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money investment, Breakout test
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7/22/08 Investment House Daily
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Investment House Daily Subscribers:
Jon Johnson is still on the road visiting several companies for potential investment opportunities. He is sending in his market comments and plays he likes as he travels. The reports will be a bit briefer until he returns later in the week.
MARKET ALERTS:
Targets hit alerts: CYBX; RBN
Buy alerts: ABI; COV; GIS; NSC
Trailing stops: None issued
Stop alerts issued: None issued
The market alert service is a premium level service where we issue intraday alerts relating to the general market conditions, when stocks hit action points (buy, stop, target, etc.), and when we see other information impacting the market or our stocks. To subscribe to the Daily alert service you can sign up at the following link:
http://www.investmenthouse.com/alertdly.html
SUMMARY:
- Market developing some backbone as it overcomes tech issues, breaks higher from 2-day pause.
- Earnings remain a minefield for the market, but its strength in the face of adversity bodes well for the continuing relief bounce.
Market uses some fancy footwork to overcome trouble.
The market looked as if it had stepped in it early. After two good consolidation sessions AAPL's lukewarm (and yet typical) guidance along with earnings misses from AXP, SNDK, and TXN dropped futures and opened the market lower. Oil was up over 2 clicks, moving back over 130 and indeed 131, and that only worked to dampen the early mood.
A couple of weeks back and the market would have curled up and died on this news in a classic imitation of an invertebrate. It no doubt started lower, but it held. Then it caught a break as oil prices not only lost their early gains but turned negative again and closed at 127.95, down $3.09. That pushed it definitively below its lower trendline from early 2008, a key break that opens to door for oil to head toward the low 120's as the next important support level. That break, however, gave the market the CPR it needed, and it hopped right back up and rallied nicely into the close. Not a perfect session, but they rarely are, and when all you are looking for is a continuation of a bear market rally, perfection is not necessary.
TECHNICAL. Solid intraday action as stocks were on the mat to start, sinking on bad news, but then developing a case of character and rallying back, riding the wake of oil's decline further below its trendline. Hey, take whatever works for you.
INTERNALS: Not bad at all. Not great either. Solid breadth at 2+:1 as the small caps picked up the slack as large cap tech struggled. Volume was mixed, rising on NASDAQ, fading on NYSE though still holding above average. Above average trade is not bad given it is midsummer and investors and specifically fund managers are typically long gone from the market. NASDAQ volume was problematical; trade soared on the AAPL and worrisome results in the chip sector. The price recovery put a better face on it, but this is one of those points in the daily technical data that was not perfect by any stretch.
CHARTS: Held up well at near support after an iffy open to the session. Held that support and then rebounded nicely into the close, posting gains across the board, at least outside of semiconductors. That keeps the indices stretching toward that 50% retracement from the losses following a short pause or consolidation. Good action heading into the session, and the ability to hold support and bounce in the face of the bad news demonstrated good pattern building here as well, i.e. continued accumulation.
LEADERSHIP: While large cap tech pretty much abdicated the leadership title for now, other sectors such as medical/healthcare continued to improve its hold on the role. Transports are also moving back up with truckers and rails, the literal transport stocks, posting nice breakout moves. Further, even though large cap tech is struggling, the mid-range and smaller techs continue to set up well. Even some smaller financials are starting to work.
SUMMARY. The combination of the show of strength in the face of adversity and some continued improvement in leadership sets up the further move higher in the rebound, and indeed the indices started that move Tuesday. How far it goes remains to be seen; there has not been a real follow through session yet and leadership is still thin. We will continue looking for more upside leadership to take us higher as the market climbs in its continued rebound, but it is definitely not a situation where a rising tide is lifting all boats. There are still many broken patterns in need of repair, and that means time to work through new bases. It can be done as the market nurses along some upside gains, but it is tougher for the market to pull it off. Thus the odds still tilt against a successful new major upside move. We can, however, live with that as we can play that upside move as we are doing and still be in good position if the rally runs out of gas at 50% retracement, more or less.
THE MARKET
MARKET SENTIMENT
VIX: 21.18; -1.87
VXN: 27.09; -2.6
VXO: 21.39; -2.71
Put/Call Ratio (CBOE): 0.91; +0.03
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: 27.8%. Scratched back up last week, but basically no gain, up just 0.4% from 27.4%. I guess it just got about as bad as it could get as the market was not showing any signs of improvement at that point. A sharp plunge from 31.9% the prior week, 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: 48.9%. While the bulls may have managed a paltry optimism gain, the bears swelled their ranges, rising from 47.3%. Not as strong a move as before with a gain from 44.7% and 39.3% in the preceding weeks. 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: +24.43 points (+1.07%) to close at 2303.96
Volume: 2.58B (+36.46%)
Up Volume: 1.53B (+646.728M)
Down Volume: 796.616M (-84.09M)
A/D and Hi/Lo: Advancers led 2.04 to 1
Previous Session: Advancers led 1.28 to 1
New Highs: 68 (+20)
New Lows: 106 (+18)
NASDAQ CHART: http://investmenthouse.com/ihmedia/NASDAQ.jpeg
Gapped lower on the AAPL and other earnings news but held support and recovered positive, still in position to move higher and make that run up near 2352 to 2360ish as the first major resistance test.
NASDAQ 100 CHART: http://investmenthouse.com/ihmedia/NASDAQ100.jpeg
SOX CHART: http://investmenthouse.com/ihmedia/SOX.jpeg
SP500/NYSE
Stats: +17 points (+1.35%) to close at 1277
NYSE Volume: 1.572B (-8.11%)
Up Volume: 1.085B (+448.522M)
Down Volume: 475.609M (-84.543M)
A/D and Hi/Lo: Advancers led 2.31 to 1
Previous Session: Advancers led 1.83 to 1
New Highs: 36 (+14)
New Lows: 112 (+2)
SP500 CHART: http://investmenthouse.com/ihmedia/SP500.jpeg
Held some support at the March low then rebounded to move through the January intraday lows resistance. Still deep in the woods, but showing some good strength as it sets up to continue this rebound move.
SP600 (2.51%) displayed some strength, clearing 370 resistance and the 50 day EMA, moving well into the middle of the 365 to 382 resistance range.
SP600 Chart: http://investmenthouse.com/ihmedia/SP600.jpeg
SP400 CHART: http://investmenthouse.com/ihmedia/SP400.jpeg
DJ30
The Dow held near support as well, bouncing off the 10 day EMA and rallying to close at the 2004/2005 up trendline as well as the January intraday lows. Took awhile to get back up to test these levels, but it is making the relief bounce and still has more to go up to the key 11,750 level and onto roughly 12K for its 50% retracement of the losses on the last downside move from May to early July.
Stats: +135.16 points (+1.18%) to close at 11602.50
VOLUME: 273M shares Tuesday versus 212M shares Monday. Good to see volume move back above average as the index starts higher after a 2-day pause.
DJ30 CHART: http://www.investmenthouse.com/ihmedia/DJ30.jpeg
WEDNESDAY
Crude oil inventories is the only schedule economic data, and another decline similar to last week could be devastating to oil and give the market a simultaneous boost as it did Tuesday. The Tuesday action set the stage for the continued rebound that for now remains just a relief bounce looking to recapture half of the losses, more or less, from the May to July selling. As we have said, that is the rough target for this bounce as it comports with historical market norms. It can be more, it can be less. It can result in a new, stronger market run if say leadership develops more. Right now, despite signs the market is growing a backbone, the other technical indicators discussed above and over the past several sessions tell us this move is still a relief bounce for now.
Whatever the case, however, we continue watching what the market tells us and we are willing to ride the move higher playing solid leadership caliber stocks in good technical position. In that way if the rebound turns into something more we are riding it with the stocks that the money is flowing into, and those tend to be the bigger winners in any particular run. If it flounders, we lock in some decent gains on these stocks (as we did some on Tuesday when the opportunity arose) and then play the next iteration of the market which would be more on the downside, shifting as the market makes its turns and runs, up or down.
Support and Resistance
NASDAQ: Closed at 2303.96
Resistance:
2341 is the trendline from the summer 2004/July 2006 lows, Q4 2005 consolidation
2340 from the March 2007 low
The 50 day EMA at 2351
2358 is a 50% retracement of the June to July selloff.
2370 from the April 2006 peak
2378 is the mid-February peak; 2379 from the October 2006 peak
The 90 day SMA at 2379
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 2469
2500 from interim August lows.
Support:
2286 is the first April 2008 gap up point.
2261 is a March 2008 interim low
2202 is the January 2008 low
2155 is the March 2008 low
S&P 500: Closed at 1277.00
Resistance:
The 50 day EMA at 1311
1317 from the February low
1320 is a 50% retracement of the May to July selloff
1324 is the April low
1331 is the June low
1345 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
The 200 day SMA at 1393
1396 is the February 2008 peak
1406 is the August and November 2007 closing low
Support:
1270 is the January low
1257 is the March low
1244 is an August 2005 peak
1240 to 1221 are September 2005 peaks1234 is the July 2006 low
1224 is the June 2006 low
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 11,602.50
Resistance:
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 11,838
11,982 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 12,278
12,518 is the August intraday low
12,573 is the mid-February high
11,602 is the 2004/2005 up trendline
The 200 day SMA at 12,673
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:
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 21 - Monday
Leading Economic Indicators, June (10:00): -0.1 actual versus -0.1% expected, +0.1% prior.
July 23 - Wednesday
Crude oil inventories (10:35): +2.95M prior
July 24 - Thursday
Initial jobless claims (8:30): 380K expected, 366K prior
July 25 - Friday
Durable goods orders, June (8:30): 0.1% expected, 0.0% prior
Michigan sentiment, July revision (10:00): 56.4 expected, 56.6 prior
New home sales, June (10:00: 505K expected, 512K prior
End part 1 of 3
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money investment
Breakout test
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