InvestmentHouse Weekend Update 2/15/08
investmenthouse.com
- Market slips out of expiration quietly, fighting off bad news all week.
- Best Buy warns of a slow 2008.
- New York manufacturing report dives.
- Michigan sentiment falls sharply.
- Despite negative economic headlines, more and more solid stocks are setting up good bases.
So much for fireworks.
After a quiet expiration week through Thursday we were expecting some volatility and volume Friday. The volatility was limited to two big runs for the day, down into lunch, up into the close. Volume was limited; not to any part of the session, just limited. The whole week showed limited volume. Some minor distribution, some minor accumulation, nothing major as it was below average all week.
The Friday session started down and had a hard time getting up with the news. BBY warned of a slower 2008. The New York PMI dove lower; at -11.72 it was well below the 7 expected and the 9.0 in January. Not a lot of positive sentiment in the manufacturing sector right now. It could be any number of reasons from the credit and mortgage issues to the rhetoric on the campaign trail, but the net result is a bleaker outlook from the purchasing managers. Then Michigan sentiment rolled out at 69.6, down from 78.4. Those are recession levels last hit in February 1992 and well below the rather high 81.8 level in the 2001 recession. The negative reading puts Michigan sentiment down 23% from August when the credit issues spurred the Fed to act. Pretty negative scenario.
The market sold off ahead of and after this news. Then it bottomed and rallied back to the close. Only SP500 made it positive, but the other indices were within spitting distance after coming back from substantial though not huge losses as seen the prior week. Some down, some up, then closing basically flat on the session and holding onto some of last week's gains.
TECHNICALLY the action was status quo. You could view the comeback from the selling as positive or you could view the continued decline below near support as negative. The market made a higher low last week and a lower high. Rubber match this week.
INTERNALS: Status quo as well. Breadth was negative but not overly so (-1.2 NYSE, -1.77 NASD). Volume was heavier on NYSE, lighter on NASDAQ. That kept the volume below average all week as expiration week never showed the volume that typically comes with it.
CHARTS: The indices moved lower, giving up the 10 and 18 day EMA they captured earlier in the week. It could have been worse on Friday; the afternoon recovery put them right back up, knocking at those levels. The week saw the indices make higher lows and then lower highs. That leaves the jury out on what the final resolution will be, but we note the indices had every opportunity to sell off last week but did not. They had every reason to do so Friday with all of that bad news, but they didn't.
LEADERSHIP: The resilience in the indices is matched by the improvement in the patterns of solid, leadership quality stocks. While the indices are not pictures of strength and can still break lower from here, the upside scenario is getting support from improving patterns in quality growth stocks, e.g. CTRP, RIMM, POT, CMED, GIGM, etc.
THE MARKET
MARKET SENTIMENT
VIX: 25.02; -0.52
VXN: 26.69; +0.17
VXO: 27.33; +0.13
Bulls: 41.6%. Up from 40.2% as the rebound last week buoyed spirits some. Down from 56.5 seven weeks back. Fell below the 40.6% hit on the last significant round of selling but has bounced. A move into the lower 40's is a decline of significance, but it needs a bigger move is to 35% which is a big bullish indication. If bulls and bears kiss or better yet cross, that is very bullish. 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: 32.6%. Bears continued to rise, albeit modestly from 32.2%. Up from 31.5% three weeks back after the massive jump higher from 26.7% the prior week. It is over 30%, meaning it is in the range that means business. Big move after falling to a low of 19.6% on this round. 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). Still a bit more work to do to really set a bottom, and that means more selling before it gets there.
NASDAQ
Stats: -10.74 points (-0.46%) to close at 2321.8
Volume: 2.031B (-10.95%)
Up Volume: 601.18M (+123.353M)
Down Volume: 1.384B (-396.207M)
A/D and Hi/Lo: Decliners led 1.77 to 1
Previous Session: Decliners led 2.73 to 1
New Highs: 38 (-16)
New Lows: 149 (+38)
NASDAQ CHART: Click to view the chart
Volume remained light all week as NASDAQ rallied then sold back. The largest volume was on the Thursday selling where it gave back a chunk of gains. Higher low and a lower high in one week, but overall NASDAQ is working laterally after that January low. It has not resolved its move upside or downside, but it has done what it needs to do, and that is base out some so it can try to put in a bottom. Near term it has more work to do and there is nothing at all for it to return to the January lows; indeed that would be the typical action before any sustained move occurs. As noted last week the question is when it makes that test. For now we see some good set ups in some NASDAQ stocks.
NASDAQ 100 CHART: Click to view the chart
SOX CHART: Click to view the chart
SP500/NYSE
Stats: +1.13 points (+0.08%) to close at 13499.99
NYSE Volume: 1.499B (+7.02%)
Up Volume: 734.549M (+496.295M)
Down Volume: 747.376M (-410.324M)
A/D and Hi/Lo: Decliners led 1.25 to 1
Previous Session: Decliners led 3.45 to 1
New Highs: 18 (-25)
New Lows: 128 (+36)
SP500 CHART: Click to view the chart
Was selling off sharply in the morning, continuing the Thursday selling but then reversed to close flat on rising trade. Volume was still below average just as it was all week, very uncharacteristic of expiration week. As with NASDAQ, SP500 made a higher low and then a lower high, but it was in a narrowing overall trading range. When the range compresses it is getting ready to make a break. There is not a lot to suggest that is necessarily to the upside, but as noted above, the indices managed to hold up and indeed move higher in the face of some tough economic news last week.
SP600 (-0.58%) rallied back up to the 50 day EMA last week where it stalled to start the month. It turned over Thursday and was selling off again Friday before it recovered to recoup most of its losses. The failure at the 50 day is key and how SP600 responds to start the week tells the tale here.
SP600 CHART: Click to view the chart
DJ30
Same action as the other indices, the rally early in the week, the selling on Thursday, the selling on Friday, but a recovery from the lows. DJ30 showed the largest increase in volume with trade moving up to average. Same higher low, same lower high, same narrowing trading range.
Stats: -28.77 points (-0.23%) to close at 12348.21
Volume: 289M shares Friday versus 233M shares Thursday. Stronger and average for the first time in over a week, but not what you would expect from expiration.
DJ30 CHART: Click to view the chart
TUESDAY
The indices remain in a precarious position, but they are not giving in even with bad economic news and some less than exciting forecasts by companies peppering them last week. We have discussed before how investors can get a false sense of security in rallies after crescendo selloffs as the rebound rally ensues. Low volume on the way back up is a sign to be careful. You have to look at how the leaders are performing and gauge that against the overall market. Right now they are fighting it out as the market shows low volume as it moved higher but leadership caliber stocks improved nicely.
Oil and commodities resumed higher, an indication that the worries of a global slowdown are lessening. Indeed as noted above we see more high quality stocks forming up good bases to move higher. That is always the acid test for any market. There are still too many stocks with terrible patterns, but there are some solid stocks setting up good patterns once more. We are looking at them this weekend for next week.
You have to be concerned about the volume on the last move up, but you also have to watch those leading stocks and remain aware that the market improves ahead of the economy. Thus all of that bad economic news last week is rearview mirror stuff; typically the bad news continues even as the market finds its footing and moves higher. That is why we watch the stocks with strong growth levels to see if they are basing well and setting up for breakouts. We are seeing that though there is still a lot of work to be done.
There are still doubts about the economy and this move in the market. The January reversal was on high volume, but there has not been much trade to support it since. Moreover, it is still very early in the game of a selloff with this kind of serious economic slowdown. This one test lower and reversal is likely not the last the market has seen of the selling. It does not mean the next selloff is this coming week, the next, or even the next after that.
We are watching these solid stocks in solid patterns, and if we get good breaks higher we will continue to take positions as we have been doing. We are hesitant to get too aggressive to the upside but if the stocks show strong upside volume we need to respond. Many good moves last week and some nice tests are giving us new buy points on current positions. Other solid stocks in the prior rally are setting up again as well. We are looking at some of those for Tuesday. There are also downside plays that we have that remain in solid contention for buys and new buys as well. We will see how the market breaks from this low volume rise and respond in kind.
Support and Resistance
NASDAQ: Closed at 2321.80
Resistance:
The 10 day EMA at 2334
2340 from the March 2007 low
The 18 day EMA at 2352
2370 from the April 2006 peak
2379 from the October 2006 peak
2386 is the August intraday low
2119 is the January 2008 peak
2451 is the August closing low
The 50 day EMA at 2451
Some modest resistance at 2500 from interim August lows.
2540 is the November closing low
2550 to 2540 from May/June consolidation and the November lows
2558 is the August 2004/April 2005/October 2005/March 2007 up trendline
Support:
2315 to 2300 from old peaks
2281 is the trendline from the summer 2004/July 2006 lows, Q4 2005 consolidation
2216 from August 2005 peak
2202 is the January intraday low
2175 from the December 2004 peak
S&P 500: Closed at 1349.99
Resistance:
1351 is the 10 day EMA
1357 is the 18 day EMA.
1370 is the August 2007 intraday low
1374 is the March 2007 closing low
The 50 day EMA at 1395
1396 is the January 2008 peak
1406 is the August and November 2007 closing low
1412 is a longer term trendline from the August 2003/September 2004 lows
1430 from the August interim lows
1440 - 1437 from January and March peaks
1459 is the February peak
1468 is the June/July 2006 up trendline
1475 from peaks in December 1999 and January 2000
The 200 day SMA at 1477
Support:
1325 from May 2006 peak prior to the summer 2006 correction
1315 is an ancient trendline
1305 to 1302 from an August 2006 peak and matches a range of support from March and April 2006.
1294 from the January 2006 peak
1288 from June 2006
1280 from June and August 2006
1270 is the January intraday low
1255 from June 2006 lows
Dow: Closed at 12,348.21
Resistance:
The 10 day EMA at 12,374
12,518 is the August intraday low
The 50 day EMA at 12,704
12,743 is the November low
12,768 is the January 2008 peak
12,786 is the February 2007 peak
12,845 is the August closing low
13,050 to 13,000 range
13,092 is the December low
13,250 from price points from June through December 2007
13,328 is the 200 day SMA
Support:
12,250 from late March 2007 lows
12,050 from the March 2007 low is trying to hold.
11,670 is the May 2006 intraday high; 11,642 closing
11,634 is the January intraday low
11,317 is the March 2006 peak
11,228 from a July 2006 peak
Economic Calendar
These are consensus expectations. Our expectations will vary and are discussed in the 'Economy' section.
February 20
- CPI, January (8:30): 0.3% expected, 0.4% prior
- Core CPI, January (8:30): 0.2% expected, 0.3% prior
- Housing starts, January (8:30): 1M expected, 1.005M prior
- Building Permits, January (8:30): 1.03M expected, 1.06M prior
- Crude oil inventories (10:30)
- FOMC minutes, January 30 (2:00)
February 21
- Initial jobless claims (8:30): 350K expected, 348K prior
- Leading economic indicators, January (10:00): -0.1% expected, -0.2% prior
- Philly Fed, February (10:00): -10.0 expected, -20.9 prior
The table is gone Don. I hope that this is not something that will cause you to have to look to other solutions for the posting problems. The II numbers in this write up are from last week. Never seen these guys make that kind of mistake but everyone does. RtS |
