Sunday, February 27, 2011

Market Apparently Comfortable with Libya

SUMMARY:
- Market apparently comfortable with Libya, continues the Thursday rebound.
- GDP misses its mark as government spending falls and inventories plunge.
- Michigan sentiment, while not showing good cheer, improves much more than expected.
- Some key leaders looking a bit bearish.
- News filled week sets up a rubber match for the rebound attempt.

MARKET SUMMARY


OTHER MARKETS

Dollar: 1.3751 versus 1.3803.

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


Bonds: 3.41% versus 3.45%.

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


Gold: 1409.70, -6.10

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


Oil: 97.97, 0.69

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



THE MARKET

MARKET SENTIMENT

VIX: 19.22; -2.1
VXN: 20.64; -3.03
VXO: 17.81; -2.1

Put/Call Ratio (CBOE): 0.83; -0.16

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 does not have the cash to drive it higher.

Bulls: 53.3% versus 52.2%. Bounced back up after a slight dip from 53.4%. Back up, but not surging to the upside. Bulls are still below the 55.1% hit in January and the 58.8% high on this leg. Still at a high level in a string of high readings but below the 5 year high at 62.0. Fading back from the level considered bearish, i.e. where so many are in the market and believe it is going up that the ammunition to send it higher runs low. This is where you start to be careful and watch for breakdowns, but there is also a lot of liquidity being pushed into the market and that can continue the move despite excess bullishness. The crossover level at 29% bulls is long gone, but it did its job. The high on the last leg was 56.0% after starting at 35.6% on the low in February, the lowest it has been since July 2009 . . . until this last leg. 35% is the threshold level suggesting bullishness. Again, to be seriously bearish it needs to get up to the 60% to 65% level.

Bears: 18.9% versus 19.6%. Continuing the decline after that sharp drop from 23.3% three weeks back. Well below the 28.3% in September, back at the level where they dallied for a month in December and January. The 37.7% peak at the height of the crossover is well in the rearview mirror but bears remain well below the 35% level, above which is considered bullish for the market overall. Hit 18.7% on the low in April. Hit a high of 27.8% level on the prior leg in February. For reference, cracking above the 35% threshold considered bullish. Hit a high on the prior run at 47.2%. For more 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: +43.15 points (+1.58%) to close at 2781.05
Volume: 1.817B (-9.06%)

Up Volume: 1.622B (+237.478M)
Down Volume: 266.865M (-421.486M)

A/D and Hi/Lo: Advancers led 3.92 to 1
Previous Session: Advancers led 1.51 to 1

New Highs: 91 (+39)
New Lows: 19 (-21)

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: +13.78 points (+1.06%) to close at 1319.88
NYSE Volume: 952.991M (-21.93%)

Up Volume: 815.196M (+305.743M)
Down Volume: 131.655M (-565.29M)

A/D and Hi/Lo: Advancers led 4.27 to 1
Previous Session: Advancers led 1.1 to 1

New Highs: 174 (+45)
New Lows: 16 (-15)

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

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


DJ30

Stats: +61.95 points (+0.51%) to close at 12130.45
Volume DJ30: 147M shares Friday versus 191M shares Thursday.

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


Support and Resistance

NASDAQ: Closed at 2781.05

Resistance:
2825 is the 2007 closing peak.
2841 is the February 2011 peak
2862 is the 2007 peak

Support:
2762 is the February low
2735 from late 2007 interim peak
2729 is the 127% Fibonacci extension of the August 2010 run
2725 from July 2007 interim peak
The 50 day EMA at 2718
2688 is the recent January low
2676 is the January 2010 low
2593 is the November 2010 high
2580 is the November 2010 closing high
2569 is the November gap up point through the April 2010 peak
2550 from May and June 2008 peaks
2540 is the gap up point from early November
2535.28 is the April 2010 intraday peak
2530 is the April 2010 closing peak
2518 is interim peak from April 2010
2511 is the lower range of the November gap up point
2482 is the recent October peak
2460 is the November 2010 low.
The 200 day SMA at 2432


S&P 500: Closed at 1319.88
Resistance:
1325-27 is the March 2008 closing low and the May 2006 peak
1344 is the February 2011 peak
1364 is the March 2007 low
1370 is the August 2007 low


Support:
1313 from the August 2008 interim peak
The 50 day EMA at 1288
1278 is the 127% Fibonacci extension of the August 2010 run
1275 is the January 2010 low
1227 is the November 2010 peak
1220 is the April 2010 peak
1185 from late September 2008
1174 is the May 2010 high, 78% Fibonacci retracement of April peak
1173 is the November 2010 low
1170 is the prior March 2010 high
The 200 day SM A at 1169
1156 is the Sept 2008 low
1151 is the January 2010 peak
1133 from a September 2008 intraday low
Bottom of the January 2010 consolidation 1131 to 1136
1129 to 1131 is the June and August 2010 peaks


Dow: Closed at 12,130.45
Resistance:
12,391 is the February 2011 peak
13,058 from the May 2008 peak on that bounce in the selling

Support:
12,110 from the March 2007 closing low
11,893, from March 2008 closing low
The 50 day EMA at 11,898
11,867 from the August 2009 high and peak on that bounce in the selling.
11,734 from 11-98 peak
11,452 is the November 2010 peak
11,258 is the April 2010 peak
11,205 is the April closing high
11,100 from the 7-08 low
10,963 is the July 2008 low
The 200 day SMA at 10,935
10,920 is the recent May high
10,730 is the January 2010 peak


Economic Calendar

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

February 25 - Friday
GDP - Second Estimate, Q4 (08:30): 2.8% actual versus 3.3% expected, 3.2% prior
GDP Deflator - Second, Q4 (08:30): 0.4% actual versus 0.3% expected, 0.3% prior
Michigan Sentiment -Final, February (09:55): 77.5 actual versus 75.1 expected, 75.1 prior

February 28 - Monday
Personal Income, January (08:30): 0.3% expected, 0.4% prior
Personal Spending, January (08:30): 0.4% expected, 0.7% prior
PCE Prices - Core, January (08:30): 0.1% expected, 0.0% prior
Chicago PMI, February (09:45): 67.5 expected, 68.8 prior
Pending Home Sales, December (10:00): -3.2% expected, 2.0% prior

March 01 - Tuesday
Construction Spending, January (10:00): -0.6% expected, -2.5% prior
ISM Index, February (10:00): 60.5 expected, 60.8 prior
Auto Sales, March (15:00): 3.95M prior
Truck Sales, March (15:00): 5.64M prior

March 02 - Wednesday
MBA Mortgage Index, 02/25 (07:00): +13.2% prior
Challenger Job Cuts, February (07:30): -46.1% prior
ADP Employment Change, February (08:15): 163K expected, 187K prior
Crude Inventories, 02/26 (10:30): 0.822M prior

March 03 - Thursday
Initial Claims, 02/26 (08:30): 400K expected, 391K prior
Continuing Claims, 02/19 (08:30): 3800K expected, 3790K prior
Productivity-Rev., Q4 (08:30): 2.3% expected, 2.6% prior
Unit Labor Costs - R, Q4 (08:30): -0.3% expected, -0.6% prior
ISM Services, February (10:00): 59.0 expected, 59.4 prior

March 04 - Friday
Nonfarm Payrolls, February (08:30): 180K expected, 36K prior
Nonfarm Private Payrolls, February (08:30): 193K expected, 50K prior
Unemployment Rate, February (08:30): 9.1% expected, 9.0% prior
Average Workweek, February (08:30): 34.3 expected, 34.2 prior
Hourly Earnings, February (08:30): 0.2% expected, 0.4% prior
Factory Orders, January (10:00): 2.1% expected, 0.2% prior

By: Jon Johnson, Editor
Copyright 2011 | All Rights Reserved

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

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Sunday, February 20, 2011

Market Rebounds Yet Again

SUMMARY:
- A more 'old fashioned' expiration with a return of a modicum of volatility, but in the end the market rebounds yet again.
- Sellers show up a bit more on the week as the economic data hit a soft patch.
- Even with some headline headwinds, the market rises, showing the power of liquidity.
- Overall the indices hold the trend, remain in great shape, but more stocks are struggling as the market extends its move.
- Will the unrest in some of the market leaders spread similar to the unrest in world?

MARKET SUMMARY

Stocks continue the incredible rally, displaying the power of liquidity.

I will start with the SP500 because this was one heck of an impressive rally. It started back in August, rallied into November, had one correction, and then made a long, straight knife to the upside. A nice 45-degree angle rise, showing no signs of wear and tear even as it becomes further and further extended. There is the no way but "extended" to describe what is happening, although we are getting more sessions with sellers showing up. Even when the sellers do show up, as they did on Tuesday and Thursday, the buyers use the opportunities to move in and buy.

Looking at the intraday chart on Friday, it was a return to an old-fashioned expiration Friday with a bit of volatility and a bit of volume. Stocks were flat as a pancake to start. They rallied positive, sold off to negative, and then the irrepressible buyers came back in and bought into the close. President's Day closes the markets on Monday, and I said there might be some profit taking ahead of the three-day weekend. Selling started in the afternoon after the early rally into lunch. We were taking part in that profit-taking as well.

We anticipated there might be some pullback, so we were going to take gain on another rally to the upside. We booked nice gain on stocks such as BC, CAT, NVLS, TROW, and ZOLL. There were lots of great moves out there and a lot of great gain to take. We took it because this market is incredibly extended. It could be even further extended two weeks or a month from now. I don't know if it will break down. I do know that sellers are showing up more and more of late. There are trying to mess with the market a bit, but they have not been that successful. The market did gyrate up and down a bit with a modicum of volatility on Friday (in the real world this is not much volatility at all). Nonetheless, the market continues to the upside.

It was not a great day for stocks. Indeed, not all the indices managed to finish positive. NASDAQ, +0.1%; SP500, +0.2%; Dow, +0.6%; SP600, +0.3%; SOX, -0.4%, NASDAQ 100, -0.2%. It was not a great day, but it was a continuation of the same theme. Sellers are trying to show themselves a bit more, but they have no strength. As soon as the market dips, the buyers move in and drive stocks back to positive. They even threw in a little inverted head and shoulders in the afternoon to give the warning that it would try to rally into the close.

The news was not that great this week. There is the spreading unrest in North Africa, the Middle East, and even in Mexico. On Friday it was fanning out. Jordan was hot again, and we know Bahrain is a problem. There are more issues inside of Iran as the government there vows to kill traitors to the country and is threatening mass executions of protesters. They are not wasting any time this time around. Kuwait is now joining the problems, and they are also spanning out west in Africa all the way to Nigeria. We could see it happen in India, Pakistan there is no telling how far this could go, but the market continued higher.

I noted sellers were coming in somewhat as the US economic data softened. Retail sales did not come in as well as anticipated. Empire Manufacturing was solid but not as good as expected. Import prices rose a lot more than we wanted to see, and that was not a good indication as we have to spend more for our goods and services. Housing starts were fine. Permits were down. They did a flip-flop from the prior month, so we are calling that a wash for now.

The PPI was much too hot with the core rising 0.5% and 1.6% year-over-year. Industrial production and capacity for January were much less than expected. Not positive. Initial claims bounced back over 400K the sub-400K read was too good to be true. The CPI came in hotter than expected at 0.2% versus 0.1% expected. That does not seem like much, but it was also up sharply year-over-year. Prices are no doubt moving up.

The Philly Fed was strong as manufacturing shows it is still the leader just as it was at the start of this recovery. Overall, the news was a bit sluggish compared to the crisp gains we have seen to this point. The sellers tried to use that to push the market back on this soft patch in the data. They were not successful, but they are showing up now. Sometimes where there is smoke there is fire, particularly with a market that looks like this. This is unsustainable, and at some point it will break. We do not know when. We are seeing issues, but there have been issues with this rally several times over the past two months. They start to erode, and then things fall. I will talk about that more later.

Even the with these headwinds, the market was rising. It is a tribute to liquidity rather than the great business environment that is out there right now. It is not a great environment for business. States still have to find ways to make ends meet. They are in the initial stages of cutting their budgets, and look what has happened in Washington: an AWOL estate government. That is not what the people elected them to do. The people elected their representatives, and they need to represent them like an adult. You do not act like a child when things do not go your way by picking up your marbles and running home. We do not do that in the real world.

The problem we see in Wisconsin happened in Texas in 2010. The minority parties were voted out because the electorate said they are tired of this nonsense. If they continue this, there is going to be a problem. The irony of it is the people in most of the country are behind what the governor is trying to do. He is trying to tell public workers that they have to pay for some of this healthcare cost just like everybody else.

You can understand some of the angst the teachers are having, however, because they cannot go anywhere else. Their pensions at those local school districts are non-portable. If they want to go to a better place, they have to start from scratch. The system is definitely broken, and they are trying to fight for their livelihood. At the same time, the rest of the state feels this is all on their backs and they need help with the cost. There is a tension here that is not going to go away, and we will see it spread across the country.

Frankly, I think this is a good tension. We have to throw off the yoke of the federal government dictating how our school systems works, how healthcare should be used and purchased, and dictating every other aspect of our lives that it is not supposed to be in. That is why we are in all of these problems right now. I hate to paint with such a broad brush, but the federal government is involved in areas it should not be. The founding fathers were smart enough to write the Constitution to keep them out of it. We were too smart for our own good and have circumvented the Constitution. We have not changed things by amendments like we should; instead we are using legislative edict and courts that are too willing to let unconstitutional matters pass muster.

But I digress as always. We have issues approaching, but the market is still moving higher because of that liquidity. Every time there is a dip, the buyers return with enough vigor to keep a steady uptrend in place. Very impressive in a case history of the power of liquidity.


OTHER MARKETS

Dollar: The dollar continues to struggle (1.3698 Euro versus 1.3604 Thursday). It rebounded up to resistance, and now it is folding back over and selling. The commodity prices are rising once again. Everything denominated in dollars cotton, corn, wheat, oil costs us more as the dollar declines. At the same time, there is the other pressure from inflation of massive amounts of liquidity. That is driving inflation as well.

We have the double maybe triple whammy of getting crushed by this inflation that comes in many forms. That is why people are rioting in North Africa and the Middle East. They cannot afford food. People in the US are protesting because they are concerned about their future again. They see the writing on the wall. They know that their futures are threatened by what is going on. We have spent decades kicking the can down the road and hoping things would get better. Now we have a problem.

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


Bonds: Bonds were flat on the session (US 10 year 3.58% versus 3.57% Thursday). They were rallying this week, and there was no reason for them to rally. With inflation and a supposedly stronger economy, they should be selling. They have been trending lower for the most part.

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


Gold: Gold had a very good week, and it was up a bit more on Friday ($1,389.20, +4.10). Gold broke through the 50 day EMA and has continued up to this next resistance point. There is a shelf of moderate resistance here. Obviously the heavy resistance is the tops spanning November into late December. It is a strong move by gold, driven by fear of what is going on in the world, not to mention inflation.

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


Oil: Oil was down slightly on Friday, although it tried to rally big time ($86.20, -0.16). Inflation and US dollar are both impacting how oil trades. After getting beaten up in the first part of the week, it bounced off support and is holding in its range. It may still try to trade to the top of its range once more. Oil is definitely a range-trading product right now. It has a range, it breaks out of that range, trades in a new range, and then it breaks again. The one constant is that it is holding very high prices.

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


TECHNICAL SUMMARY

INTERNALS

Volume. Volume was stronger. NASDAQ volume rose almost 9% to 2B shares. NYSE volume jumped 32% to 1.1B shares. Recall it has traded lower most of the week as the market moved higher. Not a good indication. Does this mean there was buying on the dip? There was, but this is expiration volume. This is more like the old-fashioned expirations, although there was not that much volume. It did pick up on the session along with volatility.

Breadth. The advance/decline line was rather boring. It was flat on the NASDAQ, and it was 1.4:1 on the NYSE. Very sedate. It is not telling us anything other than it is harder for the market to keep it going. It is hard to keep putting gain after gain in and keep the kind of energy necessary. That piano on the back gets heavier and heavier, and you have to find more and more buyers. There have not been enough sellers to trip them up. They are starting to show up more, but they have not had the strength to do anything about it. They talk and complain, but they do not have enough strength to push them back.


CHARTS

SP500. The SP500 is heading straight to the upside, approaching resistance. 1364-1370 is a key point from 2007. It has been mowing everything down thus far. It has about 20 points before it hits the next real resistance point, and it could easily make it at the rate it is going. There is nothing to stop it right now. Something will eventually stop it, but it has not found what that will be just yet. World unrest: Who cares? Inflation: Give me a break. You know what ultimately will stop it? When the Fed says it will raise interest rates.

NASDAQ. NASDAQ went nowhere on the day, showing a very tight doji. Does this doji signal the end? No. The other doji did not signal the end either. These are more continuation moves. They have not told us a lot. One thing we do know is that MACD is lagging behind. I am looking at the highs from January. MACD was poking along and trying to make new highs, and they have not even made the attempt on the last rally. The momentum is waning, no doubt, but the sellers have not had the temerity to step up and try the challenge any of the buyers. Those that did got their heads taken off and handed back to them.

SP600. SP600 gained, but it was all in a gap. This is a more interesting gap because it gapped to a doji and it was at the prior high from Thursday. We will see what happens. It is a possibility we get a sell back here. The small caps did lag the move, and then they caught up and actually showed some leadership toward the end of the week. It is hard to argue with the pattern. Rally, long consolidation, and a new rally. Technically you cannot get much better than that.

SOX. SOX was down on the session, dropping almost 0.4%, but it was well above the 10 day EMA and well within the uptrend. I do not see any issues, but there are problems with some individual stocks.


LEADERSHIP

Financial. Financials look just fine with JPM posting a modest gain. GS is holding at the 20 day EMA and bouncing a bit. WFC struggled some, selling on more volume. There is a bifurcation even inside solid sectors.

Industrial. CAT surged to the upside on big volume. We took excellent gain on it. JOYG is running to the upside on volume. CMI is struggling, selling on some volume. This is an engulfing day. It gapped to the upside and then rolled over, swallowing up that prior session on the high and the low. That is an engulfing pattern. It looks like it could move down to this support level.

We are looking at about 104, and the stock is trading at 110. The high on the day was 112. You have roughly 3:1 if you use that high, although the real resistance is up higher. It is not that perfect, but there is a double top in place and a divergence. It is interesting. Within strong sectors there are the strong and the weak.

Technology. AAPL was down sharply. GOOG was up. FFIV was down. RAX is setting up nicely for a gain.

Metals. FCX is diving lower. Copper is struggling. REE was selling hard on Friday. On the other hand, STLD had a great week. It reversed on Friday. We have a little engulfing pattern here, something of a divergent top. It might be good for a play down to this support level, but that does not give you much room. 19.25 from 20.25 is a tough area to make any money on. AKS almost put in its own engulfing pattern as well, trying to reverse a very solid week. We see strength and then turns. Is it just expiration messing around with some good stocks, or is there something more here?

Semiconductors. Semiconductors were down on Friday, but they are strong overall. ARMH had a nice, easy pullback. Look what happens when it makes these nice, easy pullbacks: there is a doji sitting right on the 10 day EMA. No divergence in MACD as it continues to move up with the stock price. SMTC had a good end to the week. After a nice lateral move there was a big gap to the upside. You have to love those kinds of plays. Some people did not think this was so hot, but it just had the right attributes. There was a good accumulation period. We saw what we liked at this break to the upside. It looked like it was ripe, we picked it up, and we are being rewarded thus far.

INTC announced that it will build a big plant in Arizona and hire 4K people. It gapped to the upside with a new rally high. It does not hurt any of the chip equipment makers when INTC says it will spend that kind of coin.

Agriculture. Agriculture stocks were down. MOS had an engulfing pattern, but it is tough to play it. The 50 day EMA that acted as support on the-pullback is really close at hand (less than five clicks). At the price of these options, it is hard to make any money on that play. AGU had a tough day as well. It was heading down to try its 50 day EMA as well. POT is struggling, coming back to the 20 day EMA. These may set up little ABCD patterns and bounce back. We will have to see. It shows there is some unrest even among the leaders. You saw some good-moving metals that reversed sharply on Friday. Some great agricultural stocks are turning over hard. There is a split in technology.

Retail. Retail looks solid. ZUMZ is working laterally at a nice shelf of consolidation over the 50 day EMA. It may give a bounce. ANN is trying to do the same. Volume is kicking up. It may be expiration volume, or maybe there is something else there. We will see if it makes the break. EAT is setting up a triangle or pennant here. It is tightening up and looking decent. LULU is moving laterally in a tight range as well.

Retail overall looks good. The financials overall look solid. Then there are splits in a lot of the other sectors. Leadership is still solid, but it is having a harder time of it. That makes sense when you have a market that has run as hard as this one. It is harder and harder to find those buyers to come in and keep pushing the leaders to the upside. Nonetheless, we keep seeing good setups. You can be torn between getting worried about stocks starting to break down versus the stocks that are still setting up for good upside moves.


THE MARKET

MARKET SENTIMENT

VIX. Volatility is holding at the low levels it hit over past month and a half, but also note it was bouncing up and down intraday. It was very volatile intraday the past three sessions. Looks like it has happy feet; it is nervous and wants to make a jump. That is just one thing we are watching. It suggests that the market may be ready for a pullback. Not to mention that long, 45-degree line it has drawn as well.

VIX: 16.43; -0.16
VXN: 17.9; -0.32
VXO: 14.37; -0.72

Put/Call Ratio (CBOE): 0.92; +0.2

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 does not have the cash to drive it higher.

Bulls: 52.2% versus 53.4%. Even as the market rallies bulls are cautious, not rushing higher. With their uncertain steps, bulls are still below the 55.1% hit a month back and the 58.8% high on this leg. Still at a high level in a string of high readings but below the 5 year high at 62.0. Fading back from the level considered bearish, i.e. where so many are in the market and believe it is going up that the ammunition to send it higher runs low. This is where you start to be careful and watch for breakdowns, but there is also a lot of liquidity being pushed into the market and that can continue the move despite excess bullishness. The crossover level at 29% bulls is long gone, but it did its job. The high on the last leg was 56.0% after starting at 35.6% on the low in February, the lowest it has been since July 2009 . . . until this last leg. 35% is the threshold level suggesting bullishness. Again, to be seriously bearish it needs to get up to the 60% to 65% level.

Bears: 19.6% versus 23.3%. Bulls fell but bears plunged. The rise is over as they fall to levels hit a month back. Well below the 28.3% in September, back at the level where they dallied for a month in December and January. The 37.7% peak at the height of the crossover is well in the rearview mirror but bears remain well below the 35% level, above which is considered bullish for the market overall. Hit 18.7% on the low in April. Hit a high of 27.8% level on the prior leg in February. For reference, cracking above the 35% threshold considered bullish. Hit a high on the prior run at 47.2%. For more 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: +2.37 points (+0.08%) to close at 2833.95
Volume: 2.054B (+8.7%)

Up Volume: 1.095B (-94.98M)
Down Volume: 974.364M (+227.324M)

A/D and Hi/Lo: Advancers led 1.06 to 1
Previous Session: Advancers led 1.48 to 1

New Highs: 250 (+35)
New Lows: 16 (-11)


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: +2.58 points (+0.19%) to close at 1343.01
NYSE Volume: 1.161B (+31.76%)

Up Volume: 569.029M (-29.087M)
Down Volume: 566.554M (+295.582M)

A/D and Hi/Lo: Advancers led 1.39 to 1
Previous Session: Advancers led 1.88 to 1

New Highs: 388 (-283)
New Lows: 16 (-231)

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

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


DJ30

Stats: +73.11 points (+0.59%) to close at 12391.25
Volume DJ30: 230M shares Friday versus 130M shares Thursday.

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


TUESDAY

The market is closed on Monday for President's Day. We start on Tuesday with the Case/Shiller and a little consumer confidence. Those are always important to get a lay of the land. Confidence is expected to rise, but it is still at pathetic levels. We are just above the levels of flat-out recession.

Existing home sales are coming out, and they will be very important for the week. That is 80% of the market, and we have to see how they are doing and what the home inventories are. We also have initial claims and durable orders. Then the new home sales come out. They will be important as well because they typically require new furniture and all the other things that go in a new home.

Friday brings Michigan Sentiment and the GDP second estimate. It will be curious to see if it will bump up. Those imports and exports all play into that. We cannot put too much into this. I would suggest that 3.3% is likely overstated. Unrest over the weekend will also factor in. I am not talking about overseas necessarily; I am talking about Wisconsin and other states where they have to make some tough decisions.

Next week we come back from a holiday, and you always have to be somewhat concerned about that. Markets can change over holidays, and we have seen it many times in the past. This market is potentially at an inflection point. It has had a long run. There are stocks having more trouble now than in the past. Not that they are breaking down, and not that we are seeing the market struggle overall. The indices are still moving up, and they are made up of individual stocks. Just as there is concern that the unrest in the world will continue to spread, I wonder if the issues seen in a few of our stocks are going to grow and spread as well. Will we see these great stocks start to fall over? That is a big story that would be the changer for this uptrend.

Our game plan is to be very careful and watch for in your ear like Shoeless Joe Jackson tells us. We have a lot of plays to the upside right now. That is one reason we were taking nice gain off the table all week, and especially on Friday. We were banking more big gain to put in our hip pocket. If that one in the ear comes, we will be ready to get out of the way. If it comes down the middle, we will hit it.

That means we will continue to look for good plays. There are still great setups out there. If the market continues to shrug off the inflation problems and the unrest overseas, we will not sit in the background and watch the market continue to moves. No, sir, we will be in there just as we have been all along. We will take our cuts and drive those big fat ones coming down the middle into center field. Maybe we will not hit home runs on these although it sure looks that way with the returns. We will be happy with singles and doubles; those will drive in a lot of runs.

The point is we will continue to look for opportunity because the trend has not changed. You cannot look at the chart of SP500 and say that you have to fear that. It is a love/hate relationship right now because it has gone so far and you do not have as many great entry points. With that kind of trend, it is tough going if you try to short this with no reversal and test back to give a good entry point. That said, we will be ready. We have the Boy Scout motto in mind. I participate with the Boy Scouts quite a bit, and I have a son who will be an Eagle Scout at age 14. I am very proud, and I want to always be prepared as well.

We will watch for that downside. If the opportunities set up and they are starting to we can take advantage and make money. We have gotten our heads chopped off on a few of them, but we look at them as hedges. If the market turns over, we will make good money on them. We have WHR right now. It had a bit of an up day on Friday, but it has been heading lower for us. There are others that will be heading down. NTGR looks like it will roll over for us. Maybe we should have been in on it today. We will get it early on Tuesday if we need to, and we will look for more of these. We will have them in our back pocket. Maybe in our hand, too, ready to fling them out there.

It is a time to be cautious. It is not time to load the boat on any one play because markets in transition can be very tough. You can be surprised at how the market continues to move higher, but sometimes you see your account suddenly whittling back somewhat. We look a bunch of gain, so that will help. You can understand that if a few of these areas start to erode and do not recover, it starts to have an impact. That is why you take gain on the way.

In any event, the old game plan is to continue taking advantage of the trend in place and to be ready for changes. Opportunity presents itself in many ways now, and we will be ready. You cannot have long uptrends last forever, as FFIV showed. Have an excellent weekend and a great President's Day. Remember those truly great Americans that started this country.

Sometimes we seem to use them like punch lines instead of understanding how truly great they were. If we could capture some of that greatness in our lives and put that example out for everyone else, just think how fantastic we would be. We could recapture the spirit of patriotism, the entrepreneurial spirit, and our individuality. We could pull ourselves up and make this country great by ourselves without having to look to big government.

The government did not build this country; we did. We need to take it back and make it great again. By being a success in the stock market, you are taking charge of your life. If you take charge of your life, you do not need to look to the government. Ron Paul has asked if you would pay 10% just to get the government off your back. Every year, 10% of what you make is just a kind of toll to go about living in the country with no other benefits or services. You benefit naturally from the infrastructure, the defense, and the things the government is supposed to do under the Constitution, but you would not participate in Social Security, Medicare, etc.

You know what line I would be standing in. I think you would be in that line with me because of the kind of people you are. You are taking hold of the reins because you are stock market traders who know what you are doing. That is where all of the founding fathers were, and that is where we need to be, too. Have a great weekend. I know I got up on the soap box, but I think it was somewhat important. Enjoy yourselves and I will see you on Tuesday.



Support and Resistance

NASDAQ: Closed at 2833.95

Resistance:
2862 is the 2007 peak

Support:
2825 is the 2007 closing peak.
The 20 day EMA at 2780
2762 is the February low
2735 from late 2007 interim peak
2729 is the 127% Fibonacci extension of the August 2010 run
2725 from July 2007 interim peak
The 50 day EMA at 2713
2688 is the recent January low
2676 is the January 2010 low
2593 is the November 2010 high
2580 is the November 2010 closing high
2569 is the November gap up point through the April 2010 peak
2550 from May and June 2008 peaks
2540 is the gap up point from early November
2535.28 is the April 2010 intraday peak
2530 is the April 2010 closing peak
2518 is interim peak from April 2010
2511 is the lower range of the November gap up point
2482 is the recent October peak
2460 is the November 2010 low.
The 200 day SMA at 2438


S&P 500: Closed at 1343.01
Resistance:
1364 is the March 2007 low
1370 is the August 2007 low

Support:
1325-27 is the March 2008 closing low and the May 2006 peak
The 20 day EMA at 1316
1313 from the August 2008 interim peak
The 50 day EMA at 1284
1278 is the 127% Fibonacci extension of the August 2010 run
1275 is the January 2010 low
1227 is the November 2010 peak
1220 is the April 2010 peak
1185 from late September 2008
1174 is the May 2010 high, 78% Fibonacci retracement of April peak
1173 is the November 2010 low
1170 is the prior March 2010 high
The 200 day SM A at 1165
1156 is the Sept 2008 low
1151 is the January 2010 peak
1133 from a September 2008 intraday low
Bottom of the January 2010 consolidation 1131 to 1136
1129 to 1131 is the June and August 2010 peaks


Dow: Closed at 12,391.25
Resistance:
13,058 from the May 2008 peak on that bounce in the selling

Support:
12,110 from the March 2007 closing low
The 20 day EMA at 12,135
11,893, from March 2008 closing low
11,867 from the August 2009 high and peak on that bounce in the selling.
The 50 day EMA at 11,858
11,734 from 11-98 peak
11,452 is the November 2010 peak
11,258 is the April 2010 peak
11,205 is the April closing high
11,100 from the 7-08 low
10,963 is the July 2008 low
10,920 is the recent May high
The 200 day SMA at 10,906
10,730 is the January 2010 peak


Economic Calendar

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

February 22 - Tuesday
Case-Shiller 20-city, December (09:00): -2.4% expected, -1.59% prior
Consumer Confidence, February (10:00): 67.0 expected, 65.6 prior (revised from 60.6)

February 23 - Wednesday
MBA Mortgage Index, 02/18 (07:00): -9.5% prior
Existing Home Sales, January (10:00): 5.23M expected, 5.28M prior

February 24 - Thursday
Initial Claims, 02/19 (08:30): 410K expected, 410K prior
Continuing Claims, 02/12 (08:30): 3900K expected, 3911K prior
Durable Orders, January (08:30): 3.0% expected, -2.3% prior (revised from -2.5%)
Durable Orders ex Transports, January (08:30): 0.6% expected, 0.8% prior (revised from 0.5%)
FHFA Housing Price I, December (10:00): 0.0% prior
New Home Sales, January (10:00): 310K expected, 329K prior
Crude Inventories, 02/19 (11:00): 0.86M prior

February 25 - Friday
GDP - Second Est., Q4 (08:30): 3.3% expected, 3.2% prior
GDP Deflator - Second Est., Q4 (08:30): 0.3% expected, 0.3% prior
Michigan Sentiment - Final, February (09:55): 75.1 expected, 75.1 prior

By: Jon Johnson, Editor
Copyright 2011 | All Rights Reserved

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

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Sunday, February 13, 2011

Mubarak Quits for Real and the Market Rallies

SUMMARY:
- This time Mubarak quits for real and the market does the same thing it did on the dry run: rally.
- Treasury proposes 'winding down' FRE, FNM . . . very slowly.
- Foreclosures down again.
- Michigan Sentiment continues to improve
- Market does the improbable again, i.e. extending its rally beyond most traders' comfort level.
- Extended and moving into next resistance, but big and little names continue to jump higher.

MARKET OVERVIEW

After a trial 'resignation' stirs up more trouble, the military shows you who is in charge in Egypt. Oh yes, and stocks like what they hear.

Thursday night I pondered if the market would sell on Friday since Mubarak did not really resign. Everyone thought he would resign, including the State Department, all of the administration, and thousands of people in the street. It definitely sounded that way when he began his speech. Once it became apparent that he was not quitting, the market started to sell back and futures were down after hours.

We were wondering if it would sell, and it was selling in the morning. Futures were lower. After the dry run of the resignation on Thursday, the military showed us who is actually in charge in Egypt. They politely told Father Mubarak that he better officially resign. The people in the street would not stand for it, and the military did not want to fire upon their own citizens. From the safety of his summer residence, Mubarak then sent his VP out to say that this time, no fingers crossed, he was resigning. When that happened, the market took off to the upside. It was enjoying itself with a nice run through mid-morning.

It set up a strong surge mid-morning. A pullback, a lower high, a lower low, and a little ABCD pattern. It had the expected response. It broke back to the upside and the market rallied into the close, posting gains on top of gains. NASDAQ +0.7%; SP500, +0.5%; Dow +0.35%, SP600, +1%; SOX, +0.8%. Very solid moves indeed.

Looking at the chart, after a test to the 10 day EMA on Thursday and a gap lower on Friday, buyers stepped back in and bought the stock market once more. The market continues to do the improbable, and that is to continue rallying after a run that has now equaled the August-November run. It is making traders extremely uncomfortable to see stocks continuing to surge to the upside. CAT bounced back to the upside on Friday, and WYNN surged to the upside as well. This is on top of moves Thursday that were very impressive from stocks such as JNPR and WFMI. There were moves all across the market from many different sectors Thursday and Friday.

It is not just a big rush higher; there are very selective stocks making great moves, but everything is generally drifting to the upside. The market move is extended, but how many times have I said that the market will surprise you in how far it will rally. It will go beyond rational thought and continue to the upside. Recall when they talked about the internet bubble that just had to burst. It was totally irrational, and there were people not buying into it because they said it had to break. Of course it had to break but, as they say, timing is everything.

Many people also like to say you cannot time the market. What they are really saying is, "We do not want to TRY to time the market." Are we really timing the market, however? No. We are letting the market tell us what to do. We may believe it is topping. We even tried some downside plays on the QQQQ and the SPY, but those lasted about a day before we were out of them. You see it set up and you have a good risk/reward position, but you get out if it does not work.

That is exactly what happened. And what has happened since then? The market has rallied to the upside, thank you very much. Those who do not want to participate are missing out on the great moves we are all enjoying.


OTHER MARKETS

Dollar: The dollar continued to the upside. It had a very strong day on Thursday, and it continued on Friday. Recall that on Thursday there were issues in Europe with Portugal as well as the UK. That helped bolster the dollar versus the pound and basically every other currency. It was still moving higher on Friday, but it was not about to hold all of its gains. It came close to the 50 day EMA and pulled back, but the dollar still put in a decent performance (1.3547 Euro versus 1.3595 Thursday).

The dollar continues to bounce off of this support level. It is coming up toward a resistance point, and it is actually starting to bump into a range of resistance. The US economy is apparently improving, and there was more evidence of that on Friday. That was helping the dollar look better and better. The US economy is looking better versus some of the emerging markets that are threatening to have some runaway inflation. It is not even emerging markets in some cases; the UK saw a big 3.6% spike in inflation just as recently as December. Ouch.

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


Bonds: Bonds rallied back (10 year 3.63% yield versus 3.70% Thursday). A modest bounce underway, but the bigger picture is bonds have been killed after the Egyptian news broke and we found out it was not as bad as anticipated. There was a lateral move here because the bond market was anticipating something was going on. It was not sure what, and it turned out to be Egypt. It moved laterally, ready to bounce if the news was really bad. It was not, and it broke below in range. Now it is trying to rebound a bit. It is in a relief move at this point.

The treasury came out with its plan to "wind down" Fannie Mae and Freddie Mac. That helped bolster interest rates a bit and made things look better from the US standpoint. Some investors decided to put money in bonds as well, but it is just a little reallocation. Not a lot of sense there, but that is what we were hearing from our friends at the bond desks.

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


Gold: Gold has had a nice bounce back to the upside during the crisis in Egypt. That was a fear thing. There are also some inflation worries too, as we saw from the EU. The problem is that it has run into resistance. We will see if it can plow through. If the US economy continues to improve, that would suggest there might be inflationary pressures based on the way the Phillips curve folks read economic activity. In reality, economic activity does not breed inflation in itself. It just depends on whether the road to recovery has been skewed to push demand over supply.

That might be the case. There are a lot of small businesses were we supply a lot of the goods and services, and they have not been doing so well. There is a little US worry of inflation, but the emerging market inflation is the main concern. Gold had a good run, but then on Friday it hit some headwinds as the Egyptian story unfolded more favorably and took some fear out of the market. Gold dropped a bit ($1,357.20, -5.30). No big turn. It is just trading around inside of its range right now.

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


Oil: Oil also lost ground because the Egyptian fear story was dying down ($85.55, -1.18). Oil is back down, trading close to where it was before the Egyptian story broke. Remember, it was falling rapidly at that time. It was not because the word was falling apart. Oil just ran to the top of its range, got a bit extended, and it bounced down toward the bottom of its range. The dollar was rallying during the same time. As the dollar rallies, it takes fewer dollars to buy each barrel of oil and the price declines.

Recall the vicious cycle we were in last year and the year before. The dollar was diving lower every day, and the price of a barrel of oil rose every day. It was a double whammy where the oil had cost more and we could buy less of it. It was a multiplier, and it was a pernicious form of price inflation. Now we are getting a breather, but just a little one.

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


TECHNICAL SUMMARY

INTERNALS

Volume. Volume was a bit lower. It spiked to 2.4B shares on NASDAQ Thursday. It fell to 2B on Friday down 15%. On the NYSE, it fell as well, though only a couple of percentage points to just below 1B shares.

Breadth. Breadth was decent at 2:1 on the NASDAQ. Much better at 2.7:1 on the NYSE thanks to the small caps leading with that 1% gain.


CHARTS

SP500. SP500 is on its second leg of this breakout run. It has now put in as much time and distance to the upside as the prior run. You would anticipate some kind of pullback, but as noted, it is not showing any signs of weakness in the armor. There may have been some churn late in the week, but Friday it bounced right back up to a new rally high. Unbelievably impressive.

NASDAQ. NASDAQ was impressive as well. It gapped lower but reversed on Thursday. Then it gapped lower but reversed to a new rally high on Friday. Strong volume on both sessions. After a lateral move, that was just a little trading range; it was about half the depth of the November correction/consolidation. NASDAQ is off and running to new highs. Hard to argue with what is happening in these indices.

SP600. SP600 broke to a new rally high as well. It bumped its head four straight days at the 430 level and then broke through. Of all the indices, the SP600 has been in the best consolidation. A nice lateral trading range, it has broken out, and it is moving higher on strong volume Thursday and Friday. I know some will say that is not strong volume, but I say that relative to other volume.

SOX. Semiconductors were coming back to life as well. They tested a bit longer with a 1-2-3 pullback. They are on the way back up. No new high on Friday, but it is aiming at one.

While the SP500 looks extended in a straight run, the NASDAQ, SP600, and SOX show some volatility. They have shown some lateral movement and have consolidated somewhat to put a shelf to support the run higher. That looks to be what is happening in the market.


LEADERSHIP

Financial. Financials had a big day. JPM was racing to the upside with a 2.2% gain. Not bad. GS did not have a great day, but it was trying to set up and move. WFC bounced off the 18 day EMA. Financials were enjoying the upside, continuing their trends yet again.

Industrial. Industrials were moving well. CAT broke to a new rally high. An incredible run. DE is running, though not as fast as CAT. Who would have thought a cat could outrun a deer? They are both trending higher quite nicely.

Agriculture. Agriculture is doing well; slow but steady. It started this move back in late January. AGU is moving to the upside. POT broke out of a week-long lateral consolidation and started to rally. No complaints there.

Semiconductors. Semiconductors remain solid. SMTC broke higher. Nice pattern and good volume on Friday. We picked up some of that. YGE had a nice bounce. A handle and good volume to the upside. SIMO continued its substantial break to the upside.

Medical. ISRG was breaking out of a lateral consolidation after the breakaway gap. We bought into it before the gap and loved it. The stock is in a comeback mode because it has a long base behind it. It gapped higher and made us a bunch of money. It moved laterally at this next resistance point and started to break higher again. Good volume. No issues with that.

China. China is looking decent. CTRP is interesting. Hard to tell exactly what this is, but it is worth watching. It is getting volume to the upside. It is definitely holding this level at 41. It bounced up there and could not move through. It spent over a month at that level. It came down and held it. There was that big day where it reversed and came back up. Now there is a big reversal, another big reversal, and now back to the upside. Very interesting action. You always watch for these kinds of signals when you see a stock at what appears to be an important level. That shows you buyers are pushing in.

They tried to sell it off in early January or late December, and it had no follow-through. It reversed right back up and rallied. Then they tried to sell it through that level again. Big downside day, but it reversed right back up. It tried to come back down this week, but it was popped right back to the upside on each day it went down. Watch that kind of thing. That tells you where the important levels are. If you get enough buying momentum behind it, you can see a break to the upside.

ASIA broke this long downtrend line with a nice gap and rally. It held the 200 day EMA and it looks like it is starting to move back up. Interesting. Chinese stocks are performing well even after the rate hikes. A lot of them have already run higher. We are just looking at some that have not made those big moves yet. We are trying to pick out what will be the next group of leaders.

Technology. AAPL had a great week. It ended up flat, but it held its gains. It is indicative of the move that the NASDAQ made, fighting off the gloam. GLD had a nice pullback flag pattern. It gapped through some resistance and is coming back to test. Look how it tapped at the 20 day EMA on the low and reversed. Always be watching for those kinds of moves. It was a day similar to Thursday.

While the market overall is moving up, a lot of the stocks are just moving in a nice, steady manner. There are some stocks, however, that have been blasting to the upside. The market appears to be extended overall. It may make traders a bit uncomfortable given the risk/reward, but we will not sit out and let it go by when we see really good moves in a market that is running more than we think it should. I have often said that is just what a market does.


THE ECONOMY

To view the Economy video click the following link:

Flash: http://investmenthouse1.com/ihmedia/f/eco/eco.html



THE MARKET

MARKET SENTIMENT

VIX. The VIX is back down to the level it has hit three times over the past month and a half. The market has continued to the upside, more or less, during that period. There has been a bit of volatility outside the SP500. The SP500 has made a fairly straight shot to the upside. It has not shown any real selloff. It did have a big jog lower one day and a test to the 10 day EMA another day, but that was it. There is no real volatility here. That makes me wonder if we should put much stock in the fact that the VIX is back down to levels it hit earlier this year and in April before the market was in a deep selloff during the summer. I have my thoughts about that.

Volatility can indicate there might be a pullback coming. The market does need a correction. In November, however, the market never reached this level when it started the last correction. Do we really want to put too much emphasis on the fact that it is down at this level again? It has not corrected since it has been down here. It can, but what do we have? We have a stock market that is extended. With the VIX hitting those lows, it may foretell a much needed correction from this run straight to the upside.

Overall, however, I do not believe that VIX is saying anything about the long-term effects of the rally. It had a good base. There has been one run, a test, and now a second run. I think another test will come. The VIX is not saying this will be the last run at all. Volatility can remain low for a long time. As long as it is declining as the market is rallying, there is no major selloff in the works.

VIX: 15.69; -0.4
VXN: 17.18; -0.73
VXO: 14.27; -0.36

Put/Call Ratio (CBOE): 0.82; +0.05

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 does not have the cash to drive it higher.

Bulls: 53.4% versus 52.7%. After dipping a week the bulls are on the rise though still below the 55.1% three weeks back. Down from 58.8% high on this leg. Still at a high level in a string of high readings but below the 5 year high at 62.0. Fading back from the level considered bearish, i.e. where so many are in the market and believe it is going up that the ammunition to send it higher runs low. This is where you start to be careful and watch for breakdowns, but there is also a lot of liquidity being pushed into the market and that can continue the move despite excess bullishness. The crossover level at 29% bulls is long gone, but it did its job. The high on the last leg was 56.0% after starting at 35.6% on the low in February, the lowest it has been since July 2009 . . . until this last leg. 35% is the threshold level suggesting bullishness. Again, to be seriously bearish it needs to get up to the 60% to 65% level.

Bears: 23.3% versus 22.0%. While bulls may be getting back their strength, bears are not as sanguine about the market's prospects. Still below the 28.3% in September, but up from the 19.1% level where they dallied for almost a month. The 37.7% peak at the height of the crossover is well in the rearview mirror but bears remain well below the 35% level, above which is considered bullish for the market overall. Hit 18.7% on the low in April. Hit a high of 27.8% level on the prior leg in February. For reference, cracking above the 35% threshold considered bullish. Hit a high on the prior run at 47.2%. For more 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: +18.99 points (+0.68%) to close at 2809.44
Volume: 2.033B (-15.6%)

Up Volume: 1.285B (+157.37M)
Down Volume: 761.223M (-530.126M)

A/D and Hi/Lo: Advancers led 2.13 to 1
Previous Session: Advancers led 1.07 to 1

New Highs: 234 (+61)
New Lows: 27 (-1)


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: +7.28 points (+0.55%) to close at 1329.15
NYSE Volume: 995.392M (-2.01%)

Up Volume: 712.977M (+236.447M)
Down Volume: 256.765M (-270.038M)

A/D and Hi/Lo: Advancers led 2.73 to 1
Previous Session: Advancers led 1 to 1

New Highs: 584 (+456)
New Lows: 61 (+29)

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

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


DJ30

Stats: +18.99 points (+0.68%) to close at 2809.44
Volume DJ30: 184M shares Friday versus 150M shares Thursday.

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


MONDAY

This coming week is loaded with data. We have retail sales, the regional manufacturing reports with New York coming out. There are Fed minutes, housing starts, building permits, industrial production and capacity. Of course there is also the usual stuff. We have continuing claims, the Philly Fed, and the CPI is out on Thursday. There will be no dearth of news to help drive the market. That might help since earnings season is winding down and stocks may be looking for another reason to move up.

Think about it. We have fantastic news built into the market. We had an earnings season that surprised everyone again to the upside. It beat some tough comps because last year things were in the pits. It was easy to walk all over your prior year's competition. Now things are a bit tougher, and they are actually able to beat. Then we have the Egyptian issue, and it seems to be resolving favorably. The military, similar to Turkey, is in charge and keeping things at bay. They are trying to let a little democracy take shape perhaps. That is a good result.

The US economy continues to show improvement. Unfortunately there is a big sector of the economy that is not participating yet, but it is trying to get involved. There may be some help from the Feds, and it might actually do something constructive. I have talked about the shortened SBA form and process that is supposed to hit in March. There may be a few other things coming out. The Treasury announced its plan to wind down Fannie Mae and Freddie Mac, and that is a start. It gives people some hope that some of the right things may be done.

We have some hope, but what do we see in the market? When looking at the SP500, one wonders if it can continue to move higher. I think it can overall. I do not think the run is nearly done. I think this is just the second leg of a breakout, and we could get one, two -- maybe even three more such legs on this move. That would take us easily through the end of 2011.

I am hearing it already. "Man, Johnson is off his rocker. He is too bullish. It is time to abandon everything." You know, I am a skeptic of most everything, but that is what you do. You should be skeptical when you trade. I like to quote a lot of movies in reference to this, like Field of Dreams. "Look for low and away, but watch out for in your ear." That is one you always have to be careful of. As soon as you are not watching for in your ear, you get it in your ear.

Markets tend to run further than you would ever expect they would, but do not expect that they are going to run. As soon as you expect that your trades will automatically win, the ice gets thin and you will fall. Just as in Shannon's Deal, that classic, much-heralded-but-apparently-underappreciated television series from the early 1990's: When you think you know the cards before they are turned over, then you are in trouble.

I am concerned. I think that this move will continue, but you do have to watch out in the short term. Stocks are exploding higher everywhere. There is money hitting this market, coming in as some of the retail investors finally give in and throw some of the money to their brokers or their mutual funds. They are putting that money to work.

We are more than happy to ride the move to the upside. We just have to keep our wits about us and keep reasonable stops. We are still looking at place that offer good risk/reward. They are out there. There are stocks that have not rallied. ISRG had great bases beneath them. They are really set up nicely to take advantage of the rally because they have not rallied that far. Those stocks that have a great base under them still have plenty of room to move, just as I think SP500 and the other indices have.

We look for those that have good risk/reward, and if it does not work out, we will get out. Just like the QQQQ play and the SPY play that we were in for a day before the market went back up. We bailed right out of that. There was good risk/reward and it was worth a shot. We just kept piling into the upside plays, and we have taken a lot of gain since then.

That is how you play it. Do not get too cocky. Look for good moves. If they are not there, you do not take them. If they are there, however, do not sit around cursing at the darkness and saying things cannot keep going up. It can, and we have all seen it happen. Just as in a bear market when you think it cannot keep going down. It certainly can.

We will keep playing it. I will give you a bit of wisdom from another Kevin Costner film, Tin Cup: "You ride her till she bucks you." That is just what we will do. Ride the trend until it bucks you, but keep your eyes open for in your ear. You can see indications when it is ending that make you naturally want to keep tighter stop losses and maybe not take risks on a few plays. Maybe you will not take as many positions on those plays, but you still ride until you get bucked off.

I will see you on Monday. Stay warm and enjoy your weekend!


Support and Resistance

NASDAQ: Closed at 2790.45

Resistance:
2825 is the 2007 closing peak.
2862 is the 2007 peak

Support:
2766 is the January low
The 20 day EMA at 2745
2735 from late 2007 interim peak
2729 is the 127% Fibonacci extension of the August 2010 run
2725 from July 2007 interim peak
2688 is the recent January low
The 50 day EMA at 2684
2676 is the January 2010 low
2593 is the November 2010 high
2580 is the November 2010 closing high
2569 is the November gap up point through the April 2010 peak
2550 from May and June 2008 peaks
2540 is the gap up point from early November
2535.28 is the April 2010 intraday peak
2530 is the April 2010 closing peak
2518 is interim peak from April 2010
2511 is the lower range of the November gap up point
2482 is the recent October peak
2460 is the November 2010 low.
2434 is the May interim peak and the 78% Fibonacci retracement of the April selloff.
2425 is an interim peak from May 2010
The 200 day SMA at 2413


S&P 500: Closed at 1321.87
Resistance:
1325-27 is the March 2008 closing low and the May 2006 peak
1364 is the March 2007 low
1370 is the August 2007 low

Support:
1313 from the August 2008 interim peak
The 20 day EMA at 1299
1278 is the 127% Fibonacci extension of the August 2010 run
1275 is the January 2010 low
The 50 day EMA at 1270
1227 is the November 2010 peak
1220 is the April 2010 peak
1185 from late September 2008
1174 is the May 2010 high, 78% Fibonacci retracement of April peak
1173 is the November 2010 low
1170 is the prior March 2010 high
The 200 day SM A at 1161
1156 is the Sept 2008 low
1151 is the January 2010 peak
1133 from a September 2008 intraday low
Bottom of the January 2010 consolidation 1131 to 1136
1129 to 1131 is the June and August 2010 peaks


Dow: Closed at 12,229.29
Resistance:
13,058 from the May 2008 peak on that bounce in the selling

Support:
12,110 from the March 2007 closing low
The 20 day EMA at 11,997
11,893, from March 2008 closing low
11,867 from the August 2009 high and peak on that bounce in the selling.
The 50 day EMA at 11,739
11,734 from 11-98 peak
11,452 is the November 2010 peak
11,258 is the April 2010 peak
11,205 is the April closing high
11,100 from the 7-08 low
10,963 is the July 2008 low
10,920 is the recent May high
The 200 day SMA at 10,866
10,730 is the January 2010 peak


Economic Calendar

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

February 11 - Friday
Trade Balance, December (08:30): -$40.6B actual versus -$40.4B expected, -$38.3B prior
Michigan Sentiment Preliminary, February (09:55): 75.1 actual versus 75.5 expected, 74.2 prior

February 15 - Tuesday
Retail Sales, January (08:30): 0.5% expected, 0.6% prior
Retail Sales ex-auto, January (08:30): 0.6% expected, 0.5% prior
Empire Manufacturing, February (08:30): 16.0 expected, 11.92 prior
Export Prices ex-ag., January (08:30): 0.6% prior
Import Prices ex-oil, January (08:30): 0.3% prior
Net Long-Term TIC Fl, December (09:00): $85.1B prior
Business Inventories, December (10:00): 0.7% expected, 0.2% prior
NAHB Housing Market Index, February (10:00): 16 expected, 16 prior

February 16 - Wednesday
MBA Mortgage Purchases, 02/11 (07:00): -5.5% prior
Housing Starts, January (08:30): 540K expected, 529K prior
Building Permits, January (08:30): 580K expected, 635K prior
PPI, January (08:30): 0.7% expected, 1.1% prior
Core PPI, January (08:30): 0.2% expected, 0.2% prior
Industrial Production, January (09:15): 0.6% expected, 0.8% prior
Capacity Utilization, January (09:15): 76.4% expected, 76.0% prior
Crude Inventories, 02/12 (10:30): 1.9M prior
Fed Minutes (2:00)

February 17 - Thursday
CPI, January (08:30): 0.3% expected, 0.5% prior
Core CPI, January (08:30): 0.1% expected, 0.1% prior
Initial Claims, 02/12 (08:30): 410K expected, 383K prior
Continuing Claims, 02/05 (08:30): 3900K expected, 3888K prior
Leading Indicators, January (10:00): 0.2% expected, 1.0% prior
Philadelphia Fed, February (10:00): 21.9 expected, 19.3 prior

By: Jon Johnson, Editor
Copyright 2011 | All Rights Reserved

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

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Monday, February 07, 2011

NASDAQ Pushes Past January High

SUMMARY:
- Muddled jobs report and still the market rises.
- NASDAQ pushes past January high, SOX surges, leaving the small caps odd man out.
- Unemployment rate dives and so do non-farm jobs. Things are better, things are worse, but you have to assume overall improvement, right?
- Oh Canada. Four times more jobs than expected.
- Bonds diving as the problem that was holding it in its range likely won't topple the recovery.
- Dollar recovering, but a long way to go to credibility.
- Irrepressible stock market continues to push higher, fueled by the Fed's liquidity supertanker.
- Retail, tech coming back around, starting to lead once more.

MARKET OVERVIEW

Jobs report snow job leaves market without the clear signal we wanted.

A muddled jobs report left us without the clear signal we wanted to see on the day. That is typically the way of the market; you think something has to show up and it does not. The market does what it will do, and it does it on its own time.

The jobs report was muddled. Unemployment fell to 9%. That makes the two-month decline from 9.8% to 9% the best in 60 years. But (and this is a big but) when there is such a decline, historically there is an accompaniment of a large number of jobs non-farm, private, you name it. We are not seeing that. The non-farm payrolls only rose 36K versus 148K expected. The private jobs only rose 50K versus 163K expected. Who can you trust? The market did not know what to do. At first it meandered around in the premarket. It was negative, but then it reversed and started to the upside. It continued to move higher most of the day. There was a mid-morning dip, as there frequently is, but it reversed, rallied, and the indices closed out near their session highs.

NASDAQ was finally able to take out its January peak. It shaved it by a gnat's butt, as we like to say around here. It did take it out, and thus it joined SP500 with a move above its prior peaks. The SOX was already there. It decided it would avoid the Christmas rush and surge up by itself, and it was rocking and rolling on Friday. That leaves the SP600 small caps by themselves, having not taken out the prior peaks in this trading range. Even the mid caps posted a new rally high on Friday. That leaves you wondering about the small caps and about the rally. Then again, maybe it is just that point in the economic move where the stock market starts to trend out of small cap growth and into the more staid and steady. That could be. There was a resumption in the move in technology as NASDAQ broke higher, and retail stocks started to move back up.

That is the theme to end the week. Some downtrodden techs reversed and started to rally, and retail that was down reversed and started rallying as well.


OTHER MARKETS

Dollar: The dollar is acting as if there is an economic recovery underway after imploding early in the weak indeed, over the past month in a sharp selloff from its trading range. The dollar was up again on Friday, and it is try to make things look respectable after the plunge from the June peak (1.3582 Euro versus 1.3633 Thursday). Improvement, but it is way off from where it was just in the summer.

There is economic improvement, but the dollar is not acting as though it is a major economic recovery. I have been talking about that all along. It is a recovery. You can't throw this kind of money at anything without getting some kind of asset price appreciation, but that is all it has been for the most part. Markets have shown a price appreciation while jobs have not followed. Those paper assets. What is Gordon Liddy always talking about? Gold! I am not necessarily advocating gold, but there is a difference between paper assets versus real things. I digress, but you understand why I am prone to wander off the straight and narrow in these times.

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


Bonds: Bonds are really acting as if something is improving economically. The 10 year tanked (3.64% versus 3.55% Thursday). Over the week, the 10 year gained 32BP as the bond itself tumbled in value. I am looking at the trading range in December and January where the bond market tried to hold up. The reason was because something was brewing out there. There was a storm ahead, but it was not necessarily the storm that the bond market was worried about. Maybe it was just uncertain. If the bond market had really been worried, it would have taken off to the upside. As it was, it was just moving laterally.

Something was wrong, but it was not sure exactly what. When it was Egypt, it tried to bounce back up when that news came out, but apparently it has become comfortable with what is going on in the Middle East. It does not anticipate any major collapses in Saudi Arabia or any other countries. Bonds have started to sell as they should have probably been doing all along given the improvement in the economic data over the past couple of months.

Bonds broke lower, and it looks like they will head lower still before anything happens that would turn them back up. Even Bill Gross saying the Fed would not do anything for 12 months could not stop bonds from falling. You would think it would because the Fed is basically trying to keep bond yields lower. It is printing a lot of money and buying bonds as part of Quantitative Easing, and that would tend to prop up the price of bonds and thus keep yields lower. It is not working right now. The Fed has a lot of power with its liquidity machine, or the "supertanker" as I like to call it. It is offloading liquidity into the economy as fast as it can. It is having an impact, but it cannot control everything by dumping money into the system.

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


Gold: Gold had a weaker session after a strong rebound this week. Thursday was very strong, and Friday it rallied up. It again tapped the 50 day EMA and stalled out, finishing down a bit ($1,349.50 - 3.50). It still has a big rounded top, looking head and shoulders-ish. Gold may not be the place to buy right now. Things have to set up a bit better.

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


Oil: Oil may not be a good commodity to buy into right now either. Oil is struggling after bouncing up to the top of its range. Quite volatile over the past three weeks. It was in freefall until the Egyptian news started to crescendo. Then on Friday and Monday it was right back to the top of the range. There were worries that the issues in Egypt would spread just as they spread from Tunisia to Egypt. There were fears it would go to Jordan, Saudi Arabia, et cetera. As those fears started to die back, however, oil started to fade once more.

It really picked up speed on Friday ($89.03, -1.51). It is coming back down. It looks like it will trade into this range, come back to the October peak and the January low. That will be the first real test for the commodity to see if it will hold up. Again, it was in freefall, and actually starting to break lower through that support level last Thursday before the news hit and shot oil to the upside. Oil and gold are probably coming back some more just as the dollar tries to rally and bonds sell off.

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


TECHNICAL SUMMARY

INTERNALS

Volume. NASDAQ volume rallied up not even a point and a half to 1.9B shares. NYSE volume fell to 919M, off almost 8%. The early read looked as if NASDAQ volume was higher, but it was not. We had a quiet, boring session. That does not give you a lot of comfort with NASDAQ. It broke through to a new rally high, and it did not have any volume to push it.

Breadth. Decliners led by a hair on the NASDAQ, and they led by the same hair on the NYSE. You do not often see the same breadth readings. It was a very quiet, boring day. Even though we had plenty of important news, the market did not have the strength in it to put in a wild session after all the volatility.


CHARTS

SP500. SP500 continued its trend to the upside. It already broke through the prior peaks, and it continued higher Friday. No great volume, just grinding out the upside in a nice uptrend. As noted, the only problem it had was this one-day reversal, and it bounced right back up. You can give a stock or index a day, and it can recover and everything is fine. That is exactly what it looks like on SP500. I hate to sound complacent, but what do you do? It keeps moving up, no matter what. Hard to fight it. It is riding that liquidity wave.

NASDAQ. NASDAQ made all the headlines. I said it was the key and you needed to watch it. Sure enough, it broke to a new rally high, but it was an inauspicious break. Volume was no great shakes not any greater than it has been of late (indeed, less than several sessions). Breadth was nothing. It was all basically large caps. There really was not a lot of power behind to move. I would not bet the farm on this kind of breakout. It could still come back down on us. It is in this lateral move. It just peaked up over the top of it, and it is not showing the kind of strength you like to see. It may get shot back down. We will have to see.

The thing is that SP500 keeps forging ahead and NASDAQ though reluctant has followed. It is hard to complain about the move, especially when we see other tech stocks starting to come back to life after getting their heads cut off a few weeks back. It is amazing, indeed, how some of them are responding to the upside so aggressively after being hammered on their earnings.

SP600. The small caps have not broken out to a new rally high. Still moving laterally for the last five to six weeks in that trading range. They are bumping up at the top and making a higher low. Maybe they will make a breakout here and follow everyone else out. That would be nice to see. It would give a little credence to the economic rally continuing, and does it ever need to continue. Only part of the economy is actually doing anything, and it has nothing to do with the part of the economy that makes any jobs.

SOX. SOX was moving impressively to a new rally high, breaking out again. A little pennant triangle formed here. It broke out to the upside. The semiconductors continue to perform very well.

SP400. The mid-caps look very similar to NASDAQ. It made a break to a new rally high, something that the SP600 has been unable to do. Very solid and steady, right at the 20 day EMA. Now the odd man out is the small cap index. Can it follow? If the rest of the market is moving up, it will follow behind it just may not lead. The small caps are not perceived as being the growth leaders from here on in with this recovery. They will be following along and not holding the lead.

We are in February, and I suppose we have had a bit of January effect. That may be out of the system, and now the managers and other investors are looking to different names. That may be why we are seeing retail turn back up after getting thrashed as well as some of those techs that got slaughtered. They are turning back up, getting money as well. Maybe the money is allocating out of smaller caps and into other areas that were downtrodden but are now showing some life.


LEADERSHIP

Technology. FFIV surged to the upside off this little inverted head and shoulders. After crashing downside, buyers are piling back into it. ADTN had a nice, sharp break to the upside on Friday. Even when it looks like the move is capped out, they are finding new buyers. CRM is bouncing back to the upside. It looked like it was a definite downside play, but it is picking up speed to the upside. JNPR is another that was hammered back on earnings. It has reversed immediately. A reversal gap, an island, and now it is surging. Money is coming back in after a short hiatus.

Retail. LULU broke higher on strong volume Friday. UA broke higher on strong volume. NKE sold off, trying to make its move back to the upside. SKX has been hammered forever. The last couple of days were strong days, moving to the upside. SHLD is breaking upside. It had a strong week. ANF is trying to turn and move back to the upside, and ANN is trying to do the same. These are not gimme patterns for sure, but they are showing that money is coming in a big way as volume makes the turn back to the upside.

Semiconductors. Chips look solid as well. ARMH had a big week with earnings. It is moving higher and doing well. BRKS reported earnings after the close on Thursday. It was down early and reversed. Volume came in and shoved it back to a new rally high. NVLS has been steadily moving higher up the 10 day EMA. ONNN has had big runs. It has been moving laterally for three weeks, and it may be ready to make a new break to the upside. There is plenty of money flowing into areas that did not have it a short time ago.


THE ECONOMY

Jobs report gives on the one hand, takes away with the other.

When you look at the economy, you have to look at the jobs report. Of course, it was the game in town on Friday. We are looking at a tale of two cities. We have 36K non-farm payrolls, which is less than one-third of expectations. There were 50K private payrolls, and that was also less than one-third of what was expected. Pitiful. We lost 504K people. Since October, we have lost 1M people from the work force. That jives with what Bernanke is saying; the recovery is too weak for an increase in the number of jobs created. Then again, there was improvement. The real unemployment rate was at 16.1M, and that was below the 16.9M reported in December. There is improvement, but those private payrolls were the fewest produced since January of 2010. Yin and yang.

Looking at the trend of the weekly jobless claims, there is improvement without a doubt. Weather likely played a role, although it only impacted the non-farm numbers. It would not impact the household number because whether or not you can get to your job, you are still counted as employed. With the non-farm, if you cannot get to the job to get hired, you are not going to get hired. That is what the weather would have impacted. You can also say that the non-farm payrolls were artificially depressed, and they very well could have been. We could have been up to the 50K that was expected. Those who want jobs but cannot get them rose to 6.7M. If they were included in the unemployment rate, it would be over 13%.

Not looking too good on the home front for jobs, but if you dig a little deeper, hourly earnings rose 0.4%. That is twice the rate expected. Would hourly earnings be moving higher if jobs were basically nonexistent and companies did not need help? This is sometimes a signal that hiring is about to start. Workers are demanding more money because they are getting worked more. Productivity made a huge move up on Thursday. We are getting more out of our workers.

How long can that go on before they want more help or they're out of there? Then other companies start cherry picking your best people, so you have to get outside help. That is all part of the equation, and we are likely to see it start to break sooner than later. If this new SBA bill is passed, they might actually get the help they need to start hiring a few people. The economy could be ripe enough for them to want to do that.

The strange thing is that (here is that yin and yang again) the average workweek fell to 34.2 from 34.3. The average workweek should be going up if we are getting more out of our workers and getting to the point where they need to hire more people. You should be pushing them harder and making them work more hours. If they do not have to work those hours, why would you hire new people?

There are multiple dichotomies within the report. That is why some people were scratching their heads and ready to through this one out the window. On one hand, hourly earnings are up. You must have to pay them more, therefore things must be better. It must be tight and ready to hire. On the other hand, they are not working them anymore in fact, they are working them less. Many features of this are head scratchers, and we will not know much until the next couple of months when we see how the weather plays out in the numbers.

Overall, take away the fact that the trend is improving. There is no great job surge, and the fall in the unemployment rate was most probably incorrect. This economy is simply not that strong. It will bounce back when all of the numbers get ironed out from the storms, but the overall trend is improving. Things are getting better, but it does not mean they will be great. That is the tragedy of it all. We could be great, but we are pursuing policies that make us mediocre. Those policies make us like all the other countries that pursue debt and have issues.

Why do I bring that up? Canada reported its jobs number as well, and it created four times the number of jobs expected. It was just 62,900 jobs, but they beat the hell out of the US. They almost doubled up what we made in the non-farm number. Canada did not get carried away with debt and did not buy into the subprime nonsense. They are actually performing well. Iceland was the poster child for the problems in the financial crisis, and it took a different tack than the US and European countries. It made the creditors pay for the bailouts, not the taxpayers.

It was dicey. There were times when they did not know if they would make it, but they did. They put it on the line, they made it, and now they are growing at the same rate the US is growing, and maybe better. They also do not have any debt. We have $14T in debt, and they have virtually nothing because of how they handled their problems. They are growing at the same rate that we are. What position would you rather be in?

We have to think about this moving ahead. There are a lot of things happening in this country, and we are at a crossroads. Do we go with big government and push this healthcare that has been declared unconstitutional by a couple of courts? It will get to the Supreme Court. Do we submit to raising the debt ceiling even higher because we have to pay our bills?

There are some things we absolutely do not need and should stop doing. We need to get back to having the states handle things and not trying to provide everything for everybody. We are not a socialist country. We are not a country that is supposed to have a powerful government that doles everything out. We are supposed to be a group of states that control their own destiny and trade with each other. The federal government just protects our borders and makes sure the trade between the states is fair. I am talking probable heresy to many people, but we have seen what works and what does not.

This last financial crisis is another case study of how to handle problems. We are trying to cure debt problems with more debt, and we are getting bills now that we cannot pay. How will we solve the problem? It is becoming clearer and clearer. The answer is not to provide everything that we provide now. It will have to stop, but it will be an ugly fight to get there. There was a Civil War where they said bother fought against brother and father fought against son. The fight over these entitlements will be very similar to that. Father against son, brother against brother as everyone vies for the government handouts. It will have to stop or be dramatically curtailed. The question is who will get it and who will not. It could get ugly.


THE MARKET

MARKET SENTIMENT

VIX. The VIX has been as volatile as oil and gold over the past couple of weeks. The fear on the Egyptian story has subsided just as rapidly as it showed up, coming back down to the lows hit in late December. While low, that is not necessarily an aberration. I have talked about this many, many times, but there is so much discussion of the VIX that it needs to be brought out.

Volatility can stay low and trend lower for years, and that does not mean the market is about to turn over. When you are in a sustained rally, volatility falls to a certain level. It can continue to fall. Only when volatility rises as the stock market rises (as it did in 2000) do you have worries about a serious correction. Now we just see a pullback to where it has bottomed recently, and that has led to modest corrections in the stock market.

Volatility bounces, the stock markets corrects, and then it is right back to rallying once more. There is nothing nefarious in the VIX, just "ordinary times" action.

VIX: 15.93; -0.76
VXN: 17.91; -1.18
VXO: 14.67; -0.38
Put/Call Ratio (CBOE): 0.87; 0

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 does not have the cash to drive it higher.

Bulls: 52.7% versus 55.1%. Bulls continue to wane as NASDAQ and the growth indices struggle to follow SP500. Down modestly from 58.8% high on this leg. Still at a high level in a string of high readings but below the 5 year high at 62.0. Fading back from the level considered bearish, i.e. where so many are in the market and believe it is going up that the ammunition to send it higher runs low. This is where you start to be careful and watch for breakdowns, but there is also a lot of liquidity being pushed into the market and that can continue the move despite excess bullishness. The crossover level at 29% bulls is long gone, but it did its job. The high on the last leg was 56.0% after starting at 35.6% on the low in February, the lowest it has been since July 2009 . . . until this last leg. 35% is the threshold level suggesting bullishness. Again, to be seriously bearish it needs to get up to the 60% to 65% level.

Bears: 22.0% versus 19.1%. Climbing back up after a quick dip down to 19.1% a month back. Down from 28.3% in September. The 37.7% peak at the height of the crossover is well in the rearview mirror but bears remain well below the 35% level, above which is considered bullish for the market overall. Hit 18.7% on the low in April. Hit a high of 27.8% level on the prior leg in February. For reference, cracking above the 35% threshold considered bullish. Hit a high on the prior run at 47.2%. For more 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: +15.42 points (+0.56%) to close at 2769.3
Volume: 1.902B (+1.41%)

Up Volume: 1.338B (+170.627M)
Down Volume: 611.89M (-144.189M)

A/D and Hi/Lo: Decliners led 1.06 to 1
Previous Session: Advancers led 1 to 1

New Highs: 171 (+30)
New Lows: 28 (+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: +3.77 points (+0.29%) to close at 1310.87
NYSE Volume: 918.998M (-7.89%)

Up Volume: 470.022M (-125.404M)
Down Volume: 435.649M (+52.284M)

A/D and Hi/Lo: Decliners led 1.06 to 1
Previous Session: Advancers led 1.15 to 1

New Highs: 449 (+62)
New Lows: 56 (+26)

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

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


DJ30

Stats: +29.89 points (+0.25%) to close at 12092.15
Volume DJ30: 122M shares Friday versus 144M shares Thursday.

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


MONDAY

The news next week looks rather boring. There is not a lot coming out. We have the usual suspects and Michigan Sentiment on Friday. The rest of the week the economic data is not going to excite anyone that much. The stocks will be looking to the remaining earnings that are out there, as well as what is going on in the geopolitical world. We had a lot of good data on economics, and we had a lot of good data on earnings. We had a scare on the geopolitical scene, but it looks to be stabilizing. It should be nirvana for stocks at this point, right? We will have to see.

It has still been a long run, and there is still the possibility of a pullback. We cannot take that off the table despite the moves that the market has made, such as NASDAQ breaking up through its recent highs. It has been consolidating laterally, but it is not a very big consolidation. SP600 looks to have a better lateral consolidation ongoing than NASDAQ, but it has not been able to break higher as NASDAQ has.

Next week we may get out of the jobs picture and out of the economic data shadow. Maybe then we will see just how the indices will react given that NASDAQ just cracked through its high. I will not say NASDAQ will continue to move upside on this move. It may turn right back down in a vacuum of news with respect to the economy and earnings. That said, we have seen money flowing back into tech stocks. It was clearly there on Friday, and we will have to see if it continues and pushes the index higher.

If it does, that is fine. We will close out the QQQQ's we were just taking a chance on that anyway in the event that the Thursday turn to the downside got really ugly. As noted, buyers came right back in and pushed NASDAQ up. You could call this market irrepressible; it just does not want to fall back down. The Fed and its liquidity supertanker are pumping liquidity into the stock market. It is trying to build up the feeling of wealth by appreciating our financial assets. Therefore it has been trying to push the market higher so we would all feel wealthier and spend that money.

The problem is that the retail investor has not been into this stock market move very much. After getting burned in 2008 again and then getting burned by the flash crash in May, the retail investor has backed off again. The retail investor may not be feeling all that wealthy. That leaves it up to the big companies that have the stock holdings, and they got all the stimulus money anyway. We have seen what a rip-roaring recovery we get with them leading the way.

It has to be grass roots. One thing we should know in the US is that anything effective, widespread, and lasting has to be from the grassroots. That is where real change comes from, not from the big boys calling the shots and the government trying to pick winners and losers. It comes from the garages. It comes from the back study where those better ideas are hatched and then put into practice in our economy. Those are where the jobs come from.

There is encouraging news with the unemployment rate and the household survey. Maybe people are staying to hell with trying to find a job with these big guys who are still laying people off in this "great recovery." They may make their own jobs by starting their own businesses. If that is the case, then we will have some good growth ahead. The problem is the small cap stocks are not leading anymore, and that is where a lot of these companies would come from. Mixed signals, but the trend is better overall.

We will watch next week. We are concerned that NASDAQ will not be able to hold the break. It is good to be concerned, and we have been concerned all along. What has that gotten us? It keeps us honest. We have still been buying into upside plays because we are taking what the market gives. We are seeing downside plays set up. The problem is they will go down for a few days, but then they reverse and turn. The money keeps coming back in. Do be skeptical about moves. There is rotation ongoing, and at any time a certain sector could come under fire as a big mutual fund (or two or three or ten) start unloading shares in certain sectors and they start to sell off.

That money has been staying in the market. It has been moving somewhere else. We need to watch where it is moving just as we are now. We see a little tech coming back, and we were trying to pick up some tech this week. We are seeing retail come around. There may be other areas where it is trying to work its way back in, and we will have to move into those areas. Money is rotating around the market, so you follow it. You try to figure out where it is going, get in, and let it push your stocks to the upside.

We have been fortunate. We have been able to ride several positions for a long time. We will continue to do that as we look for new upside plays. I know this leg is extended. It has come a long way, but we just have to stick with the move as long as the plays keep turning up and giving us buy points. We have seen them give the buy points and then continue to move higher. That is the liquidity from the Fed.

Bernanke said again this week that he will stand by that. He believes that the unemployment rate is still too high. There are still too few jobs being created for any kind of self-sustaining recovery. He will keep that supertanker hooked up to the economy, and that would mean to the financial markets. He will keep pumping that liquidity in.

There will be times when the market stalls and comes back to test what has NASDAQ been doing for the past three weeks? It was unable to move and going laterally. After that, the liquidity kicks in again and you have another leg higher. We had the August to November leg, we had November which was basically a pullback, and then December on through January. Now a little three-week walk to the side. That is the pattern we have. We have a great base below this rally, and it still suggests that there is much more upside. Possibly two more of the kind of legs we have seen thus far.

It seems illogical. It does not seem like the market would run that much when it is just fueled by liquidity, but that is what liquidity does. How many times have we seen a stock or index run much further than we ever thought it could? With that in mind, I would like to use this quote from Bull Durham again because it is so relevant: You have to stick with the streak. Do not [censored] with the streak. If it is in place and working, go with it. Be wary, however. There is another quote I like from Field of Dreams: You have to watch out for in your ear when you are looking the other way. I know those are baseball quotes on a football weekend, but I could not think of any football movie quotes for the Super Bowl. If you think of any, send me an email and maybe I can use it in a supplemental report.

Have a great weekend!


Support and Resistance

NASDAQ: Closed at 2769.30

Resistance:
2825 is the 2007 closing peak.
2862 is the 2007 peak

Support:
2766 is the January peak
2735 from late 2007 interim peak
2729 is the 127% Fibonacci extension of the August 2010 run
2725 from July 2007 interim peak
2688 is the recent January low
The 50 day EMA at 2665
2593 is the November 2010 high
2580 is the November 2010 closing high
2569 is the November gap up point through the April 2010 peak
2550 from May and June 2008 peaks
2540 is the gap up point from early November
2535.28 is the April 2010 intraday peak
2530 is the April 2010 closing peak
2518 is interim peak from April 2010
2511 is the lower range of the November gap up point
2482 is the recent October peak
2460 is the November 2010 low.
2434 is the May interim peak and the 78% Fibonacci retracement of the April selloff.
2425 is an interim peak from May 2010
The 200 day SMA at 2407


S&P 500: Closed at 1310.87
Resistance:
1313 from the August 2008 interim peak
1325-27 is the March 2008 closing low and the May 2006 peak
1364 is the March 2007 low
1370 is the August 2007 low

Support:
The 20 day EMA at 1287
1278 is the 127% Fibonacci extension of the August 2010 run
The 50 day EMA at 1259
1227 is the November 2010 peak
1220 is the April 2010 peak
1185 from late September 2008
1174 is the May 2010 high, 78% Fibonacci retracement of April peak
1173 is the November 2010 low
1170 is the prior March 2010 high
The 200 day SM A at 1158
1156 is the Sept 2008 low
1151 is the January 2010 peak
1133 from a September 2008 intraday low
Bottom of the January 2010 consolidation 1131 to 1136
1129 to 1131 is the June and August 2010 peaks


Dow: Closed at 12,062.26
Resistance:
12,110 from the March 2007 closing low
13,058 from the May 2008 peak on that bounce in the selling

Support:
11,893, from March 2008 closing low
11,867 from the August 2009 high and peak on that bounce in the selling.
The 20 day EMA at 11,867
11,734 from 11-98 peak
The 50 day EMA at 11,639
11,452 is the November 2010 peak
11,258 is the April 2010 peak
11,205 is the April closing high
11,100 from the 7-08 low
10,963 is the July 2008 low
10,920 is the recent May high
The 200 day SMA at 10,839
10,730 is the January 2010 peak


Economic Calendar

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

February 04 - Friday
Nonfarm Payrolls, January (08:30): 36K actual versus 148K expected, 121K prior (revised from 103K)
Nonfarm Private Payrolls, January (08:30): 50K actual versus 163K expected, 139K prior (revised from 113K)
Unemployment Rate, January (08:30): 9.0% actual versus 9.5% expected, 9.4% prior
Average Workweek, January (08:30): 34.2 actual versus 34.3 expected, 34.3 prior
Hourly Earnings, January (08:30): 0.4% actual versus 0.2% expected, 0.1% prior

February 07 - Monday
Consumer Credit, December (15:00): $2.5B expected, $1.3B prior

February 09 - Wednesday
MBA Mortgage Purchas, 02/04 (07:00): 11.3% prior
Crude Inventories, 02/05 (10:30): 2.59M prior

February 10 - Thursday
Initial Claims, 02/05 (08:30): 413K expected, 415K prior
Continuing Claims, 01/29 (08:30): 3900K expected, 3925K prior
Wholesale Inventories, December (10:00): 0.7% expected, -0.2% prior
Treasury Budget, January (14:00): -$50.0B expected, -42.6B prior

February 11 - Friday
Trade Balance, December (08:30): -$40.7B expected, -$38.3B prior
Michigan Sentiment, February (09:55): 75.5 expected, 74.2 prior

By: Jon Johnson, Editor
Copyright 2011 | All Rights Reserved

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

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