Sunday, April 19, 2009

Modest Gains End Upside Week

- 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.
- 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.


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.



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.


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 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.




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 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.


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.



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
1780 is the November 2008 peak
The 200 day SMA at 1785
1947 is the October gap down point

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
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

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
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

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

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