- After 5 upside sessions the market takes the day off but holds its gains.
- Companies start raising revenue guidance versus just pruning costs.
- Michigan sentiment improves ahead of Notre Dame game.
- Wholesale inventories or lack thereof?
- Market starts the week a bit overbought.
Market takes a break on 9-11.
After 5 solid upside sessions stocks made a half-hearted attempt to log some more gains, but the buyers were not really into it, and by midmorning the market simply could not hold the upside. It slid to negative over lunch, and though it rebounded through the afternoon the indices logged their first losses in 6 sessions. Did it make a difference? Not really; SP500 is still at the 1144 level, but nothing changed the strong uptrends and the solid breaks higher on above average volume.
Of course there was the news, the usual and the pleasantly surprising. The usual: more economic data out of China and it was impressive. Why not, right? Communist government that can do what it wants to the data or influence the data by say giving away thousands of washing machines to citizens and logging them as sales. Sounds like some of our government contractors as well. Anyway, the Chinese reported a 12% annual gain in industrial production and a 15% again in retail sales. This is either an incredible growth story or an incredible chain jerking. Of course as China jerks the chain the rest of the world markets follow.
The real news is the best news.
The most intriguing news was the same we heard Thursday: companies increasing their guidance and doing so by virtue of revenues versus cost cutting. FDX, the shipper, was the biggest name Friday raising its guidance thanks to improving sales. STLD in the steel sector chimed in. This was on top of Thursday's group of similar stories from GIS, TXN, ASML and PG.
This is big news. The last earnings season saw a lot of earnings beats, but those improved results were driven by cost cutting those 2.6M lost jobs as noted Thursday. Investors were impressed by companies' ability to cut costs and improve the bottom line. Combine that with growing revenues via sales and investors should be even more favorably impressed.
The news is also good to hear as it corroborates the other data turning up. The regional ISM's moved positive and the national followed rather dramatically. Thursday the trade deficit numbers were much larger than expected, but the rise in capital goods and industrial goods helped increase exports and skew the overall number. Businesses buying equipment and a lot of it. That dovetails nicely with the rising ISM surveys. Love to see corroboration.
So the market received some very nice news again on Friday. It just couldn't do much with it after running higher for five consecutive sessions. That is fine. Everything has to take a rest. The nice thing is that the data is there and after the indices test this last move they can use that data and anticipation of better earnings to continue the uptrends after testing or pausing after the last run.
INTERNALS. After a week of very solid numbers you would expect some backsliding on a rest day. Sure enough breadth fell to -1.4:1 on NASDAQ and 1.3:1 on NYSE. Big deal. Volume faded as well but it was still above average on both NASDAQ and NYSE. Strong volume on the rally higher this past week. Not as strong as the selling volume to start September, but as noted before, the trade is no slouch. A series of above average sessions is offsetting the that first of the month trade.
CHARTS. All the indices took a moment Friday. NASDAQ and SOX blew through the August highs and though lower on Friday they did not lose any ground. SP600 managed to hold its break over that level as well. SP500 is holding its move also, but it does not have that much distance on the August peak so it gave up the October 2008 peak at 1044 but is holding its gains as well. What can you say? They made the breakouts and paused on Friday. The uptrends are still in place, the moves were on volume, and there is plenty of leadership.
LEADERSHIP. Ah yes, leadership. Last week saw money return to the market and it also spread out into some new areas such as healthcare. Chips jumped back to life . . . again. Tech was up but riding a wave that started some time back; kind of extended. Energy and metals broke higher out of some good patterns. Friday we started to see some pullbacks in chips and other areas but it is still really early to be jumping in on those for new plays. Suffice it to say there is plenty of leadership from plenty of different sectors.
Sentiment improvement continues . . . once more.
Michigan sentiment improved to 70.2 from 65.7 in August, up from 65.7. Happy days for sure, right? Well not exactly.
First, 70.2 is not stellar. Even during the 2001 and 2002 recession Michigan sentiment was, at its low, where it is today. It came nowhere near the 48 level shown in this recession. Improving is good, but let's not get all sloppy over it.
Second, sentiment hit 70.8 back in June and then puked up the gains. Indeed the bounce from 65.7 to 70.2 this month is one of the best moves sentiment has made in quite some time. Football season has started and that always improves sentiment a bit. No kidding. At this point, given the bounce and fade in the summer, you want to see at least a couple of months of back to back improvement before you get all sentimental, so to speak.
Wholesale inventories continue their slide in July.
-1.4%, -2.1%, -1.2%, -1.3%, -1.8%. Five stellar months indeed. Wholesalers' shelves must be just about bare. No kidding. Inventories fell but it was not due to a lack of sales. Sales continued their increase, rising 0.5% for the month, the third month of gains after turning the corner in April. That pushed the inventory to sales ratio to 1.23 from 1.25, its lowest point since October 2008.
Greenspan told us last week that the weak inventory situation would help lead to increased economic activity as producers would have to ramp up production to restock goods. At some point that will occur, and it is true that the ISM indicates production activity is improving. That is how it starts. After that you need a handoff of the torch to the next level, i.e. some staying power. That is what it is all about; not blips, but steady improvement.
The environment looks ripe for a continued bump in economic activity. The question is how strong. We are worried the improvement will be short-lived and sporadic after the initial increase. People are getting back to business but that is far different from expanding business as you get in strong recoveries. The stimulus is wrong and the spending is much too massive. Been here before: Great Depression, 1970's. Both were long, lingering economic illnesses. Sure there were surges inside the malaise period, but the overall gains were subpar.
For now we are on a modest upswing and will enjoy the accompanying improvements near term.
VIX: 24.15; +0.6
VXN: 25.29; +0.46
VXO: 23; +0.98
Put/Call Ratio (CBOE): 0.88; -0.03
Bulls versus Bears:
This is a reading of the number of bullish investment advisors versus bearish advisors. The reason you look at this is that it gives you an idea of how bullish investors are. If they are too bullish then everyone is in the market and it is heading for a top: if everyone wants to be in the market then all the money is in and there is no more new cash to drive it higher. On the other side of the spectrum if there are a lot of bears then there is a lot of cash on the sideline, and as the market rallies it drags that cash in as the bears give in. That cash provides the market the fuel to move higher. If bears are low it is the same as a lot of bulls: everyone is in and the market doesn't have the cash to drive it higher.
Bulls: 50.6%. Bumping at highs for this rally off the March lows but off last week's peak that was the high for the rally. The move higher is slowing its pace, flattening out the past three weeks but is well over the 35% level that is the threshold for what is considered a bullish climate. It does not mean things are necessarily 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: 24.1%. Bouncing as some skepticism creeps into the market as the rally falters some with a couple of sharp selloffs in the past three weeks. Hit a low of 21.3% three weeks back on the market rally. Rebounding some from the big drop 31.1% and 35.6%. 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.
Stats: -3.12 points (-0.15%) to close at 2080.9
Volume: 2.247B (-5.41%)
Up Volume: 1.18B (-786.738M)
Down Volume: 1.133B (+671.151M)
A/D and Hi/Lo: Decliners led 1.44 to 1
Previous Session: Advancers led 2.05 to 1
New Highs: 102 (-14)
New Lows: 4 (-1)
NASDAQ CHART: http://investmenthouse.com/ihmedia/NASDAQ.jpeg
Five sessions higher that saw NASDAQ hold a test of the October 2008 gap down point and surge to a new post-March peak. Volume was strong, rising well above average from Wednesday on, giving the move an extra kick in the pants and more meaning. This continues the uptrend off the March low and indeed NASDAQ tested that trendline at the start of September, using it as a launch pad. Some of the large cap techs are extended and NASDAQ could test back from here; after that kind of move a test of the former resistance is typical. After that, NASDAQ's next resistance is in the form of a pair of lows, one from March 2008 (2169 closing) and the other from July 2008 (2215 closing), as well as the September 2008 range starting at 2150.
NASDAQ 100 CHART: http://investmenthouse.com/ihmedia/NASDAQ100.jpeg
SOX CHART: http://investmenthouse.com/ihmedia/SOX.jpeg
Stats: -1.41 points (-0.14%) to close at 1042.73
NYSE Volume: 1.389B (-12.12%)
Up Volume: 648.507M (-617.282M)
Down Volume: 709.871M (+412.336M)
A/D and Hi/Lo: Advancers led 1.28 to 1
Previous Session: Advancers led 3.2 to 1
New Highs: 245 (+13)
New Lows: 86 (+12)
SP500 CHART: http://investmenthouse.com/ihmedia/SP500.jpeg
Stronger trade as well on NYSE as SP500 surged past its August peaks at 1040 and on up to the mid-2008 intraday high, the highest point hit after the LEH related selling started. SP500 matched that level (1044) Thursday and faded back Friday, showing a candlestick doji. Maybe that means it is tired and will test, but this is often a continuation doji. Maybe a modest tap at the August peaks, but it could carry on after that.
SP600 CHART: http://investmenthouse.com/ihmedia/SP600.jpeg
Stats: -22.07 points (-0.23%) to close at 9605.41
Volume DJ30: 196M shares Friday versus 234M shares Thursday. Falling back below average as DJ30 paused just over the August closing highs.
DJ30 CHART: http://www.investmenthouse.com/ihmedia/DJ30.jpeg
A full week of trade and volume was really picking up the pace to end last week as buyers flocked back in once more after an early week dip. As discussed this past week, there are two such sharp, quick declines where volume spiked and stocks sold. Another one raises a red flag, but at the same time rallies can have sharp, quick corrections and still continue the upside run. This rally is exhibit number one.
After that run to new highs, however, it is a bit overbought and thus subject to some selling. That is pretty normal and that would be somewhat welcome as it would bring some quality stocks back into buy range after they gapped away from us earlier this week. Indeed on Friday some areas were already posting modest pullbacks, e.g. scattered chips and techs. A couple more days of testing and we could have some nice 1-2-3 pullbacks or flag formations.
As noted Thursday, another aspect of this market is the rotation that is spreading the money around to more sectors. That is healthy as the market can grow and test at the same time it develops new buys as the money spreads out and seeks new sectors. Thus even with the market extended there are still stocks popping up in good patterns. We might have to look at 60 minute charts versus daily charts to get the best entry points, but that does not mean they are not there.
Therefore we will continue to look for new buys from here as well as waiting for nice pullbacks from those stocks that shot higher and led the latest upside move (as well as the moves before that). We anticipate the market may give us a test at some point this week as noted, and that will help set up some new buys.
Of course you have to watch for the one out of right field that catches you by surprise. We like how the rally showed renewed vigor with high volume on the late week gains. That does not mean it won't top and roll over. Long run from those early July lows for certain and a deeper test would not be surprising. Still, NASDAQ put in a 5 week lateral to modestly higher chop and broke out clean last week. Maybe it has had all the rest it needs.
Support and Resistance
NASDAQ: Closed at 2080.90
2099 is the mid-September 2008 closing low
2169 is the March 2008 double bottom low
2070 is the September 2008 intraday low
2060 is the August peak
2016 is the early August peak
The 18 day EMA at 2019
The March up trendline at 1995
1984 from late September
1962 is the bottom of the August 2009 range.
The 50 day EMA at 1956
1947 is the October gap down point
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
The 200 day SM A at 1686
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)
S&P 500: Closed at 1042.73
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
The August peak at 1040
The early August intraday peak at 1018
The 18 day EMA at 1018
The November 2008 peak at 1006 closing 1007.53 intraday
992 is the August 2009 consolidation low
The 50 day EMA at 987
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.
The 200 day SMA at 887
882 is the early May low
878 is the late January 2009 peak
The prior April peak at 876
866 is the second October 2008 low
857 is the December consolidation low
Dow: Closed at 9605.41
9620 is the August 2009 peak
9625 is the October 2008 closing high
9654 is the November 2008 high
10,365 is the late September low
9387 is the mid-October peak
The 50 day EMA at 9169
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
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
The 200 day SMA at 8383
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
These are consensus expectations. Our expectations will vary and are discussed in the 'Economy' section.
September 15 - Tuesday
Core PPI, August (08:30): 0.1% expected, -0.1% prior
PPI, August (08:30): 0.8% expected, -0.9% prior
Retail Sales, August (08:30): 1.9% expected, -0.1% prior
Retail Sales ex-auto, August (08:30): 0.4% expected, -0.6% prior
Empire Manufacturing, September (08:30): 15.00 expected, 12.08 prior
Business Inventories, July (10:00): -0.8% expected, -1.1% prior
September 16 - Wednesday
Core CPI, August (08:30): 0.1% expected, 0.1% prior
CPI, August (08:30): 0.3% expected, 0.0% prior
Net Long-term TIC Fl, July (09:00): -31.2B prior
Capacity Utilization, August (09:15): 69.1% expected, 68.5% prior
Industrial Production, August (09:15): 0.7% expected, 0.5% prior
September 17 - Thursday
Initial Claims, 09/12 (08:30): 555K expected, 550K prior
Continuing Claims, 09/05 (08:30): 6114K expected, 6088K prior
Philadelphia Fed, September (10:00): 8.0 expected, 4.2 prior
September 16 - Wednesday
Crude Inventories, 09/11 (10:30): -5.91M prior
September 17 - Thursday
Building Permits, August (08:30): 596K expected, 564K prior
Housing Starts, August (08:30): 580K expected, 581K prior
By: Jon Johnson, Editor
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