Sunday, November 21, 2010

China Rattles the Market Again

SUMMARY:
- Stocks shake off early hangover, but can only post modest gains.
- China rattles the market again, but stocks, commodities recover.
- Bernanke takes on China, challenges Congress and Administration to get into the game.
- Sentiment a bit frothy, but liquidity still dominates the picture.
- New leaders emerging in time for the holidays.
- Thanksgiving week problematical, but from turkey to Santa the market looks good.

Modest gains to end the week still leave indices with room to recover.

Modest gains to end the week still leave indices with room to recover.

Stocks faced another crisis on Friday morning. China increased its bank reserve requirements, and Hong Kong increased taxes on properties sold that were owned for less than two years. There was a capital gains change, and that rattled the markets. That always happens when China does something attempting to slow its economy. It has not been able to do it yet. It did have a recession a year ago, but it had a V-shaped recovery because it promoted the right policies and got back on track. It is actually growing its economy and stock market. In our country, we have the wrong policies and we did not get any growth generated, but we have had our stock market go up because of massive liquidity. We have pumped a lot of money into the stock market just as we did in late 1999, and the stock market shot higher with all the Y2K money that was not used and put into financial markets.

Right now, trillions of dollars are not going anywhere because small businesses are not doing any business. With A 2% GDP growth rate, it is mediocre, and it is all funny money being purchased into the system. We are seeing all of the markets not just stock markets shoot higher. Of course, we will see inflation. The CPI said there was no inflation this week, but we know that is not the case. Cotton hit an all-time high this week, and several other commodities have hit or are pushing all-time highs. WMT said the rise in cotton prices was "freaky." We are ignoring some serious problems out there.

The market on Friday was able to shake off the Chinese problems. Looking at the SPX, early on it started lower, reversed, and moved through that flat line and posted a gain on the session. NASDAQ, +0.15%; SP500, +0.25%; Dow, +0.2%; SP600, +0.3%; SOX, +1.6%; NASDAQ 100, flat. Some of the key large cap techs that led the market higher are tired. That does not mean the rally is over. There are many new stocks coming up and taking a leadership role while the stalwarts of the market (AAPL, GOOG) take a pause. That is normal and perfectly good action. It is called rotation, and that is what we are seeing right now. Still, Friday was less than impressive with its moves.

There were great earnings out. DELL and MRVL posted good earnings and strong outlooks. ANN stores and the FL both posted strong earnings. Retail had a great day. It shows there is some traction in the market, but it is not much. We are sowing the seed of inflation and other issues that will overrun the modest gains in some areas of the economy. We have a 1970's-like economy going because we have bad policy decisions fiscal and monetary and we have the same kind of issues now that we were having then. Monetary issues, fiscal policy issues, and we also have overregulations. There are tons of new regulations coming into the market. There is healthcare, and we will see cap and trade come into the market. It is not through Congress but through the EPA. We will have a boatload of new regulations and a lot of uncertainty at the same time because we do not know what our tax rates will be. They will probably be higher. We do not know what our healthcare policy will be because no one read the bill or really knows what the effects are. With that background, it will be difficult to make any headway, but near term we have massive amounts of liquidity coming into the stock market. It is still being put into stocks and all kinds of commodities around the world, and thus we have inflation. Our CPI is just not showing it yet.

Bernanke was out talking to the rest of the world, and he had two targets. One was China and he was saying not to be so hard on us. He said they need to get their currency right and let it rise. He also had words for the administration and Congress. Bernanke says they are doing all they can with monetary policy, and they need the executive and legislative branches to take some responsibility. They need to stop this spending. He said we need better fiscal order in our house to help us with our monetary policy. It is going to create inflation if we do not stop this ridiculous spending. We are creating ridiculous demand without investing in the country to create supply. If you do not have supply but you have a lot of excess money pumping up false demand, then you get explosive inflation.

I grew up in the 1970's, and it was a terrible time. A lot of inflation, a lot of regulations and uncertainty about the future. There was a horrible malaise in the country, and I never thought we would see that again. We are reliving the 1970's, and the parallels are striking. From Nixon to Ford to Carter, we now have Bush to Bush to Obama. The muddled policies of all of them are leading to the same outcomes. That is one of the problems that come from not recognizing our history: We are repeating it in just a few generations. Amazing. Of course, I digress as usual.

There was no standard economic news, but other news was out. We had Bernanke and the China story, and the market still managed to recover and post a gain. It was not an outstanding move. Stocks surged on Thursday, and they had a little hangover on Friday. It was expiration, and you would expect a little volatility. We got some, but not much at all. We got a quiet day, and it sold off and rallied back. The market tested logical support during the week. SP500 is coming back to its October consolidation range, and it bounced. Thanksgiving week is coming up, and that is a problematic week. Sometimes it has up and sometimes it is down during the week. Often stocks do not perform too well ahead of Thanksgiving, but then we have Turkey Day to Christmas where there is a rise in the market. That is your Santa Claus rally, and often it is a stealth rally. Stocks do not race upside; they just melt higher, and then stocks are suddenly up. They are up nicely, but it is not a huge move on an individual day. Typically, after a couple of weeks, the talking heads on the financial stations say, "I guess that was our Santa Claus rally." Next week there may not be a lot happening, but then you look for the upside bias to continue for the rest of the holiday season. With the indices having pulled back to support and in position to move back up, they have a nice setup to do just that.


OTHER MARKETS

Dollar. The dollar is on a bit of a pullback. This is a flag pattern after a double bottom. You can see where it broke below a support level and then reversed. A little false bottom there. It has rallied up through these prior peaks, made a higher high, and now it is testing back after bumping into some resistance. Looks like it is ready to move back to the upside (1.3689 Euro versus 1.3639 Thursday). It lost a little ground, but the pattern suggests it will move right back up after this test.

The dollar suffered a little at the end of the week because the EU situation improved. Ireland was talking about a bailout, and that calmed the markets down. The Euro was able to stabilize some, and it drove the dollar lower as it did so.

http://investmenthouse.com/ihmedia/dxy0.jpeg


Bonds. Bonds were relatively unimpressive on the week. They bounced, and they are in a selloff. They have bounced in relief, and they added a little more to the upside on Friday (10 year yield 2.87% versus 2.90% Thursday).

http://investmenthouse.com/ihmedia/tlt.jpeg


Gold. Gold had a rough week itself actually a rough two weeks. It managed to rebound late in the week, bouncing as the dollar sold back. Not a convincing bounce. It was unable to recover the trendline from the July low. The dollar looks as if it is in a modest pullback and a flag that will bounce back to the upside, and gold has to prove that it can move back to the upside itself. It has bounced, but can it sustain? It is at the trendline, showing a hangman doji. It needs to be careful. Gold was basically flat on the session ($1,353.40, -0.15).

http://investmenthouse.com/ihmedia/xgld.jpeg


Oil. As the dollar pulled back to end the week, oil manage to rebound. It was a tough week for oil. It sold off sharply early in the week with the worries about Europe and China. It did rally some on Friday, but it was unable to hold the move ($81.65, -0.20). It has bounced back up to resistance, and it is finding resistance. It gapped lower, and it is having trouble with that gap point. This is a key level that it tapped on the high Friday. It is that all-important January level it had such a hard time getting through that back in October.

http://investmenthouse.com/ihmedia/xoil.jpeg


TECHNICAL SUMMARY

INTERNALS

Volume. Volume fell 10% on NASDAQ to 1.8B shares. It fell 9% on the NYSE to 1.1B. It was a little better showing overall on the NYSE. Keeping it closer to average volume.

Breadth. Breadth was not committal. Advancers led 1.2:1 on the NASDAQ, and they led 1.5:1 on the NYSE. Nothing earth shattering there given the quiet, calm session.


CHARTS

SP500. SP500 was not very exciting with its 0.25% gain. It put in another inside day after selling off for the prior week and a half. It bounced sharply on Thursday off a key support level the rising 50 day EMA, October consolidation, and just above the 78% Fibonacci retracement of the April selloff. It has held and bounced the market, and that is a logical move. Does it go higher from here? I anticipate it may move laterally again and then make the next move upside after Thanksgiving. That is from general historical moves; it does not mean they will follow every year. The important thing is we have an upside bias that should continue if new leadership continues to develop and take the place of some of the winded names of leadership.

NASDAQ. NASDAQ showed similar action. It sold back into the gap a bit. It managed to recover for a gain, but it was very noncommittal action. It is still in no man's land. It never made it back down to the 50 day EMA or the Fibonacci retracement level. It is below the April peak, and it has several gaps. It could stand to move laterally a little and make the move. It is having some issues because some of the big names such as AAPL, GOOG, MSFT, and CSCO are having troubles of their own.

SP600. The small caps advanced 0.3%. They are showing the same action, moving a little higher. An inside day, unable to advance the ball after this pullback. They are in good shape to run up toward the April peak, but they need to get it together and have the right catalyst to do so. Still shaping up, decent, looking at that April peak.

SOX. SOX had a very good session. A nice, strong move, taking it back up to a key level. Still below the April peak, but the semiconductors continue to show improvement across the board. They were the strongest move in October. They were testing with a double bottom and look to be trying to take point on the lead again in a move back up through Thanksgiving into Christmas. They still have to deal with that April peak. They never made it through, but semiconductors have been doing well. They are breaking back into this trading range that they fell out of in August and have been on the rally ever since. Looks like they have their ears pinned back and are making their upside move.


LEADERSHIP

Leaders in distress. Some of the NASDAQ leaders have come upon hard times. It is not that they are selling off radically, but they are just unable to advance the move. They have had strong runs, lead the market to the upside, and they are now working through bases. AAPL is working in a trading range. Looking back, it did the same thing from April into late August before it broke out and made its next rally. Now it is moving up and down just as it did back then. It does not mean it is done with its run. It just means it is tired and the market needs to find someone else to come along and help. GOOG has had its issues. It had a great earnings report, but now it sold off into its gap zone, it has rallied back, and it looks like it might be ready to turn over. Some of these leaders have had issues and are no longer helping NASDAQ. CSCO is having the same issues. It gapped lower on earnings, and it moved to a lower low. Not helping NASDAQ along. These are holding it back, but there are other stocks helping move NASDAQ and is other indices along or at least keeping them to the upside for now.

Financial. JPM is still in its pullback. Not able to break out of the top of its range. GS is looking good. It is trying to get ready to move higher, but it was not able to do it on Friday.

Industrial. CAT had a nice day to the upside. Not a lot of volume, but it broke to a new rally high. DE posted a bit more of a gain after a good break off its 50 day EMA. There is a little trouble with MACD. It is not showing a same strength it had in recent times, but it has been a consistent rally off the 50 day EMA. Some of these industrial stocks are still in quite good shape.

Energy. I have been talking about some of the leaders having to go into rotation. They are taking their time out while others appear and come to the upside. PCX has been struggling a bit, but it has found its feet. It has volume to the upside, and it is breaking back upside. Energy is showing strength. HAL had a new high on the rally this week, and SLB new high on the rally this week. Not all energy is moving higher, but these areas are stirring and making their moves. That has been missing for quite some time.

Semiconductors. Semiconductors had a great day. BRCM had a new rally high on volume. MRVL had a strong surge off a test of the 200 day EMA and a Fibonacci retracement as well. NVDA keeps winning for us, moving higher. New rally high after breaking through the 200 day EMA. Semiconductors took a big chunk of the lead back in the rally up through early November. A quick test and they are at it again right now.

Retail. There are problems with the economy, but there are still retail leaders knocking the cover off the ball. DECK is exploding higher this week, and LULU is exploding higher on volume. NFLX pulled back, tested, and it is starting back up after holding its trendline. That is a positive. NKE is exploding to the upside to a new rally high on tremendous volume Friday. UA is exploding to a new high as well. Very strong moves.

Miscellaneous. Certain sectors in energy, semiconductors, and retail are taking the leadership by the horns and rallying nicely. There are other areas showing leadership as well, like some internet stocks that you have never heard of before. ACOM is exploding higher as well out of a little triangle. TROW is breaking higher after a nice pullback. A little flag to the 18 day EMA. VIT gapped higher over another flag that tested the 50 day EMA. It was not a huge move on Friday, but it looks ready to move. There are many stocks that are great, quality stocks that you may not have heard of very much. They are performing very well and are ready to move up.


Leadership may be changing somewhat. Some of the early leaders are turning weary, but money is rotating into other areas. This makes perfect sense. Am I planning on the economy booming down the road? No, but some people are wearing rose-colored glasses about what may happen. I guess 3% growth would be very good given what we have had. I do know that there are hundreds of billions of dollars that will be pushed into the financial markets whether the stock markets, currency markets, bond market, or the commodities markets and that will cause them to rise. There is not enough economic activity to soak up all of those funds, so they will go quickly into the financial system and push stocks higher.

That is why I am anticipating more of a move upside through the end of the year as some big hedge funds, mutual funds, and pension funds chase performance. All that money will be shoved into the market. It is a great racket for the banks and financial institutions that get the money at virtually 0% borrowing it from our Fed and then turn around and either buy bonds and collect the yield for easy money, or they push it into the commodities markets or the stock market and try to get really big gains. That happened in 1999, and it has happened other times in history when we have massive liquifications of the market by the Fed. That is why the old adage exists that says, "You do not fight the Fed." When it starts to push massive amounts of money in, it will make markets higher whether there is economic growth or not. While there will be ups and downs just as we saw this past week with the SP500 and other indices pulling back, they cannot withstand the tidal wave of money that continues to come to the market.


THE MARKET

MARKET SENTIMENT

VIX. The VIX tumbled lower to end the week as stocks tried to rebound off of their early selling. Tuesday volatility gapped to the upside, and then gapped right back down. It is now trading at the October and early November levels where the market encountered a bit of trouble. There is a little correlation setting up now between volatility and market action. That correlation breaks down, it solidifies again, and then it breaks down. Repeat the process. There may be a correlation developing now, and I would anticipate that the market runs into a bit of trouble here. That makes sense with Thanksgiving week and stocks often having trouble finding traction before they start moving up between Thanksgiving and Christmas. We may see a little giveback next week based upon the VIX, but it is not a strong correlation at this point.

VIX: 18.04; -0.71
VXN: 19.78; -0.48
VXO: 17.44; -1.05

Put/Call Ratio (CBOE): 0.66; -0.17

Bulls versus Bears:

The CROSSOVER from August is long gone but it did its job.

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 does not have the cash to drive it higher.

Bulls: 56.2 versus 48.4%. The strongest move upside since May, indeed topping that level and getting closer to the 5 year high at 62.0. Moving toward the level considered bearish, i.e. where so many are in the market and believe it is going up that the ammunition to send it higher runs low. This is where you start to be careful and watch for breakdowns, but there is also a lot of liquidity being pushed into the market and that can continue the move despite excess bullishness. The crossover level at 29% bulls is long gone, but it did its job. The high on the last leg was 56.0% after starting at 35.6% on the low in February, the lowest it has been since July 2009 . . . until this last leg. 35% is the threshold level suggesting bullishness. Again, to be seriously bearish it needs to get up to the 60% to 65% level.

Bears: 20.2% versus 23.1%. Continuing the slide after holding steady at 24.4% for two weeks. Down from 28.3% in September. The 37.7% peak at the height of the crossover is well in the rearview mirror but bears remain well below the 35% level, above which is considered bullish for the market overall. Hit 18.7% on the low in April. Hit a high of 27.8% level on the prior leg in February. For reference, cracking above the 35% threshold considered bullish. Hit a high on the prior run at 47.2%. For more reference, bearishness hit a 5 year high at 54.4% the last week of October 2008. The move over 50 took bearish sentiment to its highest level since 1995. Extreme negative sentiment. Prior levels for comparison: Bearishness peaked at 37.4% in September 2007. It topped the June 2006 peak (36%) on that run. That June peak eclipsed the March 2006 high (33%) and well above the 2005 highs that spawned new rallies (30% in May 2005, 29.2% in October 2005). That was a huge turn, unlike any seen in recent history.


NASDAQ

Stats: +3.72 points (+0.15%) to close at 2518.12
Volume: 1.796B (-9.96%)

Up Volume: 1.018B (-602.285M)
Down Volume: 735.769M (+308.692M)

A/D and Hi/Lo: Advancers led 1.23 to 1
Previous Session: Advancers led 2.99 to 1

New Highs: 95 (+6)
New Lows: 50 (+7)

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

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

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


SP500/NYSE

Stats: +3.04 points (+0.25%) to close at 1199.73
NYSE Volume: 1.104B (-8.9%)

Up Volume: 635.459M (-410.663M)
Down Volume: 444.027M (+301.843M)

A/D and Hi/Lo: Advancers led 1.46 to 1
Previous Session: Advancers led 4.11 to 1

New Highs: 184 (-26)
New Lows: 17 (+2)

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

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


DJ30

Stats: +22.32 points (+0.2%) to close at 11203.55
Volume DJ30: 219M shares Friday versus 172M shares Thursday.

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


MONDAY

It is Thanksgiving. It is a fun week, but it means a lot of the economic data will be jumbled up around the day. Tuesday and Wednesday, we will have a lot of information. The second rendition of the GDP is out Tuesday morning. 2.4% expected versus 2%. Then there will be existing home sales, and that will catch the attention of the market. We need to know how many sales are out there and what those inventory levels are. Wednesday is a lot more data. Income and spending, core PCE, durable goods orders, initial jobless claims, Michigan Sentiment, and new home sales just to name a few. A full week crammed in ahead of the holiday. It will be a short week. The market will not be open on Thursday, and it is a half day on Friday. They should close it on Friday, but the old theory is that the market cannot be closed for four days straight.

Thanksgiving week in the market is usually problematic. It goes up, it goes down, and it is not a clear directional week. The bias is upside. Near term, it has been back to the downside, so we may muddle around a little more as the indices test back. NASDAQ is still in no man's land, so it may find difficulty moving higher. It probably wanted to test lower and never got opportunity to do so. Maybe this week it will just bang around laterally a bit, tighten its range, and then it would be ready for a move higher after Thanksgiving. When the market has an upside bias and tons of money is coming into the market on a good year that a lot of hedge funds and mutual funds missed, they will want to chase that performance to the end of the year. Then they can show their investors that they were actually doing something and making some money. That money is being purchased into the financial system and will find its way into the markets. I anticipate these stocks to move higher.

Some of these old leaders that we have been following and still have positions in are not breaking down. They are just moving laterally. I want to let them base out because there is no reason to sell AAPL when it is up 100% or so for us. We can just let it move. Other stocks, however, are coming out with new leaders that you may not know that well, but are excellent companies. They will get money, and they will race to the upside. We have been buying them when things were not so great, but they were showing upside because they are leaders. By definition, leaders take off first. You can see a stock like DECK exploding to the upside while the indices are still below their November peaks. The leaders are already taking off to the upside, and we got good buys on them earlier in the week. We will continue to look for those. We will have some plays for next week, and we will see if we get buys on them. We may get some better entry points if the pre-Thanksgiving sessions are a little bit weaker. A little more consolidation would not hurt at all. We can be ready for some plays to start the next week.

To recap, we have some good entry points and we took advantage of them this week. Next week, we may get some more decent entry points if the markets do not rally to the upside. We will have to see what happens. Again, the days before Thanksgiving are problematic, and they can be up or down. Recently, they have been down over the years, but not dramatically so. We could get a little more pullback, a perfect position for more of the new emerging leaders to start higher with that money that will come in and push stocks higher, I believe, toward the end of the year as big funds chase performance.

Liquefying the markets and pushing them higher, making people have to get out of cash because they are earning zero this wealth-effect attempt will likely not end up with the best results. As chairman Bernanke said on Friday, we need different fiscal programs to help the monetary side of the equation. Raising taxes and spending like there is no tomorrow are not the fiscal solutions to help solve the problem. If we do that, it would be better for chairman Bernanke to raise interest rates. It would also be a great move if we would just get rid of the income tax and replace it with a national sales tax. We would get more real savings going there, if we raised interest rates, we would get more real savings going on. We could be smart about Social Security and parcel it up. For those that are too old to save for their future right now, we keep the promises we made for them. For the younger group anywhere from 40's, 50's and below we would start changing that to a privatized system and unleash all kinds of capital in the US.

We could really put some smart fiscal policies in place to take advantage of the monetary policies and create growth in the US. We could have China holding our debt, but not because it has to. We would make the US once again a great place for people to invest in because they would see real growth emerging from these kinds of policies. We should pull back from the policies of big government and regulating all parts of our lives. We should let the individuals use their ingenuity and entrepreneurial spirit to create new businesses and new ways of doing things that only individuals can come up with. If we would do that, we would create the climate where other countries want to invest in the US for growth reasons versus just having to hold our debt and pray that we do not totally screw up with our monetary and fiscal policies.

A bit of me on the soap box to wrap it up, but it is getting toward the end of the year. I always need to start prognosticating about what is coming. With cotton hitting an all-time high and other commodities right at that level as well, it is worrisome about what we are promulgating out of Washington. We need to get our eye back on the ball, or we will see a lot of inflation exploding. If we think we have had bad times to this point, just wait and see what happens if that inflation comes. People are not paying back debts or borrowing money right now because there is inflation. When inflation comes, that is when you want to pay back your debts. You want to pay back your debts with cheaper dollars. If there is a lot of inflation to come, which people are anticipating, there is no reason to start paying back debts or take on big projects because they would rather do it with funny money later.

Have a great weekend. All that funny money means the market probably continues to the upside after this pullback, and we have some great positions this week to take advantage of it. I think there will be more coming our way as we ride this wave of liquidity higher.


Support and Resistance

NASDAQ: Closed at 2518.12

Resistance:
2518 is interim peak from April 2010
2530 is the April 2010 closing peak
2535.28 is the April 2010 intraday peak
2540 is the gap up point from early November
2550 from May and June 2008 peaks
2569 is the November gap up point through the April 2010 peak
2593 is the November 2010 high
2725 from July 2007 interim peak
2735 from late 2007 interim peak
2862 is the 2007 peak

Support:
2511 is the lower range of the November gap up point
2482 is the recent October peak
The 50 day EMA at 2445
2434 is the May interim peak and the 78% Fibonacci retracement of the April selloff.
2425 is an interim peak from May 2010
2382-2395 from 2008
2324-2370 is a range of resistance from early 2008
2341 is the June 2010 peak
2320 to 2326.28 is the January 2010 high
The 200 day SMA at 2326
2319 from the September 2008 peak
2310 is the August 2010 peak


S&P 500: Closed at 1199.73
Resistance:
1220 is the April 2010 peak
1227 is the November 2010 peak
1313 from the August 2008 interim peak

Support:
1185 from late September 2008
1174 is the May 2010 high, 78% Fibonacci retracement of April peak
The 50 day EMA at 1171
1170 is the prior March 2010 high
1156 is the Sept 2008 low
1151 is the January 2010 peak
1133 from a September 2008 intraday low
Bottom of the January 2010 consolidation 1131 to 1136
1129 to 1131 is the June and August 2010 peaks
The 200 day SM A at 1130
1119 is the early December intraday high
1114 is the November 2009 peak
1106 is the September 2008 low
1101 is the October 2009 high and the recent May and June 2010 interim peaks
1084 to 1080 (September 2009 peak)
1078 is the October range low
1070 is the late September 2009 peak as well as several other peaks and valleys even in 2010.
1065 is the May flash crash intraday low.
1044 is the October 2008 intraday high AND the February 2010 low
1039 to 1040 are the May, June, and August 2010 lows


Dow: Closed at 11,203.55
Resistance:
11,205 is the April closing high
11,258 is the April 2010 peak
11,452 is the November 2010 peak
11,734 from 11-98 peak

Support:
11,100 from the 7-08 low
The 50 day EMA at 11,004
10,963 is the July 2008 low
10,920 is the recent May high
10,730 is the January 2010 peak
10,609 from the Mid-September 2008 interim low
The 200 day SMA at 10,599
10,594 is the June 2010 peak
10,496 is the November 2009 high
10,365 is the late September 2008 low
10,285 is the late December consolidation peak
10,260 from the May and June 2010 interim peaks are breaking
10,209 is recent August 2010 low
10,120 is the October 2009 peak
9938 is the August 2010 low
9918 is the September 2008 peak
9855 is the early September peak in its lateral range
9835 is the late September 2009 peak AND the February 2010 low
9829 is the September 2008 closing high
9774 is the May 2010 intraday low


Economic Calendar

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

November 23 - Tuesday
GDP - Second Estimate, Q3 (08:30): 2.4% expected, 2.0% prior
GDP Deflator - Second estimate, Q3 (08:30): 2.3% expected, 2.3% prior
Existing Home Sales, October (10:00): 4.42M expected, 4.53M prior
Minutes of FOMC Meet, November 3 (14:00)

November 24 - Wednesday
MBA Mortgage Application, 11/19 (07:00): -14.4% prior
Personal Income, October (08:30): 0.4% expected, -0.1% prior
Personal Spending, October (08:30): 0.5% expected, 0.2% prior
PCE Prices - Core, October (08:30): 0.1% expected, 0.0% prior
Durable Orders, October (08:30): -0.3% expected, 3.3% prior
Durable Orders -ex t, October (08:30): 0.4% expected, -0.8% prior
Initial Claims, 11/20 (08:30): 442K expected, 440K prior
Continuing Claims, 11/13 (08:30): 4280K expected, 4295K prior
Michigan Sentiment, November (09:55): 69.4 expected, 69.3 prior
New Home Sales, October (10:00): 312K expected, 307 prior
FHFA Home Price Index, Q3 (10:00): 0.9% prior
Crude Inventories, 11/20 (10:30): -7.29M prior

November 18 - Thursday
Initial Jobless Claims, 11/13 (08:30): 439K actual versus 442K expected, 437K prior (revised from 435K)
Continuing Claims, 11/06 (08:30): 4295K actual versus 4300K expected, 4343K prior (revised from 4301K)
Leading Economic Indicators, October (10:00): 0.5% actual versus 0.6% expected, 0.5% prior (revised from 0.3%)
Philadelphia Fed, November (10:00): 22.5 actual versus 5.0 expected, 1.0 prior (no revisions)

By: Jon Johnson, Editor
Copyright 2010 | All Rights Reserved

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

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Monday, November 08, 2010

Jobs Data Tops Expectations

SUMMARY:
- Jobs data tops expectations by a long shot but cannot move the market. It doesn't sell off either, and that is just as important.
- Decent jobs report is far from 'very good.'
- Luxury retailers signaling an economic recovery?
- Riding the move higher with existing positions and some new ones while keeping an eye out for a pullback.

Despite big gains on the week, no sellers showed up, not even some profit taking late Friday.

Elections, the FOMC decision on Quantitative Easing II, and on Friday the October jobs report. Quite a week, and it continued Friday with Non-farm payrolls rising 151K, more than doubling the 60K expected. Prior months were revised higher as well with September down just -41K versus the -95K previously reported. All told, revisions accounted for 100K fewer jobs lost than previously reported for September and August. Private non-farm payrolls were the bulk of all the gains, rising 159,000, easily doubling the 60K expected. September jumped to 107K versus the 64K previously reported. Excellent news, but the unemployment rate held at 9.6%. Even though 220-260K people left the workforce, the unemployment rate held steady. You would have expected it to move up if those people left the work force, but the extra jobs offset the smaller work pool. An important aspect of the report was the average workweek. It came in at 34.3 versus 34.2 expected where it has held the last several months. That means employers are working their employees a bit more, but it is not at the level that would start precipitating new buying of employee services.

With that kind of news, you would expect the market be ginned up and ready to explode higher on the open. Indeed, it did help reverse futures. Looking at the SPY, futures were negative early in the morning before that data was released. Not severely negative, but down 10-13 points on the Dow futures. After the data came out, they were 10-13 points positive on the Dow futures, but it was not all a cakewalk. They came back to flat, and many times the indices traded negative on the session. Looking at the SPX, there was that up and down volatility, but the range was 1221-1227. It was a very flat day. Stocks did close higher, but that is merely because they bumped upside in the last 10-15 minutes of trade. That in itself was interesting.

What was going on? We had a supposedly "very good" jobs report as some of the talking heads on the financial stations were staying. No, it was not a very good jobs report. If you listen to any experts or the economists who talked afterward, they said 150K is pathetic. It is great that it has turned up a bit, but we have seen that happen before. Earlier in the year it turned up only to roll right back over. This shows we cannot keep up with the job losses by any stretch. As one economist said, when we get up to 350K or 400K a month we can start making a difference. At the current rate, even if we stayed at 150K, it would take us 7 years to get back to the pre-recession level of unemployment. That puts it in perspective.

The interesting thing was the market's reaction to a "very good" jobs report. It did not do a lot. Why not? The SP500 soared on Thursday given the Quantitative Easing after the market and investors digested what the Fed did on Wednesday afternoon. It did not do the same thing on Friday. The market is saturated with good news in the short term. It has had three results this week, and apparently they were all results that the market liked. The market had an excellent week to the upside. Maybe it is a bit saturated with news in the near term. Consider also that the DXY0 rebounded on Friday. Good economic data helped it rebound after being trounced on Quantitative Easing news. We had that working against stock prices. The dollar acts as a governor on stock gains when it advances. That is the case right now because the market and investors are viewing anything that requires more Quantitative Easing as a positive.

Quantitative Easing is the quickest way for the stock market and other markets to rise. The economies are slow, and hundreds of billions are being pushed into the economies. They are not going to be used, so they will be pushed into the financial markets and that causes them to rise further. That is the fastest way for the markets to rise, so investors are happy when they see that. Why were they happier with that than with growth? They know that growth will be much slower and provide much lower and slighter returns than the hundreds of billions of dollars pumped into the financial markets. Growth is weak right now. It would take years to gin up the type of growth we need to drive the stock market the same way the hundreds of billions in Fed funny money can do. The relationship is usually that good growth means good stock prices. It does not necessarily mean stock prices as good as we would have had if we just used Quantitative Easing. The better jobs report aided the dollar bouncing. In the mind of investors, that reduced some of the likelihood that the Fed's newly announced Quantitative Easing would be as necessary as the Fed believed it was before Friday. Therefore, as the dollar moved up, it acted as something of a governor on the price of stocks on the day. That is in addition to the fact that the market may just be saturated near term.

The market did not soar to the upside; it did that on Thursday. As I said, it might be a bit saturated. The important thing is that the market did not sell off either. Look at this week the market enjoyed. It has been rallying, it moved laterally a bit, and then the angle of attack shot through the roof with the Quantitative Easing II and the election. With a week like that in addition to having so much good news, the market probably wants to pull back. Indeed, it was trying to pull back before the jobs data came out, but the jobs data popped it up. Not impressively, as noted, but it held it up. Even with that, you would expect that they would sell the market off late in the day, but they never did. It came back off the open, but it moved laterally the whole session. Indeed, it broke the pattern you would expect and rallied into the close. You would expect short-term profit taking, but the market bounced up into the close, turning all of the indices positive. NASDAQ, < +0.1%; SP500, +0.4%; Dow, +0.1%; SP600, +0.4%; SOX, +0.6%; NASDAQ 100, -0.05%.

That is nothing bad. They did not lose any ground. Totally saturated, but no one could sell off the market. That shows the power of the Fed's new Quantitative Easing. Money being dumped into the financial markets is much more powerful than anything else you can throw at the markets. Although it is a hoax and a short-term thing. Once everyone on the planet figures out it is not going to work, then you have serious problems. Then you wish you had a market rallying on growth (such as China) versus a market rallying on fake money that is being pumped into the system, not used, and put into the financial markets. That is a big dichotomy there. Right now, our market is running like crazy, and you are going to take advantage of it as I have. Running higher, taking gain, moving in, getting more positions and then letting them run higher. That is how it is working. I was expecting something of a selloff later in the session, but it did not happen. Again, that shows the power of the Fed's Quantitative Easing.


OTHER MARKETS

Dollar. The big rally, the big selloff. It started the third leg of the selloff, but it may be a false breakdown. It broke below some support, and maybe it reverses here. The "very good" news with respect to the jobs on Friday actually gave the greenback some backbone. It moved back above the mid-October lows. Maybe we have a double-bottom false breakdown. It might try to rally. The dollar looked decent (1.4035 Euros versus 1.4216 Thursday). If you have not followed currency before, that is a huge move against the Euro. Then again, the dollar has been beaten about the head and shoulders over the past six months, so a little bounce is understandable.

http://investmenthouse.com/ihmedia/dxy0.jpeg


Bonds. Bonds were slaughtered on Friday. They gapped sharply lower after trading higher Thursday on Quantitative Easing (10 year 2.54% versus 2.47% Thursday). Bill Gross said that the Fed's Quantitative Easing 2, 3, and 4 will end the 30-year bull run in bonds. Looks like it may be doing that. It tried to set up an ABCD pattern, but it is breaking down. It is not looking very good for bonds. Why would it not be good for bonds with the US purchasing so many of them? You can figure that one out. You would think bonds would rally with the US purchasing more assets, but the bond market is seeing through what is going on. It knows there is not much upside left.

http://investmenthouse.com/ihmedia/tlt.jpeg


Gold. Gold was moving higher once more. A big day on Thursday when it, too, absorbed the import of the Fed's Quantitative Easing II. It was not up as big on Friday, but it was not a session to sneeze at ($1,397.70, +14.60). Big move by gold to an all-time high.

http://investmenthouse.com/ihmedia/xgld.jpeg


Oil. Oil was moving again to the upside on Friday, though its moves were more truncated than its prior gallop north ($86.86, +0.37). Oil had a tremendous week, breaking out above resistance not only the January resistance, but also clearing the April 2010 twin peaks. It may want to test a bit before it waves goodbye to those levels.

http://investmenthouse.com/ihmedia/xoil.jpeg


Other markets were running on the Quantitative Easing move. Friday pitched a monkey wrench into the mix with the dollar rallying on the stronger jobs data, but it likely will not be a move that changes the trend.


INTERNALS

Volume. Volume fell 15% to 2B shares on NASDAQ. It fell 10% to 1.2B shares on the NYSE, but that was not bad volume at all.

Breadth. Breadth matched the session at a meager 1.2:1 on the NASDAQ and 1.4:1 on the NYSE. That matches what happened on the session, which was nothing.


CHARTS

SP500. The big move was on Thursday with SP500 breaking through the April peaks. It has now just extended that slightly. There is no real resistance near term. It could bounce up and then come back for a test. A big move, and it will need to test, but the market will test when it is ready. How many times have you seen moves get impossibly extended either up or down only to continue? That is what the market does. Yes, we will watch for a correction. You have to do that, but you cannot run your life thinking things will roll over tomorrow. It has not indicated anything suggesting a rollover other than that it has had a lot of success. Success can beget more success. Until it shows signs of turning over, we cannot panic and worry about that.

NASDAQ. NASDAQ gapped to the upside on Thursday, and it did not go anywhere on Friday. It had a bit too much of its own success.

SP600. Small caps continued to the upside but were not able to push through the April peaks. Still lagging, but a very good move on the session and still looking at those April peaks. It was one that could bump up here, pull back and test, and that would give the large cap indices a chance to pull back and test their break above the April peak. Maybe that would be the correction or test to bounce to the upside.

SOX. Semiconductors had a very good week as well. Good move Wednesday, big gap Thursday, and it added a bit on Friday. Still below their April peaks. It could rally up a little more, start to test and correct. The other large cap indices that have moved through the April peak could use that as cover to come back and test the April peak they just broke through.


LEADERSHIP

Financial. I said financials had to join to party for the SP500, and last week they certainly did. JPM moved up Wednesday, a big surge Thursday. It made another surge on Friday, moving above the 200 day EMA. It has not taken out the September peaks or the August peak, but it is looking strong. That has been aiding the advance in the SP500. GS had a very strong day on Friday, up 2.8% on big volume. Really picking up speed to the upside; I am enjoying the run in that stock. EWBC has some of the same action, although it finished off the session on the day. It came back, but EWBC is enjoying a good week and it just gave back some gains on the upside.

Technology. AAPL lost a little ground on the day, but it had a good week nonetheless. AKAM was one of the leaders. It sold off, but it has rebounded as well. Back to a new high this week. FFIV was another leader that sold off, gapped up on earnings, and continued to the upside. They are still well in the advance mode, but techs look a little tired compared to some of the other sectors. They have been forging the way higher. Now some of the other areas are trying to step up as the techs look tired.


Industrial. Industrials also look tired as well, but they managed to come back. CAT looked to be forming a rounded top, but there is nothing like Quantitative Easing II to send it higher. It broke it out of that pattern without issue. DE is moving up, but it looked a little choppier and tired as well. It was moving ahead of the other industrial stocks. While they were starting to correct, DE kept moving higher, aided by the corn reports and those showing that prices will continue to move to the upside.

Metals/Coal. FCX post another good session on Friday, though it did close off its high. MEE has feelers out there for a strategic move. Whenever you hear that, it is read "sale," and the stock shot higher. That ginned up the options quite a bit and got the implied volatility up. We were able to bank some very solid gains on that. Steel stocks have been very weak, but they came to life on Thursday. Nothing like Quantitative Easing to bring commodities to the fore.


Retail. There is an old adage that luxury retail is the last to go out and the first to come back in when things get better. SKS is galloping higher. It had a very good week last week in addition to a solid 2-3 weeks prior. M is not luxury, but it has some high-end things. It is moving to the upside as well. You would expect them to be out in front when things are getting better, but that is not really the case. Are they out in front of anybody? ROST is a discounter, and it is screaming to the upside as strong as SKS. COST has a huge run already, tested, and now it is trying to run again. Am I saying we are going to have a recovery because the luxury retailers are doing well? Does it mean we are not going to have a recovery because the discounters are still doing well? DLTR is still moving higher. I do not think this tells us that the economy is getting better. I think it tells us that the customer is a little pent up and ready to spend some money over the winter holiday.

TGT said it was selling a lot of goods, but the focus was still necessities, not discretionary. Many teen stores suffered slower same store sales announced this week. Teens rely on jobs and mom and dad to get them into the stores; they don't have help from either. This both is and is not an economic-based move. People want to spend something on Christmas after having terrible times since the financial crisis started in the fall of 2008. They want to spend some money, so stocks are moving up ahead of that. The other aspect is simply money moving into all areas of the stock market because of the massive liquidity. Dollars are being stuffed into the financial markets, and they are rallying. The fact that consumers may be interested in buying more for their families at Christmas is only adding to the upside already engendered by the excess dollars in the stock market.

Any sector that sees additional sales over last year (because buyers have some pent up demand) are going to outperform. They have the 1-2 punch of getting the financial stimulus, and they have something to get the prices up in addition to that. Quantitative Easing tends to makes all stocks a leader eventually. Money rotates through the market from one sector that rallies high and needs to rest and test, and it moves onto another area and surges that up higher as well. We are going to have leaders as long as the smoke and mirrors game can continue.


THE MARKET

MARKET SENTIMENT

VIX. Volatility is holding at a level hit in mid October. Since it is at a very low level, people are saying we can expect a pullback in the market. We could the market is overbought near term. It has had a lot of good news, it has been moving higher, and it has not come back for any kind of correction. That is one thing and VIX the another. Its correlation with the indices is somewhat broken right now. It was very much moving in lock step: It would rise, and the indices would fall. When it got low, you could anticipate a bounce back. That is not happening now. It can get low for a long time, and the market can still rally. During this point in 2004, 2005, 2006, and 2007, the market was rallying to the upside. Volatility was very low. It started to rise in 2007. The market was starting to top, and eventually it did top and cascaded lower. That is how volatility works when it gets very low and there is no correlation to the market. It tends to show a top is coming when it advances as the market advances as well. The relationship is broken right now, so do not anticipate that low volatility automatically means a correction is coming. I am not saying a correction is not coming, but using volatility to determine that is incorrect.

VIX: 18.26; -0.26
VXN: 18.67; -0.87
VXO: 17.76; -0.57

Put/Call Ratio (CBOE): 0.69; -0.06


Bulls versus Bears:

The CROSSOVER from August is long gone but it did its job.

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 does not have the cash to drive it higher.

Bulls: 46.7%. Rising again, up from 45.6% last week (45.1% versus 47.2% prior). Steady rise since hitting 29% where bears overtook bulls back in early September, but now somewhat indecisive with SP500 moving laterally. Still below the 65% level considered as bearish, above the 35% level below which is considered bullish. Where you would expect for a rally such as this one. The crossover level at 29% bulls is long gone, but it did its job. The high on the last leg was 56.0% after starting at 35.6% on the low in February, the lowest it has been since July 2009 . . . until this last leg. 35% is the threshold level suggesting bullishness. After peaking at 53 on this move the bulls lost some nerve, falling to a new low post- July 2009. Once again bulls peaked out near the 50% level. Bulls have bumped at 50ish since late August 2009, falling to 45ish and then rebounding. 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.

Bears: 24.4%. Holding steady at 24.4% for the second straight week. A bit of caution remains for the bears even as the market rallies (22.0% versus 24.7% the prior weeks). Down from 28.3% a month back. The 37.7% peak at the height of the crossover is well in the rearview mirror but bears remain well below the 35% level considered bearish for the market overall. Hit 18.7% on the low in April. Hit a high of 27.8% level on the prior leg in February. For reference, cracking above the 35% threshold considered bullish. Hit a high on the prior run at 47.2%. For more reference, bearishness hit a 5 year high at 54.4% the last week of October 2008. The move over 50 took bearish sentiment to its highest level since 1995. Extreme negative sentiment. Prior levels for comparison: Bearishness peaked at 37.4% in September 2007. It topped the June 2006 peak (36%) on that run. That June peak eclipsed the March 2006 high (33%) and well above the 2005 highs that spawned new rallies (30% in May 2005, 29.2% in October 2005). That was a huge turn, unlike any seen in recent history.


NASDAQ

Stats: +1.64 points (+0.06%) to close at 2578.98
Volume: 2.026B (-15.53%)

Up Volume: 1.118B (-773.452M)
Down Volume: 861.374M (+233.654M)

A/D and Hi/Lo: Advancers led 1.25 to 1
Previous Session: Advancers led 2.97 to 1

New Highs: 270 (-89)
New Lows: 30 (-6)

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

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

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


SP500/NYSE

Stats: +4.79 points (+0.39%) to close at 1225.85
NYSE Volume: 1.241B (-9.89%)

Up Volume: 817.953M (-417.696M)
Down Volume: 406.392M (+271.204M)

A/D and Hi/Lo: Advancers led 1.38 to 1
Previous Session: Advancers led 5.18 to 1

New Highs: 796 (-187)
New Lows: 67 (-10)

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

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


DJ30

Stats: +9.24 points (+0.08%) to close at 11444.08
Volume DJ30: 211M shares Friday versus 234M shares Thursday.

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


MONDAY

Things quiet down considerably next week. Nothing on Monday. Tuesday is wholesale inventories. That is a yawner, although it will be interesting to see if they are building or not. Due to Veteran's Day, Wednesday brings the usual suspects with others that are normally seen on Thursday. On Friday there is Michigan Sentiment and that will drum up some interest as well. The big three have already come and gone. Quantitative Easing is out there. The real question is whether we will get any type of correction in the market. Friday was a perfect time for the market to take some profits, and it did not even do that. The reason, in my opinion, was Quantitative Easing. Investors know all this money is going to be there, and they just were not ready to take any profits. That does not mean there will not be a correction or a test. We had tests even with Quantitative Easing.

Once the euphoria runs out, the market is extended. After all, it has run from August through late October. Starting in November, it has been goosed even higher. The angle of attack has gone from 45-degrees to 90 straight up. It cannot sustain that kind of momentum, and it will have to test and/or correct. I will be looking for a pullback. The problem is there should have been some profit taking late in the session and there was not.

Investors did not want to get out. They wanted to hold over the weekend and hold off of these gains that occurred for the week. Substantial upside, and they did not want to sell out because they are anticipating more upside. With that, I would anticipate more upside as well. That means we are going to be riding the move higher with our current positions and some new ones we have been taking. We will continue to look for more as money rotates through the market. After all, that action Friday was pretty solid. That does not mean you should not keep your eye out for a pullback. That is not the case even though everyone thinks the Fed has given the green light to nothing but upside from here to eternity. That the never the case. The market cannot go up forever, and it has had an increased angle of attack to its already steep rally over the prior two months. Like they said in Field of Dreams, you have to keep an eye out for that one in your ear. As soon as you start feeling that nothing can go wrong, that is usually when something happens.

With that Friday action, I want to see how it starts out on Monday. Stocks could very well continue to the upside. If we see money rotating into other areas, those will provide places where we can move in without buying into extended stocks. That does not mean we will look away from every stock that has moved up well. Remember, a lot of stocks have gap to the the upside, and they have shown breakaway gaps. A breakaway gap is one that tends to continue to move in the direction of the gap. We definitely want to take advantage of that if possible.

Our game plan is to look for stocks that are not as extended and look for other stocks that are in good position to move higher on the idea that Quantitative Easing will trump most everything out there. I still do not want to load up with full positions until we get some kind of test or correction that will give better entry points on good names. That does not mean we will not get entry points on some stocks that are not household names or have not been market leaders prior to this time. They could be getting money rotated their way and then start to the upside and make some nice money for us. We will not ignore them, but we have to be a bit careful. You have to watch for that one in your ear, but know that the Fed has everyone's back with a big "L" for now. That means $600-900B in liquidity. Have an excellent weekend.


Support and Resistance

NASDAQ: Closed at 2578.98

Resistance:
2725 from July 2007 interim peak
2735 from late 2007 interim peak
2862 is the 2007 peak

Support:
2550 from May and June 2008 peaks
2535.28 is the April 2010 intraday peak
2530 is the April 2010 closing peak
2518 is interim peak from April 2010
The 18 day EMA at 2496
2482 is the recent October peak
2434 is the May interim peak and the 78% Fibonacci retracement of the April selloff.
2425 is an interim peak from May 2010
The 50 day EMA at 2405
2382-2395 from 2008
2324-2370 is a range of resistance from early 2008
2341 is the June 2010 peak
2320 to 2326.28 is the January 2010 high
2319 from the September 2008 peak
2310 is the August 2010 peak
The 200 day SMA at 2309


S&P 500: Closed at 1225.85
Resistance:
1313 from the August 2008 interim peak

Support:
1220 is the April 2010, post-bear market peak is breaking
The 18 day EMA at 1187
1185 from late September 2008
1174 is the May 2010 high, 78% Fibonacci retracement of April peak
1170 is the prior March 2010 high
1156 is the Sept 2008 low
The 50 day EMA at 1144
1151 is the January 2010 peak
1133 from a September 2008 intraday low
Bottom of the January 2010 consolidation 1131 to 1136
1129 to 1131 is the June and August 2010 peaks
The 200 day SMA at 1124
1119 is the early December intraday high
1114 is the November 2009 peak
1106 is the September 2008 low
1101 is the October 2009 high and the recent May and June 2010 interim peaks
1084 to 1080 (September 2009 peak)
1078 is the October range low
1070 is the late September 2009 peak as well as several other peaks and valleys even in 2010. Important level.
1065 is the May flash crash intraday low.
1044 is the October 2008 intraday high AND the February 2010 low
1039 to 1040 are the May, June, and August 2010 lows


Dow: Closed at 11,444.08
Resistance:
11,734 from 11-98 peak

Support:
11258 is the April 2010 peak
11,205 is the April closing high
The 18 day EMA at 11,158
11,100 from the 7-08 low
10,963 is the July 2008 low
10,920 is the recent May high
The 50 day EMA at 10,903
10,730 is the January 2010 peak
10,609 from the Mid-September 2008 interim low
10,594 is the June 2010 peak
The 200 day SMA at 10,547
10,496 is the November 2009 high
10,365 is the late September 2008 low
10,285 is the late December consolidation peak
10,260 from the May and June 2010 interim peaks are breaking
10,209 is recent August 2010 low
10,120 is the October 2009 peak
9938 is the August 2010 low
9918 is the September 2008 peak
9855 is the early September peak in its lateral range
9835 is the late September 2009 peak AND the February 2010 low
9829 is the September 2008 closing high
9774 is the May 2010 intraday low


Economic Calendar

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

November 05 - Friday
Nonfarm Payrolls, October (08:30): 151K actual versus 60K expected, -41K prior (revised from -95K)
Nonfarm Payrolls - Private, October (08:30): 159K actual versus 60K expected, 107K prior (revised from 64K)
Unemployment Rate, October (08:30): 9.6% actual versus 9.6% expected, 9.6% prior
Hourly Earnings, October (08:30): 0.2% actual versus 0.1% expected, 0.1% prior (revised from 0.0%)
Average Workweek, October (08:30): 34.3 actual versus 34.2 expected, 34.2 prior
Pending Home Sales, September (12:30): -1.8% actual versus 2.5% expected, 4.4% prior (revised from 4.3%)
Consumer Credit, September (15:00): $2.1B actual versus -$3.5B expected, -$4.9B prior (revised from -$3.3B)

November 09 - Tuesday
Wholesale Inventories, September (10:00): 0.6% expected, 0.8% prior

November 10 - Wednesday
MBA Weekly Mortgage Applications, 11/05 (07:00): -5% prior
Initial Claims, 11/06 (08:30): 450K expected, 457 prior
Continuing Claims, 10/30 (08:30): 4350K expected, 4340K prior
Trade Balance, September (08:30): -$45.0B expected, -46.3B prior
Export Prices ex-ag., October (08:30): 0.3% prior
Import Prices ex-oil, October (08:30): 0.3% prior
Crude Inventories, 11/06 (10:30): 1.95M prior
Treasury Budget, October (14:00): -$140.0B expected, -$176.4B prior

November 12 - Friday
Michigan Sentiment, November (09:55): 69.0 expected, 67.7 prior

By: Jon Johnson, Editor
Copyright 2010 | All Rights Reserved

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

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Monday, November 01, 2010

October Ends With Gains

SUMMARY:
- More of the same as October ends with gains, and more of the same is not a bad thing.
- No pre-election spurt yet, but good enough moves to bank some gain.
- GDP rose by 2%, matching the conventional wisdom.
- Chicago PMI posts an upside surprise, but some of the internals are not as pleasant.
- Michigan Sentiment misses the mark, posts an 11 month low.
- Looking for one more spurt into the election, maybe more.

Flat session ends a good October as indices continue to hold gains, eye April highs.

More of the same. That is how October ended, but that was not necessarily a bad thing. The SP500 has worked laterally for over a week after breaking through the 78% Fibonacci retracement level. It was unable move higher toward the April peak, but in technical theory it should be able to do that since it has breached the 78% range and held it. It cannot get enough momentum to make the move despite good earnings that continued to come in Thursday night and Friday morning, sending some great stocks higher and banking some gain for us. SP500 overall could not extend the move at least not yet. That raises the question of whether it and the rest of the indices will be able to continue higher next week. New money often comes in on a new month to start things out, but we also have the elections on Tuesday and the FOMC decision on Quantitative Easing on Wednesday.

There was an added layer of intrigue to the session because bombs were being sent to the United States from Yemen. That had shades of the Madrid train bombings right before its election a few years ago, and it was able to swing the election. It was not a surprise to see these show up, and the market treated it as such; it was rather apathetic to the news. Looking at the intraday chart, stocks moved up and down. I think I counted SP500 crossing the flat line 10 times on the session. It closed slightly lower as the last rotation of the day was to the downside. NASDAQ, flat; SP500, -0.04%; Dow 30, +0.04%; SP600, +0.4%; SOX, +0.6%; NASDAQ 100, -0.25%

It was more of the same with flat lining across the day, particularly on SP500. NASDAQ looked similar to what it showed of late, continuing higher ...almost. It rallied on the week, though it had to overcome a downside gap on Tuesday. It managed to pull very close to the April peak, and it may be the leader that has made its high on this rally. We will have to see what next week holds. There are elections and the FOMC meeting. Conventional wisdom would say the indices are right at the April peak that is the rally high off the bear-market low therefore, you will encounter resistance here and fade back to correct. However, the markets could show a spurt higher on the news of the election or the FOMC meeting, and that may turn into a reversal that starts a correction. Then again, it may not.

This is telling us several things. Number one, the market has been moving ahead of massive liquidity. This last rally from August into the end of October is another example of the power of liquidity fostered by the Federal Reserve. The old adage about not fighting the Fed has proved to be true since late 2008 and early 2009. With the Fed ready to embark on a new Quantitative Easing program, the same adage will hold. The issue is what will happen near term. In the short term, the markets stock or otherwise tend to overreact and swing too far one way or the other. We could see some strange moves around the election and FOMC meeting given the nice run from August to now, but the market will likely continue higher with the Fed still in the game.

Liquidity will drive stocks higher because there is not much economic activity. The GDP was up 2%. That matched what was expected and was up from the prior read of 1.7%. 2% is not what I would consider my favorite growth path, and it is not the kind of activity that will lift the US economy to a level that will create many jobs. When there is not a lot of economic activity and there is a tremendous amount of liquidity stuffed into the financial markets, that excess liquidity is funneled into financial markets. Financial markets rise when there are periods of tremendous liquidity and little economic activity because there is nowhere to put the money. It has to be put somewhere, and it is put into financial markets. There may be hiccups near term given the strength of this recent August-October run. Once those hiccups pass and we get a correction, there is likely to be more upside. Unless other factors come into play, liquidity in a slack economy leads to higher financial markets. Unfortunately, that does not necessarily lead to higher economic output.


OTHER MARKETS

Dollar. The dollar was a bit stronger on the session overall (1.3919 Euro versus 1.3931 Thursday). The stock market has shown better action on the stronger dollar of late. Although it is not great action, it is a change. Typically, when the dollar has rallied the stock market has fallen. That was not the case toward the latter part of the week. Is that new change in the dollar? Some said the dollar was showing some stabilization. It also showed stabilization in August when it bounced off a roughly equal decline in steepness and degree. There is a similar selloff through mid October, and now a bounce in relief. It looks like that will try to continue.

For now, I can only say it is a relief bounce. It is at a significant support level it has that going for it. That is trying to bounce it higher, but that is in the face of the Fed about to embark upon a new round of Quantitative Easing. That will have a detrimental effect on the dollar and other currencies from around the world. Countries are trying to keep their currencies devalued because they do not want to deal with slowing their fragile economies because we in the US are adopting a weak-dollar policy and want to devalue our currency to prosperity ahead of everyone else. Right now, there seems to be a rush to devalue currency. That is an absolutely asinine thing for central banks around the world to do. They never learn from history. It is all short-term nonsense, and it could come back to bite us all. Some of the soothsayers in Washington and government centers around the world say we are in a world economic recovery that could suddenly flip into a world economic depression.

Not a fun thought, but we have to consider these types of events given the ridiculous return to policies from the past. Will we expect different results? Of course not. As Einstein said, doing the same thing over and over and expecting a different result is the definition of insanity. If that is the case, can we have our Congressional leaders and administrative officials relieved from duty on the grounds of insanity?

http://investmenthouse.com/ihmedia/dxy0.jpeg


Bonds. Bonds had a decent day. Bonds have posted a nice rally again (10 year yield 2.60% versus 2.66% Thursday). Yields are down, and that means bond are rallying. They are trying to fight back after a good selloff that started in late August.

http://investmenthouse.com/ihmedia/tlt.jpeg


Gold. Gold had another great session. It tipped its hand on Thursday as it made a higher low. I put a GLD play on the report, and sure enough gold broke to the upside and we bought into the GLD on Friday. Not huge, but a solid move by gold ($1,359.60, +$17.40). A very nice move indeed, and it was in the face of a dollar that was not too weak. That means that gold was anticipating what the Fed would do again, and it is pricing in more inflation. Pretty cut and dried.

http://investmenthouse.com/ihmedia/xgld.jpeg


Oil. Oil continued its lateral move. Not bad action at all. It was down on the session, but in a tight range and is holding in the top portion of its larger trading range above the midpoint. It is trying to consolidate and set up a breakout. Whether it does or not will depend on what the dollar does with the Fed action this week. ($81.43, -$0.75).

http://investmenthouse.com/ihmedia/xoil.jpeg


INTERNALS

Volume. Volume increased to 2B shares on the NASDAQ, up 2.7%. Volume managed to move up roughly 2.5% on the NYSE to 1.03B shares. The indices traded flat and volume rose. That shows stocks changing hands at a more rapid rate as the indices work laterally or trade right below an important resistance point. That is what you call churning. That means there is high-volume trade, and people are passing the stocks around like hot potatoes. It shows there is not a lot of conviction by the buyers wanting to hold onto them. Take that little caveat going into next week. Some concern, but it was also the end of the month. There may be some window dressing ongoing.

Breadth. Breadth was lackluster at 1.2:1 on NASDAQ and 1.6:1 on the NYSE. Given that the indices were flat and were trading back and forth around the flat line, it was a modest positive to see the breadth come in to the upside on both exchanges.


CHARTS

SP500. SP500 was working laterally. Still the same volatile up and down action during the session, but holding over the 78% Fibonacci retracement as well as the late-May interim peak. Technically speaking, it should try a rally up to the April peak, but there are other events on the road ahead (the election and FOMC meeting) that may influence that one way or the other. Many of the expectations for the election are built into this move from August to the end of October. There may be some expectation built in as well with respect to more liquidity from the Fed. Conventional wisdom would suggest that the market would move down and correct once the speculation became fact with the election and the FOMC meeting. We could very well get a spike higher once more before that happens. That is the conventional wisdom. There is a possibility that, given that the SP500 has moved above this level and held the gain, it just makes the spike and tries to continue to run. There are still stocks in very good shape out there, and they could power the index higher. Heaven forbid the financial stocks finally get a fire lit under their tails. If they take off, SP500 could get real traction.

NASDAQ. NASDAQ had a modest gain, virtually flat. It had a decent week after gapping higher on Monday, and it came within 25-30 points of the April peak. It was the leader to the upside in October, and it was the leader last week as it came the closest to the April peak. It could be done. It has not consolidated as the SP500 has over the past weak. As the leader, maybe it is finished and ready to test. It is the same scenario as the SP500. It has not moved laterally, but it is still in position to move. It has many great stocks in position as well.

SP600. SP600 were one of the leader groups of the day. Although, similar to SP500, they are still mired in their lateral trading range. Still have not even taken out the May interim peak. Not actual leaders, but performing well enough. A nice setup that looks like it wants to try the break to the upside at least.

SOX. Semiconductors had the best week of all with a great surge on Wednesday. They added to the gains on Friday, clearing some interim peaks from July and August in the process. It has been a great move from the semiconductors after breaking back into their trading range that they gave up in late August through mid-September. It was hard to complain. We picked up some of those positions on the way, and we were able to bank some gain on them on Friday.


LEADERSHIP

Financial. It seems like the same boring story from yesterday. Financials are important, and they are not doing anything. JPM is holding steady. It is the same action that SP500 was showing the past week and a half at the top of its recent range, but it was at the bottom of its range. GS was the bright spot on the week, though it was unable to hold the move all the way to Friday. It is a nice test of the break over resistance. If you are not in, you can use this test to move in as it rebounds to the upside. EWBC had a nice break higher on some earnings, and a good test. Starting to bounce on Friday. If it continues, it could be a good entry point.

Technology. MSFT announced earnings, and it was nice. It gapped up, but it could not hold the move through the 200 day EMA and closed with about a 1.5% gain. Rather inauspicious. Maybe that will take it out of this big rectangle at the bottom of the selloff from April. Maybe it will start to make a move at this point. AAPL finished weak. It gapped higher, had an island reversal, and it has been testing but holding on fairly well through Thursday. It started to crack on Friday. We will see what happens. It is still in position where it could make a break higher, but maybe it will come back all the way to test the first high and first peak following the breakout from its April-September trading range.

Semiconductors. Semiconductors were performing well again. VSEA had a nice break to the upside, and we took some interim gain on it because it was moving so well. NVLS was surging past some prior peaks. It is bumping into old resistance right now, but there are solid moves from the semiconductors. They came to life. I had a few of them, and it helped pay some bills, no doubt about that. SAPE is moving higher and looking strong again. Many of these little stocks that are not household names are moving up nicely and are in position to continue their move. If that is the case, you can build is strong case that the market will continue trying to further its rally into next week and through the election even the FOMC meeting. If that is the case, there are stocks that would be good buys to move into. At this point, take advantage of good plays, but you have to be a bit cautious given the length of the move and where the key resistance is right now. I would love to see a pullback to give us better positioning and better entry points, but you do not always get what you would love to see.

Retail. After a tough week, retail redeemed itself in some instances on Friday. DECK gapped today the upside with a breakaway gap. Took some gain on that. With a breakaway gap, we will be looking for another chance to move in. A breakaway gap that holds the gap tends to move in the direction of the gap. I will be looking for that play. CSTR announced earnings and blasted higher with a breakaway gap. Took nice gain on that as well. It was not a great week for the casual restaurants. PNRA gapped lower, struggling. PFCB had gap issues as well below the 50 day EMA. Retail was a mixed bag. It was looking strong, and then some of the big names that have been moving it up fell on hard times this week.

China. Chinese stocks continue to look great. NTES looks like it is trying to bounce back up after the test from the breakout of this triangle. You can always catch a stock on the breakout and then likely catch it on a triangle play as it tests. I will often take a partial position on the breakout, and then come back and fill it in on the test once I see it will actually test, hold, and start to bounce. It is a good place to move in. SOHU made its breakaway gap and started to move higher on Friday. CTRP is continuing to move higher toward its earnings next week. We are letting it do just that. TZOO had a very nice pullback to test its gap and breakout of its own triangle. China is a bit different from the others; it is controlled by what is going on over there versus here in the US. We can continue to look at plays when we would pass up some of the domestic stocks.

Energy. CVX gapped lower. It was in a lateral move and announced. They were not as pleasing, and investors punished it a bit. CHK looks like it might try to roll up in its range. APC had a nice break higher just over a week back. Now it is testing that move and could set up a decent buy for a good trade.

Industrial. CAT has a rounded top. I will be looking at CAT for a possible downside play. If the markets weaken going into the election or immediately after, we could get a downside play from CAT. Maybe it will come back down to the April and August peaks that are roughly coincident. It would be a nice play to that level.


THE MARKET

MARKET SENTIMENT

VIX. The VIX managed to rise through last week given the lateral uncertainty in the SP500. Each day SP500 was up or down and reversed once to three or more times in one session. Volatility crept higher. Note that as volatility on SP500 crept higher, NASDAQ rallied. Thus, volatility fell on the NASDAQ volatility index. There is still very low volatility, and some say that means it is time for a selloff. That is not necessarily the correlation volatility in the stock market was showing in the summer months. That was broken recently. Now we may get a pullback or correction as the market is bouncing up to the April peaks. There is talk of a correction by some very smart people. That is why volatility is creeping to the upside, but it does not mean much now.

VIX: 21.2; +0.32
VXN: 22.24; +0.59
VXO: 21.33; +0.77

Put/Call Ratio (CBOE): 0.9; +0.03

Bulls versus Bears:

The CROSSOVER from August is long gone but it did its job.

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 does not have the cash to drive it higher.

Bulls: 45.6%. A slight rise after a fade the weak before (45.1% versus 47.2%). Steady rise since hitting 29% where bears overtook bulls back in early September, but now somewhat indecisive with SP500 moving laterally. Still below the 65% level considered as bearish, above the 35% level below which is considered bullish. Where you would expect for a rally such as this one. The crossover level at 29% bulls is long gone, but it did its job. The high on the last leg was 56.0% after starting at 35.6% on the low in February, the lowest it has been since July 2009 . . . until this last leg. 35% is the threshold level suggesting bullishness. After peaking at 53 on this move the bulls lost some nerve, falling to a new low post- July 2009. Once again bulls peaked out near the 50% level. Bulls have bumped at 50ish since late August 2009, falling to 45ish and then rebounding. 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.

Bears: 24.4%. A bit of caution moving back into the market after dipping modestly the prior week (22.0% versus 24.7%). Down from 28.3% a month back. The 37.7% peak at the height of the crossover is well in the rearview mirror but bears remain well below the 35% level considered bearish for the market overall. Hit 18.7% on the low in April. Hit a high of 27.8% level on the prior leg in February. For reference, cracking above the 35% threshold considered bullish. Hit a high on the prior run at 47.2%. For more 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: +0.04 points (0%) to close at 2507.41
Volume: 2.043B (+2.73%). Some churning just below the April peak.

Up Volume: 1.163B (+51.87M)
Down Volume: 858.573M (-41.809M)

A/D and Hi/Lo: Advancers led 1.24 to 1
Previous Session: Decliners led 1.36 to 1

New Highs: 113 (-13)
New Lows: 45 (+10)

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: -0.52 points (-0.04%) to close at 1183.26
NYSE Volume: 1.034B (+2.52%)

Up Volume: 547.74M (+79.13M)
Down Volume: 436.605M (-58.957M)

A/D and Hi/Lo: Advancers led 1.62 to 1
Previous Session: Advancers led 1.19 to 1

New Highs: 282 (-13)
New Lows: 24 (+2)

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

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


DJ30

Stats: +4.54 points (+0.04%) to close at 11118.49
Volume DJ30: 189.7M shares Friday versus 156.2M shares Thursday. A little churning here at the April peak as well.

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


MONDAY

It is an interesting week, data-wise. We start right out of the box on Monday with personal income and spending and the ISM index. The interesting thing with respect to the ISM is that the Chicago PMI topped expectations on Friday at 60.6. That was better than the 58 expected. That seemed like good news, but the problem is some of the internals were not that great. New orders improved, and that is a positive, but prices posted a huge jump. That is the inflation factor. Gold and other commodity prices are rising because they are denominated in the weakening dollar. We will continue to see an inflationary aspect.

Order backlogs were below 50% for the second month in a row, and that means they are contracting. The economy is not strong and factories are not humming anyway, but order backlogs are dissipating. The orders coming in are getting fewer and fewer, and the backlog is being worked off. That could lead to slack manufacturing and more jobs pressure in the coming months. The news was not that great when looking beyond the headlines.

Michigan Sentiment was a bit less than expected at 67.7 versus 68.0 expected. That was an 11-month low, but that does mean a lot. It is a recession level, but consumers are spending a little bit. These are still levels that are concerning, and it would not take much to upset the consumers and keep them down. One of the major problems facing consumers is falling housing prices. There is no reason for them to go up. There are still too many houses, not enough buyers, and we have propped up the prices instead of just letting them tumble.

If we had only let them fall in the beginning, we would most likely be pulling out of that problem already. The foreclosures would have happened rapidly; they would have dropped and bounced. That typically happens when you let the markets go, but your fearless leaders want us to avoid any pain even though it is not possible. They try to stretch it out, and it gets the misery going like it was in the 1970's and 1930's. By trying to keep the inevitable from happening, they only prolong it and make things worse because they bleed our resources dry. We are trying to hang on during this "recovery." It was the summer of recovery, and now I suppose it is the fall of recovery? Perhaps it will be the fall of the fall. The point is, they are trying to help ease the pain but are only stretching out the problem. Without creating jobs and demand, prices cannot go up. They will fall, and we just need to get it over with.

There is a lot of news coming out. Wednesday is the Challenger jobs report, ISM services, factory orders, and the FOMC rate decision. Thursday brings the weekly jobless claims, and then on Friday the non-farm payrolls for October come out. As you can see, there will be a data overload. On top of that, we will have earnings. A very important week.

Looking out at the market, there is the same setup. We have the flat lateral move, and that would suggest the SP500 will try to rally up to the April peak. It may try to do it moving into the election and the FOMC meeting. We took some gain off the table on Friday on positions that we had not taken gain on as of yet. Then we will let the remaining positions ride (as well as others that we have already banked some gain on). If there is a nice spurt up into the the election, we will definitely take some profits off the table. We have already had a good run. There is a lateral move and a sprint higher for a couple of days that is begging us to take some more gain off the table especially with the big event risks coming up this week. We will not take them all off. For all I know, they may continue to the upside and we will all be singing and dancing in the streets. We have had some outstanding gains, and I would not mind having a few more.

We will let positions run. I am not in the habit of cutting runs off because I am trying to pick a top or bottom. The question is, with the risk/reward situation, do we continue to try to look at new plays? There are plays I keep seeing that look good for setups. If we see them and the market acts right, of course we will take them. Once again, the market is the final decision-maker on these moves. If it says it will go higher, it will go higher. We will not turn down plays on stocks such as NTES, TZOO, and maybe APC. There are also possible downside plays such as CAT. Many stocks look very good and are positioned to move higher. SSYS could still move back up as well as AMZN. The list goes on. Will I turn my back on these because I think the overall market is too high? No. AMZN broke resistance, tested it, and now it is stair stepping its way higher. That is what you would expect a strong stock to do, and it is acting as if it is still a strong stock. If you think you can make money on a strong stock, you would want to play that. We will be looking at more positions on AMZN and similar stocks.

The moral of the story: Even though conventional wisdom says that the market is due for a correction, the market may not think so. It may rally up through the event risks of the FOMC meeting and the election that I am worried about. I was worried about the earnings season, too. I did not know if it would be a good one after we had a move upside in September. Earnings season turned out okay and stocks continued to rally. They are still showing good setups. We will be ready for both the upside and the downside. We have been taking gain off all the way. If we get in trouble, we will take some more out of the picture. We will look to play the downside if it shows up. Right now it has not, but everyone is anticipating it. The fact that everyone is anticipating it makes it almost a coin toss at this point. I am happy to let our stock and option positions move higher, and I would be happy to continue letting them move higher if the market so desires. There is some pretty weather out there this weekend from the looks of it, so go out and enjoy yourself. I will see you on Monday for the fascinating week to come.


Support and Resistance

NASDAQ: Closed at 2507.41

Resistance:
2518 is interim peak from April 2010
2530 is the April 2010 peak (2535.28 intraday)

Support:
2482 is the recent October peak
The 18 day EMA at 2455
2434 is the May interim peak and the 78% Fibonacci retracement of the April selloff.
2425 is an interim peak from May 2010
2382-2395 from 2008
2324-2370 is a range of resistance from early 2008
The 50 day EMA at 2373
2341 is the June 2010 peak
2320 to 2326.28 is the January 2010 high
2319 from the September 2008 peak
2310 is the August 2010 peak
The 200 day SMA at 2302
2273 to 2282 marks bottom of January 2010 lateral peak
2275 - 2278 from the February 2008 and April 2008 lows. Key lows.
2245 from July 2008 through 2260 from late 2005.
2236 is the first August gap point.
A series of interim peaks at 2230ish from the May to August trading range
2221 is the gap down upside point from June.
2205 is the November 2009 peak 2210 (from September 2008) to 2212 (the July 2009 closing low)
2185 to 2195 represent support points for years: December 2004 peak, July to October 2005 consolidation, January, March and July 2008 lows, and October 2009 peak.
2184 is the June gap bottom side.
2169 is the March 2008 closing low (double bottom)
2155 is the August 2010 low and the March 2008 intraday low
2140 from the May and June 2010 lows
2100 is the February 2010 low
2099 is the August 2010intraday low


S&P 500: Closed at 1183.26
Resistance:

1185 from late September 2008
1220 is the April 2010, post-bear market peak

Support:

1174 is the May 2010 high, 78% Fibonacci retracement of April peak
1170 is the prior March 2010 high
The 18 day EMA at 1173
1156 is the Sept 2008 low
1151 is the January 2010 peak
The 50 day EMA at 1146
1133 from a September 2008 intraday low
Bottom of the January 2010 consolidation 1131 to 1136
1129 to 1131 is the June and August 2010 peaks
The 200 day SMA at 1122
1119 is the early December intraday high
1114 is the November 2009 peak
1106 is the September 2008 low
1101 is the October 2009 high and the recent May and June 2010 interim peaks
1084 to 1080 (September 2009 peak)
1078 is the October range low
1070 is the late September 2009 peak as well as several other peaks and valleys even in 2010. Important level.
1065 is the May flash crash intraday low.
1044 is the October 2008 intraday high AND the February 2010 low
1039 to 1040 are the May, June, and August 2010 lows


Dow: Closed at 11,118.45
Resistance:
11,205 is the April closing high
11258 is the April 2010 peak
11,734 from 11-98 peak

Support:
11,100 from the 7-08 low
The 18 day EMA at 11,052
10,963 is the July 2008 low
10,920 is the recent May high
The 50 day EMA at 10,818
10,730 is the January 2010 peak
10,609 from the Mid-September 2008 interim low
10,594 is the June 2010 peak
The 200 day SMA at 10,527
10,496 is the November 2009 high
10,365 is the late September 2008 low
10,285 is the late December consolidation peak
10,260 from the May and June 2010 interim peaks are breaking
10,209 is recent August 2010 low
10,120 is the October 2009 peak
9938 is the August 2010 low
9918 is the September 2008 peak
9855 is the early September peak in its lateral range
9835 is the late September 2009 peak AND the February 2010 low
9829 is the September 2008 closing high
9774 is the May 2010 intraday low


Economic Calendar

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

October 29 - Friday
GDP-Adv., Q3 (08:30): 2.0% actual versus 2.0% expected, 1.7% prior
Chain Deflator-Adv., Q3 (08:30): 2.3% actual versus 1.9% expected, 1.9% prior
Employment Cost Index, Q3 (08:30): 0.4% actual versus 0.5% expected, 0.5% prior
Chicago PMI, October (09:45): 60.6 actual versus 58.0 expected, 60.40 prior
Michigan Sentiment - Final, October (09:55): 67.7 actual versus 68.0 expected, 67.9 prior

November 01 - Monday
Personal Income, September (08:30): 0.3% expected, 0.5% prior
Personal Spending, September (08:30): 0.4% expected, 0.4% prior
PCE Prices - Core, September (08:30): 0.1% expected, 0.1% prior
ISM Index, October (10:00): 53.6 expected, 54.4 prior
Construction Spending, September (10:00): -0.5% expected, 0.4% prior

November 03 - Wednesday
MBA Weekly Mortgage Applications, 10/29 (07:00): 3.2% prior
Challenger Job Cuts, October (07:30): -44.1% prior
ADP Employment Change, October (08:15): 25K expected, -39K prior
ISM Services, October (10:00): 53.6 expected, 53.2 prior
Factory Orders, September (10:00): 0.6% expected, -0.5% prior
Crude Inventories, 10/30 (10:30): 5.01M prior
Auto Sales, October (14:00): 3.75M prior
Truck Sales, October (14:00): 5.07M prior
FOMC Rate Decision, November 3 (14:15): 0.25% expected, 0.25% prior

November 04 - Thursday
Initial Claims, 10/30 (08:30): 434K prior
Continuing Claims, 10/23 (08:30): 4356K prior
Productivity-Preliminary, Q3 (08:30): 0.6% expected, -1.8% prior
Unit Labor Costs, Q3 (08:30): 1.9% expected, 1.1% prior

November 05 - Friday
Nonfarm Payrolls, October (08:30): 45K expected, -95K prior
Nonfarm Payrolls - Private, October (08:30): 60K expected, 64K prior
Unemployment Rate, October (08:30): 9.6% expected, 9.6% prior
Hourly Earnings, October (08:30): 0.1% expected, 0.0% prior
Average Workweek, October (08:30): 34.2 expected, 34.2 prior
Pending Home Sales, September (10:00): 0.5% expected, 4.3% prior
Consumer Credit, September (15:00): -3.8B expected, -$3.3B prior

By: Jon Johnson, Editor
Copyright 2010 | All Rights Reserved

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

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