主题：12/17/2009 Market View -- 宁子

SUMMARY:

- Market starts soft, rallies back to positive, but cannot keep it up.

- Fixing the credit markets versus stimulus.

- Credit is improving as dollar falls, bond yields hit record lows.

- After taking some gain, looking for the pullback to provide some buying spots.

Market cannot hold a recovery to positive, but it was not a negative day.

Tuesday there was the usual litany of bad news, but the FOMC was issuing a decision later in the session and the market rose to meet it. After the Fed threw in the kitchen sink to attack the credit, mortgage, and potential deflation issues the market reached for the moon.

Wednesday there was the same litany of issues once more. Earnings were down and up. MS missed and missed big the day after GS produced a loss but in GS fashion, it was less than expected. GS rallied 14% on its results. MS barley budged though in fairness it put in 18% to the upside on Tuesday after the Goldman news. GIS actually beat expectations and raised guidance. Have to eat those corn flakes (are they even made by General Mills?). HOV (homebuilder) was three times worse than expected. What is new?, and after such a rush on Tuesday investors had a bit of a hangover. Job cuts again showed up with WDC cutting 2500, NWL trashing some employees, and BMY dropping another 10% of its workforce. The dollar dove again (1.4389 Euros versus 1.4081 Tuesday); it is falling faster than the breakneck pace it rose. It has lost more than half of its gains off the July low, and it accomplished the feat in 8 sessions. OPEC announced a larger than expected 2.2M bbl/day production cut. Oil surged . . . lower to 40.47, dropping $3.13/bbl. I know Venezuela and Iran want oil prices back at $100 so they can export their terrorism, but OPEC cannot compete with a global slowdown. The oil bubble popped for this cycle, and it will take another boom cycle to inflation a new bubble.

Same stories, but Wednesday investors had a hangover from the Tuesday party. Nonetheless after a weaker open we were watching to see if stocks would move back up. They did, moving to positive over lunch with the small and mid caps leading. A good low to positive recovery. In the afternoon, however, the buyers stalled and some profits were taken, pushing the indices, at least the large caps, back to negative. Can't complain. We were in there taking some profits as well on our plays taken the past few weeks. A good run higher and DJ30 was at the 50 day EMA, not able to move over it on the high. Natural point to take some gains so we did just that. The result was a late fade. The market wasn't ready to make that next move but the action was not bad.

TECHNICAL. Intraday the action was looking good with the negative open and recovery to positive. The late fade was a downer, but it was not death.

INTERNALS. Volume was lower. Not a ton lower on NASDAQ (-3.8%), but on a down day lower trade of any kind is what you want to see when the market is working on the upside. That was good but breadth was the more interesting feature. While the large cap indices closed lower, breadth was positive (1.4:1 on NYSE, positive by a gnat's butt on NASDAQ). Even on NASDAQ 100 breadth was positive at 54 to 46. So what does this mean? It means the action was controlled by a few large caps that fell to profit taking while a lot of stocks were up on the session. Thus down finishes on the big name indices but the rest of the market was not in trouble at all.

CHARTS. Not much change from Tuesday other than backing off 1% on the low end and gaining 1% on the high end. The Dow, the real leader since this rally started, was the downside leader Wednesday. It rallied to take another half-hearted pass at the 50 day EMA, but it never challenged it and then faded in the last hour. NASDAQ stalled at the 50 day SMA again. SOX tapped the 50 day EMA on the high and backed off. The mid-caps did roughly the same. No one was really ready to take it to the next level after such a big run Tuesday, but the action didn't do any damage.

LEADERHIP. Some of the same early leaders were moving higher again Wednesday. Retailers (e.g. AMZN, COH, PNRA, PCLN) moved up again. Infrastructure related stocks (materials, commodities, engineering) were on the move once more (e.g. CX, STLD, SGR) as the Obama infrastructure trade continues. Green stocks were on as well with solar posting gains on the Obama green initiative. Transports of all stripes were on the move and some rails look ready to move higher after some interim downtrends. As one reader asked, shippers are moving as well: the dry bulk index appears to have bottomed and the sector was upgraded Wednesday. Of great interest, the small caps, followed closely by the mid-caps, led the market higher. As stated the past few weeks, if the small caps step to the front of the leadership pack the future of the economy and thus the rally brightens. The smalls and mids are stepping up. They are not showing dominance yet, but they are flexing some.

SUMMARY. All in all it was a day off but it was not even a day off where no one worked. The smaller caps pushed higher and key sectors put in gains. There is anticipation of a big fiscal stimulus package to come in addition to the Treasury and Fed efforts, and those sectors impacted are moving in anticipation. The small and mid-caps are doing the same. Patterns continue to improve and more stocks move into buy positions. A bit of a rest here and then a move through the 50 day EMA by DJ30 and the smaller cap indices is a real positive.

Arguments about too much stimulus is somewhat missing the point.

All the way back in October and November I wrote about what Treasury and the Fed were trying to accomplish with TARP, TALF and all of the rate cuts, facilities, guarantees, swaps, etc. put in place. Trillions of dollars worth of actions with one aim: get the credit and financial markets working as they should. Yields surged, spreads widened to Grand Canyon status, and no one could get any money. If credit was not available, the world economies were at a standstill regardless of the money thrown at it.

That is why everyone was on LIBOR, TED spread, corporate bond spread, and commercial paper watch. These markets had to work to fund everyday business. Every day of lock up, world economies were damaged. Unfreezing credit would get the money flowing, but during the freeze damage to the economies was done. Think of it in terms of a drowning victim pulled to the surface. There is plenty of air to breath, but until the victim gets air into the lungs and bloodstream, damage is being done. Once the air starts flowing the victim can breath but other actions need to be taken to rectify any damage done.

That is where stimulus comes in. That is what I was talking about in October and November: after credit started to flow Congress and the lame duck President needed to come up with the right kind of stimulus to repair the damage.

Some are arguing right now that there is enough stimulus in the pipeline with the Fed rate cuts and promised purchases of MBS, etc. That is confusing fixing the credit crisis with providing stimulus to repair the damage. There can be credit aplenty, but if the economy is so damaged and slow that no one wants to borrow, then the credit does no good. After you fix the credit problem, you have to fix a weak economy. That means providing incentives to invest in the US.

History says incentives promoting capital investment in equipment, research and development, and people are the fastest way to recovery Kennedy, Reagan, and the second Bush tax incentives all produced massive investment and stock market rallies almost from the day they passed Congress. We need to invest in America in a way that creates new capital investment, new technologies, and thus new jobs. Thus you pass incentives to invest.

You can go for a green vehicle, greener energy, greener buildings, etc. by providing the right incentives to do so. Obama wants government work programs for buildings, etc. That can work if it also involves promoting private investment in new technologies to make the buildings, vehicles, etc. greener. We can help an already burgeoning green building movement by providing incentives for every American to adopt green technologies at home and in their businesses. You want people to retrofit their homes with geothermal air and heating? Give them some serious tax credits to do so. Add solar panels? Again, tax credits will do the trick. Water conservation (rain barrels, cisterns) give people some credit so to speak.

How about more serious undertakings such as vehicles? Don't require Detroit to meet mileage standards. All that does is cheapen our vehicles as in the 1970's and 1980's when our auto companies lost huge ground to foreign makers under the strain of those standards. They made lighter, cheaper, crappier autos. We get a bunch of Euro-style micro tin cans. Instead provide incentives to produce vehicles that meet our needs: non-polluting, safe, and powerful enough to meet our needs. We like to boat, RV, raise horses. We have to have freight trucks, ranch and farm vehicles. The last thing we want to do is impose the same kind of standards that pushed our auto industry to the rear in innovation and produce terrible cars. Instead provide incentives to produce vehicles with new propulsion systems that meet our diverse needs. Then it doesn't matter what size they are or what amenities they have. We become a world leader in this technology. How do you do it? Provide big tax incentives and more generous patent protection for those coming up with the new systems. If we provide the right incentives we will come up with what we need in five years without spending any public funds or requiring more government agencies to oversee the process. Critically, this kind of stimulus does not produce inflation. It simply pushes money to the areas we want it to go and then lets American ingenuity do the rest. It has worked for over 200 years and made us the strongest country in the world's history. It works. Do it.

In any event, it is important not to confuse actions designed to put the financial markets back into operational mode with actions needed to stimulate the economy to repair the damage done during the freeze up. We have gone this far and since we are here, might as well finish the job.

Credit markets continue improving.

Speaking of the credit freeze, the credit markets continue to improve. Credit swap rates are the lowest since May 2008. Not bad.

LIBOR continues the drop as well. Recall it started to fall after the G7 countries agreed to guarantee interbank loans. It did not plummet as anticipated and hoped, however. And after the TARP funds were diverted from asset purchases to giveaways to financial institutions for important items such as executive bonuses, LIBOR rates jumped back up. Only after the announcement of TALF where $600B in new funds were earmarked for buying mortgages, small business loans, and consumer credit securities did LIBOR start to fall again.

LIBOR is really starting to rock now. It was down again Wednesday. The Overnight rate fell to 0.13% from 0.16% Tuesday. The 1-month plunged to 0.58% from 0.88%. The 2-month broke a logjam and fell to 1.58% from 1.85%. That is the lowest level on this issue since the summer of 2004.

There is real promise in the credit markets. They are recovering. About time given all the trillions and guarantees thrown at them. That does not mean, however, that we should not pursue stimulus now that the credit markets are recovering.

MARKET SENTIMENT

VIX: 49.84; -2.53

VXN: 48.04; -2.18

VXO: 52.24; -1.92

Put/Call Ratio (CBOE): 0.84; -0.07

NASDAQ

Stats: -10.58 points (-0.67%) to close at 1579.31

Volume: 2.147B (-3.87%). Elevated from the prior week but lower than on the Tuesday gain so the price/volume action remains positive for the upside. It is still too low to show a real swell in strength that you would like to see. Holidays are approaching so that is understandable, but that also makes this look like a Christmas rally.

Up Volume: 950.757M (-1.109B)

Down Volume: 1.185B (+1.04B)

A/D and Hi/Lo: Advancers led 1.05 to 1. Negative indices but positive breadth. Positive divergence showing continued underlying strength.

Previous Session: Advancers led 4.31 to 1

New Highs: 11 (+7)

New Lows: 75 (-14)

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

NASDAQ rallied through the 50 day SMA (1584) on the high but could not hold the move, sliding back to close just below that level on the close. Lower trade, modest loss. It is still in good position to take on the 50 day EMA (1636), but we just have to be patient to let it digest the Tuesday move and news and let it make its move.

SOX (-0.16%) was a relative strength leader. It tapped at the 50 day EMA on the high and backed off but was flat on the session. That 225 level has a couple of resistance layers and SOX may need a couple of days of lateral movement to rev up enough to break on through, but the chips have returned to life.

NASDAQ 100 (-1.42%) lost twice as much as NASDAQ, but it remains in very good shape to make this higher low and take on its 50 day EMA.

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

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

SP500/NYSE

Stats: -8.76 points (-0.96%) to close at 904.42

NYSE Volume: 1.34B (-12.97%). Quite a drop off in volume so no dumping, just some post-surge profit taking.

Up Volume: 626.63M (-819.524M)

Down Volume: 693.463M (+607.265M)

A/D and Hi/Lo: Advancers led 1.37 to 1. Positive breadth despite losses in SP500, DJ30. The small and mid-caps were positive and thus the positive breadth.

Previous Session: Advancers led 6.4 to 1

New Highs: 38 (0)

New Lows: 72 (-9)

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

A very modest pullback to close at the 50 day SMA on very light trade. SP500 is at the early December high, taking a day off after Tuesday, eying the 50 day EMA (931), the next key point to break. May take another session of sizing it up to get going, but it is in good position.

SP600 (+1.09%) led the market Wednesday, clearing the 50 day SMA and the early December high. It also needs to clear the 50 day EMA and is setting up to do it. Will likely move when the other indices are ready to try again as well. Want to see it out in the lead as it does.

SP600 Chart: http://investmenthouse.com/ihmedia/SP600.JPEG

SP400 CHART: http://investmenthouse.com/ihmedia/SP400.jpeg

DJ30

The Dow looked at the 50 day EMA (8983) again but did not try to pass. Volume fell sharply from the average trade on Tuesday. Modest loss by the standards of the harsh September to November selling. Some financial station announcers are complaining or confounded by this, but what this is to us is another positive element of the new found strength in this recovery. It may take the Dow another day or two, but it is in good position to make the break over the 50 day EMA.

Stats: -99.8 points (-1.12%) to close at 8824.34

VOLUME: 239M shares Wednesday versus 337M shares Tuesday. Sharp drop-off in volume on the pause, just what you want to see.

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

Initial jobless claims (558K expected), Leading Economic Indicators (-0.5% expected), and the Philly Fed (-40.0) are all out Thursday, the last reports of the week. There will be the usual affairs no doubt, including earnings warnings and analyst opinions. The dollar, oil along with LIBOR and credit spreads are in the mix as well.

In short, the same issues facing the market each day. The rally has remained intact nonetheless and the price/volume action and leadership suggest it will remain that way barring some new and unexpected bad event.

That means we are looking for the Wednesday pullback to continue and lead into a new bounce where DJ30, SP400, SP600 and company attempt to take out the next resistance at the 50 day EMA. We are going to use the pullback to monitor stocks that surged and are testing back to near support, setting up for the next move. Leadership continues to set up and improve, and as good stocks break higher we will continue to move in and buy. This surge allowed us to take some nice profits, and the pullback will reload some positions so we can ride the next rebound to some more gains.

Support and Resistance

NASDAQ: Closed at 1579.31

Resistance:

1603 is the December peak

1620 from the early 2001 low

The 50 day EMA at 1637

1644 from August 2003

1752 from 2004

1782 from August 2004

1786 is the November 2008 high

Support:

1565 is the second low in October 2008

1542 is the early October 2008 low

The 10 day EMA is 1539

1536 is the late November 2008 peak

The 18 day EMA at 1531

1521 is the late 2002 peak following the bounce off the bear market low

1499.21 is the 2008 closing low

1493 is the October 2008 low. Key low.

1428 is the November 2008 low

1398 is the early December 2008 low

1387 is the 2001 low

1295 is the November 2008 low

1253 is the March 2003 low on the test of the rally off the 2002 bear market low

1108 is the 2002 low

S&P 500: Closed at 904.42

Resistance:

919 is the early December peak

The 50 day EMA at 931

965 is the 2003 consolidation low

995 from June 2003 consolidation peak

1008 is the November 2008 peak

1065 is the Q4 2003 level that SP500 started the run to 2007 after the first run in the recovery.

Support:

899 is the early October closing low

896 is the late November 2008 peak

889 is an interim 2002 peak

The 10 day EMA at 886

The 18 day EMA at 882

866 is the second October 2008 low

853 is the July 2002 low

848 is the October 2008 closing low

839 is the early October 2008 low

815 is the early December 2008 low

818 is the November 2008 low

800 is the March 2003 post bottom low

768 is the 2002 bear market low

741 is the November 2008 low

650 on the top and 625 on the bottom of a 7 month range in 1996

475 from 1994 where the market moved laterally for the entire year.

Dow: Closed at 8824.34

Resistance:

8934 is the December closing high

8985 is the closing low in the mid-2003 consolidation

The 50 day EMA at 8983

9200 is the July peak in the 2003 consolidation

9323 From June 2003 peak

9575 from September 2003, May 2001

9654 is the November 2008 peak

Support:

8829 is the late November 2008 peak

The 50 day SMA at 8715 stopped the Dow all last week & we will see if it acts as support now

The 10 day EMA at 8691

The 18 day EMA at 8650

8626 from December 2002

8521 is an interim high in March 2003 after the March 2003 low

8451 is the early October closing low. Key level to watch.

8141 is the early December low

8197 was the second October 2008 low

8175 is the October 2008 closing low. Key level to watch.

7965 is the November 2008 intraday low.

7882 is the early October 2008 low. Key level to watch.

7702 is the July 2002 low

7524 is the March 2002 low to test the move off the October 2002 low

7449 is the November 2008 low

7282 is the October 2002 low

Economic Calendar

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

December 15 - Monday

December NY Empire State Index (8:30): -25.8 actual versus -27.0 expected, -25.4 prior

Net Foreign Purchases, October (9:00): $1.5B actual versus $65.4B prior (revised from $66.2B)

Capacity Utilization, November (9:15): 75.4% actual versus 75.6% expected, 76.0% prior (revised from 76.4%)

Industrial Production, November (9:15): -0.6% actual versus -0.8% expected, 1.5% prior (revised from 1.3%)

December 16 - Tuesday

Core CPI, November (8:30): 0.0% actual versus 0.1% expected, -0.1% prior

CPI, November (8:30): -1.7% actual versus -1.3% expected, -1.0% prior

Housing Starts, November (8:30): 625K actual versus 730K expected, 771K prior (revised from 791K)

November Building Permits (8:30): 616K actual versus 700K expected, 730K prior (revised from 708K)

December 17 - Wednesday

Crude oil inventories (10:30): 525K actual versus 600K expected, 400K prior

December 18 - Thursday

Initial Jobless claims (8:30): 558K expected, 537K prior

November Leading Economic Indicators (10:00): -0.5% expected, -0.8% prior

Philadelphia Fed, December (10:00): -40.0 expected, -39.3 prior

Upside:

Play Date: 12/17/2008

ACET (Aceto--$10.37; +0.04; no options): Drugs

http://biz.yahoo.com/p/a/acet.html

EARNINGS: Early February

STATUS: Test breakout. ACET broke higher in early December, moving out of a 10 week ascending base. We rode it higher but it quickly dumped on us only to catch itself at the 50 day EMA and hold. That rebounded ACET. Strong move Tuesday, then a test lower Wednesday that rebounded to flat. Very strong earnings growth rates. Good volume on the recovery Wednesday. Looking for volume to stay solid as ACET continues the break higher.

Volume: 236.957K Avg Volume: 164.615K

BUY POINT: $10.52 Volume=225K Target=$12.75 Stop=$9.78

POSITION: - Stock (no option chain)

http://www.investmenthouse.com/ci/acet.html

Play Date: 12/17/2008

KSU (Kansas City Southern--$20.20; +3.36; optionable): Railroads

http://biz.yahoo.com/p/k/ksu.html

EARNINGS: 2-3-08

STATUS: Double bottom. The rails held out the longest before succumbing to the selling, but when it came the selling was sharp. KSU made us money earlier in the year on the run, then it tumbled in October and again in November. It bounced and then sold and bottomed again just this week. Strong volume Wednesday as KSU bounced as part of the infrastructure, re-flation trade. Looking to ride a rally up toward the 50 day EMA at 25.36

Volume: 4.361M Avg Volume: 1.851M

BUY POINT: $20.55 Volume=2.3M Target=$24.95 Stop=$19.11

POSITION: KSU CD - Mar. $20c (55 delta, low OI) &/or Stock

http://www.investmenthouse.com/ci/ksu.html

Play Date: 12/17/2008

STP (Suntech Power Holdings--$10.81; +0.91; optionable): Sun power

http://biz.yahoo.com/p/s/stp.html

EARNINGS: Third week of February

STATUS: Trend reversal. Crushed in the 2008 selloff that started with the start of the year. From big winner to about 10% of its prior value. After another particularly ugly selloff in October and November, STP has worked laterally, and on Wednesday broke over a 7 day tight, lateral trading range on a shot of volume. May be waking from its slumber. It can ride on up to the 50 day EMA (14.85) and give us a very nice gain.

Volume: 5.648M Avg Volume: 5.938M

BUY POINT: $11.04 Volume=7M Target=$14.88 Stop=$10.11

POSITION: STP CY - Mar. $10c (55 delta) &/or Stock

http://www.investmenthouse.com/cd/stp.html

Play Date: 12/17/2008

XIDE (Exide Tech--$5.08; +0.28; optionable): Industrial electrical equipment

http://biz.yahoo.com/p/x/xide.html

EARNINGS: Early February

STATUS: Saucer. XIDE made us some very nice gain in the first half of 2008 as it rallied with the industrials. It peaked in June and sold off more than 75% of its value. Over the past 11 weeks it has formed a nice rounded bottom, a shallow cup often called a saucer. Volume started moving to above average levels on the upside moves the past four weeks. Wednesday XIDE rallied up to the 50 day EMA (5.04) on very strong trade. Money flow has turned up ahead of price and XIDE looks to be in very good shape to give us a strong breakout.

Volume: 1.51M Avg Volume: 1.127M

BUY POINT: $5.21 Volume=1.2M Target=$6.85 Stop=$4.77

POSITION: FRU CA - Mar. $5c (75 delta) &/or Stock

http://www.investmenthouse.com/ci/xide.html

Play Date: 12/17/2008

XTO (XTO Energy--$38.15; +0.49; optionable): Independent oil and gas

http://biz.yahoo.com/p/x/xto.html

EARNINGS: Early February

STATUS: Ascending base. After a sharp selloff in two legs starting in June and ending in October, XTO has formed the current 10 week ascending base. It is making a series of higher lows below a constant top near 40ish. If volume spikes higher we are ready to move right in as opposed to waiting for it to clear the 90 day SMA at 40.14. Money flow is surging higher ahead of price and that is one reason we are looking for XTO to pop on through with a strong surge.

Volume: 10.319M Avg Volume: 12.62M

BUY POINT: $38.64 Volume=16M Target=$44.88 Stop=$36.32

POSITION: XTO BG - Feb. $35c (69 delta) &/or Stock

http://www.investmenthouse.com/ci/xto.html