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option trading, money investment
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7/14/08 Investment House Daily
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Investment House Daily Subscribers:
MARKET ALERTS:
Targets hit alerts: Took some interim option gain on POT
Buy alerts: None issued
Trailing stops: None issued
Stop alerts issued: None issued
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SUMMARY:
- Vote of no confidence: Government rushes in to assure FRE, FNM, but market still reverses lower, led again by the financials.
- Earnings, warnings and corporate restructurings fill the after hours and face the market on Tuesday.
Financial woes overcome government interference, er, intervention.
Late Sunday the question was answered whether the Feds could keep their hands off the current crisis and thus avoid another power grab. The Fed opened the discount window wider, allowing FRE and FNM to borrow. No issue with that as it simply allows struggling financial institutions, whether making good or bad decisions, try and work it out similar to Chapter 11 bankruptcy, exchanging their junk for good US securities for 28 days, getting their house in order, and swapping back. The Treasury stepped in, however, with a proposal to allow for temporary purchase of equity in both entities. Thank goodness the latter requires congressional approval, though it will likely get passed given the current election year pandering by both sides in order to show they 'feel the pain' and are working arduously to resolve these issues.
Of course some of the problems over the weekend were actually CAUSED by our leaders. New York's senator Schumer took some far left blog reports late last week and quoted them as if they were fact. That caused a run on IMB and ended up with the FDIC taking it into receivership. Way to go.
That is scary enough: irresponsible public officials exacerbating volatile situations with a bunch of half truths. What is also very scary is that each time we have a crisis we turn to the federal government, and it is more than happy to oblige us and take away more of our rights and property, using our tax dollars to do it. Have a problem with drug smuggling, sales and usage? Declare a war on drugs and then pass 'zero tolerance' laws where you forfeit all property that may be even remotely related to any drug involvement. That was the old 'seize first, suspend due process, worry about it later' approach where the government used the general disdain for drugs to suspend rights to achieve a laudable goal. Does the goal make the means okay? Any better than roughing up a suspect as in the old days? Declare a war on poverty and pass a lot of unconstitutional programs because by declaring war some read the constitution as allowing suspension of some protections. Suffer an attack from terrorists, declare a war on terror, then pass 'sneak and peak' laws that effectively suspend search and seizure protections. The old 'if you have nothing to hide you have nothing to fear' argument is trotted out again to bolster the national security justification. Both liberals and staunch conservatives hate these laws as further erosion of our protections. The intentions may be very laudable, but why adopt the IRS 'suspension of due process/guilty until proven innocent' every time we have a crisis? Better yet, why do we ALLOW this to happen? You know the government will take whatever it can get its hands on. If we allow it to start buying private companies with our tax dollars that is a nasty slope to traverse.
But of course, as always, I digress. The market did give its views on the various aspects of this proposed action. It surged on a set up for a good open. Oil was flat (closed at 145.19) all session. Bonds were under control to start the session. Seemed as if the market was goig to vote 'yea' for the action. We said to watch out how the market handled the news after the initial excitement, expecting it to play out over the next day or two or even three. As it turns out it did not that long. The market peaked at the open and sold off all session with a couple of token bounces attempts after lunch.
Financials started higher then rolled over and led downside yet again. Medical equipment and health services, recent leadership sectors, sold early and hard as the federal bailout plan prompted some to leave these 'safe' sectors of the past few weeks. Energy was strong early as money moved toward these 'safe' sectors, aided by a Bush reversal of his father's executive order banning offshore drilling. When the market rolled over, the exodus of money from the health sectors halted and they managed to reverse half or more of the damage done. Only energy (coal, oil & gas, some alternative) and agriculture held on as groups to post gains. Outside of those two groups any leadership or gains were scattered.
As for the other markets, bond yields held firm early, not selling and driving yields higher on the news, foreshadowing what happened when stocks ran through the early 'rah, rah' bounce. Bond yields dumped 14BP on the 2 year (2.45%) and 13BP on the 10 year (3.85%) as investors again moved to safety on fears that even with the feds in the game (or because the feds were in the game?) it would not be enough to solve the problems. Gold continued its climb, closing at 973.10, +12.50. It was only a short time back that gold was down near $800 an ounce. As the financial worries increase once more, gold is increasing along with bond prices as justifiable concerns about world financial institutions sparks back up.
TECHNICAL. Intraday market action was bearish as you would expect. Gap higher then harsh reality sets in and stocks slide to negative, closing just off session lows. Not much positive there from the intraday perspective, but again, that is what you would expect.
INTERNALS: Pretty solid downside breadth as the small and mid-caps were downside leaders. Large cap tech sported better results but hardly stellar. Sluggish. Volume was lower, indicating no heavy downside dumping, but that has not been a problem for the market. It just cannot getting any upside traction. New lows continued to impress on NYSE at 647 even if they were lower than Friday. Extreme levels continue.
CHARTS: The indices sold off once more, but despite the losses on the reversal from gains they did not make new lows for this leg intraday. On the close, yes, but they bounced off the session lows and despite the negative news of late, this level is proving rather sticky. Again, no upside traction yet but the decline has slowed for now. That leaves them in the realm of possible recovery for a bounce, but the burden is definitely on the upside.
LEADERSHIP: As noted there were only two broad sections higher: energy and agriculture. Some recent leaders were roughed up on the early exodus from some safety sectors on the federal bailout head fake; they recovered off the lows but it was not complete. At one point we heard reported that 95% of the financials were lower. Don't look there for leadership unless you are looking for bottom feeders. Ag looks decent but it also looks extended and volatile. Energy has some good patterns and yet has some very toppy patterns from the rebound that closed below resistance on the bounce.
SUMMARY. Though the indices did not break to new lows on this selling the gap then rollover was a bad reaction to what should have had some ability to prop up the market. Should have, that is, if the market was not apparently anticipating more bank failures to come. Gold is up to levels hit during the run on Bear Stearns. Makes sense given the Schumer assist to putting IMB into receivership. That leaves the market trying to hang on but unable to gain ground, resulting in this tepid action, needing a bounce but unable to pull it off. Struggling and nothing solid for now until it gets a real catalyst.
THE ECONOMY
Over the weekend I talked of 1970's like policy mistakes. There were no scheduled economic reports Monday, but the actions of Schumer and the federal response to FNM and FRE is very Jimmy Carter, 1970's-esque. What do you know?
THE MARKET
MARKET SENTIMENT
VIX: 28.48; +0.99. Rallied higher up to near the Friday peak at 29.44 and then faded but still held gains. Broke some resistance, but has more to do to make a difference.
VXN: 33.2; +1.53
VXO: 30.35; +0.39
Put/Call Ratio (CBOE): 1.15; 0. No gain but an even dozen straight closes over 1.0. Lots of protection being bought as well as downside speculation.
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: -26.21 points (-1.17%) to close at 2212.87
Volume: 2.038B (-14.81%)
Up Volume: 439.229M (-261.77M)
Down Volume: 1.586B (-43.601M)
A/D and Hi/Lo: Decliners led 2.39 to 1
Previous Session: Decliners led 1.08 to 1
New Highs: 44 (+7)
New Lows: 390 (-29)
NASDAQ CHART: http://investmenthouse.com/ihmedia/NASDAQ.jpeg
Gapped higher sold to close near the session low, just managing to hold above the July lows and once more the January intraday low at 2200. Trying to hold the line and put in a bounce here.
NASDAQ 100 CHART: http://investmenthouse.com/ihmedia/NASDAQ100.jpeg
SOX CHART: http://investmenthouse.com/ihmedia/SOX.jpeg
SP500/NYSE
Stats: -11.19 points (-0.9%) to close at 1228.3
NYSE Volume: 1.419B (-18.17%)
Up Volume: 401.084M (-95.625M)
Down Volume: 1.016B (-213.87M)
A/D and Hi/Lo: Decliners led 2.8 to 1
Previous Session: Decliners led 2.03 to 1
New Highs: 31 (-9)
New Lows: 647 (-144)
SP500 CHART: http://investmenthouse.com/ihmedia/SP500.jpeg
Rallied toward the 10 day EMA on the high but then rolled over to close just over the Friday intraday low as SP500 slips lower out of the bottom of the recent range and support from the 2005 and 2006 lows. A slow bleed lower as the financials continue to undermine the index and will continue to do so until some confidence is restored.
SP600 (-1.36%) moved through near resistance at the 10 day EMA on the high then rolled over and closed lower. Still in its lateral range and can still stretch it out sideways and try to bottom, but the downside was again rather authoritative after another attempt at a bounce higher.
SP600 Chart: http://investmenthouse.com/ihmedia/SP600.jpeg
SP400 CHART: http://investmenthouse.com/ihmedia/SP400.jpeg
DJ30
Similar to SP500, the blue chips continue to slip out of the bottom side of the lateral consolidation attempt at 11,250. Low volume death, still unable to hold the line and make the bounce higher.
Stats: -45.35 points (-0.41%) to close at 11055.19
VOLUME: 205M Monday versus 275M shares Friday.
DJ30 CHART: http://www.investmenthouse.com/ihmedia/DJ30.jpeg
TUESDAY
New York PMI, PPI, retail sales. Some heavy hitters out before the open and there is some influence peddling possible just as has been the case for the entire month as the indices bounce up and down but have yet to find any firm footing. They keep feinting they want a relief bounce but there is enough uncertainty to chop block it each time it sets up.
And as I have said, if we do get a bounce it will be a relief bounce given the continued big unknown of the financial sector balance sheets and the dismal financial sector response to the feds proposed bailout. Add to that sky high oil and you are not going to get any kind of serious, bear market turning rally.
So, nothing new here and likely quite disappointing to most. Those are the cards the market is dealing and we know many seasoned traders pulling out what little hair they have left. What we really need to set up some good trades is that very bounce back up to relieve some nervous shorts and re-energize them to the downside. The market won't get the dive lower out of the way to flush out the pipes and set a good short covering rally. That is why we want that next dump lower to jack up fear and set up that bounce back to resistance. At this current level with the indices trading around support and DJ30 and SP500 bleeding away some on low volume in a rather shakeout type move lower, you can be lulled to sleep. Of course that said, every time the market even looks about ready to move it gets slammed so investors are understandably numb to upside attempts.
So the overall trend is down and most of the indications are down, but even with failed set up after failed set up to the upside NASDAQ and SP600 are in their recent lateral ranges, in position for an oversold bounce as the sellers just cannot drag them down just yet. Whatever the result here we have some positions both directions and are ready to take advantage of the move. Still looks as if a bounce can come, just have to be patient, let the indices go through these gyrations, make the next definitive move and then it will have set up for its next tradable move. As noted, we have some nice positions in some upside and some that are in need of a bounce to get on their feet or in better position to get out of as despite the selling we see another bounce attempt before too much more downside. Might take a quick dip lower and reversal to do it as noted over the weekend. Again, be patient, play individual strength upside and general weakness after another upside attempt.
Support and Resistance
NASDAQ: Closed at 2212.87
Resistance:
2261 is a March 2008 interim low
The 10 day EMA is 2266
2286 is the first April 2008 gap up point.
2335 is the trendline from the summer 2004/July 2006 lows, Q4 2005 consolidation
2340 from the March 2007 low
The 50 day EMA at 2370
2370 from the April 2006 peak
The 90 day SMA at 2376
2377 is a 50% retracement of the June to July selloff.
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
2451 is the August closing low
The 200 day SMA at 2482
2500 from interim August lows.
Support:
2202 is the January 2008 low
2155 is the March 2008 low
S&P 500: Closed at 1228.30
Resistance:
1244 is an August 2005 peak
1257 is the March low
1270 is the January low
The 10 day EMA at 1259
The 18 day EMA at 1280
1317 from the February low
1324 is the April low
1325 is a 50% retracement of the May to July selloff
The 50 day EMA at 1325
1331 is the June low
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
The 200 day SMA at 1401
1406 is the August and November 2007 closing low
Support:
1240 to 1221 are September 2005 peaks1234 is the July 2006 low
1224 is the June 2006 low
Dow: Closed at 11,055.19
Resistance:
11,061 from February 2006
The 10 day EMA at 11,271
11,317 from March 2006
The 18 day EMA at 11,468
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
The 50 day EMA at 11,962
12,000 is a 50% retracement of the May to July selloff
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 12,321
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 12,751
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:
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 15 - Tuesday
PPI, June (8:30): 1.3% expected, 1.4% prior
Core PPI (8:30): 0.3% expected, 0.2% prior
NY Empire Sate PMI, July (8:30): -5.0 expected, -8.7 prior
Retail sales, June (8:30): 0.4% expected, 1.0% prior
Retail ex-auto (8:30): 0.9% expected, 1.2% prior
Business inventories, May (10:00): 0.5% expected, 0.5% prior
July 16 - Wednesday
CPI, June (8:30): 0.5% expected, 0.6% prior
Core CPI (8:30): 0.2% expected, 0.2% prior
Net foreign purchases, May (9:00): $65.0B expected, $115.1B prior
Capacity Utilization, June (9:15): 79.4% expected, 79.4% prior
Industrial Production, June (9:15): 0.2% expected, -0.2% prior
Crude oil inventories (10:30): -5.8M prior
FOMC minutes, June 25 meeting (2:00)
July 17 - Thursday
Building permits, June (8:30): 980K expected, 969K prior
Housing starts, June (8:30): 985K expected, 975K prior
Initial jobless claims (8:30): 380K expected, 346K prior
Philly Fed, July (10:00): -15.0 expected, -17.1 prior
End part 1 of 3
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