28.14; +0.61
VXO: 23.23; -0.33
Put/Call Ratio (CBOE): 0.99; +0.12
Bulls versus Bears:
For the second time this year bears are crossing above bulls, doing so basically where they did in March on their way to much more extreme readings just about the time the market made the March low and started the last rally. Positive for the market and if SP500 is going to hold the long term trendline is the place to do it.
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: 36.3%. Precipitous decline from 43.0%. It started to fade as the rally rolled over and last week it plunged as confidence faded. This is close to the 35% considered bullish. Falling from a rebound high at close to 50% on the run through May. 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. They are crossing over again now even before the prior lows are hit. 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: 37.4%. Big jump from 32.6%, taking it past bulls and that is always one of the best indications that sentiment is getting extreme on the negative side. It is again past 35%, the level that historically indicates too much pessimism. 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. 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: -17.46 points (-0.73%) to close at 2368.28
Volume: 2.201B (+15.27%). Volume moved back above average as NASDAQ gapped and filled one of its April gaps higher. Not as clear as DJ30, SP500 that this was not more distribution. We are putting it in that category as techs are still selling off, playing downside catch-up.
Up Volume: 782.073M (+385.676M)
Down Volume: 1.392B (-108.4M)
A/D and Hi/Lo: Decliners led 2.6 to 1
Previous Session: Decliners led 2.42 to 1
New Highs: 43 (-19)
New Lows: 362 (+56). Still climbing toward 500 and could hit that level, indeed should hit that level, before the prior lows. That would help NASDAQ bottom before the March lows, an overall positive.
NASDAQ CHART: http://investmenthouse.com/ihmedia/NASDAQ.jpeg
Gapped below the 90 day SMA, filling the second upside gap in April, then bouncing back with the rest of the market. Showing a doji at that level, but you can bet it is going to fill the other gap before it moves markedly higher. If it fills that gap that could be more of a real bottom.
NASDAQ 100 (-0.50%) gapped lower and tapped the March up trendline on the low before rebounding. Has not filled those April gaps, but this test of the trendline can give it a surge back up.
NASDAQ 100 CHART: http://investmenthouse.com/ihmedia/NASDAQ100.jpeg
SOX CHART: http://investmenthouse.com/ihmedia/SOX.jpeg
SP500/NYSE
Stats: -3.71 points (-0.28%) to close at 1314.29
NYSE Volume: 1.341B (+23.44%). Back up to average as SP500 tests the January closing lows and bounced. That shows buyers stepping in at that support point.
Up Volume: 601.028M (+211.918M)
Down Volume: 725.499M (+38.998M)
A/D and Hi/Lo: Decliners led 2.23 to 1
Previous Session: Decliners led 1.95 to 1
New Highs: 47 (-22)
New Lows: 406 (+73). Very much getting there as the small caps were blistered lower.
SP500 CHART: http://investmenthouse.com/ihmedia/SP500.jpeg
Tested the January closing lows, slightly undercutting them, then rebounding to close basically flat and with a doji. Volume jumped, showing support at that level. With DJ30 already down to the March lows, SP500 is in position to join the blue chips in a bounce higher.
SP600 (-1.50%) made a new low on this selling, undercutting the early June low and the 90 day SMA. That is the official breakdown from its 7 week head and shoulders top. May come right back up to test the breakdown if the other NYSE indices bounce from their tests of key levels. After that the small caps look to be heading lower, and that will be a shorting opportunity. Not a good sign for the economy as the small caps break lower.
SP600 Chart: http://investmenthouse.com/ihmedia/SP600.jpeg
SP400 CHART: http://investmenthouse.com/ihmedia/SP400.jpeg
DJ30
Said it about 5 times above, but here we go again. DJ30 tapped the March lows on the Tuesday low and then rebounded. Expected this and thus we closed the DXD and DIA downside positions as it made that test and started to bounce. The blue chips are in position for a relief bounce after a 7 week selloff. The 10 day EMA is just over 12,000, but a real relief bounce as this one likely will be can take it to 12,250 where there is more serious resistance.
Stats: -34.93 points (-0.29%) to close at 11807.43
Volume: 225M shares Tuesday versus the paltry 182M shares Monday. As noted above, jumping volume as an index hits key levels indicates a bounce is coming.
DJ30 CHART: http://www.investmenthouse.com/ihmedia/DJ30.jpeg
WEDNESDAY
Durable goods, new home sales, oil inventories, and the FOMC no-decision highlight Wednesday. After hours Tuesday DRI (Red Lobster, etc.) beat the street and was trading up. A sign of a recovery, that the consumer is heading out to eat once more? No. The consumer is spending the one-off rebate checks on a few last dinners as part of the mass money shift to retailers thanks to the rebate checks. The checks are not going to cause more hiring, more investment in inventories, etc. The retailers will take the money and hang on through the bad times. No one is going to ramp up inventories in this climate without the belief there is more to come. These stimulus checks didn't work in 2001 and they won't do the trick here either.
Nearer term it looks as if the NYSE large cap indices are ready for an oversold bounce after hitting key levels that held in the January/March bottom. Question is whether they do it ahead of or after the FOMC meeting. The FOMC is likely to disappoint as it won't change rates (many looking for a hike), but after the initial reaction the market is still set for a relief move. We suspect it may get underway ahead of the 2:15ET release.
We are going to look for leaders to hold support and start back up; if they are still in good technical positions we can pick up or add to some of them as they are not in downtrends and just rebounding, but are in solid position to move higher as they have done regardless of the overall market and its decline. There may be some stocks worth a run higher on the relief bounce if they can cover ground quickly, but likely no long-term marriages there. We will also look at using the bounce to set up some more downside as the indices move up to resistance, and if they stall, we can move in again with index and individual stock downside plays.
In sum, it looks as if the large cap NYSE indices and stocks are ready to lead a relief bounce. This may be a point where the recent leadership takes a break as some money is put to work to cover some shorts and drive stocks higher. After that bounce the trend lower likely continues unless something changes in the macro picture, i.e. oil breaks down. As noted last night, the pattern does not suggest that is its next move, but instead another run higher that is really going to make everyone scream. Thus any bounce higher is likely doomed to failure, and when it does we play it downside and pick up the leadership as money moves into energy, steel, and ag once more.
Support and Resistance
NASDAQ: Closed at 2368.28
Resistance:
The 90 day SMA at 2380
2378 is the mid-February peak; 2379 from the October 2006 peak
2386 is the August 2007 intraday low
2388 is the June 2008 low
2392 is the April 2008 peak
2419 is the January 2008 peak and the early February peak
The 50 day EMA at 2442
2451 is the August closing low
2500 from interim August lows.
The 200 day SMA at 2509
March 2008 trendline at 2530
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.
2638 is an old trendline from summer 2004/summer 2005
Support:
2370 from the April 2006 peak
2340 from the March 2007 low
2323 is the trendline from the summer 2004/July 2006 lows, Q4 2005 consolidation
2286 is the first April 2008 gap up point.
2261 is a March 2008 interim low
2202 is the January 2008 low
S&P 500: Closed at 1314.29
Resistance:
1317 from the February low
1324 is the April low
1331 is the June low
The 10 day EMA at 1337
1339 is an ancient trendline
1370 is the August 2007 intraday low
1374 is the March 2007 closing low
The 50 day EMA at 1367
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 1417
1433 from a pair of August 2007 lows and December mid-month intraday low
1435 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:
1270 is the January low
1257 is the March low
Dow: Closed at 11,807.43
Resistance:
The 10 day EMA at 12,036
12,050 from the March 2007
12,070 from the early February 2008 lows
12,250 from late March 2007 lows
The 50 day EMA at 12,423
The 90 day SMA at 12,480
12,518 is the August intraday low
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 12,899
13,092 is the December 2007 intraday low
13,133 is the May 2008 high
Support:
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 24
Consumer Confidence, June (10:00): 50.4 actual versus 57.0 expected, 58.1 prior (revised from 57.2)
June 25
Durable goods orders, May (8:30): 0.0% expected, -0.5%
New Home sales, May (10:00): 510K expected, 526K prior
Crude inventories (10:30): -1.2M prior
FOMC policy statement (2:15)
June 26
GDP final, Q1 (8:30): 1.0% expected, 0.9% prior
Chain deflator, Q1 (8:30): 2.6% expected, 2.6% prior
Initial jobless claims (8:30): 375K expected, 381K prior
Existing home sales, May (10:00): 4.95M expected, 4.89M prior
June 27
Personal income, May (8:30): 0.4% expected, 0.2% prior
Personal spending, May (8:30): 0.7% expected, 0.2% prior
PCE Core inflation, May (8:30): 0.2% expected, 01% prior
End part 1 of 3
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