Sunday, April 19, 2009

Modest Gains End Upside Week

SUMMARY:
- Modest gains end an upside week.
- SP600 steps up, joining NASDAQ, NASDAQ 100 as leaders.
- Economy shows more of the same: Some reports worse, some better, none yet returning to positive.
- Banks start returning TARP funds, but will the feds give up the this cash cow?
- Fail or just test? Many convinced 6-week rally will fail and it does have issues, but it also has strength.
- No hurry to chase new positions at this juncture: earnings saturation point likely to give market a test and create another good entry point.
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- Choppy start but techs grab the lead and lead to a new post-November high.
- JPM solid earnings fail to ignite financials.
- Philly Fed better, but not enough.
- Still moving into earnings, leaders still making new post low highs, still looking for stronger volume, but also still riding the move higher.

Upside, choppy week with rotating leadership, some key moves, and still light trade.

The first official week of earnings season is history and the market, despite some setbacks to some big name stocks that announced, managed an upside week. It was choppy, back and forth action with leadership rotating on a daily basis, but it was also an upside week that saw NASDAQ, NASDAQ 100, and SP600 make key breaks higher while SOX added to its previously minted higher high. There were still blemishes, namely volume remaining low overall despite expiration week, and that fueled those calling for an end to the rally. It didn't, but the move is longer in the tooth after 6 consecutive upside weeks so you have to exercise some restraint for a bit on the buy throttle.

TECHNICAL. Intraday the action was again, as was much of the week, more bullish. Fitting given the market was up for the week. After starting lower the indices recovered and rallied positive. They held gains on the close, but they were well off the highs as the last hour saw very choppy trade that almost upset the gains. Again, for most of the week the market was up and so was the bias. That is what you would expect, i.e. the upside bias holding sway for market trending higher.

INTERNALS. Solid upside breadth all week and it was decent Friday even with basically flat prices in the large cap indices (1.9:1 NYSE, 1.6:1 NASDAQ). The problem all week, even with expiration, was the lack of volume. There was downside rising volume Tuesday, stronger upside volume Thursday and Friday. It was not blowout volume in any event and it was expiration. Volume has been low all month outside of the surge higher the second session of April. The move continues but you could say on fumes as the buyers are still pushing it higher, but overall they are fewer in number than the sellers in February and the March buyers. As noted earlier in the week, low volume moves eventually run out of gas unless new buyers come back in. Thursday and Friday were not likely new buyers, just expiration shuffling. After a good test we may then see the buyers come back with some force. For now we have been riding the move higher as the leaders continue upside, but we are very aware of the low volume and how that can turn a market quickly.

CHARTS. Some key technical moves by NASDAQ as it cleared the January peak, by NASDAQ 100 as it tested its break over the January high and rallied, and by SP600 as it too cleared interim peaks in January and February. All made higher recovery highs though the NASDAQ and NASDAQ 100 were more significant. SOX already has the most significant move as it cleared the initial recovery peak, the November high. SOX broke that last week, tested this week, and then rallied further. SP500 did not have a bad week, but it was nothing compared to the above indices. It rallied up tot eh February peak though that does not give it a higher high on this move off the low. It did clear the October low at 850 and it made it to 875 on the Friday high. That is, as you recall, one of the resistance points on the road higher. The main problem is the lack of trade on the move. Hasn't stopped it yet but at some point the pendulum swings and it does so quickly.

LEADERSHIP. The same leaders moved up last week but the action was different. Leadership changed hands daily. It this is Tuesday it must be . . . techs, right? The leadership was still there but it was choppy with not group taking the reins and ride it for more than a session at a time. All groups moved up (techs, chips, financials, retail, metals) but they were not all rowing together on any given day and really driving big gains. That may be a distinction with no difference but with the length of this move, the breach of resistance on NASDAQ and company, and the light volume, it suggests we watch and be careful with respect to a quick test. Leadership remains sound, however, and it doesn't show any reason to suspect a rollover, just more of the stair-step moves, i.e. upside then testing, upside then testing.


THE ECONOMY

Economic data about as you would expect.

The week was a mix of data both worse and better. On balance, however, it was better despite the disappointment in retail sales that kicked off the week. As noted at the time, retail sales are not really a leading indicator. The next session we saw New York PMI pull up in its dive, up to -14.65 from -38.2. Still not great but improving.

Housing starts were hardly great with a 10.8% drop. With housing THE main problem in this economic slowdown, however, it is not reasonable to expect it to lead the way out. That never happens. The bubbling sector is not the leading recovery sector. If you are looking at housing alone you will miss the recovery.

Then there was Philly Fed. It was better at -24.4 when -38 was expected (-35 prior) and that was also an attempt at slowing the dive. It was not as good as hoped, however, as the Fed raised expectations with a specific reference to Philly in its Beige book report.

Friday saw Michigan sentiment rise to 61.9 from 57.3, topping expectations. Good to see though sentiment means little once you are in a recession.

In sum the data was all over the map but the key reports were better. A bit better. Don't want to blow this out of proportion. The 'stimulus' program the Administration has sold to Congress (though not to the American people, and indeed Congress did not even read the bill isn't that in violation of their oath?) is the type that historically leads to slow recoveries, the old hockey stick turn as opposed to the 'V' turn such as that seen in 2003 when the economy went from negative GDP growth to 7.4% GDP growth in less than three quarters. We have opted for the 'Great Depression' recovery plan that attempts social engineering as a method of recovery, and as history has shown, this lengthens the recovery period considerably as money is diverted from the private sector and entrepreneurs to the inefficient government bureaucracy.


Six regional banks shed their government yoke.

Six regional banks forced to take TARP funds have repaid the money and cast off the federal yoke. One can picture their CEO's, similar to Captain Kirk in the Star Trek episode 'Gamesters of Triskelion,' yanking off the 'collar of obedience' as the money was transferred. It was only a mere $467.3M, a pittance when considering the hundreds of billions forced upon, er I mean lent to, all banks including the large financial institutions.

That raises the question when those larger institutions, the ones already talking about returning the money (e.g. GS, WFC, BAC) are going to do so. More than that, it raises the question will they BE ABLE to do so. Why is that? Well, the feds have not been clear at all as to whether they would allow the banks to get out from under the federal thumb. Barney Frank and his henchmen want to control the banks. Treasury Secretary Timmy Geithner wants the shot at replacing some bank CEO's just to show who is boss, unconstitutional or not.

More than that, however, is the money and control. One of the 'six' that returned the funds said that the feds made a 60% return on the money in the short period of the loan. That kind of revenue is hard for the feds to turn down. No, that is a misstatement. That kind of revenue is something the feds have never had and will NEVER let go. Mark these words: it will be a tremendous battle for GS et al to give the money back AND regain the parts of their companies the federal government owns via warrants, etc. This is the kind of cash cow that the Treasury and gluttonous Congress won't voluntarily give up.

When the lick log comes and say GS tenders $10B in cash in exchange for the feds' partial ownership, what are the odds the Treasury reneges? What if the banks protest? Treasury or the President will remove their CEO's. Geithner said he was ready to do just that and it is no stretch to think he won't do it if the financial institutions complain. Will that be enough to raise the cry of unconstitutionality among the mute republican senators including those from the great state of Texas who, when contacted, have 'no position' on this issue? I wonder. Just goes to show that the desire for funds and control outweighs any consideration of principles in that place called Capitol Hill.

For now we say 'bravo' to those banks that returned their funds and were able to get out from under the thumb of the feds. We should all call our senators and say bravo and remind them that when the large financial institutions pay back their funds that they should also be allowed to shake off the federal ownership as well. AFTER ALL, when Chrysler paid off its government bailout there were no strings attached. These banks that were forced in a back room Paulson arm twisting session that we hear was worse than the 'torture' we gave known terrorists pledged to destroy the US, to take these funds when they did not want them should be able to repay them and be free and clear of government intervention.


THE MARKET

MARKET SENTIMENT

VIX: 33.94; -1.85. After stubbornly holding 40 on the low of the range for 3.5 months, VIX has finally broken lower, moving below the January lows not seen since September 2008 when all of this s**t hit the fan. The market is finally dealing with it.
VXN: 35.29; -1.51
VXO: 34.97; -1.89

Put/Call Ratio (CBOE): 0.72; -0.03


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: 43.2%. The market rally has revved up the bulls, jumping up from 36.0% the prior week. The sharp jump in the bulls continues. Back over the 35% range considered bullish, but as noted this is not a bearish indication yet. Has to get up to the 60% to 65% level to be bearish. Dramatic rise from 21.3% in November 2008, the bottom on this leg. 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: 34.1%. Continuing their decline, falling from 37.1% the prior week. Well off the high on this run at 47.2%. Hit the 34's on the lows, falling from 38.5% and 46.2% in mid-December. Just slipped below the 35% level considered bullish for stocks. Bearishness hit a 5 year high at 54.4% the last week of October 2008. The move over 50 took bearish sentiment to its highest level since 1995. Extreme negative sentiment on this move. 35% is the level that historically indicates excessive pessimism. Bearishness peaked at 37.4% in September 2007. It topped the June 2006 peak (36%) on that run. That June peak eclipsed the March 2006 high (33%) and well above the 2005 highs that spawned new rallies (30% in May 2005, 29.2% in October 2005). That was a huge turn, unlike any seen in recent history.


NASDAQ

Stats: +2.63 points (+0.16%) to close at 1673.07
Volume: 2.361B (+3.71%)

Up Volume: 1.587B (-436.282M)
Down Volume: 811.385M (+477.394M)

A/D and Hi/Lo: Advancers led 1.59 to 1
Previous Session: Advancers led 2.6 to 1

New Highs: 24 (+2)
New Lows: 6 (-3)

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

NASDAQ edged over the January high Thursday and hung onto the move by its teeth Friday. Ironically the volume jumped both sessions, but it has to be discounted given expiration week. On the week NASDAQ tested the prior week's break over the February peak (after testing the January high) and rebounded to take out that next resistance. It was not a clear take down; as noted, it cracked above it and just managed to hold. It showed a hanging man doji Friday, indicating it was not a clear breakaway (duh). The question is how much of a test. NASDAQ has been rallying 2 to 3 sessions and then testing 2 to 3 sessions. This second leg has now covered 182 points. The first leg covered roughly 300 points so there is more room upside, but that the next resistance is the November peak and the 200 day SMA that are roughly coincident at 1785. Not likely to make that run on this particular bounce higher. Thus it likely tests back some from here or from a bit higher toward 1700.

SOX (0.12%) was flat Friday and indeed did not put much more of a gain in on the week above the strong move the week before. SOX cleared the November peak last week and held it this week, but it is just below the 200 day SMA and the action on the week was, how do you say it, choppy. The INTC earnings threw a monkey in the wrench and kept the gains modest. NONETHELESS, the choppy action that made little headway indicates the move is shifting gears for a test. SOX is the market leader and if it needs to test then the market will likely test as well.

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

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


SP500/NYSE

Stats: +4.3 points (+0.5%) to close at 869.6
NYSE Volume: 1.953B (+21.73%)

Up Volume: 1.152B (-99.861M)
Down Volume: 789.773M (+459.932M)

A/D and Hi/Lo: Advancers led 1.91 to 1
Previous Session: Advancers led 3.44 to 1

New Highs: 12 (-4)
New Lows: 63 (-6)

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

SP500 tested early in the week then rallied Wednesday to Friday. It beat 850 and then moved to next resistance at 875, tapping that on the high. It cleared the October low resistance but made it to the late January and early February peak. Quite a bit of resistance here and the volume is still very iffy. Reaction to the financial earnings was not negative as the financials continued higher, but the response to the earnings was not strong. To us that means the move on the financials needs a test sooner than later, and here at 875 is a possibility. It could ride higher on up to 900 to 920ish on this leg though the latter is getting out there a bit.

SP600 (+1.42%) was a standout on the week rising over 11% in the past seven sessions. It was the first NYSE index to pas the February high as well as the late January peak, making a higher high but not the critical higher high at the January peak up at 277, another 22 points higher. Small caps jumped up first off the November low, but they could not keep up the pace and as the economic details worsened the small caps turned into clear laggards. Now they are on the cusp of turning itself into a leader once more.


DJ30

The blue chips remain laggards. Up on the week but barely, unable to break through even the October low. Still below the February and late January peaks. Maybe it can breakout and rally again; it was an early leader in the rally. It has now given that up and is even having trouble tagging along.

Stats: +5.9 points (+0.07%) to close at 8131.33
Volume: 537M shares Friday versus 359M shares Thursday. Expiration volume jump. No big deal.

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


MONDAY

Six weeks into the rally and that is about twice as long as many felt it would last. We have been cautious since late March though that has not kept us from buying into good moves and accordingly making really good money as the move continues. This is truly a case where your gut can steer you wrong. You may feel that the move cannot continue, but if there is a lot of leadership working well, you let the market do the talking and you follow along. That has worked very well for us. It always does.

But now the cry for a correction is very loud. Last week old salts on the NYSE floor were saying a test was coming and that Tuesday may have been the start. Then of course Wednesday was a reversal day off support and Thursday was a big upside session. Even Friday with its modest gains overcame downside to post that positive close. The action on SOX, the clear market leaders, suggests the move is indeed hitting some air pockets. It was up and down and made little headway as it bumps key resistance. If you look at SP500 you see it is almost at a 78% retracement of the decline from the January peak to the March low and that is a key level to watch on any rebound as it can act as resistance. Another indication the move has some issues at this level.

This past week saw key indices break to higher highs and even build something of a cushion after doing so, e.g. NASDAQ 100 and SOX, and to a lesser extent NASDAQ. You like to see that from leaders, i.e. breaking resistance and putting some distance on it to allow for that old resistance to become support when that inevitable test comes. You want to see a big enough move through resistance to give an index room to test and hold. That is very healthy action when that occurs. As noted, NASDAQ 100 and SOX have put themselves in that position. If the market tests back from here we will look for these leading indices to test the last resistance and if they hold the move still has the sand to continue.

All this means that we don't want to chase too many positions higher at this point. We have some great plays in progress that have made us a lot of money and we took some nice gain once more as the upside moves on the week progressed. We also took some new positions last week on some great stocks that tested back during the week. We enter the new week watching these carefully in the event the move stalls out. As noted, SOX and NASDAQ 100 have room to test and set up for yet another move higher. We have seen, however, that it takes the financial stocks along with the techs to really move the market higher. Last week they were trading off and the market was up but not with any power. If the financials take a break or sell back on the stress testing rumors the overall market struggles.

A pullback would not be a bad development for the market. It has run 6 weeks in a steady orderly manner but it and SOX is at the 200 day SMA while NASDAQ 100 is less than 50 points from its 200 day. It is even closer to the November peak. Financials were nonresponsive, at least in a big way, to good earnings. SOX was choppy at its resistance. It is easier to make a case for a pullback. Keep in the back of the mind, however, that these low volume rises can continue much longer than anyone anticipates.

Thus for this week we are mindful that the indices are at critical levels and showing some stress. We are mindful that early week after a move higher into expiration there is frequently some retrenching. We watch our stops and how our stocks behave at support. If they get dicey there is no point in hanging around in too many positions. Those in solid shape can maintain the course but if things deteriorate, i.e. volume turns higher on some selling and near support starts cracking, might as well take some more money off the table and let the test come. It can be a short test or something more significant, but because we took nice gain on the way up and will mind our positions at support, we will be in great shape to take advantage of the next move after the test.


Support and Resistance

NASDAQ: Closed at 1673.07
Resistance:
1780 is the November 2008 peak
The 200 day SMA at 1785
1947 is the October gap down point

Support:
1666 is the intraday January 2009 peak
1661 is the April 2009 prior peak
The January closing peak at 1653 (intraday)
1644 from August 2003
The 10 day EMA at 1627
1623 is the early April peak
1620 from the early 2001 low
1603 is the December peak
1598 is the February 2009 peak, the last peak NASDAQ made
1587 is the March 2009 high is getting put to bed again
1569 is the late January 2009 peak
1542 is the early October 2008 low
1536 is the late November 2008 peak
The 50 day EMA at 1534
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


S&P 500: Closed at 869.60
Resistance:
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:
866 is the second October 2008 low
857 is the December consolidation low; cracking but not broken
853 is the July 2002 low
848 is the October 2008 closing low
The 10 day EMA at 846
846 is the April peak
842 is the early April peak
839 is the early October 2008 low
833 is the March 2009 peak
The 90 day SMA at 827
818 is the early November 2008 low
815 is the early December 2008 low
The 50 day EMA at 815
805 is the low on the January 2009 selloff. KEY Level
800 is the March 2003 post bottom low
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


Dow: Closed at 8131.33
Resistance:
8141 is the early December low
8175 is the October 2008 closing low. Key level to watch.
8197 was the second October 2008 low
8375 is the late January 2009 interim peak
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:
The April peak at 8113
The early April peak at 8076
The 10 day EMA at 7986
7965 is the mid-November 2008 interim intraday low.
7932 is the March 2009 peak
7909 is the early January low
7882 is the early October 2008 intraday low. Key level to watch.
7867 is the early February low
The 50 day EMA at 7768
7702 is the July 2002 low
7694 is the February intraday low
7552 is the November closing low. KEY Level.


Economic Calendar

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

April 20 - Monday
March Leading Economic Indicators (10:00): -0.2% expected, -0.4% prior

April 22 - Wednesday
04/17 Crude Oil Inventories (10:35): +5.670M prior

April 23 - Thursday
04/18 Initial Jobless Claims (8:30): 630K expected, 610K prior
Existing Home Sales, March (10:00): 4.65M expected, 4.72M

April 24 - Friday
March Durable Orders (8:30): -1.5% expected, 5.1% prior
Durable Orders, Ex-Auto, March (8:30): -1.2% expected, 3.9% prior
New Home Sales, March (10:00): 340K expected, 337K 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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Monday, April 13, 2009

Earnings Top Expectations

SUMMARY:
- Wells Fargo pre-announcement ignites a strong continuation of the rally's second leg.
- WMT lackluster March sales seen as disappointing but it could herald the start of consumer recovery.
- Earnings season thus far rewarding as earnings top expectations. Investors now expecting too much?

Thursday was more than just a bounce, at least for part of the market.

Wednesday night we said the move up was not as strong a rebound as you want to see, but we could live with it given the leadership. Thursday was strong enough, at least on the NYSE indices given the financial stocks' rampage. The reason for the rampage was Wells Fargo pre-announced $0.53 versus $0.23. Futures were up before that news, but that is what upped the horsepower tenfold.

That was enough to overcome sloppy same store sales that saw WMT March sales +1.4%, quite off from the 3.2% expected. Overall retail sales were slimmer at -1.8% versus the -0.9% expected and the +0.3% in February. With weekly jobless claims still high (654K versus 660K and 674K prior) and continuing claims hitting an all-time high at 5.8M, a bit of consumer upset is expected. On the other hand, Japan put forth a larger than expected stimulus package and reported an increase in machinery orders. On balance the negatives were nowhere near enough to stand in front of the financials and their lead engine on the day, WFC.

Stocks gapped higher and never came back. After that initial gap and run in the first half hour stocks and the indices moved laterally for 5 hours, basically the rest of the session before a late drift higher and bump upside into the close. The indices cleared the early April peak and made some significant moves with NASDAQ 100 making a new breakout, SOX pushing the November high, the previous high since the bear market started, into the dirt, and NASDAQ moving over the January closing high.

Despite the great set ups after the pullback, the gap did not give us a chance to enter many positions. That happens. Fortunately we had taken some new positions as the opportunity presented during the past week. Moreover, an upside session ahead of a holiday typically leads to some downside early the following week and that can produce some buys. Thing is, the market is strengthening as the second upside leg breaks to a new high given the better than expected earnings and earnings pre-announcements. Thus maybe we get an entry point early next week or maybe those that gapped Thursday require a week or two to consolidate the gap and set up the next move as we cull through earnings season. There will be others stepping up in the interim and as always we just have to be patient and not chase the bus. We have some great positions we are riding higher, e.g. AMZN, BRCM, MRVL, QCOM, TSM, and we will let them move along with the newer positions we picked up the past week as well as on Thursday. You have to like how the market is rotating new leadership into the fold as the early leaders rest and set up for their next move as well. Thus you see the waves of good movers and while Thursday was hard to get in on given the gaps, the market is giving series after series of entry points. That is another sign of a healthy market.


TECHNICAL. Intraday was positive again with the gap higher, the long flat intraday consolidation, then the rise into the close. The market shot higher and held its gains without any serious test. Given the type of news that drove stocks higher it is not surprising the shorts didn't want any part of the action.

INTERNALS. Very strong breadth as you would expect with 6:1 on NYSE and 5:1 on NASDAQ. All sectors were strong as financials led the move but other sectors found reason to rally: if the financials are doing well that is good for the economy and hence the market. Volume surged back above average on NYSE though NASDAQ could not turn above average volume though trade was the best of the week. The shorts had to cover desperately once more as the market did not turn over at next resistance. There was also long buying however as you saw leaders make strong moves; most leaders have no sizeable short positions in their stocks and thus their moves are typically long buying. The drawback is volume was NOT spread out over the entire market. Most of it was concentrated in the financials as shorts are still present and they were again forced to cover.

CHARTS. There were some very key moves. SOX, the clear leader in the rally, put in a new bear market recovery high. SP600 broke out of a reverse head and shoulders pattern though it rallied right up to next resistance. NASDAQ closed over the January closing high, starting the breakout from what is more or less a 5 month Double bottom w/handle base. NASDAQ 100 made a clean break out of its 6 month base. SP500 broke from its own reverse head and shoulders pattern on that stronger, above average volume. These are all bullish indications as noted above, and they show strengthening as the upside move continues. The indices are currently on the second leg of the rally off the March low, renewing the move after the 1-2-2.5 pullback (as opposed to a 1-2-3) last week.

Some are saying that the market has to go back and test the prior lows before a sustained, long-term upside move. First, the market never has to do anything and those that expect certain things are typically disappointed. Figuring market moves is all about probabilities based upon patterns, volumes, leadership, etc. We have discussed the need for another test before. In the last bear market only one index did not undercut its prior low; all the others did and that did not require a test. This time around SOX held above the lows, never testing November. The other indices did make tests: NASDAQ 100 formed a nice double bottom as has NASDAQ. SP500 undercut its November low but again, it is not necessary that every index return to the point of origin in the selloff.

That does not mean it is all clear sailing from here. SP500 is still in a range of thick resistance from 900 to 945 and it just crossed the October lows that represent important resistance as well. SP500 will continue to work hard to get through this level, though the Friday breakout from the reverse head and shoulders gives it some upside momentum near term toward 900. From there it likely tests and extends laterally as it bumps resistance and tries to consolidate for a new breakout.

LEADERSHP: Financial leaders were of course surging along with most other financials, leader or not. Leaders in semis, tech, commodities (coming back nicely), and retail (more or less) were all moving. There were breaks higher by industrials such as DE and CMI, but their gaps were big and they never came back, and we did not want to chase the bus. Volume outside the financials, even in commodities that jumped higher, was weak. Hence the lower NASDAQ volume even as NYSE with its large financials contingent saw jumping trade. Not bad action; it is always good when leaders lead and new leaders continue to emerge. Friday saw both, and we enjoyed other investors pushing our positions taken earlier further to the upside.


THE ECONOMY

WMT March sales miss expectations. Good or bad?

Wednesday we discussed whether tumbling wholesale inventories was a good or bad indication for the economy. At this juncture, low inventories are good as that will require a rebuild and that means future production. It doesn't say much for the current situation, but it is a positive when demand rises.

Thursday there were gloomy faces with regard to the retail sector as same store sales fell 1.8% versus the 0.9% anticipated and the 0.3% gain in February. The big cherry on top (or the black rose if you want) was WMT's miss of expectations. Sales were up, but the 1.4% fell far short of the 3.2% expected.

Woe is retail, woe is retail. The giant reported worse sales and thus all must be lost. Okay there was not that level of wrist-slashing despair, but the headlines on all the financial stations, just under the Wells Fargo news, was the WMT miss and what it meant for the state of the consumer. On top of that there was the February trade gap that hit a record low (-$26.0B) as consumers shun imported goods. Of course that was February data and same store sales rose 0.3% that month so the correlation is somewhat weak; still, when the US is in recession that is the only time consumers don't consume a lot of foreign goods.

But is a WMT miss automatically a bad thing for the economy? No. WMT is huge and it has an indelible footprint on US retail sales. Nonetheless, it is still a recession stock as its sales rise in recessions along with its stock price. After a run to a peak in September 2008 WMT peaked. The market peaked as well so it is not necessarily an indication of a change specific to WMT. What does show something WMT specific is the tumble this month after WMT recovered to the 200 day SMA only to roll over and drop 10% this month as the rest of the market rallies.

WMT does worse when the economy improves because consumers no longer feel compelled to pinch as many pennies and spread out to boutiques, specialty stores, and the high end stores as well. Note that WMT started its run higher ahead of the economic downturn, outperforming nearly all retailers as investors anticipated its rising sales due to a declining economy. When investors anticipate an economic recovery, they will start unloading WMT. The rise and fall occurred in the 2000 to 2002.

Is it starting right now? WMT is not participating in the new run higher and sales have slowed. It is hard to extrapolate March alone into a decline slope for WMT sales. One month alone can be an outrider and other stores failed to show great sales either. In any event the stock price will fall ahead of a sales drop and thus we are looking at the failure to participate in this rally as a significant development. It is not definitive in itself, but with the other indications of economic improvement the past few months WMT's action is something to log with the other data. And to answer the above question, a decline in WMT's stock price is not a bad thing for retail overall and indeed generally is a positive portent for other retailers that see their business improve as consumers feel positive about a recovery and start spreading their disposable dollars around versus buying WMT's functional but painfully bland product lineup.


THE MARKET

MARKET SENTIMENT

VIX: 36.53; -2.32
VXN: 38.23; -2.27
VXO: 37.41; -1.86

Put/Call Ratio (CBOE): 0.81; -0.04

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: 36.0%. Sharp jump in the bulls, moving back above 35%. Below 35% is a bullish indication. Above is not so bullish but is not bearish until higher levels. 31.0% the prior week up from 28.9%. Still well below the 43.0%, the prior top of the recovery as the market rallied off the November low. 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: 37.1%. Fewer bulls but not a commensurate fall compared to bulls and their rise (38.0% last week). Big drop from 43.3% and 44.3% before that. The decline was slowing its fall from 47.2%, the peak for the run this year but no more. 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. Bearishness hit a 5 year high at 54.4% the last week of October 2008. The move over 50 took bearish sentiment to its highest level since 1995. Extreme negative sentiment 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: +61.88 points (+3.89%) to close at 1652.54
Volume: 2.099B (+16.85%)

Up Volume: 1.98B (+494.461M)
Down Volume: 191.13M (-166.801M)

A/D and Hi/Lo: Advancers led 4.8 to 1
Previous Session: Advancers led 2.58 to 1

New Highs: 25 (+19)
New Lows: 7 (-3)

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

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

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


SP500/NYSE

Stats: +31.4 points (+3.81%) to close at 856.56
NYSE Volume: 1.836B (+39.54%)

Up Volume: 1.713B (+757.883M)
Down Volume: 115.554M (-230.456M)

A/D and Hi/Lo: Advancers led 5.94 to 1
Previous Session: Advancers led 2.73 to 1

New Highs: 14 (+10)
New Lows: 64 (+16)

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


DJ30

The Dow bounced off the 10 day EMA support and moved through 8000. That takes it into the lower ranges of the January/February consolidation but that only puts DJ30 right in the middle of resistance up to 8375. It made a new closing high on this move off the March low so there are positives; it is just that DJ30 has been less than inspiring, letting the other indices do the work.

Stats: +246.27 points (+3.14%) to close at 8083.38
Volume: 462M shares Thursday versus 255M shares Wednesday. The financial issues on the Dow were jumping on strong volume.

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


MONDAY

The market finished the shortened week with strength, moving higher on rising volume. Often when the market closes strong ahead of a holiday it is down to start the next week. With the gaps higher Thursday that makes some sense; so many stocks gapped higher and not all were worthy but were just caught in the whoosh higher. Thus we could very easily see some backfilling to start next week despite the strong move to continue the second leg higher off the March low shown on Thursday. That could give us some good entry points on some of those great stocks that jumped higher Thursday such as CMI, SCHN, DE, MR, and quite a few others. Patience; let them come to us. As noted above it could be a day or two or it could be a week or two before they are ready depending upon what the overall market does with the move.

As for what Thursday and the WFC pre-announcement means we need to get past the initial euphoria the shock of 2x expectations placed in investors' minds. The WFC earnings on top of RIMM's earnings have investors starting to consider that things are not as bad as everyone thought. Some are even saying that we could get a positive GDP reading in Q2.

Maybe we will, but we need to put things in perspective. The WFC earnings were very nice to see as they showed mortgages are recovering and that basically banks can make money in this environment. But what is the environment? The Fed has reduced the cost of lendable funds to banks to virtually zero, and banks can turn around and loan the money from 2% on up to 5% and more. With many individuals and companies starved for credit to operate, banks such as WFC are making money hand over fist with this incredible gift from the Fed. Let's face it, a trained monkey could make money in this circumstance. Maybe not even trained monkeys.

Does that translate to other sectors of the economy? No. They don't have the no cost funds to operate with. Indeed, when you are dealing with banks right now there is massive unfairness and indeed a lack of equal protection under the Constitution. The Congress has set up zones of the country where loans are not equal. If you live in Florida, parts of New York or California, a jumbo loan is not limited to $417K to be conforming as it is in all the rest of the country. This involves mostly individuals, but the point is the same: the banks are getting a sweetheart deal, some people by virtue of where they live are getting a sweetheart deal, but none of the rest of us are.

Thus the euphoria spawned by the RIMM/WFC earnings could be setting up disappointment as more earnings come out if the majority view these two reports (and we will throw in BBBY because it too had good earnings) as definitive of the earnings season. Harsh reality could quickly turn the excitement to some consternation.

Hopefully earnings will continue to surprise. That will continue to help the market . . . to a point. At some point, even in good earnings seasons, the market hits its good news saturation level. Despite continuing good tidings there comes a point where each additional positive story has a lower marginal impact until they have no impact. The market cannot ride news higher indefinitely, and when that point is hit then there is a correction. If earnings continue to turn up better the market will rally on this second leg until the saturation point and then it will sputter along with the second leg.

That is of course not the case right now. The earnings are new, fresh, and better than expected. The stock move is strengthening as of Friday. That means we will continue looking for opportunity to invest in this second upside leg and that means some testing by stocks that gapped higher Thursday or were already moving well ahead of the news. It also means we look for newly emerging stocks as well because as we know, stocks in rallies come out in waves. The early leaders take off, run higher, then test. As they were making their moves others were setting up bases and then make their break higher as money moves from the early leaders to the newly emerging. It flows around the market, eventually getting back to the early leaders after they test and come back to near support and we see them rally off that test once more. Have said it before: rotation is not just good for tires.

So we enter this week with a strengthening second upside leg and that means we continue looking for entry points on solid stocks whether it is an early week pullback to test the gaps higher or new stocks emerging from bases. At the same time there is the earnings overlay. Thus far so good but we are not counting on that holding up. And as noted, even if it does, at some point the news is no longer news. The beauty of that is we get a nice run for our positions, take some nice gain, and then are more than ready to see the market test back.


Support and Resistance

NASDAQ: Closed at 1652.54
Resistance:
The January closing peak at 1653
1666 is the intraday January 2009 peak
1780 is the November 2008 peak
1947 is the October gap down point

Support:
1644 from August 2003
1623 is the April peak
1620 from the early 2001 low
1603 is the December peak
1598 is the February 2009 peak, the last peak NASDAQ made
1587 is the March 2009 high is getting put to bed again
The 10 day EMA at 1581
1569 is the late January 2009 peak
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
The 50 day EMA at 1508
1505 is the late October 2008 closing low.
1493 is the October 2008 low & late December 2008 consolidation low
The 50 day SMA at 1478
1440 is the January 2009 closing low


S&P 500: Closed at 856.56
Resistance:
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:
853 is the July 2002 low
848 is the October 2008 closing low
846 is the April peak
839 is the early October 2008 low
833 is the March 2009 peak
The 90 day SMA at 827
The 10 day EMA at 825
818 is the early November 2008 low
815 is the early December 2008 low
805 is the low on the January 2009 selloff. KEY Level
The 50 day EMA at 805
800 is the March 2003 post bottom low
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


Dow: Closed at 8083.38
Resistance:
8141 is the early December low
8175 is the October 2008 closing low. Key level to watch.
8197 was the second October 2008 low
8375 is the late January 2009 interim peak
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:
The April peak at 8076
The 90 day SMA at 7975
7965 is the mid-November 2008 interim intraday low.
7932 is the March 2009 peak
7909 is the early January low
7882 is the early October 2008 intraday low. Key level to watch.
7867 is the early February low
The 10 day EMA at 7846
The 50 day EMA at 7703
7702 is the July 2002 low
7694 is the February intraday low
7552 is the November closing low. KEY Level.


Economic Calendar

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

April 14 - Tuesday
PPI, March (8:30): 0.1% expected, 0.2% prior
Core PPI (8:30): 0.0% expected, 0.1% prior
Retail sales, March (8:30): 0.3% expected, -0.1% prior
Retail ex-auto (8:30): 0.1% expected, 0.7% prior
Business inventories, February (10:00): -1.1% expected, -1.1% prior

April 15 - Wednesday
CPI, March (8:30): 0.2% expected, 0.4% prior
Core CPI (8:30): 0.1% expected, 0.2% prior
New York PMI, April (8:30): -35.0 expected, -38.2 prior
Capacity Utilization, March (9:15): 69.7% expected, 70.9% prior
Industrial Production, March (9:15): -0.9% expected, -1.4% prior
Crude oil inventories (10:30): +1.6M prior
Fed Beige Book (2:00)

April 16 - Thursday
Housing starts, March (8:30): 550K expected, 583K prior
Building permits, March (8:30): 550K expected, 547K prior
Initial jobless claims (8:30): 654K prior
Philly Fed, April (10:00): -32.0 expected, -35.0 prior

April 17 - Friday
Michigan Preliminary sentiment, April (9:55): 58.5 expected, 57.3 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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Sunday, April 05, 2009

Market Extended or Starting Next Leg?

SUMMARY:
- Upside resilience continues.
- ISM services backsliding some after trying to turn the tide.
- LIBOR Resumes its improvement.
- Lagging indicator's leading indicator is not promising for jobs.
- Market extended or just starting its next leg? Earnings season is the next big indicator.

Market holds tough as buyers use dips to do what buyers do.

The big news of the morning, the jobs report, was in line, and with the whisper at -700K and more that was something of a win. Sort of. Modestly higher futures ahead of the number remained modestly higher afterwards as a quick spike fizzled and the status quo resumed. The jobs report was not as bad as expected, and while that can propel the market higher at times, after the kind of run stocks have put in off the March low, it takes more than a not as bad as feared economic report to send stocks rampaging again. Thus there was no new big surge Friday similar to the Thursday upside juggernaut. RIMM's earnings got the large cap tech juices flowing along with once again the semiconductors, and steel stocks as well as retail were up again, and okay, so was GS. Basically the leaders were leading again. But outside of those . . . there was not the same hoopla as on Thursday.

Stocks opened upside and after a short spurt the sellers took a shot. We all knew they would given the run higher and the weak jobs report. Sellers are probing for their opportunity and they sent out a recon team early in the session. The ISM Services was less than expected and below February and stocks slid lower, but then bounced along in a range until lunch. Must have been a 3-martini lunch because stocks were jovial the rest of the day, rallying to the session high as lunch ended, then to new session highs mid-afternoon. With that kind of recovery the sellers took another shot. A few minutes into the last hour we saw the same kind of selling seen in the prior closing hours last week. Stocks sold steadily, but when they high the lunchtime high they reversed and bounced in the last half hour to yet new session highs.

That is a long description of the of the events of the day, but the bottom line: the entire week showed resilience. After Monday butt-kicking gap lower, the indices held support and started a weeklong solid recovery to higher highs on this leg. Each time the market looked about to get its tail caught in the door the upside bias asserted itself. Sure it got some help from the mark to market changes announced on Thursday and the anticipation of that news earlier in the week. But it also overcame a really bad ADP report on Tuesday, reversing a gap lower that session. It rallied in the face of adversity, it held onto gains, and it moved higher even on Friday when there was not a lot of reason to move higher. There is a definite upside bias and continuing resilience, but the sellers are also there, probing for the opportunity to sell into an upside move that may be a bit extended. They are likely to have more success after earnings get underway, but if there are more than a few bad warnings next week they could step in earlier. The key, as always, is whether the sellers can just push a normal pullback after a good run or if they can really get violent and wreck the moves in the leaders. Given the resilience shown of late you would anticipate more of a normal pullback to support but it always helps to stay vigilant.

TECHNICAL. Bounced around from modestly higher to modestly negative and then rallied to 1% to almost 3% gains on the close. Shook off a couple of selling attempts again to close at session highs. Resilience.

INTERNALS. Modest breadth (2:1 NYSE, 1.5:1 NASDAQ) that pretty much matched the action. Volume, however, was much, much lower. Way lower, not even reaching average. There was no real driver, but the market still moved higher into the close. There is that upside bias noted above. But . . . the entire week moved on low volume outside of Thursday, the Mark to Market session. Without additional volume coming in the move has an increasing probability of running out of upside gas and making a test back much more quickly even though it looks as if a second leg to the March rally just started. Now the low volume was good on the downside sessions as there was no distribution, and we did see rising volume on the upside sessions. That is a positive as it shows the buyers are stronger, but again, the volume was not as strong overall. In other words the buyers were stronger but the number of players was smaller, kind of like 7 on 7 football versus 11 on 11. When everyone gets on the playing field things can change in a hurry.

CHARTS. NASDAQ put some more mileage on 1600 and the February high, making that higher high so critical to new rising uptrends. It is moving on up to the January high, the last peak before the serious stuff in early November. SP500 rallied again, but even though it closed higher, it was still below the Tuesday intraday high that tested 850 resistance. Still more work to do there. The lighter trade tells us the Friday moves didn't mean a whole lot other than the continued upside bias currently in the market. Well, not for all indices. SOX broke through its November peak, meaning it has hit a new high for the recovery attempt, a very important move. The indices may be a bit extended as they only took three and one-half days off from the three week run off the March low, but this can also be just the start of a new leg in the rally. See the Leadership section below.

LEADERSHIP. Chips came to life Thursday along with the techs, and that really boosted the market. They were joined by commodities as well after the Thursday 'we are back baby' statement about its economy. Very good to see them back in the game. True some leaders are a bit extended, e.g. the China stocks that exploded higher again, but many leaders have made good pullbacks and are embarking on another leg. DRIV, BIDU, CME, WFR, and BRCM are quality stocks that can lead higher and just got started on new moves. There are some key financials that have rallied and are now in a two week lateral move, starting to break higher (e.g. JPM, GS). They too can help lead higher while other leaders take a rest. Many view the market as extended at next resistance, and it is somewhat, but if new and not so new leaders keep pushing to the front as happened when the techs and chips re-engaged late in the week, the market finds new fresh legs. Indeed, we felt the market was done this week but it kept moving higher, making us money. That is why we always think about what COULD happen but watch the market for the 'buy me' and 'sell me' indications as to what will happen. We still like what we see in the leaders but have an eye on the lower volume the past week.


THE ECONOMY

ISM Services improvement attempt takes a month off.

The ISM manufacturing report put in an upside month in March, showing some more slow and not so steady improvement, but improvement nonetheless. The Services ISM Friday could not match that modest improvement, falling to 40.8 from 41.6 in February and 42.9 in January. Still higher than the manufacturing survey, but also below 50, meaning that it is still contracting though at an overall slower pace the past few months.

Does the market lower read mean the improvement attempt is over? Of course not. Turns are never perfectly smooth arcs from higher to lower or lower to higher. Change means volatility. Look at any move in stocks that is reversing. A steady trend higher starts to buck and gyrate before it turns. Same with economic trends and trends in nature. All trends run smoothly until they change, and then it is back and forth jockeying as the true believers try to keep the trend alive while those voting for change try to derail it. Thus a reversion to a lower month doesn't mean a whole lot. It does if it doesn't get back on track.


After holding steady for two weeks, LIBOR makes a serious move.

Three-month LIBOR, the key LIBOR rate to watch along with the US 3-month Treasury, hung around at 1.23% for over a week. Recall that after a very positive decline to close to 1% it rebounded sharply on all of the spending from the 'spendulus' package, the weekly bailout packages, and the 'budget' (a.k.a. spendthrift manifesto), it jumped back up to the 1.25% range. That is still well below the 4+% level in September 2008, but it was a reversal of the progress, a setback, a bitter pill to swallow, and not at all good for the credit market that has to be fixed in order for the economy to recover.

So much riding on it, yet so rarely covered. Well last week it turned over a new leaf, rallying lower as the stock market rallied higher. It appears that both are forecasting some better times at least for the near term. 3-month LIBOR broke the logjam and fell from 1.22% the prior week to 1.16% Friday. Cool. The other levels are lower but basically the same. The three month is the key, and we are happy to see it finally make a serious drop once more. That indicates the road to improvement is moving once more.


Average Workweek indicates jobs will continue to struggle near term.

Thursday I went to some lengths explaining how the jobs report is a lagging indicator and does not tell us anything about the economic status. By the time jobs improve the other evidence of economic recovery is overwhelming. So the jobs report is much discussed but it is all academic.

You can, however, look inside the jobs report to find indications of whether the lagging indicator is trying to change. The best indication is the average workweek. When the economy slows the workweek typically slows as well as companies have less to do but are loathe to layoff trained and productive workers. It costs a lot of money to train a worker, and you want to keep them on if possible to avoid the costs of new training if those laid off find work elsewhere and thus don't come back when business improves. The same number of workers doing less work means the workweek falls.

At some point in a recession layoffs become inevitable no matter how much the business wants to hang onto its trained employees. That is what we have seen with the millions of lost jobs the past year. Fewer workers but still slow business, so the workweek remains low.

Then, when things start to improve the business waits to hire new workers and demand more from those still with jobs. Productivity rises as workers have to handle the increased workload without increased help. What happens? The average workweek starts to rise because more work is required. You start to see overtime and the workweek rises even more. Finally the company has to hire new workers or else risk losing the employees it held through the recession either by direct revolt from having to do too much work or getting cherry-picked by other companies looking for talent.

So on Friday when the average workweek FELL to 33.2 from 33.3 where it has held for months on end, that indicates the employment picture is not improving at all. There is not even the little uptick in the workweek to pique interest. It is instead heading lower, still on the downside slope. Hardly encouraging given all of the supposed 'jobs saved' by the stimulus package. I guess if you have not lost your job you would be considered as a job saved. How else are you going to measure it? Got to Caterpillar where a speech was made about how a few hundred jobs would be saved immediately if the stimulus was passed only to see CAT announce layoffs of several thousand workers just weeks after passage. Guess that is not the example the Administration wants to tout. Better go back to Ohio and find those 12 police officers who were kept on the payroll and milk that one more.


THE MARKET

MARKET SENTIMENT

VIX: 39.7; -2.34
VXN: 40.6; -1.69
VXO: 41.63; -2.84

Put/Call Ratio (CBOE): 0.83; +0.14. The ratio means most when it closes over 1.0 or is down at the 0.4 range. Those are the extremes, the former indicating high anxiety about the market while the latter indicates apathy and thus a potential fall in the works. It is interesting how the ratio jumped Friday even as the market posted gains. This shows that the funds are nervous at this level and are buying protection (not condoms but puts) in the event the market falls. That is actually a good contrary indicator, i.e. the big funds getting nervous about the upside prospects.

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: 31.0%. A little rally and a climb in the bulls, up from 28.9% and jumping over the highs a month back at 29.7%. Still well below the 43.0%, the prior 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: 38.0%. Quite the drop from 43.3% and 44.3% the prior week. The decline was slowing its fall from 47.2%, the peak for the run this year but no more. 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. Bearishness hit a 5 year high at 54.4% the last week of October 2008. The move over 50 took bearish sentiment to its highest level since 1995. Extreme negative sentiment 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: +19.24 points (+1.2%) to close at 1621.87
Volume: 2.086B (-23.03%)

Up Volume: 1.512B (-914.846M)
Down Volume: 594.908M (+215.85M)

A/D and Hi/Lo: Advancers led 1.53 to 1
Previous Session: Advancers led 3.68 to 1

New Highs: 15 (-14)
New Lows: 15 (+5)

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

NASDAQ kept on pushing upside, finding renewed strength as the techs and chips rejoined the fray Wednesday and particularly Thursday. That ignited the upside move. Cleared the February and December peaks near 1600 and closing in on the January peak at 1666. Strong move off the early march low, the bear market low, a short rest to end March, then a renewed upside move to start the new quarter. New money definitely made its way in, but the leaders were moving on good volume so it was not a fluke. Still, when the new money is spent NASDAQ will have to find still more buyers. Good start to a new leg, we will see how many more buyers come back to the buy side this week.

NASDAQ 100 (+1.69%) gapped higher again and definitively cleared the January and February peaks and is looking at the November peak though that is still a good throw upside. Nice move and another upside push sets up a test of the prior peaks it just broke through. Nice action.

SOX (+2.94%) continues its surge as it moved PAST its November peak, making a new high for the recovery. Seriously solid movement and of course we have banked a lot of gain from the chips on this run. A further push toward the 200 day SMA at 265 gives it a good point to shoot for and then test the breakout. Letting our SMH positions run higher for now but ready to take some gain after another move higher early in the week.

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

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


SP500/NYSE

Stats: +8.12 points (+0.97%) to close at 842.5
NYSE Volume: 1.484B (-20.82%)

Up Volume: 1.159B (-550.923M)
Down Volume: 300.19M (+139.809M)

A/D and Hi/Lo: Advancers led 2.08 to 1
Previous Session: Advancers led 5.95 to 1

New Highs: 5 (-10)
New Lows: 54 (-14)

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

A further push higher but on below average volume and unable to take out the next resistance at 850ish. Similar to NASDAQ, SP500 tested its March move late that month and has resumed the move, aided by that big Thursday surge on big volume. This week we see if that was a Lone Ranger move or the start of a new leg higher. Still resistance at 875 from the February peak and then up at 920. Now this 850 level is also the series of October lows where the index tried to hold after the straight dive to the bottom. That means some extra resistance at this point and SP500 might have some trouble moving through. So, watching SP500 closely and its financials as a barometer of the strength of this new attempted move.

SP600 (+1.62%) moved through the Thursday peak and right up to the October low. Basically in the same position as SP500, but showing a nice reverse head and shoulders formation setting up. Would be sweet if SP600 could go ahead and breakout and become a leader once more. That would be huge and sweet.


DJ30

Leader on the week but not Friday, meekly rising to close at the 90 day SMA on light trade. New high on the move off the March low but still stacks of resistance ahead and DJ30 is moving right into the teeth of it at the January and February consolidation lows.

Stats: +39.51 points (+0.5%) to close at 8017.59
Volume: 308M shares Friday versus 442M shares Thursday.

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


MONDAY

Friday did not give us the test of the Thursday gap move and with the market gains on the day many stocks we were looking at just before the Thursday gap remain out of reach. Why out of reach? Because chasing the bus at this level is a lower probability play. It is a play without a really good edge. It is trying to beat the train across the tracks.

Now that does not mean there are not very good stocks still in position to move higher. That is why we were looking at DRIV for example on Friday. While many stocks have rallied other good stocks have been consolidating previous upside moves and are ready to run higher. As noted earlier, they can keep the market moving if enough of them advance. There are still quite a few of those but there are also quite a few that are a bit too extended to chase right now. Not necessarily so extended the entire market has to correct back; there can always be rotation by stocks and sectors, and indeed that is the healthiest of all market action. When groups of leaders take turns taking the point similar to a breakaway working together in a bike race good moves can be made.

So we are going to keep looking for prime upside plays ready to move. We are also going to look for tests of breakouts. Some of the stocks that broke higher Wednesday shot to the upside and Friday were testing back some. A quick test by these stocks often sets up another surge so we will be looking at those in the light of getting a pullback early in the week and moving in on the bounce.

As seen Friday, there are also downside opportunities even as the market rallied. If the market runs out of gas prematurely on this attempt at a second upside leg off the March low that is a signal of weakness. That means the financials and some other stocks are going to head lower and we have to see what kind of test they make. We are trolling for stocks ripe to turn lower such as GENZ and MCK in the event this upside move just doesn't quite cut it.

It was a good week and we banked a lot of gain, still letting good positions run higher, and picking up other good positions as the opportunity arose. We had to avoid taking everything off the table because even as we bank gain on the way up we also let at least a part of our winners run higher to keep logging gains as long as the move holds its ground. That way we have some solid gain in the bank and can get in on the really bigger runs without feeling the need to sell out altogether and miss out on the really strong moves.

The key now, as always, is to be patient and let the plays set up and try to avoid chasing that bus. Better to jump out and ambush the position as it initiates its move. So, we keep our eyes on leaders and look for opportunities to get in as they test or set up new solid bases and buy points.


Support and Resistance

NASDAQ: Closed at 1621.87
Resistance:
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:
1603 is the December peak
1598 is the February 2009 peak, the last peak NASDAQ made
1587 is the March 2009 high
1569 is the late January 2009 peak
The 10 day EMA at 1549
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 1492
The 50 day SMA at 1471
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 842.50
Resistance:
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:
839 is the early October 2008 low
833 is the March 2009 peak
The 90 day SMA at 828
818 is the early November 2008 low
815 is the early December 2008 low
The 10 day EMA at 811
805 is the low on the January 2009 selloff. KEY Level
800 is the March 2003 post bottom low
The 50 day EMA at 800
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 8017.59
Resistance:
8141 is the early December low
8175 is the October 2008 closing low. Key level to watch.
8197 was the second October 2008 low
8375 is the late January 2009 interim peak
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:
The 90 day SMA at 8006
7965 is the mid-November 2008 interim intraday low.
7932 is the March 2009 peak
7909 is the early January low
7882 is the early October 2008 intraday low. Key level to watch.
7867 is the early February low
The 10 day EMA at 7739
7702 is the July 2002 low
7694 is the February intraday low
The 50 day EMA at 7666
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 7511
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.

April 7 - Tuesday
February Consumer Credit (14:00): -$1.5B expected, $1.8B prior

April 8 - Wednesday
February Wholesale Inventories (10:00): -0.6% expected, -0.7% prior
Crude Oil Inventories, 04/03 (10:30): +2.84M prior

April 9 - Thursday
March Export Prices ex-aq. (8:30): 0.1% prior
Import Prices ex-oil, March (8:30): -0.6% prior
Initial Jobless Claims, 04/04 (8:30): 699K prior
Trade Balance, February (8:30): -$36.5B expected, -$36.0B prior

April 10 - Friday
March Treasury Budget (14:00): -$157.0B expected, -$48.2B 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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