Sunday, July 26, 2009

Market Enjoys Gridlock on Healthcare

SUMMARY:
- Market had enough reason to sell, but it didn't.
- Market enjoys the gridlock on healthcare and cap and trade.
- EU shows hints of more economic stabilization. So what is new?
- Michigan sentiment on the rise but still quite low.
- Liquidity in control once more but could get a test before further gains.

MSFT stalls the gains but does not lead to a turnover or reversal of the gains.

Microsoft missed on the bottom line and the top line and was gapped lower. As noted Thursday night, MSFT was one of the reasons for the tech move with its renewal of its business given Bing and its new operating system on schedule for August to replace the pathetic Vista. MSFT rallied sharply ahead of its results as investors almost feverishly anticipated its revival. That revival needs some CPR or at least a bit more time for the new operating system to hit the market and spur, hopefully for tech, a new upgrade cycle.

There was other less than rosy news. UK GDP was lousy at -0.8% in Q2, twice the expected -0.4%. DeBeers announced that diamond sales were down the most in 30 years. Thirty years. That is back in the 1970's. More amazing parallels to the past. It repeats again and again, and unfortunately, comparisons to the 1970's are never, ever good unless it is preceded by words such as 'unlike the 1970's' or 'in complete contrast to the 1970's'. I recall that in the late 1970's and the turn into the 1980's investment class gemstones, those that make what you buy in the stores look like paste, lost value for the first time ever. That really put the fear into the ultra-rich that used those as a last safe haven. Yes parallels to the 1970's are never good indications.

This bad news was offset by some decent news. German business confidence rose again in July after a quick June dip. EU manufacturing 'improved' as it fell less than estimates. Many are interpreting this as a turnaround in Europe though as we argued the past few months, stabilization is not a recovery. Indeed we have seen this stabilization now for months. Hitting bottom does not mean a turn. If the same fiscal and monetary mistakes are made again then 'stabilization' can give way to another downside leg.

Michigan sentiment was up (66.0 versus 65.0 expected and 64.6 prior), but at these levels it is still low. It tried to bounce the market but could not in itself do the trick.


It's not the economy, stupid, it is the failing support for national healthcare.

The really good news for the week, however, was the death of the arbitrary and absurd August 'deadline' for a healthcare bill. Friday a leading blue dog democrat walked out of a meeting on the healthcare plan, telling the House leader that the plan was not going to fly. Senator Reed echoed what was said Thursday, i.e. that no vote on healthcare would occur before the August recess. As I noted a few weeks back, the spending was going to damage the Obama administration and that, ironically, it could be saved by failing to get nationalized healthcare passed. The market would rally on that news.

Indeed, when you consider the crappy economic data that is nowhere near where it was when the market and economy bottomed out of the last recession in late 2002 and the low quality of the top line earnings despite the bottom line surprises, it becomes clearer that the market is rallying in large part on the idea that healthcare will not be poisoned by a national healthcare plan. Remember, the UK system and Canadian system were both supposed to be an 'option' to private coverage just as the proposed plan in the US. In both cases the national plan swallowed the private plans. The market sniffed out the growing wave of opposition to this plan and rallied ahead of the news.

TECHNICAL

INTRADAY. Stocks started weak and sold further. Michigan sentiment tried to bounce it but in itself was not enough. The upside bias took over, however, and the market recovered from midmorning to the close. No major gains but again, in the absence of anything else, the market moved higher.

INTERNALS. Flat breadth and much lower volume to finish out the week after some really strong upside volume Thursday as the indices made the definite break higher. The indices are showing the big volume when it is needed and meaningful.

CHARTS. Nothing really changed Friday following that big break higher Thursday. The indices tried to sell back some but ended up rebounding off the lows; not much downside impetus there. The breakouts over the June, January and October gap points (as the case may be for each index) were solid as money poured into the market after the early summer hiatus following the March to early June rally. Remember all the talk about the head and shoulders patterns on SP500 and the other NYSE indices? They set up, started to break, and then the market reversed. Look at the bigger picture from November to July: that is a reverse head and shoulders on SP500 and DJ30, a bullish pattern. We are already saw the growth sectors breakout (NASDAQ, SOX, NASDAQ 100), leading the way as they should. For now, despite the fiscal policies and those to come, the market is rallying in relief over healthcare and has plenty of fuel with all of the paper money printed by the world's central banks.

LEADERSHIP. Energy, retail, commodities, industrials, chips and techs enjoyed solid weeks even if some did not participate as much Friday thanks to MSFT. Indeed the MSFT could likely be the catalyst to a pullback for NASDAQ after a 12 day winning streak and a similar 2 week run on SP500. There is plenty of leadership right now. It just needs to step back after this run, take a few breaths, consolidate, and then set up for the next run.


SUMMARY. After trying their hand in June to early July, sellers have lost their nerve and are unwilling to commit and challenge the liquidity driven upside. That liquidity is now actively moving into the market once more after the rest following the initial move off the March low. With this liquidity we can see moves continue that should stop and consolidate. Thus we will look for any opportunities such as tests of trendlines and breakouts to enter additional positions. New breakouts can also show up as we know the market moves in waves with new stocks stepping up after the leaders spring out and rest.

Even with the liquidity we can get a pullback such as the 1-2-3 pullbacks seen in late March and in April as the market rallied. Those gave opportunities to move in to the leaders and catch the next nice bounce higher.

The near term problem is the move has been very steep just as the initial move off the March low. Indeed this move is amazingly similar to that initial run off the March low in its steepness and unrelenting upside. Now we can and should see a couple of days of testing back to the trendline such as the 10 day EMA and then a resumption of the rally. Again, we use the pullback to pick up shares in stocks such as RIMM that are set up well to rally higher once more.


THE MARKET

MARKET SENTIMENT

VIX: 23.09; -0.34
VXN: 24.67; -1.2
VXO: 23.06; -1.01

Put/Call Ratio (CBOE): 0.93; +0.06

Bulls versus Bears:

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

Bulls: 36.7%. Rebounding as you would expect as the market put in its second week of rallying. After falling to 35.6% last week the market bounce caught up with sentiment. Hit a high of 47.7% mid-June on the run from the March lows. Steady rise from 36.0% in late April. Barely over the 35% threshold, below which is considered bullish. Of course it will jump after this past week. 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: 35.6%. Bears matched last week's 35.6%, showing that the bears are not convinced by this rally. That is a good indication for the market as there are bears still holding back their money. When the market rallies more it continues to find new fuel from the bear's money as they pitch in and buy to the upside. Nice surge higher from 30.3% in early July. Up from 23.3% in mid-June. Still well off the 37.2% and the 37.1% in mid-April as the rally continued higher. Cracking above the 35% threshold considered bullish. Still off the high on this run at 47.2%. For reference, bearishness hit a 5 year high at 54.4% the last week of October 2008. The move over 50 took bearish sentiment to its highest level since 1995. Extreme negative sentiment. Prior levels for comparison: Bearishness peaked at 37.4% in September 2007. It topped the June 2006 peak (36%) on that run. That June peak eclipsed the March 2006 high (33%) and well above the 2005 highs that spawned new rallies (30% in May 2005, 29.2% in October 2005). That was a huge turn, unlike any seen in recent history.


NASDAQ

Stats: -7.64 points (-0.39%) to close at 1965.96
Volume: 2.191B (-24.83%)

Up Volume: 1.182B (-1.316B)
Down Volume: 1.014B (+469.233M)

A/D and Hi/Lo: Advancers led 1.23 to 1
Previous Session: Advancers led 3.25 to 1

New Highs: 81 (-54)
New Lows: 12 (+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: +2.97 points (+0.3%) to close at 979.26
NYSE Volume: 1.025B (-26.61%)

Up Volume: 639.531M (-521.251M)
Down Volume: 353.97M (+128.467M)

A/D and Hi/Lo: Advancers led 1.75 to 1
Previous Session: Advancers led 4.64 to 1

New Highs: 85 (-56)
New Lows: 65 (-32)

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

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


DJ30

Stats: +23.95 points (+0.26%) to close at 9093.24
Volume: 214M shares Friday versus 247M shares Thursday.

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


MONDAY

As noted in the 'Summary' above, the liquidity is back in town and driving stocks higher similar to the start of the rally back in March. It has made that similar initial move off the bottom of the range at 875 SP500. As with that earlier move a quick test would be normal and then a move higher.

Would this be a week or two week test? It could be if earnings worries sink in, but the earnings got it going, and what we saw happen at the end of the week re the healthcare debate quite likely usurped the earnings theme. It triggered the money move back into the market and now instead of a week or so pullback a 2 or 3 day test is more in line if the liquidity is truly back.

Therefore we are going to look for more upside. As seen late in the week, despite the apparent need for a pullback the upside plays kept setting up. We are going to continue looking for those although the surge higher put many good stocks in extended buy positions. Thus a short 1-2-3 pullback (i.e. 3 days, maybe 2) to near support sets them up for buys that we want to take if offered. Banked a lot of gain the past week, still have a lot of good positions working for us, and looking to put some more money to work given the changes driving the market.


Support and Resistance

NASDAQ: Closed at 1965.96
Resistance:
1984 from late September
2099 is the mid-September low
2169 is the March 2008 double bottom low

Support:
1947 is the October gap down point
1897 is the October post gap intraday high.
The 10 day EMA at 1902 is worth watching given the strength of the move
1880 is the June peak
1862 is the July peak
The 50 day EMA at 1805
1786 is the November intraday high
1780 is the November 2008 closing peak
1773 is the May intraday peak
1770 is the mid-October interim peak
1673 is the prior April peak
1666 is the intraday January 2009 peak
1664 is the May 2008 low
1661 is the April 2009 prior peak
The January closing peak at 1653 (intraday)
1623 is the early April peak
1620 from the early 2001 low
The 200 day SMA at 1620
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
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 979.26
Resistance:
The November 2008 peak at 1006
1050
1106 is the September 2008 low

Support:
956 is the June intraday peak
The 10 day EMA at 947
944 is the January 2009 high
935 is the January closing high
932 is the July peak
930 is the May peak
919 is the early December peak is bending
The 50 day EMA at 914
899 is the early October closing low
896 is the late November 2008 peak
888.70 is the April intraday high.
882 is the early May low
878 is the late January 2009 peak
The prior April peak at 876
The 200 day SMA at 871
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
846 is the April peak
842 is the early April peak
839 is the early October 2008 low
833 is the March 2009 peak
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
800 is the March 2003 post bottom low


Dow: Closed at 9093.24
Resistance:
9088 is the January 2009 peak. Not entirely broken
9387 is the mid-October peak
9625 is the October closing high
10,365 is the late September low

Support:
8985 is the closing low in the mid-2003 consolidation
8934 is the December closing high
8878 is the June peak
8829 is the late November 2008 peak
The 10 day EMA at 8802
The 18 day EMA at 8674
8626 from December 2002
8588 is the May high
8581 is the July peak
8521 is an interim high in March 2003 after the March 2003 low
The 50 day EMA at 8496
8451 is the early October closing low
8419 is the late December closing low in that consolidation
8375 is the late January 2009 interim peak
8315 is the February 2009 peak
8307 is the April 2009 intraday high
8221 is the May 2008 low
8197 was the second October 2008 low
8191 is the prior April peak
8175 is the October 2008 closing low. Key level to watch.
8141 is the early December low
The early April intraday peak at 8113
The early April peak at 8076
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
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.

July 27 - Monday
New Home Sales, June (10:00): 352K expected, 342K prior

July 28 - Tuesday
Consumer Confidence, July (09:00): 48.7 expected, 49.3 prior
S&P/Case-Shiller, May (09:00): -17.80% expected, -18.12% prior

July 29 - Wednesday
Durable Goods Orders, June (08:30): -0.5% expected, 1.8% prior
Durables, Ex Transportation, June (08:30): 0.1% expected, 1.1% prior
Crude Oil Inventories, 07/24 (10:30): -1.80M prior

July 30 - Thursday
Initial Jobless Claims, 07/25 (08:30): 585K expected, 554K prior

July 31 - Friday
GDP-Adv., Q2 (08:30): -1.5% expected, -5.5% prior
Core PCE, Q2 (08:30): 2.4% expected, 1.6% prior
Chain Deflator-Adv., Q2 (08:30): 1.0% expected, 2.8% prior
Employment Cost Index, Q2 (08:30): 0.3% expected, 0.3% prior
Chicago PMI, July (09:45): 42.0 expected, 39.9 prior

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

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

Technorati tags:

Sunday, July 19, 2009

Market Needs More Strong Earnings

SUMMARY:
- Sleepy session but market closes the week holding its solid gains.
- June Housing sales: 7 month high. More single family units than multi as was the case in June.
- Some economic improvement, some backsliding but nothing showing strong recovery is coming.
- Need a hugely strong economy to cover at least some of our debts.
- Market needs more strong earnings to breakout from the range.
- Opportunities are setting up along with another test by the indices this week.

Market puts in its time, holds its gains.

It was a quiet Friday, especially for expiration, but the market did what it had to do. It held its gains into the weekend after a very strong week that saw a 7% move on SP500. Earnings once again dominated the picture on Friday as they did all week. Earnings provided the catalyst for the upside move for the week, and after hours on Thursday night, IBM and GOOG both reported; IBM was up, GOOG was down. GOOG ran into its earnings, we took some gain off the table when it did, and then it sold down some on Friday. It did not break down, but just sold down to a support level. There were other earnings out as well (GE, Bank of America, C) and they were both good and bad. GE missed, Bank of America beat, Citi beat, but it was a one-time event as it sold Smith Barney. The financials are showing stronger results, and they should because of the very favorable spreads thanks to the Federal Reserve holding interest rates so low.

This entire earnings season is something of a red herring. Expectations are so low due to revisions that the beats are easy. It is a 'better than expected but very low expectations to begin with' season. Even so, GE missed its earnings. Now we know why its CEO spends so much time pandering to the Obama administration regarding the green initiatives. It has to have them to salvage the company. Despite being a very big company with a lot of irons in the fire, it is struggling. It really needs the inside track on the green initiatives that are in the stimulus package to get the ship moving forward again. The serious problem with GE getting a lot of stimulus business is that that GE does not create jobs - it has been a net job loser for ten years.

June housing sales were out, and they hit a seven-month high. This month there were more single family dwellings than multifamily dwellings. That was not the case back in May when more multifamily dwellings were built. A LOT more. Multifamily housing is recession housing because no one can afford homes. All they can do is pay rent because they cannot come up with a down payment. Therefore you see a proliferation of the multifamily housing units. Thus the June report with its better mix casts a better light on the housing market. Up seven months and now it is swinging toward single family.

The question is whether it can last. The economy is still weak, and what we hear from mortgage brokers and mortgage bankers is that there are still a lot of people who cannot qualify for home loans. Moreover, the people who would qualify, the speculators - those who buy homes, renovate and resell them - are not granted loans. The idea now is if you do not live in it, you are not going to get a loan. Thus the housing market is improving some, but the rate of acceleration can be measured with a calendar not in days or months, but in years.

It is not showing the kind of improvement we could have given the stimulus thrown at housing because as is always the case, banks and the Federal Reserve are too stringent with credit at the wrong time. They should have been more stringent three, four or five years ago. Only after things crash do they wake up and enforce reasonable lending standards. Unfortunately that is the cycle and how it always happens with administrative agencies. They are too loose, and their laissez faire attitude fuels the crisis. Only when the crisis hits do they wake up and clamp down, trying to show everyone they are doing their job. The problem is their job is to help get people into loans, and now is the time we need them. Despite all these trillions that we are giving to companies that screwed up, we are not helping the people who can help us out of this economic morass.

Statistics: The dollar was up on the day, closing at 1.4097 after a Thursday showing at 1.4139. Even though it was up on the day, it was still below $80 on the dollar index. $80-81 is acting as resistance for the dollar. It looked as if it was going to break through that level as it blasted through then fell back. Now it has formed an umbrella top over the past three weeks. An umbrella top is exactly what it sounds like: An umbrella shaped pattern that usually leads to a roll over.

Oil was up on the day despite the dollar being stronger as well. Oil was down in the $50's on the week but it has rebounded closing at $63.44, up $1.42 on Friday alone. Why after staying below $50 is oil surging, and why did it surge when the dollar was up on Friday? The reason is traders are seeing the trend on the dollar; the dollar WAS strengthening. Now there is that umbrella top and the dollar looks ready to roll over again. Oil, copper, and steel were up - all commodities were up and accordingly energy stocks, metal stocks and other commodity stocks were up as well. Traders see the trend in the dollar and thus the commodities head and shoulders back up in their inverse relationship.

Bonds are quite volatile as investors swing from fears of further slowing last week to more comfort with recovery this week. The 10 year closed at 3.66% on Friday. Investors were moving out of bonds on a little bit more favorable economic data on the week. If you recall, the 10 year was 3.3% in yield just a week ago, so there has been quite a reversal. There was a lot of concern about a double dip in the economy, but this week after the earnings came out, there was some improved confidence. Do the earnings tell the real story? I say they do not. As I noted earlier, these expectations have been knocked way down. Analysts do not know where to peg their earnings forecasts. They are just guessing, throwing darts at the board as to what they expect the companies to make. Companies are better at cost cutting than expected, and they thus are improving their bottom line, but the top lines have not grown very much. IBM reported strong bottom line results, but its top line did not grow that much.

That is the issue that will dog the economy until there is a turnaround. Companies have to have more people coming through the door to expand sales. For now, companies are growing earnings by cutting costs by . . . letting people go. You cannot keep cutting away at the company forever, however. Eventually you hit bone and have to stop - if you go too deep, the company dies. The government needs to come up with a way to get more money into the economy, money that will help the entrepreneurs and small businesses get started. Right now that is not happening there was a lot of talk at the end of the week about just how effective this so-called stimulus plan as been.

TECHNICAL

INTRADAY.

The futures were lower pre-market, but not massively. The market started a bit weak and sold from there, but it came right back up and traded around the flat line all day. A bit volatile after that but mostly trended higher steadily into the afternoon. In the last 1.5 hours, there was some volatility, but it was expiration week and we expected that. As soon as it went down, however, it popped back up, and the indices closed around the flat line. NASDAQ and SP500 closed as flat as pancakes. The Dow sported a 0.37% gain, or 32 points. SOX (1.22%) was the leader all week and Friday it broke to a new post-March high, an important move. Good to see the chips leading once more as that bodes well for the rest of the market. SP600 (-0.49%) and NASDAQ 100 (+0.55%) mirrored one another on opposite sides of the flat line.

INTERNALS.

The internals were about as tame as a 1950's hygiene film. There was not a lot going on Friday despite it being July expiration. Breadth was -1.4:1 on NASDAQ, flat on NYSE. NASDAQ breadth did not match the modest gain on the technology index. The weak breadth shows a little weakness. It was led by AAPL's big gain on the session, but not a lot else was moving.

You would never know it was expiration Friday by looking at the volume. Trade was a bit higher on the NYSE but still below average. NASDAQ trade actually fell on expiration Friday. There were not a lot of positions rolled out. That means maybe a lot of investors are rather bullish at this point and did not have a lot of short positions to roll out from.

CHARTS.

There was no real change in the SP500 or NASDAQ from Thursday. As a matter of fact we can just talk about basically what was said on Thursday. NASDAQ 100 and SOX continued with some modest gains. SOX was better than others and making that new post-March high as noted. The big moves for the week were already logged, so Thursday and Friday were just kind of coasting into the finish line since they had already put in the big work on the hills earlier in the week and enjoyed great results. There was the big 7% gain on SP500 and 5 1/2% on NASDAQ. Strong moves.

The indices made some great moves, but once again they are already at the next resistance point. As I noted on Thursday, what happens when you recover from heavy selling? You hit resistance levels on the way back up. SP500 is back up near the January peaks and the June peak and looking to try to make a breakthrough. It failed at this effort in June and then what did we have? It was not disaster - five weeks of testing that brought it back down to 875. It held that level and it bolted right back up this week. When SP500 rolled over in June we said it would make another run at it and that is exactly what has happened. It might fail again. There is no guarantee it will make the breakout this time, just as there is no guarantee it was going to make the breakout back in June. The difference now is that there has been a bit of character change last week. There was a test and then a strong run higher on some decent volume. It was not great volume so we shouldn't get carried away. It was expiration week, the big volume for the week was on Wednesday. Often, expiration volume occurs on Wednesday and it was associated with that big move up on that day. So we have to take all of this with a grain of salt. It looked better, there was a change of character, but it was not definitive in and of itself.

LEADERSHIP.


What was more telling was leadership. As I noted on Thursday, it looked like April and May again - the same stocks were putting in great moves this past week. Whether it was commodities, materials, industrials or energy - they are all moving up. Not all of them were in great position to begin with - some such as energy were rebounding from some harsh selling over the five previous weeks and have more work to do.

The chips were a different story. The chips where the clear leaders again just as they were the clear leaders off of the March bottom. They put in a new post-March high, and that is significant. Higher highs are always important, particularly so after you test and hold a prior level after clearing to a new high. It also helps when the new highs are made by a perennial leader out of deep declines. Who was the leader off of the 2002 bottom? The chips. Who was the leader in March? The chips. And now the semiconductors leading this move.

Financials came to life on the week. After ten weeks of dormancy, they turned higher. Some broke to new post-March highs. The question is can they maintain the move or was it just a first-of-the-month earnings blip when GS and JPM and Bank of America, et al., reported decent results? That will be the question that tells the story for SP500 moving forward. It has come up to its old highs again, making the second test. One of the reasons it did so was financials. If it is going to make the break, financials will make the break as well. The question is do investors believe that the financial earnings are real? They were better than expected, but are they going to continue to improve? And what happens if the Fed has to start removing stimulus? That is the cloud on the horizon that continues to dog the financials. Lending remains tepid for mortgages and small businesses. The question again is what are the financials going to do and how there their earnings react in the situation where the Fed feels it may have to take back some of the stimulus at some point, yet we have not recovered from this economic downdraft.

In summary, you can say leadership is coming back. Slowly but surely it is building after five-weeks of basing.


THE MARKET

MARKET SENTIMENT

VIX: 25.42; -0.47
VXN: 24.8; -0.48
VXO: 25.54; -0.53

Put/Call Ratio (CBOE): 0.76; -0.02

Bulls versus Bears:

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

Bulls: 35.6%. Major drop in bulls and of course the market jumped. Hit a high of 47.7% mid-June on the run from the March lows. Steady rise from 36.0% in late April. Barely over the 35% threshold, below which is considered bullish. Of course it will jump after this past week. 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: 35.6%. Bolting higher from 30.3% last week. Up from 23.3% in mid-June. Still well off the 37.2% and the 37.1% in mid-April as the rally continued higher. Cracking above the 35% threshold considered bullish. Still off the high on this run at 47.2%. For reference, bearishness hit a 5 year high at 54.4% the last week of October 2008. The move over 50 took bearish sentiment to its highest level since 1995. Extreme negative sentiment. Prior levels for comparison: Bearishness peaked at 37.4% in September 2007. It topped the June 2006 peak (36%) on that run. That June peak eclipsed the March 2006 high (33%) and well above the 2005 highs that spawned new rallies (30% in May 2005, 29.2% in October 2005). That was a huge turn, unlike any seen in recent history.


NASDAQ

Stats: +1.58 points (+0.08%) to close at 1886.61
Volume: 1.844B (-9.47%)

Up Volume: 1.022B (-536.615M)
Down Volume: 838.436M (+325.608M)

A/D and Hi/Lo: Decliners led 1.39 to 1
Previous Session: Advancers led 1.72 to 1

New Highs: 64 (+10)
New Lows: 19 (+7)

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

NASDAQ reclaimed its leadership role last week, helped a lot by the semiconductors. It cleared the June peak but it was not a crushing, "smashing all of its rivals" kind of ride. No, it cleared it, but it could fall right back. It has shown leadership on better volume with a good mix of large caps and smaller caps leading the way higher. It still has the October gapdown points, 1905 and 1897 to deal with (Friday close 1886). You can see there is still a ways to go to take care of those levels, but it is making a positive move.

SOX, even though it is a leader, is going to experience the same problems or issues that the rest of the indices are going to be facing next week: what to do about this near resistance that it has bumped into again. Note that NASDAQ has made a higher high and SOX has made a higher high on this move. That is a change of character as well and that shows that there is a shift going on in the market. The key for next week is that they hold the gains or come back without a sharp reversal. The one thing you hate to see is an index break to a new high and then reverse sharply. That shows that the sellers came right back in and drop kicked it back down. That opens the door for a tumble. We will see how it pans out, but on the whole, the week was positive with the closes and the leadership shown by NASDAQ, the semiconductors and then the resurgents, the commodities, energy, and in the industrials.

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

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


SP500/NYSE

Stats: -0.36 points (-0.04%) to close at 940.38
NYSE Volume: 1.29B (+9.84%)

Up Volume: 544.018M (-187.365M)
Down Volume: 730.437M (+300.318M)

A/D and Hi/Lo: Decliners led 1 to 1
Previous Session: Advancers led 2.39 to 1

New Highs: 53 (+4)
New Lows: 51 (-3)

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

SP500's motto: if at first you do not succeed, try again. SP rallied from 875 back up to the January high at 944 and is trying to take on the June peak at 956. Been there before have we not? Then it went down and back up and it is making another try. This time it did move back through that May peak after failing in early June. That is the change in character we saw - made a little higher high. The definitive move will be moving through the January and the June peaks. This is a critical point for the SP500 - it either makes the breakout or rolls back down in the range again and continues the consolidation. That may mean it goes down to 875, or it may mean it just pops down to 900 or so, makes a higher low and tries again. Often that is how a trading range comes to an end. You see another test of the high followed by some selling, but then a higher low. From that higher ledge it makes a cleaner run at resistance and makes a breakthrough. In summary, SP500 showed improvement overall for the upside - the bias was definitely upside. Investors were looking for the silver lining in every news story and using dips to buy into. That is a turn from what we have seen the last five weeks leading up to this.

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


DJ30

Stats: +32.12 points (+0.37%) to close at 8743.94
Volume: 301M shares Friday 216M shares Thursday. Another session of above average volume. Two on the week.

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


THIS WEEK

Lots more earnings, the heaviest week of the earning season. It will be a little bit lighter on the economic data which is fine - we have to deal with the earnings and they really drive the cart when we get into earning season. What we have thus far are big headliners that are beating lowered expectations. Some of them look really good. IBM and Intel looked much better and they actually had some decent revenues to go along with an improved bottom line.

Late in the week, however, there was some waffling because the earnings were not as good. There was still enough momentum to keep the upside moving and hold the gains, but there was not that kicker from a good, solid earnings report from maybe GOOG or so many others that reported. They were good but not stupendous, so there was a little bit of slowing at the end of the week at the next resistance levels.

There comes a time in the season when it shifts gears or runs out of gas. If earnings stay strong, that time is pushed down the road further. If the earnings start to waffle or become the same story without anything extra - without more of those Intel reports that really grab people and tell them that things look good, then you will start to see the momentum slow. With the indices at resistance, if it happens next week you can see them fade back. The best case scenario is that they go ahead and break on through resistance and then test from the upside. Maybe then they could make those old resistance levels support and set up a really solid upside run.

What we want to do obviously is have them test from the upside - have them break on through and come back and test support from above. If it cannot make the breakout, then it becomes a question of how far they are going to fall back in the range before they turn back up. All we know right now is we have had improvement. The bias has shifted more to the upside. There were big gains in the indices, the market and investors were looking at reports in a positive manner, not in a negative manner. Believe me, if the market is in a bad mood, a report can be pretty doggone good, but they are going to find some reason to kick it and spit on it. When you see things turn positive and you have a report that is okay but not great they will do the opposite and find whatever they can that is positive about it and put money into the market. There were people trying to get into the market at the end of the week. If that sentiment continues - we know there is plenty of money out there from all of the liquidity that is not going into the economy - and if earnings remains solid enough and there is reason to invest that money, then that money will come, and we will see the break higher.

As for us, we would love to see a test to start the beginning of the week. I would like to see a bunch of these stocks that gapped higher Wednesday come back a little bit more and test. We could have entered more on Friday, but I figured why do it ahead of the weekend? It is expiration Friday, it has been an up week, and the indices are at resistance- no matter what happens we are likely to get a test back to start the new week. So, don't chase them up, but instead see if they come back a little more. Again, patience is your friend in this market. We are already getting a little bit of a pullback and I was tempted on Friday to take more positions than we did, but again, why rush when we have run this far so fast in one week? Now we are at resistance - or in the case of NASDAQ and SOX they broke their resistance - and we are going to get a test one way or the other. Thus we kept our finger off of the "buy" button for the most part. We did take some gain for the same reasons we did not buy a lot. I think there is going to be a modest pullback, so we banked some gains on the positions that ran well for us.

Now we watch and see how the indices react to the sharp upside moves. After a break to a new high such as on NASDAQ and SOX you keep an eye out for a possible reversal, particularly with the other indices lagging and unable to make their breaks yet. You do not want to see the sellers come in and push it down, and thus you do not want to be too hasty jumping into a bunch of new upside just because some indices make an initial break higher. For the same reason you do not want to be too hasty on the downside. If it is just a test, you do not want to pile into downside positions that showed renewed strength last week only to have them test for a day or two or three and then turn around and blow right back up. Again a little patience - there are setups out there that we are seeing made right now. I am seeing some bull flags and some bear flags. They are obviously going in opposite directions by their names and we will probably get plays in opposite directions, particularly if the indices cannot make the breakout of these ranges.

In summary, we will get opportunities coming up, and there are opportunities out there right now. We are going to be patient and let them setup and then we move in. The market is at a critical point and is showing new strength. We just want to be in the right positions as it makes the break. Let us face it, we have some great upside positions right now and we have some downside plays that are going to come back again. We will see how far they come back. We also have others that we are ready to jump in that the stocks just did not show the kind of strength that would be breakout strength. We are going to get plenty of plays out of this and plenty of opportunity to make more money. Just be patient, let them set up, and let the money come to us. That is how we take what the market gives. Have a great weekend and I will see you Monday.


Support and Resistance

NASDAQ: Closed at 1886.61
Resistance:
1897 is the October post gap intraday high.
1947 is the October gap down point
1984 from late September
2099 is the mid-September low
2169 is the March 2008 double bottom low

Support:
1880 is the June peak
1862 is the July peak
1786 is the November intraday high
1780 is the November 2008 closing peak
The 50 day EMA at 1776
1773 is the May intraday peak
1770 is the mid-October interim peak
1673 is the prior April peak
1666 is the intraday January 2009 peak
1664 is the May 2008 low
1661 is the April 2009 prior peak
The January closing peak at 1653 (intraday)
1623 is the early April peak
The 200 day SMA at 1620
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
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 940.38
Resistance:
944 is the January 2009 high
956 is the June intraday peak
1000
1050

Support:
935 is the January closing high
932 is the July peak
930 is the May peak. Bending.
919 is the early December peak is bending
The 50 day EMA at 903
899 is the early October closing low
896 is the late November 2008 peak
888.70 is the April intraday high.
882 is the early May low
878 is the late January 2009 peak
The 200 day SMA at 874
The prior April peak at 876
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
846 is the April peak
842 is the early April peak
839 is the early October 2008 low
833 is the March 2009 peak
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
800 is the March 2003 post bottom low


Dow: Closed at 8743.94
Resistance:
8829 is the late November 2008 peak
8878 is the June peak
8934 is the December closing high
8985 is the closing low in the mid-2003 consolidation
9088 is the January 2009 peak
9387 is the mid-October peak
9625 is the October closing high

Support:
8626 from December 2002
8588 is the May high
8581 is the July peak
8521 is an interim high in March 2003 after the March 2003 low
8451 is the early October closing low
8419 is the late December closing low in that consolidation
The 18 day EMA at 8423
8375 is the late January 2009 interim peak
The 50 day EMA at 8378
8315 is the February 2009 peak
8307 is the April 2009 intraday high
8221 is the May 2008 low
8197 was the second October 2008 low
8191 is the prior April peak
8175 is the October 2008 closing low. Key level to watch.
8141 is the early December low
The early April intraday peak at 8113
The early April peak at 8076
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
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.

July 20 - Monday
Leading Indicators, June (10:00): 0.5% expected, 1.2% prior

July 22 - Wednesday
Crude Inventories, 07/17 (10:30): -2.81M prior

July 23 - Thursday
Initial Jobless Claims, 07/18 (08:30): 522K prior
Existing Home Sales, June (10:00): 4.80M expected, 4.77M prior

July 24 - Friday
Michigan Sentiment-Revised, July (09:55): 64.6 expected, 64.6 prior

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

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

Technorati tags:

Sunday, July 12, 2009

Biding Time Ahead of Earnings Onslaught

SUMMARY:
- Biding some time ahead of earnings onslaught.
- Earnings will tell more on the economy.
- SP500 to make a decision this week.

A little stage fright before weekend, earnings.

Friday the market did what it has done pretty much since Wednesday. It is moving flat and laterally ahead of the earnings onslaught. Investors are basically biding their time until companies come out with their earnings and tell us what to expect for the future. There was no definite trend on the day. Friday was a lot like one of the time trials this year in the Tour de France: it was up, it was down, and it covered a lot of ground, but in the end did not go anywhere. It was a volatile session that basically closed flat with the indices bracketing the zero line.

There was quite a bit of news on Friday. Chevron posted a profit warning, and Chevron is in the energy sector so that weighed heavily on the energy stocks. Of course they have already been hit rather hard over the past three weeks, so there was not a lot of additional damage done. It was just like throwing another wet blanket on top of the sector.

Corporate bond sales data came out, and they are tumbling. They improved over the spring, assisted by all of the Fed facilities that it had put in place. As seen over the past month, corporate bond spreads have widened and sales have tumbled. That makes some sense when you consider that CEOs the insiders are selling at the fastest rate in two years.

The Chinese came out with their June trade balance and it was a mere $8.3B versus the $15.5B expected; they expected more of a surplus. In other words, China keeps its surplus up by shipping more goods overseas; it is a net seller because it does not consume much of what it makes. When its surplus declines, that means it is selling less across the world, and that has people concerned.
That had the theme going again on Friday about whether or not the world economies are going to go into a double dip recession. After the market opened up, Michigan Sentiment came out and pretty much tanked. It fell to 64.6, down from 70.8 the prior month and expectations of 70. Nonetheless, sentiment is flagging. The market is down the dollar is weaker. Looking at the polls, investors and voters are worried about the spending that is ongoing in Washington and the additional spending planned. Cap and trade is a huge tax on people and they are worried about that as the economy is down and they do not have jobs. Then you have healthcare. There is worry that people will not have the same quality of healthcare they have had and it is going to cost a lot more than anticipated. After all, the initial costs of Medicare Part B were triple what the Bush administration estimated. That is always the case. The government will give a lowball figure and then fail to meet it, unlike the private world where you manage expectations. You say you can do something in three weeks, and then you do it in two and look like a hero. The government does not care and it has no reason to it is the government.

On the upside, GM announced that it was coming out of bankruptcy after just 40 days. That had all of the commentators across the news channels and the financial stations going on about what a great job they had done to get out of bankruptcy in just 40 days. I say if you get tens of billions of dollars from the federal government, if the federal government allows you to renege on your secure debt contracts that you made (that were made specifically in the event that you went into bankruptcy, and they would be paid first), well then you SHOULD come out of bankruptcy in 40 days. With all that help, if you do not there is something seriously wrong. Sadly, there is still something seriously wrong with GM because it is going to be a government run auto company.

We could have gone through a period of creative destruction where the old is thrown out and the new that works and creates new technologies comes in. Sure, everyone is worried about GM and Chrysler failing and then not being able to manufacture tanks and the weapons that we need in case we have war. We need to have that taken care of, no doubt, but the problem we have now is that two of the three major car companies in the US are run by the government. Ford is going to have a hard time competing with that, and then all of the new companies in the car business that want to come in with new technology are going to be crowded out. There is a company up in Marble Falls or Round Rock, Texas that has come out with a hydrogen vehicle. It costs a lot of money but that is because it has not been sold much and has not been able to get access to the market. It is going to be crowded out of the market because GM is getting all of those government dollars to make green cars, and they are going to be cheap, crappy green cars, just as we had cheap, crappy American cars made back in the 1970's when we passed the CAFE standards that used a stick to beat auto manufacturers into producing cars that had improved gas mileage. We had a bunch of cruddy cars made as a result because they had to meet very strict timetables. That sowed the seeds of the destruction of our auto industry that we are paying for now.

The general theme of the market on Friday was the theme for the week: a worry that the world economic situation is going to double dip. In other words, there has been improvement after the initial plunge last fall, but now that there is no real stimulus hitting the world outside of China, there is fear that the free economies are going to drop into some sort of second recession or deeper recession than we are in now. Let us face it, we are not out of recession by any means we are deep in it. Mr. Roubini says that we could go another six months in recession. They call him Dr. Doom, but that sounds like a pretty rosy scenario coming from him. Maybe things are better or maybe he has now gone over from the dark side to the cheerleading side. If that is the case, there could even be 12 months of recession. I am not saying that will be the case, but we have to realize that the country does not have any real stimulus to lead us out of this, and there is nothing at this point that suggests any kind of serious turn going on in the economy.

Bond yields were lower and have been diving lower. The 2 year closed at 0.9%, and that is down from 1 1/2% just three weeks back. That is incredible. The 10 year closed at 3.3% and it was up over 4% just three weeks ago. The dollar itself is trending higher again, although it is having trouble getting over the 80 level in the dollar index. It closed higher at 1.3949 versus 1.4031 on Thursday. It was up all the way to 1.38+ Euros on the week, but came back by week end. What we are seeing is that the dollar and bonds are acting as a safe haven for the world investors. They are worried about the global economies double dipping, and when that happens they put money into the US dollar and US Treasuries. It does not matter that we have a $2T deficit, it does not matter that it is going to be 100% of our GDP next year --- times are that bad around the rest of the world where they are still willing to put their money into our greenback even as we try to debase it as fast as we can. That shows you the sorry state of world economies and makes Nouriel Roubini's comments about the recession lasting another six months look rather rosy.

TECHNICAL

INTRADAY.

Despite this news in the pre market, the indices were down but they bounced right up at the open. They rallied higher, and with all of the indices moving positive it looked like a strong session, but by mid morning they tanked and were back to negative. Then they started a slow recovery into the average. That is often the case you see a change mid morning, and that is what happened on Friday. Stocks rallied into the afternoon session and then they faltered, came back some, and by the close it was mixed. The techs and growth were a lit bit stronger, the NYSE large caps were a little bit weaker, but all were basically flat. There was a lot of running, but it did not end up anywhere on the session.

INTERNALS.

The internals are basically flat. 1.1:1 on NASDAQ and 1.2:1 on the NYSE. That pretty much matched the session with very flat action internally. Volume tanked and fell off even further below Thursday levels. We had that big, nice, above-average volume spike on Wednesday that took both NASDAQ and NYSE volume above average when the indices reversed off of their lows, but was not able to make anything of that toward the end of the week. Volume faded off and the indices faded laterally and moved nowhere to close the week.

CHARTS.

No real change in the charts on Friday; from Wednesday to Friday there was just lateral movement and tight range. That is not necessarily bad, however. NASDAQ gained 3.48 points, up 0.2%. It sold below the May peak 1764 was the closing May peak and the 50 day EMA at 1760 on Tuesday, and it spent the rest of the week bumping back up against that and has now become resistance. It was support, broke through it, and it has been unable to break back above it. If it falls from here, that will become barely solid resistance. It is now back in the May trading range from 1664 on the low to 1764 (that May peak) on the high. It is pancaked right below that level. It is bumping it, but it cannot push through. If it falls back from there, that is not a good indication as it solidifies that level as resistance.

SP500 closed down as almost the mirror of NASDAQ. It was down 3.55 points, falling 0.4%. It finished the week with the same kind of action as NASDAQ with that tight range, but contrary to NASDAQ it is above its support level (where NASDAQ is right below a support level). NASDAQ has been the leader, but it has worked itself into an uncomfortable situation in terms of the upside. SP500 has already sold off ahead of it, and it has now found that support and been able to hold it and has been bouncing down intraday before kicking back up for the close. It is showing that there are buyers here, and it is an important level. 875 is an important level, 900 was an important level, 850 is an important level, and 800 below that. SP500 tends to move in chunks of 50, and it is right now trying to hold the line at 875 and bounce things back up. It can easily do that it has a shelf of support and it is trying to make the bounce so it can go back up to 900. When it is there, it becomes more problematic if it can make the breakout. If it bounces off of 875, it goes up to 900 resistance, but in my view it may come back down and test 850, maybe even 800. 850 is more likely. It may show strength that we do not think it has right now, it may break up and continue higher through 900. It will show what it is going to do. All we can do is be ready for whatever circumstance comes up. We have upside and downside plays to take advantage of that, and fortunately we are making money off of them.

The SOX gained 0.42%. It is trying to extend its bounce off of the short little double bottom that it has formed over the past three weeks. It looks decent but keeps running into resistance up at 260. There are some stocks in the SOX that are looking quite nice and setting up well, while at the same time there are others not doing so well. There is a dichotomy, and the SOX is somewhat dragging as a result as are all of the other indices. We could get some nice upside breaks from some semiconductor stocks next week as I will discuss later.

LEADERSHIP.

Again there were the chips - - stocks such as NPWR, MRVL, and VSEA and some others that are setting up. We own some of these and will be looking at some of them in the report over the weekend as possible plays to the upside.

Financials continued their nine-week slog. They are moving in a tight range, laterally and lower, but they are going nowhere and have gone nowhere for over two months now. That makes it very hard for the SP500 to break out of this range. It has been up and down a lot more than the financials have, but it has been unable to make the breakout of that range.

There are other large cap techs that people are talking about, such as AAPL. It looks like it could make a bounce up to its prior high, maybe even a little higher, but then there are others are not looking so hot at all. They are in their basing process or pullback and trying to find support and set up to move higher again. They are trying to find the extra buyers to push them back up. Energy, commodities, agriculture, industrials - - all of those that are tied to the world economy improving are deep down in bases or in deep tests. They rallied well off of the March low, but now they are testing deeply because of this worry, this theme that the world economy may double dip into a deeper recession than it is in now. That is keeping those stocks down as they are having a hard time finding buyers.

Leadership is still a work in progress. The indices are a work in progress as well, trying to set up and hold support and maybe break higher. I do not think it will be successful ultimately, and they will come back down and try again.


THE ECONOMY

Earnings to provide the next chapter on the economy.

There is not a lot to say about the economy this weekend. There was more data out this week and there is a general theme of worry over the possibility of a double dip. Some data is improving, some is not. There is backsliding on some after initial improvement. Yes, there is always volatility when the economy turns, but the question right now is whether it is turning up or turning back down into that double dip.

Earnings will give the next read on what the economy is doing. Companies are going to give their insight as to what the future holds. They cannot be too glowing, and they cannot be too negative because they would get sued if the results turn out too far out of whack with the initial report. The results will be a relatively conservative but somewhat trustworthy view of what will happy in the future.

Overall, the data remains weak. The country is no longer going into that Great Depression II, so it has stabilized, but we are not rebounding significantly. That is why I feel lukewarm on commodities, energy, and industrials, and all of those that are tied to the world economy improving. Again, that is why the dollar is stronger, treasuries are gaining strength, and thus yields are falling. They are safe havens when times are tough. Thus the earnings coming out over the next two weeks will tell us where we are at this stage.

Thus far, earnings are beating expectations, but the reason is not an increase in top line sales, i.e. revenues, but improvement in the bottom line - - in other words, they are cutting costs. Those costs are jobs, hours worked, equipment, and processes so they can be more cost-effective. None of that is a problem (unless it is your job being cut, of course) because it makes the company more efficient and thus able to beat expectations. Expectations have been lowered, however, as analysts see the recession and overreact with their projections Thus companies are able to cut costs more than expected and beat the expectations.

So they may have a little pop, but overall is that changing the economic picture much? Of course it is not. Companies have a little more profit because they have cut costs but they are not going out and buying new equipment, they are making do with what they have. That is not the way to turn an economy around. You and I know that, but it can give false signals to those who are not paying attention, i.e., Washington DC - - our leaders in Congress and the administration. They hear earnings are looking better and they do not delve deeper. They listen to what they want to hear and see what they want to see, and then apply that to the programs that they want to push. That is the age old DC game. When the information comes out, they will say earnings are better so they can go ahead with what they are doing. Again, the reason earnings are better is not because the economy is growing, but because companies are doing what they always do in a recession, i.e. cut back. Technology companies are the best at this; after they got torn to pieces in the 2000 decline where they had to write off hundreds of millions of dollars of inventory per company, they are very good at this and they cut back early. They are much more productive and they avoid these kinds of hiccups. They can keep their earnings a little steadier --- they cannot avoid all of the problems, but can keep things steadier through the quarter. Look at what was announced Friday. It was announced that CSCO was going to cut up to two thousand jobs. It is cutting costs and things are not improving where it can hire more people or even keep the people it has. It has to cut jobs in order to reduce its overhead, keep its earnings up and its shareholders happy. That is what we are seeing in actual results, not just theory that I am spouting off about.

The economy has the same problem since this recession started. You have to get companies, small businesses and consumers to spend when there is no reason to spend. Business is bad, there is no reason to invest in equipment and personnel when you would just have to leave them idle or pay workers that do nothing. We have to get them to spend when there is absolutely no reason to spend. That is where you have to come up with the right fiscal policies to do that. We know what they are, we have seen them in the 20's, the 60's, the 80's, and we have seen them again in the 90's and 2000's. That covers a lot of administrations both Democratic and Republican. Unfortunately, now we have morphed into a situation where we think that only government spending and growing the government larger is the answer. That is not going to be the answer, and that is why I feel that Mr. Roubini's prognostication with respect to how long the recession will last might be a little bit rosier than it should be.


THE MARKET

MARKET SENTIMENT

VIX: 29.02; -0.76
VXN: 29.33; -0.67
VXO: 28.91; -0.5

Put/Call Ratio (CBOE): 1.08; +0.01. Seven sessions over 1.0 in the past three weeks. That is now at that point it can indicate a bounce and with SP500 moving laterally at 875 there are some bounce factors coming together.

Bulls versus Bears:

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

Bulls: 42.7%. Stemming the recent decline a bit, rising from 41.47% though down from 43.6% and 44.8% the prior week. Hit a high of 47.7% on the run from the March lows. Steady rise from 36.0% in late April. Has passed 43.2% hit mid-April before anticipation of stress tests. Over the 35% threshold, below which is considered bullish, but 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: 30.3%. Modest gain from 29.9% as the bears grow along with the bulls; not the usual scenario. Bears continue their recovery after falling as the market rallied. Up from 23.3% just over a month back. Still well off the 37.2% and the 37.1% in mid-April as the rally continued higher. As with bulls, below the 35% threshold considered bullish and starting to approach bearish levels (for the overall market). Now far from off the high on this run at 47.2%. For reference, bearishness hit a 5 year high at 54.4% the last week of October 2008. The move over 50 took bearish sentiment to its highest level since 1995. Extreme negative sentiment. Prior levels for comparison: Bearishness peaked at 37.4% in September 2007. It topped the June 2006 peak (36%) on that run. That June peak eclipsed the March 2006 high (33%) and well above the 2005 highs that spawned new rallies (30% in May 2005, 29.2% in October 2005). That was a huge turn, unlike any seen in recent history.


NASDAQ

Stats: +3.48 points (+0.2%) to close at 1756.03
Volume: 1.635B (-10.63%)

Up Volume: 993.09M (-334.618M)
Down Volume: 666.283M (+134.473M)

A/D and Hi/Lo: Advancers led 1.14 to 1
Previous Session: Advancers led 1.03 to 1

New Highs: 6 (-10)
New Lows: 35 (+4)

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

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

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


SP500/NYSE

Stats: -3.55 points (-0.4%) to close at 879.13
NYSE Volume: 922.161M (-8.34%)

Up Volume: 294.808M (-384.779M)
Down Volume: 613.143M (+295.949M)

A/D and Hi/Lo: Decliners led 1.19 to 1
Previous Session: Advancers led 1.67 to 1

New Highs: 17 (+6)
New Lows: 61 (+15)

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

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


DJ30

Stats: -36.65 points (-0.45%) to close at 8146.52
Volume: 172M shares Friday versus 192M shares Thursday.

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


MONDAY

SP500 has a decision it needs to make. It is at key support at 875 and it is acting as if it wants to bounce. If it does, that is a very strong indication there is good support for the market overall as it shows the buyers are there ready to push it higher. Remember the liquidity is still out there, but it has to decide whether it wants to go into the market right now or go into treasuries or currencies. It is going to be put somewhere, and that is the place where it can make the most money. Right now, if the economy is going into a double dip, then it will find bonds and currencies as we have seen to be the case this past week. Again the market has to make a decision as to what it is going to do near term and it will likely make the decision this week.

SP500 could break back up to 900. It is holding 875, and though I still think it will ultimate fade to 850, it has not done that and of course the market is going to do what it is going to do. I think I have said that every night this week. That is the process it is working through --- the buyers and the sellers are fighting things out right at 875. Again, SP500 could easily bounce up to 900 off of this lateral, tight range formed to end the week. If it does, that is a strong indication and it could continue on higher. It behooves us to position ourselves to take advantage of whether the market moves higher or lower, or it bounces higher and then back down in this range. Tonight we have a four-step plan (not just the three step this time) on how to approach the week.

First, the action at the end of the week set up some downside plays. There were some bounces higher where stocks that sold off were bouncing back up, forming what you call a "bear flag." That is where a stock that sells off bounces up in kind of a check mark up toward resistance for 1-4 days and then it falls back down, continuing the downtrend. Some of those are setting up, and we see that some energy stocks (XTO, for example) look to be doing that right now. We can take advantage of those.

Second, there are some stocks that have sold off and are ready for an upside roll. If SP500 breaks higher off of 875, then these stocks could do the same thing off of their support and make a lift higher for a week or two as SP500 moves up toward 900. We can play those as they bounce off of a price support level, or it can be a Fibonacci level, or it can be a combination of both which would be best: price supports and the Fibonacci forms up and makes a double layer of support. As we know, that is often the case. Several factors line up at one level to provide excellent support or, the other way, excellent resistance for stocks.

Third, there are some good upside patterns already. I talked about semiconductors earlier. There are good stocks and good patterns in that sector, and we can try to take advantage of those if the market bounces higher and they break out.

Fourth, we can use the bounce up to 900, and if it stalls, then we would be looking to close some upside plays and maybe take some gain on some. If they have been laggards and not performing the way we would like, we can use that to close them out and prepare for more downside. Or, if the market continues higher, just put the money in other stocks that are moving better or have set up better. That is our four step plan looking out on this week.

That is a quick synopsis of the week. It ended without really changing the situation after selling off early in the week. SP500 held support, there are some rebounds, some possibilities for upside and downside plays because we are right in the middle of that trading range. I have some more Boy Scout duties to attend to this weekend, so I am going to jump on that as soon as I can. I will get to what I have as quickly as I can, but if it comes a little bit later or if we have to get something out to you on Sunday night, please bear with me because I want to make sure I keep the boys earning those merit badges. Have a great weekend.


Support and Resistance

NASDAQ: Closed at 1756.03
Resistance:
The 50 day EMA at 1760
1770 is the mid-October interim peak
1773 is the May intraday peak
1780 is the November 2008 closing peak
1786 is the November intraday high
The 18 day EMA at 1790
1880 is the June peak
1897 is the October post gap intraday high.
1947 is the October gap down point
1984 from late September
2099 is the mid-September low
2169 is the March 2008 double bottom low

Support:
1673 is the prior April peak
1666 is the intraday January 2009 peak
1664 is the May 2008 low
1661 is the April 2009 prior peak
The January closing peak at 1653 (intraday)
The 200 day SMA 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
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 879.13
Resistance:
882 is the early May low
The 200 day SMA at 880
888.70 is the April intraday high.
The 10 day EMA at 895
896 is the late November 2008 peak
The 50 day EMA at 898
899 is the early October closing low
919 is the early December peak is bending
930 is the May peak
935 is the January closing high
944 is the January 2009 high
956 is the June intraday peak
1000
1050

Support:
878 is the late January 2009 peak
The prior April peak at 876
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
846 is the April peak
842 is the early April peak
839 is the early October 2008 low
833 is the March 2009 peak
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
800 is the March 2003 post bottom low


Dow: Closed at 8146.52
Resistance:
8191 is the prior April peak
8197 was the second October 2008 low
8221 is the May 2008 low
8307 is the April 2009 intraday high
8315 is the February 2009 peak
The 18 day EMA at 8354
The 50 day EMA at 8355
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
8588 is the May high
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
9387 is the mid-October peak
9625 is the October closing high

Support:
8175 is the October 2008 closing low. Key level to watch.
8141 is the early December low
The early April intraday peak at 8113
The early April peak at 8076
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
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.

July 14 - Wednesday
Core PPI, June (08:30): 0.1% expected, -0.1% prior
PPI, June (08:30): 0.8% expected, 0.2% prior
Retail Sales, June (08:30): 0.5% expected, 0.5% prior
Retail Sales ex-auto, June (08:30): 0.5% expected, 0.5% prior
Business Inventories, May (10:00): -1.0% expected, -1.1% prior

July 15 - Thursday
Core CPI, June (08:30): 0.1% expected, 0.1% prior
CPI, June (08:30): 0.6% expected, 0.1% prior
Empire Manufacturing, Jul7 (08:30): -5.00 expected, -9.41 prior
Capacity Utilization, June (09:15): 67.9% expected, 68.3% prior
Industrial Production, June (09:15): -0.6% expected, -1.1% prior
Crude Inventories, 07/10 (10:30): -2.90M prior
Minutes of FOMC Meeting, June 24 (2:00)

July 16 - Friday
Initial Claims, 07/11 (08:30): 565K prior
Net Long-Term TIC Fl, May (09:00): $11.2B prior
Philadelphia Fed, July (10:00): -5.0 expected, -2.2 prior

July 17 - Saturday
Building Permits, June (08:30): 523K expected, 518K prior
Housing Starts, June (08:30): 530K expected, 532K prior

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

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

Technorati tags:

Monday, July 06, 2009

Oil Heads to the Bottom

SUMMARY:
- Wednesday reversal continues, aided by a weak jobs report.
- Jobs disappointing as a glimmer of hope fades.
- Oil heads to the bottom of the barrel as its reversal continues as well.
- Some say this is not your father's recession. But it IS.
- Looks as if the real test is on.

Pre-window dressing trends resume.

Thursday the market continued Wednesday's intraday reversal and rollover, getting a big kick from the weaker-than-expected jobs report. Back in June we saw SP500 try to take out the January peak. Intraday it made the move and cleared that resistance, but it reversed and closed flat on the session. It was not any kind of key reversal that formed on a surge in volume with the index closing lower, but it had the same effect. SP500 rolled over and came close to getting down to the 875 support level. Wednesday, SP500 showed similar action though this was at the May peak versus the January peak. Intraday it moved higher to break that level, but then reversed and rolled over, closing basically flat; Thursday it continued that move as stocks sold off.

What is happening now is what we anticipated would occur before the window dressing that started a week ago Thursday. In other words, SP500 was selling off and was making the tests that it needs to make after a 35% run off of lows, but it was interrupted by some quarter-end window dressing. New money was put to work on Wednesday morning as the month came to a close, but now that seems all of that money is used. SP500 is heading lower to make that test of 875 and 850 (or possibly lower) that it was ready to make before the end-of-quarter action.

The jobs report triggered the action; it did not cause it. It was not nearly as terrible as earlier in the year, but it was worse than expected with over 400K jobs lost versus the 350K or so expected. Unfortunately, the move started with a gap - the jobs report put everyone in a sour mood after it was already heading downside with the rollover. That did not give us a lot to buy into, though we managed to get some RIMM shares to the downside after rebounding on the heels of some early selling. As far as the DIG, NBL, and PCU plays, they all gapped to the downside and never came back. Indeed the market never even tried to rally back on Thursday, and thus we did not want to chase anything. We could get a bounce back on Monday and that may give us some opportunity. When these kinds of moves happen one does not want to chase. Fortunately, we are already in some good plays to the downside that we have been taking over the past week, such as FAST, GENZ, SU, TEX and XTO just to name some of them. They moved quite well to the downside as did most stocks on the session.

Oil was in the tank (so to speak) as well. It closed at $66.58, down $2.73, the decline aided by a surging dollar. It rallied and closed at 1.3998 Euros, up from 1.41 the session before. When we see this kind of worry about economic recovery and when the US has poor economic results, it does impact the rest of the world. Investors then move into the dollar or US Treasuries as a safe haven. We saw bond yields crater as investors ran their way. The 2 year once again fell below 1%, closing at 0.99%. It made it up to 1.5% just three weeks ago, and now it has shaved off over 0.5% from that. The 10 year was up at 4%, and closed at 3.49%. That shows you the power of fear - when people get scared, no matter how much debt we have outstanding, and no matter how many trillions of dollars that we owe the rest of the world, they run to the US to take care of their problems. When it comes to financial situations, it is the dollar and US Treasuries that are the salve to their worries.

TECHNICAL.

INTRADAY.

Intraday the market gapped lower and stayed down all day with no real attempt at a rally. Late, there was a slight bump up, but it got slapped right back down as the sellers were in firm control the entire session. Not too surprising since it was the end of the week ahead of the holiday and no one wanted to stick their neck out to the upside given the rollover and the news in the market. There is a concern that the economy is going to head lower again, and with oil tanking after hitting $73 on Monday night and then rolling over itself, there is a fear that other commodities are going to do the same thing because there is not the demand from the world economies to support higher prices. Thus oil is diving and it could - I do not like to make predictions with respect to oil - but we could see it back in the $50's this time. That would be interesting going into the middle of summer. It would be a real shot in the arm for consumers, that is for sure.

INTERNALS.

The action was very weak. Breadth was -3.8:1 on NYSE and -4.81 on NASDAQ. Volume fell further off of a cliff; it did not come close to 1B shares on the NYSE, indeed trading only 626M shares, and that is with an additional 15 minutes tacked on at the end of the day due to some technical problems that the exchange had in filling orders earlier in the session. They appended the session with 15 extra minutes but it did not help the volume. Of course it was ahead of a three-day weekend, it is in the summer, and it is right at the 4th of July. That is a notoriously low-volume period, and thus we did not see much trade, but saw a lot of price action. When there is not a lot of trade, that allows a few large institutions or large programs to push the market around, and this is what we saw on Thursday with the large losses of over 2%, and close to 3% in some circumstances.

CHARTS.

The charts tell most of the story. We have been talking about this quite a bit over the last couple of months, that is the need for the NYSE indices, particularly SP500 to test back and backfill some of the 35% gain it had off the March low. It is abnormal for the market to continue such strong gains without a test. For the past month and a half, it has put in a lateral move, and that is very good consolidation and testing action. Given the size of the move off the low however, we still anticipated further declines to fully test the move. By "fully test," I do not mean coming all the way back to the March lows - not at all. I am speaking of more normal retracements, such as the Fibonacci 38% level, or even the 50% level that is typical when you have such strong moves off of the bottom of a selloff. That is what I am looking for here, and considering Thursday's action it looks like that could be starting. I have said that before - back in June it looked like it was starting again, and it did get underway, but liquidity interrupted it. It is now coming down from a lower peak and that likely means it is going to make that deeper test.

Speaking of those Fibonacci levels, the market could easily sell back to 875. It did not quite make it there on the June selling, but it is starting at a lower level now and it is just a short conversation away from that point. 846 on the SP500 is the 38% Fibonacci retracement level. That is also coincident with the October 2008 lows. Those are key lows - the first lows made as the market sold off. When SP500 held at those and tried to find support there, it established a nice range that later on (as in now) would maybe provide a support range as the market came back to test. I have a feeling we will find out over the next couple of weeks whether or not that is the case. That does not mean that SP500 is necessarily going to hold at those levels down near 850 or 846. The 50% level is also a normal retracement for such a move as we have seen off the March low, and that is 811 for SP500. There is still a significant amount of movement that SP500 could have. In other words, it could sell back another 85 points from the Thursday close and still be in a normal pullback to test such a strong, outsized move as we saw off of the March lows.

There is no question that NASDAQ is the market leader, but that did not prevent it from selling off on Thursday. It gapped lower as well, and on the close it is already just 10 points off of its November peak. That is the point it tested in June, broke through and fell down to the May peaks, down around 1763-1765 and held there and then bounced back up. We could easily see all of this repeat again. That is where it is going to get interesting - in that range of support from November down to the May peaks as the key support level for NASDAQ. Remember that the November peak was the first high off of the bear market low for NASDAQ, therefore it was a very important point for it to break over. Thus, that makes it a very important point for it to hold on a test. Again, this is where it gets interesting. It looks as if it could fall back into the range from the May peak on down to the January peak at 1636. That is a wide trough of support, or trading range, that can act as deeper support for NASDAQ if SP500 sells back to 811 and makes a 50% retracement of the March move. We could easily see NASDAQ making that pullback into that range from the May peak down to the January peak - that would not be out of the ordinary. If NASDAQ can hold where it held in June, i.e. at the May peaks, then that is a very strong indication that NASDAQ is going to move higher and will remain the market leader. Thus far, NASDAQ still looks quite strong even after the Thursday action.

The SOX was down 1.2%. It was a relative strength leader on Thursday and it still looks very solid, although I say solid in a relative sense. Recall that the SOX made two breakout attempts and failed them both, forming a double top and falling back into its range. Since then it has held well. For the past week it has moved laterally in a very narrow, tight range, holding above the 50 day EMA. It looks quite good, and toward the end of the week many semiconductor stocks were performing quite well. If you look across the board, you see they were flat or slightly up, even on Thursday. A classic example is Broadcom: it looks very much like SOX in its nice lateral, tight move. There is some underlying support there, and when you think back, semiconductors were one of the first sectors to move up off of the lows; it makes sense that they would hold if the market is going to continue higher. That is exactly what they are doing - when the rest of the market was getting taken out and trashed, the semiconductors looked relatively quite good even though they were down.

LEADERSHIP.

The relative strength leaders were the SOX and semiconductors, and they were without a doubt one of the relative strength leaders for the entire week as well. No surges, but they had good strength compared to the out-and-out selling that impacted a lot of the other sectors. For instance, energy was gutted, industrials were weak and sold off, financials tried to show a little strength early in the week - remember the window dressing that bumped them up. They were taken out and pretty much whipped like dogs after that. Agriculture was interesting because the ag stocks were up. Of course the ag stocks were taken out and beaten about the head and shoulders before everything else was, so they are pretty much sold out now. That is interesting because we saw POT jump back up off a second test of a Fibonacci level which makes it an interesting upside play at this point. We are going to look at that because we closed down our downside position with a nice gain, and what was left was taken off the table. We can now look at some ag stocks and POT as a possible upside play while everything else is taken out and beaten up as the agriculture stocks were over the past few weeks.

Large cap techs were down but not out. RIMM is struggling, and we picked up some downside positions on RIMM, but a lot of the large cap technology stocks are still holding up well. The question is how are they going to hold up over the next week or two as the market comes back and tests further. They will tell a lot of the story as to what NASDAQ is going to do, of course because the large cap techs are the primary waiting in the NASDAQ index. How they respond will tell a lot about what NASDAQ is going to do. The key point to take away on all of this is that leadership is trying to test and hold bases or breakouts as the market comes back. How they hold up if they are able to continue basing, or if they are able to come back and hold support, will again tell us a lot about what this pullback has in store for the market overall.

THE ECONOMY

As jobless world grows it turns to a leading indicator.

The big issue investors dealt with to end the week was the disappointing jobs number that previously provided a glimmer of hope but then dashed them with this June report. It was not a bad report: 467K jobs lost was a lot worse than the 367K expected. In May, that was revised to 322K jobs lost versus -345K originally reported. There is some backsliding, but of course the other numbers were not any major change. While we have seen in the 600K range of losses, we are now down to 'merely' the 450K range. Weekly claims are still growing, however, and one has to reconcile that the weekly claims have started to move back up as well. This jobs report is dated information compared to those jobs reports that come out weekly. What we are seeing is backsliding there, so will likely see more deterioration in the jobs number overall.

Losses were across the board. The only thing up was education. Even government was down 52K as the census workers hired are now laid off. Unemployment hit 9.5%, which was less than the 9.6% expected though more than the prior month's 9.4%. The job pool fell over 130K, so that tells you that a lot of people just gave up looking for work. The unemployment rate would be (and is) higher if you take away the fiction of people who are not looking for work, but you know those people would take a job if it was offered to them. Nonetheless, 9.5% is still high and it hurts a lot. Indeed it is the highest since 1983. 6.5M jobs have been lost since the recession started, and there are a record 14.6M people out of work. That is the official number, but the consensus outside of the government is that there could be as many as 30M people unemployed in the United States. That is 30M people capable of working, who would work if they had a job. That is the severity of this recession.

Is the jobs report a lagging or a leading indicator? That is argued every time the jobs report comes out. I am on the side of it being a lagging indicator. There is a time when there is a crossover in whether a report is leading or lagging. With so many people out of work as we have right now and with only demand-side stimulus promulgated by the federal government, the jobs losses become a coincident indicator. Worry over jobs inhibits expenditures; in other words, the number of jobless people becomes so great that its gravitational impact (as one might say) on the rest of the economy rises as more and more people cut back on expenditures since they are worried about whether or not they are going to have their job, or they simply do not have a job and the income to make purchases. At that point, it starts to become a leading indicator because that impacts decisions by corporations and small businesses as to what they are going to do - whether or not they are going to make purchases, whether or not they are going to look to hire new people and those types of things.

At 9.5%, again the largest reading since 1983, it is getting to that level where it is starting to be The Blob that ate Cincinnati. It is going to overtake the rest of the economy unless we can do something to create jobs. It is very difficult to break the cycle if you cannot get companies to have some optimism about the future, or at least to get them to start spending money and looking to bring on people as they invest in their business. As noted, the current stimulus simply does not do that.

This recession is not different. Indeed it is depressingly familiar.

Over the past week people are stating "This is not your father's recession." Today one fellow said that this is a different recession, of a kind we are not used to. I would posit that that is EXACTLY our father's recession. The reason I say that is because I was a kid in the 70's and I lived through that recession but my father was a worker during that time. This recession that we are having is very much the same kind that we had in the 1970's. We had the oil shock, regulation, money printing that debased our currency and ignited inflation pressures. This recession has the same catalysts and responses. There was the oil shock at $140 a barrel last year. The same monetization of the oil shock and response to economic slowing has sewn the seeds of inflation. Regulation is again exploding and we have adopted a lot of governmental policies that are bent on spending versus actually encouraging economic growth.

Those are the same mistakes that made in the 1970's. From Nixon, to Ford, to Carter, it was one boondoggle after another. During the 70's the blue chip stocks - really all stocks - were losing most of their value, the economy was slack (that is the best you can say for it right now), there was high inflation, and there was high unemployment. That's what we have now and it is getting worse, heading toward the 1970's levels. On top of that, the government in the 1970's did nothing substantive, at least in terms of positive impact, to help the situation. The government was regulating and the government was spending. Regulation and spending do not - I repeat - DO NOT result in economic recovery. The result was that we had 10 hideous years until Reagan took office. Then we had a tough recession - the end of the 10-year recession - as President Reagan and Fed chairman Paul Volcker broke inflation's back. What they did was put forth the right kind of fiscal stimulus, coupled with tough monetary policy that actually raised interest rates. People thought that was crazy with the inflation and high unemployment, but Volcker raised interest rates, and combined with the Reagan stimulus helped quell inflation. It also spurred massive investment in the United States and we rode the resulting boom for the next 20-odd years until we managed to kill it off with this profligate spending once again, under Republican and Democrat administrations.

Sadly, as noted, we are doing the same thing once more. When you look at the stimulus bill, there are a lot of things that they call stimulus, such as the healthcare records and the green initiatives. However, of the $800B+ in stimulus, only a paltry $50B has actually hit the economy at this point. I believe you can go to a place called www.stimulus.gov and see the results of that spending. None of that is stimulating small business or really any business to invest in themselves or in the United States. I have talked to many small businesses, and NONE of them have received any stimulus or are in any way induced to spend or invest regarding their businesses as a result of this stimulus package.

What we are getting from the stimulus are companies such as GE and its CEO Jeff Immelt coming out and buddying up with all of the administration officials about the green initiative. Wal-Mart Wednesday came out and said it really liked the proposed healthcare plan even though details are fuzzy. Why? Because it will benefit WMT. Beware when the government shows up and says "I am here to help," and you should also beware when mega corporations come out in support of massive government spending programs. They are basically governments themselves and they see this as a benefit to their bottom lines. You might think that is fine, but what benefits a few mega-corporations is not usually good for all of America. Immelt and GE see their savior as this green initiative. They feel they can take their light bulbs and other aspects of the company and use the green initiative as a massive profit center, using our tax dollars to pay for it before trying to sell the stuff back to us. Beware. Wal-Mart sees profit potential because it has its in-store clinics and it wants to latch onto the government and use that money to funnel profit into its coffers, again using our tax dollars to make money for itself.

My wife saved me money one day. She went out and bought a bunch of stuff that was 30-40% off. She spent several hundred dollars and came back telling me what a great job she had done saving me money. That is exactly what GE and Wal-Mart are promising when they stump for these massive government spending programs that do not add anything to the economy - all they do is take money from taxpayers, whether they be individuals or businesses, and allow a few big enterprises to retool their businesses.

It is a fact that large corporations are not the job creators in the United States. I have researched the issue on several different occasions, and even the Small Business Administration figures bear out, that small business creates the lion's share of jobs. It is well accepted that small businesses create 70% or more of the jobs in the country. Look where all of the jobs in technology came from in the 80's: companies like Apple, Microsoft, Cisco - those start ups that had the new and better ideas. They are the ones that created the massive job growth - the start ups, the new ideas that catch the next wave of technology or the next wave of invention. Conversely, initiating programs that tax American citizens to for initiatives that only big companies can take advantage of and use as profit centers is not going to create more jobs. It will only rescue these companies that need some form of their own government bailout. That is why they are out there so vigorously promoting these programs. Again, beware. Let your Congressmen know that that is not what you want because it is not good for the country and it is not good for you.


THE MARKET

MARKET SENTIMENT

VIX: 27.95; +1.73
VXN: 28.07; +1.21
VXO: 27.45; +2.28

Put/Call Ratio (CBOE): 1.05; +0.25. Two out of three sessions above 1.0 on the close. Expect to see more as the selling continues. Call me when it gets to 7 or so.


Bulls versus Bears:

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

Bulls: 41.47%, continuing the decline. 43.6% last week, down from 44.8% as the choppy market is still culling the herd some. Hit a high of 47.7% on the run from the March lows. Steady rise from 36.0% just 10 weeks back. Has passed 43.2% hit mid-April before anticipation of stress tests. Over the 35% threshold, below which is considered bullish, but 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: 29.9%. Bears continue their recovery after falling as the market rallied. Up from 23.3% just over a month back. Still well off the 37.2% and the 37.1% in mid-April as the rally continued higher. As with bulls, below the 35% threshold considered bullish and starting to approach bearish levels (for the overall market). Now far from off the high on this run at 47.2%. For reference, bearishness hit a 5 year high at 54.4% the last week of October 2008. The move over 50 took bearish sentiment to its highest level since 1995. Extreme negative sentiment. Prior levels for comparison: Bearishness peaked at 37.4% in September 2007. It topped the June 2006 peak (36%) on that run. That June peak eclipsed the March 2006 high (33%) and well above the 2005 highs that spawned new rallies (30% in May 2005, 29.2% in October 2005). That was a huge turn, unlike any seen in recent history.


NASDAQ

Stats: -49.2 points (-2.67%) to close at 1796.52
Volume: 1.876B (-1.77%)

Up Volume: 269.717M (-1.088B)
Down Volume: 1.649B (+1.03B)

A/D and Hi/Lo: Decliners led 4.87 to 1
Previous Session: Advancers led 2.03 to 1

New Highs: 15 (-28)
New Lows: 14 (+6)

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: -26.91 points (-2.91%) to close at 896.42
NYSE Volume: 626.097M (-34.15%). Really, really low volume.

Up Volume: 42.701M (-555.301M)
Down Volume: 579.391M (+256.942M)

A/D and Hi/Lo: Decliners led 3.83 to 1
Previous Session: Advancers led 2.75 to 1

New Highs: 18 (-16)
New Lows: 43 (-3)

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

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


DJ30

Stats: -223.32 points (-2.63%) to close at 8280.74
Volume: 157M shares Thursday versus 184M shares Wednesday.

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


MONDAY

I am painting a fairly gloomy scenario with respect to what is happening with the economy. As we know, the market is a leading indicator of the economy and right now the market has put in a good run and is trying to test back as it tries to digest the recent economic data as well as the outlook for stimulus. On the positive side - not to leave anyone down on the 4th of July weekend - the market is hardly rolling over. It is making a test that it needs to make. It has rolled over in the sense that it was unable to make the break over next resistance, but not in the sense that it has rolled over, crashed lower and broken through all of the uptrend lines and is heading back down to the March lows. Not at all - or, at least not at this point. Hey, I cannot be all flowers and roses. In any event, the SP has started to test. The last time it was saved by portfolio shuffling, but now it does not look like there is going to be much else to save it. There is still a lot of liquidity out in the market that has been working to fill in the holes on dips, but that is waning for the moment. You can see how the money is not coming in as it was up through June. The market was trying to pull back until that window dressing came along and bucked it up. It is continuing with that trend as predicted, and that is why we are taking downside positions along the way.

It looks like the test is on. The market is at an abnormal high without having a pullback. It is top-heavy, and not even the liquidity that the central banks around the world are printing up looks like it will keep it afloat in the near term. It wants to make this test, but again there is nothing nefarious about this. It is just something that the market needs to do in order to set up better. We are playing the downside with several plays that we have that are moving well. There may be more opportunity to play some downside: One thing this market does is, as soon as it makes one move, it tries to bounce back the other direction. Come next week, the market might bounce up for a couple of days before it trends lower once more. That is great if it does because there are some plays that gapped down that we were not able to get in as we wanted to avoid chasing on Thursday. If there is an opportunity to move into some of these, i.e. a relief bounce, we will gladly do that. Any upside rebound can be played to our advantage. We can take some profit or we can use that on plays that were under some pressure on Thursday - if they bounce up but cannot right the ship, we can use that to sell some of those into strength.

What should you look for as the market sells back? We have downside plays and will look for some more upside as relief bounces come in. We need to watch and see how the market tests back to those levels to begin looking for upside plays. There are some clear Fibonacci levels and support levels that are on the report, and we need to watch how these key levels hold. Key stocks are also taken into account, those stocks - such as AAPL and others - will come back if the market sells more on this test. We will look at support levels and Fibonacci retracements, but will not necessarily look at flags and that type of play that are more for trending stocks. As the market will be chopping around in its lateral consolidation, we will look for these stocks to come down to other support levels, or at the bottom of trading ranges and then to show signals that they are going to hold that level. That puts them at a good risk/reward point, and if the overall market is testing a key level and looking like it will try to make it stick, then that is a good point to move into some of these great leadership stocks that everyone seems to love to put money in for when they bounce higher.

Janice Yellen, former Federal Reserve member, said Wednesday that the Fed is not going to remove any of its monetary stimulus, in other words is not going to raise interest rates for a long time - indeed years according to Ms. Yellen. If that is the case, then we can be pretty sure that the liquidity is going to stay there. What can change that would be some very negative economic data. That could upset even the monetary stimulus - the money printing that continues right now. That helped buoy the market, but even with that "stimulus," if the economic data turns sharply negative again, then that money is not going to be able to hold the market up and that could be the catalyst that would send the indices back down to the March lows. Right now that is not happening. Thus far liquidity has been able to fill in all of the holes in the market, and now it is going to make a test after moving laterally for a couple of months. It looks like the indices are going to come back and make that test, so we will look for the stocks to hold support and hold logical levels like Fibonaccis or other support and if we see bottoming signs, we can move in on those.

Basically it is the same game we always play. We are looking for opportunity as the market makes its moves. We are in some downside plays now and still have some upside - if those hold on, that is great. If they do not, we will close them out. Then, as the market makes another bottom or another low and makes a key test, we can use that opportunity to move in and see if we can mine some good upside moves. We will have the aid of seeing whether or not some good patterns have formed, whether or not they are ascending triangles, cup with handles, double bottoms, or the ABCD patterns that we like. We will see what forms up and will take advantage of what it does. The point of all of this is that while the market is selling back, right now this is nothing that is inherently bad. This is something that is indeed normal and something we anticipated would happen as you are well aware. What we do is take advantage of what the market gives us, and when it makes that pullback we will be ready to move in with great stocks as good risk/reward points. If a play does not work, that is fine. We will lose a little bit on the plays, but not much, and will then look for the next opportunity when the move does stick and we make a lot of money on those plays. Have a great weekend and a happy 4th of July. See you next week.


Support and Resistance

NASDAQ: Closed at 1796.52
Resistance:
The 18 day EMA at 1815
1880 is the June peak
1897 is the October post gap intraday high.
1947 is the October gap down point
1984 from late September
2099 is the mid-September low
2169 is the March 2008 double bottom low

Support:
1786 is the November intraday high
1780 is the November 2008 closing peak
1773 is the May intraday peak
1770 is the mid-October interim peak
The 50 day EMA at 1761
1716 is the May closing high
1673 is the prior April peak
1666 is the intraday January 2009 peak
1664 is the May 2008 low
1661 is the April 2009 prior peak
The January closing peak at 1653 (intraday)
The 200 day SMA at 1637
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
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 896.42
Resistance:
899 is the early October closing low
The 50 day EMA at 902
The 10 day EMA at 914
919 is the early December peak is bending
930 is the May peak
935 is the January closing high
944 is the January 2009 high
956 is the June intraday peak
1000
1050

Support:
896 is the late November 2008 peak
The 200 day SMA at 888
888.70 is the April intraday high.
882 is the early May low
878 is the late January 2009 peak
The prior April peak at 876
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
846 is the April peak
842 is the early April peak
839 is the early October 2008 low
833 is the March 2009 peak
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
800 is the March 2003 post bottom low


Dow: Closed at 8280.74
Resistance:
8307 is the April 2009 intraday high
8315 is the February 2009 peak
8375 is the late January 2009 interim peak
The 50 day EMA at 8390
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
8588 is the May high
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
9387 is the mid-October peak
9625 is the October closing high

Support:
8221 is the May 2008 low
8197 was the second October 2008 low
8191 is the prior April peak
8175 is the October 2008 closing low. Key level to watch.
8141 is the early December low
The early April intraday peak at 8113
The early April peak at 8076
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
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.

July 02 - Thursday
Nonfarm Payrolls, June (8:30): -467K actual versus -367K expected, -322K prior (revised from -345K)
Unemployment Rate, June (08:30): 9.5% actual versus 9.6% expected, 9.4% prior
Hourly Earnings, June (8:30): 0.0% actual versus 0.1% expected, 0.1% prior
Average Workweek, June (8:30): 33.0 actual versus 33.1 expected, 33.1 prior
Initial Claims, 06/27 (8:30): 614K actual versus 615K expected, 630K prior (revised from 627K)
Factory Orders, May (10:00): 1.2% actual versus 0.9% expected, 0.5% prior (revised from 0.7%)

July 06 - Tuesday
ISM Services, June (10:00): 46.0 expected, 44.0 prior

July 08 - Thursday
Crude Inventories, 07/03 (10:30): -3.66M prior
Consumer Credit, May (15:00): -$7.5B expected, -$15.7B prior

July 09 - Friday
Initial Claims, 07/04 (08:30)
Wholesale Inventories, May (10:00): -1.0% expected, -1.4% prior

Jul 10 - Saturday
Export Prices ex-ag., June (08:30): 0.3% prior
Import Prices ex-oil, June (08:30): 0.2% prior
Trade Balance, May (08:30): -$30.0B expected, -$29.2B prior
Michigan Sentiment-Prelim, July (09:55): 71.0 expected, 70.8 prior

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

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

Technorati tags: