THE ECONOMY:
Durable goods rise on back of transportation, March revised substantially higher.
Overall durable goods orders rose 1.9%, better than the 1.3% expected. The result was immediately pooh-poohed by many, citing the 8.2% rise in transportation as the driver of the gains. It was the largest gainer, and when taken out the report was down 0.2%. There was a big loser, however, as communication fell 19%. If you back out that loser along with the winner transportation (toss out the high and the low) and you get a healthy 0.9% gain. In short, with or without the extreme readings it was a good month.
That was a relief to most as it showed the economy is recovering from the slow spot. Recall that it was the March durables orders, down 2.3%, that really started the talk of a slow patch. Well, March was revised up 0.7% to -1.6%, a big upside revision. Revisions are so important because the reflect more accurate data, and they tend to show the trend. March was slow, but it was not that slow. That bolsters the April reading even further.
Computers rose 16%; business investment rose 1.6%. Both of those show good spending by the supply side, something this economy still needs a lot of to keep a low inflationary expansion in place. Inventories rose just 0.1%, a very good indication that companies are not getting caught in a bind, but are adjusting their inventories rapidly. It also means that if the expansion continues there will be more activity. It does not help the supply side a lot vis- -vis demand, but it shows business is not going to shut down even though auto makers are feeling the pinch still.
New home sales rise 0.2%, but that was less than expected.
Existing home sales surged, surpassing expectations. New homes sales rose to a record, but the gain was less than expected. Instead of winning by two lengths it won by one. Instead of making par on eighteen and winning by two, it three-putted and took a one stroke victory. In the final analysis sales remained strong though still slowing their expansion as we have been discussing the past several months.
The revision to last month, as with durables, tells more of the story. The 1.431M annualized units in March fell to 1.313M units. Another significant revision. There is still demand for homes as the builders say they still cannot keep up with demand. It is demographically impossible, however, to maintain the same pace of gains with new homes. It is slowing but there is not sudden cliff ready to swallow the market. The demand is still there but a lot of demand has been sated as we have bought houses through the recession and into the expansion. The cycle is getting old and it is making a slow, steady peak.
Fed debate continues.
Of course a low inflation expansion as shown by the bond and gold markets does not really mean much if the Fed goes too far. At the open the 10 year bond hit 4% as bonds rallied on the open. They reversed mid-session, however, closing at 4.06% when it was reported the Dutch central bank was delaying a refunding its pension system. In short, the rebound had little to do with the US economy.
In any event, it was no major move by the bond. There is just 50 basis points between the 10 year and the 2 year. If the longer bond does not rally, the two additional rate hikes the Fed Funds futures contract has built in puts the yield curve at flat. There is nothing to indicate the bond is going to rise other than Greenspan's conundrum What we think it is showing is a modest expansion with some low inflation. Add in gold's action and you really have a low inflation environment.
The Fed is still indicating it has no intention of stopping rate hikes. Tuesday night Fed governor Gwyn, reiterating the FOMC minutes, was clear that the Fed believes it must continue hiking rates to forestall inflation. We have no reason to doubt the Fed; its history is to hike us into recession. Maybe it is trying to keep us guessing, but at this juncture that is more hope than reality.
MARKET SENTIMENT
Bulls versus Bears: Bulls rose further the past week, up 46.2% from 44.2% two weeks back. This was the second consecutive rise after bottoming at 43.5% on the most recent decline. Bears rose to 28.6% from 28% after hitting 30.4% on the high three weeks back. That was the highest bearish level since August 2004.
VIX: 12.58; -0.11
VXN: 15.62; -0.22
VXO: 11.49; +0.27
Put/Call Ratio (CBOE): 1.02; +0.26. Lots of activity in an overall mild sell off in the market.
NASDAQ
Volume faded as NASDAQ eased back and then managed to rebound to recoup some losses. Good consolidation action. Have we said that yet?
Stats: -11.5 points (-0.56%) to close at 2050.12
Volume: 1.546B (-11.1%). Volume fell back nicely as NASDAQ started its test. Exactly what we wanted to see.
Up Volume: 529M (-477M)
Down Volume: 958M (+292M)
A/D and Hi/Lo: Decliners led 1.9 to 1. Not as mild as the volume but the small caps were struggling.
Previous Session: Decliners led 1.13 to 1
New Highs: 59 (-11)
New Lows: 62 (+13)
The Chart: The Chart: investmenthouse.com^ixq.html
NASDAQ opened lower, sold lower, but found support well above the key support levels it broke on the way up. Indeed, NASDAQ rebounded and held the 2050 support level on the close after recovering almost 10 points off the low. This action shows that indeed there was some profit taking, but it was just profit taking as volume was low and stocks rebounded into the close, demonstrating continued bullish, albeit modestly so, action. A test back to the 10 day EMA (2027) would not be out of the question, and the April high at 2022 is equally likely.
NASDAQ 100 performed slightly better, cutting its losses to 0.5% by the close. Nice test, held above support, rebounded on the close.
SOX was one of the whipping boys for the session, dropping 1.1% as it fell from some resistance at 430. This test of 420, the April high, will be an important one for the chips. 420 to 410 represents the late March/early April trading range and holding in that range, preferably on top, would be a big positive.
SP500/NYSE
The small caps were getting knocked around pretty hard (-1.1%) and that added a bit of volume to the NYSE. Overall trade was still low, however, and there was that same rebound to cut some losses as the indices rallied back late.
Stats: -4.06 points (-0.34%) to close at 1190.01
NYSE Volume: 1.311B (+2.48%). A modest bump higher in volume, but still well below average. We note that the increase in trade came later in the session as the morning was running at or slightly below the Tuesday trade. Suffice it to say it was not a session where NYSE stocks were dumped.
Up Volume: 639M (-163M)
Down Volume: 1.083B (+242M)
A/D and Hi/Lo: Decliners led 2.08 to 1. With the small caps down over 1% the breadth was going to be lousy and it was. This was the only real hole in the session for the NYSE indices.
Previous Session: Decliners led 1.04 to 1
New Highs: 53 (-30)
New Lows: 35 (+11)
The Chart: investmenthouse.com^spx.html
SP500 gave up the April high at 1192, but not by much as it too managed a rebound late in the session to shave some points off the loss. It tapped at the 10 day EMA (1183) on the low and then recovered just 2 points off the April high. As with NASDAQ it was solid consolidation action: dipping on the low to shake out some profit takers and then rebounding. This goes hand in hand with the Friday dip lower and recovery as well.
SP600 did not make the rebound as with the other indices. It closed above the 10 day EMA (316.65), a potential near support level, but with this kind of drop and close at the low, the 50 day EMA and price support at 315 appears to be the logical point where it will try to find support.
DJ30
A tap toward the 200 day SMA (10,402) and price support at 10,400 and then a bounce to recover about 10 points on the close. Low volume as it made its second dip toward that level and recovery. This is a good consolidation range; SP500 is coming around in its lateral move to match DJ30's action. From a hold at the 200 day SMA DJ30 will be ready to continue its efforts to move above the April high (10,557) and make that higher high.
Stats: -45.88 points (-0.44%) to close at 10457.8
Volume: 188 million shares Wednesday versus 204 million shares Tuesday.
The chart: investmenthouse.com^dji.html |
