Sunday, June 20, 2010

Greenspan Dampens Mood on Friday

SUMMARY:
- Stocks finish on a quiet note, expiration or no.
- Greenspan dampens the mood on Friday, but no damage done.
- CAT sees improvement in May, bolstering the notion the economy is working through a slow spot.
- Holding the upside break thus far, and this week we see if Oversold Bounce, Part 2 can extend to the January peak.

A session that does no harm is a good session at this juncture.

The intraday chart on the SP500 was rather boring for an expiration Friday. The market started a bit higher, sold off, and rallied back looking solid, but nit could not hold it through the end of the day. It worked flat for the last five hours of trade. Volume was up a little bit, but there was not much excitement, and that was strange given the market flatlined to end the week on Wednesday through Friday. There was a solid burst higher on Tuesday, but it could not carry through. Maybe much of the expiration was wrapped up on Tuesday because there were many shorts that were caught with their shorts down, so to speak. The market surprised them with oversold bounce part two. The SP500 moved through the 200 day EMA on Tuesday and then was able to move laterally through the end of the week, expiration or not. Given the condition of the market over the past two to three months, not doing any damage to an upside move can almost be considered a win. Given that the market is consolidating that rally higher through the 200 day EMA, I will take it as a win on Friday.

The market did close somewhat mixed. NASDAQ +2.4 points, the Dow +16.5, and SP500 +1.5. The SOX was down a bit after some heady gains in market leadership, and SP600 the NASDAQ 100 finished on the upside but basically flatline. That is the story of Wednesday through Friday; it was flatline. Given that the market has struggled of late and just started a new surge higher, however, the ability to hold over the 200 day EMA on the SP500 is a plus.

It was not all candy and roses on the news front. There was a relative lack of news, but the US did have a wet blanket thrown over the action early on. Greenspan has been relatively sage over the last few years. On Friday he said that the US has to realize it will face higher borrowing costs until there is a "tectonic shift" in our fiscal policy in order to contain borrowing. He is talking about the problems he always saw with Social Security and Medicare. Now we have additional problems with the new healthcare plan and cap and trade. Let's not forget the massive stimulus plans and that we have given Fannie and Freddie unlimited funds. They are running up the deficit and our interest rates further. He said we would be considered in the same breath as Greece in the not-too-distant future if we do not change our fiscal ways. It is not rocket science, but it seems not too many people realize that in Washington, DC. To some extent I miss Greenspan with respect to his warnings to Congress that this was coming. That is one thing he was consistent on and consistently correct on. Unfortunately we did not heed the warnings and we are moving in the opposite direction. It was interesting to see what Greenspan was saying but it helped throw a damp blanket on the market on Friday. Overall it did not have that much impact and the market continued what it was doing all along: consolidating that strong move higher from earlier in the week.

There was positive news on the economic front. CAT said its Asian sales were up 38% in May and up 15% in North America. That bolsters the argument that there was a slowdown in late April and early May, but that it was overcome with a new surge of activity. While there are some mixed reports from the regional manufacturers the Philly Fed was a disappointment at 8 versus the 20 expected there is still improvement in New York and other areas. Manufacturing continues to help lead the economy, but the irony is that manufacturing is one of the smaller parts of our economy now. Is that another version of "The children shall lead"? Thus far (as in 2000) manufacturing is helping reverse the recession and trying to claw us back to recovery.


OTHER MARKETS.

The market was in something of transition with the oversold bounce part two resuming and Europe being viewed as somewhat stabilized. That is not really the case, of course. I think it is more like the news is no longer news and people have become immune to the story. We tend to go about our lives even though it could still explode at any point. That seems to be the case this week as the markets outside of equities still continued to show some of their same trends, but they were mixed overall.

Dollar. The DXY0 closed flat on Friday (1.2388 Euros versus 1.2385 Thursday) but continues a two-week trend lower which is testing the strong move from April into late May and early June. It has come back for a couple of weeks to test as the European worries have died down. As I said, it is a situation where the news is so bad that it cannot continue to come out as negative. Once investors become inured to the story, it does not affect them until something major happens again.

The dollar continues to test back after its sharp last leg in the rally, but it is not in any danger of breaking down. It is still above the 50 day EMA. It is in a very orderly pullback and coming back to a support level from late April and early May. A high and a low. This will be the most important level near term for the dollar to test.

http://investmenthouse.com/ihmedia/dxy0.jpeg


Bonds. Bonds were up late in the week. They closed the week higher (versus the prior week) as they continue to work laterally at roughly a 3-4 week range. That started when China said it had full faith and confidence in European debt and the Euro. Since then bonds have moved laterally but have not sold off appreciably. Friday they lost a little ground (10 year US treasury 3.22% versus 3.20% Thursday), but still at very high levels just off the peaks. There is still fear supporting US bonds. If the economy is recovering well and things were thought to be better in the future, bonds would be selling and yields would be rising. Instead bond yields are staying low and bonds holding at their range highs. That is not what is expected and anticipated with an improving economy and, frankly, worries about inflation.

http://investmenthouse.com/ihmedia/tlt.jpeg


Gold. Gold had a solid week. It broke to a new all-time high, rallying sharply Thursday and Friday, but it was a strong week altogether with a good Tuesday move as well ($1,259, +9.00). Fear and worry of inflation make a very strong one-two punch to drive gold higher and higher. Some pundits say not to buy gold, yet all gold continues to do is move higher. I suppose they are entitled to their opinion and we are entitled to make money.

http://investmenthouse.com/ihmedia/xgld.jpeg


Oil. Oil finished modestly higher ($77.39, +0.60). Not much of a move on the day, but there is nothing stopping oil from moving to the top of its range near 83 - maybe not the upper peak in April, but it has had a stair step move higher. It broke through the 200 day EMA Wednesday, testing again Thursday and Friday, and then was bouncing off the Friday low. It looks like a very nice test, giving it the strength it needs to bounce into the range from March or into the January peak. Oil continues to look strong and will continue up in the range from the looks of it. That would be somewhat consistent with the idea that European and US economies are not in as dire a situation as believed a few weeks ago. Nothing has really changed for Europe, however. Spain had an auction. It had decent cover ratios, but it still had to pay the highest interest rates even above 2008 levels. 2008 was a crisis, and now they have to pay more for their bonds on interest in order to attract buyers than they did in that crisis period. Are we in a crisis period now? It would lead one to believe so, but no one seems to feel that is the case. Can you have a crisis without having anyone think it is a crisis? Yes and no. You need the emotion there to drive it, so for now, we are chugging along. The markets show that ideas are mixed. Gold, bonds, and oil are all pointing in different directions as to where they view the economies of the world heading over the next 6-12 months.

http://investmenthouse.com/ihmedia/xoil.jpeg


In this situation we look at what the market is telling us now, and we play that while we have an eye down the road to what may happen of more significance. The bond market is very sage in foretelling what the future holds at least that is the history. Of all the markets, it tends to be the wisest, so I am keeping an eye on the US bonds market that continues to rally even as everyone thinks the economies of the world are in decent shape in this recovery.


TECHNICAL PICTURE

INTERNALS

Volume. Volume jumped up to 1.9B on NASDAQ, rising 12%. It rose 52% on the NYSE to 1.7B, and that pushed it back to average. This is not big news because it was expiration. There had been quiet volume all week, and if that is the case, typically volume comes in on Friday. It will often come in on Tuesday and Wednesday. It did not happen, so it saved all the fireworks until the end of the week. There was not much price movement in conjunction with that volume, so the fireworks were not spectacular.

Breadth. Breadth was not spectacular either at 1.2:1 on the NASDAQ and 1.3:1 advancers over decliners on the NYSE. Not telling us anything the charts did not show, so there is no divergence to talk about. When the market is up sharply, then breadth the up sharply and vice versa. That says they are still in the process of fighting it out, but the bulls may be taking more of a lead right now as the SP500 broke over the 200 day EMA.


CHARTS

SP500. SP500 got the break over the 200 day EMA, and held it Wednesday to Thursday. Volume was low on the consolidation. It was low on the move up, too, so you cannot be too excited about it. There was a big volume day on Friday thanks to expiration. Now it is at the 50 day EMA, sandwiched between that and the 200 day EMA and just below the January range for the lows to the highs. Next move, we got what we wanted on Tuesday through Thursday: a break over the 200 day EMA and a quiet hold. The lack of bad news and excitement was actually good news on Friday. Holding this break is a positive, and I am still looking for a break to the upside. It may test a bit on Monday or even Tuesday this week. If it holds above this level I am looking for the break up to the January peak. That would be a good place for it to try, and that had a closing of 1150. That is what we are looking for next week, and is our target for this range because a lot of bulls and bears are looking at this. The bulls say they have the second part of this bounce, it is taken hold, and it is moving higher. That is great. We are playing that to the upside, and I have no problem with that. The issue is that the bears are also excited because they are looking at the January peak. If it gets there, they think selling can go on because they are looking at this move as potentially setting up the right shoulder of a head and shoulders pattern. The bears are biding their time and not pushing it right now. We may not see them push the sell button very hard until SP500 gets in this range from the bottom to the top of the January peak. If there is wavering there, they will probably push the sell button and try to drive stocks back down. This is one case where both the bears and the bulls are relatively happy at the same time.

NASDAQ. NASDAQ is already at its January peak, and that is leading some people to ask why the NASDAQ could not be the dominant factor. It made it to the January peak first and is stalling what says it is not going to roll over? Nothing says it will not roll over. It will do what it will do, but from talking to hedge fund managers, fund managers and floor traders, I feel that the bulls will try to generate some momentum to the upside on SP500. When it gets to the January peak, everything will be reevaluated. That would mean NASDAQ gets up toward the March lateral move that had a closing high at 2410. Given that NASDAQ closed at 2310, it is another 100 point move NASDAQ could put in. That would be coincident and commensurate with the SP500 rally up to its January peak. In other words, they would be proportionate moves from here.

SP600. SP600 was up just a fraction on Friday, but it is moving laterally as well after making the break higher just below their March peak. All of these sold off to different levels because they are at different points of leadership. SP600 was a great leader, NASDAQ was second, and SP500 was third. We have them at different levels of resistance. If the large caps can break higher, I am expecting SP600 to carry up toward the gap point back in April or maybe the May peak. They are roughly coincident, and that could be where the small caps travel to the upside.

SOX. The semiconductors came to life last week, and the SOX made a sharp spurt higher. There was a very good two-week run, took it over the January peak, and now it is testing it. There is room to run to the gap point which will be one of the significant next points for the SOX. Since it is leading to the upside and since I think there is still upside on SP500, this is very doable for the SOX. In other words, coming right below the April peak where it gapped to. Very interesting pattern and looks to lead higher this week.


LEADERSHIP

Semiconductors. SNDK is one of the leaders and is tied to AAPL at the hip somewhat. It had a great week, gapping higher and rallying. It closed a little flat on Friday, but it had a nice run higher. It continues its leadership. It is not in a buy point, of course. KLIC is moving laterally the past three days, similar to the SP500 after breaking higher, moving through some resistance. Look for these kinds of plays; the double bottom is giving a chance to move in. You are not catching the entire move, but you need to see if there is a move you can catch that gives a good risk/reward no matter where it is in its pattern. The entry point is important. If there is good risk/reward and there is still plenty of realistic upside versus your support point to the downside, then that may make a play worth playing. Semiconductors continue to move higher, and it is just a matter of looking for pullbacks and tests to see what kind of reward you have versus the risk you are putting in.

Financial. I like some of the financials, and they held up a bit on Friday. JPM posted a nice gain on the session, clearing some resistance. If you are not in, you might want to take a look at that.

Retail. Retail continues to show strength from different areas. Some sectors have already run and others are moving up. JOSB made a super rally and has been consolidating over the past two months. It is making a higher low at the 18 day EMA and getting great volume. Very interesting and could make a good move higher. PII had a nice lateral move, low volume after breaking higher. Good position if it can show us the move.

Industrials. JOYG gapped away from us, but there was a reverse head and shoulders after a selloff. It is come back to test and is forming a flag. That is very interesting action that might give an entry point. There is room to play it. It is at roughly 55.5, and you are looking at a move up to 65. You can get a nice gain out of that stock.

Metals. CLF has set up nicely. A double bottom at the 200 day EMA, and it has rallied up to the hump in the pattern and moved laterally. Nice, low volume with MACD still rising even as it moves laterally. There is positive divergence there. I am looking for a break to the upside.

Technology. AAPL was on the ropes, but no more. It reversed and broke back through this gap point something that is difficult to do. It is a strong leader moving higher. Not bad. Well, saying "not bad" about AAPL is like saying the moon landing in '69 was a neat parlor trick.


Leadership is still rather thin, but the market bounce and that lateral move that was setting up over several weeks helped some of the stocks that needed a consolidation to get it and set up for the next move. We are seeing some fattening of the ranks of leadership. It is not where it needs to be for a huge rally. Many times volatility will spike up, the market will turn and not look great at the beginning because it does not have great leadership. Then leadership will develop over a course of weeks and all of a sudden you have stocks popping out of decent consolidations or even good bases all over the place. We will see if that happens. We are definitely getting enough plays to make to the upside during this oversold bounce. And they are not beaten up and ugly-looking stock patterns; these are nice patterns that have set up and are making good moves. No complaints about that.


THE MARKET

MARKET SENTIMENT

VIX. Over the past two weeks, it has fallen straight down to the 200 day EMA. It broke below the peaks in January and February. It could bounce off of this level, but there are sharp peaks higher on the fear before it settles back. It is classic action. The fear sets the stage for a bottom, and then the lateral move, the choppy trade, and the break lower as the actual rebound rally takes place that was set as a result of these high volatility numbers. This week the second part of the bounce has taken off. That has driven volatility lower. It told us what would happen, and did a decent job of forecasting.

VIX: 23.95; -1.1
VXN: 24.15; -1
VXO: 22.53; -1.91

Put/Call Ratio (CBOE): 0.88; -0.02

Bulls versus Bears:

This past week the bearish number of investment advisors topped bullish advisors. That is a rare event and thus very noteworthy. It falls into our theme that the sentiment indicators have hit extremes and are at levels sufficient for at least a more sustained bounce in the indices.

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: 37.0% versus 38.5%. Still falling even as the market tries to find footing, not an unusual occurrence. A steady slide and down substantially from 43.8%, 47.2%, and 56.0% before that. This move started at a low of 35.6% in February, the lowest it has been since July 2009. 35% is the threshold level suggesting bullishness. After peaking at 53 on this move the bulls lost some nerve, falling to a new low post- July 2009. Once again bulls peaked out near the 50% level. Bulls have bumped at 50ish since late August 2009, falling to 45ish and then rebounding. Hit a high of 47.7% mid-June on the run from the March lows. Again, to be seriously bearish it needs to get up to the 60% to 65% level.

Bears: 32.6%. Continuing its steady climb as the 39.9% from last week was revised lower to roughly 31.5%, so no crossover yet with bears topping bulls, but still approaching that rather rare occurrence. Solid rise from the mid to upper 20's. Fell to 18.7% on the low. Hit a high of 27.8% level on the prior leg in February. Over 35% is considered bullish for the market; definitely at the lower end of the scale. Peaked near 28% in November, falling short of the 35.6% hit in July 2009. For reference, cracking above the 35% threshold considered bullish. Hit a high on this run at 47.2%. For reference, bearishness hit a 5 year high at 54.4% the last week of October 2008. The move over 50 took bearish sentiment to its highest level since 1995. Extreme negative sentiment. Prior levels for comparison: 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). That was a huge turn, unlike any seen in recent history.


NASDAQ

Stats: +2.64 points (+0.11%) to close at 2309.8
Volume: 1.931B (+11.99%)

Up Volume: 1K (-956.056M)
Down Volume: 1K (-779.677M)

A/D and Hi/Lo: Advancers led 1.2 to 1
Previous Session: Advancers led 1.01 to 1

New Highs: 56 (+15)
New Lows: 30 (-5)

NASDAQ CHART: http://investmenthouse.com/ihmedia/NASDAQ.jpeg

NASDAQ 100 CHART: http://investmenthouse.com/ihmedia/NASDAQ100.jpeg

SOX CHART: http://investmenthouse.com/ihmedia/SOX.jpeg


SP500/NYSE

Stats: +1.47 points (+0.13%) to close at 1117.51
NYSE Volume: 1.766B (+52.39%)

Up Volume: 950.223M (+497.888M)
Down Volume: 752.044M (+58.79M)

A/D and Hi/Lo: Advancers led 1.32 to 1
Previous Session: Advancers led 1.01 to 1

New Highs: 103 (+1)
New Lows: 40 (+10)

SP500 CHART: http://investmenthouse.com/ihmedia/SP500.jpeg

SP600 CHART: http://investmenthouse.com/ihmedia/SP600.jpeg


DJ30

Stats: +16.47 points (+0.16%) to close at 10450.64
Volume DJ30: 338M shares Friday versus 181M shares Thursday.

DJ30 CHART: http://www.investmenthouse.com/ihmedia/DJ30.jpeg


MONDAY

There will be a lot of economic data coming out and some that will be closely watched. Existing home sales and new home sales for May will come out. There was a lot of disappointment this week with construction starts and how they had plummeted after a first-time buyer credit expired. The home builder sentiment went from bubbly to flat in a two week period of time. These will be important data points for the market. Addition durable goods orders will be important because there is concern as to whether inventories will be rebuilt or if they are still in a "build as necessary" mentality. Jobless claims are always important. They have been rising more, and there is a correlation between initial jobless claims and the stock market. If they are low, the stock market goes high; if they are higher, the stock market goes lower. History shows that it does mean something. We will also see the third iteration of the GDP and Michigan Sentiment. There will be an FOMC decision for rates on Wednesday, and that will be closely watched. It will probably get more print on Monday and Tuesday because the question will be if they will remove the "extended period of time" language as some on the board are saying needs to be done. That might prove somewhat of a setback for stocks.

That is the news picture, but I want to look at the technical picture. This is a technical move because the market sold off sharply, and it held at a key support level on NASDAQ, SP500, and the SOX. Long term support levels have held. They did not just bounce off those levels it took a bit of work, but they are moving up and making new highs on this bounce. We also got what we wanted on the upside with the Wednesday through Friday lateral move. Now we will see if there is a break to the upside to finish the run that we have looked for up to the SP500 January peak at 1150. We will continue to play for that. We see stocks set up and ready to move, and the ranks are fattening a bit. They are not broad and thick, but there are more plays to the upside and very solid plays to the upside that we can take advantage of as SP500 moves toward its January peak, NASDAQ moves toward its May peak or the March consolidation, and as the SP600 moves up toward its early April consolidation or even its May peak below its all-time high.

We have upside to play as the indices look to continue the oversold bounce part two. We will take advance of those as much as we can on that move. Have an excellent weekend.


Support and Resistance

NASDAQ: Closed at 2309.80

Resistance:
The 50 day EMA at 2308
2319 from the September 2008 peak
2320 to 2326.28 is the January 2010 high
2324-2370 is a range of resistance from early 2008
2382-2395 from 2008
2412-2415 represents a series of peaks and lows in 2007, 2008
2434 is the May 2010 high
2453 is the August 2008 peak

Support:
2292 is a low from January 2008
2273 to 2282 marks bottom of January 2010 lateral peak
2275 - 2278 from the February 2008 and April 2008 lows
The 200 day SMA at 2246
2245 from July 2008 through 2260 from late 2005.
2205 is the November 2009 peak 2210 (from September 2008) to 2212 (the July 2009 closing low)
2185 to 2195 represent support points for years: December 2004 peak, July to October 2005 consolidation, January, March and July 2008 lows, and October 2009 peak.
2177 is a low from March 2008
2169 is the March 2008 closing low (double bottom)
2168 is the September 2009, intraday peak
2167 from the July 2008 intraday low
2155 is the March 2008 intraday low
2100 is the February 2010 low


S&P 500: Closed at 1117.51
Resistance:
1119 is the early December intraday high
The 50 day EMA at 1120
Bottom of the January 2010 consolidation 1131 to 1136
1133 from a September 2008 intraday low
1151 is the January 2010 peak
1156 is the Sept 2008 low
1170 is the prior March 2010 high
1174 is the May 2010 high
1181 is the April selloff low
1185 from late September 2008

Support:
1114 is the November 2009 peak
The 200 day SMA at 1110
1106 is the September 2008 low
1101 is the October 2009 high
1084 to 1080 (September 2009 peak)
1078 is the October range low
1070 is the late September 2009 peak
1044 is the October 2008 intraday high AND the February 2010 low
1040 is the May 2010 low
1020 is the bottom of the late summer 2009 consolidation
946 from June 2009


Dow: Closed at 10,450.64
Resistance:
The 50 day EMA at 10,435
10,496 is the November 2009 high
10,609 from the Mid-September 2008 interim low
10,730 is the January 2010 peak
10,920 is the recent May high
10,963 is the July 2008 low
11,100 from the 7-08 low
11,205 is the April closing high
11,734 from 11-98 peak

Support:
10,365 is the late September 2008 low
The 200 day SMA at 10,335
10,285 is the late December consolidation peak
10,120 is the October 2009 peak
9829 is the September 2008 closing high
9918 is the September 2008 peak
9855 is the early September peak in its lateral range
9835 is the late September 2009 peak AND the February 2010 low
9774 is the May 2010 intraday low

Economic Calendar

These are consensus expectations. Our expectations will vary and are discussed in the 'Economy' section.

June 15 - Tuesday
Export Prices ex-ag., May (08:30): 0.6% actual versus 1.3% prior (revised from 1.4%)
Import Prices ex-oil, May (08:30): 0.5% actual versus 0.6% prior (revised from 0.5%)
Empire Manufacturing, June (08:30): 19.57 actual versus 20.0 expected, 19.11 prior
Net Long-Term TIC Fl, April (09:00): $83.0 actual versus $140.5B prior

June 16 - Wednesday
Housing Starts, May (08:30): 593K actual versus 655K expected, 659K prior (revised from 672K)
Building Permits, May (08:30): 574K actual versus 631K expected, 610K prior (revised from 606K)
PPI, May (08:30): -0.3% actual versus -0.5% expected, -0.1% prior
Core PPI, May (08:30): 0.2% actual versus 0.1% expected, 0.2% prior
Capacity Utilization, May (09:15): 74.7% actual versus 74.4% expected, 73.7% prior
Industrial Production, May (09:15): 1.2% actual versus 0.8% expected, 0.7% prior (revised from 0.8%)
Crude Inventories, 06/12 (10:30): 1.69M actual versus -1.83M prior

June 17 - Thursday
Initial Claims, 06/12 (08:30): 450K expected, 452K prior
Continuing Claims, 06/5 (08:30): 4475K expected, 4462K prior
CPI, May (08:30): -0.1% expected, -0.1% prior
Core CPI, May (08:30): 0.1% expected, 0.0% prior
Current Account Balance, Q1 (08:30): -$124.0B expected, -$115.6B prior
Leading Indicators, May (10:00): 0.5% expected, -0.1% prior
Philadelphia Fed, June (10:00): 20.0 expected, 21.4 prior

June 22 - Tuesday
Existing Home Sales, May (10:00): 6.10M expected, 5.77M prior
FHFA Housing Price I, April (10:00): 0.3% prior

June 23 - Wednesday
New Home Sales, May (10:00): 427K expected, 504K prior
Crude Inventories, 06/19 (10:30): 1.69M prior
FOMC Rate Decision, June 23 (14:15): 0.25% expected, 0.25% prior

June 24 - Thursday
Durable Orders, May (08:30): -1.4% expected, 2.8% prior
Durable Orders ex Transportation, May (08:30): 1.25% expected, -1.1% prior
Initial Jobless Claims, 06/19 (08:30): 458K expected, 472K prior
Continuing Claims, 06/19 (08:30): 4580K expected, 4571K prior

June 25 - Friday
GDP - Third Estimate, Q1 (08:30): 3.0% expected, 3.0% prior
GDP Deflator, Q1 (08:30): 1.0% expected, 1.0% prior
University of Michigan Sentiment, June (09:55): 75.5 expected, 75.5 prior

By: Jon Johnson, Editor
Copyright 2010 | All Rights Reserved

Jon Johnson is the Editor of The Daily at InvestmentHouse.com

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Monday, June 14, 2010

Retail Sales Disappoint Greatly

SUMMARY:
- Another back to back gain, but it is no follow through.
- No strong surge, but the probabilities of a more sustained bounce are stacking up.
- Some quality stocks step up to leadership roles, but their ranks are still thin.
- Retail sales disappoint greatly, but it is likely just a slow month for the economy.
- EU is still the wild card for the US economy and prospects of a double dip recession.
- Bearish and bullish sentiment indicators show a rare crossover.
- Looking for a move up to the January high and watching for good stocks and good entry points for that move.

Another back to back gain, the second in 1.5 weeks, indicates a more sustained bounce.

Here in the office we are dubbing the Thursday and Friday market gains the "oversold bounce part two." There was a second attempt at a bounce off the February lows on the SP500. There was the original selling in May that took the SP500 below its February low and then the bounce. It looked like that bounce may try to make a move up to the January peaks, but it ran out of gas at the 200 day EMA twice. It then fell back down to the prior low, but then came part two. Starting this week there was an intraday reversal on Tuesday and a surge on Wednesday that could not quite hold. On Thursday the case of Viagra showed up, and the market surged and was able to hold the move. Friday things looked grim early on as some of the economic reports were not as good as hoped. The market gapped lower but then reversed and rallied into the close for a third gain out of four sessions. The market has not had that kind of batting average in quite some time. This was not the follow-through I was talking about earlier in the week, however.

Volume was extremely light on Friday. That is typical of a Friday in the summer, and the percentage gains were not strong. NASDAQ scored +1.1%, but the Dow only scored +0.38%. SP500 +0.44%, SOX +1.4%, SP600 +1.3%, and NASDAQ 100 +0.93%. Those gains are not what it takes for a follow-through session. You like to see powerful moves of +2% or better, particularly considering how this market has shown back and forth crazy moves as it has consolidated at the February lows. Huge moves back and forth, so you would expect a follow-through to be an impressive percentage move as well with high volume. That was not the case on Friday, so it was nothing doing for the first chance at a follow-through. We simply had a continuation of the rally higher.

Nonetheless, it was a decent reaction on Friday. There was bad economic news with weak retail sales for May coming in at -1.2% on the headline versus the 0.2% gain. Futures that were in decent shape before the number gap sharply lower, and the market gapped lower as well. The market did recover, however. It overcame that data and, after chopping around most of the session, it did rally into the close for gains across the board. That shows strength it has not had. Moreover, it overcame a stronger dollar that moved up as the session wore on. That one-two punch bad economic data and a strengthening dollar has typically taken this market lower, but Friday the oversold bounce continued for back-to-back gains on SP500 and the other indices as well.

This move does not have the credentials to suggest that a new rally is underway right now. There was no follow-through as of yet, and leadership remains rather sparse. There are some good quality stocks that are leading higher and that can make this a decent bounce such as AKAM and BIDU. We took positions on BIDU on Friday just to be ready in case it makes a good surge to start next week. FFIV is another strong stock ready to move as well. There are many others that look strong enough to perhaps take SP500 and NASDAQ back to the January peak.

It is hard to say that the weak volume, relatively modest bounce on a Friday in the summer is pointing toward a significant rally. When you put together all of the action that has occurred over the past month, however, there may be enough traction for stocks to make that bounce after failing spectacularly during May and early June.


OTHER MARKETS.

Dollar. The dollar did see an advance, though it closed off its high on the session compared to other currencies (1.2098 Euros versus 1.2124 Thursday). The dollar is off its highs which saw it break below 1.2 Euros. I doubt we have seen the last of a sub-1.2 dollar on this move, however. The DXY0 pulled back modestly after bumping into the late 2008/early 2009 peaks, holding the 18 day EMA on the low and starting to bounce on Friday. Likely this is just another normal pullback to near support and its move higher. It is measuring the move to break out above that prior high.

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Bonds. Bonds rallied back as well (US 10 year yield 3.24% versus 3.32% Thursday). The bond market took a sizable hit during the week because pundits statesmen all came out of various countries saying there would be no trouble in the Euro zone. Interestingly, some of the people saying that were from the Euro zone and of course have a vested interest in seeing that the entire system does not collapse (namely the CEO of BNP Paribas). US bonds did pull back during the week, but this looks like a normal consolidation. Nothing here is overly nefarious. They are bumping into prior highs and testing somewhat.

The TIPS show similar action. There has been a pullback over the past month to support where they look like they are trying to hold and start to bounce. Thursday was an aberration day. It broke below the 50 day EMA on the close but immediately turned back up and held above that area. I do not think that bonds are going to start to sell off right now because Europe is not safe. I will discuss more of Europe's issues later and why that is impacting bonds and in the US and overseas bonds.

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Gold. Gold has not been rocketing straight to the upside, but it has also not been breaking down ($1,228.20, +6.00). It was rather modest compared to some of the other moves, but gold has broken to an all-time high. It fell back below it, and then broke out above that again on Monday and rallied more Tuesday. It spent the rest of the week testing. Note that it came back down to the prior high and bounced on Friday. Gold is not in trouble, and there are several reasons. Number one, it is still an inflation trade despite the fear in Europe that there will be deflation caused by the EU countries going under or defaulting. This is all despite what the CEO of BNP Paribas says as well as Trichet and the EU President.

Gold is also showing that there is a fear trade still built in with the unknown. A lot of money is moving out of Europe in fear, and that is what supported the US bonds market for the past several months (when it should be heading the other way in the Fed will start raising rates). You cannot put all of your money in US Treasuries, however. The Fed's (and the ECB's) hands are tied thanks to the trouble in Europe, and it cannot start raising rates anytime soon. Therefore there will be cheap money, inflation, and fear. People cannot put everything into US Treasuries, so they have to find some other mechanism to store their wealth and provide some upside. Gold is once again offering a haven for people looking to diversify out of US Treasuries as their only safety hedge. Gold looks as if it is just testing the break of the all-time high and still has room to the upside.

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Oil. Oil had a rougher day Friday, losing ground ($74.21, -1.27) and it showed a bounce downward from a test of the 200 day EMA on Thursday. Oil is still moving higher in its range. It is building higher lows and higher highs off the bottom of its seven-month range. I do not think oil will flip over and dive back down. The 200 day EMA could represent some resistance as it matches up with a consolidation range from late 2009 and some interim peaks and valleys in February and March of 2010. There could even be resistance in early May where it bumped up, tried to recover through that level on the selling, but was not able to do so before it sold off to the bottom of its trading range. I do not think again that oil will tank. It could continue higher, and we are basically looking for a move up into the range from March. Very important range, and topped by the January peak. It is summer, so there will be more demand for oil from driving. That should help bolster oil somewhat, though it will not break it out of that range unless there are extraneous events such as major hurricanes that plow through the Gulf and disrupt production. That would be unfortunate, spreading all the oil coming out of the BP rig. They are now saying it is twice as much as estimated during the major part of the spill when it was uncapped and gushing into the Gulf of Mexico.

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TECHNICAL PICTURE

INTERNALS

Volume. Trade fell 15% on NASDAQ down to 1.78B shares, well below average for the NASDAQ exchange. Over the past several weeks, volume has traded virtually below average on all but a handful of days. Thus there has not been much strength in the selling or the upside with respect to the NASDAQ. It is hitting its summertime doldrums and riding along on light trade. The NYSE saw a 22% decline in volume down to 1.04B. Well below average and no real drive on the move upside. That is what low volume tells you. In other words, there just were not as many players in the market pushing stocks higher. The move does not mean that much, and it lends credence to the idea that this is simply part two of the oversold bounce.

Breadth. Breadth was decent, but nowhere near what we have seen in recent rounds. It was 2.5:1 on NASDAQ and 2.6:1 on the NYSE. In the old days that would have been great breadth, but now when we are seeing 4:1-7:1 on these back and forth sessions over the past few weeks as the buyers and sellers fight it out. Breadth in the 2.5:1 range is not providing much interest, but it does show it has been matching the moves in the market. Today's move was so-so, and there was so-so breadth. Yesterday there was tremendous breadth as the market moved higher, and that is exactly what you would expect. It is definitely matching to moves; there is no divergence. We are not seeing the market move down sharply and negative breadth or vice versa. What you see is what you get, and there is nothing to surprise us. The internals show an oversold bounce.


CHARTS

SP500. The SP500 gapped lower on the session when the retail sales came in lower than expected, but there was a recovery and a move back to positive. That in itself was a positive because the market was able to overcome bad news and a rallying dollar. Those have been teamed up as a one-two punch to keep the market at bay, but we have a second back-to-back move. Aside from last week, that is something not seen since late April when the market peaked. That is strange. The market peaked with the last back-to-back upside gain in SP500 in late April, and it immediately turned and sold off through the end of May. It has been trying to come back starting to January, although it just sold down to the prior low. We have another double bottom created here, and a back-to-back upside gain and then a selloff. A rally and then another back-to-back upside gain two of them in roughly a week. That is something we had not seen during the entire selloff, and now we have two of them. That is another indication that the market is finding a bit of footing and will be able to put in a better bounce this time than in the first attempt. It was a good try the first time. It rallied, sold off a bit and came back up, but the 200 EMA proved to be too much. I think with this double bottom and showing more strength that we can actually challenge the January high. Whether it is the bottom or the top of the range all the way up to 1150. 1125-1150 is the band of resistance. That is what we are trying to play with the nice positions we picked up this week once the market got the selling out of its system and the stronger stocks showed themselves and started to move back up.

NASDAQ. NASDAQ is a similar picture. There was a selloff to a new low. It undercut those early May lows but still held above the February lows. We have a double bottom. There was the initial bounce that failed, a double bottom, and now there is a back-to-back upside gain on NASDAQ. There are not the three out of four days upside this week just the last two. Two out of four over the same period, but there was the reversal that SP500 showed on Tuesday as well, and it has built off of that. Volume has been terrible but it did cross over the 200 day EMA. I think there is enough mojo, as with SP500, to take it up to the January peak. 2325 is roughly where you are looking for it to move. The 50 day EMA is still lower than that, roughly coincident at 2310. NASDAQ, as with SP500, looks like it has the juice to make it back up to this peak. Then you have to worried if there is a head and shoulders forming with the move from late May into June. We will see. Those often set up and rarely consummate.

SP600. SP600 posted a nice 1% gain on the session. It, too, put together a back-to-back gain but, unlike SP500, it did not have the three out of four days upside; it was more like NASDAQ. Nonetheless, it held at a key level at the bottom of the January peak and the February consolidation shelf. It bounced at that point off of that reversal an Tuesday. It has room to run up to its next important resistance level: the March consolidation. It actually got close to that on the last move. Could it possibly rally up to the early April peak? We will have to let it make its play. Right now the move is not saying much other than it has a firmer foundation as with the other large cap indices, and it wants to make a higher move at this juncture.

SOX. The semiconductors have shown the same action, but something of a triple bottom. They are holding at this long term support line. This is a critical line right below the 200 day EMA. This is a long term (about 10-12 year) line that has held. Now it looks like it has traction and is trying to move upside toward the January peak just as NASDAQ and SP500 are doing.

In sum, we have the market failing one attempt at an oversold bounce, coming back to the same level of support, and then putting in a second bottom and bouncing. It has more traction because it is showing the second back-to-back upside pairing of the past week and a half. It has not done that since the market peaked in late April. Thus, given the other indications over the last week the extremes in the VIX, extremes in breadth, and the extremes in the put/call ratio it looks as if the groundwork is set for a bounce to the upside. That is the missing link as to why this rally will likely fail. It probably needs to fail for the leadership of the market to continue to base and set up good patterns to lead the market higher.


LEADERSHIP

This past week I have discussed leadership and the dearth of quality leaders, at least in any quantity. I do not want to imply, however, that there is no leadership. There are sectors and stocks leading higher, but it is the number of leaders that is worrisome. The ranks are thin and will have to be bolstered and fleshed out in order for the market to hold serious gains. That is just common sense. You have to have more stocks moving to the upside and in position to overcome the overhead supply that tends to push them down when sellers move in and dump stocks as they get back to their old highs. A lot of stocks need to be on the move upside to show the overall big money players mutual funds, insurance companies, hedge funds are actually in the mood to buy for the long term versus just some short term short covering.

Healthcare. Healthcare was one of the leading groups on Friday, and it has been setting up to be in a leadership roll over the past few weeks. We have been taking positions along the way. LNCR had an excellent Thursday and Friday, breaking to a new rally high. Of course we bought in already, and it is very solid as it makes the rally to the upside. It is not alone. ILMN posted a new rally high on Friday on rising, above-average volume. It has had very good above-average volume on the upside of late, and that is helping propel it to new highs. HNT is breaking to a new rally high and posted good volume on Friday as it made that move. CI is breaking higher. It is not showing huge volume, but it is set up to make the move higher. It had some lower highs, but it is starting to put in higher lows. It is using the 200 day EMA as support and starting to make the break upside. Healthcare is trying to lead, but it is a defensive area. People turn there when they feel times will not be as strong ahead. The good thing about healthcare is that it has the moves of a growth sector. We can take positions in some of these stocks and enjoy very nice gains even though it is a defensive play. You would not typically associate it with strong gains.

Industrials. Industrials started to show new life this week after some rocky times over the past month and a half. CMI made a break above the triangle it formed, and we started moving in on positions Friday. Would have liked to have done it Thursday, but we got an entry point on Friday as well as it gapped back and rallied to the upside. There is life out there, and you can see it also in DE. It is not yet running like a deer, but it made the triple bottoms above the 200 day EMA and is breaking higher. It is not in a great buy position now, but it may give one if it comes back and tests and makes a higher low along this trendline and starts to break higher. That would be a nice entry point. Industrials have some life and they can help lead. They helped lead the market higher from 2007 into the crash and then in the recovery in 2009.

Technology. FFIV is starting to move again after setting up in something of an ascending triangle that is consolidating a nice run higher through April. Good volume on the break to the upside, nice tests showing volume reversal in the early week. It then broke off the 50 day EMA that it held yet again on Friday, and we picked up positions as it made that move. AAPL was up again on Friday, putting in a back-to-back upside day, but its volume was lower each session. AAPL has made the double top at the 78% Fibonacci retracement level of the selloff in May, and that is a classic sell signal. It managed to bounce off of the gap up point from April on Thursday and Friday. Again it was low volume, and I expect it to turn back down and sell some more. AAPL makes its own wake, however; it may just continue to run to the upside. We will have to see because it is always a strong run.

Internet. Internet. AKAM continues to perform, and was up again on Friday to a new rally high. We took some of the gain of our second position off the table, over 16% on the stock and 100% on the options. It is doing very well. It has trended higher and higher even through all of the selling. Cannot complain about that.

Retail. Some of the retailers are going down while new areas are rising. UA made the break higher on Friday on some very solid volume, clearing this downtrend line and what is basically a double bottom with handle that broke out. You may want to call it an ABCD pattern that broke, tested, and is moving up again. The point is that it is a solid upside pattern and is starting to break to the upside as well. We did not catch all those that we wanted and typically do look at and catch on the moves. XKS set up nicely with the triangle. I looked at it, and then it made the break and gapped and ran away from us on good volume at the end of the week.

DECK is another position we wanted to get into, but it is elusive, staying a jump ahead of you, always seeming to gap away just as you want to move in. You almost have to hold your nose and jump in no matter where it is. We had a chance to get into it on Wednesday, then on Thursday it gapped and ran. Friday it came back and I was looking at it because I had talked about it in the morning alert. It did not open down that much. I thought we might get a little pullback, but the next thing you know the buyers hit the pedal and it roared higher to a new rally higher on strong volume. Sometimes you have to hold your nose and jump, but the way this market has been, it is not the kind to hold your nose and jump too many times. As volatile as things are, you may find there is no water in the bottom of the pool. As you can see, there has been a reemergence of leadership, but it is still very thin.

Energy still remains very weak. You can go sector by sector of weak, downtrodden sectors. Financials, energy, and many industrials while some have improved are really beaten up and have terrible patterns. It takes time to rebuild leadership across the market where there are waves of stocks breaking out of the upside off of solid bases. That typically does not work when you have a month or two of hard selling in the market and then try to bolt back up off the lows. There is so much damage done to patterns that they cannot just turn on a dime and move back to the upside. They have to work through the overhead supply, set new bases, and then make good upside rallies. If we get that, that is great. If it cannot do it, then it will take time. The market makes these rallies like it looks like it will make now, and that is part of the basing process. It is not the end of the selling; it is just part of the process that the market goes through. It bases, works the sellers out of the system, and getting the committed holders holding the stocks. Then there is the breakout.

At this juncture that looks like it could take a while. We have a bounce we are playing to the upside, but I do not think that bounce will hold. I think that stocks will come back down and do more basing. I hate to say it, but we could spend a good chunk of the summer in the basing process. That does not mean you cannot make money. We have stocks right now that are breaking to the upside nicely and have plenty of room to run, particularly if SP500 makes it up to the January consolidation (even more so the January peak). That will give excellent gains on the great stocks we have been buying positions on over the latter part of this week. There are other stocks we already have positions on. AKAM continues to bolster gains and is getting tremendous gains on our earlier position we took several weeks back.

With that in mind, we do not want to get ahead of ourselves. This is still likely a bounce with the potential to be something more. Over the next few weeks, there could be improvement in the quality of leadership as stocks continue to base out. Maybe this was the bottom, but we do not have to guess on that. We can play good stocks as they move higher and, if it was the bottom, we will smell like roses as stocks continue to move higher and build profits for us as more and more money comes back to the market. If that is the case, we will see more and more stocks join the rally. Leadership comes in and joins and it moves up in waves. That will give more and more buying opportunities if there is a recovery. If not, we can live with that, too. It is all part of the basing process, and we will take advantage of what the market gives us.


THE MARKET

MARKET SENTIMENT

VIX. Volatility on Friday thumped hard to the downside, coming down to the 50 day EMA and undercutting the lows over the past three weeks. What we saw in the original selling was the spiking higher of volatility almost to 48 before it started to peel back. Rallies tend to start a few weeks after volatility hits its peaks, and it looks like volatility has hit its peak. We had one high, a higher low, a new higher high, and then another higher low. Now it is rolling over and getting a lower high and a lower low. Some people who have been watching awhile may ask if that is an ABCD pattern forming. That could be the case, but typically volatility does not follow that pattern as stocks do. Nonetheless, I will be watching to see if it bounces higher. As I will discuss later, it looks as if the market is trying to make for more of a rally here. We have broken the string of higher highs and higher lows in the VIX, and this allows the oversold bounce to have a bit more traction.

VIX: 28.79; -1.78
VXN: 28.8; -2.5
VXO: 27.9; -1.78

Put/Call Ratio (CBOE): 1.08; +0.08. Still above 1.0 on the rise, indicating there is still plenty of skepticism about any upside move. That skepticism plays into the somewhat extreme negative views.

Bulls versus Bears:

This past week the bearish number of investment advisors topped bullish advisors. That is a rare event and thus very noteworthy. It falls into our theme that the sentiment indicators have hit extremes and are at levels sufficient for at least a more sustained bounce in the indices.

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: 38.5%. Falling as the last rally attempt failed, down from 39.8% the prior week. Down substantially from 43.8%, 47.2%, and 56.0% before that. This move started at a low of 35.6% in February, the lowest it has been since July 2009. 35% is the threshold level suggesting bullishness. After peaking at 53 on this move the bulls lost some nerve, falling to a new low post- July 2009. Once again bulls peaked out near the 50% level. Bulls have bumped at 50ish since late August 2009, falling to 45ish and then rebounding. Hit a high of 47.7% mid-June on the run from the March lows. Again, to be seriously bearish it needs to get up to the 60% to 65% level.

Bears: 39.9%. Huge spike from 28.4% shows a rare crossover as bears top bulls. It continues a sharp rise from 24.7% the week before where it held for a couple of weeks. Fell to 18.7% on the low. Hit a high of 27.8% level on the prior leg in February. Over 35% is considered bullish for the market; definitely at the lower end of the scale. Peaked near 28% in November, falling short of the 35.6% hit in July 2009. For reference, cracking above the 35% threshold considered bullish. Hit a high on this run at 47.2%. For reference, bearishness hit a 5 year high at 54.4% the last week of October 2008. The move over 50 took bearish sentiment to its highest level since 1995. Extreme negative sentiment. Prior levels for comparison: 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). That was a huge turn, unlike any seen in recent history.


NASDAQ

Stats: +24.89 points (+1.12%) to close at 2243.6
Volume: 1.78B (-14.89%)

Up Volume: 1.539B (-375.872M)
Down Volume: 221.307M (-9.262M)

A/D and Hi/Lo: Advancers led 2.53 to 1
Previous Session: Advancers led 5.28 to 1

New Highs: 41 (+21)
New Lows: 38 (-39)

NASDAQ CHART: http://investmenthouse.com/ihmedia/NASDAQ.jpeg

NASDAQ 100 CHART: http://investmenthouse.com/ihmedia/NASDAQ100.jpeg

SOX CHART: http://investmenthouse.com/ihmedia/SOX.jpeg


SP500/NYSE

Stats: +4.76 points (+0.44%) to close at 1091.6
NYSE Volume: 1.042B (-22%)

Up Volume: 695.551M (-608.401M)
Down Volume: 334.608M (+305.056M)

A/D and Hi/Lo: Advancers led 2.66 to 1
Previous Session: Advancers led 5.54 to 1

New Highs: 84 (+4)
New Lows: 39 (+1)

SP500 CHART: http://investmenthouse.com/ihmedia/SP500.jpeg

SP600 CHART: http://investmenthouse.com/ihmedia/SP600.jpeg


DJ30

Stats: +38.54 points (+0.38%) to close at 10211.07
Volume DJ30: 188M shares Friday versus 222M shares Thursday.

DJ30 CHART: http://www.investmenthouse.com/ihmedia/DJ30.jpeg


MONDAY

There is a lot of economic data coming our way. There are a lot of regional manufacturing reports starting with New York on Monday, and then industrial production and capacity on Wednesday. Housing starts, building permits, initial claims, and then CPI on Thursday. That is followed by leading indicators and we close out with the Philly Fed on Thursday morning. Plenty of economic indicators. The regional manufacturing report will be for June already, and we will see if there is that uptick I was talking about when discussing trucking.. We have some more economic data, and we have potential bad news coming out of Europe every day. We could see another country emerge as a problem that was heretofore not considered a problem. That is an ever-present issue for the market, but there is nothing you can do about it. On Friday it did not undermine the market. Stocks were able to recover and post the second gain in a back-to-back gain for the end of the week.

I am looking for this bounce to continue, but it may not continue every day. Remember, we have only had three back-to-back upside sessions since late April, but two of them have been in the past week and a half. That is a sign of strength to the upside. We may get an off Monday, but I still think we have the momentum to continue up to the January peak. With respect to leadership, we are seeing more good stocks break to the upside that can propel the market higher. That is exactly what I am looking for them to do as the market continues to the upside. It is not too late to buy into some of these stocks. Some these have set up. Early leaders were out in front on Thursday and Friday, but others are there still in position to buy. If there is a nice pullback on Monday (a setback as some would view it), I think it would be an opportunity to move into some of these positions. Friday was an opportunity for a few positions, although the pullback was not enough on some of the stocks we were looking at given the strength of the move they made on Thursday.

I think the rally is going to continue, so I am looking for openings for good plays that we can use as vehicles to the upside. If we get a pullback on Monday on stocks we are looking to get in, we can use that to our advantage. Then as the market recovers, that pushes us up in better profit position as it moves toward the January peak. That is our initial target on any bounce. We have some great positions in play, and we will look to pick up more as the rally gives us opportunity. Have an excellent weekend.


Support and Resistance

NASDAQ: Closed at 2243.60

Resistance:
2245 from July 2008 through 2260 from late 2005.
2275 - 2278 from the February 2008 and April 2008 lows
2273 to 2282 marks bottom of January 2010 lateral peak
2292 is a low from January 2008
The 50 day EMA at 2311
2319 from the September 2008 peak
2320 to 2326.28 is the January 2010 high
2324-2370 is a range of resistance from early 2008
2382-2395 from 2008
2412-2415 represents a series of peaks and lows in 2007, 2008
2434 is the May 2010 high
2453 is the August 2008 peak

Support:
The 200 day SMA at 2239
2205 is the November 2009 peak 2210 (from September 2008) to 2212 (the July 2009 closing low)
2185 to 2195 represent support points for years: December 2004 peak, July to October 2005 consolidation, January, March and July 2008 lows, and October 2009 peak.
2177 is a low from March 2008
2169 is the March 2008 closing low (double bottom)
2168 is the September 2009, intraday peak
2167 from the July 2008 intraday low
2155 is the March 2008 intraday low
2100 is the February 2010 low


S&P 500: Closed at 1091.60
Resistance:
1101 is the October 2009 high
1106 is the September 2008 low
The 200 day SMA at 1108
1114 is the November 2009 peak
1119 is the early December intraday high
The 50 day EMA at 1121
Bottom of the January 2010 consolidation 1131 to 1136
1133 from a September 2008 intraday low
1151 is the January 2010 peak
1156 is the Sept 2008 low
1170 is the prior March 2010 high
1174 is the May 2010 high
1181 is the April selloff low
1185 from late September 2008

Support:
1084 to 1080 (September 2009 peak)
1078 is the October range low
1070 is the late September 2009 peak
1044 is the October 2008 intraday high AND the February 2010 low
1040 is the May 2010 low
1020 is the bottom of the late summer 2009 consolidation
946 from June 2009


Dow: Closed at 10,211.07
Resistance:
10,285 is the late December consolidation peak
The 200 day SMA at 10,313
10,365 is the late September 2008 low
The 50 day EMA at 10,447
10,496 is the November 2009 high
10,609 from the Mid-September 2008 interim low
10,730 is the January 2010 peak
10,920 is the recent May high
10,963 is the July 2008 low
11,100 from the 7-08 low
11,205 is the April closing high
11,734 from 11-98 peak

Support:
10,120 is the October 2009 peak
9829 is the September 2008 closing high
9918 is the September 2008 peak
9855 is the early September peak in its lateral range
9835 is the late September 2009 peak AND the February 2010 low
9774 is the May 2010 intraday low

Economic Calendar

These are consensus expectations. Our expectations will vary and are discussed in the 'Economy' section.

June 07 - Monday
Consumer Credit, April (15:00): $1.0B actual versus -$2.0B expected, -$5.4B prior (revised from $2.0B)

June 09 - Wednesday
Wholesale Inventories, April (10:00): 0.4% actual versus 0.5% expected, 0.7% prior (revised from 0.4%)
Crude Inventories, 06/05 (10:30): -1.83M actual versus -1.90M prior

June 10 - Thursday
Initial Claims, 06/05 (08:30): 456K actual versus 450K expected, 459K prior (revised from 453K)
Continuing Claims, 05/29 (08:30): 4462K actual versus 4600K expected, 4717K prior (revised from 4666K)
Trade Balance, April (08:30): -$40.3B actual versus -$41.3B expected, -$40.0B prior (revised from -$40.4B)
Treasury Budget, May (14:00): $135.9B actual versus $142.0B expected, $189.6B prior

June 11 - Friday
Retail Sales, May (08:30): -1.2% actual versus 0.2% expected, 0.6% prior (revised from 0.4%)
Retail Sales ex-auto, May (08:30): -1.1% actual versus 0.1% expected, 0.6% prior (revised from 0.4%)
Michigan Sentiment, June (09:55): 75.5 actual versus 74.5 expected, 73.6 prior
Business Inventories, April (10:00): 0.4% actual versus 0.5% expected, 0.7% prior (revised from 0.4%)

June 15 - Tuesday
Export Prices ex-ag., May (08:30): 1.4% prior
Import Prices ex-oil, May (08:30): 0.5% prior
Empire Manufacturing, June (08:30): 20.0 expected, 19.11 prior
Net Long-Term TIC Fl, Aprilil (09:00): $140.5B prior

June 16 - Wednesday
Housing Starts, May (08:30): 653K expected, 672K prior
Building Permits, May (08:30): 631K expected, 610K prior
PPI, May (08:30): -0.5% expected, -0.1% prior
Core PPI, May (08:30): 0.1% expected, 0.2% prior
Capacity Utilization, May (09:15): 74.4% expected, 73.7% prior
Industrial Productio, May (09:15): 0.8% expected, 0.8% prior
Crude Inventories, 06/12 (10:30): -1.83M prior

June 17 - Thursday
Initial Claims, 06/12 (08:30): 450K expected, 452K prior
Continuing Claims, 06/5 (08:30): 4475K expected, 4462K prior
CPI, May (08:30): -0.2% expected, -0.1% prior
Core CPI, May (08:30): 0.1% expected, 0.0% prior
Current Account Bala, Q1 (08:30): -$123.0B expected, -$115.6B prior
Leading Indicators, May (10:00): 0.4% expected, -0.1% prior
Philadelphia Fed, June (10:00): 18.8 expected, 21.4 prior

By: Jon Johnson, Editor
Copyright 2010 | All Rights Reserved

Jon Johnson is the Editor of The Daily at InvestmentHouse.com

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Sunday, June 06, 2010

New Sources of Worry in Europe

SUMMARY:
- No three straight as stocks sell sharply to end the week.
- New sources of worry in Europe, overly high jobs expectations too much for stocks to handle.
- Obama administration learns a lesson in expectations management.
- Jobless wait hits a record high as private sector creates a measly 41K new jobs. Laughable if not so tragic.
- Euro sinks to a new low since 2006
- Stocks thoroughly thrashed, but growth indices still remain in the recent lateral range: don't assume failure
- Reverting to the down on Friday, up on Monday pattern? The bulls can only hope.

It comes down to jobs quality, not quantity, for investors.

There was not a third consecutive upside session for the indices after the back-to-back gain (the first since late April) occurred on Thursday. Instead they turned and sold sharply to end the week. NASDAQ -83 points at 3.6%; the Dow -300 points at -3%; SP500 -38 points at -3.4%; SOX -4.4%, SP600 -4.8%, and NASDAQ 100 -3.3%. NASDAQ 100 almost came in as one of the relative strength leaders.

There were new sources of worry coming out of Europe. Even though Hungary does not trade the Euro as its primary currency, it reported that its economy was in a "very grave situation." Then the French bank Societe Generale was rumored to have some serious derivative losses. With the focus turning away from Portugal, Greece, and Spain into new areas, that was hard to overcome. In the US we had some overly high expectations for the jobs report. There were statements made by the head of the administration about how this would be a great number. Apparently they saw the 9.7% unemployment rate as good. It is, but the problem is that no one is coming into the job market; people are leaving the job market, and that is why the unemployment rate fell. There were a few jobs created thanks to the census, so there is a lower unemployment rate, but it is not a pretty picture.

The indices were thrashed. They started low and then moved even lower as the session progressed. There has a modest upside bounce mid-morning after the gap lower, but it never came close to scaring up anything near positive. Then the market rolled over and slid down to close at sessions lows. It was a very strong downtrend for the day in that it stayed below the 10 day EMA the entire time after the mid-morning bump, excepting a short, 20-minute period midday. It was a sharply negative day on the session. On SP500, it broke below the recent lows in its lateral trading range after undercutting the February low and coming off the new low in the selloff. For the other indices such as NASDAQ, it was not as bad. NASDAQ did break below the recent lows, but it is still more or less in that lateral consolidation after bouncing up off the May low. There is some hope there. There is something of substance still in the bounce, though it got a severe setback on Friday. It may just have been due to bad news and the jobs report being overly hyped. It could also be reverting to the more typical trend in recent months: Down on Friday on fears of what might happen over the weekend, and then bouncing back up on Monday if no major disaster hits.


OTHER MARKETS.

Dollar. The fear trade was back on, but with a bit of a twist. The dollar surged. The Euro got body slammed down with the first close below 1.20 since 2006 (1.1967 versus 1.2159 Thursday). That was one of the lows of the entire move. You can see from the DXY0 that the dollar was stronger against all other stocks. I talked about the pennant setting up that was a consolidation for a new break higher. Friday we got the new break higher, and it was a hum dinger. That is a big breakout of a nice consolidation. The dollar recovery I talked about for so long being an oversold bounce really continues to pour on the coals to the upside. Looking at the weekly chart, it balked three weeks back when it approached the late 2008 and early 2009 twin peaks. Now it is pouring on the gas and is rallying up through the late 2008 peak and is now taking aim at the 2009 closing high (not the intraday yet, but it will be there soon enough). Very strong break to the upside by the dollar. It goes to show the fear trade is alive and people are running to safety. After all, why not the US? Our debt-to-GDP ratio is a mere 90%; that is better than Greece and other European countries, so we must be a hell of a bargain. That is the good thing about having a nice track record over the last 50 or 60 years: People still instinctively turn to our currency and debt instruments in times of trouble. The question is when they will stop doing that. At what point will our debt-to-GDP ratio become so high that it overcomes our history as being the main flight-to-safety currency and debt market?

http://investmenthouse.com/ihmedia/dxy0.jpeg


Bonds. After pulling back over the past week indeed, gapping sharply lower on Thursday there was a sharp gap higher on Friday. Very strong move to the upside. You can see something of an ABCD pattern, and there is the gap to the upside. As noted, it was strong. Looking at the weekly chart on the 20 year, you can see something of a double bottom. There is the selloff, the double bottom, the rally, and now a pennant has formed right at the hump in the double bottom. That is where you would expect it to encounter resistance. If the handle forms and keeps in an orderly, narrow formation moving laterally, then the odds of a breakout increase tremendously. We could see another breakout in US bonds, believe it or not. They are already defying logic with this move, and if Europe continues to deteriorate, bonds will continue to grow stronger until we reach the point in the US where our credit worthiness becomes suspect. If the rest of the world goes down, we will have been unable to sell the $1.25T in junk assets that the Fed bought during the crisis. We still have interest rates at 0%. Where are the bullets? What can the US do if Europe falls and we are left standing, having to fund the world, and then we start to stumble? The ammunition will be spent. It would be hand to hand combat, and I am afraid it would not be in the currency markets. By the close, the 10 year US treasury had rallied (3.20% yield versus 3.37% Thursday). Like the dollar, it made a blistering move.

http://investmenthouse.com/ihmedia/tlt.jpeg


Gold. Gold had a nice day. Even though the fear trade was on, gold still rallied. There is a fear out there, and something is driving gold beyond just inflation. It broke sharply higher, and moved back over the 2009 peak ($1,221.60, +11.60). A very solid move to the upside, and this is basically a consolidation that we have been looking at over the past few weeks. Looking at the weekly pattern, gold is simply consolidating just above the prior all-time high hit in late 2009. We have the same kind of action we are seeing in bonds, just with a different pattern. A breakout, a pennant over a few weeks, and now it is ready to make the break to the upside.

http://investmenthouse.com/ihmedia/xgld.jpeg

Oil. You would expect that oil would be clubbed from the fear trade, and it was pretty much beaten to death on Friday ($70.85, -3.76). There was a rather sharp turn in the rebound off the bottom of the trading range. Nice rally, a test, and it looked like it was making the break to the upside. Then it knocked below the recent low on the test with strong volume. Looks like there could be trouble for oil yet again. It is just one of the problems facing the commodity right now. Looking on a weekly chart, it is still at the bottom of its range. It has not broken down, and it still looks healthy on a weekly pattern. That means it could find support down at the prior lows or at the recent lows for that matter and then make a renewed move to the upside in the trading range. For now, this is a very sharp and very negative turn down near term.

http://investmenthouse.com/ihmedia/xoil.jpeg


Overall the other markets showed the fear trade once again. The twist I talked about earlier was that gold made a solid upside move despite the fear of deflation spreading throughout Europe. Remember, it was not just the PIIGS. There was an important French bank rumored to have major losses with respect to derivatives. We hear that Hungary's economy is in a very grave situation. How many more of these news stories are out there, and how much pressure will that put on the stronger countries in Europe? The bigger question one that impacted the US and its double dip possibilities later on this year is what is the contagion effect for the rest of the world? On the upside, I can say that CSCO said it was accelerating its global hiring. Perhaps trying to offset the news of the jobs report on the day, CSCO and John Chambers tried to take the bull by the horns and say they would be hiring so all is not lost. I doubt CSCO can turn the tide by itself, however.



TECHNICAL PICTURE

INTERNALS

Breadth. Breadth was massively lower. After a meager 1.6:1 advancers over decliners on Thursday on NASDAQ, the decliners led 7.5:1 on Friday. On the NYSE after a meager 1.6:1 to the upside, it was -7:1 on Friday. Sellers swamped the market and pushed most stocks lower.

Volume. Volume bounced up to 2.2B on NASDAQ. That is still right at or below average. On NYSE there was a big 34% jump to 1.6B, and that did manage to push volume back above average on that index. It was a significant move above average as it sold and broke through the lower part of the range. That is important selling. There was distribution; they were dumping stocks in the SP500.


CHARTS

SP500. After bumping the 200 day EMA twice the last being on Thursday at the high the SP500 gapped lower and then sold very hard. It did undercut the recent lateral range, and I am measuring it from the low after the initial bounce. It undercut it on Friday and did so on volume. There was some dumping of NYSE shares. It was a sharp turn lower, and I am looking at the closing low in February once again for a test. We will see if it can make something of a double bottom off that level. It tried to make a double bottom at the higher point, and now we will see if it can make one at the lower point. SP500 is one of the weaker-looking indices of the group.

NASDAQ. The NASDAQ was no beauty as it, too, was gutted. It gapped lower, was selling below its 200 day EMA, and undercutting this low on Tuesday. It is not a good move for it, but volume was still below average even though it was elevated. There were not a lot of sellers ready to take this index down. It looked as if it wanted to emerge as a leader to the upside on this bounce, taking over for SP500. The growth indices looked like they were starting to move. I am not writing off NASDAQ based on this move. The volume has been low, and it has been consolidating laterally in this range on lower, below-average volume. Ever since it sold off on higher trade, it is moved laterally on lower volume after that bounce. It bounced on higher volume, and then continued to move up. We will see how this next week plays out. It is still good enough to make the bounce higher given the low volume, it could do that. Continue this move, continue to consolidate, and then try to make the next break to the upside. From at the way it is acting and the volume associated with the move lower, NASDAQ is not dead yet.

SP600. The small caps were one of the other growth indices that looked good. It has some issues. It made a closing low on the Friday move on this pullback. It has now broken down into the January range at that peak and is coming to a critical level at the 200 day EMA. That is also coincident with the bottom of that January consolidation as well as a late-February lateral shelf consolidation. There are three points lining up. The 200 day EMA, the February flat shelf consolidation, and the bottom of the January peak. This is an important point for the SP600 as it is one of the indices that was holding up better than the rest and trying to lead higher. Nice that it was a growth index as well.

SOX. The SOX turned back as well. It made it up to the bottom of its January peak and actually cracked into that range on Thursday. Looking strong, looking like it wanted to do something, and then it gapped lower. It is still in the range as of Friday; it did not make a lower low. There is still a double bottom in place, and this could still be viewed as a handle. We will have to see how the chips play out next week. Just as we will have to see how all the other indices react to the Friday selling that took them down to or just below the recent lows in the lateral consolidation. Remember, one of the patterns that were in place most weeks was a selloff on Friday on fear, and then a rebound on Monday when the worst-imagined fears did not come to fruition over the weekend. That would bring the buyers or short coverers back on Monday, and we would have an upside Monday. With the indices still in this lateral consolidation, there is a very good chance that if nothing major happens over the weekend we get the bounce back up in the range. That could be more consolidation, and also it would be overcoming some really bad news. Let us face it, the news out there is not good. If the market continues to consolidate and finds footing at this higher level, that is a positive. It keeps getting hit with bad news. It was down on that day, but if it does not break the range, that shows there are buyers supporting the indices at support at the lower part of that range. If they see the news as not any worse than they anticipate, that is how you set up at least interim bottoms for bounces higher.



LEADERSHIP

Retail. The retailers have been the strongest in the market. Some have moved well of late that were maybe pulling back on Friday in the selling. ARO gapped sharply higher on Thursday on good results and was filling that gap on Friday. Note that the volume was quite low on that move. Great volume the prior three sessions as it bottomed and started back up, and volume was quite tame as it sold off on Friday. That is called opportunity. A lot of people do not want to step in when the market looks like chopped liver left in the sun, but when you see good setups from good stocks, you should watch and see how they hold. If they hold and the market can hold in this range, it has a very good chance of bouncing nicely. Same thing with ROST. It is a stock that posted a very solid Thursday on good results. It was testing back on Friday and filling this little gap; no big deal. Volume was lower again. There is a little double bottom and you can see almost a head and shoulders. There was a break higher, and now it is filling the gap and coming back to test. That could be opportunity for more positions on ROST. PNRA is the same thing. A good break on Wednesday, coming back, and testing toward the 10 day EMA and this March peak. It could provide opportunity for those looking for good stocks that have held up very well in a pullback mode. Contrast that with AEO. The eagle looks like it has been shot. ANF sold off. It tried to make the move Thursday through the 200 day EMA to the gap, but then it gapped lower on Friday. It is not looking too healthy.

Internet. AKAM has been a solid performer. It was down on Friday after a big gap higher on Thursday that broke it to a new high in the move. It closed at a closing high over the prior peaks. It was not really burned on Friday; it just came back and gave back part of what it gained on Thursday. GOOG is looking quite decent. It sold back on Friday, but it was only 1.3% after a strong break to the upside. If it can hold in this range, maybe come back to the 10 day and maybe take off from there, that is an interesting trade to the upside. It has some issues which makes you want to get a quick-hit move. The lows from February and early March are at roughly 525, and it is at 498 right now. You have to see the move and get in to get a decent trade using options.

Semiconductors. SNDK was back on Friday, but it was not gutted. Volume was up, but it is still holding at the 10 day EMA and holding over these twin peaks. We might get a decent entry point for even more positions out of this. NVLS got a pullback to the 10 day EMA on lower, below-average volume. It could hold in this range, move laterally, and kick back up. That would be a great entry point. Usually you do not want to chase the bus. You wait for the bus to come back to you and get on at your leisure.

Metals. There was a little inverse head and shoulders they were trying to set up, but that did not happen on a lot of these. They gapped lower on Friday and are threatening the bottom of the range. We will have to see if they get a false break where it goes below and moves back up. Notice how MACD is at a higher level. If it holds it will make a divergent bottom, and that would be very interesting for a move back up. It is being sticky in the 63 range. It is trying to hold at the lower key support, and I will give it the benefit of the doubt and watch what it does next week. AKS is one of those inverse head and shoulders. It gapped lower on Friday on volume, taking it back down to these lows. We will see what happens when it gets to the lows. Will it undercut and then rebound, showing some kind of false bottom? We will have to be patient and let it show us the move. Remember, we are down at the prior lows. The indices are still above those prior lows and we do not want to assume failure at this point. Everything is negative without a doubt, but do not assume failure. Things are so negative, the indicators are at extremes, and that is when you often see changes. Even though it looks like it may have failed, that may just be the head fake. We will have to see.

Financial. JPM has come back down to a prior support level at the bottom of its range, gapping and selling off all session. Volume was up, but when a stock comes down to a support level, is not a bad thing. Upside volume shows that someone is still stepping in to hold it up. If it does bounce at this level (or sells under it) and reverses to close early in the week and the high volume remains, that shows you that someone is there picking it up and wanting to hold it up at this support range again. GS is another key financial. It was down 1.25% on Friday, but notice it is holding its lateral move. This is what I am talking about with respect to the indices. Holding that lateral move, down at the lows it does not look pretty. Everything looks bad and nothing sounds right on any of the financial and news stations. That is when you have to watch out. When things look like they will never get better, they have a weird way of turning around.


It is hard to call it leadership since a lot of these stocks and sectors are getting their tails kicked. Nonetheless, there are stocks still holding at support. There are also stocks still moving higher this week that just got knocked back some on Friday. We will have to see how that plays out.



THE ECONOMY

Headline jobs numbers are not good once you look behind them just a bit.

Expectations raised by the administration had no hope of being met.

It was all quantity versus expectations

Trucking upswing versus a double bottom.

TO VIEW THE ECONOMY VIDEO USE THE FOLLOWING LINK:

http://investmenthouse1.com/ihmedia/Economy.wmv


THE MARKET

MARKET SENTIMENT

VIX. It looked as if it had bounced but was rolling back over as the market put together the back-to-back gains. Then the news hit out of Europe and the US, and on Friday the VIX gapped higher. It has tried to make a higher high over the Tuesday peak, but it was unable to do that and faded. It still held a 20% gain on the session and still has higher lows put in. Maybe it is not done at this point, and maybe it is still factoring in issues that are facing the rest of the world. Remember, the market had sold back enough to bounce, but they have been piling additional problems on top of those we already know about. There were new issues dealing with a French bank and Hungary. If unexpected news hits the market, it will trump technical action. That is basically what was seen on Friday. The news was unexpected; it hit the market and blasted VIX to the upside. VIX is still much lower than the prior peaks. If things calm down, the market can still hold its lateral range and VIX would start to head back down as it bounces. This does not necessarily indicate there is more selling based on what happened Friday; it depends on what happens next week. If there is more selling that spikes it higher, then we have more issues. For now, the big high was made almost two weeks back, and it is normal to take a few weeks after that initial big spike is hit for the market to rally seriously. When we look at the charts, we will see that the bounce in the lateral move is not quite dead yet.

VIX: 35.48; +6.02
VXN: 34.16; +4.78
VXO: 34.38; +5.6

Put/Call Ratio (CBOE): 0.97; -0.11

Bulls versus Bears:

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: 39.8% versus 39.3. Holding rather flat after some substantial drops from 43.8%, 47.2%, and 56.0% before that. This move started at a low of 35.6% in February, the lowest it has been since July 2009. 35% is the threshold level suggesting bullishness. After peaking at 53 on this move the bulls lost some nerve, falling to a new low post- July 2009. Once again bulls peaked out near the 50% level. Bulls have bumped at 50ish since late August 2009, falling to 45ish and then rebounding. Hit a high of 47.7% mid-June on the run from the March lows. Again, to be seriously bearish it needs to get up to the 60% to 65% level.

Bears: 28.4% versus 29.2%. Surprising drop, but given the market's attempt to move higher, understandable. Still a big move up from 24.7% the week before where it held for a couple of weeks. Fell to 18.7% on the low. Hit a high of 27.8% level on the prior leg in February. Over 35% is considered bullish for the market; definitely at the lower end of the scale. Peaked near 28% in November, falling short of the 35.6% hit in July 2009. For reference, cracking above the 35% threshold considered bullish. Hit a high on this run at 47.2%. For reference, bearishness hit a 5 year high at 54.4% the last week of October 2008. The move over 50 took bearish sentiment to its highest level since 1995. Extreme negative sentiment. Prior levels for comparison: 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). That was a huge turn, unlike any seen in recent history.


NASDAQ

Stats: -83.86 points (-3.64%) to close at 2219.17
Volume: 2.263B (+5.81%)

Up Volume: 93.379M (-1.583B)
Down Volume: 2.241B (+1.754B)

A/D and Hi/Lo: Decliners led 7.47 to 1
Previous Session: Advancers led 1.64 to 1

New Highs: 18 (-36)
New Lows: 98 (+71)

NASDAQ CHART: http://investmenthouse.com/ihmedia/NASDAQ.jpeg

NASDAQ 100 CHART: http://investmenthouse.com/ihmedia/NASDAQ100.jpeg

SOX CHART: http://investmenthouse.com/ihmedia/SOX.jpeg


SP500/NYSE

Stats: -37.95 points (-3.44%) to close at 1064.88
NYSE Volume: 1.634B (+33.91%)

Up Volume: 12.448M (-749.225M)
Down Volume: 1.621B (+1.176B)

A/D and Hi/Lo: Decliners led 6.97 to 1
Previous Session: Advancers led 1.63 to 1

New Highs: 77 (-24)
New Lows: 81 (+40)

SP500 CHART: http://investmenthouse.com/ihmedia/SP500.jpeg

SP600 CHART: http://investmenthouse.com/ihmedia/SP600.jpeg


DJ30

Stats: -323.31 points (-3.15%) to close at 9931.97
Volume DJ30: 256M shares Friday versus 177M shares Thursday.

DJ30 CHART: http://www.investmenthouse.com/ihmedia/DJ30.jpeg


MONDAY

There are some interesting economic reports coming as well as technical action. We will have wholesale inventories on Wednesday, and on Friday there will be business inventories. I just talked about truckers and inventories, and it will be interesting to see if they continue to build or not. The data is back from April, so it is not the freshest, but it will be curious to see if they continue on the uptrend. There will also be the important initial claims and retail sales. We got a look at same store sales, and they were mixed to lackluster. We will see what kind of sales we were able to generate in May.

I talked earlier about how there was a pattern (before last week) of down Fridays and up Mondays. We went back to the down Friday in a big way, and we will see if it generates an upside Monday. It is not a total breakdown yet. It was definitely not a good day, but there is that stickiness at this point that I was talking about with respect to leadership stocks. They are down, they are coming back to test this level, but do not assume a rollover. They have been trading in this range and have shown a lot of stickiness at this level. We will see if they can continue to move higher. It is not a slam dunk or an assured fact they will break below that support level. SP500 does not look great. NASDAQ does not look that bad. It is not a raving beauty of a pattern, but there are support levels that it is still well above. It is still above this long-term support level. It stretches back over a decade, although it did not hold up through the 2008 crash. Of course not. It did not hold, but it has recovered and is trying to hold it now. We will see if it can continue to do that.

It is a battle right now. Will there be growth or will there be blood? Will the economy be able to hold up with the problems in Europe and maybe with problems here in the US? We will have to see how this test of these February lows play out this time. They have shown a lot of stickiness. There are still stocks in good leadership position. I am not ready to write it off. On the other hand, I am not saying it is a sure thing that it will move higher. Nothing is a sure thing right now. There is a lot of thrashing about here; a lot of going down one day and then up the next. Very volatile. They are fighting each over at key levels trying to determine where the market will go.

What do you do in a situation like that? You do not take every trade. We have not been doing much with trades we pick up a position here and there. Be patient, take opportunity as it presents itself, and you put a bit of money to work. The payoffs here can be big. If it breaks to the upside, you have plenty of upside. If it breaks downside and you are playing a move to the upside, you have a good stop point. If it breaks to the downside, we also have a good stop loss point and a good potential gain to the downside. Either way, this is an important point. Pick your shots, and look for good plays upside and downside. Put some money to work and see which way it breaks. We can still make money both ways. We can make money at the upside and downside as it thrashes about. Some of the good stocks continue to move higher overall despite the back and forth motion of the market. On the other hand, some of the weak stocks continue to move down overall despite the back and forth action. You can play that to your advantage, taking what the market gives. It is a bit hairier and quicker, but it can be done. Overall be patient and do not take too much of a position. Look for the really good setups. If the market moves in that direction, they will be the ones that play out the best. Have an excellent weekend.


Support and Resistance

NASDAQ: Closed at 2219.17

Resistance:
The 200 day SMA at 2234
2245 from July 2008 through 2260 from late 2005.
2275 - 2278 from the February 2008 and April 2008 lows
2273 to 2282 marks bottom of January 2010 lateral peak
2292 is a low from January 2008
2319 from the September 2008 peak
2320 to 2326.28 is the January 2010 high
2324-2370 is a range of resistance from early 2008
The 50 day EMA at 2336
2382-2395 from 2008
2412-2415 represents a series of peaks and lows in 2007, 2008
2434 is the May 2010 high
2453 is the August 2008 peak

Support:
2210 (from September 2008) to 2212 (the July 2009 closing low)
2205 is the November 2009 peak
2185 to 2195 represent support points for years: December 2004 peak, July to October 2005 consolidation, January, March and July 2008 lows, and October 2009 peak.
2177 is a low from March 2008
2169 is the March 2008 closing low (double bottom)
2168 is the September 2009, intraday peak
2167 from the July 2008 intraday low
2155 is the March 2008 intraday low
2100 is the February 2010 low


S&P 500: Closed at 1064.88
Resistance:
1070 is the late September 2009 peak
1078 is the October range low
1084 to 1080 (September 2009 peak)
1101 is the October 2009 high
1106 is the September 2008 low
The 200 day SMA at 1107
1114 is the November 2009 peak
1119 is the early December intraday high
Bottom of the January 2010 consolidation 1131 to 1136
1133 from a September 2008 intraday low
The 50 day EMA at 1133
1151 is the January 2010 peak
1156 is the Sept 2008 low
1170 is the prior March 2010 high
1174 is the May 2010 high
1181 is the April selloff low
1185 from late September 2008

Support:
1044 is the October 2008 intraday high AND the February 2010 low
1040 is the May 2010 low
1020 is the bottom of the late summer 2009 consolidation
946 from June 2009


Dow: Closed at 9931.97
Resistance:
10,120 is the October 2009 peak
10,285 is the late December consolidation peak
The 200 day SMA at 10,299
10,365 is the late September 2008 low
10,496 is the November 2009 high
The 50 day EMA at 10,543
10,609 from the Mid-September 2008 interim low
10,730 is the January 2010 peak
10,920 is the recent May high
10,963 is the July 2008 low
11,100 from the 7-08 low
11,205 is the April closing high
11,734 from 11-98 peak

Support:
9829 is the September 2008 closing high
9918 is the September 2008 peak
9855 is the early September peak in its lateral range
9835 is the late September 2009 peak AND the February 2010 low
9774 is the May 2010 intraday low

Economic Calendar

These are consensus expectations. Our expectations will vary and are discussed in the 'Economy' section.

June 01 - Tuesday
Construction Spending, April (10:00): 2.7% actual versus 0.1% expected, 0.4% prior (revised from 0.2%)
ISM Index, May (10:00): 59.7 actual versus 59.4 expected, 60.4 prior (no revisions)

June 02 - Wednesday
Challenger Job Cuts, May (07:30): -65.1% actual versus -71.1% prior
Pending Home Sales, April (10:00): 6.0% actual versus 4.3% expected, 7.1% prior (revised from 5.3%)
Auto Sales, May (14:00): 4.1M expected, 3.9M prior
Truck Sales, May (14:00): 4.8M expected, 4.9M prior

June 03 - Thursday
ADP Employment Change, May (08:15): 55K actual versus 60K expected, 65K prior (revised from 32K)
Productivity-Rev., Q1 (08:30): 2.8% actual versus 3.3% expected, 3.6% prior
Unit Labor Costs, Q1 (08:30): -1.3% actual versus -1.6% expected, -1.6% prior
Initial Claims, 05/29 (08:30): 453K actual versus 455K expected, 463K prior (revised from 460K)
Continuing Claims, 05/22 (08:30): 4666K actual versus 4600K expected, 4635K prior (revised from 4607K)
Factory Orders, April (10:00): 1.2% actual versus 1.7% expected, 1.7% prior (revised from 1.3%)
ISM Services, May (10:00): 55.4 actual versus 55.6 expected, 55.4 prior
Crude Inventories, 05/29 (11:00): -1.90M actual versus 2.46M prior

June 04 - Friday
Nonfarm Payrolls, May (08:30): 431K actual versus 500K expected, 290K prior
Unemployment Rate, May (08:30): 9.7% actual versus 9.8% expected, 9.9% prior
Hourly Earnings, May (08:30): 0.3% actual versus 0.1% expected, 0.0% prior
Average Workweek, May (08:30): 34.2 actual versus 34.2 expected, 34.1 prior

June 07 - Monday
Consumer Credit, April (15:00): -$2.0B expected, $2.0B prior

June 09 - Wednesday
Wholesale Inventories, April (10:00): 0.5% expected, 0.4% prior
Crude Inventories, 06/05 (10:30): -1.90M prior

June 10 - Thursday
Initial Claims, 06/05 (08:30): 450K expected, 453K prior
Continuing Claims, 06/29 (08:30): 4600K expected, 4666K prior
Trade Balance, April (08:30): -$41.2B expected, -$40.4B prior
Treasury Budget, May (14:00): $154.0B expected, $189.6B prior

June 11 - Friday
Retail Sales, May (08:30): 0.3% expected, 0.4% prior
Retail Sales ex-auto, May (08:30): 0.1% expected, 0.4% prior
Michigan Sentiment, June (09:55): 74.8 expected, 73.6 prior
Business Inventories, April (10:00): 0.5% expected, 0.4% prior

By: Jon Johnson, Editor
Copyright 2010 | All Rights Reserved

Jon Johnson is the Editor of The Daily at InvestmentHouse.com

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