Market Posts Second Reversal for the Week

SUMMARY:
- Market posts its second reversal for the week.
- UK having trouble escaping recession.
- Existing home sales show a nice September surge though again it was at the lower end.
- Market still holding its lateral move but having trouble putting good earnings to positive use.

Overall solid results but market reverses off gains once again.

More of the same with respect to earnings: some outstanding results shot individual stocks higher, e.g. AMZN, while most others were solid but not as spectacular. Indeed Friday saw AMZN and INTC beat across the board while others beat the bottom line but were light on revenues, e.g. HON. Thus far 40% of those reporting earnings are beating on the top line as well as the bottom line. Not bad given that in Q2 most saw zero top line growth and indeed top line declines. The mood created by AMZN and MSFT, at least early Friday, was enough for investors to overlook the top line misses. It was enough for investors to even overlook the UK failing to post its first positive GDP reading in six quarters.

Almost immediately after the bell, however, stocks started to peel back from the opening gains. A half hour into the session September home sales posted an unexpected 9.2% gain. The indices bolted higher . . . then rolled over and hit new session lows, all within minutes. That led to sharper selling and then after lunch a slow steady lateral slog into the close.

Second time in three days the market reversed from gains and did so on higher volume. There is definitely some overhead at DJ30 10K and 1100 for SP500.

The dollar was a bit stronger so maybe that was the plague on the market Friday. Oil sold (79.93, -1.26) after topping $80 on the week. Gold fell as well (1055.10, -3.50), continuing its lateral consolidation of the past three weeks. That fit the 'new normal' action of the market, i.e. a weak dollar driving near term gains. Bonds, however, sold even as stocks sold. There was no 'usual' flight to the safety of US bonds. That has cropped up on a few sessions the past two weeks. Bond and stock investors are either betting this is not a big deal pullback.

On the other hand, maybe they are saying the US just isn't what it used to be in terms of safety. We no longer honor contracts as seen when the secured debt holders were basically ignored when the Administration decided to take over Chrysler. We have not supported the dollar for two administrations now. The current Administration openly attacks insurance companies, news agencies, threatens a value added tax on top of the income tax, is planning limiting salaries of ANY publicly traded company, prints money as if it is worthless (it is getting there), and plans on adopting more entitlements requiring additional massive spending. Gee, put my money there honey.

Maybe that is a red herring, but even with all the liquidity in the market, investors take pause at this kind of bald faced power grab by the federal government. There are no controls on its actions; the Constitution is not even an afterthought. Once the liquidity rally abates the harsh reality of an unfriendly federal government, the decline of the rule of law and sanctity of contract, not to mention a second rate currency, will have their effect.

TECHNICAL

INTERNALS. Weak breadth at -3:1 on NYSE and -3.2:1 NASDAQ. Pretty serious downside breadth even though the indices held their lateral range for October. Volume bounced on NASDAQ (+6%), returning to above average for the second time this week, both on reversals from high to low. SP500 volume kindly faded, coming in below average as the NYSE indices turned lower and sold. Mixed price/volume action, and part of NASDAQ's big volume jump related to AMZN (58M versus 6M average) and MSFT (281M versus 48M average). So . . . not such a slap of distribution as it looks to be on first blush.

CHARTS. Higher on the open but as on Wednesday the indices turned over, this time quickly, and sold sharply with 1% and more losses on the NYSE indices. NASDAQ would have been worse but for AMZN and INTC surging. Even with the rollovers, the indices still held their lateral trading ranges. Good to get out of the week in the range, but the two intraday high to low reversals isn't giving traders warm feelings.

LEADERSHIP. Big techs named AMZN and INTC gave NASDAQ relative strength. The rest of tech was sluggish at best. Of course they fared better than the financials. Thursday the regional banks led the move higher; Friday they all were clocked. Energy's strength was sapped Friday as many strong stocks in those sectors sold on volume while posting significant price declines as well. Even industrials felt the sting; they were not down thanks to powerful earnings from BUCY, but they closed well off their intraday highs. About the only stocks that did not fade from their intraday peaks were the Chinese internet stocks; BIDU and SOHU surged for us. Overall, leadership enjoyed a good week once more but the end was not that great. Pullbacks are necessary, however, and they end up giving us new buy points on strong stocks. A little silver lining to a week that saw a couple of sharp downside moves.


THE ECONOMY

UK stays in recession. Harbinger for the US?

After 5 negative quarters the elite in the UK were quietly confident that the sun would not again set on the British economy. Well, they better still be good at keeping a stiff upper lip. Mark it six in a row. At -0.4% GDP the UK marked its worst recession on record, unable to join Germany, Hong Kong, New Zealand, and even France in emerging from recession.

Unfortunately for the US, the UK and the US appear to be joined at the hip with respect to our economic woes. Most pundits expect the US to emerge from recession in Q3 as well . . . just as the UK did. Everything looked positive - except for the numbers. Things look positive here as well and indeed the US could very easily bounce positive after its longest recession since WWII. Results are out Thursday. But 3% or better as some are suggesting? I guess if you count from where we came from last fall you get there, but the activity is not huge. The average of all experts is for a 3.2% gain. Wow.

That said, there are signs other than just government numbers. The trucking industry was deep in the muck long before last fall. For the two prior holiday seasons the industry never saw the rise in freight ahead of the holidays that indicates the build in sales heading into the season. CEO's sounded the alarm, suggesting that the US was heading into economic trouble. How prescient.

The trucking industry was hard hit and the pessimism in the sector was rife. Companies would not even talk to a vendor if it had anything to do with other than tires, oil or diesel, i.e. things that made the trucks roll. Just over the past month, however, trucking companies are interested once again in products other than tires. Indeed they are interested in new products and innovations, not just the standard fare. That indicates that there is not only something of a recovery underway, it suggests some optimism. Cool.

Trucking is one of the basics of the economy. If truckers see and feel things are turning, that is a positive. It is also a rather quick turn. Just a month ago we surveyed drivers and many were struggling to find routes as freight levels remained low. The trucking industry must indeed feel more optimistic about the future.


Existing home sales up again.

Sales surged once more, indeed at a record 9.4% pace. The driving factor: the looming deadline for the first time homebuyer credit. Just as sales surge when the Fed is expected to raise interest rates (beating the hike), when a credit is set to expire it gets the fence-sitters moving.

You can tell the action was predicated on the credit as the bulk, indeed almost all, of the sales are at the two lowest segments of the housing market. These are the homes first time buyers acquire.

There was enough action to push inventories down to 7.8 months. It kept price declines to their lowest in thirteen months, down 8.5%. That is the smallest? That simply shows the magnitude of the decline to this point.

Of course realtors are screaming for the credit extension to keep sales moving along. Of course most of these are FHA loans and that means at the prices of the houses, the $8K credit basically pays for the down payment FHA still only require 10%. The credit is basically putting people in the houses for 'nothing down' and that has many concerned if the government isn't just filling up the bubble that the housing crash deflated.

Then there is the issue of middle and higher level housing markets that are in terrible shape. Most of the citizens' wealth in this country is tied up into that end of the market, and until that is addressed the impact of the first time tax credit, while very helpful to those at the lower end, is minimal.

I am not suggesting the higher levels should get some kind of relief other than simply fixing our economic problems. Housing issues tend to fix themselves when the economy recovers. Thus real incentives that promote investment and R&D in the United States is what turn the economy and thus the housing market.

Tax cuts, investment incentives, a flat tax all things Europe, Australia and New Zealand have already done and they are all already out of recession. Malaysia just cut its income tax and its spending and its economy is prospering. German business confidence is surging as its recovery accelerates. China is predicted to add 11M jobs as its recovery expands as well.

It is so basic. Those countries are taking the plays right out of the US free enterprise handbook and prospering magnificently as a result. We have thrown away the playbook we wrote and are using the European manual from the 1960's and 1970's. The results are the same: crap.


THE MARKET

MARKET SENTIMENT

VIX: 22.27; +1.58
VXN: 22.62; +1.04
VXO: 21.58; +1.4

Put/Call Ratio (CBOE): 0.86; +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: 48.9%. Paring back from the 50.6% the prior week. Tough week of selling knocked the bulls back but the bounce will bring them up again. Still 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: 24.4%. Climbing on the market selloff, up from 23.6%. That puts it back up to the level hit three weeks back, still showing sufficient pessimism. Hit a low of 21.3% on this leg. 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.


NASDAQ

Stats: -10.82 points (-0.5%) to close at 2154.47
Volume: 2.356B (+6.34%)

Up Volume: 727.187M (-785.94M)
Down Volume: 1.728B (+982.802M)

A/D and Hi/Lo: Decliners led 3.25 to 1
Previous Session: Advancers led 1.68 to 1

New Highs: 105 (+43)
New Lows: 15 (-2)

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: -13.31 points (-1.22%) to close at 1079.6
NYSE Volume: 1.265B (-3.77%)

Up Volume: 147.355M (-816.11M)
Down Volume: 1.054B (+719.088M)

A/D and Hi/Lo: Decliners led 3.01 to 1
Previous Session: Advancers led 1.89 to 1

New Highs: 252 (+50)
New Lows: 36 (+7)

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

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


DJ30

Stats: -109.13 points (-1.08%) to close at 9972.18
Volume DJ30: 305M shares Friday versus 231M shares Thursday. Volume was up on the pullback but a lot of that was MSFT's soaring volume on its earnings.

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


MONDAY

Earnings season is about half over and the revenues are posting beats. Not across the board, but the leaders are performing as leaders should: AAPL, INTC, AMZN, JPM, MS, CAT. The market made initial gains on the news, particularly with INTC's beat that gapped the indices over the September peak and to a new rally high.

Since that time the market has had numerous opportunities to extend the gap on stellar earnings reports, but has failed to do so. Indeed two breaks higher were reversed to losses on Wednesday and again on Friday. Sellers are stepping in despite the revenue beats and stymieing attempts to extend higher.

Thus far the indices are still in the lateral range, still moving sideways as they consolidate the early October run. This has been the pattern for this rally, i.e. surging with strong 2 to 3 week runs then lateral to slightly lower moves to consolidate before repeating. This move is not quite the magnitude of the March to early June run, but it is with respect to time. Not sure if I want to go down that road; comparisons to the initial run have yet come true in terms of the May to June consolidation. Thus far the trendline remains in very solid shape, not even challenged on SP500. Betting on the downside without more reason than the length of the run has been a losing proposition. It may be even more so now that the market has seen the earnings and they are not bad. The sprint to the year end could be underway.

At the same time the action late last week was shaky and many strong stocks and sectors were under pressure. Financials sold, surged Thursday, then sold again Friday. Retail stocks did the same. As with financials the stocks in the sectors are mixed with some heading higher, some in danger of rolling over.

We will see how they play out. We have some downside positions in these sectors. If the selling continues and the downside setups are showing up with more frequency we will add more downside.

What we are seeing is that with the modest chop and pullback there are some good upside setups taking shape. Modest and rather shallow pullback to the near Fibonacci retracement level and other good patterns are forming, and we are looking at several as potential upside vehicles for next week. As they set up and show good entry points we will move in, still looking for the run higher to end the year.


Support and Resistance

NASDAQ: Closed at 2154.47
Resistance:
2155 is the March 2008 intraday low
2167 from the July 2008 intraday low
The March up trendline at 2170
2168 is the September 2009, intraday peak
2169 is the March 2008 closing low (double bottom)
2177 is a low from March 2008
2191 is the October 2009 peak
2210 (from September 2008) to 2212 (the July 2009 closing low)
2275 - 2278 from the February 2008 and April 2008 lows

Support:
2143 is the October range low
The 18 day EMA at 2140
2099 is the mid-September 2008 closing low
The 50 day EMA at 2080
2070 is the September 2008 intraday low
2060 is the August peak
2016 is the early August peak
1984 from late September
1962 is the bottom of the August 2009 range.
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
The 200 day SM A at 1774


S&P 500: Closed at 1079.60
Resistance:
1101 is the October 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:
1080 is the September 2009 peak
1078 is the October range low
The 18 day EMA at 1076
1070 is the late September 2009 peak
The March/July up trendline at 1066
The 50 day EMA at 1045
1044 is the October 2008 intraday high
The August peak at 1040
The early August intraday peak at 1018
The November 2008 peak at 1006 closing 1007.53 intraday
992 is the August 2009 consolidation low
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
The 200 day SMA at 914


Dow: Closed at 9972.18
Resistance:
10,365 is the late September low
10,609 from the Mid-September 2008 interim low
10,963 is the July 2008 low

Support:
9918 is the September 2008 peak
The 18 day EMA at 9901
9855 is the early September peak in its lateral range
9835 is the late September 2009 peak
9654 is the November 2008 high
The 50 day EMA at 9646
9625 is the October 2008 closing high
9620 is the August 2009 peak
9387 is the mid-October peak
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
The 200 day SMA at 8557


Economic Calendar

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

October 27 - Tuesday
Case/Shiller Home Price Report, August (09:00): -11.90% expected, -13.30% prior
Consumer Confidence, October (09:00): 53.5 expected, 53.1 prior

October 28 - Wednesday
Durable Orders, September (08:30): 1.0% expected, -2.4% prior
Durable Orders ex Transportation, September (08:30): 0.7% expected, 0.0% prior
New Home Sales, September (10:00): 440K expected, 429K prior
Crude Inventories, 10/23 (10:30): 1.31M prior

October 29 - Thursday
Chain Deflator-Adv., Q3 (08:30): 1.3% expected, 0.0% prior
GDP-Adv., Q3 (08:30): 3.2% expected, -0.7% prior
Initial Claims, 10/24 (08:30): 525K expected, 531K prior
Continuing Claims, 10/17 (08:30): 5915K expected, 5923K prior

October 30 - Friday
Personal Income, September (08:30): 0.0% expected, 0.2% prior
Personal Spending, September (08:30): -0.5% expected, 1.3% prior
PCE Prices, September (08:30): -0.5% expected, -0.5% prior
Core PCE Prices, September (08:30): 0.2% expected, 0.1% prior
Chicago PMI, October (09:45): 48.7 expected, 46.1 prior
Michigan Sentiment-Rev, October (09:55): 70.0 expected, 69.4 prior
Employment Cost Index, Q3 (10:00): 0.4% expected, 0.4% 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

Earnings Quickly Cool Their Pace

SUMMARY:
- A modest test on expiration as earnings quickly cool their pace.
- Industrial production, capacity increases jibe with improved manufacturing reports.
- National debt for fiscal year triples 2008, highest percentage of GDP since WWII
- How do you handle seniors angry over Administration & Congress plan to cut benefits and coverage while getting no COLA adjustment on Medicare and Social Security? Buy them off with a $250 payment.
- Market made the new breakout and is now testing. Expecting more liquidity to rush in after a short pullback.

Friday tests after a breakout on the week continued the rally.

This past week the market was pensive ahead of earnings, or more accurately the next round of serious earnings. The prior week saw the compulsories, e.g. Alcoa 'kicking off' earnings season with its results. Alcoa is always first but its importance is closer to last given it has a knack for losing money when it should make money and then make just mediocre gains when it does post some decent (for AA) earnings. In other words it is hardly a reliable indicator of the season. Its announcement is ceremonial with as much impact on the true earnings season as the President bouncing the 'first pitch' into home plate has on the outcome of the game to be played.

The real earnings season started this week with INTC, and before Intel's results Tuesday afternoon the major stock indices traded flat. When INTC kicked expectations in the keester for the second straight quarter and JPM drop-kicked the street, stocks took off Wednesday and broke to a new post-selloff high. Sure there were some decent economic reports along the way; retail sales and regional manufacturing reports were the highlights. 'Tis the season for earnings, and this season is very important as investors want to see top line revenue growth on top of the cost cutting in Q2 that provided surprise earnings beats.

Friday earnings were again paramount despite more economic data (industrial production and capacity) that topped expectations. The results, however, were not as dramatic and not as enthusiastically accepted. Indeed Friday was more similar to a collective yawn. Bank of America (you know, the bank where once of its branches pulled up US flags to honor our soldiers because it could not show favoritism to any flag) showed it is unable to make money even with free money provided gratis the US government and of course us taxpayers. BAC posted a $1B loss as it missed on the bottom line and on revenues as well. Man am I glad we bailed out that dog. IBM beat the street on both ends but it wasn't enough; investors sold it making us quite pleased we sold the rest of our October options for a 200+% gain earlier in the week. GE, the brown noser company with respect to the Administration's green initiatives, missed with its sales results and gapped lower, making a lower high.

The earnings were not nearly good enough to keep the breakout move running, at least not on expiration Friday. Earnings started great with those top line beats, but that dissipated quickly. With the kind of break higher the market enjoyed Wednesday, there were some positions that had to be adjusted on expiration Friday.

In addition, the dollar was stronger, another drag on the upside. It opened much stronger at 1.4860, but by the close it gave up some ground though at 1.4893 it was still ahead of Thursday's 1.4931). Gold bounced back some after it underwent some profit taking following its big run (1053.50, +2.90). Oil was up even as the dollar rose; oil's momentum is somewhat impressive, somewhat concerning (78.57, +0.99). Of course there was also just some plain old profit taking on Friday after another break to a new high on the week. The market was up 8 of 9 sessions through Thursday. A bit of selling on expiration Friday to bank some gain is no new event. We were taking gain all week as well.

TECHNICAL

INTRADAY. Stocks started lower and sold to session lows in the first hour. That took NASDAQ down to its March/July trendline and filled the Wednesday gap. SP500 did not fill its gap but it did test lower as well. Both and indeed all the indices rebounded into lunch and then really jumped upside into the early afternoon. They tried to add to the recovery in the last hour and looked as if they could make it to positive. They didn't. A late round of selling hit and losses reverted to the 0.7% to 2% levels. Off the lows on the close, however. Yee ha.

INTERNALS. -2:1 breadth. Kind of middle of the road for these days when 4:1 moves are easily hit on the strong days, up or down. Volume was up as it should be on expiration Friday, but it was still below average for NASDAQ and just clipped past average on NYSE. Hardly an impressive expiration and no distribution to speak of.

CHARTS. All gapped lower but after making session lows early they rebounded. SP500 tested back near the September peak and recovered almost half its losses. NASDAQ filled the Wednesday gapped, tapped its March/July uptrend and the 10 day EMA, then recouped almost half its losses as well. Lost and found. Down but no damage. Sure the market could roll over and dive lower from here. It could also finish a little test here and then continue this rather absurd liquidity driven rally. Oh well. It has happened before, e.g. 1999 ahead of Y2K. This time there is even more money circling the globe. NASDAQ rallied over 70% in 6 months. That shows the power of liquidity and that there is still plenty of room to the upside as fund managers chase performance to the year end.

LEADERSHIP. Speaking of leadership, there is plenty. The dollar was on the skids again the past week and though it managed to bounce Friday it did hit a new low on this run. That pushed energy, commodities, metals, industrials, etc., the ROWEARFTO trade (rest of the world's economies are recovering faster than ours), higher. Nicely higher. They gave back a bit Friday, but those losses were minor versus the gains. The other usual suspects were fine as well, e.g. retail and tech. Missing from this picture, despite INTC's earnings, are the chips. After bursting to a new rally high they as quickly reversed. They didn't just test the break higher, they gave it up and fell back into the range. Once again the chips act as if they are ready to roll over. They have feinted this before but then held up as the money returned. It is as if they want to just quit already and go take a nap but the money keeps pushing them higher. When the money runs out it could be ugly. Of course as the Fed told us last week, it is not going to run out, at least in terms of the Fed taking any back. We might run out elsewhere as discussed below.


THE ECONOMY

Fiscal Year Debt hits a record $1.42 trillion.

The fiscal year ending 9-30-09 saw the annual deficit more than triple the $455B, a record in its own right, set in 2008. A new record eclipsed by another record tripling the debt. The national debt now stands at 10% of GDP, the highest since WWII. That is ahead of expectations but nothing compared to what it is going to be. Does Congress think we are playing with Monopoly money? Of course not. It knows it is playing with our money, not theirs. Thus it is the same as monopoly money to them. If you never had to run a business, make a payroll, find customers, etc. you tend not to have a grasp on just what reality is.

Friday Treasury Secretary Geithner professed great concern over US deficits. A lack of confidence that the US will return to fiscal sustainability may lead to a weaker economic recovery, higher interest rates, and constrained investment. No kidding. Welcome to the party pal (Bruce Willis in 'Die Hard'). Geithner went on: "That's why deficits matter. That's why deficits in the end can be very damaging to growth. That's why you cannot live with future deficits as large as ours are likely to be."

When asked whether the prior tax cuts should be allowed to expire in 2010 Geithner responded "it does not make sense to raise taxes in a recession . . . getting growth on track led by the private sector is our most important priority."

Sounds great. Sounds as if Geithner may not have a job much longer if he keeps up this tirade of fiscal responsibility and championing free enterprise and capitalism. It is so not the 'Big brother, Big government' our comrades in DC are actively pursuing. Strangely, on Friday Senator Reid seemed to undercut the healthcare plan when he opined the healthcare plan would add another $2T to the deficit. Is he suddenly having an attack of 'fiscal responsibility' that the democrats commandeered as their issue in the last election? The oath of office echoes had not died when the current Administration jettisoned any notion of fiscal responsibility. Turtle crossings keep coming to mind. A bit late for buyer's remorse senator Reid. Well, not too late.

Geithner is right in many respects. If taxes go up the attempt at recovery will unravel. The recent economic improvement is not a great surge of economic activity but a response to an economic shutdown, a re-start aided by trillions of dollars spent in helter skelter fashion. Tax revenues to the government have imploded; too many out of work and business activity is way down. Do you really want to pile more taxes on top of that? 'Yes' if you are driven by ideology versus logic.

That could very well be the case. Friday the Administration claimed it had 'saved or created' 30K jobs with the stimulus. Those are extremely, insanely expensive jobs. As I noted at the time, why not just divide the money up and GIVE it to the people; they would be better off. How can you say you saved 30K jobs when you are losing over 200K per month and new unemployment claims each week are in excess of 500K? It is utter nonsense. Any job saved or created to make a turtle crossing stole funds from a real job in the real economy as those funds were taxed away from the private sector. Ideology versus logic.


No Cost of Living Adjustment for seniors, so why not buy off their anger?

With inflation so low this past year during the measurement period (the inflation rate between the third quarter and the year ago quarter), at least as measured by the CPI, the formulas for Social Security say no cost of living adjustment (COLA) for 2010. That marks the first time since 1975 there will be no COLA adjustment. Remember that date.

Why no increase? Because energy prices decreased sharply during that period. Recall that oil prices were at $140/bbl and gasoline was at $4/gallon in some places. Gasoline prices are down 21.6% over the past year following the surge. Once again our dependence upon foreign oil and oil in general adversely impacts our standard of living and will continue to do so.

Of course the reality is prices are not dropping at all. This past week I went through why the CPI is not measuring our true inflation rate thanks to the diving dollar and the general inaccuracy in the way the federal government measures prices. As Jim Rogers often says, you don't need the government to tell you whether prices are rising or not.

The problem with the COLA adjustments, just one of the litany of problems with Social Security, is that it is based on PAST prices. Right now what are energy prices doing as the rest of the world sans the US enjoys a pretty solid recovery? They are rising on anticipated demand. They are also rising, at least for us here in the US, because of our government's weak dollar policy that forces prices higher on any good that is denominated in dollars that is imported to the US.

There is another issue for seniors as Medicare insurance premiums are anticipated to rise 11% in 2010. So, seniors that have Medicare insurance costs deducted from their SS checks will see their checks drop.

It is interesting that this is the first year that there will be no COLA. I am not writing in favor of SS and endless COLA adjustments. I am one of those that views this kind of program as totally outside the enumerated powers of the federal government in our Constitution. It was left for the states to come up with a plan for their people, if they so desired, and thus the control would be at the local level not removed to DC with its balls, international travel, and mega power brokers. But I, as usual, digress.


Low inflation before during prosperous times, but there were still COLA adjustments.

Why is it interesting? Because inflation was very low in the 1980's as well after Reagan and Volcker broke its back, and it was also low in the 1990's. While those periods saw spikes in energy prices on occasion (what era does not have those spikes?) they were also times of great prosperity AND low inflation.

Nonetheless there were COLA adjustments. It seems incongruent to many given the crapola they are fed with respect to economics these days, but inflation is NOT the result of prosperity and a strong economy, it usually follows recession and economic malaise. That is because supply slows down but the government tries to keep demand going by printing dollars. Textbook inflation: more dollars circulating without growth in supply. It creates inflation and continued stagnation as in the 1970's versus the supply side stimulus in the 1980's and 1990's (Clinton's capital gains tax cuts) that increased R&D and new business and created new supply and new technologies that CREATED their OWN demand. That is a lesson forgotten in the current administration. Nonetheless there were COLA adjustments: the inevitability of government trying to spread its control, right?


No COLA? Make one anyway.

Thus it is kind of surprising that ANY administration would try and say 'no COLA adjustments.' Maybe not. Within minutes of the SS Administration making the determination (not the announcement) the Obama administration announced that the government should add another $13B to the deficit and make one-time $250 payments to every senior.

One time when things were going to work the way they were supposed to (at least going to by the government's rules and ignoring the Constitution and reality), i.e. the deepest recession since the Great Depression, the government decides to toss the rulebook out the window.

Was there any doubt, however? This government tossed out the Constitution long ago and this $13B is a gnat on an elephant's butt compared to the $1.42T debt AND the trillions that are to be added to the debt if healthcare passes. Yes, toss out the $900B figure (roughly), the supposed cost of the Baucus bill. Even toss out Harry Reid's $2T figure. They will all be off and off big. It is a no-brainer Big Brother will hand out some candy to the seniors given the lack of COLA adjustment.

A payoff? Hush money?

The thing is, this came out without any uproar over COLA. The announcement followed, indeed even preceded, the SS Administration going public with the COLA plans. Hate to be a conspiracy theorist, but with the senior uproar over healthcare this looks like a bald-faced payoff to try and buy some silence to allow the socialization of our healthcare to pass quietly in the night (or in this case in Congress where debate will be cut off prematurely on the most expensive and important piece of legislation ever passed given its size and its expansion of the federal government).

A lot has been made of the 'death panels' by both sides. Let's face it; that is a distortion. No one, at least the ones in the administration that don't believe in sterilization via drinking water and related loony tune ideas, envisioned death panels. Planning yes.

The problem is the indirect, clandestine nature of the changes and pressure. If you cut benefits as much as planned you are taking benefits from the class that uses the most benefits, i.e. the elderly in the twilight of their lives. Obama has decried the expenditures in the last three years of life as being the most costly. That is, sadly, the fate of human beings. We get old and our systems start failing.

Unfortunately, at least for those spending our money through government programs, humans have a strong will to try and live and make the best of their lives. Thus many never give up. There are too many good things to enjoy and make life worth living those last few years even if you are in some pain: grandkids who love you and crave learning about the their families, the past, and life's secrets from those who know. Sunrises; sunsets; flowers; ocean smells, sounds and vistas. The list is as endless as people are varied.


What about the rights to life and the pursuit of happiness in our Declaration of Independence?

While there are no death panels, at least in the initial legislation, the effect of the cuts is to reduce the services to the elderly at the very time they need them most. That necessarily cuts their life expectancies as surely as if someone held a hearing and decided that, given the ailments versus the costs, that person simply was not a good use of limited funds. I have been there. My brother moved to Australia years ago and was 'treated' in its healthcare system. He was deemed too old to make the expenditures on for treatment of a form of cancer (he was just in his early fifties for crying out loud). When no one younger matched the donated tissue, and after waiting months and months, he finally received the treatment. Too late and the procedures were too antiquated. The disease had spread during the waiting period and the procedures used were too outdated to handle it. The doctors here in Houston said he was totally treatable . . . in the US using our technology that was far advanced over that in Australia's public system.

Our founding documents say that our right to life is inalienable. When the government institutes programs that crowd out the private sectors and end up making vast portions of the population dependent upon it for items such as healthcare and then CHANGES the program in a manner that impacts their ability to live (as outlined above), that is in direct violation of our rights set out in our founding documents. If you are 88 and want a knee replacement because you feel you still have many good years ahead of you, that is exercising your pursuit of happiness. If the government effectively takes over healthcare and denies your request for a new knee because you are deemed too old and not a wise use of funds, that violates your inalienable right to pursue happiness.

This discussion of healthcare is only tangentially addressing these issues. The outrage and anger is there, it is just not getting articulated in these terms. These are, however, the VERY TERMS that they should be addressed in. 95% of the US population believes our founding documents are damn good and should be followed. If the arguments are articulated in this manner many would awaken and demand our Declaration and Constitution be followed. At least you would hope so. Our seniors are screaming loud.

It is of the highest irony that this debate is over limiting unconstitutional programs (Medicare, Medicaid and Social Security). Of course, limiting is them not really the case. What is happening is the most massive expansion of all. Sure there will be some cuts in Medicare and Medicaid but they will be replaced by a behemoth comprehensive healthcare program that will swallow most of our GDP. Thus while many argue to save unconstitutional programs, it is in an effort to prevent the greatest damage to our founding documents of all time.



THE MARKET

MARKET SENTIMENT

VIX: 21.43; -0.29
VXN: 22.22; -0.29
VXO: 21.2; -0.1

Put/Call Ratio (CBOE): 0.76; +0.07

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: 48.9%. Paring back from the 50.6% the prior week. Tough week of selling knocked the bulls back but the bounce will bring them up again. Still 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: 24.4%. Climbing on the market selloff, up from 23.6%. That puts it back up to the level hit three weeks back, still showing sufficient pessimism. Hit a low of 21.3% on this leg. 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.


NASDAQ

Stats: -16.49 points (-0.76%) to close at 2156.8
Volume: 2.174B (+4.32%)

Up Volume: 535.208M (-373.124M)
Down Volume: 1.659B (+453.467M)

A/D and Hi/Lo: Decliners led 2.14 to 1
Previous Session: Decliners led 1.28 to 1

New Highs: 116 (-59)
New Lows: 8 (-3)

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

NASDAQ posted an interesting and somewhat instructive move. After gapping higher Wednesday, clearing the September peaks and moving to a new rally high, NASDAQ tested Friday. It reached lower intraday, filled the gap, tapped the 10 day EMA, and rebounded to hold the breakout, all in one session. Not definitive in itself, but even after this run higher it shows some continued willingness to buy a dip, even one after gapping higher. Expiration had some impact of course, and NASDAQ will likely test further, but you have to be impressed with the continued resilience on dips. A new week is always a new challenge, particularly after a gap higher to a new high, so we watch the test as more earnings come out and see if the buyers keep stepping in on dips.

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

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


SP500/NYSE

Stats: -8.88 points (-0.81%) to close at 1087.68
NYSE Volume: 1.386B (+2.11%)

Up Volume: 334.478M (-358.762M)
Down Volume: 1.041B (+417.427M)

A/D and Hi/Lo: Decliners led 1.91 to 1
Previous Session: Advancers led 1.04 to 1

New Highs: 251 (-303)
New Lows: 36 (-25)

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

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


DJ30

Stats: -67.03 points (-0.67%) to close at 9995.91
Volume DJ30: 307M shares versus 252M shares Thursday. Expiration Friday saw a spike in volume as you would anticipate. Nothing major here.

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


MONDAY

The liquidity rally was again in force last week as the indices gapped to new rally highs. Friday there was some hesitation on so-so earnings, rather normal after a new strong surge, particularly after putting in just over a week's rally ahead of the gap to the new high. This coming week could see some more testing as more earnings releases hit the market. Earnings season is still very young and while there were initial successes the end of week results were not as ebullient.

So we see how much testing the market shows. Wouldn't complain about that as it would set up some new plays as they come back to test last week's new breakouts. Thus far the liquidity keeps hitting the market similar to 1999, and with the year end run to make the books look as good as possible for those funds that were caught with their pants at their ankles when the market took off, there is impetus to keep the market moving higher off each dip.

Of course if earnings disappoint horribly then there is likely a sharper near term pullback though again, with the liquidity and the desire to chase performance that would only make the year end run more violent when it occurs. Thus on a steeper pullback we are going to be all over strong stocks that can run like the wind as they get into buy position on a pullback.

We are going to let our current positions run as much as they will in any kind of continued rally. Some came under pressure Friday as expiration shuffling washed through the market and some earnings apprehension hit. Earnings are always a tough decision: do you hold or close them out ahead of time? With the rebound from nothing to restarting the economy, this season is still a good one to err on the side of letting them ride though of course all will not work out with roses.

This is all part of the liquidity rally and ultimately it is a race against time unless the policies out of DC appreciably change. The markets can rally as long as there is excess capital being pushed into them. With interest rates at 0% and inflation out in the future, everyone is putting money into financial markets, thus fueling the appearance of a recovery. At some point the liquidity has to be removed and the hope is that 'natural' forces will take over when it is or will already be running so when the liquidity leaves there are no hiccups.

Problem is, even when things appear to be smooth, when you remove massive amounts of liquidity things can seize up. Just look at 1999 into 2000. Things appeared to be running smoothly to most of the world but they were not. There were many signs of trouble we chronicled at the time, but it was the Fed flooding the world with liquidity ahead of Y2K, even as it raised interest rates to supposedly fight inflation, that kept things humming along. . . until the Fed pulled the plug on the money and the supposedly healthy economy that the Fed felt it had to raise rates to beat back some to prevent inflation turned over and dove lower.

This recovery, as I have discussed in the past few weeks, is a re-start after a shutdown. Thus it has the look of being a full-fledged recovery given the improvement rates in the data. You go to zero and you should get some impressive improvement rates on a recovery. In reality, however, these recovery rates are not that great compared to past recoveries. The reason in our book is the type of stimulus used, the type of government spending expansions planned (and thus the increase in taxes that the entire business world anticipates), and the new Administration's complete lack of concern and in some cases open disdain for the rule of law and contract that always made the US a beacon for investment dollars from across the globe.

The auto bailouts, bank bailouts, dollar gutting, and attacks on all institutions of capitalism in the US has quelled foreign appetite for US risk. That is why you see countries actively working on alternatives to the dollar to conduct their business. With the Administration signing international agreements putting US sovereignty over our economy in the hands of the rest of the world it is no wonder they are now looking elsewhere. The US was a good investment when the US did what it did best: capitalism. As it turns from those roots it is not going to be a strong economically. Money looks to go elsewhere. Basic economics, but those basic economics mean that for the first time in modern times our children and grandchildren may not enjoy an improving standard of living. Thus this rally, without a real change in our course (a change from the 'change' promised in the last election) will end when the money is pulled. That is why the market bucked when the Fed even mentioned that someday it would have to pull the plug. When that inevitability approaches the market will suffer.

So this move is on borrowed time for now, but that does not mean it is already dead. The year end can make us a lot of money and if the liquidity remains, then Q1 can still produce great upside as well. It is after that, i.e. when the summer starts to roll around that things could get bleak.


Support and Resistance

NASDAQ: Closed at 2156.80
Resistance:
2167 from the July 2008 intraday low
2168 is the September 2009, intraday peak
2169 is the March 2008 closing low (double bottom)
2177 is a low from March 2008
2210 (from September 2008) to 2212 (the July 2009 closing low)
2275 - 2278 from the February 2008 and April 2008 lows

Support:
2155 is the March 2008 intraday low
The March up trendline at 2145
The 18 day EMA at 2124
2099 is the mid-September 2008 closing low
2070 is the September 2008 intraday low
The 50 day EMA at 2064
2060 is the August peak
2016 is the early August peak
1984 from late September
1962 is the bottom of the August 2009 range.
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 1760


S&P 500: Closed at 1087.68
Resistance:
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:
1080 is the September 2009 peak
1070 is the late September 2009 peak
The 18 day EMA at 1066
The March/July up trendline at 1047
1044 is the October 2008 intraday high
The August peak at 1040
The 50 day EMA at 1036
The early August intraday peak at 1018
The November 2008 peak at 1006 closing 1007.53 intraday
992 is the August 2009 consolidation low
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
The 200 day SMA at 910


Dow: Closed at 9995.91
Resistance:
10,365 is the late September low
10,609 from the Mid-September 2008 interim low
10,963 is the July 2008 low

Support:
9918 is the September 2008 peak
9855 is the early September peak in its lateral range
9835 is the late September 2009 peak
The 18 day EMA at 9810
9654 is the November 2008 high
9625 is the October 2008 closing high
9620 is the August 2009 peak
The 50 day EMA at 9561
9387 is the mid-October peak
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
The 200 day SMA at 8529


Economic Calendar

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

October 16 - Friday
Net Long-Term TIC Fl, August (09:00): $28.6B actual versus $30.0B expected, $15.3B prior
Capacity Utilization, September (09:15): 70.5% actual versus 69.8% expected, 69.9% prior (revised from 69.6%)
Industrial Production, September (09:15): 0.7% actual versus 0.2% expected, 1.2% prior (revised from 0.8%)
Michigan Sentiment-Preliminary, October (09:55): 69.4 actual versus 73.3 expected, 73.5 prior

October 20 - Tuesday
Building Permits, September (08:30): 590K expected, 579K prior
Housing Starts, September (08:30): 610K expected, 598K prior
PPI, September (08:30): 0.0% expected, 1.7% prior
Core PPI, September (08:30): 0.1% expected, 0.2% prior

October 21 - Wednesday
Crude Inventories, 10/16 (10:30): 0.33M prior

October 22 - Thursday
Initial Claims, 10/17 (08:30): 517K expected, 514K prior
Continuing Claims, 10/10 (08:30): 5990K expected, 5992K prior
Leading Indicators, September (10:00): 0.9% expected, 0.6% prior
FHFA Housing Price I, AUG (10:00): 0.3% expected, 0.3% prior

October 23 - Friday
Existing Home Sales, September (10:00): 5.35M expected, 5.10M 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

Bernanke Changes the Theme

SUMMARY:
- Bernanke changes the theme: stocks still gain, oil gains, but so does the dollar.
- Canada jobs gains show the US is lagging the world and North America as well.
- Indices show no fear at the September highs as the late September lower his is no boogey man.
- Healthcare vote could act as its own catalyst.
- If revenues expand the market may not wait for another correction before taking off on its year end run.

Bernanke's acknowledgement of rate hikes at some 'extended period' enough to change the action.

The market traded under a different theme on Friday. It did not roll over and sell, but instead traded higher. Oil traded higher, which would lead one to suspect that the dollar would be lower, but the dollar was higher as well. What made the difference on Friday?

Federal chairman Bernanke said late Thursday night that even though the Fed was going to continue to keep rates low for an "extended period," the Fed would have to raise rates nonetheless. That was all it took. When the Fed Chairman says that we have to do something, it is on the table, and that is step one in the process of the Fed changing its policy. They have to talk about it and tell everyone on earth what they are going to do before they take steps to do it. It takes months to get to where they will actually raise rates, but the effect was immediate.

The dollar picked up strength. It was still weak, closing below 90 yen, which is an important mark having broken below that during the week. It did pick up strength on word that rates would be hiked, just as the Australian dollar picked up strength when it actually hiked its rates unexpectedly to start this past week.

Bonds, on the other hand, sold off sharply and yields jumped. Bonds did not like this. If we start raising interest rates, then that digs into the value of bonds. Many bond investors were avoiding a Christmas rush and selling early. It could be months and months before the Fed actually raises rates, but it does not matter. When it is out on the table, the die is cast, and unless something seriously negative happens in the world and to the US economy, then the Fed will be on this course. The Fed fund's futures contract for February immediately priced in a quarter-point rate hike. We will see what kind of hikes the Fed has in mind over the next few months. It could be quarter-point or half-point hikes to get things back up to where they need to be to fight the inflation beast that is ahead of us.

Oil was up ($72.29, +0.60). The dollar was stronger (1.4716 Euros, versus 1.4778 Thursday), but not as strong as it was earlier in the morning. It still held strength into the close, however. Gold was down ($1,050.10 -6.20). After the kind of hair-on-fire run that it had during the week, a little giveback is normal with the change in what the Fed is saying. Gold is not running over because of what Bernanke said. Just talking about having to raise rates down the road is not going to put the inflation genie back in the bottle. While we are not experiencing any inflation right now, but with the kind of money printing we have, we are seeing gold and other commodities indicate that inflation is on the way. That may not be true for the rest of the world, but it will be here in the US given all the money we have printed and intend to print.

Whether it was fall on Friday, or just the fact that the Federal Reserve has admitted it will have to change interest rates, there was a different theme in the air. The tone was changed, but did not tank the market at all.

TECHNICAL

INTRADAY

The market started lower. It gapped down, but then there was an immediate recovery mid-morning through early lunch. That was followed by a pause and a pullback to test over lunch, but it held in the thick range of support from the prior day and then rallied up through the close. There was a bit of giveback late in the session. That is where the market peaked on Thursday right at the late-September peaks, and then there is some congestion, but the market rallied late in the session. It was not really a surge of new buying. With Bernanke speaking on Friday and the healthcare bill to be voted on next week, there is concern that there may be some news over the weekend that could impact stocks on Monday. The shorts were a bit nervous, and they were squaring up ahead of the weekend. There was nothing unusual about the intraday action other than the fact that the market rallied up to that resistance and it held there.

INTERNALS

The internals were so-so. Volume was substantially lower (-18% NASDAQ, -22% NYSE). It was well below average. There was really no excitement there, and there was not much accumulation. It was more of a nervous trade on Friday that the market melted higher with the general upside bias versus any real buying.

CHARTS

We can look at each one of the charts of the major indices and see that they moved over that late-September lower high. The SP500 did that, as did NASDAQ - it made a closing high at that level. SP600 moved up over that level as well. There was no major breakout; they barely broke over that level, and trade was weaker. It was below average on NASDAQ as well, so it was not a strong move. The important point is that stocks did not hit this level and then high-tail it back down to this October low. It does not mean they will not do that, but it does show us that this level is not the boogeyman as it did not send stocks scurrying back down. Maybe earnings will come out and revenues will not grow as investors are anticipating. There may be more of the same kind of growth on cost-cutting at the bottom line - although how much longer can you do that and still have anyone left to do the work? We may not see that, but if that is the case, stocks could fall back down to this October low and make that double bottom similar to what the market showed in May. That may happen, but we cannot assume it will be the case because this level was not the boogeyman that it could have been. That does not mean the indices are not vulnerable. On each of them is something that could be setting up a double top. COULD be. That is the key. It does not mean it will happen; the market could be just getting a test down for a double bottom as we have seen before. Each index has an issue that it is dealing with as to the prior high.

The interesting index on the day was the Philadelphia SOX. It bounced but was making a lower high. Then it found a world of buyers on Friday. It took off, and some of the stocks in that index (and even those outside of it) performed very well. Maybe it is going to try to lead the way up. It has been one of those indices that look like it will fall about every month or so, but it is able to right the ship and break to new, post-low highs.

I was looking for this area to hold its resistance and possibly send the indices back down to May. It can still do that because the September peaks are right ahead and only points away. We will still have a serious test come this week with earnings. If they do not satisfy, we will see some pullback. Thus far, strong uptrends remain in place, bouncing off support levels where they should, including this trendline from March-July. They show the kind of strength that a strong market does (or, in the case of this market, one that is being driven by liquidity). There is a lot of liquidity, and it is maintaining the uptrend by filling in each dip that comes down and causes a test. There is a lot of strength here and an important test ahead, but at this point none of these tests have scuttled the rally. May and June there was a correction, but it was a correction within a range. Here we have the range. They held the same support. It is a big rectangle they formed and broke out of it. I surmise we might be doing this again if the earnings are not as good as people hope they will be. If they are, then we could see the market raise higher from here without stalling or pulling back. That would be an extraordinary event, but again, we are close to mid-October. If there is the right kind of news with all the money on the sideline, they could be high-tailing it onto the next level. That is very interesting and kind of exciting.

LEADERSHIP

The chips were strong. There are some decent formations from SLAB with a pullback to a support level. There is also the 50 day EMA rising to meet it, and there is a nice bounce on some good volume. We saw volume spike up at the end of the week; it looks promising. There is a somewhat choppy pattern here, but we are seeing the same type of pick up off of a support level from XLNX. Then, of course, there are the big boys such as INTC. It is trying to break over this six-week range that it formed, flat as a pancake, trying to make a move. There are many chip stocks that are picking up. LRCX made a gap out of a rectangle of its own. You can see the outline of the rectangle, it came down and held support and made the breakout. Chips are suddenly looking better, and we will be mining those for potential plays for next week because, if this thing breaks to the upside, they have been consolidating and could be nice leaders higher.

Energy was a leader all week, but it took the day off on Friday. There are big moves followed by a pause. I am not really worried about this. CVX, one of the majors, had a good week and it continued on Friday because it raised its guidance.

GS has rallied. It is showing a bit of trouble and was getting choppy intraday. It has not blown things away, but it has a nice trend - an ABCD and a breakout. It should now come back and test the A point near 187. If that holds, it should break higher. It might be an interesting play off of there for a quick trade.

As for tech, IBM had a great session. It had huge volume, a 3% gain. The options that we have expire next Friday and we might have to sell them. With this kind of move and surge higher, if it is going to continue, we will let it run because we will make more money with the gains than we would lose on the time decaying. It is looking really good and we will let it run for now.

Overall, the leadership is still solid. There is rotation all through the market, and it is classically filtering down into some small stocks. I put low priced stocks on the report on Thursday because they set up so well and have so much buying going on in them. The liquidity is definitely filtering out through the market.

A lot of stocks are in an overbought position. They rallied like crazy last week. Those would be gold stocks, silver, energy, and some of the commodity stocks. They had big runs. Even some technology was up as well and needs a pullback. That means the same thing it has meant for the past several months: There is rotation ongoing in the market. One area will have a nice run, then have to pullback and consolidate and set up its next move. As it is doing that, money moves out and moves into other areas and blasts them higher. Some are old areas that are being recycled back up (semiconductors, in this case). Others are completely new and trying to break higher - those are a lot of the small stocks. They are crossing a lot of sector boundaries, but the theme is that they are small. Remember, you have to look back at what the small-cap index did this past week. It was a leader and had some of the outsize moves. It did not make the breakout, but it did have very high percentage gains each session, and more than the larger-cap indices. That is where you see money filter down into smaller-priced stocks. They are making some impressive moves or getting set to do so. The interesting thing about those is you can have a relatively small move but have tremendous percentage gains. I will be looking more at those as next week arrives and as the indices test the September peak. We will see whether or not the next higher peak is the boogeyman or if it is something that the market will deal with as it has dealt with each peak thus far.

THE ECONOMY

U.S. lags the new economic powers, loses its dominance of North America.

On Friday, a big news story was Bernanke's comments regarding the US having to eventually embark upon rate hiking. This was no surprise, but whenever the Fed Chairman comes out and says it, it slaps the market in the face. Investors must admit that it will definitely happen and react accordingly. Earlier we saw the reaction, and it was fairly immediate.

Canada had an increase in jobs for the second month in a row; this was an important piece of economic data that was not talked about very much on Friday. They showed a 30K jobs increase for the past month. By our terms, 30K would not seem like much (of course, to us, any job increase should seem like a lot right now ) but, if one corrects for population, a 30K job increase in Canada is on par with a 300K job increase in the United States. Canada is not only producing jobs, but it is producing a lot of them. It must be well into its economic recovery, and we are not even close to doing that here. We still have 500K + new jobless claims each week and are way behind a lot of other countries in the world. The economies of China, India, Brazil, and Australia are all picking up, and ours is not.

The important thing with Canada is that it is in the northern hemisphere. This tells us that the stimulus package is not working. We have had modest improvement in some economic data, but we have not had the kind of improvement we need to see and that we have seen in past recoveries where, once things take hold, there is a swoosh higher. We are having a very slow, sporadic return to the upside. The ISM numbers are struggling. The service did finally move up over 50, but there is backsliding already on the national ISM, and Chicago faded back to contraction as opposed to being in expansion. Gold is surging, bonds are rallying, and the economic data is not picking up with the kind of tidal wave strength needed to propel our economy into the rapid growth that we need to recover.

One can say that Canada's rise is due to the improvement in the natural resource prices. There is high demand for natural resources, they are at high prices, and Canada produces a lot of oil and gas. We could say that is where the jobs are coming from, but we could do the same here, however. If we open the outer continental shelf, if we open ANWR, we could have a lot of new oil and gas jobs over night. They say it takes years to actually get the production online. It does take some time, although it is not nearly the amount of time we have given the technological improvements that we now have. We do not have to drill as many wells, and there are not as many production facilities to build. Things can get up and running much quicker. What has worked so well in past recessions, and what we should be doing now, is providing incentives for new development. If we want to, per se, get away from fossil fuels, we should provide incentives to the private sector to go out and produce a different kind of vehicle. It has worked in the past. When we want to get something done, we can do it if we incent people in the correct way. The problem is that we do not have the money to do it right now. We have spent our money on things such as turtle crossings, and will now spend it on healthcare that will leave 25M people uninsured. When the President spoke about this in August, he said that there were only 30M people in the United States that were uninsured. We are going to overhaul the entire healthcare system and dump very good healthcare plans for 5M people (net) covered? It does not give us much bang for our buck.

We have some serious issues, and now it is showing up in our ranking in the world economic recovery. The United States is at a pivotal point in its economic history. We have always been the country that has been the economic power, thanks to our great standard of living and our purchasing of foreign goods. With the aid of our trading partners, we have been able to buy our way out of past recessions because they were willing to underwrite our debt if we bought their goods. China, Brazil, and India (among other emerging countries) are now discovering that they are wealthy and do not have to hold our dollars anymore. They do not need us, and we saw some evidence of that last week with talk that countries were going to look for more divesting of US dollars and would buy gold and other currencies that they see as a better store of value than our diving dollar. We have some very difficult times ahead of us economically. What the data is showing across the globe is that we have taking the wrong track when it comes to getting out of this recession. We are letting ideology rule over logic, and that is hurting our economy and our futures. We are pegging ourselves at a lower status than we have been in all of the other economic recoveries in the world. We are in a dangerous time right now, and we are ready to dig the hole deeper with a healthcare package that will probably pass, and will be much more expensive than anyone anticipates. That is history talking; all of the entitlements that we have passed have been more expensive than anticipated by at least a factor of ten.

With these serious issues ahead, you have to question what is going on in the economy and who is actually in charge. There was an FOI Act request that recently revealed that during a critical time when there was monetary policy being set, Rahm Emanuel had 108 telephone calls with Treasury Secretary Geithner. It makes one wonder who is actually running things over at the Treasury. The boss of the Treasury is the President, there is no question about that, but we need a bit of independence also. It has not been that way, and that is the reason why Treasury Secretary Geithner is laughed at when speaking to other countries about the US being in favor of a strong dollar.

We have serious issues, and our neighbors to the north are kicking our pants right now. Their economy is taking off while we are left in the muck and mire. We have to ask ourselves and our leaders what is going on and why we are not enjoying a recovery. The answer is that we are pursuing the wrong kind of stimulus. Again, this is ideology over logic. We will have issues as long as that is the case, and it is not fair to us, our parents, or to our kids.


THE MARKET

MARKET SENTIMENT

VIX: 23.12; -1.06
VXN: 24.18; -1.5
VXO: 21.76; -1.31

Put/Call Ratio (CBOE): 0.79; +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: 48.9%. Paring back from the 50.6% the prior week. Tough week of selling knocked the bulls back but the bounce will bring them up again. Still 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: 24.4%. Climbing on the market selloff, up from 23.6%. That puts it back up to the level hit three weeks back, still showing sufficient pessimism. Hit a low of 21.3% on this leg. 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.


NASDAQ

Stats: +15.35 points (+0.72%) to close at 2139.28
Volume: 1.886B (-18.09%)

Up Volume: 1.241B (-380.581M)
Down Volume: 708.31M (-10.924M)

A/D and Hi/Lo: Advancers led 2.12 to 1
Previous Session: Advancers led 1.35 to 1

New Highs: 151 (-27)
New Lows: 11 (0)

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: +6.01 points (+0.56%) to close at 1071.49
NYSE Volume: 990.061M (-22.31%)

Up Volume: 592.335M (-353.085M)
Down Volume: 384.234M (+71.141M)

A/D and Hi/Lo: Advancers led 1.44 to 1
Previous Session: Advancers led 2.73 to 1

New Highs: 335 (-161)
New Lows: 43 (-1)

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

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


DJ30

Stats: +78.07 points (+0.8%) to close at 9864.94
Volume DJ30: 161M shares Friday versus 209M shares Thursday.

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


MONDAY

There are two major things coming up next week, and one of them is the healthcare vote. If it is defeated (I do not think it will be), then perhaps the market will rally further. It seems to have had no trouble rallying up to this point, and is not afraid of any of the old highs. It is getting plenty of money pushed into it and it is pushing it up again, but if the healthcare bill is killed, that could send the market rushing even higher.

Earnings will be picking up full speed next week, and investors will be looking for revenue growth versus cost cutting. There were tantalizing tastes of better revenue growth a few weeks ago with some preannouncements, and we are now at the lick log and need to see it showing up in the actual numbers.

The market is rallying up into earnings and is right at the September peak. There is a potential double top there, but you cannot assume that the market is going to fall simply because it is at a double top and earnings could be bad. On this rally, that assumption has brought a slap in the face every time. You cannot assume that because it has had a good run and has not corrected enough that it will not keep on running. Take note that the market has yet to pay attention to that late-September lower peak that was made. It has not broken through convincingly, but it has not fallen back from it. That is important. It was not scared of it, and it did not back away; the market finished just over that level this past week. That shows that there is plenty of money and still no fear there. Thus, it is up to earnings and whether or not the revenue numbers come in better than expectations. If we get a few of those coming in on key stocks that are above expectations, they can take right off on this run. That new money can come in and start chasing results and performance up into the end of the year.

With the SP500 closing at 1065 on Friday, if it breaks through, it will be over 1100 and pushing towards 1200 by the end of the year. That is the kind of strong rally that we can get, and it may not wait for any correction if the revenue numbers come in stronger than expected. That is a real bullish call, and a reluctant one because there needs to be more work done. I know we are just buying time. We are stealing from our principal to keep the party going now, and we will no doubt pay for it later. For now, why fight it? We will make what we can going forward. If it is going to run like a banshee to the upside, we will get in the big names that are going to take us there. There are plenty of good stocks that are in position. The chip stocks just came back and turned around from what looked like a dive lower. They are going to provide opportunity, and they can run like the wind.

Support and Resistance

NASDAQ: Closed at 2139.28
Resistance:
2142 is the late September 2009 peak
2155 is the March 2008 intraday low
2167 from the July 2008 intraday low
2168 is the September 2009, intraday peak
2169 is the March 2008 closing low (double bottom)

Support:
The March up trendline at 2132
2099 is the mid-September 2008 closing low
The 18 day EMA at 2099
2070 is the September 2008 intraday low
2060 is the August peak
The 50 day EMA at 2041
2016 is the early August peak. Key level.
1984 from late September
1962 is the bottom of the August 2009 range.
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 1745


S&P 500: Closed at 1071.49
Resistance:
1070 is the late September 2009 peak. Bending.
1080 is the September 2009 peak
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 18 day EMA at 1051
1044 is the October 2008 intraday high
The August peak at 1040
The March/July up trendline at 1036
The 50 day EMA at 1025
The early August intraday peak at 1018
The November 2008 peak at 1006 closing 1007.53 intraday
992 is the August 2009 consolidation low
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
The 200 day SMA at 905
899 is the early October closing low
896 is the late November 2008 peak
888.70 is the April intraday high.


Dow: Closed at 9864.94
Resistance:
9855 is the early September peak in its lateral range. Bending as well.
9918 is the September 2008 peak
10,365 is the late September low

Support:
9835 is the late September 2009 peak
The 18 day EMA at 9688
9654 is the November 2008 high
9625 is the October 2008 closing high
9620 is the August 2009 peak
The 50 day EMA at 9471
9387 is the mid-October peak
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
The 200 day SMA at 8494
8451 is the early October closing low
8419 is the late December closing low in that consolidation


Economic Calendar

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

October 14 - Wednesday
Export Prices ex-ag., September (08:30): 0.8% prior
Import Prices ex-oil, September (08:30): 0.4% prior
Retail Sales, September (08:30): -2.1% expected, 2.7% prior
Retail Sales ex-auto, September (08:30): 0.2% expected, 1.1% prior
Business Inventories, August (10:00): -0.9% expected, -1.0% prior
FOMC Minutes, September (14:00)

October 15 - Thursday
Initial Claims, 10/10 (08:30): 525K expected, 521K prior
Continuing Claims, 10/03 (08:30): 6060K expected, 6040K prior
Core CPI, September (08:30): 0.1% expected, 0.1% prior
CPI, September (08:30): 0.2% expected, 0.4% prior
Philadelphia Fed, October (10:00): 12.3 expected, 14.1 prior
Crude Inventories, 10/09 (13:00): -0.98M prior

October 16 - Friday
Net Long-Term TIC Fl, August (09:00): 15.3B prior
Capacity Utilization, September (09:15): 69.7% expected, 69.6% prior
Industrial Production, September (09:15): 0.1% expected, 0.8% prior
Michigan Sentiment-Preliminary, October (09:55): 73.5 expected, 73.5 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 Disappoints

SUMMARY:
- Jobs report disappoints but market action is tame as investors avoided the Christmas rush, sold on Thursday.
- Dollar rebounded on the week and is eying more.
- Bonds rallied in anticipation of the weaker data as gold looks ready to break higher again.
- Indices at key support levels already, looking for a relief bounce.
- If market bounces is the smoking light on for upside buys?

Jobs report disappoints but market already sold hard in anticipation.


It will not take long to discuss what happened in the market on Friday. The entire week set up for the jobs report on Friday morning. It was weaker than expected, the unemployment rate was worse than expected, and stocks sold on that news. They did not sell too badly, however. The losses ranged from 0.2% on the Dow to roughly 0.5% on NASDAQ. There was not a large selloff because the news was somewhat expected. The economic data started to soften up this week (as told by the ISM). The economy is not creating the jobs needed to put a dent in the unemployment numbers. Thursday's jobless claims report was worse than expected; it was not surprising that investors did not sell off that much on Friday. With the weekend coming, the shorts avoided the Christmas rush on Thursday and sold that day instead of pushing the market lower on Friday. News can usually be found ahead of a weekend to bounce the market back up. The shorts backed off, and the buyers were not ready to buy. They did not rally the market when they had the opportunity, so there was stagnation. SP500 and NASDAQ sold down close to the early-August peaks; they did not touch them, but they came close and stalled there. That coincides with the 50 day EMA.

There was an early selloff, and the market move laterally for the rest of the session. There was not much excitement, but a sharp selloff for the week broke the indices out of their lateral consolidation. From my point of view, there were two possibilities. One was that the market could continue to move laterally, then consolidate in place and break higher down the road. The other option was a June-like consolidation or correction wherein the market would break down out of the range and sell back roughly 9%. It seems that is where the market is heading due to the strong selloff on Thursday. A bounce up in relief is not out of the question, perhaps at the start of next week. There tends to be more downside before a significant break to the upside, however, when there are these kinds of selloffs after the distribution that started two Wednesdays back with the key reversal session. It goes up and down, but the bias is definitely lower right now.

TECHNICAL

INTERNALS.

Internals were bland. Thursday was the big selloff, and that is where most of the fireworks occurred. Volume was lower on Friday (-10% NASDAQ; -12 NYSE). Trade fell back to roughly average on the NYSE. On NASDAQ it was lower, but it was still considerably above average. Overall, the volume was up to end the week as the selling intensified. That shows distribution, which is high-volume dumping of shares. Shares that were purchased during the July-September run on good volume, particularly in September, are now being sold in the last three days on the same strong volume. This does not mean investors have totally left the market. It means there was some profit taking and it is snowballing a little, as often occurs when a correction starts. This is similar to May; when the selling started, the market got choppy and the volume spiked up. There was some distribution, and then the market slid down, double bottomed, and then came up and tried again. Then there was higher volume as the market sold back. It caught itself and had its consolidation, and then started higher. Thus, it is premature to assume that the rally is over. There is still a lot of liquidity out in the world that could push it higher.

CHARTS.

There are important aspects of the market that need to be noted.

On SP500 there is the March through July trendline. July is important because that is where the June-July consolidation ended and it formed the point of this trendline. Where Right now, SP500 is is sitting on top of that trendline, as well as the 50 day EMA. It is also right over the early-August peaks that are at about 1012. It is roughly 13 points from that level on the close. It tapped close on the Friday low; there is a shadow down from that doji and it bounced right back up. There is some support.

The small cap SP600 is also sitting over that March-July trendline as well as the 50 day EMA and the early August peaks. Both NYSE indices are showing the same pattern.

NASDAQ broke its March-July trendline on Thursday. It bounced up and attempted to test it on Friday but fell back. It is still above its 50 day EMA and the early August peaks, but it is struggling. If SP500 and the small caps provide a relief bounce from the selling, it will not roll over and tank. That could very well be the case.

On the trendline from SOX, I will go up through the July closing low. SOX is still above the March-July trendline and it is sitting right on the 50 day EMA and, once again, the early August peaks. The early August peaks go all the way back to its mid-September low where it bounced in 2008. That is an important area. All this means that important indices have come back to a relatively decent support level, and a bounce usually follows that. Stocks and indices do not move in straight lines very often. Sometimes they will, as we saw last year when the market imploded, but even then they do not move down a week at a time without coming up for air. When that happens, there are relief bounces and the opportunity to move into stocks to the downside or unload positions that you had on the upside that held some support and bounced. We can look at more upside positions if they continue to rally higher and money flows back and there is strong volume on the way up. A caution here, when the market turns volatile while the bulls and bears are fighting it out, strong upside days and strong downside days can both sport high volume. That does not necessarily mean that the high-volume upside washes away the high-volume distribution on the downside. A lot of high volume-volatility shows that there is no consensus in the market as to who is going to win. Indeed, after a rally higher, there is volatility that could mark the change of a trend. I often use weather analogies, and there are tremendous thunderstorms in the market. There is high volume that is often associated with the market beginning to top and when a trend is being threatened. It bounces around and volume jumps up.

I have been talking about SP500 down at 982 and NASDAQ dropping to 1972 in the range of the mid-August low. I have been talking about that because that is roughly a 9% pullback from the peaks that were in mid-September. There was a 9% pullback from June-July, and I have been looking at that has as a go-by. It is not a 100% percent accurate predictor, of course. This time, the rally was not as strong of a percentage gain as it was from March to June, so the market may not get that full pullback. This may be it. If it is going to hold trendlines, this would be the place to do it. The market formed the trendline from March-July and it is now testing that level. If it were to break and go to the mid-August lows, then it would breech that trendline.

This is an important point, and we will see how the market bounces from here. The market could very easily get a relief bounce next week, but that would not be an "all clear" sign to buy to the upside. I think there is still more downside. I could be totally wrong, and this trendline could hold and the volume could come sweeping in and send stocks higher. The problem is that there are many bad patterns out there that have taken big hits and had technical damage done to them. It remains to be seen whether they can mend themselves. It can be done. Money seems to solve a lot of ills, and there is certainly a lot of money in the market right now.

The market has come back to a trendline, and it is a good bounce point. It could give us some buys, and we will see how they pan out and what buys show up after a bounce. If it stalls out, we can go downside, and we can always look upside once more if it does not. We may be at another leg, but it is just too early in the game to say for sure. This could very well be something similar to May where the market came back to where it is now, and made a double bottom and bounced. It cleared it, but could not hold and came back for the deeper test. Keep that in mind if you see a good bounce higher. Everything I look at for the upside is going to be a shorter-term play. We are going to reduce our parameters quite a bit because the bias is still down given all of the heavy-volume selling that the market ran into.

LEADERSHIP.

AAPL is still in its uptrend and going strong. It received an upgrade on Friday which boosted it higher after some higher-volume selling on Thursday. AAPL is in its own league and makes its own wake right now, much as Dell did back in the early and mid-1990's. It is something that goes its own way and I am glad we own some of it.

In financials, GS is interesting. The market has had this nice rally, a really strong move, and there is an ABCD pattern set up here possibly bouncing up on Friday off the 'D' point. I will be watching this one. Maybe we can get a little work out of it, but it would have to almost come back and test because the level of the 'A' points are at 187. It is a tight play given the expense of the options on GS. Not all financials are doing great. JPM is not in an ABCD pattern; it is selling pretty hard, and we will have to see how it recovers. That is an example from across a lot of the financial sector. C is trying to make a higher low above its 50 day EMA. It tried to set up an ABCD pattern earlier, but it has lost its way and is trailing off to the side.

Metals have been important on the way down. As the dollar has rallied, old standbys such as AKS are in trouble and there is high-volume selling. On the other hand, copper stocks of all things are looking decent. SLT is in somewhat of an ascending triangle pattern. It gapped out of it and has held the gap and is trying to move higher. I am keeping an eye on that one to the upside. That may seem strange, but one has to go with what the market is showing.

The biotechs and medical have been performing fairly well. CELG fell back Thursday and Friday, but it is holding its gains and is in a shakeout. Biotech and defensive healthcare are in decent shape. Energy is not looking great, but I cannot help but note that COP had a great Friday on huge volume after a good-volume Thursday to the upside as well. It seems to be the lone wolf in its sector because there is carnage across all areas of energy. It is not the greatest picture right now, but it is not the worst either.

GLD (the ETF that mimics gold) has an interesting pattern. It is making a higher low and I think gold will make a new break higher. There is good volume on the upside days. Something of an ABCD pattern, although it is very ragged, broke higher and is now testing. Gold is going to be one of the plays this week.

Finally, the dollar. The downtrend for the year started in March after the US began printing the money for the stimulus plan and the dollar basically ripped itself in two. It has come down, made a lower low, double bottomed, and is trying to break higher. It broke through that trendline from March and is trying to test it. I think the dollar is going to try to run up to that resistance at 78. That is the dollar index - it is not the dollar itself, but the dollar against many currencies across the world. There is some serious resistance from December 2008 as well as June 2009, and even late August 2009. The dollar is going to have a hard time getting through that. If the dollar breaks through 78 on its dollar index, it will pop up to 80. That will keep pressure on the commodities, on oil, and possibly energy in general. That dovetails with the need to make a correction, and if the dollar breaks over 78, then the market will go down and have more of a correction. Keep that in mind. That is why I want to look to short or go to the downside - I prefer puts on SPY, the EEM, and other areas that will be impacted by a rising dollar. That would include the metals. We can also look at the commodities index as a way to play the downside on those dollar-sensitive stocks as the dollar rallies. There are some interesting ideas out there that can make us some money even as the trend that has been in place since the March low does some backtracking. The dollar peaked in March as the SP500 and the stock market in general bottomed. With that, we can see that there could be a reversal change, but we can play that reverse and make some money off of that by playing downside on the dollar-sensitive stocks and indices that we played to the upside as the dollar sold off.

THE ECONOMY

Jobs report weak on all fronts, particularly the average workweek.

In other markets, gold has been bouncing back and forth around 1000, oil has been a little bit over or under 70, bouncing around because the dollar has been driving it. The dollar has been moving up and down and that has impacted the stocks that rally inversely to the dollar and that move with the dollar. We are getting a choppy trade right now, although the bias has definitely shifted to the downside.

The dollar started off the session stronger after the weaker jobs report (closing at 1.4574 Euros versus 1.4524 on Thursday). Even though it is being debased by our Treasury and Fed, the dollar can still act as a safe harbor when it looks like the world economy might be in trouble. US bonds are that way and the dollar acts that way to a certain extent. Bonds sold a bit and yields bounced back up (10 year closing 3.22% versus 3.19% Thursday). Friday morning the 10 year yield fell all the way down to 3.12% before it rebounded somewhat as the day progressed and investors turned away from bonds. Bonds tend to act as a safe haven. I have been discussing for the past week and a half why bonds are moving higher if the economy is recovering. That is a dichotomy, and something was wrong there. On Thursday night, economic data came out during the week with ISM as the mean feature. It showed that things are not as good as they were. The Chicago PMI turned back to negative and was contracting this month. The ISM, while still expanding, was not expanding as sharply and that brought up fears about whether or not the US economy would continue its V-shaped bounce or fall into a double dip (or "W-type") bottom. That could very well be the case. I talked about this a lot several months ago given the type of stimulus we had. Of course we are going to get a recovery after the economy shut down. It has got to go back to work at some point, but with credit in the pits, with no one lending, and with a lot of commercial real estate and residential real estate vacant, there is not a lot of power to drive consumer confidence higher. Their wages are down and their main investments, their homes, are way down in price as well. The market is trying to deal with these issues.

The non-farm payrolls were down (-263K versus -175K expected) They were at -225K, they were at -200K, and then they even slipped further because of some optimism about what was happening. I do not know where the optimism came from when you look at the weekly jobless claims because they are not getting better to the extent that would impact the overall number. Nonetheless, hope springs eternal. There were revisions. August was revised to -201K from -2 16K. That is positive, but July went in the other direction and the revisions to the downside were much higher. It virtually wiped away any of the August revisions. Really what we had was a negative on top of a negative with the revisions. It did not make expectations and the revisions took away any possibility that there might be a wash out of it.

The losses were spread throughout the economy. Manufacturing was down 51K, the service industry lost 147K, retail lost 39K. Surprisingly, the government lost 53K jobs. I am hearing there are teachers being laid off despite the stimulus plan that is supposed to provide salaries for teachers, policemen, firemen, and those essential services. It is not doing the trick, and I think we will hear more about that after the boondoggle in Copenhagen where the President flew over on Air Force One and the First Lady flew over on the other Air Force One. They could not go together, of course and save the taxpayers any money. We spent money on it, and there is going to be egg on the face which happens to every administration. What can you do? You do the best you can and someone is always going to find fault. That would be me.

In any event, it was weak across the board. I expected that, and I do not expect anything to pick up. The internals and they are getting worse, not getting better. The unemployment rate rose to 9.8%, in line with expectations after being at 9.7% in August. That puts it at the August 2003 level when we were coming out of that recession. That was a rip-roaring recovery.

What bothered me about the report was the average workweek. They hours worked every week fell to 33.0 from 33.1. I have had a problem with the average workweek. It was trying to bounce up to 33.2, 33.3, but it has been backsliding. It is very important in forecasting what will happen in the unemployment market because the average workweek has to start rising in order to show that companies are putting their workers to work more efficiently and getting more work out of them. We are not creeping higher, we are actually sliding lower. That is one of the most important barometers because if they do not need their workers as much, they are not going to be hiring temporary workers. Temporary workers are where the new permanent hires come from when the economy turns. I have been talking with trucking companies lately because drivers can be a great source for information. They are saying their freight is way down; indeed, a lot of drivers are barely getting any driving time in and others are calling in on standby. They are asking to drive, but there is no need for them because there is not enough freight to move. That is a very bad indication for the economy.

I have been hopeful that things would pick up, but when I started checking out these areas that show whether the economy is showing true improvement, I find it is not the case. Trucking is a very important part because even if you ship by rails or air, when it gets off of the airplane or the railroad car, it usually has to be delivered the last bit of the way by truck. If they are not taking it cross country, they are not taking it inner city, we have problems with respect to the amount of goods being moved. It shows the economy is not that great and we could be very much in the double dip. That is why the bond market was rallying, sending rates lower when the economy was supposedly improving.

Dollar at a point it can bounce further and foster a further market pullback.

All of this has not been good for oil ($69.68, -1.14 on Friday). It has been bouncing in that range from $66.00 -74.00. It is range-bound right now as it waits out and sees what the economy will do. Even though oil is driven by the dollar, it is also driven by the world economies. If they go slack, there is no reason to have as much oil, or at least to have it priced as high. It has had a hard time trying to break out of that range, though we still see energy stocks holding up very well, so we know that there is some life in Brazil, in India, and in China. It is just not here in the USA. Maybe Western Europe can help pull things out if it can continue to show its improving data and not backslide as the US did this week.

Near term, it is a gloomy picture as far as the economics are concerned. On the other hand, it cannot go up every month. Stocks do not go up every day or every week. They have to come back and test, and then surge and test again. That is the way natural rhythms work. Maybe next month we will get a bounce back will all laugh about what happened. The point is this is all dovetailing with what has happened the bond market and also what the market has done at this point. It has had a strong run from July-September and now it is going to backtrack somewhat.

Whether it is sentiment or psychology leading the market is up for people who are smarter than me to argue about. Do note how all the issues tend to hit at once and drive the market down or up. Are they really that bad? This economic data was not that bad this week. There is some backsliding but it was not horrible, and definitely not unexpected with the jobs report. Yet the market is selling off. It is ready to sell off, ready to correct and pull back. This is the case with lot of markets - not just in stocks. Gold was correcting back, oil was spiked up and it is coming back, and the rallying bonds peeled back a bit. The dollar was getting crushed and now it is in a relief bounce. The market may double dip, but is it really going to crush the market? It is possible, but when you look at how everything dovetails together, it all just builds upon itself and it is a self-fulfilling prophesy. What is the market but a bunch of people buying and selling? People are lead by fear and greed to buy and to sell, and that gives the push and pull in the market. Right now the market has run higher and there is a fear that people are going to lose their profits. They are then quick to pull the trigger. We were doing it, too; we have been selling for three weeks now. We take profits and that tends to self-fulfill the pullback because we are worried about losing them.

While this economic data is not as good this week, it was not a crushing blow by any circumstances (the ISM did not fall back to 45 or anything like that). This is more of what I expected all along: a correction of that last strong run just as the market had in May and June. This is no big deal, and is just what the market normally does. Do not get bent out of shape about this. Let us keep plugging along and watching for opportunity. It looks like there will be more downside near term after the market bounces back up in relief. When the correction is over I think the leaders will be there, and will set up again and ready to move higher. Maybe the economic data will come in much worse and it really does double dip, and then the market sells off more before it is ready to move again. If that is the case, so be it. Right now, nothing indicates that is going to happen.


THE MARKET

MARKET SENTIMENT

VIX: 28.68; +0.41. The VIX is starting to rise, part of the volatility discussed in the 'Technical' section. Back up to the early September high. Volatility has put in a nice 12 week consolidation after trending lower from January 2009 in a very well defined down trendline. With this base it looks as if volatility is ready to spike some. That is the change of season indication, and we could see volatility approaching 35 as in the 2008 peaks before the huge spike in the financial meltdown. It could even rally to 40 where there is key resistance. That would, however, entail a pretty severe selloff. We are expecting it to rise rather sharply over the next few weeks regardless.
VXN: 29.02; +0.07
VXO: 28.01; +0.33

Put/Call Ratio (CBOE): 1.11; +0.15. Bouncing back over 1.0, starting to show the kind of pessimism that can fuel a rebound. A serious recovery, however, requires a series of closes over 1.0.

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%. After backing off three weeks prior the bulls gained strength . . . just as the market topped in this last run. Now matching the level from 5 weeks back. It will now turn back. Still 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: 23.6%. Down as well, declining modestly the past two weeks from 24.4%. Bears bounced higher on that same skepticism impacting the bullish figures, and after this week they will be higher again. Hit a low of 21.3% on this leg. 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.


NASDAQ

Stats: -9.37 points (-0.46%) to close at 2048.11
Volume: 2.367B (-10.19%)

Up Volume: 752.258M (+555.321M)
Down Volume: 1.704B (-829.446M)

A/D and Hi/Lo: Decliners led 1.81 to 1
Previous Session: Decliners led 4.66 to 1

New Highs: 34 (-11)
New Lows: 18 (+4)

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

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

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


SP500/NYSE

Stats: -4.64 points (-0.45%) to close at 1025.21
NYSE Volume: 1.404B (-12.41%)

Up Volume: 441.006M (+359.758M)
Down Volume: 949.686M (-563.93M)

A/D and Hi/Lo: Decliners led 2.05 to 1
Previous Session: Decliners led 4.63 to 1

New Highs: 110 (-53)
New Lows: 38 (+4)

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

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


DJ30

Stats: -21.61 points (-0.23%) to close at 9487.67
Volume DJ30: 216M shares Friday versus 266M shares Thursday.

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


MONDAY

The market did not sell off much on Friday. Sellers avoided the Christmas rush and got out of the market on Thursday anticipating that Friday jobs report would be weak. They did not want to sell more ahead of the weekend.

The market milled around negative and was not able to move up or down. SP500 and NASDAQ are sitting on support. We may get a relief bounce. That is a coin toss because Mondays often open up horribly lower after a big selloff and a pause. If there is a bounce, that would be great. We will implement our standing plan at this point. If there is a bounce, we will look at downside plays that we can buy into and catch for a further move lower . [I will also look at upside positions - a lot of them are at support after these days. We got rid of those that have not broken down. If they bounce up and cannot get through the next resistance, we can use the bounce to get rid of them, move on out and have the cash free for other opportunities. We can very much be at bounce time with the major indices at a near support level. That could give opportunity. If it does not happen that way and the market sells down, we will have to look for the next round. Do not chase at this point. Stocks that are down two or three days and then down hard on Thursday do not provide a good entry to chase them. We will look for bounces on those.
Not all stocks are down and beaten up at this point. Some of them are breaking lower or have set up a downside pattern, and those will still provide opportunities to the downside. We do not want to feel like we are missing the boat and make bad choices and jump into the downside. Friday I was looking downside, no doubt about that. I wanted to get into some more of them and we probably could have pulled the trigger on a couple, but we were looking for more of a bounce back up late that did not materialize. It was not worth it to chase them. We will let our downside positions run and if there is another bounce, we can load up or some more SPY positions. There may be others like the EEM or other ETFs that could provide a chance the make a play on the broad market overall as well as individual stocks that can move more than the indices can and give us more bang for the buck.

Our plan stays the same because the market is in the same mode. The reversal two Wednesdays ago, the inability to make any higher highs, and now the break lower on Thursday that took it out of its range. That range will be tested, it will bounce back up and try to bump into that at some point whether we go down further from here or bounce first. We will see how next week plays out. Either way, we will get opportunities and will take advantage of them as the market makes this correction that we knew was coming. We just had to figure out how deep it was going to be. For now, we are looking at the same levels I talked about on Thursday and earlier in the technical discussion.

Hang in there and have a great weekend. The sun will come out again at some point. I think this correction is being overblown at this point with all the gloom that was in the financial stations after the Friday close. Keep looking at what really has happened. Do not listen as much to what they are telling you, and you will see that this correction looks normal as can be right now. Have a great weekend.


Support and Resistance

NASDAQ: Closed at 2048.11
Resistance:
2060 is the August peak
2070 is the September 2008 intraday low
The March up trendline at 2090
The 18 day EMA at 2089
2099 is the mid-September 2008 closing low
2155 is the March 2008 intraday low
2167 from the July 2008 intraday low
2168 is the September 2009, intraday peak
2169 is the March 2008 closing low (double bottom)

Support:
The 50 day EMA at 2025
2016 is the early August peak. Key level.
1984 from late September
1962 is the bottom of the August 2009 range.
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 1729


S&P 500: Closed at 1025.21
Resistance:
The August peak at 1040
The 18 day EMA at 1045
1044 is the October 2008 intraday high
1080 is the September 2009 peak
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 March/July up trendline at 1020
The early August intraday peak at 1018
The 50 day EMA at 1018
The November 2008 peak at 1006 closing 1007.53 intraday
992 is the August 2009 consolidation low
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
The 200 day SMA at 900
899 is the early October closing low
896 is the late November 2008 peak
888.70 is the April intraday high.


Dow: Closed at 9487.67
Resistance:
9620 is the August 2009 peak
9625 is the October 2008 closing high
9654 is the November 2008 high
The 18 day EMA at 9638
9855 is the early September peak in its lateral range
9918 is the September 2008 peak
10,365 is the late September low

Support:
The 50 day EMA at 9410
9387 is the mid-October peak
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
The 200 day SMA at 8465
8451 is the early October closing low
8419 is the late December closing low in that consolidation


Economic Calendar

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

October 02 - Friday
Average Workweek, September (08:30): 33.0 actual versus 33.1 expected, 33.1 prior (no revisions)
Hourly Earnings, September (08:30): 0.1% actual versus 0.2% expected, 0.4% prior (revised from 0.3%)
Nonfarm Payrolls, September (08:30): -263K actual versus -175K expected, -201K prior (revised from -216K)
Unemployment Rate, September (08:30): 9.8% actual versus 9.8% expected, 9.7% prior (no revisions)
Factory Orders, August (10:00): -0.8% actual versus 0.0% expected, 1.4% prior (revised from 1.3%)

October 05 - Monday
ISM Services, September (10:00): 50.0 expected, 48.4 prior

October 07 - Wednesday
Crude Inventories, 10/02 (10:30): 2.80M prior
Consumer Credit, August (14:00): -9.5B expected, -21.6B prior
Treasury Budget, September (14:00)

October 08 - Thursday
Initial Claims, 10/03 (08:30): 551K prior
Continuing Claims, 09/26 (08:30): 6090K prior
Wholesale Inventories, August (10:00): -1.0% expected, -1.4% prior

October 09 - Friday
Trade Balance, August (08:30): -32.9B expected, -32.0B 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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