- Stocks resume selling, but perceived positive comments on fiscal cliff negotiations bounce them positive in the afternoon.
- Middle East tensions ramp further, driving oil higher in its downtrend.
- US economic data down on Friday as US tries fighting off joining the EU in a recession. Not to worry; it was all because of Sandy.
- Comfortable our leaders will solve the fiscal issues?
- Stocks still set for a relief bounce with some good stocks in position to lead in a holiday shortened week.
Set up to bounce despite negatives, just not there yet.
Though some bids returned to the stock market Thursday as stocks stemmed the straight selloff and traded in a lateral range that session, Friday saw stocks weak and selling once again. Understandable given fresh stories of attacks in the Middle East and word Thursday that Europe had again slipped into recession. On top of that, the US data, despite the recovery that is supposedly 'huge,' limped in again. Industrial Production and Capacity Utilization tumbled below expectations with capacity at the lowest in a year.
Of course the weakness was blamed on Sandy. I'm surprised no one has made a link between Middle Eastern violence or the European recession with the 'super storm.'
That Sandy was a strong storm . . .
I know the people in the northeast are suffering, but Friday I saw a story about how a landfill was piled two stories high with debris from the storm. After Ike, on my street alone the seven houses had debris piled 10 feet high and 10 feet wide on both sides of the entire street. The Bolivar Peninsula was scraped clean with even the pilings driven deep into the soil supporting houses 15 feet about the ground were gone. Over 200 people on Bolivar were washed out to sea and never found. Entire towns around Galveston Bay were washed completely away. Didn't see any day after day coverage for weeks on end of their plight. Whether fires, earthquakes, tornadoes, floods, many people in the US suffer disasters that just don't get the coverage this storm and its aftermath is getting.
What was once houses and businesses pre-Ike.
Before and after pictures. This is not bad; some areas became river bottoms for the storm to pass through the land.
But I digress. Getting back to the data, The Federal Reserve said with the release that Industrial Production would have been 1% higher than the -0.4% reported but for the storm. Really? Sandy made landfall late on October 29. Sure there was some pre-storm shutdowns but those few days accounted for such a huge proportion of the month's activities? Really? Holy cow, what is November going to look like then given how long the area has been shut down?
Industrial Production, October (9:15): -0.4% actual versus 0.1% expected, 0.2% prior (revised from 0.4%)
Capacity Utilization, October (9:15): 77.8% actual versus 78.3% expected, 78.2% prior (revised from 78.3%)
If we say that the impacted areas on the east coast were shut down a week ahead of the storm, and that is being very, very generous as many maintained activities until just before the storm hit, one week took 1% off of Production? Is the month that backend loaded? Will November show a -4% Industrial Production plunge? According to the Fed's absurd statement it should. IKE hit an area loaded with chemical and petroleum production and processing. There was no major plunge in Industrial Production in its aftermath. In any event, it was hardly great news on top of a negative New York PMI and the Philly PMI returning to negative as reported Thursday.
Thus you can understand why investors, faced with economics fading yet again as well as huge escalation of Middle East war potential, were a bit unsteady about delivering a relief bounce even with the market quite oversold. Throw on top of the mix the fiscal cliff issues and it is a wonder, other than the already sharp selloff, that stocks showed any inclination of a rebound.
As noted, stocks were lower in the early going. Slightly higher futures were the apex of the opening yet again.
To show just how much the US economy is the focus, and specifically the fiscal cliff, when the esteemed heads of the Senate and the House announced near lunch that talks with the President were 'constructive.' Harry Reid followed with a reversal of his 'after year end' comments last week, stating a deal could be reached before year end. Pelosi said they wanted to send a message to consumers, and to the stock market short term.
Oh I feel more confident a deal will be reached with this crowd. The question is, who are they making the deal for?
What is that day in December 2012 the Mayan calendar ends? Some say end of the world. Others say it is simply the start of a new age. Could it mark a new age where the US dollar is no longer the reserve currency and the end if US economic supremacy? Worth some thought as we plow into the fiscal cliff negotiations with specific talk of methods for increased revenues but vague generalities about entitlement reform. The deal being pushed by the administration: raise revenues now so we don't hold the middle class 'hostage' and then talk about the rest later. Patently bad idea.
In any event, stocks got the message, or more accurately, are so starved for some good news on the impending economic plunge that they grabbed at the headlines and jumped stocks upside into lunch. It was not all candy and nuts from there. After the initial surge stocks gave up and actually went back to flat and slightly negative. Then what looked to be very much a short covering bounce ahead of an uncertain weekend took over and rallied stocks back up, closing them out at or near session highs.
SP500 6.55, 0.48%
NASDAQ 16.19, 0.57%
DJ30 45.93, 0.37%
Russell 2000 0.88%
What was the end result? Looks as if it could be the start of the relief move we were looking for after the two weeks of sharp selling and Thursday's range trade as buyers did actually step in a few times. AMZN posted a nice move on volume off the 200 day SMA, and we picked up some shares there. GOOG could be next as it showed a doji off the 200 day. If nothing happens this weekend, something that is still up in the air given the continuing escalation in the Middle East, the market would have a reason to continue the oversold bounce. Though Friday was up, it was modest compared to the recent selloff and not likely the only move in any relief bounce.
Dollar. 1.2743 versus 1.2771. Flat on the session as the dollar moved laterally all week after breaking higher through the 200 day SMA the prior week. Dollar is being used as a safe haven in an uncertain Europe, Middle East, and likely other places yet to surface.
Bonds. 1.58% versus 1.58% 10 year Treasury. Surged but then declined to flat on the close. Bonds broke out just over a week back and coasted flat to end the week though quite volatile day to day after that initial move.
No wonder bonds broke out. With comments such as those from Atlanta Fed President Lockhart, it is clear the Fed is nowhere near removing stimulus, and is likely ready to pour it on. "I expect that continued aggressive use of balance sheet monetary tools will be appropriate and justified by economic conditions for some time even if fiscal cliff issues are properly addressed." Note the 'properly addressed' comment. What is the likelihood that they are 'properly' addressed when the President does not even want to talk about entitlements at this stage? All the more reason the Fed is going nowhere.
Any doubts? If so, Lockhart put an end to them: "I am not prepared to say we are remotely close to substantial improvement on the employment front." I am comfortable with that. What choice do I have?
Gold. 1714.70, +0.90. Modest gain Friday but did not retake the 50 day EMA breached Thursday. Not a great move, not a bullish move, but overall we anticipate gold to remain bullish.
Oil. 86.67, +1.22. Trended higher all week as the Middle East tensions climbed. Thursday oil took a break, but Friday right back up, moving through the 20 day EMA. Monumentally weak the past few months but the Mideast tensions are putting a bid in crude despite talks of a carbon tax as part of the solution to the fiscal cliff.85.45, -0.87. Tried the 20 day EMA on the high then reversed for a modest loss.
Stats: +16.19 points (+0.57%) to close at 2853.13
Volume: 2.162B (+8.75%)
Up Volume: 1.4B (+570.2M)
Down Volume: 762.01M (-417.99M)
A/D and Hi/Lo: Advancers led 1.43 to 1
Previous Session: Decliners led 1.6 to 1
New Highs: 14 (+2)
New Lows: 174 (-13)
Stats: +6.55 points (+0.48%) to close at 1359.88
NYSE Volume: 740.761M (+3.17%)
A/D and Hi/Lo: Advancers led 2.87 to 1
Previous Session: Decliners led 2.07 to 1
New Highs: 127 (+6)
New Lows: 301 (-14)
Stats: +45.93 points (+0.37%) to close at 12588.31
Volume: Volume jumped even further above average on both exchanges. Expiration Friday makes it hard to read much into the volume, but volume has been solid the prior two sessions so this bump is in line with that stronger trade. Cannot go as far to say it was an affirmation of the rebound off the session lows, but doesn't hurt.
Breadth. Pretty decent on NYSE at 2.9:1 upside even with s selloff and rebound. NASDAQ's 1.4:1 added nothing to the equation other than NASDAQ appears to be lagging again.
SP500. A second doji just over the July closing lows, reaching lower and bouncing back to positive. Thursday it had the look of a bounce trying to set up and Friday did some more work along those lines. A rally up to the 200 day SMA near 1383 is a good initial target.
NASDAQ. Very nice reach lower through the July lows that are interim lows in summer recovery followed by a reverse to the upside. More volume on expiration but volume was up all week. AMZN helping, AAPL contributing a bit. Perhaps this week GOOG can join.
Russell 2000/SP400. Good reversal off the July lows. Very much following NASDAQ's lead and a logical serious relief bounce takes it near 792 (closed at 776).
SP400 bounced off the Thursday low, closed positive. Kind of following along.
SOX. Big reach lower early and a recovery to flat. That low touched the July closing lows. Good position to rebound, good indication of a rebound given the Friday reversal, and the two week straight to the downside selloff has certainly built up the oversold pressure.
DJ30/DJ20. Holding at the July low, showing a second consecutive doji similar to SP500. Good solid reversal on the day after a sharp selloff the prior two weeks.
SP400 reached even lower, down to the May and June lows and reversed to recover most of the loss. In position to make a new upside rotation in the rolling range.
Summary: A further early reach lower then a rebound as the buyers entered again after showing some life Thursday. Start of a new upside leg? Not likely. More the start of an oversold bounce aided by some short covering ahead of a volatile weekend. Monday will tell the tale of the relief bounce, i.e. if stocks can continue the bid after the weekend they likely make the bounce.
Big names. AMZN posted a nice move off the 200 day SMA. AAPL put in a big reversal session; not convinced on this one, however. GOOG could be ready off this 200 day SMA doji.
Financial. Financials still in the same pattern as Thursday, but after testing support and bouncing to doji, they look pretty solid. JPM shows a nice doji at the 200 day. C undercut the 50 day EMA but reversed to hold it. STT bounced nicely off the 50 day EMA. BAC is a bit iffy; holding the 50 day EMA with a second doji but not the same pattern as say JPM.
Retail. LULU bounced back up to test the 200 day SMA. Low volume even on expiration. Not sure it will make that move. Big box stores were so-so. COST was flat. JWN bounces off the 200 day SMA and can trade up to the top of its range similar to what COH is showing. M was up but is right in the middle of its range.
Homebuilders. Homebuilders bounced but it was a bounce in selling. KBH recovered up to the 50 day EMA but faded from there; still looks toppy. TOL is trying to bounce off the 200 day SMA. Mixed, definitely not as strong as they were.
Metals. Still look rusty. AKS, STLD are not heartwarming. FCX remained below its 200 day SMA.
Industrials: Trying to reverse, but from what? Hardly great patterns from CAT and JOY.
VIX: 16.41; -1.58
VXN: 18.13; -1.1
VXO: 17.66; -1.62
Put/Call Ratio (CBOE): 1.03; -0.21. Third day above 1.0, logging those days that help in a reversal.
Bulls versus Bears
Bulls: 38.3% versus 43.6 versus 41.5% versus 45.7% . Fairly precipitous drop in bulls as they were indeed unable to following Michigan Sentiment. Getting close to the 35% level that is bullish for the market. Background: Undercut 35%, the threshold for bullishness, in early June. As noted, hit 34% in early June. It did its job and the market is on the rally. Hard drop to 34 from 39.3% as economic reality and a choppy stock market hit. Off the 55+ level hit in late February. That was the highest level since April and May of 2011, the peak of the post-bear market high. 35% is the threshold level suggesting bullishness. To be seriously bearish it needs to get up to the 60% to 65% level.
Bears: 28.7% versus 27.7% versus 27.7% versus 25.5%. Breaking that recent range but still well below the 35% considered bullish for stocks. On the last run never made it to the 35% that can be a bullish indication, but the bulls were weak enough back in June. Over 35% is the threshold to be really be a good upside indicator. For reference, bearishness hit a 5 year high at 54.4% the last week of October 2008. The move over 50 took bearish sentiment to its highest level since 1995. Extreme negative sentiment. Prior levels for comparison: Bearishness peaked at 37.4% in September 2007. It topped the June 2006 peak (36%) on that run. That June peak eclipsed the March 2006 high (33%) and well above the 2005 highs that spawned new rallies (30% in May 2005, 29.2% in October 2005). That was a huge turn, unlike any seen in recent history.
Friday the oversold rebound brewing started to show itself, but it took some more selling and some talk of a budget deal possibility (by year end of course; vague enough?) to pick up stocks. A reversal, some attempted selling, then a recovery into the close. Short covering ahead of an uncertain week or more than that, i.e. a more significant relief bounce after very significant selling?
A good start, but Monday tells the story, i.e. if there is same oversold condition and pressure to bounce that turned stocks higher Friday. The mid-afternoon selloff is instructive as stocks were not running straight higher on the fiscal cliff 'deal' news. Thus it was not just a bullish run upside after the news, and how stocks start off Monday will provide a better gauge of the staying power of any notion that stocks are going to put in a significant relief bounce.
There are stocks in position to bounce once more, some good names as we know such as AMZN, ISRG, GOOG, RGR that can help lead the way. If those can lead the way we can use them to play an upside rally whether it is an oversold bounce turns out to be more. Not expecting the more, but open to being pleasantly surprised for a holiday rally.
This coming week will be shortened with Thanksgiving Thursday and a half day Friday (closing at 1:00ET). This year there is the overhang of the Mideast tensions and the fiscal cliff, but the market is primed to bounce. We will play a few solid names/positions on a further bounce, but expecting the rally not to last over a full week or so. That means taking what is presented while watching indications the move may be topping, say at next resistance. The market is said to climb walls of worry, and right now it is presented with a good sized wall, but it is also in a position to put in a tradable upside move.
Have a great weekend!
Support and resistance
NASDAQ: Closed at 2853.13
2858 is the late July 2011 peak
2900 is the March 2012 intraday low
The 10 day EMA at 2898
2942 is the mid-June 2012 high
2950 is the mid-April closing low
2962 is the April 2012 low
2977 to 2980 is the bottom of the late October 2012 consolidation
The 200 day SMA at 2985
2988 is the July 2012 high
2999 is the bottom of the August 2012 consolidation
3000 is the February 2012 post-bear market high
The 50 day EMA at 3003
3024 is the gap point from early May
3026 from 10/2000 low
3042 from 5/2000 low and several other price points
3076 is the late April 2012 high
3090 is the mid-March interim high
3037 is the October low
3101 is the August 2012 high
3134 is the March 2012 post-bear market peak
3171 is the October intraday high
3197 is the September 2012 post-bear market high
3227 is the April 2000 intraday low
3401 is the May 2000 closing low
2847 is the mid-May 2012 low
2838 from the July 2012 lows
2778 from the May 2012 low and June 2012 gap point.
2747 is June 2012 closing low
2726 IS June 2012 intraday low
S&P 500: Closed at 1359.88
1359 is the April 2012 low
1363.46 is June 2012 high
1371 is the May 2011 peak, the post-bear market high
1375 is the early July 2012 peak
1378 is the February 2012 peak
The 200 day SMA at 1382
1402.22 is the closing low of the August 2012 lateral consolidation
1406 is the early May 2012 peak
The 50 day EMA at 1411
1422.38 is the prior post-bear market high (March 2012)
1425 from May 2008 closing highs and the October 2012 low
1427 is the August 2012 peak
1433 from August 2007 closing lows
1440 from November 2007 closing lows
1464 is the June up trendline
1463 is the September closing high
1466 is the September closing high
1471 is the October 2012 intraday high
1475 is the September 2012 high
1499 from January 2008
1539 from June 2007
1357 is the July 2011 peak
1344 is the February 2011 peak
1340 is the early April 2011 peak
1332 is the early March 2011 peak
1325 is the July 2012 intraday low
1309 is the right shoulder low from June 2012
1295 to 1294 is the April 2011 low and the February 2011 consolidation low (bottom of the trading range)
1293 is the October 2011 peak
1275 is the January 2010 low, early January 2011 peak
1267 is the December 2011 peak
1266 is the June 2012 base low
Dow: Closed at 12,588.31
12,716 is the April 2012 closing low
The 200 day SMA at 12,992
13,056 is the February 2012 high
13,058 from the May 2008 peak on that bounce in the selling
The 50 day EMA at 13,124
13,297 is the April 2012, prior post bear market high
13,300 to 13,331 is the August 2012 post-bear market high
13,653 is the September 2012 high
13662 is the October 2012 intraday high
13,668 from 12-2007 peak
13,692 from 6-2007 peak
14,022 from 7-07 peak
12,524 is a range of support from early 2012 and summertime 2012
12,391 is the February 2011 peak
12,369 is the left shoulder low from May 2012
12,284 is the October 2011 peak
12,258 is the December 2011 peak
12,110 from the March 2007 closing low
12,094 is the April 2011 low
12,035 is the June 2012 base low
The June 2011 low at 11,897 (closing)
11,734 from 11-98 peak
11,717 is the late August 2011 peak
November 13 - Tuesday
Treasury Budget, October (14:00): -$120.0B actual versus -$113.0B expected, -$98.5B prior
November 14 - Wednesday
MBA Mortgage Index, 11/10 (7:00): 12.6% actual versus -5.0% prior
Retail Sales, October (8:30): -0.3% actual versus -0.2% expected, 1.3% prior (revised from 1.1%)
Retail Sales ex-auto, October (8:30): 0.0% actual versus 0.1% expected, 1.2% prior (revised from 1.1%)
PPI, October (8:30): -0.2% actual versus 0.1% expected, 1.1% prior
Core PPI, October (8:30): -0.2% actual versus 0.1% expected, 0.0% prior
Business Inventories, September (10:00): 0.7% actual versus 0.6% expected, 0.6% prior
FOMC Minutes, 10/24 (14:00)
November 15 - Thursday
Initial Claims, 11/10 (8:30): 439K actual versus 388K expected, 361K prior (revised from 355K)
Continuing Claims, 11/03 (8:30): 3334K actual versus 3120K expected, 3163K prior (revised from 3127K)
CPI, October (8:30): 0.1% actual versus 0.1% expected, 0.6% prior
Core CPI, October (8:30): 0.2% actual versus 0.1% expected, 0.1% prior
Empire Manufacturing, November (8:30): -5.2 actual versus -8.5 expected, -6.2 prior
Philadelphia Fed, November (10:00): -10.7 actual versus 0.0 expected, 5.7 prior
Crude Inventories, 11/10 (11:00): 1.089M actual versus 1.766M prior
November 16 - Friday
Net Long-Term TIC Fl, September (9:00): $3.3B actual versus $90.0B prior
Industrial Production, October (9:15): -0.4% actual versus 0.1% expected, 0.2% prior (revised from 0.4%)
Capacity Utilization, October (9:15): 77.8% actual versus 78.3% expected, 78.2% prior (revised from 78.3%)
November 19 - Monday
Existing Home Sales, October (10:00): 4.75 prior
NAHB Housing Market Index, November (10:00): 41 prior
November 20 - Tuesday
Housing Starts, October (8:30): 872K prior
Building Permits, October (8:30): 894K prior
November 21 - Wednesday
MBA Mortgage Index, 11/17 (7:00): 12.6% prior
Initial Claims, 11/17 (8:30): 439K prior
Continuing Claims, 11/10 (8:30): 3334K prior
Michigan Sentiment - Final, November (9:55): 84.9 prior
Leading Indicators, October (10:00): 0.6% prior
Crude Inventories, 11/17 (10:30): 1.089M prior
By: Jon Johnson, Editor
Copyright 2012 | All Rights Reserved
Jon Johnson is the Editor of The Daily at InvestmentHouse.com
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