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world stock market, us stock market
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7/15/08 Investment House Daily
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Investment House Daily Subscribers:
MARKET ALERTS:
Targets hit alerts: Took some interim option gain on GENZ
Buy alerts: ALTH; ECA; GILD; XEC
Trailing stops: None issued
Stop alerts issued: None issued
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SUMMARY:
- Feds take another shot at calming the markets, but it is oil that does the most work on Tuesday, and that still wasn't enough
- Core retail sales cruising at an 8.1% annual clip
- Producer prices soar overall, tame on the core, but offer no comfort
- NY Empire PMI doesn't fall as bad as feared.
- Fed abandons its path and the hard fought victory as it follows the 1970's path.
- Market doesn't get that big reversal, just another small intraday move.
You know you are in trouble when all the President's men keep trying to soothe you.
There was a lot of data out before the market. Retail sales were lower than expected, overall PPI hit 9.2% year/year, and New York manufacturing, while better than expected, was still negative. Futures were already in the toilet and this news didn't do them any good. JNJ beat earnings expectations by 8 cents, but in a defensive market all that did is help the defensive stocks more.
The market opened lower and then sold more when the Bernanke testimony came out. He referred to an "unusually uncertain outlook" for inflation but then said the Fed was not going to worry about that or indeed worry about asset values and the economy, but instead focus on fixing the financial system. That chopped off George Washington's legs on the dollar as it became apparent the Fed had tossed aside its hard work over the prior year or more. The market followed.
There was a recovery off those early lows as stocks stammered over the Bernanke testimony and another month of mediocre (though not recession-like) data. It took almost three-fourths of the session, but SP500 turned positive heading into the last hour. NASDAQ was smartly higher, up over 35 points. Was it the calming words of the Fed, the Treasury secretary, or the President? No. Oil fell $6.61 ($138.57), and as it fell the market recovered. There are a lot of negatives flying in from all fields, but high oil prices remain the cloud over everything. As long as energy prices remain over $120/bbl the economy is not going to grow. All the other bad news doesn't go away because of oil, they just add overlays of angst. The market recovered off its lows, a decent feat given all of the winds buffeting it. Reversal? Maybe a bit of a bounce is ahead, but no long time reversal.
TECHNICAL. Stocks started low, sold lower, then recovered to positive. The last hour was not friendly, however. It did not take back all of the recovery on the session but it pushed all but the tech related indices back to negative as it shaved off a lot of points. Big down and up moves on the session. You can argue the intraday action was a bit better, and it was given NASDAQ recovered, but it did not change the market character.
INTERNALS. NYSE breadth finished roughly -2.9:1. Intraday it was worse than -8:1. That is getting extreme. It was popping off some -10+:1 readings back in October 2002 when the market put in its second leg. Of course that is just a sign and has to fit in with other indications. Others are falling in line but leadership needs to improve. Volume really surged. Good on a reversal and that gives some credence to an argument NASDAQ and even the NYSE indices are ready for an interim bounce.
CHARTS. SP500 and DJ30 sold off further out of their support ranges with SP500 now heading to test the 2005 lows versus the 2005 highs. In other words it continues to sell under the weight of its financials and is now moving to the next lower rungs of support. With the break below the 2006 lows it is showing it is a much more serious decline and we start looking at 1100 down to 1000 . . . after a bounce from this 250 point decline on this current move. NASDAQ tested its March lows and that snapped it back up over 2200, the January low. If there is going to be an interim oversold bounce this is the range that will launch it. The lack of a bounce to this point shows how pernicious all of the obstacles confronting the economy are right now.
LEADERSHIP. When the fear came back the medical/health stocks performed once again. Energy had a tough session as oil fell; oil is walking a tightrope with a quick test back to the trendline it just tested. It is in trouble here and could very likely break down under the weight of all the problems facing the economy that has taken the stock market lower in anticipation of weaker economic output. Ultimately that will be good for stocks, but near term that is going to be hard on the market and these stocks.
THE ECONOMY
Economic data is mediocre but not horrible.
Retail sales missed expectations (0.1% versus 0.4% expected) and were down from May (revised lower to 0.8%). Take out autos and they rose 0.8% just missing the 0.9% expected and 1.2% in May. Not great but respectable, helped by those stimulus checks.
There is a measure called core sales that takes out autos (too volatile), gasoline, and building materials. This gives you a look at the staples that don't have such volatile price swings or buyer mood changes. They are up 8.1% year over year, a very solid reading and nothing as you see in an economic recession.
The New York PMI was negative at -4.96, but that was up from the -8.7 in June. Regional manufacturing is trending flat. Again not great, but not necessarily what you see in a recession.
Once more we see economic data propped up by some stimulus checks and otherwise not what you would call trend growth, but not at a recession level. Problem is, the stock market is trading as if that is coming.
PPI shows inflation is on the climb still.
1.8% was hotter than the 1.3% anticipated. Ouch. The core was lower at 0.2% (0.3% expected, 0.2% prior). Year over year overall PPI is up 9.2% and core up 4.5%. Both are very high. The overall is crazy. Inflation is here. Is anyone watching?
Fed Abandons its inflation fight.
Apparently not. In his testimony Tuesday Bernanke did acknowledge inflation, stating the outlook was "unusually uncertain." Nothing like calming worried financial markets. Okay, so he said that; no big deal if you are going to do something about it.
Problem is, Bernanke talked quite a bit, and while he is concerned over inflation's rise and an economic turndown, he basically said he cannot worry about them now but instead has to try and keep the financial system safe, i.e. work on these FNM/FRE-like takeovers with the Treasury. Basically the Fed is trying to expand its role to the Treasury's role and start regulating outside its mandate. Wow, a government agency trying to expand its turf. I think we talked about that last night.
While it is important to provide for an orderly market, the Fed should not be the market for every entity in trouble. It was just over a year ago Bernanke was uttering these same words to Congress as to the Fed's job just to make sure the market could operate efficiently and work out its problems, playing no favorites.
During that time the Fed fashioned a very clever aid to resolving the issues caused by the credit crisis, the use of the swap facilities and discount windows to give struggling entities sufficient liquidity to get their houses in order. It showed it could provide liquidity where it was needed without unending rate cuts that were killing the dollar and sparking inflation as all imports denominated in dollars rise in price as the dollar fades. It worked as the dollar bottomed and started higher. It allowed the Fed to take a tougher public stance against inflation. Perceptions count. As the commercial says, 'Brilliant!'
It became apparent over the past few months, however, that the Fed backed off its inflation fighting stance as the financial situation worsened. You can say that is understandable as the Fed tried to get a feel for how bad the situation was getting. The market sensed its wavering resolve as the dollar sold more and gold rose more, now back up closer to 1000 than 800 as it was just a few weeks back.
Problem is, now the Fed has suddenly abandoned its mandate as it seeks more power. By saying it was abandoning the inflation fight for now it has tossed the dollar overboard, and one of its mandates is stable pricing. The dollar is the root of just about all of our pricing. It has abandoned the dollar and now is providing a federal backstop to basically all lenders, effectively driving liquidity massively higher. It has helped fuel oil's rise with all of this liquidity, and in doing so it has, albeit unintentionally, monetized the fuel spike as it did in the 1970's. We discussed this over the weekend, and it is almost eerie how the Fed confirmed on Tuesday what the market has been showing us: the dollar is going to be left out to pasture while the Fed plays EMS for financial institutions that are going to be in more and more trouble as the dollar weakens and inflation rises. If the Fed would focus on its mandate and keep prices stable and promote growth polices and let the market work itself out with that backdrop, we would be much, much better off getting through this and afterwards there would be a clean slate for really healthy growth. It would be painful at times, but like it isn't going to be painful with the Fed trying to direct the economy. Right.
THE MARKET
MARKET SENTIMENT
VIX: 28.54; +0.06. Up over 30 on the high, starting to get into the range where it means something, but with this kind of selling in the market, much worse than the prior selloffs, VIX is lagging and likely has to get into the 40's to make a difference that turns the market.
VXN: 33.01; -0.19
VXO: 30.44; +0.09
Put/Call Ratio (CBOE): 1.15; 0. Holding at 1.15 again, and that makes 13 sessions closing above 1.0, showing a lot of anxiety and protection buying for fear of further downside.
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: +2.84 points (+0.13%) to close at 2215.71
Volume: 2.808B (+37.77%). Big volume as NASDAQ tested the March low (the 2008 low) and rebounded to positive. Shorts covered on that test of the prior low that held, hence the strong short covering volume.
Up Volume: 1.52B (+1.081B)
Down Volume: 1.217B (-368.857M)
A/D and Hi/Lo: Decliners led 1.48 to 1
Previous Session: Decliners led 2.39 to 1
New Highs: 43 (-1)
New Lows: 572 (+182). Lows jumped as NASDAQ tested the 2008 low.
NASDAQ CHART: http://investmenthouse.com/ihmedia/NASDAQ.jpeg
Tested lower toward the March low (2155) and then reversed to hold the same range, well more or less, above the January low at 2200. Still in the trend lower, but a good high volume short covering reversal on the session. If the shorts are ready to finally cover here at support then NASDAQ can provide a rebound move.
NASDAQ 100 (+0.02%) showed similar action, testing lower but well above the 2008 lows and then reversed for a modest gain, clinging to some support in the 1800 range. Not a position of power. The only upside we are going to get from these is a relief bounce.
NASDAQ 100 CHART: http://investmenthouse.com/ihmedia/NASDAQ100.jpeg
SOX CHART: http://investmenthouse.com/ihmedia/SOX.jpeg
SP500/NYSE
Stats: -13.39 points (-1.09%) to close at 1214.91
NYSE Volume: 1.863B (+31.28%). Strong volume as the financials sold off but managed a rebound on some short covering as things got a bit more overdone.
Up Volume: 537.545M (+136.461M)
Down Volume: 1.313B (+297.015M)
A/D and Hi/Lo: Decliners led 2.87 to 1. At one point breadth was worth than -8:1. That is getting closer to those October 2002 levels of -11:1 intraday.
Previous Session: Decliners led 2.8 to 1
New Highs: 26 (-5)
New Lows: 1161 (+514). That is impressive but not totally unexpected as the financials continue to implode to decades lows.
SP500 CHART: http://investmenthouse.com/ihmedia/SP500.jpeg
SP500 has undercut the 2005 peaks and is now pushing on the 2005 lows. As the financials keep pushing the question 'how low can you go?' lower, SP500 continues to find new lows. Outside of the relief bounce that is going to start, where they bottom depends upon just how quickly they can exorcise the demons on their balance sheets to a degree that investors are confident all of the trouble is in the past.
SP600 (-0.55%) reached down to within a gnat's butt of the January low and then reversed to close flat. Big doji on the candlestick chart at the prior lows sure indicates it wants to hold this support and provide a bounce.
SP600 Chart: http://investmenthouse.com/ihmedia/SP600.jpeg
SP400 CHART: http://investmenthouse.com/ihmedia/SP400.jpeg
DJ30
The blue chips were lower again, reaching down to 10,828 and closing below 11K for the first time since 2006. There is support at 10,700. The reach lower and the recovery, as with the other indices, suggest a rebound attempt once again trying to form up. As with the other attempts, we will have to see how it pans out because each one to this point has failed. It will succeed one time.
Stats: -92.65 points (-0.84%) to close at 10962.54
VOLUME: 331M shares Tuesday versus 205M Monday.
DJ30 CHART: http://www.investmenthouse.com/ihmedia/DJ30.jpeg
WEDNESDAY
CPI, Industrial production, crude inventories, FOMC minutes. Another full day of data along with the daily dose of intrigue regarding what the feds will try to takeover next. We better be careful and start calling our senators and representatives or there will be another major takeover of our private institutions and thus a reduction in our rights.
As for the market, however, INTC announced earnings and it beat, margins were light, but guidance was pretty good. As one headline put it, 'Intel Keeps Hope Alive.' We will see. The market rebounded intraday but it could not hold it to the close: the shorts covered but then they sold them again. Stocks will have to gen up new upside momentum on Wednesday to make the NASDAQ and SP500 reversal stick with that oversold bounce that is getting more and more overdue.
It is interesting how news and the market interact. You can throw all kinds of news at it and the market still does what it has for a couple of months: trend lower. There are intraday gyrations, but the trend is lower. It is a technical move, but it is also influenced, to the downside, but news. Each time it was ready to bounce a new bad news story emerges either with financials or surging oil prices, sometimes both together. That has undercut every technical bounce that set up. Now it is in position to do so again. Will there be a news story to undercut it?
Well, let's see. The feds have been on the stump for two straight days in addition to a blizzard of economic news. Oil has plunked back down to its near trendline that it tested last week and then exploded from. Notably it undercut it intraday but then recovered to hold it on the close. Oil is in real trouble here. It has quickly returned to its trendline that it gapped down to last week. Violent, repeated, quick visits to a trendline indicate selling pressure. Oil's long uptrend since February is extended and ready to fall further. The trillion dollar question is whether it holds at the 50 day EMA or really breaks down.
That breakdown is bittersweet. The world economies need lower oil prices. Why are they lower, however? Because it got too high and choked them off. Demand falls, oil falls. Longer term that is good for the world economies as they get a breather and hopefully use the time to further develop alternatives. Near term it means some pain as the economies have to struggle through slower economic times. It has to be, however; oil was too high to go on and something had to give.
Thus we are seeing oil stocks under pressure, having sold off, rebounded modestly to resistance, and Tuesday, start to sell back (e.g. ECA with its classic test of the 50 day EMA from the downside and the roll back over). They suggest energy is going to go through its own bear market for now.
What about the other Big 3, e.g. commodities and ag? Agriculture made us some money this past couple of weeks as it bounced (POT), and it still has some life in it though the patterns are a bit stretched. Commodities such as copper, steel and the like? They are struggling some, but bigger picture they should do well IF inflation is going to run higher with the Fed not watching it. UK inflation hit an 11 year high in terms of the rate of increase. That is occurring all over the world. Inflation means your commodities run higher, and gold is the leader. In fact, gold is too overdone for the moment as it broke higher last week. A test lets us get in and ride the GLD up to 100. We are going to watch commodities and when they set up we will be ready to move in.
At the current juncture the health care/medical/drug stocks are doing well, coming back nicely from the Monday morning dinging though some did not even notice. We have a number on the report and have picked up more than a few. We will ride them as long as they lead; in this kind of market you have to keep alert for when a sector comes under pressure as a bear market tries to tear everything down eventually as investors give up all hope.
For now we are still going to pick the best patterns and strong stocks in position to recover and make us money in a market relief move. As seen Tuesday, however, we cannot ignore the downside even as the market sets up for another bounce attempt: several sectors of energy are struggling and they can and will move contra to the overall market even in a relief move. So we keep with the bifurcated approach, taking what the market gives in this very tumultuous time.
Support and Resistance
NASDAQ: Closed at 2215.71
Resistance:
The 10 day EMA is 2256
2261 is a March 2008 interim low
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 2364
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 2480
2500 from interim August lows.
Support:
2202 is the January 2008 low
2155 is the March 2008 low
S&P 500: Closed at 1214.91
Resistance:
1224 is the June 2006 low
1240 to 1221 are September 2005 peaks1234 is the July 2006 low
1244 is an August 2005 peak
The 10 day EMA at 1251
1257 is the March low
1270 is the January low
The 18 day EMA at 1273
1317 from the February low
The 50 day EMA at 1321
1324 is the April low
1325 is a 50% retracement of the May to July selloff
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 1400
1406 is the August and November 2007 closing low
Support:
1176 from the Q4 2005 lows
1167 is the January 2005 low
1154 from the May 2005 lows
1142 is the 2005 closing low
Dow: Closed at 10,962.54
Resistance:
11,061 from February 2006
The 10 day EMA at 11,215
11,317 from March 2006
The 18 day EMA at 11,415
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 11,923
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 12,309
12,518 is the August intraday low
12,573 is the mid-February high
The 200 day SMA at 12,736
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
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): 1.8% actual versus 1.3% expected, 1.4% prior
Core PPI (8:30): 0.2% actual versus 0.3% expected, 0.2% prior
NY Empire Sate PMI, July (8:30): -4.96 actual versus -5.0 expected, -8.7 prior
Retail sales, June (8:30): 0.1% actual versus 0.4% expected, 1.0% prior
Retail ex-auto (8:30): 0.8% actual versus 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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