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money investment, investment help
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7/09/08 Investment House Daily
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Investment House Daily Subscribers:
MARKET ALERTS:
Targets hit alerts: None issued
Buy alerts: ALXN; BABY
Trailing stops: None issued
Stop alerts issued: DRQ; FSLR; SLB
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SUMMARY:
- Market spits the gain right back.
- Oil inventories dive 5.8M bbl, oil does nothing.
- Bond yields at a 45 degree dive as investors run for cover.
- Bulls dive, bears rise to 14 year highs
- Back at the July lows with the chance of a bounce still there but fading.
Once again the market set up a bounce, started it, then got the wood put to it. Wednesday started slow, but moved positive midmorning, a decent recovery though nothing flashy. Iran tested 9 missiles the day after its president said there would be no war; mixed signals are nothing new there. Oil didn't budge. Oil inventories fell 5.8M bbl, four times expectations. Oil still didn't budge, closing lower at 136.05, -0.42. Analysts downgraded retail in general, mentioning JCP, COH and restaurants in specific. ISCA, owner of NASCAR racetracks, missed its earnings expectations; NASCAR dads apparently don't want to pay the cost of gas to travel to the events.
The news was not enough to drive stocks much either way. The Iranian missiles could have caused a jump in oil, and indeed would have a couple of weeks back, but that market looks like an old greybeard right now as nine missiles could not budge oil or really damage stocks. In the afternoon a bomb exploded outside the US embassy in Turkey, and that rattled investors.
Not a major scare, but it took what wind that was left out of the sails and the indices started a long slide that picked up speed as it approached the bell. In the last half hour everything was sold off; stocks that held all session finally gave up in that last half hour. The indices gave up the Tuesday gain in that last half hour as well. At least the indices held above their recent lows, but the rally attempt that started the follow through clock on Tuesday was quickly swept under the rug.
The sentiment and technical indications are getting to extremely extreme levels, yet the market just cannot put together a bounce. Perhaps things are further along in the bottoming process than we think and that it is about to put in another move downside that shreds any hope of holding given SP500, NASDAQ and company would break below current support levels. With the atrociously weak investor sentiment, short interest, put/call ratio, etc., such a move would be a very good entre to a nice rebound and could arguably be called a bottom or the initial leg of a bottom. In any event, things are getting overdone to the downside and that keeps some looking for a reversal. Of course that almost requires another sharp leg lower to get those still looking for a bounce to throw in the towel or at least cry into it and finally give up hope. At that point the market would be free to recover. Remember back in October 2002 we heard the claims right on the floor that the 'traditional indicators just don't work anymore.' That was the day we knew the market was bottoming as all who entered the market abandoned hope. Another push lower could bring about that same mood.
TECHNICAL. After a good turn of events Tuesday the intraday action crumbled again. Low to a positive bounce that was then crushed, pushing the indices to close at session lows. One day of strength. One lousy day. Tuesday the health sector was leading the way. Wednesday that sector took the day off. Oil gave up an early gain. Without leadership the indices tailed off into the close.
INTERNALS. The usual story on a weak session. -2:1 breadth on NYSE, -2.4:1 on NASDAQ. Volume was lower, but that helps little given the volume remains elevated. A bit of a positive given the upside volume was stronger Tuesday, but again, right now that is not a game changer by itself.
CHARTS. About all you can say is that at least SP500, NASDAQ, and SP500 all held over their recent lows and did not collapse to new lows for July. That keeps them in a position they can still bounce. Of course, they started that bounce Tuesday and squandered it Wednesday. Yes they are still in position to bounce but even with some seriously high negative sentiment they have yet to hold one or more accurately, get one off the ground. Maybe oil drops again after the Iran tensions from Wednesday subside, or perhaps the market jerks sharply lower once more to really scare the remaining hope out of investors and that sets the bounce.
LEADERSHIP: Wednesday there was no leadership. Energy moved higher early but then rolled over. Health services, medical appliances, biotechs were down for the session and without their leadership the market foundered. Interestingly, after hours the AGU CEO (in the ag sector) was on television talking with supreme confidence how the company saw great growth continuing basically as far as the eye can see. While you cannot doubt there is demand for ag and related products, this almost cocky attitude toward growth smacks of the 2005 cockiness of the home builders in 2005 with their '10 year demographics' that would keep sales growing strong for another decade. That tells you to be a bit cautious with these stocks.
THE ECONOMY
As the market struggles, US treasuries look quite enticing to investors buffeted by the trend lower in the indices and now the selling in the energy, agriculture, and commodities areas. Wednesday bond yields closed at 2.37% on the 2 year and 3.81% on the 10 year. While the long and short end yields have fallen, the short end is tanking. When the Fed perfected its loan facilities the 2 year moved up to 3% as things looked rosier at the time.
Times have changed. In one session a couple of weeks back the 2 year dropped near 30 basis points in one session. It has eroded steadily since though in a much more orderly decline. Wednesday the 2 year tanked 11 basis points as investors again lost confidence in an economic recovery as evident by the selloff in stocks (markets lead the economy).
These are not historically low levels but they are quite low and heading back to the Fed Funds rate. Classic loss of confidence sending investors into the safety of US treasuries, particularly short term treasuries, to ride out the storm. Simply more evidence the economy is not quite ready to make a turn yet.
THE MARKET
MARKET SENTIMENT
VIX: 25.23; +2.08. VIX is bouncing right back up of course though still below the Monday peak at 27. Still a lot of work to do but another selloff as mentioned above as one of the possibilities ahead would spike it into the thirties, the minimum level needed to really show the potential for a more significant upside move. The action also continued the day to day volatility of large intraday and day to day price swings.
VXN: 30.27; +1.84
VXO: 27.28; +3.32
Put/Call Ratio (CBOE): 1.01; 0. Nine straight above 1.0 on the close. Plenty of support for a rebound if the other indicators fall into place.
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: 27.4%. Plunging from 31.9% and blowing past the 30.9% low hit in March and well below the 35% level considered bullish for stocks (gets so low there is plenty of money lying around to fund a rally if things turn). Steep drop from a rebound high at close to 50% on the run through May. In March the indicator did its job with the dive below 35% and the crossover with the bears. Now it is going above and beyond. Bulls and bears have crossed over again, doing so 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: 47.3%. Up sharply from 44.7% and 39.3% the week before. Well above the bullish level and the highest since 1995. 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. 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: -59.55 points (-2.6%) to close at 2234.89
Volume: 2.146B (-15.25%). Volume dropped indicating the selling was not as intense as of late and not as strong as the Tuesday upside. Still above average and while a positive, not enough by itself to do the trick.
Up Volume: 322.611M (-1.525B)
Down Volume: 1.889B (+1.245B)
A/D and Hi/Lo: Decliners led 2.46 to 1. Techs were hit pretty much across the board.
Previous Session: Advancers led 2.36 to 1
New Highs: 40 (+2)
New Lows: 227 (-120). No new lows building up here after jumping to 500 and above. This can indicate, along with the other factors we are watching, that things are getting sold out.
NASDAQ CHART: http://investmenthouse.com/ihmedia/NASDAQ.jpeg
Gapped modestly lower, bounced up to the 10 day EMA, but then rolled over. New closing low on this leg lower but above the intraday day lows already set and that leaves NASDAQ above the January and the even more so above the March 2008 lows.
SOX (-4.22%) turned tail and dumped lower to a new low on this selling leg and setting up for a test of the January and March lows. When tech breaks, it breaks.
NASDAQ 100 CHART: http://investmenthouse.com/ihmedia/NASDAQ100.jpeg
SOX CHART: http://investmenthouse.com/ihmedia/SOX.jpeg
SP500/NYSE
Stats: -29.01 points (-2.28%) to close at 1244.69
NYSE Volume: 1.491B (-13.72%). Lower trade as well but still above average trade once more. Not shrinking volume as SP500 turned south once more from a bounce attempt..
Up Volume: 277.709M (-1.015B)
Down Volume: 1.206B (+773.356M)
A/D and Hi/Lo: Decliners led 1.92 to 1
Previous Session: Advancers led 2.03 to 1
New Highs: 23 (+9)
New Lows: 222 (-237). As with NASDAQ, not a lot of new highs on the selling, an indication that things are getting a bit sold out. Damn well should be.
SP500 CHART: http://investmenthouse.com/ihmedia/SP500.jpeg
Tapped the 10 day EMA on the high, the nearest resistance level, and then turned over to close once more at some 2005 highs and 2006 lows. So much for cruising up to 1300 on this move, but it is still at the prior support and that keeps the outside chance it will hold and make a bounce, but that is far outside. Might go the route of undercutting those lows before trying another move higher.
SP600 Chart: http://investmenthouse.com/ihmedia/SP600.jpeg
SP400 CHART: http://investmenthouse.com/ihmedia/SP400.jpeg
DJ30
Similar to SP500, DJ30 tapped at the nearest resistance at the 10 day EMA on the high and then beat a path back to the lows hit Monday. Lower trade so no wholesale dumping, and as with the other indices that holds out a modest hope of another bounce attempt from here. That would make sense given the undercut of support and the need to test it, but given the Wednesday action it will have to prove it can make the move upside.
Stats: -236.77 points (-2.08%) to close at 11147.44
VOLUME: 227M shares Wednesday versus 271M shares Tuesday. Lower trade on the selling is not bad; at least it did no damage.
DJ30 CHART: http://www.investmenthouse.com/ihmedia/DJ30.jpeg
THURSDAY
Initial jobless claims are out ahead of the open, the only scheduled economic report for Thursday. It will be scrutinized but likely won't change the market attitude much. Oil resuming its decline would help and it is at an important level right now as it tests its April to June trendline, its steeper trendline. A break of that is a start but then it has to break another trend near the 50 day EMA. In short, a lot of support still for oil from a technical view, but a break below 130 wouldn't hurt.
It will be up to new leadership to step up again from the health services and medical sectors, and a lot of energy remains at lower support and could bounce though the ranks are thinning. It is a tough task; the indices are in a pernicious downtrend, they are oversold, but Tuesday they bounced and let off some steam and could not follow through, failing at near resistance. This try to rally but then failing keeps the market from going ahead with a good selloff or putting in a decent rebound to set up another good downside push.
That makes it a very tough market that is leaving even well-seasoned traders struggling. As with the possibilities outlined just above, the camps are divided into an interim bounce or a harsher selloff taking NASDAQ below its 2008 lows as well, or at least testing them before a serious bounce attempt materializes. Either one leaves the investor and trader in some limbo. Further downside from here requires very nimble moves as the market is already sharply lower, and if a new aggressive leg lower starts it will likely yield a sharp reversal without much warning. Hard to pick that last few percentage points then get out of the way, though there are some interesting possibilities we are looking at that still have plenty of room to the downside.
For the upside you don't want to get caught in the trap of picking up some rebounding stocks only to see them cut short mid-stride and tossed back in your face. For the upside you pick the stocks that show the money moving their way and pick them as they make breaks higher. That means the medical/health areas where there is some money and some growth prospects and a smattering of other individual stocks. These are traditionally defensive areas investors are seeking to ride out the bad weather. For now we are looking at those as we watch for a rebound still to gel, ride it higher, then get ready for some more downside where it will be a bit easier to move in versus here in no man's land.
Support and Resistance
NASDAQ: Closed at 2234.89
Resistance:
2261 is a March 2008 interim low
2286 is the first April 2008 gap up point.
The 10 day EMA is 2292
2335 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
2377 is a 50% retracement of the June to July selloff.
2378 is the mid-February peak; 2379 from the October 2006 peak
The 90 day SMA at 2377
2386 is the August 2007 intraday low
2388 is the June 2008 low
2392 is the April 2008 peak
The 50 day EMA at 2387
2419 is the January 2008 peak and the early February peak
2451 is the August closing low
The 200 day SMA at 2489
2500 from interim August lows.
Support:
2202 is the January 2008 low
2155 is the March 2008 low
S&P 500: Closed at 1244.68
Resistance:
1257 is the March low
1270 is the January low
The 10 day EMA at 1275
The 18 day EMA at 1296
1317 from the February low
1324 is the April low
1325 is a 50% retracement of the May to July selloff
1331 is the June low
The 50 day EMA at 1336
1341 is an ancient trendline
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 1406
Support:
1244 is an August 2005 peak
1240 to 1221 are September 2005 peaks1234 is the July 2006 low
1224 is the June 2006 low
Dow: Closed at 11,147.44
Resistance:
The 10 day EMA at 11,399
The 18 day EMA at 11,605
11,634 is the January intraday low
11,670 is the May 2006 intraday high; 11,642 closing
11,731 is the March 2008 low
12,000 is a 50% retracement of the May to July selloff
12,050 from the March 2007
The 50 day EMA at 12,068
12,070 from the early February 2008 lows
12,250 from late March 2007 lows
The 90 day SMA at 12,358
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 12,791
12,845 is the August closing low
13,092 is the December 2007 intraday low
13,133 is the May 2008 high
Support:
11,317 from March 2006
11,061 from February 2006
10,912 peak from March 2005
10,854 from December 2004
10,701-10,705 from July 2006, July 2005
Economic Calendar
These are consensus expectations. Our expectations will vary and are discussed in the 'Economy' section.
July 8 - Tuesday
Pending home sales, May (10:00): -4.7% actual versus -2.8% expected, 7.1% prior (revised from 6.3%)
Wholesale inventories, May 910:00): _0.8% actual versus 0.7% expected, 1.4% prior (revised from 1.3%)
Consumer credit, May (3:00): $7.8% actual versus $7.0B expected, $7.8B prior (revised from $8.9B)
July 9 - Wednesday
Crude oil inventories (10:30): -5.8M actual versus -1.4M expected, -1.98M prior
July 10 - Thursday
Initial jobless claims (8:30): 395K expected, 404K prior
July 11 - Friday
Export prices, June (8:30): 0.4% prior
Import prices, June (8:30): 0.5% prior
Trade balance, May (8:30): -$62.1B expected, -$60.9B prior
Michigan preliminary sentiment, July (10:00): 55.5 expected, 56.4 prior
Treasury budget, June (2:00): $33.0B expected, $27.5B prior
End part 1 of 3
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