Sunday, August 28, 2011

Bernanke Passes on Further Stimulus

SUMMARY:

- Bernanke passes on further stimulus, again punting back to Congress and the Executive, and the market can handle it.
- GDP weak, a bit lower than expected.
- Michigan Sentiment up for August but still very low.
- ECB, Fed initiate a new swap line.
- Stocks reverse off of post-Bernanke low, post solid gains, keep the relief bounce alive.


MARKET SUMMARY

What a week: Buffett, Bernanke, economic data, and endless coverage of the east coast storm.

What a week. We had Buffett buying $5B worth of BAC preferred shares on a whim in the bathtub. At least he would have us believe that, although there is more to it without question. There was also an earthquake centered in Virginia near the nation's capital. Now there is nonstop coverage of a hurricane heading toward the East Coast. It is nonstop because it is heading toward New York, and most of the stations are centered in New York. More power to them, I guess. I just wonder what someone upstairs is trying to tell the people in DC given the earthquake and now a major storm moving toward the capital. I would like to think they are saying, "Get it together. Change your ways and let the great American entrepreneurs be free to do what they do best." Okay, maybe that is not exactly what they are saying, but I would hope it is close enough.

In addition to Buffett, there was Bernanke on Friday. That was the focus of the week after the Buffett surprise. On Friday Bernanke did not surprise us. I did not expect economic stimulus to be announced, and he did not do it. As a matter of fact, he reiterated his FOMC statement from August 8th. He said they are ready if something bad develops, but they are not wild about doing anything right now. He punted the ball to the Congress and the administration on August 8th by saying he would keep interest rates at 0% into 2013.

Now he punted again. He told the administration and Congress that they had better get busy with creating long-term solutions to our economy, including better tax policies and rates and getting the regulatory policies in line to promote long-term growth. Even Princeton-educated Bernanke is saying we have problems with the tax rates and problems with the regulations coming out of Washington by the book full each week. That is not how we became great, and it certainly will not get us back to greatness. We have to make some change.

Some will take offense to this, but I thought it was humorous. Today I heard the President talking to the people in the path of the storm. He said if they are told to leave, then they should leave. I had to open my mouth and say that should apply to the people in DC as well President and Congress. Some laughed and some hissed. Some continued to sleep. That was nothing new.

Bernanke did have some rather asinine comments about the debt debate, saying we need to work through these problems without having the kind of debate we had with the debt ceiling. As I said before, that misses the point. We are a country born through debate. We protect speech in our Constitution. It is in our founding document, so we are supposed to talk things out. We are supposed to have heated debate. If you believe in something, you should stand up and passionately represent that belief. You should not do the politically correct thing and knuckle under because the President says that debate is bad for the country. I do not know where that came from. The Founding Fathers of this country were at each other in debate; it is our history for sure. We fought a war to get away from a king who did not want you to say anything bad about him. If you did, you may have ended up missing or dead. Our main enemy for years was the Soviet Union, and dissenters there would disappear in the night never to be seen again.

We have to have debate. We have to be able to say when something is wrong, "The emperor has no clothes," etc. That is our history, but I digress. I just want to draw it all together because I hear so much nonsense every day from supposedly learned scholars and leaders. They say the stupidest things and think they are being smart. They forget that the means are as important as the ends in the United States of America.

When the futures were trading in the morning, things were a bit worrisome since they were lower. Not crashingly low, but lower. There was a problem perceived ahead of Mr. Bernanke's speech in that the ECB and the Fed had opened up a $500B swap line. When that was announced, European markets that had traded stronger promptly reversed and sold off. It was "Oh my gosh, something is up and we do not know what" kind of trade. That dragged U.S. futures down with it, but we did recover.

GDP was worse than expected, but not unbearable. It came in at 1% versus 1.1% expected. The original read was 1.3%. It did not fall below 1%, which was a relief. As Rick Santelli said on CNBC this morning, it is a sad state of affairs when everyone breathes a sigh of relief when it is not below 1%. 1% is atrocious for the USA. Frankly, 1% is probably not where it will stay since the economy has steadily worsened since January. We could still see it falling further.

Michigan Sentiment came in a bit light but better than July. 55.7 when 55.8 expected. Everyone said "whew," since it was not worse on that one either. But that misses the point as well. This is terrible Sentiment. This is bottom of the barrel. We are in a recession, everyone is depressed and worried about their job, their next paycheck, and worried if their kids will go to college. It is not even like Trading Places where Dan Aykroyd tells Eddie Murphy how it is in the pits. One minute you are in great shape, and then in the next they repossess your Bentley and your kids can't go to college. Lately it has just been the latter. In addition to the Bentleys, however, they are repossessing Volkswagens, Chevy trucks, and GMC Suburbans. Things are not good and the sentiment reflects that.

To hear some of the talking heads in New York and on the financial stations, things are fine because a lot of monstrous companies have huge amounts of money sitting in the bank. Things must be great because their profits are great. But some smart people who are supply-side economists forget that big business is not the business of the United States. Small business is the backbone of this country, and that is where jobs come from. We miss the point If we take comfort in a bunch of giant corporations that got huge subsidies and payments out of the so-called stimulus package passed in Obama's first year. We are in serious trouble. If we do not do something quickly, we could lose the golden goose and the driver of our economy for an indefinite period.

But, holy cow, we have the September speech coming. That certainly will solve all our problems. There is talk of 4% nationwide refinancing for everybody's houses. Supposedly that will put money in their pockets. There will be shovel-ready projects focused on jobs, but those are the busy-work jobs. You dig a ditch and then you fill the ditch. John Maynard Keynes says that is stimulus, but it is not. As soon as you take away the stimulus, there is no more activity. Lest you forget, the money that paid that that guy digging the ditch comes from taxing someone who actually had a productive endeavor. They are taking money from a productive area that people obviously want because it is making money, and they are putting it in an area that does absolutely nothing. Once the stimulus is gone, the work and money created, if any, is gone as well. That was a lot of talk about policy, but let's look back to the market.

It was not a bad session. Stocks did trade sharply lower after Bernanke's announcement (or lack of announcement). But they reversed nicely and posted up solid gains across the board. Looking at an intraday chart, you can see the dip, the reversal, and then back up into lunch. They kind of sold off in the back half of the afternoon but rebounded into the close.

SP500, +1.5%; NASDAQ, +2.5%; Dow, +1.2%; SP600, +2.3%; SOX, +2.8%.

It seems the market was heartened by the fact that the Fed felt things were not bad enough to jump in with stimulus right now. The market thought maybe Ben Bernanke knows what is going on. Why that would be the case I have no idea, but they took it and ran with it. I do not have a problem with that. We picked up some positions early such as CMG. It did very well. Nice break off of the neat test of the trendline. We picked up SMTC as well, and it posted a nice move. A little double bottom. We got a little FCX. Copper may be coming back from the dead.

It was worth picking up some upside positions as the market reversed, and we will see what happens next week. The indices look pretty decent overall. They closed off well, so there is what I call the Relief Rally Part II in gear for a continued attempt to the upside. Thursday was shaky. Early Friday was not great, but it got it out of its system. Now we could get that additional rally. I do not think it will turn things over. Maybe the Fed does come out with QE3 that actually takes the market and breaks it out of this range over the April peaks. Maybe. But that is all rank speculation right now. I am looking for the pragmatic and the obvious, and that is a move to the November high as step one.


OTHER MARKETS

The other markets reacted, of course, to Ben Bernanke's lack of stimulus as well.

Dollar: 1.4488 versus 1.4386 Euro. Ugly day. Not great, but looking at the chart, the dollar is just in the range it has been for the past six weeks. It is going nowhere despite worries that Europe is going into a depression, not just a recession. That is strange. Is someone intervening? No one is saying anything about it, but it is strange that the dollar is having no headway as Europe sinks, supposedly, closer to depression. Everything I hear is that things are very bad in Europe. That makes the dollar's movement very strange indeed.

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


Bonds: 2.19% versus 2.23% 10 year U.S. Treasury. Bonds rallied. No stimulus. You would think bonds would sell because there would be no buying, but that was not the case. A little worry here because bonds should not be moving up if everyone feels so comfortable with the economy and has such confidence in Ben Bernanke.

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


Gold: $1,797.30, +34.10. Gold traders jumped right back in, all over the yellow stuff. A pretty big move. There was a big reversal. Three days down, big reversal Thursday, and a bounce higher on Friday. Gold is showing no signs of abating its move. That would suggest fear is still there. That is interesting since Ben Bernanke said no stimulus from us "No mas," as Roberto Duran said many years ago, quite famously. Gold still is running higher as if there was inflation and fear. That means there is probably inflation and fear ahead.

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


Oil: $85.37, +0.07. Oil was flat on the day. It was down over two clicks intraday ahead of Bernanke on worries of what he would do. When he said he did not feel it was necessary to initiate any stimulus, oil recovered.

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


The other markets were mixed in their reaction. They were not exactly what you would expect, and that shows that a lot of investors do not know what to expect. You have a strange situation now with all kinds of intervention from governments and quasi-governmental agencies namely the Fed. That totally confuses markets. That is why the dollar is muddling sideways. It does not know who will come in, how they will come in, and what they will do. Gold is running higher simply because people do not know what is going on, but they do not have a good feeling about it. U.S. bonds keep rising as well. Why? Because people do not know what will happen here either, and they are taking in some safe haven with U.S. Treasuries. That seems strange as can be, but that is the mix we are getting. Oh, this just in: Hurricane Irene is still a hurricane.


TECHNICAL SUMMARY

INTERNALS.

The internals were kind of lackluster, but not that bad.

Volume. Volume was up on NASDAQ, 1.8B shares, up 3%. It was down 6% on the NYSE to 1.04B. It is Friday. It is a Ben Bernanke day, it is a hurricane day, and it is a post-Buffett "Feeling good about America because of a back-room deal (but we will not tell anyone that)" kind of week.

Breadth. After being down -4:1, breadth jumped back to 3.6:1 to the upside on NASDAQ. It jumped to 4.3:1 advancers over decliners on the NYSE after a -2.8:1 decline on Thursday. Very solid breadth as the market reversed. You have to like that.


CHARTS

SP500. Looking at the picture of the SP500, you can see the reach lower and the reversal. This is good action. We have the double bottom. We are having a test, and note how the buyers jumped right back in. The sellers lost, the buyers won, closing out the session positive with a 1.5% gain. We are still looking for that move up to the November peak. Originally we were looking for March and even June lows as a possibility. It may still hit there, but we are not going to get that far ahead given the amount of trouble we have had just getting past this point.

We are still looking for a break upside. It did itself a world of good after looking pretty shaky on Thursday. The reach lower and reversal really looks solid. Of course we have to watch out for Monday. We had a lot of strange events this week ending with the Bernanke speech on Friday, and we are having the hurricane as well. There could still be interesting action in the coming week, but it did itself a world of good. We are looking for a bounce higher, maybe to the 50 day EMA as it is pretty close to that November peak. It is also right at this December little test back to the 10 day EMA.

Looking for that move. After that we are not looking for any kind of breakout. Not even a move past 1260 on the SP500. We are looking for a rollover. That is, unless the Fed comes in with some kind of stimulus. Or the Obama administration actually comes up with some real stimulus. I do not know about that. Even if it does, Congress will never pass it. But I digress.

NASDAQ. NASDAQ posted an excellent day, trying to take the lead back with a 2.5% gain. It is at a rebound high now, just edging out the Thursday peak before the market reversed that session. This puts it right at the bottom of the November 2010 consolidation. Things get interesting here. We are also coming into the gap point, filling more of it. I think it will fill it, and then we will get up close to this August peak. That puts it still a bit below that November peak. It has room to move. As with SP500, it did itself a world of good on Friday.

SP600. Nice action for the SP600 as well. Reached lower, reversed, closed positive. No new high on the rally on this leg of it thus far. But it is a good, credible move with a 2.3% gain. It, too, has placed itself in position to bounce higher and continue the relief move come Monday.

SOX. SOX posted a very solid 2.8% gain. It gapped lower, reached down as well and has rebounded. Still not at the high on this leg, but it is cutting into that gap point and has room to run. Several semiconductors actually look like they are worth buying for trades to the upside. I am not saying they are a good investment for the long term, but they have sold off. They look like they are sold out and are ready to move higher, e.g., SMTC. It has a neat double bottom and some good volume to the upside after a higher low on MACD as the stock price made a lower low. We have a little upside momentum that we will take advantage of.


LEADERSHIP

Technology. AAPL posted a great day. We had Steve Jobs stepping down as CEO, and AAPL took a bit of a hit on Thursday. On Friday it came right back. Very nice pattern. I like what I am seeing. I hope Steve Jobs has a recovery.

Software is performing just fine. We have a position in CERN, and it is blazing to the upside yet again. Looking quite good, very strong. We are seeing semiconductors trying to pull off these moves as well. I already talked about SMTC with its good move. KLIC looks like it wants to make a break to the upside as well, doing itself some good work on Friday. Coming back from that Thursday turn.

A lot of these stocks suffered engulfing patterns on Thursday. Some of the indices did as well, but they redeemed themselves somewhat on Friday. Goes to show you how the day-to-day volatility is very high. Buyers and sellers are still fighting it out. As long as they can maintain this lateral move with the double bottom, they have a good chance of making the break higher and continuing the relief bounce.

Financial. JPM gapped lower. It recovered some ground, but not impressive. WFC is not impressive. BAC also not impressive even with $5B of Warren Buffett's money. Of course, if it did not need the money, it would not have made this deal. It was not a good deal for BAC as it gave those warrants out. There are people saying that the company is strong because it did this deal. No. I am not buying that.

Industrial. CAT reversed again. It is still not there. It has better volume. It is trying to make the move higher. JOYG is a very similar position, trying to make that break higher. UTX looks good. It looks just like SP500. Cannot complain about that.

Energy. BTU is continuing its move to the upside. I kind of like that. Not a huge run but not bad. HAL is not bad. It has its own engulfing pattern. It gapped lower and reversed upside. Closed positive, completely swallowing the Thursday price action. That is a positive.

Retail. TIF announced it was actually having good results, and it raised its outlook and gapped above the 200 day EMA. YUM has been very volatile the last three sessions, but it has had a good move off its lows. Possibility of a trade to the upside. Not bad action at all. There are retailers out there that are showing a little life. BWLD is very volatile but trying to hold the trendline and move higher. CMG held a nice test of its lower trendline in the channel and a good solid break upside on rising volume.


THE MARKET

SENTIMENT INDICATORS

VIX. The VIX spiked higher on Friday and then reversed. It is heading very high. If this was a stock, it is narrowing into something of a triangle or a pennant after this nice surge to the upside. It suggests a break to the upside is coming and some more selling. Before that happens, it looks to me like we will get an additional relief bounce. After that it may roll over and then it may get truly ugly. That is what volatility is suggesting to me. We will keep an eye on this. It is suggesting a further break higher. If that is the case, stocks will be heading the other direction.

VIX: 35.59; -4.17
VXN: 34.49; -4.94
VXO: 35.87; -3.87

Put/Call Ratio (CBOE): 1.18; -0.11


Bulls versus Bears:

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

Not pricing in a lot of fear, the one indicator that is not showing the high levels that would suggest a turn.

Bulls: 40.9% versus 46.2%. Finally a significant drop after stubbornly holding the line (47.2% three weeks back). Moving toward that late June low near 38% Fibonacci Retracement. Hit 49.5% a month back. Highs from April and December (60% readings spanning December through early May 2011). The 5 year high is 62.0. The crossover level at 29% bulls from July 2010 is long gone. 35% is the threshold level suggesting bullishness. To be seriously bearish it needs to get up to the 60% to 65% level.

Bears: 33.3% versus 23.7%. Honey, that is a spike higher. After two weeks at 23.7% bears broke loose and are roaming the markets. This is more indication of the negative sentiment that helps drive markets higher. Almost to the 35% considered bullish. The 35% level is considered bullish for the market overall. 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: +60.22 points (+2.49%) to close at 2479.85
Volume: 1.839B (+3.08%)

Up Volume: 1.66B (+1.479B)
Down Volume: 193.65M (-1.436B)

A/D and Hi/Lo: Advancers led 3.57 to 1
Previous Session: Decliners led 4.07 to 1

New Highs: 10 (0)
New Lows: 107 (+42)

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: +17.53 points (+1.51%) to close at 1176.8
NYSE Volume: 1.044B (-6.2%)

Up Volume: 3.83B (+2.23B)
Down Volume: 400.19M (-3.17B)

A/D and Hi/Lo: Advancers led 4.29 to 1
Previous Session: Decliners led 2.84 to 1

New Highs: 34 (+1)
New Lows: 119 (+50)

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

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


DJ30

Stats: +134.72 points (+1.21%) to close at 11284.54
Volume DJ30: 244M shares Friday versus 255M shares Thursday.

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


MONDAY

If we thought this past week was busy, next week will be even more so. It will start off with the aftermath of the hurricane on Monday. Both the NASDAQ and the NYSE say they will be open regardless. Good for them. It looks like the hurricane is slowing down in its intensity. It is quick-moving and the intensity is dropping off, and that is exactly the scenario you want. You do not want the storm to have time to develop further as a slow-moving storm will. It is dragging in some dry air, and that is helping weaken it. The path is not good, but the prognosis is improving dramatically because of these factors that are weakening the storm. Believe me, having sweated these out before, it is wonderful news to hear that it is sucking in dry air, moving fast, and losing power.

We have a lot of economic data starting with Personal Income and Spending on Monday. Then there are Pending Home Sales. Consumer Confidence comes in on Tuesday. There is also Case/Shiller. ADP employment comes in on Friday. There is the very important Chicago PMI. It is expected to drop precipitously but remain in expansion levels. Factory orders are on Wednesday as well. Thursday there is Initial Claims and Productivity. The ISM index is expected to contract. That is important. We also have Construction Spending. Friday brings Nonfarm Payrolls, and it is expected to fall. Unemployment is expected to hold. It is all a guess right now. We will keep watching the important average workweek. It has not been rising.

That is a lot of economic data to swallow. That is good; the market needs a continuing catalyst. Maybe it will get it. There is also the new month on Thursday. We may see some painting of the tape heading into that. That could be good for the stock market and the relief rally. Then we could get some new money put into the system on Thursday which would also be, of course, good for the stock market relief rally. I still say it is a relief rally at this point. We are looking for a continued move up on Part II of the bounce, trying to get up to that November peak first. We will continue to look for plays in that direction. We picked up some downside plays last week, and we picked up some upside plays as well. We are balanced.

By no means is this a done deal. The last time the market bounced, it stalled below the 20 day EMA. It tapped at it on Thursday and fell back. It will get another shot on Friday. It had has a big dose of strength at least buyers in the wings because the indices reached down on Friday and then reversed positive to post very nice gains. We will look at more upside in line with this. Some stocks are improving after lying dormant or looking relatively crappy for quite some time.

We may not get long-term investments out of them, but we can get trades out of them as discussed with stocks such as YUM. This is a break through key resistance, a test of that break, and a move back up. We will be looking for those kinds of plays to take advantage of a further relief rally to the upside.

Again, I am not expecting these individual stocks to break out of resistance or the indices to break out of their trading range/resistance areas. No. We are looking to make money to the upside either to the November peak or to the March and June lows. If we get anything beyond that, we will be happy because we will let positions run. We always do. But I do not expect it. There is nothing at this point to suggest it will happen.

There is no new stimulus from the Fed. In fact, the Fed punted over to Congress and the administration. But that very well could be part of the game plan. The Obama administration could have the Fed saying they will not do anything and it is up to the President and Congress. Then Obama comes out with his stimulus package that is a bunch of repackaged Keynesian ideas with maybe one supply-side idea from Art Laffer on top of it. You know he will point to Warren Buffett saying that we should cut one little area of taxes, but we should raise taxes on everyone making 250K dollars or more. That is not going to fly with anyone. I still think it is a plan for reelection versus a plan for saving the economy.

Call me cynical. Call me un-American. Whatever. Some people might call me worse than that because I am talking about the President, but this is the way these guys think. Most of them are all about getting reelected. You have to factor that into anything. I do not take anything at face value when it comes out of DC, that is for sure.

In any event, whatever they decide, it is probably all part of a plan. That plan is also to help gin up the stock market. If they will try that, we will play that move as long as the technical show us that. After it gets up on this bounce, I am not so sure it will be able to maintain it unless the Fed starts forking over the money in terms of liquidity. No policies that Obama puts forth (whether they could pass or not) are not the kind that will turn the economy enough to warrant substantial and sustained gains in the market without Fed liquidity. That is just the way it is. Again, call me cynical, but I know how these guys think. I have seen it before; I study history as everyone should.

We will play this upside, and then we will let it ride as far as it will. If we are pleasantly surprised, so be it. I am happy with that. I hope everything does work out, but I am not expecting it to.

Have a great weekend! I will see you on Monday after the hurricane.


Support and Resistance

NASDAQ: Closed at 2479.85

Resistance:
The 20 day EMA at 2507
2512 is last week's gap down point
2532 is the early August gap down point
2540 is the early November 2010 lower gap point
2555 is the mid-August 2011 peak
2569 is the November gap up point through the April 2010 peak
2580 is the November 2010 closing high
2599 is the June 2011 low
2603 is the March 2011 intraday low (post-Japan low)
The 50 day EMA at 2611
2645-2650ish from December 2010 consolidation
2676 is the January 2010 low
2686 is the January 2011 closing low
The 200 day SMA at 2704
2706 to 2705 is the April 2011 low and the February 2011 and consolidation low (bottom of the trading range) 2723 to 2705 is the range of support at the bottom of the January to May trading range
2759 is the May low
2762 is the February low
2796 is the February gap down point
2816 is the early April peak.
2825 is the 2007 closing peak.
2841 is the February 2011 peak
2862 is the 2007 peak
2879 is the July 2011 peak
2888 is the May 2011 peak


Support:
2469 is the November 2010 low
2331 from October 2010 low and the August 2011 low
2305 from the August 2010 peak (summertime base)
2139 is the May and June 2010 low
2123 is the August 2010 gap down point
2100 from the August 2010 lows


S&P 500: Closed at 1176.80
Resistance:
1178-1180 is the October 2010/November 2010 consolidation low
The 20 day EMA at 1190
1196 is the November 2010 consolidation peak
1209 is the mid-August 2011 high
1220 is the April 2010 peak
1227 is the November 2010 peak
1234 is the August 2011 low
1235 is the mid-December 2010 consolidation low
The 50 day EMA at 1238
1249 is the March 2011 low (post-Japan)
1255 is the late December 2010 consolidation range
1275 is the January 2010 low, early January 2011 peak
The 200 day SMA at 1284
1295 to 1294 is the April 2011 low and the February 2011 consolidation low (bottom of the trading range)
1313 from the August 2008 interim peak
1318.51 is the May low
1325-27 is the March 2008 closing low and the May 2006 peak.
1332 is the early March peak
1340 is the early April 2011 peak
1344 is the February 2011 peak is being challenged again
1357 is the July 2011 peak
1364 is the March 2007 low
1370 is the August 2007 low
1371 is the recent May 2011 peak

Support:
1131 - 1127 from August 2010 base peak.
1119 is the early August closing low
1109 is the mid-September gap up point
1101 is the August 2011 low
1099 from the mid-July interim peak
1040 from the August 2010 lows and May/June 2010 lows
1011 is the summer 2010 low


Dow: Closed at 11,284.54
Resistance:
The 20 day EMA at 11,375
11,452 is the November 2010 peak
11,555 is the March low
The August low at 11,700
11,734 from 11-98 peak
The 50 day EMA at 11,758
11,867 from the August 2009 high and peak on that bounce in the selling.
11,893 from March 2008 closing low
The June low at 11,897 (closing)
The 200 day SMA at 11,987
12,094 is the April 2011 low
12,110 from the March 2007 closing low
12,283 is the March 2011 peak
12,391 is the February 2011 peak
12,876 is the May high
12,754 is the July intraday peak
13,058 from the May 2008 peak on that bounce in the selling

Support:
11,178 from November 2010
10,978 is the bottom of the November 2010 consolidation
10,750 from September 2010
10,720 is the August closing low
10,705-710 from January 2010 peak
10,694-700 from August 2010 peak
9938 is the August 2010 low


Economic Calendar

August 23 - Tuesday
New Home Sales, July (10:00): -0.7%. 298K actual versus 310K expected, 300K prior (revised from 312K)
Inventories: 6.6 months versus 6.3 months prior (Existing home sale inventory 9+ months)
Richmond Fed, August (10:00): -10.0, lowest since 6/09

August 24 - Wednesday
MBA Mortgage Index, 08/20 (7:00): -2.4% actual versus +4.1% prior
Durable Orders, July (8:30): 4.0% actual versus 1.9% expected, -1.3% prior (revised from -1.9%)
Durable Orders -ex T, July (8:30): 0.7% actual versus -0.5% expected, 0.6% prior (revised from 0.4%)
FHFA Housing Price I, June (10:00): 0.9% actual versus 0.4% prior
Crude Inventories, 08/20 (10:30): -2.213M actual versus 4.233M prior

August 25 - Thursday
Initial Claims, 08/20 (8:30): 417K actual versus 400K expected, 412K prior (revised from 408K)
Continuing Claims, 08/13 (8:30): 3641K actual versus 3700K expected, 3721K prior (revised from 3702K)

August 26 - Friday
GDP - Second Estimate, Q2 (8:30): 1.0% actual versus 1.1% expected, 1.3% prior
GDP Deflator - 2nd estimate, Q2 (8:30): 2.4% actual versus 2.3% expected, 2.3% prior
Michigan Sentiment - Final, August (9:55): 55.7 actual versus 55.8 expected, 54.9 prior

August 29 - Monday
Personal Income, July (8:30): 0.4% expected, 0.1% prior
Personal Spending, July (8:30): 0.5% expected, -0.2% prior
PCE Prices - Core, July (8:30): 0.2% expected, 0.1% prior
Pending Home Sales, June (10:00): -1.4% expected, 2.4% prior

August 30 - Tuesday
Case-Shiller 20-city, June (9:00): -4.7% expected, -4.51% prior
Consumer Confidence, August (10:00): 52.0 expected, 59.5 prior

August 31 - Wednesday
MBA Mortgage Index, 08/27 (7:00): -2.4% prior
Challenger Job Cuts, August (7:30): 59.4% prior
ADP Employment Chang, August (8:15): 100K expected, 114K prior
Chicago PMI, August (9:45): 52.5 expected, 58.8 prior
Factory Orders, July (10:00): 1.8% expected, -0.8% prior
Crude Inventories, 08/27 (10:30): -2.213M prior

September 1 - Thursday
Initial Claims, 08/27 (8:30): 408K expected, 417K prior
Continuing Claims, 08/20 (8:30): 3660K expected, 3641K prior
Productivity-Rev., Q2 (8:30): -0.5% expected, -0.3% prior
Unit Labor Costs - R, Q2 (8:30): 2.4% expected, 2.2% prior
ISM Index, August (10:00): 48.5 expected, 50.9 prior
Construction Spending, July (10:00): 0.1% expected, 0.2% prior
Auto Sales, September (15:00): 3.93M prior
Truck Sales, September (15:00): 5.56M prior

September 2 - Friday
Nonfarm Payrolls, August (8:30): 75K expected, 117K prior
Nonfarm Private Payrolls, August (8:30): 111K expected, 154K prior
Unemployment Rate, August (8:30): 9.1% expected, 9.1% prior
Hourly Earnings, August (8:30): 0.2% expected, 0.4% prior
Average Workweek, August (8:30): 34.3 expected, 34.3 prior

By: Jon Johnson, Editor
Copyright 2011 | All Rights Reserved

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

Technorati tags:

Sunday, August 21, 2011

Second Bounce May Set up for More Downside

SUMMARY:

- Good start to the week and the relief rally, but that bounce was rolled by more European and US economic worries.
- Friday finds stocks back down at the summer 2010 base highs and last week's lows.
- JPM and Citi join the party, and MS, in downgrading the US economic outlook.
- Second test of Summer 2010 base: double bottom or a continuation of a new rollover?
- Ready to play a second bounce, but as a setup for more downside.


MARKET SUMMARY

Stocks are back where they started two weeks back, trying to put in a second bottom.

Stocks ended the week where they found themselves two weeks ago, sitting on top of the Summer 2010 consolidation base. That inverted head and shoulders was the springboard for the two legs to the upside into January of 2011. Of course, that was aided by QE2 that Bernanke announced after his Jackson Hole summit in late August. Lo and behold, on Friday next week there is another Jackson Hole economic summit by the Federal Reserve chairman. Many people are looking that way for some salvation for a market that has given up the entirety of that run off of the QE2 implementation.

It was a good start for the week. On Monday stocks blew through the 10 day EMA. They looked to have broken free, ready to continue a nice relief bounce either to that November peak or all the way up to the March and June lows at 1260 on the SP500. It was not to be. Even though there was some poor economic data on Monday with Empire Manufacturing coming in negative yet again, the market still managed to rally. Tuesday is where it ran into trouble, however. It reversed but it did not totally give up the move.

What was the problem? More economic data. Housing Starts were not good, but Industrial Production and Capacity Utilization topped expectations and were at levels not seen for two to three years. There was improvement there. Nonetheless, the market met its old nemesis, and that would be the problems with Europe. Europe is teetering on the verge of collapse. Germany may be the only one left standing in terms of the economy. That would be kind of ironic. I know no one wants to hear it, but history has a great sense of irony sometimes. In World War II, Germany tried to take over all of Europe and basically the rest of the world. Now, since it went through all the austerity measures before anyone else, its economy could be the only surviving member in Europe. I know the times and the motives are totally different, but if you are a student of history, you will notice the ironies.

It is also ironic that the U.S. is trying to pull out of its recession (I call it a depression) by using the same tactics that prolonged the 1930's depression and the 1970's recession. They like to call this the Great Recession, but it is really a depression. It will turn into a longer-term depression if we continue to implement these policies. But all will be well. We all know that President Obama knows what to do, and he will tell us all about it on September 5th or thereabouts.

Herman Cain, one of the Republican presidential hopefuls, has an interesting plan that he calls 9-9-9. He wants to reduce taxes for individuals and corporations to 9% and he wants to implement a 9% sales tax. I am not sure what the other 9 is. The ultimate goal is to eliminate the income tax entirely and put it all into a national sales tax. It will be interesting to see what the President comes up with. As we all know, it will basically be a political campaign ploy versus a real attempt to help the economy. Some will say I am cynical, and some are saying I would rather see the economy go down. That is not true. I just know what the President has said in the past. I know his past, and I know what is most important to him based on his actions and what he has said. I am not going to attribute anything to anybody that their actions and speech do not warrant.

After that digression, I will turn back to what happened on the week. Wednesday we had the PPI, and it was hotter than expected. Look at that core, jumping up 0.4%, twice what was anticipated. Thursday was very important data. Jobless claims are back over 400K no surprise there. The CPI was up to 0.5%, more than twice expectations. Existing Home Sales were terrible. Really plunging. The Philly Fed was -30.7. Manufacturing is in trouble. We all know manufacturing helped lead the economy out of the recession. Although, when you look at it, manufacturing was it. That was the zenith for the recovery, and it was all aided by the liquidity.

The market figured it out. It is worried about Europe, it is worried over just about everything economically, and it sold off. Again it finds itself at those August 2010 peaks, trying to hold. It is also above the August 2011 peak. There are possibilities here. Indeed, there are some very smart market players out there who believe the market is putting in a double bottom and will bounce off of this. It is definitely a "scare them out" market versus a "wear them out" market. There are dives lower, big spikes to the upside, and dives back downside. It definitely had the extremes hit on breadth, on new lows, on the VIX, and on the put/call ratio. You name it.

The bulls versus the bears are basically unchanged, and I find that totally shocking. I read this in Investor's Business Daily. Bulls levels are at 46.2% (47% the prior week), and bears were flat at 23.7%. Not a budge even with all the negatives.

Friday the market failed to find any traction yet again. It started lower. There was no economic news released, so it was just falling of its own accord, but it did reverse. All of the indices traded higher in that first hour and a half, looking solid. But that was it, and they could not hold the move. They sold back and continued to bleed off the rest of the session. They closed with losses once again, and they were again back down at that early-August low and the summer of 2010 highs.

NASDAQ, -1.6%; SP500, -1.5%; Dow, -1.6%; SP600, -1.5%; SOX, -1.8%.

It was a pretty good licking' once again. Some commentators noted and this was true and humorous in a macabre sense that this was this was not much of a selloff compared to what we have seen of late with the volatility. It is sliding down to the prior lows just to get out of town ahead of the weekend. I felt there might have been some short covering coming. It started early in the morning, but it could not hold. It had been a whopping downside week, and I felt the shorts might not want to be short over the weekend. I guess they figured there is more chance of a bad news story coming out of Europe than there is of something positive coming from anywhere else in the world.

Accordingly, stocks slid down and closed at the session low. Interestingly, JPM and Citi joined MS in saying that the U.S. economy was cruddy and heading lower versus improving. JPM reduced its Q4 GDP estimate to 1% versus the 2.5% forecasted prior. The Q1 of 2012 was reduced to 0.5%. Took them long enough. Things are definitely not improving, and there is little hope of improvement. That is the key looking ahead. Markets forecast into the future, and what hope is there of improvement?

Leading Economic Indicators may have risen for July, but those indicators are notoriously incorrect. The ECRI does not look as rosy as it has in the past. It is turning back down as well. When you see the trends, there is nothing to really promote rising stock prices. Yes, there are profits in large corporations, but they are holding that money. There is no reason to spend the money given the policies in place, and that is something we have seen many times in several episodes over U.S. economic history.

When there is no reason to spend the money because the risk/reward is not there (due to regulation, government intervention, etc.), the money is not spent. It has time, and it waits for a conducive environment. Maybe it is Herman Cain's 9-9-9 plan or something like it that will unleash it. I guarantee you that infrastructure spending, pump-priming projects, and repackaged Keynesian ideas are not going to work. I was texting back and forth with some colleagues today, and I posed this question to all: Is this economic performance the last bit of evidence we need to once and for all debunk Keynesian theories and forever throw them on the scrap heap of economic ideas? To a man and woman, they all said yes. This has proved again that it does not work.

The market is not showing any reason put in any kind of sustained rally. It has to have something positive to factor in. It may bounce from here. It may very well be a second bottom. I have talked about how I think the market could rise back up from here with, for example, SP500 rallying near the 1260 level. Or maybe it takes out that November peak but tops the recent high it rolled over from this week, forming that downside ABCD pattern that leads to more selling. We will see. I think there very well could be a bounce from this level. It is a key level with the very extreme indicators that were shown the past two weeks in terms of new lows, breadth, volatility, put/call ratio, and fear levels in general. I think it could put in a bounce here and make that little double bottom. I do not think there will be a breakout of the range. I anticipate a rollover and further selling back down to (or through) the bottom of the 2010 base.


OTHER MARKETS

Dollar: 1.4394 versus 1.4335 Euro. The dollar fell slightly. It was up; it was down; and it closed in the middle of the road for the day. With Europe teetering, you would think the dollar would be rising sharply. It is a testament to the U.S. weakness that it is not. It remains muddled in its five-week lateral move after falling out of the base that was trying to consolidate its trend break. It is tenacious, I will say that. It reminds me of oil when it would not break down for so long but finally did. It kept moving laterally and kept trying to fight back, but it ultimately broke. That may be the plight of the dollar. I do not know. It is waiting as it seems everyone else is on what the Fed will do. Maybe someone is waiting on what Mr. Obama says, but I think the market figured out what kind of stimulus he would propose. The market is more focused on what Bernanke and the Federal Reserve will do come next week at Jackson Hole. Will there be another late-summer Quantitative Easing or some other form of Quantitative Easing announcement that the market can latch hold of and rally under the promise of renewed liquidity?

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


Bonds: 2.07% versus 2.08% 10 year U.S. Treasury. Bonds were on an incredible tear. For the week, it touched down below 2%, hitting 1.97% on the 10 year yield on Wednesday. As I noted before, the all-time low for the 10 year is 1.67%, hit back in 1945. Bonds are on a tear because of fear for the U.S. economy and fear around the world for global economies. That fear is pushing back worries of inflation for the moment.

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


Gold: $1,851.50, +29.50. Gold is the barometer of fear, and it may be making a blow-off top. It may not be. It closed well off of its high. A very strong move underway by gold even though it closed off of its high significantly. Unbelievable run. It is getting into absurd overbought conditions, but fear has a way of continuing until the lemmings run out of land.

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


Oil: $82.26, -0.12. Oil closed basically flat. It was trying to double bottom, similar to the market. It sold off sharply as anticipated and it bounced as anticipated. Now it is on the selloff again. There is some important support from October and November of 2010, and it is again trying to hold those levels. It was trading to them on the Friday low and reversing to close flat. Very important move for oil. I would love to see it break down because a lot of people say it just means the economy is going to pot. It already is we do not have to worry about that. We need to worry about whether consumers can make it through the next downturn, and lower oil prices would help them do just that.

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


TECHNICAL SUMMARY

INTERNALS.

Volume. There was nothing spectacular on Friday. Volume was lower, down 14% on NASDAQ to 2.3B shares. It fell 5.7% on the NYSE to 1.4B shares.

Breadth. Breadth was nondescript at -2.5:1 on NASDAQ and -2.75:1 on the NYSE. These are not extreme numbers.

New lows. 322 NASDAQ and 332 on NYSE. Recall that they were spiking to close to 1500 and 1900 on the prior selloff. With the indices not hitting those lows, you would not expect New Lows to be spiking yet. Therefore everything remains in place.

There were the massively negative internals on the initial plunge. There was a rebound, and now there is another spike in volatility as the indices have fallen back to the prior August lows as well as the Summer 2010 base highs.


CHARTS

SP500. SP500 is in the position where it can bounce and form that ABCD downside pattern. It could also just bounce and make the break to the upside. I seriously doubt that, but you always watch the market and take what it gives. Position yourself accordingly, but when it comes to more than just determining near-term moves, it is all utter speculation. You see support level after support level broken on the way down. A support level is only good until it holds. Similar to a pattern being just a pretty picture until it can deliver the break.

We are at a key support level. We will see if we get the bounce out of SP500 that may make the breakout. More likely it will just be another bounce that ultimately rolls back over.

NASDAQ. NASDAQ is very similar. It put in a closing low below the prior August closing low, but it is still holding above the 2010 base peaks. NASDAQ is in the same position. It could form an ABCD because there is still a lower low here, but it would have to be more of a traditional double bottom to bounce it. We will see. A lot of resistance here as well. Lots of overhead resistance throughout. It started with the last part of the rally in late 2010, and then this long trading range that broke down.

SP600. SP600 was down 1.5%. It is also at the early-August lows and at the highs of the 2010 base. Same position, same situation as NASDAQ. It put in a new closing low on Friday, but it still has an intraday low that is deeper. We will see if it can put in its own double-bottom bounce. Again, a lot of people are anticipating it, but it has to prove it. I think it could definitely bounce given those extreme measures.

SOX. SOX was down 1.8%. It put in a closing low as well, but perhaps it can set up a double bottom and rally along with the rest of the market. It is at those important four lows from late spring and early summer 2010 that it bounced off successively. It built a decent support level at that range.

All of the indices are at a level where they can bounce. All of them hit extremes on the internals a week ago. They have rallied, that rally failed, and they have come back. Volatility has spiked again. Those old negative extremes are still in place. The indices are still in a position where they can bounce. I expect to see a bounce, but we may not get it. If we do get it, we have to keep our heads and realize it likely will not be the bounce that takes the market out of its troubles.

September and October are still ahead. These are not good times for the economy and not good times for the market. We need something to give us a reason to feel that people will invest back in the United States. There is no investment in the United States right now. I repeat this because it is the same situation we had in the 1970's. There was no reason to invest in the United States.

Right now, with other markets more open than they were back in the 70's, there is even less reason to invest in the United States. Thus money is moving out of the country, and it is staying out of the country from companies that are domestic but earn the money overseas. We have a government that would just as soon drive business overseas than have it stay in the U.S. I do not care what they say about how badly they want to create jobs. They will drive capital offshore if they promulgate and enact policies through Congress or, as we are seeing now, by doing end-runs with executive orders when Congress will not pass what the White House wants. At a minimum, they will make that capital go undercover until there is a change in the policies. We have seen this in history, and it is happening again. There needs to be a dramatic change in policy for businesses from the U.S. and around the world to feel safe about investing in this country once more.

That is why these companies have billions of dollars that they are not doing anything with. If they do something with it, they are afraid the economic environment will not give them as good a return as they need. And if they are successful, they will be a target for the federal government to tax them or take what they have made by putting out the risk.


LEADERSHIP

Most leadership has been destroyed. What we are looking at for upside plays in the market are strong stocks that have come back and formed either patterns that will allow them to rise or have come back to support and want to bounce off of that level. Looking at BIDU, you can see what I am talking about. It is one I put on the report last night, and it has an ABCD pattern set up. There is a strong move and an ABCD. The D point is right at the 200 day EMA. CMG has also set up an ABCD pattern to the upside, and those can bounce.

What I would look for in any bounce are those name brand, household names we talk about that people want to own when they make a move higher. That could also include AAPL. It is not an ABCD, but we could see it set one up early next week. If this last selloff comes down to this prior support level, that would be a beautiful ABCD pattern. We are seeing a total fear trade right now for the stocks that are rallying. MCD is moving higher just because people feel that you have to eat. When people are in times of trouble, they look for comfort food. They will eat out at MCD because it is cheaper and it has comfort food. The stock is performing well.

There are also the beaten-down stocks. These stocks are just sold out and are not going down anymore. RIMM is one of those. It is a takeover speculation play. That is really what is propping it up here, but I do not care what is driving it. If it has a good pattern and moves higher and I can make money off of it, I will. PCLN has sold down to an important support level. This could be a stock that provides a rebound play if the market wants to make a bounce this coming week.

We will be looking at a lot of these stocks. The patterns are not necessarily pretty, but if there is a bounce in the market if this double bottom theory is right or our ABCD theory is correct we can make money off of these stocks. We will just have to see what kind of negatives come out of the weekend with the rest of the world and the U.S.


THE MARKET

SENTIMENT INDICATORS

VIX. Volatility is doing the old double spike here. I talked about that this week, saying that often there will be a twin spike in volatility as it makes its highs. It did the same thing in the summer of 2010, and pretty much every time you go back in history and see spikes in the VIX, you see double spikes. It is typically not a one-day event. The bigger rally comes a few days to weeks after the initial run. We saw an initial bounce off on the markets when the volatility levels spiked. Now the market has rolled back town to the prior lows, and volatility has spiked again. We will see if it helps put the bottom in and starts the market back to the upside in the second bounce I am anticipating.

VIX: 43.05; +0.38
VXN: 43.47; +1.86
VXO: 42.4; +1.47

Put/Call Ratio (CBOE): 1.33; -0.16


Bulls versus Bears:

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

Not pricing in a lot of fear, the one indicator that is not showing the high levels that would suggest a turn.

Bulls: 46.2% versus 47.2%. Still hanging around at this same level, surprisingly not spiking higher with the market issues. Hit 49.5% a month back. Highs from April and December (60% readings spanning December through early May 2011). The 5 year high is 62.0. The crossover level at 29% bulls from July 2010 is long gone. 35% is the threshold level suggesting bullishness. To be seriously bearish it needs to get up to the 60% to 65% level.

Bears: 23.7% versus 23.7%. Bears holding steady as well, down from 24.7% three weeks back. Again going the wrong way. Still up from the 21.5% a month back and still off the July high near 28%. The 35% level is considered bullish for the market overall. 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: -38.59 points (-1.62%) to close at 2341.84
Volume: 2.364B (-14.25%)

Up Volume: 458.26M (+394.28M)
Down Volume: 1.82B (-900M)

A/D and Hi/Lo: Decliners led 2.56 to 1
Previous Session: Decliners led 9.07 to 1

New Highs: 8 (+3)
New Lows: 322 (+65)

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: -17.12 points (-1.5%) to close at 1123.53
NYSE Volume: 1.405B (-5.7%)

Up Volume: 802.55M (+609.86M)
Down Volume: 4.53B (-1.59B)

A/D and Hi/Lo: Decliners led 2.75 to 1
Previous Session: Decliners led 9.39 to 1

New Highs: 52 (-12)
New Lows: 332 (+74)

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

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


DJ30

Stats: -172.93 points (-1.57%) to close at 10817.65
Volume DJ30: 336M shares Friday versus 309M shares Thursday.

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


MONDAY

There is more economic data, although none of it is heavy hitting like we had this week. We have New Home Sales on Tuesday. That is important because we had Existing Home Sales the week before and they were terrible. Durable Orders are out on Wednesday. We have Jobless Claims once again on Thursday. Hope springs eternal; they have them back down to 400K with the early expectations. Then you have the second read of GDP on Friday. It is expected to fall, showing now at 1.1%. That might be a bit optimistic. Things have not picked up; they have gone the other way. I do not expect anything major to the upside.

I want to look at SP500 again because it summarizes everything pretty well. On SP500 we are looking to see if there is a second bounce to play next week. I said if the market failed at the 10 day EMA on this bounce that it would indicate that things were extremely bad in the U.S. economy. Maybe worse than I figured or maybe not. I did not think it would be good in any case. It has failed at that point. The question now is whether the indices will just break through the prior August lows and down into that 2010 base.

If they go straight down from there, that is not good at all. If we bounce higher, it is not necessarily good either, but we can make an upside play out of it. A drop from here does not do us any good. We cannot really play a drop from where the indices closed on Friday. There has already been a big gap lower on Thursday that took a lot of our plays out of contention. That is unfortunate because there were some grand setups. At least we got into some of them. We took some good gains on Friday from some of our downside positions, such as FOSL. It sold early and we took some nice gain off the table. We took some gain off our new LLL position. We finally locked down the rest of the WMBD because it did not look like it would break lower in its pattern. We also look some gain on RAX. EMN was one we just entered. We took some gain there as it sold off but looked like it was holding.

We banked some nice gain on the positions we did get into, and we could have gotten into a dozen more. We are making excellent money on these to the downside. But as I said, it is not necessarily a great place to enter new downside positions. We have to let them set up again. Frankly, the best bet for that is the ABCD I am talking about with the D point coming up somewhere around 1250-1260 on the SP500. We will be watching for that. I anticipate a bounce here. I may be totally wrong, but the indicators were so extreme that this bounce has not unwound what they have done. I think the rubber band is still tight, and they could bounce up one more time before they dissipate and roll back over.

That is what we will be looking to play. Again, if it breaks lower from here there is nothing we can do. We will just have to say "oh, well" and let them set up again. On any bounce we will look for the name brands that I talked about in the leaders and will play those to the upside. We will do the same thing we have done before. As the index moves higher, we will be taking some of our downside off the table. We will start moving into the downside as the move starts to peter out. We cannot wait until the total breakdown comes. We will do what we did: pick up two or three a day to the downside. Then when it breaks we will be well-positioned to take advantage of the fall.

Not a rosy prognosis at all about the future or for the market necessarily. The thing we need to focus on is how we make money in bad times as well as good times. These would definitely qualify as bad times, but we still have to focus on making money. We have made a lot of money during this market volatility. We have had to eat some positions, and that is not fun. We also know they are not necessarily out of contention. With the volatility in this market, things reverse rapidly both upside and downside as we have seen. We have made money on certain positions that maybe we were damn lucky to. Look at the QID position that we had a while back. It gapped away from us and got down, but when the market sold off we ended up making over 70-80% on that position. With this kind of volatility, you will get under water somewhat with the big gaps, but a lot of times it will bail you out.

Mind your positions the best you can. Maximize the gain, minimize the pain, and we will be just fine. We will ride this through as we always have, and we will come out on the other end with more money than we realize. When you look at your account, hopefully you are seeing what I see and it is performing quite well.

Have a great weekend!



Support and Resistance

NASDAQ: Closed at 2341.84

Resistance:
2469 is the November 2010 low
2512 is last week's gap down point
2532 is the early August gap down point
2540 is the early November 2010 lower gap point
The 20 day EMA at 2552
2569 is the November gap up point through the April 2010 peak
2580 is the November 2010 closing high
2599 is the June 2011 low
2603 is the March 2011 intraday low (post-Japan low)
The 50 day EMA at 2651
2645-2650ish from December 2010 consolidation
2676 is the January 2010 low
2686 is the January 2011 closing low
2706 to 2705 is the April 2011 low and the February 2011 and consolidation low (bottom of the trading range) 2723 to 2705 is the range of support at the bottom of the January to May trading range
The 200 day SMA at 2707
2759 is the May low
2762 is the February low
2796 is the February gap down point
2816 is the early April peak.
2825 is the 2007 closing peak.
2841 is the February 2011 peak
2862 is the 2007 peak
2879 is the July 2011 peak
2888 is the May 2011 peak


Support:
2331 from October 2010 low and the August 2011 low
2305 from the August 2010 peak (summertime base)
2139 is the May and June 2010 low
2123 is the August 2010 gap down point
2100 from the August 2010 lows


S&P 500: Closed at 1123.53
Resistance:
1131 - 1127 from August 2010 base peak.
1178-1180 is the October 2010/November 2010 consolidation low
1196 is the November 2010 consolidation peak
The 20 day EMA at 1208
1220 is the April 2010 peak
1227 is the November 2010 peak
1234 is the August 2011 low
1235 is the mid-December 2010 consolidation low
1249 is the March 2011 low (post-Japan)
1255 is the late December 2010 consolidation range
The 50 day EMA at 1255
1275 is the January 2010 low, early January 2011 peak
The 200 day SMA at 1285
1295 to 1294 is the April 2011 low and the February 2011 consolidation low (bottom of the trading range)
1313 from the August 2008 interim peak
1318.51 is the May low
1325-27 is the March 2008 closing low and the May 2006 peak.
1332 is the early March peak
1340 is the early April 2011 peak
1344 is the February 2011 peak is being challenged again
1357 is the July 2011 peak
1364 is the March 2007 low
1370 is the August 2007 low
1371 is the recent May 2011 peak

Support:
1109 is the mid-September gap up point
1101 is the August 2011 low
1099 from the mid-July interim peak
1040 from the August 2010 lows and May/June 2010 lows
1011 is the summer 2010 low


Dow: Closed at 10,817.65
Resistance:
11,178 from November 2010
11,452 is the November 2010 peak
The 20 day EMA at 11,505
11,555 is the March low
The August low at 11,700
11,734 from 11-98 peak
11,867 from the August 2009 high and peak on that bounce in the selling.
11,893 from March 2008 closing low
The June low at 11,897 (closing)
The 50 day EMA at 11,889
The 200 day SMA at 11,993
12,094 is the April 2011 low
12,110 from the March 2007 closing low
12,283 is the March 2011 peak
12,391 is the February 2011 peak
12,876 is the May high
12,754 is the July intraday peak
13,058 from the May 2008 peak on that bounce in the selling

Support:
10,978 is the bottom of the November 2010 consolidation
10,750 from September 2010
10,705-710 from January 2010 peak
10,694-700 from August 2010 peak
9938 is the August 2010 low


Economic Calendar

August 23 - Tuesday
New Home Sales, July (10:00): 310K expected, 312K prior

August 24 - Wednesday
MBA Mortgage Index, 08/20 (7:00): +4.1% prior
Durable Orders, July (8:30): 2.0% expected, -1.9% prior (revised from -2.1%)
Durable Orders -ex T, July (8:30): -0.4% expected, 0.4% prior (revised from 0.1%)
FHFA Housing Price I, June (10:00): 0.4% prior
Crude Inventories, 08/20 (10:30): 4.233M prior

August 25 - Thursday
Initial Claims, 08/20 (8:30): 400K expected, 408K prior
Continuing Claims, 08/13 (8:30): 3700K expected, 3702K prior

August 26 - Friday
GDP - Second Estimate, Q2 (8:30): 1.1% expected, 1.3% prior
GDP Deflator - Second Estimate, Q2 (8:30): 2.3% expected, 2.3% prior
Michigan Sentiment - Final, August (9:55): 55.4 expected, 54.9 prior


August 15 - Monday
Empire Manufacturing, August (8:30): -7.70 actual versus -0.4 expected, -3.76 prior
Net Long-Term TIC Fl, June (9:00): $3.7B actual versus $23.6B prior
NAHB Housing Market Index, August (10:00): 15 actual versus 15 expected, 15 prior

August 16 - Tuesday
Housing Starts, July (8:30): 604K actual versus 608K expected, 613K prior (revised from 629K)
Building Permits, July (8:30): 597K actual versus 606K expected, 617K prior (revised from 624K)
Export Prices ex-agriculture, July (8:30): 0.2% actual versus 0.1% prior (revised from 0.0%)
Import Prices ex-oil, July (8:30): 0.2% actual versus -0.1% prior
Industrial Production, July (9:15): 0.9% actual versus 0.4% expected, 0.4% prior (revised from 0.2%)
Capacity Utilization, July (9:15): 77.5% actual versus 77.0% expected, 76.9% prior (revised from 76.7%)

August 17 - Wednesday
MBA Mortgage Index, 08/13 (7:00): +4.1% actual versus +21.7% prior
PPI, July (8:30): 0.2% actual versus 0.0% expected, -0.4% prior
Core PPI, July (8:30): 0.4% actual versus 0.2% expected, 0.3% prior (revised from 0.4%)
Crude Inventories, 08/13 (10:30): 4.233M actual versus -5.225M prior

August 18 - Thursday
Initial Claims, 08/13 (8:30): 408K actual versus 400K expected, 399K prior (revised from 395K)
Continuing Claims, 08/6 (8:30): 3702K actual versus 3698K expected, 3695K prior (revised from 3688K)
CPI, July (8:30): 0.5% actual versus 0.2% expected, -0.2% prior
Core CPI, July (8:30): 0.2% actual versus 0.2% expected, 0.3% prior
Existing Home Sales, July (10:00): 4.67M actual versus 4.87M expected, 4.84M prior (revised from 4.77M)
Philadelphia Fed, August (10:00): -30.7 actual versus 1.0 expected, 3.20 prior
Leading Economic Indicators, July (10:00): 0.5% actual versus 0.2% expected, 0.3% prior

By: Jon Johnson, Editor
Copyright 2011 | All Rights Reserved

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

Technorati tags:

Sunday, August 14, 2011

Oil Bounced but Looks Ready to Sell

SUMMARY:

- Stocks finish the week adding to the relief rally, but the move didn't scare the sellers.
- July retail sales not bad considering the period it covered, but August Michigan sentiment considers more recent events and dives below expectations.
- Oil has bounced but looks ready to sell again. Doesn't speak well for world economies, but works for lower gas prices.
- Market has nothing to seriously rally for without some kind of further economic change or aid.
- Private insurance mandate overturned by appeals court, setting up a summer 2012 Supreme Court date.
- Still looking for a continued upside relief rally, but for now looks only like a . . . relief rally.


MARKET SUMMARY

Relief bounce continues, but it hits some headwinds Friday.

Stocks finished the week continuing the relief rally that started to gel this past week. "Relief rally" is an awkward term, however, given that the market bounced back and forth each session. For three days in a row, SP500 either gained 50 points or lost 50 points. Friday was the rubber match. It bounced higher, and all the indices managed to put in respectable gains. They were not huge gains, and they certainly did not scare any of the sellers out there. Stocks did close off their highs significantly, and I will talk more about that later. SP500 gave back two-thirds of its gains after stalling below the 10 day EMA. It did not even come close to the November peak.

The Friday session started out all right. It was under water early in the day, but then retail sales came in better than expected. They put in a 0.5% gain, which was in line. The June number was revised upward to 0.3% from just a 0.1% gain previously reported. If you take out autos, they were still solid, coming in at 0.5% again. That was much better than the 0.2% expected. Importantly, June was revised higher again up 0.2% from flat. It is always great to see the revisions to the data, because it shows the experts are too pessimistic. They cling to their old beliefs of weakness or strength just as, I suppose, a lot of America clings to their religion and guns. But I digress. The experts are made to change their ways by the change in the data. I am not saying retail sales are about to explode to the upside, but they are tenaciously hanging on despite all of the weakening indicators in the economy and the negativity in the sentiment.

Another important thing to consider is that retail sales just measure gross dollars. It does not matter if they sell more or less of a product; it is all about price. If the price goes up and they sell less, it may still look like Retail Sales are strong. If we have a lot of inflation, retail sales can literally be inflated by inflation. There would be no net benefit in gained sales, however. You also have to factor in a lot of the expense in retail sales each month. Gasoline builds a lot of the prices. The price of gas has been rampaging. You have to cut that out of the equation because gasoline just represents money we burn in the tank. We do not produce anything with it. We still have to get to work those who have work, that is. There are 14M+ unemployed. But we have to use the gas regardless. If it goes up in price it makes it look like Retail Sales are stronger, so you have to ex out gas as well. Ex out gas and autos, and you then have a 0.3% gain, and that is still very respectable. It is tenaciously hanging in there despite all the negatives we have here and elsewhere.

On Friday we had the same issues about France. Again the worries were that there would be a downgrade. Industrial production was down in June in the EU overall, and there were more rumors that France would go under or be downgraded. Indeed, Italy has passed an emergency package this weekend to try to stave off any kind of collapse.

Stocks were able to rebound on the retail numbers, and that bolstered the open and got stocks moving well. Then a half hour into the trade, we had another important economic report. The preliminary Michigan Sentiment for August was much lower than expected at 54.9 versus 62.5 expected. People felt it would fall anyway, but it was not believed it would fall to these very weak levels that scream recession.

There was a lot to impact people's psyches here. You had the budget debate, and maybe that is what impacted it. You have people thinking, "What do we do? This is such a mess." Congress cannot get its act together and the President can't agree with them either, but that is the way our system works. Sausage-making is not pretty, and unlike the President and many others in Congress republicans and democrats alike it is their job to represent the people who elected them and do what they say. You cannot blame them for doing that. That is what they are supposed to do, and that is what makes the process like kind of ugly.

That is the way the process works, and we need to know how it works. We do not need to be so thin-skinned about it. We need to have principle people there who, whatever side they are on, stick to their guns and try to get the best deal they can. That is what they were doing. It was not a great deal, and it will not really do anything. It did not help prevent a down grade. SP said if we did not do "X," we would get a downgrade, and we did not do "X." It was not even a "Y" we just did something strange.

In any event, it is done. We just have to deal with it and stop being so thinned-skinned. It is good to see retail sales were not bad in the face of all the negative economic data. Of course these were July numbers. A lot of what happened recently was in August, and that was not factored into the Retail Sales numbers. But, as it turns out, people tend to be more thin-skinned than their wallets. Historically that is the case, so I would not expect too much damage from the sausage-making being done in Washington over the debt deal.

Stocks managed to recover, but they were still just a shadow of what they were before the news came out. They were moving well and looked strong, then the rest of the data just was never the same. It kind of frittered away the gains toward the end, and the indices gave up quite a bit of ground.

NASDAQ, +0.6%; SP500, +0.5%; Dow, +1.1%; SP600, +0.34%; SOX, -0.4%. SOX is really being the anchor chain on the market. The chart of the SOX is not great, as you would expect.

Again, this action left stocks with decent gains on the day, all things considered for such a wild week. But they were well off their session lows. Looking at the charts, it looks like they were giving up or running out of gas well below the November peak. NASDAQ is the same thing. It reached up and actually gapped to a doji below the 10 day EMA, right in the middle of the November range. Not great action. The DJ30 did the same thing. It surged to the upside, fell way off the high, not coming close to the November peak. It looks as if they are running out of gas on this relief bounce before they ever got started.

That is going to be the question of the week. Do they turn over right here or will they continue to put forth the relief bounce spawned from the extreme internals and the sharp selling over the last couple of weeks? We also have to worry next week about the European issue and, of course, the U.S. data. There will be a lot out. But a lot of people are pointing only to Europe as it problem. The U.S. has its troubles as well. The data shows that the economy is hanging on, but it is hardly growing after two years of "stimulus," the "Summer of Recovery," and two rounds of Quantitative Easing thrown in by the Federal Reserve. It is pathetic. We are talking 1930's and 1970's kind of growth, which should be no surprise since we are promulgating 1930's and 1970's style economic policies.


OTHER MARKETS

Dollar: 1.4249 versus 1.4223. Off modestly Friday, not moving much on the week. If Europe is in such dire straits, the dollar would be surging. It would but for the fact that the U.S. is not that strong either. Remember, the Fed is keeping interest rates at 0% for the next two years. At least that is offsetting any issues in Europe. As noted, the US economy is not diving, but it is not growing. It has been trailing off all of 2011. That explains why the dollar is not going anywhere versus the Euro even though there are legitimate worries out of the EU.

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


Bonds: 2.25% versus 2.33% 10 year U.S. Treasury. Bonds recovered. It was a huge two weeks for bonds. Bonds are not doing what you would expect if the U.S. economy was performing well. Bonds should be selling off, so bonds are telling the story that the U.S. economy is not as strong as some say it is. Larry Kudlow is saying, "What recession? What recession?" Well, I would say, "What grand expansion?" They are all saying things will be fine and dandy, but bonds are not forecasting that. Bonds are forecasting a weak economy and more Fed Quantitative Easing. What they are not forecasting right now is more inflation, but that will be baked into the cake. With the Fed saying we will have 0% interest rates for two years, it is just a matter of time before the seeds of inflation are seriously sown in our economy.

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


Gold: 1743.20, -8.30. Gold continued its decline for the second day. It has not been a massive rollover. We were looking for a move back down to the gap point, but it may not make it. It may come back down to the 10 day EMA. If it does, we have to be ready to move out of our downside positions if it holds and tries to bounce at that level. Gold is hardly in any kind of serious trouble; it is just making a normal pullback. That is what we have to playing with the GLD puts. We also have our IAU position that is returning nicely for us. We are just letting it test before it continues its run to the upside.

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


Oil: $85.24, -0.48. Oil rebounded all week, doing exactly as expected. I figured it would rebound this week after it came down and tapped support. It reversed and moved higher. It is now at the 10 day EMA and at the gap point from February. It is showing a doji at that level. I do not think oil will go much higher. Maybe I am wrong. Maybe some economic news will come out and it will bounce to the upside, but it is not forecasting a lot of economic strength. It has broken its trend. It broke again and then very sharply over the last three weeks. It is not showing that it is ready to race to the upside. But watch it and we will see. This is not any ABCD pattern at least not to the upside. I think oil may head lower after this modest bounce from last week.

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


TECHNICAL SUMMARY

INTERNALS.

The internals and volatility hit levels that would warrant a reversal. Many extremes were popped in. There was the put/call ratio, and then the VIX hit 48 on the close last week. That almost matched the intraday high back in May of 2010 during that summer base and selloff. We had new lows spike to almost 1500-2000. Two days of very high new lows on the NYSE. We had huge negative breadth at almost -19:1 and -20:1 as well. Those are extremes. They sow the seeds of a rebound, and the stock market is trying the make that bounce. As I noted, it has not been scaring anyone on the move, especially on Friday, but it is trying to make the bounce. In theory it should make the bounce.

Volume. Volume fell 30% on NASDAQ and the NYSE.

It was not a powerful upside day at all. It was a late summer, Friday, "Let's get the heck out of the office and go home after a crazy week" kind of volume session. There was not a lot of power here. It does not tell you a lot about the session, and that tells us why the indices closed well off the highs on the day. There was not any staying power late in the day to keep bids there to close out the indices to the upside. That is why I am still thinking this is likely a continuation move of the relief rally to come this week.

Breadth. Friday was not any great shakes. The advance/decline line was flat on NASDAQ and +1.8:1 on the NYSE.


CHARTS

SP500. SP500 tapped at the 10 day EMA and faded, giving back two-thirds of its gains. It was not a strong move, but it was a move to the upside. It was probably mitigated for the reasons stated: Late on a Friday, an exhausting week, and everyone wanted to get out of dodge.

NASDAQ. NASDAQ gapped up, showing a doji below the 10 day EMA. It has just about filled the gapdown point from two weeks back. It is still well below the November peak. Has not even made that level. Trying to move up, but not scaring anyone with its move.

SP600. SP600 was up 0.34%. It gapped to a doji. It is right in the middle of the November range, still well below 10 day EMA. Not a lot of strength there.

SOX. SOX gapped higher, rolled over, and closed negative. It is right at the 10 day EMA. It is well below its November peak. It is mired in this range, and I think there could be downside coming. If it does, that will drag the rest of the market. Ultimately I think it will pull the rest of the market down. I really view this as just a relief bounce, and nothing fancier than that in the market. This is, as I have always said, a relief bounce that we want to play. I think it is a tradeable one given the massive negative extremes in the sentiment and internal indicators.

It is trying to bounce. Friday did not look great, so we have to be very aware of that next week in case things deteriorate and the move collapses. Again, we know it was a tough week. The market was moving fine until late in the session when basically everyone had left for the day and the bids dried up. Volume tumbled and stocks just managed to close out to the upside. Thus I still feel there is more upside room on this relief bounce and that Friday was not necessarily indicative of what it will do next week.

Again, you have to look at the patterns, and the patterns are showing a little weariness. If they do not pan out, then you need to get out of the upside.


LEADERSHIP

Internet. There are a lot of categories to cover, and I will just talk about one stock in the internet sector has been performing well for us. We saw NTES come off of this low with an island reversal. There is the gap down and the gap back up. We have been playing it to the upside. It came off of a support level in doing this, so it is just a classic rebound. Note it is not a stock necessarily in a great position. It is in a rolling range. We can play that, but it does not look ready to break out to a new high on this run.

Healthcare/Medical Appliance. Healthcare has been one of the best performers. ISRG continued its move on Friday, although it also closed well off of its high. Health insurance stocks may not belong here, but I am putting anything related to health in this category. LPHI continues higher with a 9% gain on Friday. Just churning it out. RTIX is in medical appliances. It posted a nice 6%+ gain on Friday. This is an area that is making moves.

Energy. Energy is making moves as well, just not in the right places. It bounced last week. Nice run and rebound, but it does not look that powerful. MRO gapped higher as most of the refiners did on Friday, but it just hung onto part of the gain. Very much a bear flag, bouncing back and still looking weak. CVX gapped higher upside as well on Friday, but it gapped to a doji that tapped the 10 day EMA on the high and faded. Bear flag. Lots of resistance. BTU gapped higher to the 10 day EMA and reversed. It is the definition of a bear flag: a sharp selloff and a weaker lower-volume recovery to the upside.

Industrial. CAT gapped to the upside Friday, but it is still an ugly pattern. Maybe it can make some more headway here and the market could use it. It did bounce off of a support level. We will see if it can rally back up to this key range. As I said, the market could use its help.

CMI gapped up as well. It gapped through some resistance. We will see what happens, but that is an ugly pattern. Lower high, lower lows, and it is not an ABCD by any stretch. UTX was up. Industrials were trying to recover. After a hideous beating they are rebounding, and UTX put in an almost 4% move on Friday. There is recovery, but it is only recovery; these are not leadership patterns ready to spark rallies to the highs.

Technology. AAPL is coming back. It held last week on these lows from early in the year that marked the top of that range. It gapped higher on Friday and held much of the gains. It is trying to come back. GOOG is hanging on. It held a key support level and bounced on Thursday. Now it is trying to hang onto that move. The big technical story at the end of the week was CSCO actually getting back to profitability. It beat the street, showing good revenues and decent outlook, and it gapped over the 50 day EMA and managed to hold that level on Friday.

Retail. JWN gapped up on Friday on a good earnings report. It gapped through some resistance. We will see if we can make something out of it, but it still kind of an ugly pattern with a lot of technical damage at this point. TJX is a discounter, and it is bouncing nicely off of a support level. Not bad. Looking like it will try to put in a higher low and try to rally toward that last higher high. It is one I have looked at and watched. Just goes to show you that you cannot watch stocks and expect to make money off of them.

COST is not great. It bounced a bit last week, but it got torched and is not getting itself up off the ground. RL reported great earnings last week, and it is looking for a new high. What a move. It was tailing off and put in a big reversal. If you were watching and RL was one you tracked all the time, you would have seen this and would have wanted to buy into it. We have a sharp selloff and a massive reversal. That was your only chance because it gapped higher the next session and then it was gone.

We watch a lot of stocks so we can try to capture these, but on something like this you have to be watching it intraday. It was diving the day before and then it gapped higher the next day and had a wild session. Some of them you just have to watch. If you have favorites, watch them. We do the same, but there is no way I could have issued anything on this in a report basis because the move was over in a day.

Restaurants had a good end of the week. EAT had good earnings on the week, and it had a nice rebound. But look how it has come back to this massive resistance range. That is what you call overhead supply. A trading range, it tried to break out, and then it rolled over. All of this is just massive overhead, particularly here when people bought into it as it started to move higher again. Now they have to clear out all of this overhead before it can rally. The odds are it may have to come back down and sell some more.

Metals. Metals are not pretty. FCX sold off with a nasty gap a week ago. It has recovered, but look where it has hit and rolled over on Friday right at serious resistance. It does not look good. AKS had a massive selloff. Weak rebound to the 10 day EMA, setting up a bear flag.

There are a lot of issues with leadership. There is not the clear-cut leadership because there was a lot of technical damage done last week in the selling. Nonetheless, there are stocks able to bounce off the bottoms of trading ranges. Those are what we have been mostly moving into. We are able to pick up some here and there. And a good pattern or two out there were providing plays as the market started to rebound. But overall a lot of damage is done in leadership, and the ranks are very thin. That, of course, makes it difficult for a market to rally if there are not a lot of good stocks in good position to make credible runs at new rally highs. If they are just rebounding off the lows, you can make money off of that, obviously. But longer term, it does not mean the market is ready to break out. If there is no leadership, the market has trouble making further moves to new highs.


THE MARKET

SENTIMENT INDICATORS

VIX: 36.36; -2.64
VXN: 35.22; -2.63
VXO: 37.37; -2.85

Put/Call Ratio (CBOE): 1.09; +0.06


Bulls versus Bears:

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

Bulls: 47.2% versus 46.3%. Bulls bouncing, heading back toward 49.5% hit three weeks back. Holding higher even in the turmoil, perhaps seeing the selling as overdone. This, however, a contrary indicator and if they are not scared out then it is not working in terms of an upside advance. Highs from April and December (60% readings spanning December through early May 2011). The 5 year high is 62.0. The crossover level at 29% bulls from July 2010 is long gone. 35% is the threshold level suggesting bullishness. To be seriously bearish it needs to get up to the 60% to 65% level.

Bears: 23.7% versus 24.7%. Wrong way as well, falling versus rising in the turmoil. Still up from the 21.5% three weeks back and still off the July high near 28%. The 35% level is considered bullish for the market overall. 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: +15.3 points (+0.61%) to close at 2507.98
Volume: 2.224B (-28.74%)

Up Volume: 1.37B (-1.41B)
Down Volume: 802.11M (+710.99M)

A/D and Hi/Lo: Advancers led 1.08 to 1
Previous Session: Advancers led 5.08 to 1

New Highs: 8 (0)
New Lows: 61 (-87)

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

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

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


SP500/NYSE

Stats: +6.17 points (+0.53%) to close at 1178.81
NYSE Volume: 1.205B (-29.45%)

Up Volume: 2.92B (-3.84B)
Down Volume: 2.04B (+1.786B)

A/D and Hi/Lo: Advancers led 1.8 to 1
Previous Session: Advancers led 7.15 to 1

New Highs: 31 (-5)
New Lows: 30 (-126)

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

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


DJ30

Stats: +125.71 points (+1.13%) to close at 11269.02
Volume DJ30: 228M shares Wednesday versus 393M shares Thursday.

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


MONDAY

There is a lot of data out next week. There are a couple of manufacturing reports from the regions one starts the week and one ends the week. New York is early and Philly Fed comes late. There are housing starts, there are existing home sales. The CPI is coming out. There is industrial production and capacity and leading economic indicators, which have not been very accurate. They never really are. It has been showing things are improving, and they are not.

Lots of data to digest as the market tries to make its rebound. Looking at the market, there is plenty of room for stocks to rebound. But looking at the economic data in the US and the problems out of Europe, there is not a lot of reason for the market to rally without some kind of economic aid, whether from the Congress and the administration or from the Federal Reserve.

The economic data has been waning. The indications are not good for any kind of pickup, so everyone has their eyes on the Fed to see if it will do something. No one really expects anything out of Congress or the administration since they could barely get a budget detail because there was supposed to be no more spending.

Of course, there is the perverse idea in Washington, DC that cutting taxes and giving incentives to invest in the U.S. is spending. That is not spending because it is not their money in the first place. It is OUR money. It is not spending to let people keep their money. It is a philosophy about government and economics, but it is not spending.

The market really needs something to make a new, sustained rally. I am talking about just a relief rally, right? That is all I am viewing this as. I am not viewing this as any nirvana move to a new high. We just want to scratch out a rally either to the top of the November low which is our low point or, better yet, up to the neckline in the SP500's head and shoulders near 1260. That is what we want to play. That is what we have positioned ourselves in as the market positioned itself to bounce higher, given the extremes and the indicators it put in earlier in the week. It very well could continue; it is set up quite well to do so. I think Friday it was just fading back because of a late-afternoon lack of bids on a "Let's get out of dodge" Mentality after a very tough week.

We are looking for further upside this week. The caveat is that the patterns are what the patterns are. On Friday there was low volume as they bounced up toward the 10 day EMA and could not hold the move. They looked tired. If they roll over, we have to be ready to deal with reality and take what the market gives. That means playing some of those downside patterns that look so good.

We are going to have downside patterns at the ready. We already have some, and we are looking at other plays we can take advantage of as well. There are a lot of them out there. Just by preponderance, you would think the market may want to turn lower given the technical picture. That is why we have to be ready to take it that way if that is where it wants to go. We will be ready to do that. But if it continues the rally, which would be the unexpected course for many people, then we stick to the same plan we had already. We will let our positions we have purchased move higher. Some that are still in good position can run for us without needing a huge gain in the market overall. In other words, they are well-placed and ready to move. We can pick up some of those. We already have many in hand that we want to let run. We do not want to get too extended on this move. It is just a relief rally, and they can reverse at any point in time.

We will play any further move with those plays. We will let the positions we need to have recover do so. If they run out of gas, we will close them. Then we will be ready to initiate the downside plays and make more money downside when what I think is a relief rally caps out either at the 10 day EMA, at the November peak, or even up at the neckline from the SP500 head and shoulders.

Have a great weekend! I will see you on Monday with that ton of economic data and the test of key near-term resistance on the indices.



Support and Resistance

NASDAQ: Closed at 2507.98

Resistance:
2532 is the August gap down point
The 10 day EMA at 2540
2540 is the early November 2010 lower gap point
2569 is the November gap up point through the April 2010 peak
2580 is the November 2010 closing high
2599 is the June 2011 low
2603 is the March 2011 intraday low (post-Japan low)
2645-2650ish from December 2010 consolidation
2676 is the January 2010 low
2686 is the January 2011 closing low
The 50 day EMA at 2694
The 200 day SMA at 2709
2706 to 2705 is the April 2011 low and the February 2011 and consolidation low (bottom of the trading range) 2723 to 2705 is the range of support at the bottom of the January to May trading range
2759 is the May low
2762 is the February low
2796 is the February gap down point
2816 is the early April peak.
2825 is the 2007 closing peak.
2841 is the February 2011 peak
2862 is the 2007 peak
2879 is the July 2011 peak
2888 is the May 2011 peak


Support:
2469 is the November 2010 low
2331 from October 2010 low and the August 2011 low
2305 from the August 2010 peak (summertime base)
2139 is the May and June 2010 low
2123 is the August 2010 gap down point
2100 from the August 2010 lows


S&P 500: Closed at 1178.81
Resistance:
1127 from August 2010
1178-1180 is the October 2010/November 2010 consolidation low
The 10 day EMA at 1196
1196 is the November 2010 consolidation peak
1220 is the April 2010 peak
1227 is the November 2010 peak
1234 is the August 2011 low
1235 is the mid-December 2010 consolidation low
1249 is the March 2011 low (post-Japan)
1255 is the late December 2010 consolidation range
1275 is the January 2010 low, early January 2011 peak
The 50 day EMA at 1274
The 200 day SMA at 1286
1295 to 1294 is the April 2011 low and the February 2011 consolidation low (bottom of the trading range)
1313 from the August 2008 interim peak
1318.51 is the May low
1325-27 is the March 2008 closing low and the May 2006 peak.
1332 is the early March peak
1340 is the early April 2011 peak
1344 is the February 2011 peak is being challenged again
1357 is the July 2011 peak
1364 is the March 2007 low
1370 is the August 2007 low
1371 is the recent May 2011 peak

Support:
1101 is the August 2011 low
1099 from the mid-July interim peak
1040 from the August 2010 lows and May/June 2010 lows
1011 is the summer 2010 low


Dow: Closed at 11,269.02
Resistance:
The 10 day EMA at 11,38911,452 is the November 2010 peak
11,555 is the March low
The August low at 11,700
11,734 from 11-98 peak
11,867 from the August 2009 high and peak on that bounce in the selling.
11,893 from March 2008 closing low
The June low at 11,897 (closing)
The 50 day EMA at 12,040
The 200 day SMA at 11,992
12,094 is the April 2011 low
12,110 from the March 2007 closing low
12,283 is the March 2011 peak
12,391 is the February 2011 peak
12,876 is the May high
12,754 is the July intraday peak
13,058 from the May 2008 peak on that bounce in the selling

Support:
11,178 from November 2010
10,978 is the bottom of the November 2010 consolidation
10,750 from September 2010
10,705-710 from January 2010 peak
10,694-700 from August 2010 peak
9938 is the August 2010 low


Economic Calendar

August 9 - Tuesday
Productivity-Preliminary, Q2 (8:30): -0.3% actual versus -0.6% expected, -0.6% prior (revised from 1.8%)
Unit Labor Costs, Q2 (8:30): 2.2% actual versus 2.2% expected, 4.8% prior (revised from 0.7%)
FOMC Rate Decision, August (14:15): 0.25% actual versus 0.25% expected, 0.25% prior

August 10 - Wednesday
MBA Mortgage Index, 08/06 (7:00): +21.7% actual versus +7.1% prior
Wholesale Inventories, June (10:00): 0.6% actual versus 1.0% expected, 1.7% prior (revised from 1.8%)
Crude Inventories, 08/06 (10:30): -5.225M actual versus 0.950M prior
Treasury Budget, July (14:00): -$129.4B actual versus -$132.0B expected, -$165.0B prior

August 11 - Thursday
Initial Claims, 08/06 (8:30): 395K actual versus 409K expected, 402K prior (revised from 400K)
Continuing Claims, 7/30 (8:30): 3688K actual versus 3700K expected, 3748K prior (revised from 3730K)
Trade Balance, June (8:30): -$53.1B actual versus -$48.0B expected, -$50.8B prior (revised from -$50.2B)

August 12 - Friday
Retail Sales, July (8:30): 0.5% actual versus 0.5% expected, 0.3% prior (revised from 0.1%)
Retail Sales ex-auto, July (8:30): 0.5% actual versus 0.2% expected, 0.2% prior (revised from 0.0%)
Michigan Sentiment, Preliminary August (9:55): 54.9 actual versus 62.5 expected, 63.7 prior
Business Inventories, June (10:00): 0.3% actual versus 0.5% expected, 0.9% prior (revised from 1.0%)


August 15 - Monday
NY Empire Manufacturing, August (8:30): -0.4 expected, -3.76 prior
Net Long-Term TIC Fl, June (9:00): $23.6B prior
NAHB Housing Market Index, August (10:00): 15 expected, 15 prior

August 16 - Tuesday
Housing Starts, July (8:30): 608K expected, 629K prior
Building Permits, July (8:30): 606K expected, 624K prior
Export Prices ex-ag., July (8:30): 0.0% prior
Import Prices ex-oil, July (8:30): -0.1% prior
Industrial Production, July (9:15): 0.4% expected, 0.2% prior
Capacity Utilization, July (9:15): 77.0% expected, 76.7% prior

August 17 - Wednesday
MBA Mortgage Index, 08/13 (7:00): +21.7% prior
PPI, July (8:30): 0.0% expected, -0.4% prior
Core PPI, July (8:30): 0.2% expected, 0.4% prior
Crude Inventories, 08/13 (10:30): -5.225M prior

August 18 - Thursday
Initial Claims, 08/13 (8:30): 400K expected, 395K prior
Continuing Claims, 08/6 (8:30): 3698K expected, 3688K prior
CPI, July (8:30): 0.2% expected, -0.2% prior
Core CPI, July (8:30): 0.2% expected, 0.3% prior
Existing Home Sales, July (10:00): 4.87M expected, 4.77M prior
Philadelphia Fed, August (10:00): 1.0 expected, 3.20 prior
Leading Economic Indicators, July (10:00): 0.2% expected, 0.3% prior

By: Jon Johnson, Editor
Copyright 2011 | All Rights Reserved

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

Technorati tags: