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7/02/08 Investment House Daily
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MARKET ALERTS:
Targets hit alerts: None issued
Buy alerts: None issued
Trailing stops: AGU
Stop alerts issued: AGU; BTU; SIM; STLD
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SUMMARY:
- Oil rises again and would-be buyers and covering shorts disappear.
- Leaders roughed up as sellers intensify their attack.
- Oil prices jump once more on lower inventories.
- Relief bounce fails to materialize and now more earnings warnings: more bad news to try and overcome.
- Jobs report leads off a short session that no one really wants.
No rebound rally as Tuesdays backbone broken by a new high in oil.
Once more a market with the look of a reversal in the works was hit amidships and a would be rally failed to take shape. Early on it looked as if stocks were starting right, ready to build into a relief move ahead of the long weekend (3.5 days this time), but oil surged higher (closed at 143.56, +2.67 and moving even higher after hours) after a 2M bbl inventory decline, and that along with concerns about the ECB hiking rates and the now Thursday jobs report killed off any chance of a rally before it got started. Buyers had no reason to bargain hunt and shorts had no reason to cover. Some modest early selling turned heavier and heavier, then got really ugly into the close, pushing SP500 back down to its 2008 lows.
The leaders in energy (oil/gas, coal, solar) were beaten about, jumping early but then reversing to close lower, some sharply lower. Coal was on the bubble and it was knocked around. Agriculture is wobbly as well and it was heading lower. We saw rails give up leadership and now these two areas are threatening to really crack along with parts of the oil and gas complex. Leadership continues to thin as sectors come under pressure. The result was a sharply negative session for the market as leadership gave up along with the usual suspects, i.e. financials.
TECHNICAL: A modest start looked promising, factory orders beat expectations (0.6% versus 0.5%), but that was not enough. The oil inventories showed a surprise decline and that pretty much did in the early attempts to build on the Tuesday reversal. A flat to higher open gave way to selling, and an early afternoon rebound attempt failed, and the indices closed sharply lower into the close.
INTERNALS: Volume was lower but it was still strong. You can say there was no or little distribution, but with the volume remaining well above average it is clear there were sellers in the market. Breadth was not out of control, but very solid at -2.7:1 on both NYSE and NASDAQ. New lows declined some but were still strong with readings just over 400. Weak numbers.
CHARTS: SP500 bounced off the March low (its 2008 low) Tuesday, but Wednesday it sagged right back to that level, managing to close just over that same level. After a nice reversal on Tuesday, SP500 looks as if it too wants to break the 2008 lows and follow the Dow lower. NASDAQ made a new low on this downside leg after a failed test of its old trendline to start the session. It now looks ready to test its 2008 lows, the first at 2200 hit in January. Another session similar to Wednesday and it is there. Just a half session so it may not make it. SP600 and the small caps are diving as well, hitting new lows for this leg lower. Not a good sign for the economy as the small caps and their dependence upon economic growth are burrowing lower, indicating there is no growth, at least yet.
LEADERSHIP: As noted the leading sectors were knocked around pretty hard. There was a lot of throwing out the good with the bad Wednesday with a rush to the exits. That is often the case and thus despite some sizeable losses in some stocks, we are looking for recoveries where we can add to positions. This is pretty typical action in the late stages of a selloff as the leaders are taken out. Once more we emphasize we are looking for a relief bounce, but thus far the market has been much weaker than anticipated. With the virulence of the selling in the leaders, the market is closer to a bounce, but even when it does it is still likely to be just a relief move, and how the leaders in the Big 3 respond to the rebound will tell the story for the next move. If the bounces are weak and on low volume, then more selling is to come.
THE MARKET
MARKET SENTIMENT
VIX: 25.92; +2.27. Rising over the June high and up to the next interim peak at 26. Still 10 points from where it needs to be at a minimum to indicate a bottom forming, and to get higher that necessarily means more selling.
VXN: 30.92; +2.19
VXO: 26.95; +2.33
Put/Call Ratio (CBOE): 1.08; +0.07. Five consecutive sessions greater than 1.0 on the close. A close over 1.0 is significant as it shows more people buying puts than calls, i.e. they believe there is more likelihood of downside than upside. Historically that indicates that a move lower is near its end.
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: 33.7%. Below the 35% level and now a bullish indicator. Down from 36.3% last week and a precipitous fall from 43.0% the week before. 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: 39.3%. Up from 37.4% last week and 32.6% the week before. Crossed above bulls last week and is burying the crossover this week. Again, that is 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: -53.51 points (-2.32%) to close at 2251.46
Volume: 2.465B (-7.13%)
Up Volume: 501.487M (-976.065M)
Down Volume: 1.906B (+754.868M)
A/D and Hi/Lo: Decliners led 2.78 to 1
Previous Session: Decliners led 1.39 to 1
New Highs: 39 (+2)
New Lows: 405 (-123)
NASDAQ broke to a new low on this leg, failing a half-hearted test of the old trendline and looks ready to head toward the January low at 2200, following DJ30 and SP500 and their path lower.
NASDAQ 100 (-2.5%) is still just over some support at 1800, maintaining the possibility of a hold and then a bounce once NASDAQ itself taps toward the January low. Of course we were looking for the same from SP500 and it set up to do so but then it failed as well.
NASDAQ CHART: http://investmenthouse.com/ihmedia/NASDAQ.jpeg
NASDAQ 100 CHART: http://investmenthouse.com/ihmedia/NASDAQ100.jpeg
SOX CHART: http://investmenthouse.com/ihmedia/SOX.jpeg
SP500/NYSE
Stats: -23.39 points (-1.82%) to close at 1251.52
NYSE Volume: 1.52B (-7.47%)
Up Volume: 260.264M (-543.109M)
Down Volume: 1.255B (+437.127M)
A/D and Hi/Lo: Decliners led 2.74 to 1
Previous Session: Decliners led 1.43 to 1
New Highs: 67 (+26)
New Lows: 412 (-213). Down but still solid and popping over 600 on Tuesday.
SP500 CHART: http://investmenthouse.com/ihmedia/SP500.jpeg
Once more within points of the March low at 1257, this time not bouncing. Lower volume and still a chance for a hold at the 2008 low; if NASDAQ teams up with the NYSE large caps then the bounce setting up is not dead yet.
SP600 (-2.78%) hit a new low on this leg, undercutting its interim lows, leaving nothing between it and its 2008 lows as well.
SP600 Chart: http://investmenthouse.com/ihmedia/SP600.jpeg
SP400 CHART: http://investmenthouse.com/ihmedia/SP400.jpeg
DJ30
Way down by itself below the early 2008 lows and threatening the 2006 lows. Lower trade so less virulence. Gee, could be ready to bounce. Has to show it, but after almost 1500 points without a serious bounce attempt it is getting ready.
Stats: -166.75 points (-1.46%) to close at 12215.51
VOLUME: 230M shares Wednesday versus 299M shares Tuesday.
DJ30 CHART: http://www.investmenthouse.com/ihmedia/DJ30.jpeg
THURSDAY
A half session, a treat given the condition of the market and the NYSE's reluctance to be closed 4 days in a row. Three and one-half it can live with, and most traders will be gone tomorrow. Volume has been high all week despite the shortened week of trade as a new quarter starts.
The jobs report was moved up on account of the Independence Day celebration and the ADP report Thursday indicated a worse than expected outcome as it showed -79K jobs; of course its correlation with the government's report is not necessarily a good one. If it is wrong and jobs are better the market is so marked and beaten that it could bounce sharply on some short covering. Could, but even a strong bounce doesn't mean much ahead of the long weekend. We expected some shorts to cover, but once more there was no reason as oil rallied again and that continued to pressure the dollar and stocks.
There is also the ECB's decision on rates, and a hike is expected. The dollar has lost a lot of ground ahead of this, and while a hike may have a near term impact, as it is expected there likely won't be significant reaction. If it does not hike that is a different story; dollar rallies, oil falls some, shorts cover some, market bounces some.
Thursday we are not planning on doing much as everything is skewed by a long weekend; hard to buy into that with the geopolitical intrigue between Israel and Iran and the approach of earnings season and warnings starting to emerge. Moreover, NVDA warned after hours, putting the hex on semiconductors for now and underscoring to everyone this is the warnings season.
Given that no one will be around and no one wants these half day sessions (though they are preferable to full sessions) the market can be pushed around by just a few big buyers or sellers. Hard to get serious about that kind of market, and so we won't be that active. We will be watching but we won't be doing much; the rubber band to the downside is stretched pretty far and no point in making a lot of decisions Thursday when a multi-day rebound is being set up. Again, if jobs and/or the ECB are surprises, that could be the trigger. Could be; we have seen the setups a couple of times now only to see them washed away. That would at least be fun to watch.
Support and Resistance
NASDAQ: Closed at 2251.46
Resistance:
2261 is a March 2008 interim low
2286 is the first April 2008 gap up point.
2332 is the trendline from the summer 2004/July 2006 lows, Q4 2005 consolidation
2340 from the March 2007 low
2370 from the April 2006 peak
2378 is the mid-February peak; 2379 from the October 2006 peak
The 90 day SMA at 2380
2386 is the August 2007 intraday low
2388 is the June 2008 low
2392 is the April 2008 peak
The 50 day EMA at 2410
2419 is the January 2008 peak and the early February peak
2451 is the August closing low
The 200 day SMA at 2497
2500 from interim August lows.
Support:
2202 is the January 2008 low
S&P 500: Closed at 1261.52
Resistance:
1270 is the January low
The 10 day EMA at 1297
1317 from the February low
The 18 day EMA at 1317
1324 is the April low
1331 is the June low
1342 is an ancient trendline
The 50 day EMA at 1350
1370 is the August 2007 intraday low
1374 is the March 2007 closing low
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 1411
Support:
1257 is the March low
1237 is the July 2006 low
1224 is the June 2006 low
Dow: Closed at 11,215.51
Resistance:
11,317 from March 2006
11,634 is the January intraday low
11,670 is the May 2006 intraday high; 11,642 closing
The 10 day EMA at 11,575
11,731 is the March 2008 low
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 12,208
The 90 day SMA at 12,415
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
The 200 day SMA at 12,841
12,845 is the August closing low
13,092 is the December 2007 intraday low
13,133 is the May 2008 high
Support:
11,061 from February 2006
Economic Calendar
These are consensus expectations. Our expectations will vary and are discussed in the 'Economy' section.
June 30 - Monday
Chicago PMI, June (9:45): 49.6 actual versus 48.5 expected, 49.1 prior
July 1 - Tuesday
Construction spending, May (10:00): -0.4% actual versus -0.6% expected, -0.1% prior (revised from -0.4%)
ISM Index, June (10:00): 50.2 actual versus 48.6 expected, 49.6 prior
July 2 - Wednesday
ADP Employment, June (8:15): -79K actual versus -20K expected, 40K prior
Factory orders, May (10:00): 0.6% actual versus 0.5% expected, 1.1% prior
Crude oil inventories (10:30): -1.98M actual versus 100K expected, 830K prior
July 3 - Thursday (NYSE closes at 1:00ET)
Non-farm payrolls, June (8:30): -60K expected, -49K prior
Unemployment rate, June (8:30): 5.4% expected, 5.5% prior
Average workweek (8:30): 33.7 expected, 33.7 prior
Hourly earnings (8:30): 0.3% expected, 0.3% prior
Initial jobless claims (8:30): 385K expected versus 384K prior
ISM Services, June (10:00): 51.0 expected, 51.7 prior
July 4 - Friday
Market closed for Independence Day Holiday
End part 1 of 3
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