Spending Rises on Clunkers

SUMMARY:
- Market ends the week flat line but does so by giving up a Friday gap higher.
- Techs try to lead but cannot while metals, energy remain solid.
- Personal income flat, spending rises on clunkers.
- Michigan sentiment decent, needs improvement.
- Cash for big companies laying off workers.
- Friday action and tired techs make Monday more interesting.

Flat close but a gap and reversal on some volume.

MRVL and DELL, two strong companies in technology, had the futures pretty ginned up on Friday. They came out with better than expected earnings Thursday night and had positive guidance and good things to say about a technology upgrade cycle to come. Futures were up and looking strong. Personal income and spending came out, and they were, at best, in line with a little bit lower number on the income which knocked the futures back a bit but did not destroy things. INTC came out and it had positive things to say about its sales in the quarter. That helped rev the futures back up for what was going to be a strong open.

As expected, the techs were in front. With that kind of news out, you would expect they would make a move. They have been lagging up to this point, sure, they are up to new post-March highs with the other indices, but they have somewhat abdicated the leadership role other the past couple of weeks. They had a perfect opportunity on Friday to reestablish themselves. The red carpet was rolled out, and they gapped higher and were looking strong as was expected. Indeed, there was also energy and the metals stocks. Industrial metals such as steel were also performing well. That was anticipated as well because they had some good looking patterns, indeed much better than the tech patterns overall, and we were looking to them to be a market leader - maybe not today but down the road when other things falter.

Speaking of faltering, the techs did that. The zenith for the move of the day was at the open. After that, the sellers came in and the market started to fall back. Again, this was somewhat expected to happen. The tech patterns were not strong enough to support a sustained breakout here. After they opened higher we were taking some gain off of the table and using that bounce to do it, then they started to peel back; indeed, they were negative by mid-morning and through lunch. They started building up in the afternoon session after lunch, and they made it to positive, but then there was a late half hour sell back that pushed the indices to mixed. NASDAQ gained all of a whopping point, while the Dow lost 37+ and the SP500 closed modestly lower as well. The SOX closed up 2% which you would expect given the good news from MRVL and INTC. They helped get the sector excited. As you can see when you look at the charts, of some of the big name semiconductors had a good start with a gap higher, they rallied from there, but then were pulling back by the end of the day. We had a bunch of gaps to dojis, and that may or may not mean anything. Sometimes a stock or index will gap to a doji, and then gap back the other way the next day creating something of an evening star with a maybe an island reversal. That can lead to more downside. We'll have to see how that plays out, but basically it was as expected on the day. A strong gap open led by the techs, but they did not have the stomach (or Viagra, as one person in the office said today) to keep it up for the entire session. It was not a total collapse, but we were not dealing from a position of strength when you looked how things played out and closed at the end of the day.

I also felt that while there would be a reversal and that perhaps the market would not fully tip its hand as to what it was going to do, and that was somewhat of the case. If you look at what happened on the day, they did move higher and they did sell back at the end of the session, but they are still holding the breakout from expiration Friday (two Fridays back) when they gapped higher and spent the entire week moving laterally in a very tight closing range. Maybe the intraday range was not as tight, but the closing range is almost a flat line. They did not change much of anything when you look at that perspective. What you did see on Friday was the gap higher and then the reversal. Some of the other days like Thursday we saw a sell down and then it rebounded, and that was different from earlier in the week when the market moved higher and then gave back its gains on the high (although it still did close positive on those days). On balance looking back at the week, it held the gains, and they were up from the week, but the problem was earlier in the week they gave back a good chunk of gains. It is like in baseball when a lot of runners are left on base. Maybe you score a run per inning, but you leave the bases loaded for several innings, and those are wasted opportunities. That is what we saw in the beginning of the week when a lot of points were gained but then lost. On Thursday it looked like we were in a recovery mode with that reversal only to see a gap and then a give back on Friday, thanks to the news and poor patterns in tech. It was not the strongest action if you look at the intraday picture over the entire week, although it is hard to argue with the result by the bell on Friday since the indices held their gains. You can bad mouth it all you want, you can say what you want about intraday reversals and higher volume selling, but they held their gains for the week and held that breakout to the new post-March highs.

Despite that, you always have to look at what happened at the end of the week. You are always saying "what have you done for me lately?" or in the market's case, "What have to done TO me lately?" One of the key takeaways on Friday was the fact that there was very good news. This is the kind of stuff that was not shown in the earnings season, i.e., companies saying "Things look good." Whole Foods has done it, DELL, and MRVL have done it. There are others who are starting to come out after this last earnings round and say that things are looking better, but it was not enough on Friday to hold some serious gains. It could not do it. That tells you a lot about the kind of sentiment that was out there among investors. The sellers tried to come back in and sell the market even on good news. It was Friday, so maybe that was not the whole picture - we will see more of it next week. You always get a better read on what is happening on the following Monday and Tuesday. Either it sticks and looks fine, or there is a shift. The sellers on the buyers will use that to step in and make their move and try to make their positions known.

TECHNICAL

Intraday was the gap higher on the strong earnings led by techs and we also had good moves by a bunch of the metals, industrials, and energy. They did not surge, they did not hold great gains, but they held nice patterns and that was a key. Even during the selling on the day, those leaders went back as well but did not selloff. They just held flat, and when the market came back late, they moved up to good position again and it did not bother them when the market frittered away at the end. There was the gap, the selloff and the recovery, and then just drifting off into the end of the day. That is not terrible action, but the indices never came close to recovering the early morning high. The sellers sold it off at that point, and while the buyers tried to come back in, they never had the kind of strength they had at the open. To me that is a much more telling picture of the intraday action.

INTERNALS.

The breadth was pretty much flat as one would expect, although on NASDAQ it jumped up on 1.8:1, thanks to the 2% gain in the semiconductors. They had a great session led by MRVL and INTC, so they posted solid gains and were not kicked back as much as the rest of the market when the selling got under way.

CHARTS.

Volume is the key once more, and it was interesting all week. It was up Thursday as the market sold off and then reversed. I heralded that as a positive, and it always is when the market sells off and then buyers rally back on stronger volume. That shows they are coming in with some, well, volume. Friday was the opposite story, the market gaped higher and sold off and it was on even higher volume. Both NASDAQ and the NYSE volume moved above average, up 9% on NASDAQ to 2.3B and up 8.2% on the NYSE to 1.4B. Both were above average, and that is very significant volume. Coupling that with the price action, you see there was a big rush in the morning and then it was drop kicked back down on higher volume. That is never a good sign when you see stocks trying to break to a new high, particularly when they are trying to break out of a previously four-day lateral move. There were four days of lateral movement on the close, they tried to make the breakout, but were drop kicked right back in. They did not break down, but they were not able to hold the move and sometimes it showed the sellers were a bit stronger. Sometimes this can portend a further move down in the coming sessions or the coming week because a lot of times when a market is tired you will see stocks try to make a break to a new high (and as you look at the techs you can see their patterns are tired because they have rallied along way). It looks like they are making a break only to immediately reverse. That happens on the bottom, too. It looks like a stock is breaking out of a range or breaking through key support and its goose is cooked, but then it reverses - maybe not that day, but on the next session it reverses and then rallies right back up. Had a little shake out there, hit a key point - if it was at a key support point, you always have to watch that because you can get a reversal. Here we have the indices on a new high following the March rally; they rose up and then reversed back. You can see that turn back on you and turn what looked to be a positive into a negative and a selloff. That is what you have to watch when you see these kinds of moves.

There are still positives here. The indices are all still in uptrends, no question about that. This is not really a threat to them at this point (at least not to the uptrends), a there is still a world of liquidity out there - literally a world of liquidity. There are funds here in the US with pockets and briefcases full of money waiting to be put into the market. The money is not loaned and needs to go somewhere, so it is going in the market. This is not a serious threat to the market yet. Sure it rallied up and turned over, but it is still in the same lateral move it was in before the day. It did not break down. It reversed and sold off, but the indices closed flat on the day. There was not any huge break down. Friday was not a major change of character, but it was an indication that NASDAQ is still very tired and it could reverse, but it was not a reversal in and of itself.

LEADERSHIP.

The techs tried. They had a red carpet rolled out for them, and they could have been leaders once again, but then they decided they could not hold the gain. Some of them did hold gains; some of the chips gapped up and managed to hold their moves for the day, but they were also well off of the highs. Many of them were showing those gaps to dojis, and we have to watch how those play out next week.

Always keep a list of gapping stocks on your watch lists. Keep them around whether they gapped up on good news, down on bad news, or just gapped for no apparent reason at all. If they go through a key area, they often continue on in the direction of the gap, whether it is up or down. Keep an eye on them. They can gap up and then reverse and gap right back down, and that can give you a play as well. It is always worth keeping an eye on gaps because if they fill or whatever they do down the road, you may not play them for two or three weeks, you may have to let the play form up and then when it is ready you move in. You can get some nice trades whether it is a gap fill and then rebound the other way, or if it is a continuation of a breakaway type of gap.

We saw the tech retire and we saw techs such as AMZN break below the 50 day EMA. We picked up a little of that just in case. If there is a reversal, the big techs are tired, but AMZN has been a good one - kind of a portent for what is going on. We saw BRCM gap higher, and it gapped up to a doji and may give us a downside play yet. We will see if it sets up, but we are not going to jump into it any time soon.

Software was interesting because it had been leading quite nicely. I was looking at some of the plays, but it had a tough day on Friday. There was good news in the techs in general, but software lost some money. Some stocks sold off sharply in price and on volume. We have to watch that because they were an emerging leadership group in technology, and it looked like they may be able to give technology a new breath of life, yet they got shot right in the solar plexus on Friday and they are wheezing. That may hurt NASDAQ next week.

As for the good, the industrial metals were quite solid, and gold was up as well. Gold may be trying to make a price breakout. It is not as high as it was a few months back, but it has been bumping into the $955 level and struggling. On Friday, it closed above that level at $957.20, up $9.20. It has been banging around that $955, so it is not a clean break by any stretch, but it did gap higher, and it could make a breakout and try to make a run back to $1,000. Other metals look solid; they are in great patterns and look like they could break up as well, hence that bit of Reliant Steel we picked up. That was a good buy, and I will be looking for those kinds of buys in the next week as well because their patterns are still very solid. They did not reverse back on the day as did techs and some other stocks.

Retail has been a leader of late, but it took the day off of Friday. It has put in its work, and it was time to take a tax-free holiday. There were no major losses there, there was just a pullback. We could use some good pullback for about three days in retail because it would give us some better buys on some stocks that have made good moves and then form little flag patterns (that 1, 2, 3, 4 pullback that we can use to move in).
There is still plenty of leadership out there, but a lot of it is tired. Retail is kind of tired right now, and it has had a good run. Tech is obviously tired, but maybe it will pull something out of the hat and continue higher. Sometimes indices and sectors just do that no matter what you think or how bad they look - they just continue to run. I do not think that will happen, but we will see. Leadership was tired, but there is a new group of leadership coming up in the metals and in energy that has had a nice base going for the last 8-12 weeks. These stocks have chopped around while some of the other sectors moved higher, and they are getting set up nicely. That is good because it is kind of an inflation play.

There may not be inflation tomorrow or next month or the next quarter, but something must change with respect to all of the liquidity in the world. It is not being used, and we have more money chasing the same amount of goods because we are not getting ramp up in inventories right now. Business inventories are falling, and maybe that will reverse. Maybe they will start going through the roof, but the problem is that the textbook definition of inflation is more money chasing the same or fewer number of goods. Right now we have the same or fewer number of goods; there is no doubt about that with the contraction in wholesale and business inventories. The question is whether that will lead to immediate inflation, or if there will be a burst of supply development that is going to alleviate this problem and put the money to work and create more supply. We will see if that is the case, but that is a very strong reason that we are seeing metals move higher, along with improvement in the European economy.

China has been buying, but has not been buying anymore for economic advancement, it is buying to hoard and stockpile. It is going to slow down its buying, and that will not keep the pressure on the prices. What keeps pressure on the prices is real demand and inflation. These are hedges. These are hard assets that people want to hold in times of inflation because, as we all know, paper currency are not a good store of value in times of inflation.

THE ECONOMY

Michigan sentiment improving.

This week was another week of better economic data. We saw the confidence improve in Europe, and in the United States. We saw the manufacturing continue to improve in Europe and we saw some regional manufacturing results turn positive here in the US last week. Home inventories were down, new home and existing home sales were up. There was improved confidence and sentiment in the US, even though Michigan Sentiment was not great on Friday. It came in at 65.7 which beat expectations of 64, but it was less than the previous iteration that was at 66.0. It was not a blowout sentiment number, just as the conference board's improvement in their consumer confidence number early last week was not that great either. It is still at recession levels and not showing a major upturn in confidence, but it is showing a turn - something that we have not had for many, many quarters. With a little improvement in confidence, maybe it can get the ball rolling along with these other indications that we are seeing.

Spending juiced by cash for clunkers.

One of the big reports out on Friday was personal spending and income. Incomes were actually flat instead of the 0.1% gain expected, but that was much better than the -1.1% in June that was revised from -1.3% originally. A better revision is always a positive, but it was not that much of a positive in this case. Spending was as expected, up 0.2%, and in June it was revised higher to 0.6% from 0.4%. Why did we have this bump? Everyone is saying it was the "cash for clunkers" where the government decided it would help the car dealerships and give everybody money to turn in their cars and get new ones. It is a great plan if you want to sell cars, but you have to really want a car because it is an incentive to you to get $4,500 cash back, but you might have to buy a $25-40K car. That means taking on extra debt unless you have your car paid off but, gosh, who does that anymore, right? Just most people who have common sense. Getting a car probably means getting a new extended loan or debt obligation out there, so you really need a good reason, like your current car truly is a clunker. I know some people who did turn theirs in and, believe me, they were clunkers. It is good to have them off of the road.

The government now wants to push an appliance deal; they want to give people rebates or cash back to go and buy appliances. There are no details out yet whether it is a stove, oven, dishwasher or that sort of thing that you have to buy. I guess we will see "cash for junk boxes" or what have you, and I guess that is fine. The problem that I have with this is that the government is picking which sectors win and lose. It is always better when the government says it will give a credit for buying assets for your business or buying assets that you can use in your home. It is better when it does not try to pick and choose the winners, but when it just says they want to get production up everywhere, to get supply and demand going. Let the consumer decide where the money should go. Let the market decide and the market will push the money to where it is most needed and its most efficient use. It is bad news when the government picks the winners and losers. That is the kind of structured, organized government that we have seen fail throughout history, and why we would want to emulate that is beyond me.

Who makes the jobs in the US?

Case in point, Whirlpool announced on Friday that it is closing a plant in Illinois and is going to lay off 1100 workers. Its stock price is going up because there is some anticipation of economic recovery, but also because it has been cutting costs like crazy and bleeding jobs accordingly. It is just the same as all major companies, whether it is GE or GM or any of them. They are bleeding jobs and have been doing so for 15 years. They do not create jobs, so we do not need to be giving GE massive amounts of money for green initiatives that are going to save that company. They are in bed with the current administration and lobbying for these green initiatives that they will make money off of, yet GE has not created any jobs in 15 years. It has had net losses of jobs. The government's own statistics show that over 75% of all new jobs come from what are designated as small businesses with 500 employees or less. That includes mom and pop, that includes me, and that includes a lot of you that are seeing this. We create most of the jobs, so why would we want to have programs that are targeted to companies that are not creating jobs? The administration says is its primary concern is creating jobs, but that is not the case. If they truly do want to create jobs, why give money to companies that will be laying employees off even as they get the benefits of these programs? Think about that and talk to your Senators and House representatives and ask them about the logic of that. There is an incongruity with what we hear out of Washington and what actually happens, between who is being helped and who actually creates the jobs. You can see the disconnect here. Washington has it backwards. We have reverse incentives for those who actually make the economy work, and that is one of the reasons I am concerned that we will have a hard time seriously recovering.

We are having economic improvement, but it is just a matter of how strong will it be. Eventually the economy has to balance with trillions of dollars circulating through it and that is what we are seeing. There has also been the readjustment with worry about another Great Depression where the economy just shuts down completely, but now prices have adjusted back and the economy is starting to work again. That means you are naturally and necessarily going to have an improvement in the economic numbers, but the question is if it will be a boom or if we will just skate by with 1% GDP growth. Top estimates are at 2.2% for next year. That is terrible. That is not even at European standards really. Is the stimulus working? We will have to see what results we will get over the next year. Maybe it will, but odds are (and history says) that it will not be that strong of a recovery.


THE MARKET

MARKET SENTIMENT

VIX: 24.76; +0.08
VXN: 24.93; -0.08
VXO: 23.61; +0.22

Put/Call Ratio (CBOE): 0.76; -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: 48.3% down from 49.4%. This follows a steady rise past the 35% level that is the threshold for what is considered a bullish climate. It does not mean things are bearish; that takes a reading in the 60% range. Hit a high of 47.7% mid-June on the run from the March lows. Again, to be seriously bearish it needs to get up to the 60% to 65% level. 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.

Bears: 23.1% up from 21.3%. Rebounding some from the big drop two weeks back from 31.1% and 35.6% the prior week. Still a massive exodus from the ranks of bears. For reference, cracking above the 35% threshold considered bullish. Hit a 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: +1.04 points (+0.05%) to close at 2028.77
Volume: 2.315B (+9.42%)

Up Volume: 1.596B (+296.593M)
Down Volume: 729.483M (-62.044M)

A/D and Hi/Lo: Decliners led 1.82 to 1
Previous Session: Decliners led 1.07 to 1

New Highs: 79 (+28)
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: -2.05 points (-0.2%) to close at 1028.93
NYSE Volume: 1.392B (+8.26%)

Up Volume: 890.386M (+25.865M)
Down Volume: 484.688M (+85.288M)

A/D and Hi/Lo: Advancers led 1.06 to 1
Previous Session: Advancers led 1.2 to 1

New Highs: 106 (+10)
New Lows: 66 (+30)

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

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


DJ30

Stats: -36.43 points (-0.38%) to close at 9544.2
Volume DJ30: 205M shares Friday versus 163M shares Thursday.

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


MONDAY

Lots of data to come and a technical picture to resolve.

There is going to be a lot happening in the coming week, and it will be a data week as well as a technical week. We are going to see the Chicago PMI and the national ISM - this is the one people have been waiting for. We have seen Europe turn positive, and we have seen some of the regions turn positive. Can the nationwide number on the US pop over 50? Expectations are right now that it is going to be 50.2 versus 48.9 in July. The bar is set and we will see if it can jump over it. There is also the ADP, the employment report, and you know what that means for Friday. We have the FOMC minutes coming out, and we get to see just where the Fed is with respect to withdrawing any stimulus. That has been a hot topic, if not this week than the week before. Of course there is the jobs report on Friday. -225 nonfarm jobs expected. That is terrible, but it is an improvement.

We have a market that was flat for the entire week. It went up, then moved flat for the rest of the week. There was a gap on expiration Friday, holding at post-March highs, but the market could not push it when there was good news on Friday. Maybe that was just a Friday in the summer and no gain would hold anyway. You have to go back to the fact that volume was higher, though. It moved above average on both of the major exchanges, so it was not a fact that there was no one trading and no one ready to buy - they were there and ready to buy and they gapped them higher, but then they got sold back on more volume. It was not your average Friday in the summer that was just languid and slipped into the weekend to imbibe some alcoholic beverages. That was not the case.

That makes next week another interesting week, as the Chinese would say. This could have been an inflection point this last week. We had the gap higher on expiration and it did nothing with it. The market deferred the next major move until the following week. We will see what happens this coming week. The fact that the market rallied, gapped on Friday and reversed makes it somewhat more interesting and indicates to me that there could be a decision made this week about where the market is going to go in the near term. While I see a lot of tired patterns in NASDAQ, the big cap techs, one thing had been a constant in this market and that is that every time the sellers have tried to sell it, the money has come in and refused to let them take the market down. Indeed, when it has gone down, the money has come in and driven the indices back up.

When a company that has reported great earnings and has always beat and has been on a great run for several quarters or two or three years - what happens when they finally do not beat? It is either already been built into the stock or they get crushed if expectations are that they will beat. If the market does not make a rebound, if it sells off and the money does not bounce it back up, then that will be a very important move. Thus far it has done it. Two Mondays ago, it gapped lower and did not come back that session. That looked pretty grim, but it rebounded after that. It is not always the first session that happens, it is what leads up to it and then how the buyers come back in after the selloff. Remember, we are in a world full of money now, and it is the buyers' to lose. If they do not want to come in and back up to truck and pick up stocks on any dip, we will all see that happen. These tired patterns on NASDAQ are giving a hint of saying that something could be up because they had cruddy patterns, gapped on Friday, and could not hold it even though it had good news. They are trying to tell us something and we will watch what happens and see if the sellers come in and can keep the market down, or if the buyers just back off for now and want to wait until prices get a bit better. That is why we took some downside positions.

Our SPY and SMAs are kind of beating us up around the head and shoulders, but they were somewhat of a hedge anyway against these patterns that were developing, and our upside that we have, and if they roll down we will be fine on those. We also took a few others that are in good shape, and if the market sells back we will make good money on those. If the market sells back enough, we have a lot of stocks that we have gain built into - we will just let the market take us out on those and go home with the rest of our gain. We took some gain on the early gap higher on Friday figuring it would roll back over. We have our stocks in good positions, we have taken good position as far as the risk/reward. If the play does not work out and turns down, we can get out of it without any major losses and protect a lot of the money that we have made on the way up. If it sells down, then we make money as it comes back. I will also be looking to the upside with those energy and metals stocks and a few others that I will be looking at this weekend. If they decide to lead and if the money stays around and comes back in, those stocks that are the next wave and have set up good bases are going to be the leaders. NASDAQ stocks are tired and are going to fade even if the market continues higher. They may follow along, but they will not be blazing higher and leading the way. That will be up to these others that look quite solid and we will be dealing with them and buying into them as they make their breakouts. As I said, we took some gain in them on Friday.

We have our plan laid out there. We have tech that is tired and reversed. We have retail which has been a leader, but it took a day off and we will see if it gets worse or just takes a breather and comes back. We have some great stocks in energy and metals and industrials that continue to perform well and look ready to break out if the money is going to stay in the market and send it higher. More of the same story - we are still seeing whether we can hold these highs, but thus far the money has won the day. Have a great weekend, and I will see you on Monday.


Support and Resistance

NASDAQ: Closed at 2028.77
Resistance:
2070 is the September 2008 intraday low
2099 is the mid-September 2008 closing low
2169 is the March 2008 double bottom low

Support:
2016 is the August peak
The 18 day EMA at 1994
1984 from late September
1962 is the bottom of the August 2009 range.
1947 is the October gap down point
The 50 day EMA at 1926
1897 is the October post gap intraday high.
1880 is the June peak
1862 is the July peak
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 200 day SM A at 1660
The January closing peak at 1653 (intraday)


S&P 500: Closed at 1028.93
Resistance:
1044 is the October 2008 intraday high
1106 is the September 2008 low
1133 from a September 2008 intraday low
1185 from late September 2008
1200 from the July 2008 low

Support:
The August intraday peak at 1018
The 18 day EMA at 1009
The November 2008 peak at 1006 closing 1007.53 intraday
992 is the August 2009 consolidation low
The 50 day EMA at 973
956 is the June intraday peak
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
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
The 200 day SMA at 879
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


Dow: Closed at 9544.20
Resistance:
9625 is the October 2008 closing high
10,365 is the late September low

Support:
9387 is the mid-October peak
The 18 day EMA at 9367
9116 is the August low
9088 is the January 2009 peak
The 50 day EMA at 9039
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
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
8375 is the late January 2009 interim peak
The 200 day SMA at 8329
8315 is the February 2009 peak
8307 is the April 2009 intraday high
8221 is the May 2008 low


Economic Calendar

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

August 31 - Monday
Chicago PMI, August (09:45): 47.2 expected, 43.4 prior

September 01 - Tuesday
Construction Spendin, July (10:00): -0.2% expected, 0.3% prior
ISM Index, August (10:00): 50.2 expected, 48.9 prior
Auto Sales, August (14:00): 4.2M prior
Truck Sales, August (14:00): 4.2M prior

September 02 - Wednesday
ADP Employment Chang, (08:15): -246K expected, -371K prior
Productivity-Rev., Q2 (08:30): 6.1% expected, 6.4% prior
Factory Orders, July (10:00): 1.5% expected, 0.4% prior
Crude Inventories, 08/28 (10:30): +128K prior
FOMC Minutes, August. 12 (14:00)

September 03 - Thursday
Initial Claims, 08/29 (08:30): 570K expected, 570K prior
ISM Services, August (10:00): 48.0 expected, 46.4 prior

September 04 - Friday
Average Workweek, August (08:30): 33.1 expected, 33.1 prior
Hourly Earnings, August (08:30): 0.1% expected, 0.2% prior
Nonfarm Payrolls, August (08:30): -225K expected, -247K prior
Unemployment Rate, August (08:30): 9.5% expected, 9.4% prior

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

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

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

Europe Manufacturing Takes Lead Over US

SUMMARY:
- Economic data provides a catalyst, expiration Friday skews some of the data.
- SP500, NASDAQ rise for fifth week in six, dispatch the August high for now.
- Liquidity continues to be the theme.
- Existing home sales make it four in a row but check the sales mix.
- Bernanke says economies leveling out but recovery hampered by credit
- Europe manufacturing jumps to positive, takes the lead over US.
- Late Friday OMB says deficit to rise, not fall as Administration claimed Thursday.
- Stocks enter Monday with a stronger bargaining position.

Liquidity finds an opening Monday, trowels the money in to fill the dip.

The common theme in this market: have dip, will buy. 15% gain in July? So what? There was a dip on Monday and that means backup the cash truck and buy. All of that money printed by the world banks is not, as Bernanke once again confirmed Friday, is not, due to continuing credit issues, getting into the system. Thus it goes into the world financial markets. As seen in 1999 when the Fed flooded the US with Y2K money, when the cash is not used it goes into the market. Have dip, will buy.

Friday the buy on dips mentality was still in place though there was no dip. The futures were positive and stocks gapped higher at the open, then gapped again half an hour into the session as existing home sales data rose past expectations. Then there was the usual 4.5 hour flat line (usual for this week) followed by a rise into the last hour.

The action took SP500 past its August intraday peak as well as its November 2008 peak. NASDAQ and SP600 moved through the August highs as well, all notching new post-March highs. After the first down week in five last week, the market was back to notching weekly gains. We thought there might be more downside this week just to give the market a more normal consolidation, and thus we had the SPY puts to hedge for our upside. Didn't work out this week but after an upside expiration Friday, particularly with a breakout, a test often ensues to start the next week.

As for other markets, the dollar was off rather sharply thanks to some stronger European economic data (1.4340 versus 1.4223 Thursday). The dollar is once again quite weak, moving back toward its early August low. It is trying to work a lateral consolidation after the selloff into June and thus far it is holding over early August. That bounced oil up a bit further to 73.80, +0.89. A rather modest session for oil but the moves for the week were strong; so much for the double top that some predicted. If oil breaks $75 it is a short trip to 85. Gold was up; Bernanke spoke Friday and implied that credit would remain easy and that fueled some inflation concerns. That drove gold to 955.40, +13.70; knocking at $1,000 again and thus far that has been the barrier. Bond yields rose as investors continued to move away from treasuries after racing to them early in the week (1.09% 2 yr, 3.43% 10 yr). The 2 year is moving back up near the top of its range and we will see if it breaks on through this time. The short end is rising faster than the long end, but nothing right now that would indicate economic ramifications, i.e. no flattening to the extent of predicting economic slowing.

TECHNICAL

INTERNALS. Expiration Friday, and without any big moves midweek that are sometimes characteristic of expiration, Friday was set to show some big moves. Breadth jumped (2.8:1 NASDAQ, 4:1 NYSE); that did not really rival the Monday downside breadth but it was much stronger than the upside A/D line shown the prior up sessions. Does that mean much? It was expiration and a lot of positions were rolled out as the shorts were again squeezed since the market did not hold the downside. Thus you can't put a whole lot of stock in the move. Volume was strong as well, jumping above average on NYSE to 1.8B, rising 64% over Thursday. Impressive, but again driven by the same forces as breadth. Hard to draw a lot of concrete conclusions from it.

CHARTS. Thursday I detailed the concerns SP500 and NASDAQ approached the August peaks. Similar to June there was a small double top formed thanks to the Monday drop, and this third try at the level would be the lick log. Both SP500 and NASDAQ jumped over the log Friday, easily clearing that level with SP500 jumping the intraday August high as well. It still has 1044 to deal with, but one step at a time, right? It has been shooting down the resistance points one at a time and it is still at it. NASDAQ made a new post-March high as well though its pattern is not as convincing as SP500. NASDAQ sold harder and has rebounded sharply; maybe a V bottom here right at the top, but that is not the typical case. On the other hand it is getting a lot of help; SP600 jumped to a new post-March high as well, and Thursday I discussed the significance of the small caps hitting new highs and the better tidings that brings for the economy ahead.

Not all was candy and roses, however. SOX, an early leader in this rally, is lagging as it rebounds. A decent rebound no doubt off of the 50 day EMA and the June peak, but it has yet to take out the prior week's peak and still has the August high after that. That said, it is not that unusual for a leadership group to fall back some in a continuing rally as other sectors take the point. If SOX cannot make a new high as well, however, we will see what kind of drag that puts on the rest of the market.

LEADERSHIP. Energy was back in vogue the past week, particularly the last half, and it was leading Friday. With oil trying to breakout from the top of its range that is entirely within reason. With Europe and the US showing signs of manufacturing life (as discussed below), that only reinforce the gains. Further, it looks as if energy has further to go. For the same reason industrials were stronger, particularly on Friday; nothing like manufacturing improvement to send them higher. Transports are on a tear as well; the rails are running . . . on rails. After making a lot of money off of them in 2007 and early 2008 we did not catch this move. Some well placed kicks in the rear on that one. Truckers are not there yet, however, and they will be a key. The truckers have been in dire straits for three years now. Why are they not moving as are the railroads? Because rails deal with commodities, truckers with consumers. Commodities prices are being driven by Chinese hoarding, maybe some pickup in the rest of the world, and inflation. They are getting bought and sold and that means they are moved on rails. Now if truckers start showing life that, similar to the rise in the small caps, is a real economic positive. Software continues to improve as well, and some large cap techs are still moving higher. In short, there is still plenty of leadership, and after some old hands at the game such as energy pulled back they are moving up once more.


THE ECONOMY

It was a good week for the data with regional PMI's starting to swing positive, leading indicators putting in a fourth upside month, and existing home sales, 80% of the market, posting a strong surge. Those helped offset some weaker starts and rising weekly jobless claims, and indeed, that is a rather typical cycle: jobs lag the rest of the economy, and at 549K last week, we had better hope they are still lagging.

Existing home sales one part of a strong Friday data day.

Existing home sale rose 7% from June to July, and that was the largest gain in 2 years and marked the fourth straight month of gains. Finally some good news in the housing market.

Good news but look at the mix and you see what is driving the market. Most of the sales, over 30%, came from units priced at less than $100K. The next biggest segment was $100K to $200K. After that activity fell off rapidly. $250K to $500K was still down, and when you get to the higher prices it really tanked. $1M to $2M fell 23% while houses priced over $2M fell 32%. The $1M to $5M range was the fastest growing during the boom as many branched out into bigger homes and second houses in luxury resort areas. Those prices are really struggling as the second house market is very weak. Even primary dwellings in the high end are struggling. Hugh Hefner sold his house adjacent to the Playboy Mansion recently, but he got nowhere near his asking price; it went for $18M versus the $28M he wanted. Even Hugh had a hard time getting it up, price-wise at least.

The point: with the low priced units by far dominating the existing home sales market there are two conclusions. First, the first-time home buyers credit is the driving force right now. Prices are very low as most sales are still buys out of foreclosure properties. Lower prices combined with the first-time credit are motivating buyers, particularly as the credit is set to expire. That is moving them off the fence even though many still anticipate further housing price declines over the next few quarters. They buy now and risk some more downside versus losing out on the credit.

Second, the remainder of the housing market is still a long way from price recovery. Thousands upon thousands of new homes were built during the last boom to fill the desire for second luxury homes as well as big primary residences. Those are late cycle homes, very much discretionary versus early cycle need-based purchases (more of what we are seeing now). That means those markets are going to remain weak as long as the economic cycle is anemic. Thus we can see economic improvement, but without the kind of seriously strong economic growth that fuels new jobs and thus new big salaries, the high end of the market is going to languish. Not the very high end; the ultra-wealthy will have the means and thus that very tip end of the market will recover faster. It is the bulk of the higher end that will struggle. And that brings up point three: real estate agents are not getting rich off this market so don't go and try to tax them Congress.


Europe manufacturing jumps to positive as the US policies put us in the unusual position of playing catch up.

And we thought our regional PMI news was good. Both the NY and Philly PMI manufacturing reports turned positive in August. Well in Europe, the overall reports are already positive. The entire EU union rose to 50 in July. Germany, the largest economy in the union, surged 54.2%. All of the mixed data in the EU appears to be resolving to the upside.

Of course that sent the dollar crashing versus the euro, and the US ISM coming in a week will need to turn positive itself in order to avoid further degradation of our currency. It is an unusual situation of the US having to catch up with its European competition.

If there is anything that shows us the error of our fiscal ways, it is the fact that we are lagging Europe in a recovery. 2% GDP growth causes Europe to shut down for a month just to celebrate (as well as its central banks to raise rates to slow down the 'runaway' growth). 2% isn't even trend in the US.

What is clear: the stimulus passed has not unleashed the power of the US system. When the right stimulus is put in place our economy surges. In 2003 when the Bush administration finally got on track and passed supply side stimulus, almost to the day of passage the stock market took off (this was the second rally, the one after the initial surge off the lows in October 2002) and so did economic activity. Less than two quarters later GDP rose 7.3%. The stimulus thus far has helped employ some people in road work and the like, and it has sold some cars (at the expense of other items), but it is not generating that immediate surge of growth that gets things started as well as the following sustained growth as investment in business leads to new ideas, new companies, and ultimately new jobs.


Deficit: the Administration plays games with the numbers, but they keep rising.

Earlier last week the Administration lowered its deficit forecast to the $1.5T range. Why? Because it was not going to spend as much money on the bank bailout. It was going to withhold money it felt was no longer necessary. Less spending is always good and that was the reason for the reduction. No complaints about spending less money. Of course that doesn't mean the money won't be spent elsewhere (read healthcare), but as far as authorized spending, there would be less at least in one area.

Then on Friday, late Friday, the OMB came out with its updated deficit projections that take into account the reduced bank bailout spending. Even better right? You wish. The Deficit projection for 2009 was raised, not from $1.5T, but from $1.7T to $2T. The 10 year projection was raised from -$7T to -$9T. The reason: a slower than expected economy.

Wait a minute. Slower than expected? That spells a lot of trouble. Why? Because the Obama administration projected what were some pretty rosy recovery scenarios based on its $800B boondoggle stimulus. Those projections are not living up to expectations. Surprising? No. Worrisome? Yes, because the administration still has huge spending plans to come.

This projection does not even include, remotely, any of its healthcare change out. The plan is estimated, by the Obama administration, to cost $1T. First, the administration shows it doesn't understand economics as its projections are already significantly off. Second, history shows it is the nature of government programs to cost far in excess of rosy projections.

When passed Medicare was projected to cost $9B in 1990. In reality, Medicare costs that year were $67B. A mere rounding error by a factor of 6. Medicaid when passed in 1987 was supposed to cost $100M per year. Just six years later it required $11B of taxpayer dollars; off by a factor of 11 in less than a decade.

So, does anyone really believe in $1T? Take the average of the two and say the multiplier is 8.5. That adds $8.5T to the 10 year projection and makes the $9T look blissful. At $17.5T the US is pretty much insolvent. Picture a currency worth nothing.


THE MARKET

MARKET SENTIMENT

VIX: 25.01; -0.08
VXN: 24.69; -0.28
VXO: 23.81; +0.02

Put/Call Ratio (CBOE): 0.59; -0.13. Massive drop in the ratio as calls were bought to offset the downside speculation by the shorts.

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: 48.3% down from 49.4%. This follows a steady rise past the 35% level that is the threshold for what is considered a bullish climate. It does not mean things are bearish; that takes a reading in the 60% range. Hit a high of 47.7% mid-June on the run from the March lows. Again, to be seriously bearish it needs to get up to the 60% to 65% level. 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.

Bears: 23.1% up from 21.3%. Rebounding some from the big drop two weeks back from 31.1% and 35.6% the prior week. Still a massive exodus from the ranks of bears. For reference, cracking above the 35% threshold considered bullish. Hit a 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: +31.68 points (+1.59%) to close at 2020.9
Volume: 2.258B (+14.84%)

Up Volume: 1.859B (+484.792M)
Down Volume: 403.92M (-165.883M)

A/D and Hi/Lo: Advancers led 2.79 to 1
Previous Session: Advancers led 1.89 to 1

New Highs: 70 (+20)
New Lows: 8 (-3)

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

Not a lot now ahead of NASDAQ up until near 2100 and the two lows from 2008. There is an intraday low at 2070, but that is still pretty clear sailing for NASDAQ to that point.

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

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


SP500/NYSE

Stats: +18.76 points (+1.86%) to close at 1026.13
NYSE Volume: 1.836B (+64.03%). Now THAT is expiration volume. Trade shot above average, almost matching the early August spike.

Up Volume: 1.374B (+449.057M)
Down Volume: 91.574M (-92.735M)

A/D and Hi/Lo: Advancers led 4 to 1
Previous Session: Advancers led 2.68 to 1

New Highs: 135 (+44)
New Lows: 81 (+44)

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

Nice breakout over a key, key level. There is still an intraday high at 1044 from October 2008, but after that there is a clean shot at 1100. That is why this November peak was such an important level.

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


DJ30

Stats: +155.91 points (+1.67%) to close at 9505.96
Volume DJ30: 293M expiration shares Friday versus 151M shares Thursday.

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


MONDAY

A big upside expiration Friday can often lead to a weaker start to the week, but that is not always the case. Percentages say yes, but there are times it does not apply, say when there is too much world liquidity. Even with that, however, some testing of a break to a new high is normal.

Indeed, TESTING a breakout to start a new week is always better than leaving unfinished breakout business after a good rally to recover early losses as seen last week. That helps reduce the chances of a reversal from the resistance though you can always have a reversal session after a breakout. Given the surge higher in July that is what some are looking for and you have to be cognizant it could happen, but with all of the money in the market as evidenced by last week's recovery, the reversal scenario is less likely.

Now a pullback to test the breakout is great. There are stocks that jumped higher with gaps that we did not chase, and a pullback to test the gaps would provide great opportunity again. At the same time we have a lot of god new upside in place that we can let run on this new breakout by the indices as long as it holds and continues. And of course, if we get 2 or 3 more upside days under the belt many of our plays will be in prime position to bank some gain. It is running in a 2 to 4 week cycle of gains to profits and with this new crop of great plays we have positions in we will be looking to again bank some gain and enjoy the fruits of our labors a bit more.


Support and Resistance

NASDAQ: Closed at 2020.90
Resistance:
2070 is the September 2008 intraday low
2099 is the mid-September 2008 closing low
2169 is the March 2008 double bottom low

Support:
2016 is the August peak
1984 from late September
The 10 day EMA at 1983
1962 is the bottom of the August 2009 range.
1947 is the October gap down point
The 50 day EMA at 1904
1897 is the October post gap intraday high.
1880 is the June peak
1862 is the July peak
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)
The 200 day SMA at 1650


S&P 500: Closed at 1026.13
Resistance:
1044 is the October 2008 intraday high
1106 is the September 2008 low
1133 from a September 2008 intraday low
1185 from late September 2008
1200 from the July 2008 low

Support:
The August intraday peak at 1018
The November 2008 peak at 1006 closing 1007.53 intraday
992 is the August 2009 consolidation low
The 18 day EMA at 994
The 50 day EMA at 961
956 is the June intraday peak
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
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 876
866 is the second October 2008 low
857 is the December consolidation low


Dow: Closed at 9505.96
Resistance:
9625 is the October 2008 closing high
10,365 is the late September low

Support:
9387 is the mid-October peak
The 18 day EMA at 9235
9116 is the August low
9088 is the January 2009 peak
8985 is the closing low in the mid-2003 consolidation
8934 is the December closing high
The 50 day EMA at 8927
8878 is the June peak
8829 is the late November 2008 peak
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
8375 is the late January 2009 interim peak
8315 is the February 2009 peak
The 200 day SMA at 8313
8307 is the April 2009 intraday high
8221 is the May 2008 low


Economic Calendar

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

August 25 - Tuesday
S&P/Case-Shiller, June (09:00): -16.40% expected, -17.06% prior
Consumer Confidence, August (10:00): 48.0 expected, 46.6 prior

August 26 - Wednesday
Durable Orders, July (08:30): 3.2% expected, -2.5% prior
Durables, Ex Transportation, July (08:30): 1.0% expected, 1.1% prior
New Home Sales, July (10:00): 390K expected, 384K prior
Crude Inventories, 08/21 (10:30): -8.40M prior

August 27 - Thursday
Initial Jobless Claims, 08/22 (08:30): 565K expected, 576K prior
Q2 GDP - Prelim, Q2 (08:30): -1.4% expected, -1.0% prior
GDP Deflator, Q2 (08:30): 0.2% expected, 0.2% prior
Core PCE, Q2 (08:30): 2.0% expected, 2.0% prior

August 28 - Friday
Personal Income, July (08:30): 0.1% expected, -1.3% prior
Personal Spending, July (08:30): 0.2% expected, 0.4% prior
PCE Core, July (08:30): 0.1% expected, 0.2% prior
Michigan Sentiment-Rev, August (09:55): 64.8 expected, 63.2 prior

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

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

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

Philly Fed Sees Growth

SUMMARY:
- Stocks close the week lower, the first in 4 weeks.
- Michigan sentiment rattles investors.
- Sellers have a chance to take the indices out of their range, but stocks bounce back from lows.
- CPI shows no inflation for now as production and capacity post nice surprises.
- Philly Fed sees growth. Some signs of real recovery . . . maybe.
- Leaning to the downside but the market is still in its range and ignoring calls for selling.

Lower close but sellers not able to close the deal.

The market sold off on Friday. It closed down for the week for the first time in four weeks. The renewed the speculation as to whether or not the market has topped near term. All week long I have been talking about the market moving laterally and that there are indications that it might be at the near term peak. On Monday I discussed the VIX and how it set up similarly to the way it was before the crash last fall. I also discussed the put options on the SP500 and how they are at the same level they were at before the crash, and then again in June when the market sold off.

There are concerns that the market is going to pull back down, but then again it does not do that. It was down on Friday and it closed lower, but it also held the range that it has been moving in for the past two weeks. That does not mean it will do that without selling off further. In June the market, particularly the SP500, moved laterally in a tight range for two weeks just as it is doing now, and then it sold down, found bottom, and rallied up at that big 15% move in July. That shows that even though things look good right now, it might not be that way next week; that is the life in the market. You play the probabilities, you look at what could happen, you weigh the probabilities on the scale and see what comes out. You skew your actions toward that, but also have to realize that the market often does the exact opposite thing that people anticipate. Despite a lot of talk about this market having peaked right now, there is a very good chance that it might continue to consolidate and continue higher, which is why I am looking both at upside and downside plays. If it shows opportunity, then we will take a little here and there, and when the market makes its break we will go more heavily in that direction and close out the others. The beauty of it is that you are in a good risk/reward position either way. The upside stocks are in very good position as they have pulled back into near support, while the downside has bounced up against resistance. If they fall they will be in a good risk/reward position as well. If it moves against us, we have a very clear and near stop level that we will use to close our positions, and then we will let the other positions that are working in sync with the market run to maximize our gain.

Friday saw a soggy market, no doubt. The interesting thing was that, even though it was down on the day with NASDAQ losing over 1% and the Dow and SP500 losing about 0.8% each, both NASDAQ and SP500 managed to hold the bottom of their recent range (that is 992 on SP500 and 1962 on NASDAQ). That is very positive because the market continues to show buyers at that level. On Thursday, I said it would be very likely that, after this rally up to the top of the range, that those two indices and the market in general would come back and test the bottom of the range. They are doing that. They did not get all the way down to the bottom of the range on Friday, and we may see them come down more on Monday - this will be more of the acid test as to whether or not the indices are going to hold up inside of this trading range.

Friday was another of those days where the market had every reason to sell. Even though it did sell somewhat, it did not sell off and the sellers could not push the market down and hold it down for the entire session. The market started a bit soft, sold very rapidly in the first half hour, and then held in a lateral move for 5 1/2 hours. It bounced higher again in the last hour and cut the losses more than in half on some of the indices. Once again, the sellers could not close the deal entirely. They could not take the market below its recent range lows and could not even keep most of the losses on the day. There was a bid coming in at the end of the day which may be due to it being Friday. There was some covering going on because a lot of traders do not like to stay in the market over the weekend, but nonetheless, it did bounce back.

The market showed weakness on Friday because that initial selloff was severe and sharp. It was already at the top of its range and due for somewhat of a pullback, and there is no real catalyst to send it higher right now. We have seen earnings and the economic data - some has been better than thought and others worse than thought. There is nothing to drive it through that range at the moment, so some sideways range trading makes a lot of sense from a historians view looking at the market. There was also a push downside from the Michigan Sentiment number. It was much worse than expected coming in at 63.2 versus the 69.0 expected and the 66.0 in July. This is a preliminary reading of this number and it only covers 200 people, so you cannot put a lot of significance in it. The market, however, without any catalyst to push it either way, took it the wrong way and it went lower as a result.

There was also better economic news out before the market. The CPI was out and it was basically flat. It is showing no inflation at all so there is no concern about that at this point, but I feel it is baked in the cake given all of this rather wild spending on the fiscal side and very easy money and Fed's facilities on the monetary side of the ledger.

There was also information out with respect to industrial production and capacity. They were much better than expected, and that had people scratching their heads. You cannot dismiss those numbers, but a lot the same time they were so much stronger that it looked as if it was an anomaly. You can never pin your hopes on one data point on one month; we will have to see what happens over the next few months to see if there is a trend developing. What we saw on Friday was positive. What was interesting about this was that the sellers took their shot once more. The sellers have been in the market the last three weeks, and they stalled out this rally in July. After 15% you would expect some profit taking to come in, and the sellers have been coming in a couple of times a day. On Friday it was just once early on, and then they backed off. They pushed it down but were not able to close it down. The important point is that the sellers are here and taking their shots, so know they will try to push the market done below this consolidation range which is going to be one of the keys moving ahead of next week.

TECHNICAL

INTERNALS.

Breadth was pretty negative. It closed at -3.5:1 on NASDAQ and -2.5:1 on the NYSE. That was much better than it was intraday when we saw levels of -5:1. There was very negative trade across the entire market spectrum. In other words, every sector was getting hit - all the leaders and laggards were being taken out because they had had a good run and there was some worry about the economy (that was the reason du jour for the selloff according to the financial stations).

Volume on NASDAQ was down at 1.8B shares; there was no distribution and no nothing going on with NASDAQ. NYSE rose to $1.17B shares. On Thursday it did not even reach $1B shares, so while it was down 30% on Thursday, it was up 29% on Friday. So you might think that gives you some distribution, but that is not necessarily true. The market sold off, and did not really test the bottom of the range (though it came close). Then the market bounced back up, taking back more than half of what it lost. If you have a little rising volume, that does not necessarily show distribution, it just shows that some sellers came back in and pushed it back up. It is not necessarily a bad thing to have a rebound on some better volume.

On the NYSE, you have had three days of gains on rising volume versus just one day of losses on rising volume. You have three accumulation days to one distribution day, and that is not bad at all. That shows that, net, there is accumulation on the NYSE during this lateral consolidation. That is very positive. On the NASDAQ it is 3:2, so you have three up days on rising volume versus two down days on rising volume. That is not as clear cut as on the NYSE and NASDAQ has struggled quite a bit because it was one of the early leaders. The chips struggled and some of the big cap techs struggled as well during this consolidation. Nonetheless, a simple majority wins this game, and thus far NASDAQ is showing positive accumulation in this lateral consolidation. Put the two together, and that is a pretty good indication that things are not falling off of a cliff, although it still does not mean we will not get more of a pullback.

CHARTS.

The indices are holding their lateral range and doing so nicely. It was going down more than you would anticipate in one day, but they held above those lows and bounced back up. They are holding that range but could still easily sell down further as it did in June. Just because it is moving laterally is no guarantee it will stay that way. The key will be whether or not SP500 breaks the 992 level - if it closes below that, say it goes down to 989 - 988 and closes, then you are looking at pretty much a trade likely down to 950 (the June peak).

You have to watch these technical indications. A lot of times it looks like a stock breaks down or breaks out only to then reverse and sell off sharply or reverse and rally sharply. That last little breakdown shakes out the rest of the sellers, and it can be on high volume. It look like you have a clean break, but then you have a reversal and are left holding the bag and hating life. One of the things that you need to avoid or limit - unless you have a great pattern and great other indicators behind it - is playing that first move. Whether it breaks higher and comes back to test or breaks down and comes back up to kiss that resistance level, you should let it make that test and see if it can break back through or not. If it can, then you have a great signal to the upside or downside because it has held and will continue to move. If it does not and it falls back down, you have a great signal as well, but just in the other direction. While we may see it break these levels, which will get a lot of people excited, we are not going to go flying into the tempest right off the bat. 95% of the time it pays to be patient in the market. Let them set up and take the easier money instead of trying to guess. I will be watching these key areas, but an initial break does not mean it is going there. We will have to see how it tests. If it breaks below 950, then you have a test down to 900-905 because that is where it gapped up to start this move. That is a pretty big selloff that takes back everything it has gained, and we will have to see how it plays out. Those are all contingencies however, and we are not even out of the bottom of the range yet.

For NASDAQ, the key is the 1962 level. If it breaks that, holds, stays down, and then comes up and tests, you are looking at 1860 (its June peak). If that breaks, it will get ugly because then you are looking down at the 1765-1745 range. That is getting to more of a serious correction. I have been concerned all along that the economic data did not support a continued market rally because it is just a comeback from the essential shutdown of the economy back in the fall of 2008.

LEADERSHIP.

Friday everything pulled back, and you will see these pullbacks with that kind of negative breadth in the market. All of the stocks that did well were actually down. One of the reasons for this was that the dollar improved nicely on Friday. It closed at 1.4192 Euros, from 1.4284 the prior session. That put a lot of pressure on commodities and oil, which closed at $67.56, down $2.96. Oil rallied up to its peak again in the top of its range and is selling off again. Some are saying this is a double top. It could be, but it may very well just be more of trade inside its range. I think that is the situation.

Bond yields were down. Investors moved toward bond as they often do when the market is sold. The 2 year closed at 1.07% and the 10 year closed at 3.57%. It was up at 3.75% just a couple of days ago, which shows you that the bond market can be as volatile as the stock market.

Because the dollar was so strong, you saw many of the commodities and metals trade down. Energy stocks were down also. Everything went down across the board including the leaders and industrials, big tech, and chips. Semiconductors were up over 2% on Thursday, but they were down over 2% on Friday. There is some volatility there, and that is a sign of potential change. Overall, the leaders are all maintaining their uptrends, and they have recent consolidations and are setting up nicely in those as well. Sure there is day-to-day bouncing up and down - some days look worse than others. In the bigger picture, however, they are holding their trends and patterns and we have great leadership that is still in good shape. That is another reason that even though there are calls for a market top, you still have to take it with a grain of salt with leadership in such a good position. That does not mean they will hold up as well. As we saw in June, the leaders were in good shape, though we did have the semiconductors lagging at that point which they are not doing now. Watch for good plays that set up, and as long as the leaders are holding their patterns, we see the potential for the market to rise again. Of course, that is a positive when you couple that with the fact that the indices are also maintaining their uptrends quite nicely.

THE ECONOMY

CPI shows no inflation for now.

The CPI showed no inflation in the picture for right now; it was flat again and that was what was expected. That was a nice reprieve from the 0.7% gain in June. The core was up 0.1% and that was expected, down from 0.2% in June.

The particulars are always interesting to look at. Cars were up 0.5%. Used car values have shot through the roof. Gasoline was down 0.8%. Apparel was up 0.6% and housing down 0.2%. Computers were down 3.2%, food was down 0.2%. Education was up 0.5% (it seems like you cannot get away from rising education costs). Inflation near term is under control. There is concern about inflation down the road, and that is one of the reasons we continue to see a bid in commodities and those things that, if they fall and hit the ground, make a lot of noise.

Same Store Sales provide better guidance, but that is already factored in.

More same store sales came out on Friday, and they were quite good overall. Abercrombie and Fitch sales were down 30%, but it had good guidance. JCPenney and Nordstom both increased their guidance as well, and they all sold off because they already announced that things are getting better. After the surprise in the earnings season that caught analysts flat-footed, they have all raised their estimates, and it is not that surprising when these retailers come out and say things are not as bad as they thought. Not to beat a dead horse, but this fits into the entire theme that things are not really expanding, they are just recovering from a standstill in the fall of 2008 when the market and the rest of the economy when into a panic.

Capacity and industrial production show signs of real improvement.

Industrial production topped expectations at 0.5%, which was much better than the -0.4% in June. Capacity rose to 68.5 from 68.1, revised higher from 68.0. We love to see upward revisions because it shows that the analysts may be wrong - they are still too negative - and momentum is changing. These are significant gains. It is hard to ignore them, but then again they are one data point. How to you reconcile that? You say this was a strong month. It will either be an anomaly or we will see an improvement over the next few months, and that will be the proof in the pudding. The interesting thing is it is going to dovetail with the lower wholesale inventories and lower business inventories. If you see capacity and production picking up, that is a good indication that we will see the inventories pick up and the GDP rise accordingly, since inventories add to GDP. We are not there yet since in the last couple of days inventories were down over 1% in both categories. The GDP is still struggling in that respect, but we will get a build at some point in our inventories because they are doing to get sold out and will have to replenish.

Philly Fed sees some growth ahead even with weaker employment.

The Philly Fed comes out every once in awhile and hits the market with a forecast of the future. It sees better growth ahead. From its region, things are looking better from a manufacturing point of view. Unemployment is going to be the pits; it says it will keep going up, but it thinks manufacturing is trying to turn. That is interesting because I talked on Thursday about how unemployment will peak just as the economy hits bottom and makes its turn. The Philly Fed's observations of what it is seeing in its district are rather interesting because, once more, we see some data dovetailing with historical actions in the direction of recovery.

Some real signs of improvement.

We have looked at the economy again and we know that we only essentially have a recovery right now from a panic, but there are some tantalizing indications of improvement. These are not the green shoots that everyone has been talking about, but these are real areas of improvement, and that is why I am interested and not as dismissive as I was one or two months back. I will keep watching these and see if there is a change. The reason that I am getting more excited is that I am seeing them dovetail with historical norms when there has been a recovery. The other stuff is nonsense, but these are showing some signs of positives and signs of hope.


THE MARKET

MARKET SENTIMENT

VIX: 24.27; -0.44
VXN: 25.24; +0.15
VXO: 23.99; +0.19

Put/Call Ratio (CBOE): 0.95; +0.17


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: 49.4% versus 42.2% and 36.7% the week before that. Bulls are leaping higher, moving well past the 35% level considered the threshold for bullish or bearish action. Hit a high of 47.7% mid-June on the run from the March lows, and now it has surpassed that level. This is an additional indication that the market is getting overbought and in need of a correction or consolidation. To be seriously bearish it needs to get up to the 60% to 65% level. 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.

Bears: 21.3% versus 31.1% and 35.6% the prior week. Continuing the massive exodus from the ranks of bears. For reference, cracking above the 35% threshold considered bullish. Hit a 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: -23.83 points (-1.19%) to close at 1985.52
Volume: 1.876B (-7.64%)

Up Volume: 450.071M (-1.062B)
Down Volume: 1.455B (+870.814M)

A/D and Hi/Lo: Decliners led 3.5 to 1
Previous Session: Advancers led 1.23 to 1

New Highs: 22 (-43)
New Lows: 1 (-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: -8.64 points (-0.85%) to close at 1004.09
NYSE Volume: 1.177B (+28.9%)

Up Volume: 223.791M (-353.88M)
Down Volume: 853.229M (+658.233M)

A/D and Hi/Lo: Decliners led 2.47 to 1
Previous Session: Advancers led 2.01 to 1

New Highs: 63 (-29)
New Lows: 41 (-2)

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

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


DJ30

Stats: -23.83 points (-1.19%) to close at 1985.52
Volume: 172M shares Friday versus 93.6M shares Thursday.

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


MONDAY

We have the indices in a narrow range. We have been here before - not so long ago, in June - and the market was not able to hold up and it sold off. Was there a major roll over and a crash down to the March lows? Absolutely not. The chips sold, the techs sold, the commodity trade sold, all of the BRIC trades (China and Brazil related) sold off, but they did not collapse and they came back.

So what do we do now? We are right in the middle of a range. We have some upside and some downside plays in place, and we anticipate taking some money on either side depending on which way the market goes. We did not do much on Friday. We did not close many positions and only bought one downside position. We have plenty of upside exposure, and I wanted to have more exposure to the downside just in case. The reason I did not want to go hog wild is because the market held its range and it bounced back. Some of the plays we could have gotten into but, like on some of the downside plays where we wanted to buy puts, the spread was too wide. Even though it was a good technical position to get in, the option spreads did not narrow as I wanted them to, so I did not want to get into them because that would ruin our risk/reward position. We simply had to take a pass in stocks such as PFWD. It is a great downside move, but with the option spread so wide, we would not get the kind of gain that would make this a good risk/reward play.

As is usual on Friday, we did not do a whole lot, but that does not mean that will be the case on Monday. What we are going to be watching is how the market responds inside of this range. It is time to be patient. We have great upside positions and some great downside positions ready to move, and we also have some waiting in the wings that we can move into if the market makes a break.

What are the odds of the market making a definitive move next week? It could definitely break upside or downside, and frankly I am leaning toward the downside at this point. We saw what happened in June, so even though things still look good now, I still do not see a catalyst at this point to send it higher. Next week we are going to have a couple of regional PMI reports, there will be housing starts and there will be other data along those lines. Earnings are mostly over and we kind of know what the economic data is right now, so there is not going to be a lot of catalysts to move it higher. Based on that, I am leaning toward the downside for the market to move next, but as long as the indices and the leaders hold their trends, I am not going to say that I am smarter than the market. We have a lot of gain build into a lot of positions, and we have the stocks in place and will let them take us out. On the close Friday, a lot of the stocks that had sold down during the day bounced and cleared up above their stock points, so we did stop out of them. We will be watching because even if it breaks sharply lower, it may come back up and test and continue higher. Or it may not; we will be minding our stops. We do not want to get caught out in this thing if it turns down sharply.

We can always get back in, which is something that I say all the time. It is always easier to get back in the market if you are coming back in with a nice wad of profit behind you that you made on the last run. Now is a time to be patient. The market is moving laterally. It made a strong run. It takes time to change a trend up or down, so it is moving laterally. The bulls and bears, buyers and sellers, are fighting it out right now to see which way they will push the market. We are going to sit back and take good shots when the opportunity presents itself and we have a good risk/reward point where we can enter. We like to stack the deck in our favor, and one of those things is having a great stock in great position and in good risk/reward. We can come out smelling great whether or not we win all of our trades are not, and the ones we win we will make a bunch of money on.

While I am leaning to the downside, as soon as you commit to one way, the market will slap you in the face. Remember it has not committed yet. Everyone thinks that just because it stopped moving up it is going to move down, but that is not the case. What we will do is let the market show us the break, be patient, move in after it tests or at least move in significantly. We will always take positions on a break, but we will not load the boat. Let them come back and test and see which way that test holds, and that is when you really load the boat.

I hope you have fun whenever you are this weekend. We have had a great run in the market and have made a lot of money on this, so take some out and enjoy life with it. Do the things you want to do and that you know you need to do. Have a great weekend.


Support and Resistance

NASDAQ: Closed at 1985.52
Resistance:
2010 from the Thursday peak
2015 is turning out to be near term resistance
2099 is the mid-September low
2169 is the March 2008 double bottom low

Support:
1984 from late September
The 18 day EMA at 1967
1962 is the bottom of the August 2009 range.
1947 is the October gap down point
1897 is the October post gap intraday high.
The 50 day EMA at 1888
1880 is the June peak
1862 is the July peak
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)
The 200 day SMA at 1643


S&P 500: Closed at 1004.09
Resistance:
The August intraday peak at 1018
1050
1106 is the September 2008 low

Support:
The November 2008 peak at 1006
The 10 day EMA at 1000
The 18 day EMA at 988
962 is the August 2009 consolidation low
956 is the June intraday peak
The 50 day EMA at 952
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
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 875
866 is the second October 2008 low
857 is the December consolidation low


Dow: Closed at 9321.40
Resistance:
9387 is the mid-October peak
9625 is the October closing high
10,365 is the late September low

Support:
The 10 day EMA at 9285
The 18 day EMA at 9173
9088 is the January 2009 peak
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 50 day EMA at 8844
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
8375 is the late January 2009 interim peak
8315 is the February 2009 peak
The 200 day SMA at 8312
8307 is the April 2009 intraday high
8221 is the May 2008 low


Economic Calendar

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

August 17 - Monday
Empire Manufacturing, August (08:30): 2.20 expected, -0.55 prior
Net Long-Term TIC Fl, June (09:00): $17.5B expected, -$19.8B prior

August 18 - Tuesday
Building Permits, July (08:30): 576K expected, 570K prior
Core PPI, July (08:30): 0.1% expected, 0.5% prior
Housing Starts, July (08:30): 598K expected, 582K prior
PPI, July (08:30): -0.2% expected, 1.8% prior

August 19 - Wednesday
Crude Inventories, 08/14 (10:30): +2.52M prior

August 20 - Thursday
Initial Claims, 08/15 (08:30): 553K expected, 558K prior
Leading Indicators, July (10:00): 0.6% expected, 0.7% prior
Philadelphia Fed, August (10:00): -2.0 expected, -7.5 prior

August 21 - Friday
Existing Home Sales, July (10:00): 5.00M expected, 4.89M prior

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

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

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

Jobs Report Was Leaked

SUMMARY:
- Jobs report triggers the market rally even if it was leaked.
- Not all stocks participate in the Friday run, but that can be a good thing.
- Hours worked per week head back in the right direction.
- Now we see if the market holds the move and gives us new upside buys.

Now we know why the President was upbeat Thursday evening.

Thursday we should have known something was up. The President came out and let slip that the jobs picture was looking better than it has in the last six months with the losses at half of what they had been. GS then lowered its expectations down to a 250 thousand job-loss level, and, sure enough, Friday morning it comes out at -247K. Obviously someone knew what was going on and the President let it out early. GS knew through its connections, so it was making its call as well.

Is it a big deal? It might smell a bit fishy, but it happened back in President Clinton's days when Labor Secretary Reich let the jobless numbers slip after he had been in office for just three months. It is no big deal and it did not affect anything. The die was cast, the market was ready to move on the number, and it did. It triggered a nice move in all of the consumer discretionary areas, along with housing and financials.

There was not equal participation across the board, which was an interesting feature of the day. Energy, commodities, chips, and techs were all laggards; indeed the semiconductors were actually down on the session. Does this mean the rally is doomed to fail? After all, SP500 just broke over the 1,006 November 2008 peak, moving up to 1,018 on the high, though it closed off at around 1,008. It could mean that the rally is overbought and will fail. It also could mean that these stocks were early leaders and they are just ready to fall back. They were ready to fall back but they have made good tests and could make a strong move higher - I have no complaints with that. I cannot say anything bad about a plethora of good stocks in good positions, some breaking to new highs while others are testing back to near support and ready to move to new highs. I think that is what is called a "rich person's woes," where your troubles are created by your wealth.

The market has had a tremendous run and now many are worried it has gone too far and has to come back. At the same time, they do not want to be out of the market. Thus far, the market has punished you if you have not been in it, which is why I have been letting a lot of positions ride higher even though we have been a little skeptical ourselves. Not only are we letting positions ride higher, we have been buying into it. I said we probably would not do any buying on Friday and we did not because you do not want to buy when the good news hits and the market gaps higher. We could have; there were some positions we could get into, but why rush? If the market holds these gains, they will be ready next week and we will get an opportunity. They will test back these moves and the other stocks in the other sectors that held back will move higher. There was no rush to get in, and indeed what we did was take some gain off of the table. We did not take a whole lot because we have already banked quite a bit of gain on this move, but we did take some and are letting the other positions run. Again, not a bad situation to be in, particularly when there are other stocks in other leadership sectors setting up to break higher once more.

TECHNICAL
INTRADAY.

Intraday there was the gap higher, a little test after that and then a run higher immediately into lunch and on into mid-afternoon. The market gave back some gains late in the day that took the SP500 from 1,018 down to 1,010 on the close. That still keeps it above that 1,006 and a breakout.

INTERNALS.

Internals were strong. The breadth was nice and the volume was good yet again, moving up and above average on both the NYSE and NASDAQ. On NYSE we have seen six out of seven days of upside above-average volume, and on the other days it was average volume, so we are seeing very good trade here indicating a lot of buying. That money is being dragged into market because mutual funds cannot afford to miss this rally, particularly with the SP500 breaking over that November 2008 peak. There is some very good trade as those funds come running into the market.

CHARTS.

SP500 was up 1.34% on the session with that very important move over that November peak. It cleared it by roughly 12 points and then tested back some. NASDAQ had no breakout, and there was nothing special about this move. Yes, it was up 1.37% on the day, but that did not take it past its recent highs of the past week. NASDAQ is still moving laterally and trying to consolidate. There I go again, talking about consolidations and leadership. Will this be the catalyst that sends the market higher again, or is it going to be the catalyst that sends it down if it cannot rally and pulls the rest of the market back down - including SP500 and its fresh breakout?

Right now, the indices are all in strong uptrends. There is nothing to suggest that there will be a dump lower. You could say basically the same thing with the SOX, which was down 0.44% on the session. It fell on an upside session, but it also is testing its uptrend line as well as the 18 day EMA. Those are near support levels and even though the chips have been struggling as of late, the overall chip sector still is leadership. It is still in an uptrend and still making a very nice, ordinary test in what would be a continuing upside move.

LEADERSHIP.

Friday was clearly consumer discretionary - they were up, along with financials and home builders. Anything related to the consumer or an advancing economy was up. That was not the case with all the commodities which you would expect would be moving up if economics were moving as well. The reason is there was issue with the dollar. It surged on this news. The dollar had moved to 1.44 Euros as recently as Wednesday. Friday it closed at 1.41 Euros. Big moves, strong dollar, lower commodities prices. Indeed that drove oil prices down which closed at $70.58, down $1.36 per barrel. Bond yields surged as investors moved out of bonds. There is no need to be in the safety of bonds if the economy is recovering. The 2 year ran up to 1.30% - its highest thus far on the move. The 10 year moved up to 3.85% which was not its highest on the move, but strong nonetheless (The 10 year was up near 4% just over a month back). The curve has flattened a bit as the short end has moved up faster than the long end. Nevertheless, the curve is still a positive curve. Bonds are selling, and yields are rising in anticipation of more demand for currency down the road if the economy continues recovering.

The other aspect that we have to worry about is inflation. We still have the stimulus in place, and we still have world central banks printing money right and left. That is also a reason that you see interest rates rising, and the reason I think we will still see the commodities and related stocks rise as well. They act not only as a good investment vehicle if the world economies are recovering, but also act as a hedge against inflation given the fact that world economies are improving on the backs of trillions upon trillions of dollars (and whatever other type of currency you can think of) circling around the world.

THE ECONOMY

Hours worked shows the real potential for improvement.

Again, the jobs report was -247K, which beat expectations of -350K. That was the smallest amount of losses since August 2008. That puts it in perspective. We have been under a serious job loss cycle in the United States; indeed since the recession started, 6.7M jobs have been lost, but (dare I say it?) there are positive green shoots. There were revisions to the prior months May and June. It is always a good thing when positive revisions come back into the picture. Economists overshoot - they are human, they are negative - and then they continue to overshoot even as things start to turn. That is a very good juxtaposition - it is kind of a bright line that you can look for. When revisions start coming in better while the experts are still saying things will get worse, that is good because it shows there is a fundamental shift happening. Emotions are in the way, clouding their judgment. When I see revisions, I always take heart at that point.

What about the unemployment rate? It was down 9.4% from 9.5%, and expectations were at 9.7% on the way up to 10%. What happened was the Labor Department reports that 800K potential workers gave up. They saw things improving, they came into the market, and when things got worse they gave up and left the market. We may see this cycle again when they see things looking better - less job losses, lower unemployment rate - we may see them come back into the market next month. What does that mean? That means the unemployment rate will go up. 9.4% - this stated the unemployment rate. It may have been by 800K, it may have been by more, but what that translates into if you add those 800K back in who just gave up looking for work, you have a 9.8%-9.9% unemployment rate. That is a pretty substantial gain, and we could see that next month as these people who gave up take heart and come back into the market, but then still cannot find a job at this point.

It is not all roses, obviously. These are not great numbers and we are still losing way too many jobs, but it is starting to turn. As I noted a month ago, when the job picture gets as bad as it is, when you start to see these kinds of turns it actually can be somewhat of a coincident or even leading indicator.

Nonetheless, there is one part of the report that I really focused in on: the average hours worked. That went up. It was down in June to 33.0, and it was up to 33.1 in July - that is very important. You have to start working more hours before there can be more jobs. Employers have to get more out of their employees, getting them working to maximum capacity were they cannot do any more or else they will lose business. Only then do you have new hires. Thus this increase in hours is a positive. How much of a positive? It is only one month. We have to see more of this and the number has to get better. Historically, you are talking a 34 hour per week range before real improvement can be seen (or basically any improvement) in the employment picture as far as new jobs coming on versus just losing fewer jobs. We still have a ways to go, and that is a bit disappointing with respect to where we are in the economic cycle.

In summary, things are getting better. We are no longer at that pit that we were in last fall and earlier this year when everyone was trying to gauge just how bad things were, but we are an awfully long way from getting recovery. If we can get some good spirit in there and get people who actually feel good, maybe we can get money invested in the economy, but frankly it will take good feelings right now to give people the reason to spend money when there is really no reason to. The stimulus package is not quite cutting it to get people ready to spend and invest in new businesses in the US.


THE MARKET

MARKET SENTIMENT

VIX: 24.76; -0.91
VXN: 25.02; -1.34
VXO: 24.65; -0.79

Put/Call Ratio (CBOE): 0.73; -0.19

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: 42.2% versus 36.7%. More sharp rebounding as the market continues to improve. After falling to 35.6% 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: 31.1% versus 35.6%. Big drop after holding for two weeks at 35.6%. Surging from from 30.3% in early July and 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: +27.09 points (+1.37%) to close at 2000.25
Volume: 2.282B (-6.63%)

Up Volume: 1.514B (+837.024M)
Down Volume: 810.35M (-924.77M)

A/D and Hi/Lo: Advancers led 2.48 to 1
Previous Session: Decliners led 2.18 to 1

New Highs: 64 (+29)
New Lows: 2 (-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: +13.4 points (+1.34%) to close at 1010.48
NYSE Volume: 1.487B (+7.06%)

Up Volume: 1.163B (+497.624M)
Down Volume: 298.333M (-392.794M)

A/D and Hi/Lo: Advancers led 2.91 to 1
Previous Session: Decliners led 1.7 to 1

New Highs: 143 (+12)
New Lows: 70 (+20)

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

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


DJ30

Stats: +113.81 points (+1.23%) to close at 9370.07
Volume: 216M shares Friday versus 244M shares Thursday.

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


MONDAY

The SP500 broke over the November 2008 peak, and that is a key move that it made on volume. It had a reason to do it, and it was news-driven. The question now is if it can hold that gain and add to it. It can come back and test, but it needs to hold and add onto that gain. NASDAQ, commodities, energy stocks, semiconductors were early leaders and then pulled back. Are they going to be able to pick up the slack now and add onto these other new-found leaders and give us more gains? That is the key.

We are going to look at those that have pulled back and are not going to chase those that have already moved up. We are going to look at the ones that have pulled back and see if they give us opportunity. If they start to make the break higher, and if they can close higher and the market still is positive, then we can move into those and get some more great positions and great stocks. We just have to watch and see what happens.

Yes, there can be a reversal. A lot of times on a Friday, you have a good news-driven move that takes an index to a new high, and you get reversal. That is, if the sellers are there. If they are ready to do it, they will do it. If they are not, we will have this opportunity ahead as the money out on the sidelines continues to get dragged into the stock market. The sellers took a few turns at the wheel the past week but could not push the market down. Instead those pullbacks have led to more money moving in.

On Monday we will have some more buys, and maybe take some more gain. We will just do whatever the market says because right now we are in an uptrend. We have money moving in and we will take what the market gives. Enjoy your weekend.


Support and Resistance

NASDAQ: Closed at 2000.25
Resistance:
2010 from the Thursday peak
2015 is turning out to be near term resistance
2099 is the mid-September low
2169 is the March 2008 double bottom low

Support:
1984 from late September
The 10 day EMA at 1978
1947 is the October gap down point
1897 is the October post gap intraday high.
1880 is the June peak
The 50 day EMA at 1865
1862 is the July peak
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)
The 200 day SMA at 1633
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 1010.48
Resistance:
1050
1106 is the September 2008 low

Support:
The November 2008 peak at 1006
The 10 day EMA at 991
956 is the June intraday peak
944 is the January 2009 high
The 50 day EMA at 940
935 is the January closing high
932 is the July peak
930 is the May peak
919 is the early December peak is bending
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 872
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 9370.07
Resistance:
9387 is the mid-October peak
9625 is the October closing high
10,365 is the late September low

Support:
The 10 day EMA at 9198
9088 is the January 2009 peak
The 18 day EMA at 9054
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 50 day EMA at 8735
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
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.


Economic Calendar

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

August 11 - Tuesday
Productivity-Prel, Q2 (08:30): 5.4% expected, 1.6% prior
Unit Labor Costs, Q2 (08:30): -2.4% expected, 3.0% prior
Wholesale Inventories, June (10:00): -0.9% expected, -0.8% prior

August 12 - Wednesday
Trade Balance, June (08:30): -$28.5B expected, -$26.0B prior
Crude Inventories, 08/07 (10:30): +1.67M prior
Treasury Budget, July (14:00): -$180.0B expected,
FOMC Rate Decision, (14:15): 0.00%-0.25% prior

August 13 - Thursday
Export Prices ex-ag., July (08:30): 0.8% prior
Import Prices ex-oil, July (08:30): 0.2% prior
Initial Claims, 08/08 (08:30): 545K expected, 550K prior
Retail Sales, July (08:30): 0.7% expected, 0.6% prior
Retail Sales ex-auto, July (08:30): 0.1% expected, 0.3% prior
Business Inventories, June (10:00): -0.9% expected, -1.0% prior

August 14 - Friday
Core CPI, July (08:30): 0.1% expected, 0.2% prior
CPI, July (08:30): 0.0% expected, 0.7% prior
Capacity Utilization, July (09:15): 68.4% expected, 68.0% prior
Industrial Production, July (09:15): 0.4% expected, -0.4% prior
Michigan Sentiment-Prel, August (09:55): 69.0 expected, 66.0 prior

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

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

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