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trade stock, stock market news
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7/24/08 Investment House Daily
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Investment House Daily Subscribers:
Jon Johnson continues his travels 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 for the weekend report.
MARKET ALERTS:
Targets hit alerts: ECA; XEC; PDS; NSC
Buy alerts: CPWR; DD; HEW; NUE
Trailing stops: FLIR; RIMM
Stop alerts issued: Cleaned out after the bounce. AAPL; BRCM; FLIR; HCBK; MR; RIMM; URBN
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 was ready to turn back. Oil, earnings, jobless claims, existing home sales only provide the trigger.
- Economic data takes a downturn as jobless claims top 400K, existing home sales plunked as well, but improving along with prices.
- Earnings are not appealing to investors, leaving it up to oil to fall again after it stages its own relief bounce.
Bear market bounce gets its cage rattled.
Wednesday the market saw a slower move higher with the indices, particularly NASDAQ, tapping at resistance and then backing off on the close. Definite slowing in the relief bounce as the indices approached that 50% retracement level. When some negatives hit the market on Thursday, the bounce higher was an easy target.
The weekly jobless claims jumped back over 400K for the second time in five weeks, well over expectations though continuing claims dipped slightly to 3.122M. Earnings were not bad but not great; nothing was new here or really earth moving. Existing home sales dropped 2.6% month over month with inventories hitting an uncomfortable 11.1M. That is quite a backlog. In truth, however, this is not bad. The roughly 3% decline matches the Q1 level and is much, much better than the 28%, 25% and 30% declines in Q2 through Q4 2007. Not so bad in that light, eh?
The market was in no mood for pesky details, however. The numbers out of Europe were not good whether it was consumer confidence in Germany, weaker services in the EU, or a 3.8% decline in UK retail sales. With oil on the bounce after tanking to its 90 day SMA (closed at 125.42, +0.98), investors had no desire to get acquainted with new upside positions, and that left the sellers with some easy pickings after over a week of gains.
Indeed it was the bounce in a bear market that set up the selling. When the weaker news hit the excuses were in place. The indices started lower, tried to hold the line midday for about 5 hours. That could not incite buyers, however, and in the last hour the selling renewed and matched the early session intensity. After that move higher the market was ripe and the sellers picked it.
TECHNICAL. As noted, a low start, a 5 hour consolidation, and then more selling into the close. Low to slow to lower. Not great intraday action and given the Wednesday rally that gave up a chunk from the highs, that is not surprising action.
INTERNALS. You could say the internals were mixed. Technically yes. While breadth was bad (bad breadth), and I mean rally bad (NYSE -4.2:1), Volume was lighter. Even though it was lighter, trade was still very high, coming in well above average. The sellers were no shrinking violets or small hit squads moving in. The downside was broad and it was on solid trade.
CHARTS. After testing the 50 day EMA on the Wednesday high, NASDAQ rolled back down Thursday, moving below near support at the 10 day EMA on the close. A test of resistance at the 50 day and an old trendline, then a rollover. SP500 managed to move through the prior 2008 lows, but then it rolled as well, falling below those lows on the close. The Dow turned over at the prior 2008 lows, unable to match its brethren in moving through those levels before it turned lower as well. Classic looking rollovers even though volume was lower overall.
LEADERSHIP. About all that was up Thursday was in the medical/healthcare sectors. Even the transports took a day off, though not before we banked some gain on our NSC position that was running higher on rails. As we noted during the rally, even though there were some signs of leadership trying to fan out, e.g. in some techs, the ranks remained thin. They could not fatten up, and when the selling hit leadership of course thinned a bit more. A rally without leadership is eventually a failed rally.
SUM. The market posted a good run from the oppressive 2 months of selling into the first two weeks of July. NASDAQ got close to the 50% retracement level; the move was getting a bit old on the bounce. There is still some talk Thursday this is just a test within the continuing upside bounce. It could well be. But . . . there was already a pause/test last Friday and Monday as the rally took a breather, and then the bounce renewed itself Tuesday and Wednesday with more upside. That was a test; the Thursday action had the look of an ugly rollover with really bad breadth and big point losses across the board. Volume was no slacker. Indeed, the Thursday rollover had the strength to the downside that you want to see on follow through sessions to the upside. The Thursday action was a thief of the strength an upside follow through was seeking.
Thus while there could be a new injection of strength of oil crashes lower right away, the action suggests more selling is revving up just as oil makes a bounce higher off of its selloff and test of the 90 day SMA. If it crashes after this bounce we will see if stocks are reinvigorated. We would expect that; indeed it will take that in order to overcome the historical pattern of another selloff in anticipation of a weaker economy thanks to too high oil. If oil is not that high and indeed breaks below the low 120's on this selling, that is a powerful upside impetus that was factored out of stock prices in this selling.
THE MARKET
MARKET SENTIMENT
VIX: 23.44; +2.13
VXN: 27.83; +0.39
VXO: 24.89; +2.45
Put/Call Ratio (CBOE): 1.05; +0.15. Back over 1.0 on the close after a 5-day hiatus. With this kind of voracious selling you would expect it. After 13 in a row the clock starts anew.
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: 29.2%. The rally bumped up the bulls from 27.8% as they look for an end to the selling. Still very low and a lot of hope stirred from the bounce. A sharp plunge from 31.9% three weeks back, 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: 49.4%. Bears, despite what the bulls are doing, continue to increase, up from 48.9% that was up from 47.3%, 44.7% and 39.3% before that. A steady, strong rise. 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: -45.77 points (-1.97%) to close at 2280.11
Volume: 2.571B (-6.56%)
Up Volume: 504.859M (-1.24B)
Down Volume: 2.027B (+1.082B)
A/D and Hi/Lo: Decliners led 2.18 to 1
Previous Session: Advancers led 1.34 to 1
New Highs: 53 (-26)
New Lows: 107 (+24)
NASDAQ CHART: http://investmenthouse.com/ihmedia/NASDAQ.jpeg
After tapping the 50 day EMA on the Wednesday high NASDAQ has been all downhill. Thursday it fell back below some support at 2300 and undercut the 10 day EMA on the close. In danger of putting in a lower high below key resistance and forming something of a head and shoulders top spanning early April to the present. If oil plunges again that will only help, but near term oil is likely to bounce even if it is in relief, and that pressures the rest of the market and would put NASDAQ back down near its recent July low near 2200.
NASDAQ 100 CHART: http://investmenthouse.com/ihmedia/NASDAQ100.jpeg
SOX CHART: http://investmenthouse.com/ihmedia/SOX.jpeg
SP500/NYSE
Stats: -29.65 points (-2.31%) to close at 1252.54
NYSE Volume: 1.648B (-4.52%)
Up Volume: 221.204M (-896.854M)
Down Volume: 1.423B (+827.543M)
A/D and Hi/Lo: Decliners led 4.26 to 1. That is ugly.
Previous Session: Advancers led 1.66 to 1
New Highs: 36 (-18)
New Lows: 138 (+34)
SP500 CHART: http://investmenthouse.com/ihmedia/SP500.jpeg
Unlike NASDAQ, SP500 did not make it to the 50 day EMA before the selling set in. It is not a done deal, but it was a respectable turnover that pushed the large caps back below the early 2008 lows and on strong volume even if it was a bit lower. It can hold the line, but it has its hands full to hold support at 1240ish.
The small cap SP600 (-2.64%) was a leader on the rebound move, bouncing off a short two-week double bottom at the March 2008 low. Strong move higher that ran into the 50% retracement and resistance at 380 on Wednesday, then a sharp downside move Thursday. The strength of its move gives it some room to play with but not much if it has another one of these 2.5+% decline sessions.
SP600 Chart: http://investmenthouse.com/ihmedia/SP600.jpeg
SP400 CHART: http://investmenthouse.com/ihmedia/SP400.jpeg
DJ30
DJ30 hit the January intraday lows Wednesday as well as the 2004/2005 up trendline, showing a doji on the candlestick chart, an indication that momentum could be shifting. The Dow's price certainly shifted as it turned from that resistance and shed 2.43% to close below the 18 and 10 day EMA. Lower, below average volume helped some but with such strong NYSE trade that did not mean a lot. Sharp turn lower at the prior lows. Not a sign of strength though as with the other indices, if oil rolls over hard yet again that will help the Dow try a recovery bounce.
Stats: -283.1 points (-2.43%) to close at 11349.28
VOLUME: 241M shares Thursday versus 264M shares Wednesday.
DJ30 CHART: http://www.investmenthouse.com/ihmedia/DJ30.jpeg
FRIDAY
First week of the new expiration is just about under the belt, and Friday investors are faced with a market that sold sharply after a decent relief bounce. You typically won't find many willing to take a lot of new upside positions ahead of the weekend with that kind of rollover experienced Thursday.
That is why we were closing upside positions that had bounced in the recent relief move, banked some gain, and picked up some downside positions as stocks rolled over. Going to look at some more of that if the selling continues as we believe it will. This was always a relief bounce from our perspective, and thus the turn back from the bounce with such ferocity is not that surprising.
The real point of interest will be how oil bounces from here off of its 90 day SMA. If it bounces back up 7.50 points or so (that takes it back up to its lower trendline of 2008) that will weigh on stocks and they will continue their descent on this turn back down. After oil reaches that trendline that everyone knows is there, and if it turns down as we anticipate, then the market will have some breathing space to try and bounce. That harder oil falls, the better the upside stock action will be. If it breaks the prior low, giddy up for stocks. The pattern we are talking about for oil is a head and shoulders: a peak in May, then a rally to July, the selling the past two weeks, then a bounce here to the trendline basically matches the May peak, forming the right shoulder. That sets up a much steeper decline for oil than now, the kind of decline that takes oil down to the 100 level. Giddy up indeed.
For now the market is working on the interim moves that set up the larger trend moves. That means some more stock selling here while oil posts a relief bounce. Then oil peaks and turns back down, helping bounce stocks back up. We are looking to play some downside as the general market sells, maybe look at oil to the upside, all the while seeing what stocks hold up well in the selling, showing their leadership mettle. As usual we will be looking at those for new upside. All of this requires oil to fall again and farther after a relief bounce. Thus we need the usual dose of patience, something rather uncommon in the market and with most investors. Patience to let the moves set up, move in when it is time, then let the play work for us. Then when we move we move quickly, particularly on this next market move with the overall market heading lower while oil bounces. That may not last more than 3 to 5 sessions for oil.
Support and Resistance
NASDAQ: Closed at 2280.11
Resistance:
2286 is the first April 2008 gap up point.
The 18 day EMA at 2296
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 2347
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 2382
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 2464
2500 from interim August lows.
Support:
2261 is a March 2008 interim low
2202 is the January 2008 low
2155 is the March 2008 low
S&P 500: Closed at 1252.54
Resistance:
1257 is the March low
1270 is the January low
The 50 day EMA at 1307
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 1390
1396 is the February 2008 peak
1406 is the August and November 2007 closing low
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
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 11,349.28
Resistance:
11,632 is the 2004/2005 up trendline
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 11,811
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 12,268
12,518 is the August intraday low
12,573 is the mid-February high
The 200 day SMA at 12,647
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): -1.3M bbl versus -675K expected, +2.95M prior
July 24 - Thursday
Initial jobless claims (8:30): 406K actual versus 380K expected, 372K prior (revised from 366K)
Existing home sales, June (10:00): 4.86M actual versus 4.95M expected, 4.99M prior
July 25 - Friday
Durable goods orders, June (8:30): -0.3% 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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