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us stock market, trend trading stock
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7/10/08 Investment House Daily
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Investment House Daily Subscribers:
MARKET ALERTS:
Targets hit alerts: XOM
Buy alerts: CHP; KNSY; MANT; MYGN; MZZ; IJH; QID
Trailing stops: None issued
Stop alerts issued: GPN; URBN
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SUMMARY:
- On again, off again then on again session still trying to put in an interim bottom.
- Same Store Sales improve, but with a heavy bias toward the discounters.
- Jobless claims plummet: too volatile to trust, but continuing claims tell the story.
- Another session and now scales tipping back to trying a bounce, and some energy stocks are poised for a rebound bounce to help out.
Tennis match at support moves to advantage rebound attempt with a solid return down the line.
Once again the day to day action is up and down as well as the intraday action. The Tuesday bounce higher was slapped lower Wednesday as the indices gave back all of that gain. Thursday the indices did not recover all that was lost, but they bounced again off of the current support levels. It was no clear and powerful bounce; the intraday action was as wild as the up and down of the prior few sessions. In the end, however, the upside won out and the indices posted gains on rising trade as the price/volume action continues its more positive bent of late. More of this and it starts to mean something, and indeed it is already having an influence.
The pre-market started nicely with Dow buying ROH in the chemicals sector, decent same store sales (though with the typical recession bias toward retailers) as WMT, TGT, TJX, ROST and COST beat with the middle two raising guidance as well. Jobless claims plummeted to 346K. Happy days once more.
Then former Fed man Poole exercised an extreme lack of discretion and political correctness by stating that the two main mortgage companies empowered by the government are insolvent bastions of privilege paid for by the taxpayers. I always like a lack of political correctness; you cannot speak your mind in the US any more without being labeled, shouted down, or worse. Didn't we all learn that song in grade school that said we could 'vote for my choice, speak my mind, raise my voice'? Do that today, even if it is the truth, and you are arrested for committing a hate crime or 'Cosby-ied', i.e. shunned as was Bill Cosby.
But I digress, and dramatically so. So Poole spoke his mind and that is nice, but as an FOMC member he was the first Bernanke spokesman, i.e. what he said came directly from Ben himself. He is just off the Fed and already letting the zingers fly. Likely he felt comfortable doing so given Greenspan opened his mouth as much about the economy and Fed in private practice as he did as chairman, but Greenspan is not a great example himself. A bit of decorum would be nice. As it was, it torpedoed the futures and sent them negative.
The pre-market up and down was just a warm-up for the session. After Poole drained the morning gains the indices fought back, just to give it up and turn negative midmorning. Then a steady though volatile rally to the afternoon session put the indices nicely positive. Nice recovery. Oil then spiked as it moved to its close, rising close to $5 and trading even higher after hours (141.24, +5.19). That gutted the rally from midmorning. New session lows on NASDAQ, but interestingly SP500 only matched its earlier lows. Stocks bounced right back despite high energy prices and closed with gains with techs leading the way with a 1% gain and a 35 point last hour run on the heels of the 44 point drop in the early afternoon. Whew.
TECHNICAL. So, let's dissect the technical picture. Look up the old dress and see what is under all of this up and down action. Hmmm. Anyway, the intraday action was up and down as detailed. In the end the indices closed near session highs. Held support on the lows and bounced twice to close higher. Not bad, a good 2 out of 3 sessions of intraday rebounds. Better though not definitive.
INTERNALS: Breadth managed to recover positive by the close though was narrow (1.2:1ish). Breadth always lags the move a bit, and when the intraday action resembles a heart monitor in an ER it typically does not catch up to the price moves by session end. Volume was up on both NASDAQ and NYSE, not surging, but as noted above, putting in another upside session on a gain versus the lower trade on the Wednesday downside session. Positive price/volume action is building and that helps the bounce attempt.
CHARTS: Once more the indices tested lower, but they held the same support and by the close had bounced for a gain. Still in a downtrend, still on the ropes, but moving laterally over support, and though up and down each day, the internals are tipping positive as stocks hold support as well. Some improvement.
LEADERSHIP: More of the same as healthcare and medical 'stuff' stocks continue to lead out from good patterns that show money is moving their way as accumulation versus a short covering rebound from harsh selling. Some energy sectors (coal, alternative) are perking up as well, ready to bounce back from their beatings over the past two weeks. They will provide leadership on the bounce if it can finally take hold after stumbling around at support.
SUM: Still in a downtrend, still ugly, but still trying to put in a bottom here for a bounce. Just an interim bounce, but tipping that way. Sentiment indicators are extreme and this up and down action over support is trying for a season change. Again, not a major change as in winter to spring, more like the last front of winter trying to bring back winter but ultimately failing. Hey you take what you can get. This bounce attempt is no done deal, but the tenacity at hanging in there hits the ball back into the upside court.
THE ECONOMY
Same store sales goosed again by stimulus, but the last checks go out tomorrow.
WMT topped expectations again at 5.8% versus the 3.8% expected. Even taking out fuel at its Sam's stores and there was a 2% gain versus a 4% loss before. Even Target got in on the action with a gain versus an expected loss. ROST, TJX beat and raised guidance. COST beat. BJ's Wholesale beat. There were some solid beats by hip, cool, groovy young adult clothier BKE showed a 28.9% gain and Children's Place gained 16%. Outside of that it was not that rosy.
Indeed, the sales show a typical recession bias toward discounters. All of those first mentioned above are discounters. The stimulus checks are fanning out in the retail market and even managed to turn TGT positive. We are seeing exactly what I thought we would see: some of the money spent at retailers and particularly the discounters to try and make those $600 go further. WMT said it sold a lot of flat screen TV's. At least there you can make your dollar go further given the prices are falling, one of the few areas where prices are falling.
The upshot of this buying at discounters is that the stimulus checks are being spent, at least part of them (as reported two weeks back the stats are showing 60+% is being saved), but all this is doing is transferring money from those that paid the tax money used, to the government, to the 'rebatees' to the retailers. There is no drawdown of inventories to spark more production or creation of businesses or creation of new jobs. Indeed, wholesale inventories are still on the rise. Retailers welcome getting their inventory levels down, but as the jobs reports show, they are not hiring anyone and indeed are laying off. Rebates don't work. They just helped bail out some retailers by allowing them to unload some excess inventory.
Cynical? Perhaps. We have seen this before, most recently in 2001 when a bunch of rebate checks were sent out and did nothing to turn the economy. It took a second, real stimulus package to get things moving again, i.e. getting real investment in the economy by offering tax incentives to start new businesses, maybe come up with a way to get us off the internal combustion engine. There are possibilities there, but there is little 'straight' or 'change' talk that means anything going on during this election campaign, and Congress is too divided to actually make a difference during an election year despite talk of a second stimulus package.
Jobless claims? How about continuing claims?
After exploding over 400K the prior week, claims fell back to 346K well below the 395K expected. Hurray. What improvement. Of course the unemployment rate spiked in May and was supposed to come down in June but did not. Jobless claims are up and down week to week. Can the data be trusted? Not really. You have to look at the trend to get a better view. It is still trending higher.
The meat of the report is the continuing claims. This is because claims are rolled over week after week, but only for a limited period. After awhile you become chronically unemployed and your benefits run out. The pool of employers paying these benefits are only required to pay for so long; otherwise we might as well live in the former USSR and just say you cannot be laid off regardless of economics.
That leads me to digress (at least I am admitting it up front) about these claims. You hear on the talk shows that no one wants to stay on unemployment because it is too low. That may be true in most of the cases; I just don't know as I have never been employed by any company that would have paid unemployment. In any event, I do know someone who played golf every day while he received unemployment checks and did not go looking for work until the checks ran dry. Then he went out and got a job. Now I know there is more than one person out there who would live on the cheap (or live off his wife's work as sometimes is the case . . . ) as long as he or she could as long as someone is paying for it. George Costanza of Seinfeld for one.
Okay, off the soap box. Even with the roll off of chronically unemployed the continuing claims climbed to 3.202M last week, pushing levels to a level not seen since 2003. That year was a turning point for the economy as the second stimulus package was passed and in the third quarter the economy surged 7.3%. Employment lags so it makes sense that continuing claims hit highs even as the economy turned.
Unfortunately, the economy is not turning yet, at least upside. The data has weakened again and the stock market is heading lower again. The market is the ultimate economic indicator. It is trying to bounce now, but that is all, just a bounce. The financials have to finally get all of the skeletons, write-downs, etc. out of the closet to do that, and we are just not there yet. After this bounce there will likely be a rather sickening dive lower that we have to work out of and during an election campaign, even if there is a second stimulus package, you know it won't be the kind we need given the rhetoric about taxing the 'rich' and taxing 'corporations' even though most corporations in the US are closely held, meaning run by families, i.e. small. Rationality is not a characteristic of a political year and the legislation, if any, that comes out of it.
THE MARKET
MARKET SENTIMENT
VIX: 25.59; +0.36. Wild session, matching the intraday volatility, but still nowhere near where it needs to be to indicate a change (well over 30). Intraday volatility shows the picture as well, and there is enough to push the market into a bounce.
VXN: 30.45; +0.18
VXO: 27.2; -0.08
Put/Call Ratio (CBOE): 1.06; +0.05. Ten in a row over 1.0. With the prior closes above 1.0 before this run there is plenty of apprehension here, speculating on more downside whether it is a pure option player or institutions buying downside protection just in case the market continues to sell lower.
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: +22.96 points (+1.03%) to close at 2257.85
Volume: 2.311B (+7.72%). Rising volume on an upside session that held support. Price/volume action is swinging positive as the market moves laterally at support. Building a positive.
Up Volume: 1.561B (+1.239B)
Down Volume: 718.508M (-1.171B)
A/D and Hi/Lo: Advancers led 1.24 to 1
Previous Session: Decliners led 2.46 to 1
New Highs: 29 (-11)
New Lows: 329 (+102)
NASDAQ CHART: http://investmenthouse.com/ihmedia/NASDAQ.jpeg
Again held support above the January 2008 low (2200) and rebounded, holding the nice lateral range of the past week. A failed bounce from Tuesday looks to try and resurrect itself.
NASDAQ 100 CHART: http://investmenthouse.com/ihmedia/NASDAQ100.jpeg
SOX CHART: http://investmenthouse.com/ihmedia/SOX.jpeg
SP500/NYSE
Stats: +8.7 points (+0.7%) to close at 1253.39
NYSE Volume: 1.534B (+2.87%). As with NASDAQ, improving price/volume action but it is not a clear cut advantage, just an improvement.
Up Volume: 763.547M (+485.838M)
Down Volume: 741.45M (-464.163M)
A/D and Hi/Lo: Advancers led 1.12 to 1
Previous Session: Decliners led 1.92 to 1
New Highs: 26 (+3)
New Lows: 473 (+251). Still very strong as stocks tested lower and then rebounded off the lows. After not gaining much ground on the Wednesday selling they spiked
SP500 CHART: http://investmenthouse.com/ihmedia/SP500.jpeg
A new low on this selling but after that undercut the large cap index rebounded to hold its week long range and the 2005 highs and 2006 lows. Holding tough and indicating it wants to bounce given the improving price/volume action.
SP600 Chart: http://investmenthouse.com/ihmedia/SP600.jpeg
SP400 CHART: http://investmenthouse.com/ihmedia/SP400.jpeg
DJ30
Same action for the blue chips as they tested lower intraday, setting a new low on this leg but then rebounding to hold the lateral range over 11,000 and trying to put in a shelf to rebound higher from.
Stats: +81.58 points (+0.73%) to close at 11229.02
VOLUME: 248M shares Thursday versus 227M shares Wednesday. More upside volume on an upside close after reversing off the lows. Not bad.
DJ30 CHART: http://www.investmenthouse.com/ihmedia/DJ30.jpeg
FRIDAY
All report I have talked about the volatility and how with the Thursday session the balance tipped a bit more toward a bounce. It is that kind of market: in a downtrend but has sold hard and is setting up a shelf to post a relief bounce. The health services and medical equipment sectors are leading and as noted, coal and alternative energy are ready to bounce and help things out.
Thus once more it looks as if a bounce is close though that spike in oil the last part of the session was not comforting. Stocks manage to rebound on some news then are threatened by some other problem, e.g. spiking oil prices or more troubles in the financials. Such is the life of a market in a big downtrend and no indications yet of a serious bottom.
Even so the market will still bounce after it is sold hard, and it has been sold hard. Thus it still is in the game for a relief bounce within the downtrend and a serious relief bounce will take back half of the losses. As noted Tuesday that puts SP500 near 1325, the Dow near 12,000, and NASDAQ at 2375 or so. Plenty of upside to make some money, particularly with leaders and fallen leaders that have not broken their backs. Those are the vehicles we are looking at to make some gain as the market makes this rebound . . . or at least the one it was leaning back toward on Thursday.
Support and Resistance
NASDAQ: Closed at 2257.85
Resistance:
2261 is a March 2008 interim low
2286 is the first April 2008 gap up point.
The 10 day EMA is 2286
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 2382
2419 is the January 2008 peak and the early February peak
2451 is the August closing low
The 200 day SMA at 2487
2500 from interim August lows.
Support:
2202 is the January 2008 low
2155 is the March 2008 low
S&P 500: Closed at 1253.39
Resistance:
1257 is the March low
1270 is the January low
The 10 day EMA at 1271
The 18 day EMA at 1292
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 1333
1342 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 1404
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 11,229.02
Resistance:
11,317 from March 2006
The 10 day EMA at 11,368
The 18 day EMA at 11,566
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
The 50 day EMA at 12,035
12,050 from the March 2007
12,070 from the early February 2008 lows
12,250 from late March 2007 lows
The 90 day SMA at 12,347
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
The 200 day SMA at 12,778
12,786 is the February 2007 peak
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
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): 346K actual versus 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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