Earnings Ready to Roll Out

SUMMARY:
- Market pensive ahead of the weekend as quarter end buying stalls.
- Prices eat into incomes but disposable income is still rising.
- Nothing showy, but economic data continues its attempt at stopping the bleeding.
- A potential transition week ahead as the quarter winds down and earnings ready to roll out.

Not a great Friday, but a somewhat normal pullback nonetheless.

Friday did not pan out with another good rally to end the week and maybe tap resistance. Didn't even try. Futures were down before the economic data hit, and afterwards they stayed down even though the US side of the equation was not that bad. Spending was up 0.2%, in line with expectations though well off the upwardly revised 1.0% in January. Spending is now up 2 months straight. Incomes, however, fell 0.2%, more than the -0.1% expected and the 0.2% gain in January. Higher prices are eating into incomes. Still, disposable real income was up for its fifth straight month.

On the other side of the ocean's the news did not have the same positive shifting undercurrents the US data is showing (manufacturing, retail sales, same store sales, home sales). Japanese retail sales posted the worst drop in ten years, not exactly what you look for when an economy is expected to emerge from depression. The UK GDP fell 1.6% versus the -1.5% expected. That was not a terribly horrible miss, but the whisper was the number was going to beat expectations. It did, just not the right way. The overall EU reported that industrial orders fell 34%. Ouch.

So, futures found nothing positive heading into the open and they accordingly opened lower. Michigan sentiment proved to be better than anticipated at 57.3 (56.8 expected, 56.6 prior), but that did not liven up the sour mood, at least not right off. Stocks sold lower but then caught a bid and rallied to session highs though the indices never came close to positive on that run. Indeed they never came close to positive. They peaked at lunch and continued the selling, hitting new session lows mid-afternoon. A bounce attempt in the last two hours couldn't hold it together and the indices closed at their previous session lows.

Seems the quarter end buyers were not interested in new positions ahead of the weekend. Perhaps they stopped buying due to the 3-day clear period on stock trades (the end of the quarter is Tuesday), perhaps it was just the weekend. Buyers left and stocks lost their bid. Didn't help matters that the dollar was up and thus some of the recent leaders sensitive to the dollar, e.g. commodities, were substantially lower. That does not excuse losses in the 2+% range, but at least sellers didn't surge into the market as the lower volume shows. They also could not take the leaders down; leaders rather normally tested their good moves. We will see if there is a new spark early in the week, end of quarter or no.

TECHNICAL. Started down, made a weak attempt at rallying that just could not catch hold, and then sold off the last 3.5 hours, finishing at the lows. This time there was no concerted buyer push in the afternoon to take stocks back to positive. Superman didn't show up. The ninth inning rally failed, the 2 minute offense ran out of clock.

INTERNALS. Nothing special. Breadth was negative. What a surprise. 2+% losses will push decliners to the -3:1 level. The most interesting feature was the plummet in volume. NYSE trade hit the lowest level in 1.5 months. Not a lot of sellers, certainly much fewer than the recent buyers. Nonetheless, it was a complete abdication by the buyers that let the few sellers push the market around without any challenge. Jimmy Carter era d j vu.

CHARTS. NASDAQ had the momentum Thursday, but it exited with the closing bell Thursday and that left the techs unable to push further toward 1600 resistance, much more the January peak. Same story across all the market as the indices faded back from just below their next resistance level. Even SOX faded from its November peak it was just getting ready to challenge, but SOX looks great still as it comes back to test the PRIOR post-November high, not just bouncing around inside its big range. Always like dealing from a position of strength. Now the losses were something of a drop in the bucket versus the moves higher in this rally and were in line with the losses on this move (SP500 losses the past two weeks: -2%, -2%, -1.3%). The move was not devastating by any stretch but it was not the lead in to next week that we wanted for a last push ahead of quarter end. We will see if there is a last gasp higher attempt early in the week. As for a test, SP500 can still test back to 800ish and NASDAQ 1500ish and still be in fine shape. You just don't want to see the leaders start to break down.

LEADERSHIP. Speaking of leadership, not many stocks were up but not many were in trouble either, at least among the leadership. They are testing but not violating near support. Kind of what you would expect after a strong run, and as noted Thursday, without quarter end and earnings it would be just a normal pullback. Indeed a test ahead of earnings, outside of a huge surge into the new month we can use to sell out our positions, is typically a good thing as it takes the froth off the move and allows good results, if there are any, can be rewarded. That remains to be seen. Leaders are holding up very well as the plays on the report show, but we are still more gun shy than not about the market move holding through earnings and thus holding upside positions through earnings.


THE ECONOMY

Data Still Showing Modest Gains.

Hear that? Sounds like whips hitting a dead horse carcass again. Once more last week revealed more economic data that, while hardly indicative of a surging economy, shows a slowing of the rush to the depression. Existing home sales, new home sales, and factory orders all topped expectations and more than that, the revisions were positive as well.

I have said it many times before, but when the revisions start taking back what the prior assumptions offered that is when you start to see the true turns in the economy. As with the stock market, weather forecasting, or any other prognostication endeavor, the humans that man the controls tend to fall into a trend in line with the current trend and they don't change their ways even as the trend starts to change. Thus they continue on in the belief the trend will hold even when the data suggests it is at least pausing. Thus their forecasts and assumptions are based on the current trend, and when there is a true change they have to revise their assumptions as more and more data comes in so they can reconcile with the facts.

The facts right now show slowing in the rate of decline and more than that, showing it for more than just a month. Regional manufacturing is stringing together a series of 'slower declines', meaning contraction continues but the pace is slowing more and more. Durable goods orders and factory orders are bouncing back and forth, showing the volatility that is associated with every change in any trend. I use a weather analogy frequently. When a season is well established the weather patterns are trending in one direction and forecasting the weather is easy. Summertime on the coast means a high around 90, still winds, and a 20% chance of a shower coming in off the Gulf. When the fall starts to roll around, however, the winds shift, fronts race through at differing intervals, violent storms kick off when cold air slams into warm moist Gulf air. Volatility. Then as the fall takes control you get nice days that get shorter and shorter. That holds up until winter hits and things get choppy once more.

The economic data is trying to get choppy, trying to show a bit of volatility. The attempts have not been that forceful yet, kind of like a defector from the Eastern Block learning to speak up with freedom's voice. Pensive at first, then gains confidence as he or she is not hauled off and never heard from again. Maybe these are all head fakes, just blips in an otherwise ongoing death spiral. All we know is that the attempts at improvement cover the waterfront and the market responded ahead of them with this initial bounce that, by the way, has the chips out in front just as it was in late 2002 when the market initially rallied off the bottom before the long, drawn out spring 2003 test that nearly had investors slashing their wrists.


THE MARKET

MARKET SENTIMENT

VIX: 41.04; +0.68
VXN: 41.45; +0.87
VXO: 43.39; +1.96

Put/Call Ratio (CBOE): 0.92; 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 doesn't have the cash to drive it higher.

This is a historical milestone in the making. Bulls are impressively low considering we are in general a very optimistic country. The few bulls is a positive indication because it means most everyone that is getting out is out and there is money on the sidelines. In other words the ammunition boxes are full and as the market recovers investors will start opening up the boxes and firing. Little by little they will be forced to put more money into the market and there will be some rushes higher in fear they are missing the train. You relish times when sentiment is so negative because it means some tremendous buys are setting up. This could indeed be the opportunity of a lifetime, and you take advantage of it by buying quality stocks and letting them work for you as long as they will. If we can hold them for years, great.

Bulls: 28.9%. A fraction more bulls (28.4% last week) but not really commensurate with the market gains. Not a lot of belief in it just yet. 29.7% three weeks back, down from that 'optimism' Well down from 43.0%, the current top of the recovery as the market rallied off the November low. A rise from 25.3% in December and quickly starting to fall once the market encountered the January selling. Bullishness bottomed on this leg lower at 21.3% in November 2008. This last leg down showed us the largest single week drop we have ever seen, falling from 33.7% to 25.3%. Hit 40.7% on the high during the rally off the July 2008 lows. 30.9% was the March low. In March the indicator did its job with the dive below 35% and the crossover with the bears. A move into the lower 40's is a decline of significance. A move to 35% is a bullish indicator. This is smashing that. For reference it bottomed in the summer 2006, the last major round of selling ahead of this 2007 top, near 36%, and 35% is considered bullish.

Bears: 43.3% versus 44.3% the prior week. Slowing the decline from 47.2% as here as well there were not many believers in the run higher. Still showing plenty of worry. 47.2% is the peak for the run this year but is still below the December and October peaks. Hit the 34's on the lows, falling from 38.5% and 46.2% in mid-December. Still above the 35% level considered bullish for stocks, but as with bulls, still well below the level considered bearish for stocks. Bearishness hit a 5 year high at 54.4% the last week of October. The move over 50 took bearish sentiment to its highest level since 1995. Extreme negative sentiment on this move. 35% is the level that historically indicates excessive pessimism. As with the bulls the jump in bears did its job after hitting 44.7% in the third week of March. Bearishness peaked at 37.4% in September 2007. It topped the June 2006 peak (36%) on that run. That June peak eclipsed the March 2006 high (33%) and well above the 2005 highs that spawned new rallies (30% in May 2005, 29.2% in October 2005). This is a huge turn, unlike any seen in recent history.


NASDAQ

Stats: -41.8 points (-2.63%) to close at 1545.2
Volume: 2.06B (-18.07%)

Up Volume: 460.521M (-1.991B)
Down Volume: 1.633B (+1.486B)

A/D and Hi/Lo: Decliners led 2.97 to 1
Previous Session: Advancers led 4.23 to 1

New Highs: 18 (-6)
New Lows: 13 (-3)

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

After coming to 13 points from 1600 on Thursday, NASDAQ gapped lower and closed at the session low, never really attempting any upward movement. Disappointing it did not challenge the resistance but it is also in the top of the range, holding well over support near 1500. Low volume. No heavy selling. Just ran out of buyers. Those are positives, but whenever an index makes it back up to key resistance that has pushed it back before it is a gut check moment. We will see how it responds early in the week; some upside and we close out some more positions as we use the upside to bank gain and see if it can make the breakout move.

SOX (-2.08%) lost some ground after the Thursday breakout, but it is holding over the prior highs after coming close but not quite taking out the November peak. Big and important moves by the chips, clear market leaders. How they respond early this week is key. Recall back in December we were talking about the chips and their relative strength and building patterns. They were showing strength then and while they had a couple more tests to make, they finally broke to a new post-November high and are leading the market higher.

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

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


SP500/NYSE

Stats: -16.92 points (-2.03%) to close at 815.94
NYSE Volume: 1.443B (-20.26%)

Up Volume: 192.082M (-1.127B)
Down Volume: 1.246B (+765.008M)

A/D and Hi/Lo: Decliners led 3.07 to 1
Previous Session: Advancers led 3.86 to 1

New Highs: 12 (-6)
New Lows: 87 (-4)

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

The large caps turned back before hitting 850, 875, or 900 to 910. It also turned back below the 90 day SMA (828). As noted earlier, the loss was in line with other losses on the upside run. Just the location where this one occurred as well as the time on the calendar make it more interesting as they say. Very low volume here as well and that leaves SP500 in technically good position to test the 800 level and try to find a higher low. Again, the concern is approaching earnings season and whether SP500 will make a normal test of support or the sellers use this run to jump all over the downside.

SP600 (-3.34%) move dup to test the bottom of its January range and there it stalled, at least on Friday. It is holding at the December low but it has not shown any leadership quality thus far, just tagging along with the other indices as they recovered.


DJ30

Similar action after DJ30 rallied toward resistance at 8000, bumping into the bottom of the January/early February consolidation range and fading modestly on very low volume. As noted earlier in the week a test back to 7552 (the November closing low) is a logical point for it to fade to, but sure would like to see a sprint up toward 8175 to 8250 first. We will see how it responds to start the new week, but we keeping our expectations low.

Stats: -148.38 points (-1.87%) to close at 7776.18
Volume: 323M shares Friday versus 397M shares Thursday. No sellers at least.

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


MONDAY

Lots of economic data. Lots. The market is also preparing for earnings season. It has a 20% run under its belt. The quarter is ending. Just your usual start to a week.

Friday was a disappointment as the market did not make another push higher and give us an easy opportunity to take a lot more gain off the table. As noted above, a bit of profit taking and nervousness ahead of the weekend, something similar to the prior two Fridays. They were followed by two good upside Mondays.

If we get another good Monday we will book quite a bit of gain. If the market continues to test then we have the decision of whether to see if we get a bounce after a test of 7500 on the Dow and 800ish on SP500. Oh yes, and 1500 or so on NASDAQ and 235ish on SOX. While the market is showing good upside strength and volume, and while we have banked a lot of gain on the recent upside moves, we are inclined to stick with some tight stops and take the rest of the gain on plays that have it and avoid any serious losses on more recent entries and then see how any test holds up.

We have enjoyed many good moves by many stocks as the indices move into resistance, and with earnings coming on top of everything else we would prefer to bank more gain. We can always get back in if the market rebounds after holding support. Might be the wrong call if earnings turn out better than expected, but with a good run in the bank we would rather not take the gamble, at least not on all positions.

So we enter the week playing it a bit cautious, happy to see another upside Monday again if it will show itself, but either way ready to protect gains and our positions. As for new positions, for the upside we will have to see what kind of test comes off of this most recent tap at resistance or whether it blows on through, making it harder to get in as that involves more chasing the bus toward earnings. We will see what kind of opportunities provide some fast upside in that situation to augment our current positions, i.e. current leaders coming off tests of their moves.

In sum the market is at a potential transition moment thanks to its move thus far, key resistance at hand, quarter end, and earnings season. We have taken gain on the way up and will continue to do so given the opportunity. We will also protect positions from any further downside given you just don't know what the market is going to do after this run to resistance. If things get really dicey, we have some downside positions that we can turn to for some downside gain as well.


Support and Resistance

NASDAQ: Closed at 1545.20
Resistance:
1569 is the late January 2009 peak
1598 is the February 2009 peak, the last peak NASDAQ made
1603 is the December peak
1620 from the early 2001 low
1644 from August 2003
The January closing low at 1653
1666 is the intraday January 2009 peak
1780 is the November 2008 peak

Support:
1542 is the early October 2008 low
1536 is the late November 2008 peak
1521 is the late 2002 peak following the bounce off the bear market low
1505 is the late October 2008 closing low.
1493 is the October 2008 low & late December 2008 consolidation low
The 50 day EMA at 1476
The 18 day EMA at 1475
The 50 day SMA at 1463
1440 is the January 2009 closing low
1434 is the January intraday low
1428 is the mid-November 2008 low
1398 is the early December 2008 low
1387 is the 2001 low
1316 is the November 2008 closing low
1295 is the November 2008 low
1271 from is the March 2003 low, 1253 intraday
1262 from July 2002
1192 is the July 2002 intraday low
1114 is the October 2002 low, the bear market low


S&P 500: Closed at 815.94
Resistance:
818 is the early November 2008 low
The 90 day SMA at 828
839 is the early October 2008 low
848 is the October 2008 closing low
853 is the July 2002 low
857 is the December consolidation low
866 is the second October 2008 low
878 is the late January 2009 peak
889 is an interim 2002 peak
896 is the late November 2008 peak
899 is the early October closing low
919 is the early December peak
944 is the January 2009 high

Support:
815 is the early December 2008 low
805 is the low on the January 2009 selloff. KEY Level
800 is the March 2003 post bottom low
The 50 day EMA at 798 held on the Wednesday low
The 50 day SMA at 792
The 18 day EMA at 783
768 is the 2002 bear market low
752 is the November 2008 closing low but it is not broken and done away with
741 is the November 2008 intraday low
722 is a December 1996 low
681 is the June 1996 intraday peak, 673-71 closing
665 from August 1996
656-654 from January, April 1996
607-05 from November 1995


Dow: Closed at 7776.18
Resistance:
7867 is the early February low
7882 is the early October 2008 intraday low. Key level to watch.
7909 is the early January low
7965 is the mid-November 2008 interim intraday low.
The 90 day SMA at 8022
8141 is the early December low
8175 is the October 2008 closing low. Key level to watch.
8197 was the second October 2008 low
8419 is the late December closing low in that consolidation
8451 is the early October closing low
8521 is an interim high in March 2003 after the March 2003 low
8626 from December 2002
8829 is the late November 2008 peak
8934 is the December closing high
8985 is the closing low in the mid-2003 consolidation
9088 is the January 2009 peak

Support:
7702 is the July 2002 low
7694 is the February intraday low
The 50 day EMA at 7639
7552 is the November closing low. KEY Level.
7524 is the March 2002 low to test the move off the October 2002 low
The 18 day EMA at 7460
7449 is the November 2008 intraday low
7282 is the October 2002 closing low in the prior bear market.
7197 is the intraday low from October 2002 bear market
7115 is the February 2009 closing low
7008 from February 1997 closing peak
6528 is the November 1996 peak
6489 from December 1996 closing peak
6356 is the April 1997 intraday low


Economic Calendar

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

March 31 - Tuesday
March Consumer Confidence (9:00): 27.0 expected, 25.0 prior
S&P/Case-Schiller Home Price Index, January (9:00): - 18.5% expected, 18.55% prior
Chicago PMI, March (9:45): 34.7 expected, 34.2 prior

April 01 - Wednesday
March ADP Employment Change (8:15): -648K expected, -697K prior
ISM Index, March (10:00): 36.0 expected, 35.8 prior
Construction Spending, February (10:00): -1.6% expected, -3.3% prior
Pending Home Sales, February (10:00): -2.0% expected, -7.7% prior
Crude Oil Inventories, 3/27 (10:00): +3.3M prior
Auto Sales, March (14:00): NA expected, 2.9M prior
Truck Sales, March (14:00): NA expected, 3.5M prior

April 02 - Thursday
3/28 Initial Jobless Claims (8:30): 653K expected, NA prior
Factor Orders, February (10:00): -0.3% expected, -1.9% prior

April 03 - Friday
Nonfarm Payrolls, March (8:30): -656K expected, -651K prior
Unemployment Rate, March (8:30): 8.5% expected, 8.1% prior
March Average Workweek (8:30): 33.3 expected, 33.3 prior
Hourly Earnings, March (8:30): 0.2% expected, 0.2% prior
ISM Services, March (10:00): 42.0 expected, 41.6 prior

By: Jon Johnson, Editor
Copyright 2009 | All Rights Reserved

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

Technorati tags: stock trading stock market investing Jon Johnson InvestmentHouse.com

Market Continues Pullback

SUMMARY:
- Market continues the pullback, ready to test the SP500 November close.
- CBO says Obama budget projections fall far short of actual costs and forecast deficits of 4% of GDP for the foreseeable future.
- The TALF sounds great, but no one is participating thanks to Congressional disincentives to do so.
- Why the Fed was forced to go where no Fed has gone before.
- Despite the economic peril, the market is setting up for another bounce after this test.

Not bad action in the face of all the political drama.

The good before the bad, the market before the politics. That is how the report goes tonight. The Friday action was not that band and it was, despite the losses, kind of quiet for a quadruple expiration Friday. Commodities were leading higher again in the pre-market and as the session got underway. Financials were struggling again after their surge, likewise the techs and the semiconductors. All was manageable, at least when you put it in the perspective of the past several months. The market rallied for a couple of weeks with SP500 producing a 20% move off the low; a couple of days of pullback is rather normal.

Then the news hit just after lunch in New York. The CBO finished its evaluation of the Obama/Fed stimulus, budget, and bailout facilities and said the cost would be $2.3T more than budgeted because of the additional spending and an economic recovery not as rosy as the White House believes. CBO revised the 2009 deficit up to $1.8T. It further said that the deficit would remain at 4% of GDP (or actually as the CBO put it, NOT LESS THAN 4% of GDP) for the foreseeable future. Less than 2% is typical for our economy and many get antsy when it moves over 2% for even a short period of time. This is absurdly high and not expected to be just temporary, the usually cited exception for running a larger deficit in times of trouble. As a nice bit of icing, another report came out and noted 542 mass layoffs in February. A mass layoff is 50 or more at a time from the same company. Looks as if a million jobs were lost in the last two months. Not good.

The indices were idling sideways and we thought we might get a bounce in to the close that would be good to short heading into the weekend. When the news hit they jerked lower into new selling for the afternoon and taking the selling from basically flat or modestly lower to down 2% and more. Volume ramped up as stocks sold off hard. You can say it was distribution, but it was expiration Friday and a lot of positions had to be adjusted or rolled after the Fed's action Wednesday. It was clear, however, that the market reacted negatively to the latest indication that at least two branches of the government in Washington are insanely out of control with their spending and constitutional trampling.

So . . . the pullback from the rally is on. It was expected, we took a lot of gain on the way up this past week ahead of key resistance, and we closed several positions Friday just to be on the safe side for this pullback. We don't expect it to be a virulent one, more a test of the SP500 November closing low, but with the economy in turmoil and the federal government going Venezuela on us you never quite know for sure. Thus we buttoned up quite a few positions and took entered some more downside plays using SDS, DIA put options and some PG puts to play this downturn. Again, our target is the SP500 November closing low but we just have to see how the move plays out.

TECHNICAL. Intraday the action was not great, but with a pullback that was rather well anticipated, what can you expect? Higher at the open then gave it up to negative, wandered laterally, then dumped into mid-afternoon. The late rebound was not much, but it did cut the losses from pretty ugly to just homely. Always liked that oxymoron. Trying to figure out how to work in one such as 'congressional oversight' though that is more of a double entendre, as in 'was it an oversight that Congress let the AIG bonus payments slide by in the so-called stimulus bill or did Congress oversee the inclusion of the bonus payments in the so-called stimulus bill?' You could answer 'yes' to both: it was an oversight for most of Congress because they did not even read the bill. It was also overseen by the likes of Senator Dodd who knew they were in there. The usually boisterous Dodd was very quiet during all of the red-faced, spittle flying finger pointing done last week. That should have been a tip off that something was afoot.

INTERNALS. Decliners were pretty solid at nearly 3:1 on NYSE, 2:1 on NASDAQ. Not great but not near the extremes before this and not as strong as on the Wednesday follow through. Volume surged on NYSE to the highest level in 6 months, taking it back to the October levels. NASDAQ volume was just slightly . . . here comes another one . . . above average. Distribution? You could call it that, but it was expiration Friday and volume should be up. As noted above, with the Fed changing the game (or at least making a last ditch effort to do so) there had to be some positions closed and rolled given the potential a floor is being built.

CHARTS. After NASDAQ and SP500 hit resistance at 1500 and 800 twice this week they are fading back to test. NASDAQ closed just below the 50 day EMA but is above the January lows and of course the December lows. Still very high in the range and has some cushion to work with. SP500 is on the second day of its pullback as well. It is above the 10 and 18 day EMA, those offering some minor support ahead of the November closing low that is 14 points away at 752. Looking for a test of that level as a key point to find support at or near. DJ30 found resistance at its November low last week and is now testing, coming down to tap at the 10 and 18 day EMA Friday. It has some more downside room toward 7114 to 7000ish, but its moves will be controlled by what SP500 does. SOX hit the February peak and is fading as well, holding the 10 day EMA Friday. Some more downside early in the week gives it a 1-2-3 pullback, perfect positioning to rebound.

LEADERSHIP. Mostly downside Friday, but that is okay as the recent leaders continue their pullbacks. Some of the early leaders are already in their third day, and typically you want to see a stock pop back up after a three day fade to near support. Leaders are called that because that is what they do, and thus we are looking for the likes of AMZN, TSM, QCOM, BIDU, etc. to hold and vault back up. Thus far very few breakdowns and many we closed were just precautionary, protecting the remaining gain and looking to get a new entry point after they finish the test.


THE ECONOMY

With the sanctity of contract abrogated, a decent idea in TALF has few subscribers thanks to Congress.

TALF was the Fed's response to the Paulson bastardization of the TARP when Paulson opted to give banks billions versus buy bad assets, or at least considered bad due to the required mark to market accounting rules. Recall that LIBOR was falling until Paulson's ploy. The Fed had to step in to do something to start the credit thaw again. It worked as the Fed was going directly to mortgages, small business loans, credit debt, etc.

Wednesday the Fed stepped up the game, putting TALF in bold letters with its extra $1.1T for buys of mortgage backed securities and indeed direct purchases of US treasuries, all under TALF.

To this point, however, something in the neighborhood of 3 15 private institutions have signed on with dozens and dozens saying they will absolutely not participate and others under TARP saying they will pay back the TARP money and get out from under the tarp as soon as possible.

Why? Because the sanctity of contract and the basic rule of law the US is known for is broken. With the actions of Congress this past week where it violated multiple sections of the Constitution with its punitive 90% tax on workers that had contracted for these bonuses and would receive them IF they stayed on and helped cut the losses of AIG in half. They did just that but are now getting burned at the stake. The law the House passed is a constitutionally prohibited Bill of Attainder. It is a prohibited ex-post facto law. It abrogates legal contracts that are not against public policy and were in fact approved by Congress. The law also violates equal protection in singling out a specific group and goes a step further with calls by the socialist Barney Frank to publish the names of the recipients. If one of those people is hurt it is on Frank's head.

There is confusion as to whether the 90% limitation would even apply to TALF, so much so that CNBC called the Fed to ask if it did. The senior economic reporter had to be put on hold, and when that happened he realized it didn't matter what the answer was. Why? Because with Congress willing to pass laws that retroactively single out and punish one group it would be nothing for the answer to change from a 'no' to a 'yes' when convenient for Congress.

The perception in the private sector is the government is a loose cannon that will pass whatever 'law' it wants at the moment without any constitutional considerations. With that hanging out there no one is signing up for the TALF if there is any possible way to avoid it. Thus a relatively decent idea (given the position the Fed is placed in) has the look of failure even before it gets off the ground.


Fed really steps up the gambit, but the Administration and the Congress give it no choice.

THE PROBLEM: We all know what the Fed did Wednesday, i.e. making bold never been done before Treasury purchases. Why was it compelled to add another $1.2T into the trillions already in the kitty even before TALF has really kicked off?

First, there is NO plan, YET, from Treasury with respect to the bank bailout. With no appointees to help out Geithner hammer one out, the Fed realizes that no real plan is coming. There is talk of a 'private/public' partnership to get the job done, but as discussed above and more below, the private side has no interest in participating given what the federal government is doing.

Second, Congress is out of control, governing by vendetta or the feud versus truly tackling the problems of overspending, by trillions, in areas far, far removed from its constitutional authority. Ex-post facto laws, bills of attainder, violations of equal protection, all banned by the Constitution, are getting overwhelming support by House reps. Congress is using the Constitution as a liner for the bottom of the bird cage as it abrogates contract law and shreds the Bill of Rights in case anyone wants to call them on it.

So the Fed, realizing Washington is broken and won't be able to fix this problem or any others, is trying to get the public/private melding on its own by expanding TALF over $1T on Wednesday. No big mystery. Congress is off on a $165M witch hunt while it authorizes trillions in spending and the likes of Schumer chide those complaining of a 'measly' $2B in earmarks. The bonuses, while unsavory, are not the problem. As President Reagan noted and as is so painfully clear once more, the problem is out of control government. I never thought I would witness what I saw this past week in Congress, and what I saw was truly disturbing.

THE RUB. The Fed's dilemma is the same as the problem that prompted it to act. Because Congress is constitutionally AWOL from its duty to uphold the Constitution it is not getting the private participation needed to make the plan work, i.e. get the money out in the market and getting it loaned out. After all, how can any elected official tasked under oath with upholding the Constitution pass an $800B spending bill without reading it? Any congressman that voted for the bill without reading it should be recalled or impeached immediately for failing to uphold their primary sworn duty of holding office. Period. The end.

The result is that no private entity is willingly participating in TALF. All companies in TARP want out as soon as they can get out. Why? They don't want the government on their necks or attacking them after the fact with more bills of attainder or ex post facto laws. Businesses need to conduct business in these very difficult times with the best employees they can attract and not have government calling them to hearings if they pay bonuses to good honest works for doing the job the bonus was contracted for. What has happened is a travesty on all sides, but mountains of government oversight (there I go again) is not the answer. Many congressional leaders cannot even pay their taxes correctly (no surprise given the tax law) or keep budgets in line so what do they know about operating businesses?

So, those not in are not getting in and those that are in are getting out. That means they are not going to take part in the facilities and thus the government money will not get disseminated through the through the country and credit markets. That means failure, despite all of the insanely spendthrift (another oxymoron?) ways of Congress and the Administration. Congress has driven away the private sector with its witch hunts designed to distract us all from its poor performance. No one can blame the private sector for hunkering down and just trying to survive until different winds start blowing.

Unless there is some different route taken it is hard to see the economy getting much better and indeed it without credit getting fixed it will not get better. Sweeping tax incentives for investing in the US are needed. Not just money giveaways that are squirreled away, but incentives that say 'use it or don't get it.' Then it will be used and the money will get into the economy. Instead we are taxing money from businesses and individuals, sending it to Washington, and Washington is sending it back to the states (after taking its hefty 50% cut for overhead and favorite federal spending programs) to spend on museums and Frisbee parks. Sure there are some roads and bridges, but that is a small part of the bill. Most of this is a preparation for federalization of many extra-constitutional matters and not stimulus.

We need to reward risk taking to start businesses and to invest in America. Instead Congress and the Administration are working to punish those trying to put risk capital into play and create profitable businesses. Thus the money won't be spent and there is no help to the economy. It is a bleak picture unless things change significantly, but alas, because the powers that be are motivated by social restructuring it is not going to change course. The economy may improve some, but it will not surge and grow as it did in the early 1960's, the 1980's and 1990's, and again after the 2003 investment tax cuts. Of course, if no one participates we suppose Congress could pass a law forcing them to do so or get fined or taxed even more . . .


THE MARKET

MARKET SENTIMENT

VIX: 45.89; +2.21
VXN: 44.66; +2.2
VXO: 46.41; +1.12

Put/Call Ratio (CBOE): 0.89; +0.12

Bulls versus Bears:

This is a reading of the number of bullish investment advisors versus bearish advisors. The reason you look at this is that it gives you an idea of how bullish investors are. If they are too bullish then everyone is in the market and it is heading for a top: if everyone wants to be in the market then all the money is in and there is no more new cash to drive it higher. On the other side of the spectrum if there are a lot of bears then there is a lot of cash on the sideline, and as the market rallies it drags that cash in as the bears give in. That cash provides the market the fuel to move higher. If bears are low it is the same as a lot of bulls: everyone is in and the market doesn't have the cash to drive it higher.

This is a historical milestone in the making. Bulls are impressively low considering we are in general a very optimistic country. The few bulls is a positive indication because it means most everyone that is getting out is out and there is money on the sidelines. In other words the ammunition boxes are full and as the market recovers investors will start opening up the boxes and firing. Little by little they will be forced to put more money into the market and there will be some rushes higher in fear they are missing the train. You relish times when sentiment is so negative because it means some tremendous buys are setting up. This could indeed be the opportunity of a lifetime, and you take advantage of it by buying quality stocks and letting them work for you as long as they will. If we can hold them for years, great.

Bulls: 28.4%. Nothing like a rally to bring around the bulls, but not a very big run from 26.4% last week and not even hitting the 29.7% from the week prior. Not a lot of confidence just yet and that is fine. Still well down from 43.0%, the current top of the recovery as the market rallied off the November low. A rise from 25.3% in December and quickly starting to fall once the market encountered the January selling. Bullishness bottomed on this leg lower at 21.3% in November 2008. This last leg down showed us the largest single week drop we have ever seen, falling from 33.7% to 25.3%. Hit 40.7% on the high during the rally off the July 2008 lows. 30.9% was the March low. In March the indicator did its job with the dive below 35% and the crossover with the bears. A move into the lower 40's is a decline of significance. A move to 35% is a bullish indicator. This is smashing that. For reference it bottomed in the summer 2006, the last major round of selling ahead of this 2007 top, near 36%, and 35% is considered bullish.

Bears: 44.3%. Bigger drop for the bears, falling from 47.2%. Very solid still, showing plenty of worry. 47.2% is the peak for the run this year but is still below the December and October peaks. Hit the 34's on the lows, falling from 38.5% and 46.2% in mid-December. Still above the 35% level considered bullish for stocks, but as with bulls, still well below the level considered bearish for stocks. Bearishness hit a 5 year high at 54.4% the last week of October. The move over 50 took bearish sentiment to its highest level since 1995. Extreme negative sentiment on this move. 35% is the level that historically indicates excessive pessimism. As with the bulls the jump in bears did its job after hitting 44.7% in the third week of March. Bearishness peaked at 37.4% in September 2007. It topped the June 2006 peak (36%) on that run. That June peak eclipsed the March 2006 high (33%) and well above the 2005 highs that spawned new rallies (30% in May 2005, 29.2% in October 2005). This is a huge turn, unlike any seen in recent history.


NASDAQ

Stats: -26.21 points (-1.77%) to close at 1457.27
Volume: 2.512B (+6.69%)

Up Volume: 362.524M (-522.869M)
Down Volume: 2.048B (+598.535M)

A/D and Hi/Lo: Decliners led 2.12 to 1
Previous Session: Decliners led 1.21 to 1

New Highs: 9 (-3)
New Lows: 37 (+6)

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

Second day of a pullback that started after the tech index hit 1509 a couple of times and could not push further despite the goose from the Fed. Sliding back to test and looking for it to hold around the December low at 1398. That is the working hypothesis and we will have to watch how strong volume is and what the tech leaders do with respect to holding their own near support to gauge the strength of the pullback. For now things look good and indeed many have a 2 to 3 days of pullback and thus are very close to position to rebound. That makes a test of the December low and a hold important.

NASDAQ 100 (-1.41%) is showing an excellent pullback, holding over the 50 day EMA with thus far a very modest pullback. If the large caps continue to show this relative strength that bodes will for a nice, orderly, rather short-lived test before another try higher.

SOX (-3.46%) took a hickey Friday, but it held the 10 day EMA on the low and remains well in within the top half of its 4 month trading range. Looking for a hold around 212 on the low and then a higher low and run toward a breakout.

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

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


SP500/NYSE

Stats: -15.5 points (-1.98%) to close at 768.54
NYSE Volume: 2.107B (+7.93%)

Up Volume: 512.778M (-253.751M)
Down Volume: 1.947B (+774.982M)

A/D and Hi/Lo: Decliners led 2.86 to 1
Previous Session: Advancers led 1.04 to 1

New Highs: 4 (-1)
New Lows: 46 (+16)

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

Second day of the test after hitting resistance at 805ish and stalling. Volume is strong on the dive but it is expiration week so it tends to be elevated. Looking for another day of pullback to the November closing low (752) to give another bounce attempt, but then again, if the index is going to try and form a double bottom it will need to come back toward the March low at 675ish. Either way the ultimate outcome looks pretty decent thus far for more upside unless the selling runs out of control. If it moves to the march low we make a lot of money on our SDS play and likely the DIA on the DJ30 as well.

SP600 (-3.16%) as the small caps were hammered. SP600 fell to the November closing low after stalling at the 50 day EMA. This is also the bottom of the late February consolidation. The small caps are already at the November low and if they break down the move to the March low could be rather abrupt.


DJ30

A second session of pullback for the blue chips as well after bumping into the November low at the peak of the rally and starting to fade. Ended the week in good position over the 10 and 18 day EMA, but looking for a move down to the bottom of the late February consolidation at 7115ish and then we see how much strength is in the Dow.

Stats: -122.42 points (-1.65%) to close at 7278.38
Volume: 672M shares Friday versus 559M shares Thursday. Big volume all week, but again it was expiration.

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


MONDAY

Heavy week of economic data ahead along with the earnings warning season. Already saw warnings popping up last week and more will show up this week as companies need to set the expectations now that the later numbers in the quarter are coming in and quiet periods are approaching. Then there is the Vaudeville act of Congress to keep things interesting and somewhat frightening.

Even with all of this intrigue and the rather bad prognostications about the ability of all the trillions to fix the problem as the federal branches are working at odds with each other the market thus far still looks good with an orderly pullback after the rally and follow through. Of course these pullbacks can always become less orderly and less good looking as they get their heart into it. We will just have to see how rambunctious the sellers get and whether they are back to all in or just testing the waters along with the profit takers after a 2-week run.

We are going to look at positions to ride back up after a test of the SP500 November low or thereabouts. As noted above, there are many solid leaders in very nice tests that we want some more of as they start back up. We have also protected positions on the way down and will continue to do so though most should hold near support if they are going to resume the rally.

If the indices do not hold and sell on sharp volume we will simply let the downside positions run as we close the rest of the upside. The market is acting as if it wants to put in a bottom, but the credit picture, despite improvements in LIBOR all week (the 3-month closed at 1.22% Friday after starting the week at 1.32%) remains bleak given Congress' new politburo style of governing. The trillions put into the Fed and Treasury facilities cannot work without participation, and Congress is going to have to repent or no company is going to willingly participate. Again, we suppose Congress could just pass a law requiring participation. That would right in line with its new direction.

Once more government action has worked to add uncertainty to the financial markets as well as all other markets such as housing, healthcare, etc. Thus there is an additional layer of risk to the market, but so far the market is acting as if the feds didn't do anything unusual with this rally up to resistance and rather normal pullback to test. As always we will take what the market gives us and for now that means picking up some bucks on the current test, and if it holds at logical support, move in to the upside again as the leaders rebound.


Support and Resistance

NASDAQ: Closed at 1457.27
Resistance:
The 50 day SMA at 1464
1493 is the October 2008 low & late December 2008 consolidation low. Cracking but not broken
The 90 day SMA at 1491
1505 is the late October 2008 closing low.
1521 is the late 2002 peak following the bounce off the bear market low
1536 is the late November 2008 peak
1542 is the early October 2008 low
1569 is the late January 2009 peak
1598 is the February 2009 peak, the last peak NASDAQ made
1603 is the December peak
1620 from the early 2001 low
1644 from August 2003
1666 is the January 2009 peak

Support:
The 50 day EMA at 1461 is trying to hold.
1440 is the January 2009 closing low
1434 is the January intraday low
1428 is the mid-November 2008 low
The 18 day EMA at 1421
1398 is the early December 2008 low
1387 is the 2001 low
1316 is the November 2008 closing low
1295 is the November 2008 low
1271 from is the March 2003 low, 1253 intraday
1262 from July 2002
1192 is the July 2002 intraday low
1114 is the October 2002 low, the bear market low


S&P 500: Closed at 768.54
Resistance:
800 is the March 2003 post bottom low
The 50 day SMA is at 798 tapped on the Wednesday high and again Thursday.
805 is the low on the January 2009 selloff. KEY Level
815 is the early December 2008 low
818 is the early November 2008 low
The 90 day SMA at 832
839 is the early October 2008 low
848 is the October 2008 closing low
853 is the July 2002 low
857 is the December consolidation low
866 is the second October 2008 low
878 is the late January 2009 peak
889 is an interim 2002 peak
896 is the late November 2008 peak
899 is the early October closing low
919 is the early December peak
944 is the January 2009 high

Support:
768 is the 2002 bear market low
The 18 day EMA at 750
752 is the November 2008 closing low but it is not broken and done away with
741 is the November 2008 intraday low
722 is a December 1996 low
681 is the June 1996 intraday peak, 673-71 closing
665 from August 1996
656-654 from January, April 1996
607-05 from November 1995


Dow: Closed at 7278.38
Resistance:
7282 is the October 2002 closing low in the prior bear market.
7449 is the November 2008 intraday low
7524 is the March 2002 low to test the move off the October 2002 low
7552 is the November closing low. KEY Level.
The 50 day EMA at 7607
7694 is the February intraday low
7702 is the July 2002 low
7867 is the early February low
7882 is the early October 2008 intraday low. Key level to watch.
7909 is the early January low
7965 is the mid-November 2008 interim intraday low.
The 90 day SMA at 8070
8141 is the early December low
8175 is the October 2008 closing low. Key level to watch.
8197 was the second October 2008 low
8419 is the late December closing low in that consolidation
8451 is the early October closing low
8521 is an interim high in March 2003 after the March 2003 low
8626 from December 2002
8829 is the late November 2008 peak
8934 is the December closing high
8985 is the closing low in the mid-2003 consolidation
9088 is the January 2009 peak

Support:
7197 is the intraday low from October 2002 bear market
7115 is the February 2009 closing low
The 18 day EMA at 7220
7008 from February 1997 closing peak
6528 is the November 1996 peak
6489 from December 1996 closing peak
6356 is the April 1997 intraday low


Economic Calendar

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

March 23 - Monday
February Existing Home Sales (10:00): 4.45M expected, 4.49M prior

March 25 - Wednesday
February Durable Goods Orders (8:30): -2.0% expected, -5.2% prior
Durables, Ex-Transportation, February (8:30): -2.0% expected, -2.5% prior
New Home Sales, February (10:00): 300K expected, 309K prior
Crude Oil Inventories, 3/20 (10:30): +1.942M prior

March 26 - Thursday
03/21 Initial Jobless Claims (8:30): 650K expected, 647K prior
Q4 GDP - Final, Q4 (8:30): -6.6% expected, -6.2% prior
GDP Price Index, Q4 (8:30): 0.5% expected, 0.5% prior

March 27 - Friday
February Personal Income (8:30): -0.1% expected, 0.4% prior
Personal Spending, February (8:30): 0.3% expected, 0.6% prior
Michigan Sentiment - Rev, March (9:55): 56.0 expected

By: Jon Johnson, Editor
Copyright 2009 | All Rights Reserved

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

Technorati tags: stock trading stock market investing Jon Johnson InvestmentHouse.com

Market Hangs Onto Gains

SUMMARY:
- Market does what it has to, hangs onto gains heading into the weekend.
- China worried about its US Treasury holdings, announces more stimulus to come.
- LIBOR ticks lower for the first time in weeks.
- Michigan sentiment shows its own signs of thaw.
- Pattern of the week: the explosive Ascending triangle
- Starting the week looking for a follow through while the indices are extended.

Sellers leave early for Spring Break as market holds its gains to the close.

The bulls cannot complain about the action as SP500 and NASDAQ held their gains right up to the Friday bell. Both are bumping at next resistance, but instead of turning right back down in a dive as they would have done, oh say, anytime over the past seven months, they held the gains, all of them, into the weekend. They were not huge absolute numbers with NASDAQ scoring 5 points, DJ30 54 points and SP500 6 points, but then again they were huge in that 162 points on NASDAQ and 678 points on DJ30 for the week did not draw the fire of short sellers. It is just a week of gains off the lows, but this is a notable character change heading into a new week, and in this market we know what can happen: anything.

Friday had its bad news and good news, or good news and bad news depending upon whether you are long or short the market. The Bad: Berkshire Hathaway credit downgraded to AA+. China says it wants guarantees from the US that the couple of trillion dollars in US Treasuries it holds will remain solid. Imports were down again as consumers continue to lay off the imports, something history shows we do in recessions. No surprise there, especially compared to China seeking guarantees. As Hawkeye said to Hot Lips Houlihan in the television's 'MASH' when she asked what kind of guarantees the nurses could get with respect to potential repeated violations, 'what kind of guarantee do you want?'

The Good: China wanted a guarantee on one hand and on the other its premier offered it would adopt additional stimulus. Earlier he pulled a Geithner and did not follow through with the much heralded announcement of more stimulus to come. He does it Friday after slapping some at the US. Don't think China is gaming the markets a bit? More good. Fund outflows from US mutual funds totaled $8.4B for the week. Money leaves the market at the bottom. We have been putting it in and we are already taking gain off the table on this run. It always happens this way and is thus good news bigger picture and smaller picture for us right now.

More Good (had to make a new paragraph): Citi followed GE's Thursday announcement with its own 'we don't need no stinking federal funds' headline Friday morning. Copper and materials prices were up again. Michigan sentiment is thawing (56.6 actual versus 56.3 prior and 55.0 expected), another kernel of better economic data. Three-month LIBOR, after more than a month of gains, ticked down one one-hundredth to 1.32% from 1.33%. It had flattened the prior three sessions and made the first downside tick. Spark up the cigars.

TECHNICAL. Another soft start and a comeback. Not as impressive as Thursday where the indices rose arrow straight all session, but it had its own version. The indices dipped midday into lunch hitting session lows, but then they recovered and rallied on into the close. Good intraday action all week.

INTERNALS. The indices were up modestly on the session and the internals matched the action. Breadth at 1.5:1. No new highs, few new lows. Volume faded back near average on NYSE and put in its first below average session on NASDAQ in over a month. It was Friday after a bear market rally took off, and there simply were not as many participants wandering Wall Street.

CHARTS. Not a lot of change in the chart patterns from Thursday, but as noted above, given the bear market and the sharp rebound this week from the downtrends, that is a victory in itself as the sellers did not come back even as SP500 continued to flirt with the November low. SP500 closed over that level, but not enough to really mean much. It will have to test it this week and then put some distance on it during a second run higher for the break to mean something and for the level to become support once more. NASDAQ moved up to its January low and is somewhat in no man's land above the December low yet below the 1500 level considered key. SOX broke free of some congestion, but it still has overhead resistance. It is, however, in a much better bargaining position heading into a test this coming week.

Speaking of tests, after the rush higher and to resistance the market is a bit extended and could face some downside early next week as the gains are tested a bit by some sellers. The market can do anything at that point. One of the ways we are going to be ready to take advantage of any move is to look at good stocks that test last week's move and then start back up. AMZN, DRIV, QCOM, ISIL and others moved well and tested a bit Friday. If they test some more early in the week and start back up, groovy. We move in with more positions. Others, thankfully, are setting up to make new moves themselves. Need more leadership. If the sellers turn up with their axes and blowtorches, then we have to be ready to play the downside with those stocks that jerked higher in their downtrends to resistance. The market should have more upside momentum, and indeed that would be best for both the upside and the downside (more base building, a better point to play some downside, more base building), but if the rally rolls over time to jump to the downside quickly.

LEADERSHIP. There was leadership last week and from the same areas that were leading in December and into early January before the selling started returning ahead of the February gutting. Chips were the one clearly identifiable leadership group. Metals were not bad though a little less flamboyant. Techs are not all pulling together, but they are trying to get to that point. China stocks remained solid. Some smaller business services stocks that led the early moves off the November and December lows (e.g. BR, HMSY) were up. If there was a bigger sector for guns it would have led as SWHC (Smith & Wesson) surged on fears of an attempt to disarm the populace. Sounds alarmist, but given the Supreme Court's 5-4 gun decision last session, nearly taking away a right we have held for 233 years, with this Congress many are quite concerned. Bottom line: Leadership is trying to improve and is improving some. This action is working to build some bases and that is what the market needs. Chips are out front as they were in late 2002 when the market bottomed out of that bear market. Some retailers are moving up as they did at that time as well (e.g. AMZN). Similarities.


THE ECONOMY

We pretty much went through the economic scene Thursday, i.e. the modest signs of improvement in many economic areas: manufacturing, oil finding its bottom, same store and retail sales improving, copper and economically sensitive commodities finding a bottom and increasing, China posting three upside PMI reports, housing markets clearing out in California, Florida and Vegas. Nothing is racing up, but a lot of quite diverse economic areas are showing some bottoming action.

Mind you, all of this before any of the so-called stimulus hits the economy. There is a theory that businesses and people with money are making investments and moving money now versus waiting for the changes in the tax system that start in October, not in 2011 as the Administration says. That could very likely be the explanation for the modest increase in economic activity. If it is, that is not something that will provide ongoing recovery and indeed sets us up for harder economic downside. Kind of like when you are sick, you start to get better and jump up and get back to the old routine, then you relapse and are worse than you were the first time you were sick.

As we have said, there were similar indications in late 2002 and they proved correct. The ultimate indicator, however, were the financial markets and the leadership off the bottom. There were some nascent signs of economic recovery and the markets, despite immense gloom (and indeed that was part of the reason for the move to come), found the floor and shot higher. This market has not shot higher. It is trying to find the floor. Will it find it and shoot higher?

It could. The element here that was not present in 2002 and early 2003 is massive, massive government intervention (a.k.a. meddling) in the markets themselves, in private contracts, in social structure, in tax policy, in healthcare, in private business, and in our form of government. It is extremely difficult for any market to find a bottom when the federal government is moving the floors around under you. Thus we have to be very, very careful here because this is not a carbon copy of the last recession when the government loosened capital restrictions and then relied on the free markets to solve the problem as they have done for 233 years . . . outside the Great Depression when government meddling prolonged the depression by at least 7 years.


THE MARKET

MARKET SENTIMENT

As noted above, money flowed out of stock mutual funds to the tune of $8.4B. That is just part of the steady weekly outflows. That is also an indication of a reason for the market to try this bounce and why it might have some more legs. Investors are bailing and historically when the crowd bails out the market is getting ready to move higher.


VIX: 42.36; +1.18
VXN: 41.25; +0.48
VXO: 45.08; +2.32

Put/Call Ratio (CBOE): 0.71; 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 doesn't have the cash to drive it higher.

This is a historical milestone in the making. Bulls are impressively low considering we are in general a very optimistic country. The few bulls is a positive indication because it means most everyone that is getting out is out and there is money on the sidelines. In other words the ammunition boxes are full and as the market recovers investors will start opening up the boxes and firing. Little by little they will be forced to put more money into the market and there will be some rushes higher in fear they are missing the train. You relish times when sentiment is so negative because it means some tremendous buys are setting up. This could indeed be the opportunity of a lifetime, and you take advantage of it by buying quality stocks and letting them work for you as long as they will. If we can hold them for years, great.

Bulls: 26.4%. Down from 29.7% and at the lowest level since December 2008. Well down from 43.0%, the current top of the recovery as the market rallied off the November low. A rise from 25.3% in December and quickly starting to fall once the market encountered the January selling. Bullishness bottomed on this leg lower at 21.3% in November 2008. This last leg down showed us the largest single week drop we have ever seen, falling from 33.7% to 25.3%. Hit 40.7% on the high during the rally off the July 2008 lows. 30.9% was the March low. In March the indicator did its job with the dive below 35% and the crossover with the bears. A move into the lower 40's is a decline of significance. A move to 35% is a bullish indicator. This is smashing that. For reference it bottomed in the summer 2006, the last major round of selling ahead of this 2007 top, near 36%, and 35% is considered bullish.

Bears: 47.2%. Bounced back up after slipping last week. this is the peak for the run this year but is still below the December and October peaks. Hit the 34's on the lows, falling from 38.5% and 46.2% in mid-December. Still above the 35% level considered bullish for stocks, but as with bulls, still well below the level considered bearish for stocks. Bearishness hit a 5 year high at 54.4% the last week of October. The move over 50 took bearish sentiment to its highest level since 1995. Extreme negative sentiment on this move. 35% is the level that historically indicates excessive pessimism. As with the bulls the jump in bears did its job after hitting 44.7% in the third week of March. Bearishness peaked at 37.4% in September 2007. It topped the June 2006 peak (36%) on that run. That June peak eclipsed the March 2006 high (33%) and well above the 2005 highs that spawned new rallies (30% in May 2005, 29.2% in October 2005). This is a huge turn, unlike any seen in recent history.


NASDAQ

Stats: +5.4 points (+0.38%) to close at 1431.5
Volume: 2.064B (-16.51%)

Up Volume: 1.216B (-943.489M)
Down Volume: 798.559M (+516.413M)

A/D and Hi/Lo: Advancers led 1.33 to 1
Previous Session: Advancers led 3.42 to 1

New Highs: 7 (-1)
New Lows: 33 (-68)

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

An impressive surge after undercutting the November low two weeks back. NASDAQ recovered that low as well as the December low, moving up to the bottom of the January attempt at consolidation (1441 closing). There is still resistance on up at 1500 and some serious price top resistance at 1598. It would be quite surprising to see NASDAQ reach those outer limits on this particular leg. The 50 day EMA (1461) is the closest and quite logical resistance after such a run. What kind of test? Maybe the December low but more likely that old black magic at the November low (1316 closing).

SOX (+1.26%) bounced off the mid-November to start the week and rallied through the 50 day EMA to come within 5 points of a key level at 225. It somewhat triple bottomed off the late February low. Best index in the market, never coming close to its November low. Similar action in 2002 when SP500 held the line as the other indices fell through prior lows. Chips have the bonus of being leaders off lows and as in 2002, though hardly to that scale thus far, they are firmly in the lead of what leadership there is.

NASDAQ 100 (+0.33%) never took out its November low either and it rebounded up to resistance at the 50 day EMA and 1200 to end the week. It could put in a double bottom here and provide a second layer of leadership off the low.

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

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


SP500/NYSE

Stats: -5.81 points (-0.77%) to close at 756.55
NYSE Volume: 1.611B (-10.73%)

Up Volume: 995.183M (-699.546M)
Down Volume: 601.279M (+513.569M)

A/D and Hi/Lo: Advancers led 1.54 to 1
Previous Session: Advancers led 7.72 to 1

New Highs: 7 (0)
New Lows: 62 (-50)

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

The financials led SP500 off of its new bear market low, taking the index just back up above the November low (752 closing). That is the point everyone is watching. Cleared it right? Yes, but not by enough to mean anything. It will come back to test it and the question is whether it goes up onto 800 resistance first. That is the best upside scenario, a higher test and then a test of that November low. A hold there makes the old low key support and a good point to move up and attack next resistance. We see this week if the sellers come out with the ax.

SP600 (+0.97%) recovered as well and moved right up to its November closing low to end the week. The small caps are going to get a close watch this week, not by many, but we will watch. We have to because they are one of the market canaries. They don't necessarily have to lead the market higher, but they need to be in there pitching and following closely along. If they start to sell, unable to make a definitive move through the bear market low, that puts the rest of the market at risk as they are then broadcasting the economy is not ripe to recover. With the financial and credit markets still in chaos, that is not too hard to believe.


DJ30

The Dow enjoyed a good week as well, but it was so far down in the barrel that a 10% moved from the Monday close only took it up to the late February consolidation, still well below the November low at 7552. If SP500 continues higher to start the week and tests 800, then the Dow will likely go on up and test the November low and then things get interesting with what kind of test it brings on.

Stats: +53.92 points (+0.75%) to close at 7223.98
Volume: 479M shares Friday versus 488M shares Thursday. Still very strong volume as the Dow continued its move higher. Some longer term buying, a lot of short covering, but as we often say, all rallies start with short covering.

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


MONDAY

The market showed no ill effects to end the week. No sellers were ready to come in. A new week always brings the possibility of sellers returning, but sellers have to feel they are in a good position to move in and start selling. SP500 is just over the November low; not a bad place to try and sell some. The SP600 is at its low, unable to make the move through; a sign it is the weakest in the litter and thus a target.

But is there enough oversold pressure released from this four days? Likely we see the Dow try on up to 7500, SP500 to 800, and NASDAQ to near 1500. It may not do it right out of the box but start back up after another day or two of rest. That would not be unusual and gives some strong movers off the lows a chance to finish the 1-2-3 pullbacks they started on Friday (e.g. DRIV, ISIL, AMZN). Then it starts back up and heads toward those levels.

We can keep riding this move higher with our current positions, a few new ones set up to move well and quickly, as well as those that led early and make a quick test. Then when the indices approach these levels we evaluate the move with its volume and chart patterns as well as the leadership. That would be, regardless, a great point to take some more gains off the table.

If the sellers come back with their blow torches blazing Monday or Tuesday, well, that changes the game a bit from the get go. Close down the upside that was in rebound mode versus breakout mode, and even close the upside that is pretty solid but not impressively so. Put on some more downside plays. Do the same thing if the indices move up to those next resistance levels and then get flattened by a bunch of sellers in Mack trucks heading south.

The market is trying to pull itself up off the mat and it may not be successful. There is leadership and more trying to emerge; a spanking from the Friday close on high volume will likely tamp that out those trying to emerge. It is a real drag trying to come off the bottom. You cannot trust it, you cannot put your faith in it. At the same time you cannot trust the downside and put your faith in it either, because it has had too much fun and its avarice often leads to its own downfall just as the upside's greed ultimately exhausts all buyers. So close to the bottom you cannot trust another selloff, but if the Dow is going to 5700 or so, then the bottom is not that close.

So you play the good patterns and ride them to logical targets, upside or downside. We have made money on this bounce and will make more as it continues to those next resistance levels but it is important not to sink your teeth into the belief this is the bottom or this is just a bear market rally. In 2002 we saw similar signs as here, liked the odds, and more importantly liked the patterns. We played those patterns to the upside through December, then had to close them all while the market tested. It did not show a renewed bear from the technical action, however, despite the almost three months it dragged on. It was tough to hang in their. We even made some money on the downside but the price/volume action and action in some solid leadership stocks kept us saying the upside was coming. It did.

We play this one the same, way, i.e. taking what the market gives on the runs while keeping an eye on the bigger picture of economics and market technical action. Seems basic, but it is always a fight to keep things in perspective in the heat of the battle, particularly when there is a serious crisis with the government intervening anew every few days.


PATTERN OF THE WEEK

Ascending Triangle: Seeing it set up off of the November to February lows and these can yield explosive breakouts.

This pattern is known by its series of higher highs below a constant, flat top. Draw a line through the tops and an up trendline through the rising lows. It narrows from left to right, forming something of a right triangle laying on its side with the hypotenuse on the bottom side. As with any base you like to see the volume quiet down as it moves through though you prefer to see more rising days on rising trade versus falling days on rising trade as that shows overall accumulation during the base. You can count up the weeks of price gains on rising trade and compare to the weeks of price declines on rising volume and determine if there was overall accumulation or distribution during the pattern. You want a majority of up weeks on volume.

Take a look at the following chart to see what we are talking about:

http://www.investmenthouse.com/ihmedia/driv.jpeg

You can see the triangle shape setting up. The pattern builds pressure from below, and when the top is blown the breakouts are explosive:

http://www.investmenthouse.com/ihmedia/driv2.jpeg

Here is another one to check out. You should recognize this one as well and get a bit jazzed by it:

http://www.investmenthouse.com/ihmedia/sohu.jpeg


Support and Resistance

NASDAQ: Closed at 1431.50
Resistance:
1434 is the January low (1440.86 closing)
1460 is the February low
The 50 day EMA at 1461
The 50 day SMA at 1480
1493 is the October 2008 low & late December 2008 consolidation low.
The 90 day SMA at 1503
1521 is the late 2002 peak following the bounce off the bear market low
1536 is the late November 2008 peak
1542 is the early October 2008 low
1565 is the second low in October 2008
1569 is the late January 2009 peak
1603 is the December peak
1620 from the early 2001 low
1644 from August 2003
1666 is the January 2009 peak

Support:
1428 is the mid-November 2008 low
The 18 day EMA at 1391
1398 is the early December 2008 low
1387 is the 2001 low
1316 is the November 2008 closing low
1295 is the November 2008 low
1271 from is the March 2003 low, 1253 intraday
1262 from July 2002
1192 is the July 2002 intraday low
1114 is the October 2002 low, the bear market low


S&P 500: Closed at 756.55
Resistance:
768 is the 2002 bear market low
The 50 day EMA at 797
800 is the March 2003 post bottom low
804 is the low on the January 2009 selloff
812 is the February low
815 is the early December 2008 low
818 is the early November 2008 low
839 is the early October 2008 low
The 90 day SMA at 842
848 is the October 2008 closing low
853 is the July 2002 low
857 is the December consolidation low
866 is the second October 2008 low
878 is the late January 2009 peak
889 is an interim 2002 peak
896 is the late November 2008 peak
899 is the early October closing low
919 is the early December peak
944 is the January 2009 high

Support:
752 is the November 2008 closing low but it is not broken and done away with
741 is the November 2008 intraday low
The 18 day EMA at 741
722 is a December 1996 low
681 is the June 1996 intraday peak, 673-71 closing
665 from August 1996
656-654 from January, April 1996
607-05 from November 1995


Dow: Closed at 7223.98
Resistance:
7282 is the October 2002 closing low in the prior bear market.
7449 is the November 2008 low
7524 is the March 2002 low to test the move off the October 2002 low
The 50 day EMA at 7663
7694 is the February intraday low
7702 is the July 2002 low
7867 is the early February low
7882 is the early October 2008 intraday low. Key level to watch.
7909 is the early January low
7965 is the mid-November 2008 interim intraday low.
8141 is the early December low
The 90 day SMA at 8169
8175 is the October 2008 closing low. Key level to watch.
8197 was the second October 2008 low
8419 is the late December closing low in that consolidation
8451 is the early October closing low
8521 is an interim high in March 2003 after the March 2003 low
8626 from December 2002
8829 is the late November 2008 peak
8934 is the December closing high
8985 is the closing low in the mid-2003 consolidation
9088 is the January 2009 peak

Support:
7197 is the intraday low from October 2002 bear market
7115 is the February 2009 closing low
The 18 day EMA at 7105
7008 from February 1997 closing peak
6528 is the November 1996 peak
6489 from December 1996 closing peak
6356 is the April 1997 intraday low


Economic Calendar

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

March 16 - Monday
March Empire Manufacturing (8:30): -32.0 expected, -34.65 prior
Net Long-Term TIC Flows, January (9:00): $34.8B prior
Capacity Utilization, February (9:15): 71.1% expected, 72.0% prior
Industrial Production, February (9:15): -1.2% expected, -1.8% prior

March 17 - Tuesday
February Building Permits (8:30): 510K expected, 531K prior
Core PPI, February (8:30): 0.1% expected, 0.4% prior
Housing Starts, February (8:30): 453K expected, 466K prior
PPI, February (8:30): 0.4% expected, 0.8% prior

March 18 - Wednesday
February Core CPI (8:30): 0.1% expected, 0.2% prior
CPI, February (8:30): 0.3% expected, 0.3% prior
Current Account Balance, Q4 (8:30): -$136.7B expected, NA prior
Crude Oil Inventories, 03/13 (10:30): +749K prior
FOMC Rate Decision (14:15): No change expected

March 19 - Thursday
03/14 Initial Jobless Claims (8:30): 654K prior
Leading Indicators, February (10:00): -0.6% expected, 0.4% prior
Philadelphia Fed, March (10:00): -40.0 expected, -41.3 prior

By: Jon Johnson, Editor
Copyright 2009 | All Rights Reserved

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

Technorati tags: stock trading stock market investing Jon Johnson InvestmentHouse.com

Is Economy Bottoming?

SUMMARY:
- NASDAQ hits a new bear market low, market rebounds late.
- Job losses bad enough to mean the economy is bottoming?
- Oversold and searching for a reason to rally.

Market tries the stiff upper lip in the face of jobs losses, survives to fight again thanks to short covering.

Futures were up ahead of the jobs report, aided by Wells Fargo cutting its dividend but saying 'business is good.' MRVL in semiconductors reported solid earnings and was up. Even after the report they managed to hold their own, likely given that the non-farm claims were in line with expectations (-651K). After a bit they started to factor in the large downside revisions to December and January, not to mention that LIBOR moved higher yet again (3-month at 1.29%) and Europe reported that corporate borrowing costs surged to a record. Futures started giving ground ahead of the bell. Still positive, but giving ground.

Didn't take long after the open that the indices turned lower, and before the day was out NASDAQ hit a new bear market low, joined by those already holding that honor, i.e. SP500, DJ30 and SP600. Even the mid-cap SP400 got in on the new bear market low action as it made its first foray below the November low.

TECHNICAL. Intraday the action was weak with a higher open giving way to downside and new bear market lows for all the major indices. After NASDAQ broke to a new bear market low and with the weekend looming, shorts covered in the last half hour and that pushed the large NYSE indices back to flat with some sporting modest gains. The NASDAQ side of the market recovered nicely though NASDAQ could not reach positive as the NASDAQ 100 was an anchor about its neck all day and closed with a 0.91% loss. Nice recovery, but it was all due to short covering ahead of the weekend.

INTERNALS. Breadth was about flat, what you would expect with the late rebound. New lows rallied but not that sharply, still well below November individual daily levels. Volume was mixed with NASDAQ trade hitting the highest in two weeks. NYSE trade was lower but as with the entire week, still strong and well above average. Not much to make out of it other than they recovered off the lows on strong volume. That suggests buyers coming back in to push a rally, but it was a Friday after an ugly week of selling, and drawing that conclusion is a bit of a stretch.

CHARTS. NASDAQ hit that new bear market low and rebounded. Indeed all indices (outside of SOX and NASDAQ 100) rebounded after hitting some new bear market lows, showing doji on the candlestick chart. As noted, that has the look of a rebound, but there we go again, right? So many looking for a bottom under every market selloff. It was Friday and short covering pushed them back up.

Other factors do show a massively oversold market that, with the right trigger, could rebound furiously. When stocks or indices rally too far over their 200 day SMA they have to fall. For the NYSE indices that is usually 15%. NASDAQ 20% to 25%. Same to the downside; when they sell off too hard too fast they cannot stay down forever. The cork has to pop back up. Right now DJ30 is 33% below its 200 day SMA. SP500 36%. NASDAQ 32%. Impressively oversold.

In addition, the indices are testing 12 to 13 year lows. As one commentator noted today, historically if the indices test 12 year lows they tend to bottom and/or rebound furiously. While the reason for each selling bout can be cats and dogs in their differences, it is a statistic worth noting.

The question is when a rally begins. The selling is getting long in the tooth on this run lower and looking for shorts with massive amounts of real estate to fall through is not that easy. That still leaves the old 'watched pot' syndrome with everyone looking for a bottom. Nonetheless, a good selloff to start the week would likely scare more out of the market and go a long way to setting a bottom for a rally. Always like to see early week morning selloffs after plenty of selling already. The rebounds can be furious. We didn't get that early morning selloff last week when the market was primed to bounce. We will watch and see if it comes this week.

LEADERSHIP. Still not the best leadership we have seen since the selling started last fall. January and particularly February were very hard on the leaders that were setting up. Chips are coming back with some really nice patterns, but it is hardly sector wide. Some big techs look decent; a lot were roughed up on Friday. Some metals look solid; others are trying to get that way. Retail shows the same picture, i.e. some real promise and some in need of real work. A rebound rally will help them form up better, but that requires some time after the damage done on this last selling. Back in 2002 the chips led the initial surge off the October low. Even after the selloff in February many are setting up once more and we have no problem with them leading a move that allows the rest of the market to wiggle out from under the selling avalanche and catch their breath. Thus we are looking at chips again to lead and to buy as well as they make that move.


THE ECONOMY


Jobs report bad enough?

The headline data was not that bad with non-farm payrolls right in line (-651K versus -650K expected). Unemployment hit 8.1% versus the 7.9% expected and 7.6% in January, but even the 12.5M out of work seemed somewhat palatable to the market. The January revision was tough (-655K versus -598K originally reported) and December was simply awful (-681K versus -577K). That put job losses for the prior 14 months at 4.4M. The last four months saw 2.6M lost. Manufacturing fell 168K, construction 104K, business and professional -180K. Only health and education (+26K) and government (+9K) showed gains. Education has been up for the prior two months as well as has government. Those are not economic powerhouses with respect to a decently healthy economy.

Some say the data is so bad that it has to mean a bottom is at hand or close to being. There are two thought threads on this one. First, when the non-farm jobs report stabilizes for three months that has meant a bottom was set and that the economy was already moving back up. 681K in December, 655K in January, and 651K in February. Could be stabilizing. The unemployment rate is not (8.1% versus 7.6% in January), but non-farms are. One problem is that more than half of the job losses over 14 months (12-2007 when the current downturn started) occurred in the past 4 months. The speed of the decline has increased overall and the downside revisions continue. We assume the 651K is accurate for February, but December and January were not even close.

Second, given this is one of the worst recessions in US history, can you really look back at past events and gauge whether you are at or near a bottom? This one is different in its violence and source, and thus comparisons are tricky at best. As with stocks that are selling, it is a value issue. What 'value' is value for a diving stock? It all depends upon when it stops falling. Similarly, what level of jobs losses indicates a bottom? It is a function of just how bad the economic decline is this time. Each level is different and this one is easily one of the worst on record. In other words, just because the data is as bad as the 1981-82 recession it does not mean this one won't be worse and consequently show worse jobs data.


THE MARKET

MARKET SENTIMENT

VIX: 49.33; -0.84
VXN: 47.99; -0.09
VXO: 52.67; -1.35

Put/Call Ratio (CBOE): 0.87; -0.15. After a day over 1.0 on the close it slipped back down even with the selling. The big money guys are not buying much more downside protection right now and the speculators are pulling back some as well. The lack of more put buying after it spiked higher shows they are not speculating to the downside and that is a positive combination.

To recap what we said Thursday with respect to VIX' failure to spike higher on this most recent selling: VIX does not have to spike higher to signal a bottom. It has done its work already and historically it spikes several months before the actual bottom. In 2002 it spiked to 56, the high, over three months before the October bottom. It has been just over four months since the first spike higher in October and just over three months from the November high that was a closing high in the run.


Bulls versus Bears:

This is a reading of the number of bullish investment advisors versus bearish advisors. The reason you look at this is that it gives you an idea of how bullish investors are. If they are too bullish then everyone is in the market and it is heading for a top: if everyone wants to be in the market then all the money is in and there is no more new cash to drive it higher. On the other side of the spectrum if there are a lot of bears then there is a lot of cash on the sideline, and as the market rallies it drags that cash in as the bears give in. That cash provides the market the fuel to move higher. If bears are low it is the same as a lot of bulls: everyone is in and the market doesn't have the cash to drive it higher.

This is a historical milestone in the making. Bulls are impressively low considering we are in general a very optimistic country. The few bulls is a positive indication because it means most everyone that is getting out is out and there is money on the sidelines. In other words the ammunition boxes are full and as the market recovers investors will start opening up the boxes and firing. Little by little they will be forced to put more money into the market and there will be some rushes higher in fear they are missing the train. You relish times when sentiment is so negative because it means some tremendous buys are setting up. This could indeed be the opportunity of a lifetime, and you take advantage of it by buying quality stocks and letting them work for you as long as they will. If we can hold them for years, great.

Bulls: 29.7%. Ticked higher last week from 28.6%. Won't likely be there next week after this selling. A lot were looking for a bottom, hence the higher reading. Still a dive, down from 31.1% the prior week and the 35.2% it recovered to on the market rebound. Well down from 43.0%, the current top of the recovery as the market rallied off the November low. A rise from 25.3% in December and quickly starting to fall once the market encountered the January selling. Bullishness bottomed on this leg lower at 21.3% in November 2008. This last leg down showed us the largest single week drop we have ever seen, falling from 33.7% to 25.3%. Hit 40.7% on the high during the rally off the July 2008 lows. 30.9% was the March low. In March the indicator did its job with the dive below 35% and the crossover with the bears. A move into the lower 40's is a decline of significance. A move to 35% is a bullish indicator. This is smashing that. For reference it bottomed in the summer 2006, the last major round of selling ahead of this 2007 top, near 36%, and 35% is considered bullish.

Bears: 44.0%, down modestly from 45.1% for the same reason as bulls were up slightly. Up from 41.1% and 36.3% before that. Hit the 34's on the lows, falling from 38.5% and 46.2% in mid-December. Still above the 35% level considered bullish for stocks, but as with bulls, still well below the level considered bearish for stocks. Bearishness hit a 5 year high at 54.4% the last week of October. The move over 50 took bearish sentiment to its highest level since 1995. Extreme negative sentiment on this move. 35% is the level that historically indicates excessive pessimism. As with the bulls the jump in bears did its job after hitting 44.7% in the third week of March. Bearishness peaked at 37.4% in September 2007. It topped the June 2006 peak (36%) on that run. That June peak eclipsed the March 2006 high (33%) and well above the 2005 highs that spawned new rallies (30% in May 2005, 29.2% in October 2005). This is a huge turn, unlike any seen in recent history.


NASDAQ

Stats: -5.74 points (-0.44%) to close at 1293.85
Volume: 2.483B (+7.62%)

Up Volume: 1.028B (+836.348M)
Down Volume: 1.438B (-668.504M)

A/D and Hi/Lo: Decliners led 1.06 to 1
Previous Session: Decliners led 5.39 to 1

New Highs: 1 (-1)
New Lows: 612 (+30)

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

NASDAQ reached to a new bear market low then rebounded, but it could not recapture even the November intraday low on the close. Good volume on the rebound, suggesting an attempt at a reversal this week, but as noted earlier it is a Friday afternoon short covering rebound giving the index that look. Definitely oversold, and indices typically rebound after breaking key support. Now we see if there is anything in the techs to pull NASDAQ back up. Friday many large cap techs headed lower and did not rebound. Work to be done.

SOX (-1.14%) is trying to hold onto the bottom of the December to February range, rebounding late to close right at that level. Some chips have formed up and others are trying to get there but more work needs to be done to get back to the January numbers in terms of stocks ready to move.

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

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


SP500/NYSE

Stats: +0.83 points (+0.12%) to close at 683.38
NYSE Volume: 1.771B (-5.71%)

Up Volume: 810.945M (+690.006M)
Down Volume: 927.05M (-828.577M)

A/D and Hi/Lo: Decliners led 1.62 to 1
Previous Session: Decliners led 8.63 to 1

New Highs: 4 (-1)
New Lows: 523 (-263)

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

Another new low for the bear but also a nice tight doji on the candlestick chart has us watching for a rebound even though it was Friday after a slaughter and the shorts covered late to make this pattern. Massively oversold as noted above and yet to test the break below the November low back up at 750ish. That is the point you would expect a rebound to make a run at, but thus far no serious attempt at making that bounce. Still looking at some SPY positions, however, if SP500 can get a foot in the door for a rebound.

SP600 (-0.05%) made the late rebound as well, showing its own hammer doji as well. A total blood letting for the small caps and they are even more oversold than the other indices at 40% below its 200 day SMA. Ripe for a bounce as well.


DJ30

Reversed off the lows in the last hour to put in a doji as well. It has sold off below the 10 day EMA (6949) since early February and has made no serious effort to even challenge that near resistance point. Very strong, entrenched downtrend and on any bounce how DJ30 handles the 10 day EMA as a gauge to the rebound's strength.

Stats: +32.5 points (+0.49%) to close at 6626.94
Volume: 425M shares Friday versus 509M shares Thursday. Lower volume but still well, well above average.

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


MONDAY

Retail sales and Michigan sentiment are two key reports next week, but Congress is meeting to discuss mitigating mark to market accounting at least temporarily, and that could provide some upside incentive for stocks, particularly in their oversold condition. The financials need a kernel or two of positive news to hang onto. The WFC "business is good" statement Friday was not quite enough to get the job done. Something has to be done to unfreeze credit after its return to sub-zero temperatures ever since the stimulus bill looked as if it would pass and Geithner's non-announcement announcement about the bank bailout. Mark to market suspension, even if temporary, is a step in that direction. It is not the solution in itself, but it is an important step in the process of prying open the bank vaults and getting money circulating so that the stimulus, what there is of it, can have some hope of getting money into the hands of those needing it.

With the extreme oversold conditions we are not looking to open new downside positions without first a bounce higher to test the 10 day EMA resistance and see what kind of pushback that near resistance gives. As the market bounces we will anticipate potential rollovers and have plays designed to take advantage of them if the market hits resistance and starts back down.

As for the start of the week we will continue to look at some of the solid upside plays on the report as well as some new ones to ride any oversold bounce as far as it will run. We want stocks in good patterns as those tend to run well in recoveries. We also will look at fast runners that may not have great accumulation patterns but are in position at support to makes a sharp jump higher. Still treating any upside move as a temporary relief bounce that can make us money but will have to prove itself to be anything more. That means more leadership, and it will take time to develop that. So if we are looking at a more sustained move it will take more time to get the bases built to help sustain a further run. Kind of has to feed off itself and be as serious move to be a serious move if you get my drift. For now we look for a bounce and play it for what it will bring, and then evaluate it after a good bounce to see if there is any staying power.


Support and Resistance

NASDAQ: Closed at 1293.85
Resistance:
1295 is the November 2008 low
1316 is the November 2008 closing low
The 10 day EMA at 1359
1387 is the 2001 low
1398 is the early December 2008 low
1428 is the mid-November 2008 low
1434 is the January low (1440.86 closing)
1460 is the February low
The 50 day EMA at 1480
1493 is the October 2008 low & late December 2008 consolidation low.
The 50 day SMA at 1496
The 90 day SMA at 1519
1521 is the late 2002 peak following the bounce off the bear market low
1536 is the late November 2008 peak
1542 is the early October 2008 low
1565 is the second low in October 2008
1569 is the late January 2009 peak
1603 is the December peak
1620 from the early 2001 low
1644 from August 2003
1666 is the January 2009 peak

Support:
1271 from is the March 2003 low, 1253 intraday
1262 from July 2002
1192 is the July 2002 intraday low
1114 is the October 2002 low, the bear market low


S&P 500: Closed at 683.38
Resistance:
722 is a December 1996 low
The 10 day EMA at 722
741 is the November 2008 intraday low
The 18 day EMA at 750
752 is the November 2008 closing low
768 is the 2002 bear market low
800 is the March 2003 post bottom low
804 is the low on the January 2009 selloff
812 is the February low
The 50 day EMA at 812
815 is the early December 2008 low
818 is the early November 2008 low
839 is the early October 2008 low
848 is the October 2008 closing low
853 is the July 2002 low
The 90 day SMA at 854
857 is the December consolidation low
866 is the second October 2008 low
878 is the late January 2009 peak
889 is an interim 2002 peak
896 is the late November 2008 peak
899 is the early October closing low
919 is the early December peak
944 is the January 2009 high

Support:
681 is the June 1996 intraday peak, 673-71 closing
665 from August 1996
656-654 from January, April 1996
607-05 from November 1995


Dow: Closed at 6626.94
Resistance:
The 10 day EMA at 6948
7008 from February 1997 closing peak
7197 is the intraday low from October 2002 bear market
The 18 day EMA at 7209
7282 is the October 2002 closing low in the prior bear market.
7449 is the November 2008 low
7524 is the March 2002 low to test the move off the October 2002 low
7694 is the February intraday low
7702 is the July 2002 low
The 50 day EMA at 7816
7867 is the early February low
7882 is the early October 2008 intraday low. Key level to watch.
7909 is the early January low
7965 is the mid-November 2008 interim intraday low.
8141 is the early December low
8175 is the October 2008 closing low. Key level to watch.
8197 was the second October 2008 low
The 90 day SMA at 8280
8419 is the late December closing low in that consolidation
8451 is the early October closing low
8521 is an interim high in March 2003 after the March 2003 low
8626 from December 2002
8829 is the late November 2008 peak
8934 is the December closing high
8985 is the closing low in the mid-2003 consolidation
9088 is the January 2009 peak

Support:
6528 is the November 1996 peak
6489 from December 1996 closing peak
6356 is the April 1997 intraday low


Economic Calendar

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

March 10 - Tuesday
January Wholesale Inventories (10:00): -1.0% expected, -1.4% prior

March 11- Wednesday
03/06 Crude Oil Inventories (10:30): -757K prior
Treasury Budget, February (14:00): -$200B expected

March 12 - Thursday
Initial Jobless Claims (8:30): 640K expected, 639 prior
Retail Sales, February (8:30): -0.4% expected, 1.0% prior
Retail Sales ex-auto, February (8:30): -0.2% expected, 0.9% prior
Business Inventories, January (10:00): -1.1% expected, -1.3% prior

March 13 - Friday
February Export Prices ex-ag. (8:30): -0.0% prior
Import Prices ex-oil, February (8:30): -0.8% prior
Trade Balance, January (8:30): -$38.2B expected, -$39.9B prior
Michigan Sentiment-Preliminary, March (10:00): 56.3 expected, 56.3 prior

By: Jon Johnson, Editor
Copyright 2009 | All Rights Reserved

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

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