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us stock market, stock trading seminar
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3/25/02 Investment House Daily
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Investment House Daily Subscribers:
The Market Basics course, the first in the online seminar series, is filled. Don't despair, however. You can view the rebroadcast archive at your convenience the following week! Investment House subscribers can sign up for a FREE VIEWING of the rebroadcast shown at various times the following week! All we ask is that you cover the modest shipping & handling charges for the reference quality manual. Quite a deal.
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MARKET ALERT SERVICE
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SUMMARY:
- Low volume bleeding continues.
- Indexes break support, so low volume is not a complete salve.
- Stronger stocks still holding up well. Still just a shakeout?
- Gold rising on interest rate concerns and general confusion.
- Existing home sales down but still strong.
- Subscriber Questions
It wasn't really selling, but it definitely was not buying.
Might as well have been Thursday already. Thursday will almost certainly be a light volume session as the markets are closed for Good Friday. Very low volume as the indexes continued there sag lower. Unlike previous sessions, today the indexes broke below support and there was no inclination to push them back up.
As some were saying, it wasn't so much the selling, but the dad blame lack of buying. The majority of the LARGER stocks had no bids, i.e., offers to buy. When that happens the market maker or specialist has to lower the price until there is someone interested in buying. Along the way down there are more sellers entering, those very ones we talked about over the weekend that are getting out. We had to do some of that as well today as our stop points were triggered. Part of our gameplan, even if it is low volume selling, is not to let positions turn over on us to a point where we are stuck. Take the money off the table and look for the next investment or the market to improve if we are looking for upside action.
That lack of buying interest finally took its toll. As noted, the indexes rallied back last week after playing around intraday below support levels. As we noted in an early alert today, the more you play in a dangerous area, the more likely you are to get hurt. We looked at some puts and closed upside positions on index trades and some other upside action. Importantly, after the S&P was twice unable to retake its 200 day MVA it broke in the second hour, some sell programs kicked in and sold off stocks in the last hour. This was the opposite of Thursday's action where some buy programs came in to reverse the market. When there are no buyers to support prices, a sell program stands little resistance. It pushed the major indexes to their lows on the close, the opposite action of what the market was showing in the prior few weeks.
Low volume still a silver lining?
Yes and no. Yes it shows that the character has not changed a lot, but a 7% loss is still a 7% loss for our stock plays regardless of the volume. Light volume shows there is not wholesale dumping. Talking with a couple of floor traders today, they confirmed there was simply no interest in buying in the big names. They were moving some orders on smaller stocks, but not the name brands. That is good in that it shows institutions are not yet dumping their shares they were buying on the way up. There were some selling, however, on the S&P's technical breach of the 200 day MVA. Not a lot, but some started to get out.
The break below support even on low volume is not a good sign. As noted, they had been playing where they should not have been, and today they got caught on the other side of the tracks when it was time to come home. Not a high volume breach that shows dumping, but a close below what have been key levels makes the trip back all that harder. Upside real estate that was scratched out against overhead supply now looks right back at the same resistance it had the first go round. There is a saying when hiking: don't take the downhill trail if it will require you to climb right back up later. It does not get any easier the second climb up. Breaking support today was a problem in that respect even if it was on low volume.
The real silver lining: most institutions were not dumping. That means they are still holding most of their shares for something longer term. That means that when they get back into the office there is a good likelihood that they will see the price drops as just another good buying point and add even more shares at the lower price. Of course all things have to remain equal for them to do that, and that is why we still exercise stop points even if the selling is on light volume, particularly with options plays.
Stocks in good patterns hanging in there.
Today selling was pretty broad in the larger caps with financials, cyclicals, homebuilders, technology, and oils peeling back again. Still, many of the stocks in the better patterns, patterns that have indicated ongoing accumulation, held up well. The report is predominantly populated with these stocks. Even PG, a large cap on the Dow, held up well over the last two sessions
Smith Barney also was coming to bat for some stocks after its Jonathon Joseph cut INTC estimates last week. Basically SSB thinks that recent comments from these companies as well as a general slight increase in IT spending is going to help them, the usual leaders in any sort of tech recovery.
CSCO was also talked about as Lehman Brothers stated that order trends were increasing in March and that sales were slightly up as well. That is not saying much that would cause a rush to the stock as orders and sales have been on the decline. Still, LEH was saying it saw things improving, not continuing to dump.
Not to say we can brush aside the recent action and blame it on the large caps. The A/D line has significantly deteriorated the past several sessions with decliners blasting advancers. It was the broad A/D line on the way up that heralded some 'unseen' strength in the market. The small caps are not scoring continued gains even as the bigger indexes sell down; however, they are just off of their highs hit just last week, so they are not showing the same type of war and tear as the larger cap indexes.
THE ECONOMY
Existing home sales down, but stronger than expected.
Existing home sales, the sales that make up 80% of the sales market, fell 2.8% in February. A drop in the numbers fueled some 'I told you so' knee jerk comments. Still, expectations were for a much large 8% drop. The 5.88 million annualized units was still a huge, huge number after a record number in January. You cannot set records every month.
Durable goods orders are out before the open, expected to show a 1.0% increase after January's 2.6% rise. After a string of stronger than expected reports, expectations are pulling back some. An upside surprise could start getting investor mood back up.
Consumer sentiment. The Conference Board's March consumer confidence reading hits the market at 10:00ET. It is expected to show a 98 reading, almost a 4 point move from February's 94.1 reading. Expectations for expectations are not being ratcheted down. It needs to hit this number, and it would be a very good number indeed. Definitely better economic news will help; the stock market has not been exactly exciting investors in March, however.
THE MARKET
Major indexes broke support levels after early optimism on chip equipment stocks upgrade and an outlook that CSCO's orders were increasing. Heard that before. The market was not impressed, and across the board it was a down session for more stocks than not. After hours BRCD joined in, saying its Q2 would tract at or better than expectations. It was up 20 cents or so in the late session. Just not strong enough positives out there to set investors to buying these stocks in anticipation of rapidly strengthening earnings.
VIX: 20.48; +0.86. Rising finally on some selling, but still extremely low.
VXN: 39.10; +1.62. Rising as well on the selling but nowhere near a level that would mean anything for upside action.
Put/Call Ratio (CBOE): 0.65; -0.01. Not the kind of action we want to see on selling. The put/call ratio has been quick to jump on selling, but that was not the case today. Even options speculators were not willing to buy into the downside action today after doing so last Wednesday when it jumped back over 0.90 on the close.
Nasdaq
Broke below 1850 and closed on the low. No rally attempt today as there were no buyers in technology other than in the chip equipment makers early on. Even that folded up the tent later in the day.
Stats: -38.90 (-2.1%) to close at 1812.49.
Volume: 1.429 billion (-5%). Volume fell even lower below average as the index fell for the third out of the last four sessions. Volume is not the problem.
Up volume: 238 million.
Down volume: 1.172 billion. Absolutely no buying.
A/D and Hi/Lo: Decliners tightened the grip on advancers at 1.67 to 1 (1.33 to 1 Friday). Still not a slaughter, but getting close to the level of advancers over decliners on the run up in early March.
New highs: 118 (-34)
New lows: 24 (0)
The Chart: http://www.investmenthouse.com/cd/$compq.html
Took out the recent low (1825.99) and now does not have a whole lot below it other than the October high at 1775 and then the early November gap up point at 1768. The index bottomed temporarily in February at 1775 before rolling over to test 1700 and a full 50% retracement of the move off of the September bottom. As we saw today, there were no buyers for the big name tech stocks even after more positive talk. Again, been there and heard that before. Now investors want results. BRCD saying it will meet some anemic estimates while trading at 70 times earnings is not going to encourage a rush of buying in the stock. The Nasdaq is the weakest link, and it is pulling the S&P and Dow down as opposed to those indexes dragging it up during this time of low volume.
Dow/NYSE
No nice recovery Monday as the index closed near its session low, breaking 10,400 in the process. It is at the January high. Time to hold the line if it is going to do it; again, however, tech weighed it down with MSFT, INTC, and IBM pushing it lower with some hard selling. That is hard to overcome. Combine that with another big tobacco verdict against MO and the selling on that issue, it was a tough session.
Stats: -146.00 (-1.4%) to close at 10,281.67.
NYSE Volume: 1.032 billion (-17.5%). As with the Nasdaq, volume is not the problem with holiday levels already. There is no dumping overall, but some stocks are getting targeted individually (INTC, MSFT and IBM all sold on rising though below average volume).
Up volume: 203 million (roughly -300 million)
Down volume: 840 million (about 100 million more sellers; not a surge in selling).
A/D and Hi/Lo: NYSE decliners routed advancers 2.3 to 1, better than any up session on the rally higher. 3 out of 4 declining sessions, and rising in intensity. The broader market is not moving higher right now, but we do note that the small and mid-cap indexes are just off of their recent highs and are taking a breather after strong advances.
New highs: 116 (-47)
New lows: 72 (+28). First reading above 50 in months. Four of these in a row is a negative sign.
The Chart: http://www.investmenthouse.com/cd/$indu.html
The Dow was not interested in making its way back up toward 10,679 today as the selling on the GE and INTC news last week spread out in the index and pushed it below support at 10,400. It closed near the session low and below the January intraday high of 10,300 but not the January closing high at 10,259. Another 22 points lower and it gives a full test of the breakout in early March. Still well above the 50 day MVA (10,199.77 exponential, 10,082.99 simple) and the 200 day MVA (9991.64), but this is about as low as it should go for a good technical test.
S&P 500:
The big caps gave up the 200 day MVA (1143.53) and the exponential 50 day MVA (1135.88) as it decisively broke the early March trading range between 1150 and 1175. There is the next level of support at 1125 (simple 50 day MVA at 1127.45) in the form of prior price highs and lows and the 'hump' in the February mini double bottom. As with the Dow, as 1150 did not hold, this is about as good a place to turn as there will be and still keep a rather healthy technical pattern.
Stats: -16.83 (-1.5%) to close at 1131.87.
Volume: NYSE volume again fell, plunging to holiday-like levels (1.032 billion; -17.5%).
The Chart: http://www.investmenthouse.com/cd/$spx.html
TOMORROW
All analysis aside, the question for the rest of the week is whether buyers come back into the market or just wait until next week. It is the end of Q1, and there is some selling in mutual funds of the poor performers for the quarter to make the prospectus look good when it comes out ('See how we got out of this poor performer!'). Drug stocks are susceptible as BMY was hammered earlier in the month and other drug stocks went down with it. This could help keep the bias away from buying for the three remaining sessions this week.
As noted earlier, if there is continued low volume selling the rest of the week, that would indicate that there was no real share dumping ongoing, and the lower prices may just trigger buying when those institutions that have been accumulating stocks the past several months decide the end of quarter sellers are done and prices are as low as they are going for the near term. That is the problem with very, very light volume: things look better or worse than they are, and it is a matter of being patient and continuing to look for good opportunities. There are still those out there, but we are taking it slow for now.
The Dow and S&P are at good points to try a move higher. If they do that we could see several stocks on the report that have been holding up well in the drift lower start to make breakout attempts. Good stocks hold up better in the selling and are the first ready to move higher when the buyers start showing up. We are being patient, but we won't ignore a breakout, or a good test of a breakout (which is what we are seeing a lot of). We will go in slow with not a full position that we want to allocate to the investment. That way we can see if sufficient volume comes in if the move occurred earlier in the session and decide if we want to complete the position or wait for another time to do so.
Support and Resistance
Nasdaq: Closed at 1812.49.
Resistance: 1850. Then 1875, the bottom of the November consolidation that stopped the prior attempt. The simple 50 day MVA (1864.07) and then the 200 day MVA (1886.48) is what stopped the recent rally attempt. The top of the November consolidation at 1934 to 1941. After that is 1980 (the December gap up point) and some minor resistance at 2000. Then the January top at 2098.88.
Support: 1800 may try to provide some support, but clearer is 1775, the October high. Then the early November gap up at 1768 and 1745, where it launched from on that gap.
S&P 500: Closed at 1131.87.
Resistance: The 200 day MVA (1142.53) and the 1150 (represents prior tops and bottoms). The December high (1173.62) and the January high (1176.97). That point also marks roughly the lows of summer 2001 consolidation that runs up to 1240. Before that point there is some resistance at 1183 from March 2000.
Support: The simple 50 day MVA (1127.45) and then 1125 (former price consolidations and the 'hump' in the brief November double bottom). 1100 has acted as support as well.
Dow: Closed at 10,281.67
Resistance: 10,400 just broken Monday. The top of the June, July, and August 2001 trading range at 10,600 (10,679 intraday high), is still holding it back. 10,800 represents some resistance. That is followed by resistance at 11,000 on its way to the May 2001 high at 11,345.72.
Support: The January intraday high at 10,300 and the closing high at 10,259.74. Then 10,000 followed up by the 200 day MVA (9991.64).
Weekly Economic Calendar (All times Eastern). The figures are the consensus expectations, not ours.
3-25-02
Existing Home Sales, February (10:00): 5.88M (+2.8%) actual versus 5.50M expected and 6.04M prior.
3-26-02
Durable Orders, February (8:30): 1.0% versus 2.6% prior.
Consumer Confidence, March (10:00): 98.0 versus 94.1 prior.
3-27-02
New Home Sales, February (10:00): 880K versus 823K prior.
3-28-02
Initial Claims, 3/23 (8:30): 375K versus 371K prior.
GDP-Final, Q4 (8:30): 1.4% versus 1.4% prior.
Chain Deflator-Final, Q4 (8:30): -0.2% versus -0.2% prior.
Mich Sentiment-Rev., March (9:45): 95.0 versus 95.0 prior.
Chicago PMI, March (10:00): 54.0 versus 53.1 prior.
Help-Wanted Index, February (10:00): 47 versus 47 prior.
Personal Income, February (8:30): 0.2% versus 0.4% prior.
Personal Spending, February (8:30): 0.4% versus 0.4% prior.
SUBSCRIBER QUESTIONS
Q: Where can I find option deltas on the web?
A: www.phlx.com. Select the button on the home page labeled 'Delta & Option Chain.' You then have a choice of three formats. The middle choice includes the delta, but the other choices also provide a lot of information such as time value, intrinsic value, and days before expiration if you do not want to do any simple math on your own. It is a bit slow, but it is also providing a ton of information.
End Part 1 of 2
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