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trend trading stock, trading system
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3/26/02 Stock Split Report
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Stock Split Report 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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http://www.investmenthouse.com/alertssr.htm
SUMMARY:
- Confidence scores largest ever increase and spurs early rally.
- Big indexes close well off highs, but small cap index holds its gains.
- Economic reports mixed.
- Not much power in the short covering move, but that is how rallies usually start.
- Subscriber Questions
Confidence restored with big jump.
Consumer confidence scored a 15.2 point jump from February to March, the largest jump since the Conference Board has kept the statistic back in 1967. Present conditions registered 111.5 and future expectations were right behind at 109. The Conference Board says that it is very important that both components moved together because it is very unusual to see them move in such lockstep and in such magnitude. It is a very positive sign.
It is important to realize, however, that confidence is really just a snapshot of how consumers are feeling at that point in time. Historically it does not automatically translate to more consumption down the road. Consumers feel better than they have since right before the 9-11 attacks. Things were recovering at that point as we were seeing in the forward looking economic indicators, but things were not roses.
Case in point: even with the record jump in confidence, those polled for March were less inclined in the next six months to buy a new auto, take on a new house, or buy a major appliance. They were all over carpeting, but just not a new house to put it in. The Conference Board economists acknowledged this decline, but still said the numbers showed 'healing' of the American public. As to how strong the recovery will be, even the Conference Board said they were not reliable indicators. Of course, you have to have confidence just as you have to have heart.
Investors confident as well, but it does not hold unless you were looking at small or mid-caps.
The market was bouncing even as the confidence numbers hit. The market was just starting into its first pullback after the initial run and we were starting to look around in earnest, and then the indexes shot higher. Thirty minutes later the big indexes had hit their highs (except the SOX; it made another high early afternoon). Good consolidation could not help, however, as the indexes turned down in the afternoon. The Nasdaq had to rally to return to positive territory at the close.
What caused the turn? Lots of theories, but all three ran right into resistance in the form of the prior support they had just broken Monday. That stopped them cold. They tried to consolidate, moving laterally for three hours, but no second run. Volume was up, but it was not powerful enough to send it through resistance. It was a pretty strong move just to get to resistance; it did not have the stomach to try and break it.
Small and mid-caps, however, continued their mastery over larger names (and the Nasdaq big techs) with closed on the highs. Recently the A/D line had turned sharply negative because small and mid cap stocks for once were selling back on some profit taking after their continued great runs. With the big caps languishing as usual and the smaller issues taking a needed breather after hitting new highs, the whole market looked lousy. With the smaller issues turning it back on today, the majority of the market looked good. That is, if you could look past the big indexes.
THE ECONOMY
Durable goods up and down.
You know confidence. Durable goods overall notched a 1.5% gain, topping expectations of +1.0. Take out transportation and the number collapsed to -1.3%. Not a lot of strength there; maybe the confidence numbers do tell more of the tale that thought. This is one of those reports that keeps you guessing about the recovery's strength. But for one area, durable goods orders were down after a big January jump. It is not up, up and away for the economy, but as noted last week, the ECRI indicates no double dip.
Weekly retail sales slimmer.
Redbook reported a -0.8% drop in sales for the first 3 weeks of March. Mitsubishi reported a 0.6% decline. Not massive drops to be sure, and no downside trend developing. Again, the numbers do not indicate an orgy of consumption. It has been ongoing for months already.
Credit card and home equity delinquencies rising. This often surprises people. Here we are with one good economic report piled upon another, yet bankruptcies, credit delinquencies, and loan defaults continue to rise. It is the same story: those laid off are not getting hired right back because employers are making doubly sure that demand is there before rehiring. With all of the talk about a less than robust recovery, managers are even more nervous about pulling the trigger for new hires. Sad but true 'normal' cycle of a recovery.
Fed talks as though it is still 'accommodative.'
Dallas Fed president McTeer (non-voting this year) said today that he was not in any hurry to start raising interest rates. McTeer has always been more inclined to go easier on rates, and combined with his not being a voting member this year, who knows how much weight to give his words.
So, don't really listen when they don't say much. Here is what it looks like: the economic numbers show a real upturn. They do not show what is considered a 'normal' recovery cycle as there was continued consumption throughout the recession. Greenspan is well aware of this, and he wants to remain accommodative in more than just words. The issue is whether this guy in the twilight of his tenure will be able to and willing to fight back the hawks. There will be rate hikes this year; the monetary policy is still pushing money into the system and will have to rise to keep up with the natural rise in real rates. Greenspan wants to keep Fed rates following real rates, not leading them. Thus a May rate hike is iffy. June more likely, and then some later in the year to get the rate back up to 3%.
MSFT has some 10Q issues.
MSFT reported that due to a clerical error it had incorrectly reported items in its unearned revenue account. MSFT was cruising along before the open until that news hit and it turned negative. A wild ride on the session with rising volume. We are not out of the accounting woods yet, particularly with the big issues.
THE MARKET
A week of low volume selling was enough. The market was in an early morning rally, but it was of questionable merit as nothing had really changed news or earnings wise. Then consumer confidence hit and it was off to the races. It was a sprint, however, and the indexes, fat and out of shape after backsliding on low volume, were winded quickly. A midday rest turned into a deep slumber. The big names woke up just in time to run things back to positive right before the close.
Volume was up, but many called it a short covering rally. Our response: so? Almost all rallies after selling start with short covering. It as if there is something impure or unclean about short covering. The big disappointment today was not that it was started by short covering, but that buyers did not come in after the surge began. Well, they did on the smaller issues; once again the small and mid-cap indexes closed on their highs. They are still being stingy with their gains, and they helped the A/D line turn modestly positive today even if the big names could not make a real decision on direction. They are providing our best source of solid plays as they have held good patterns during the selling.
VIX and VXN: These indicators are not showing any real correlation with the action on the indexes they relate to. The are indicating low volatility overall as reflected in option prices, but they are not showing good predictive ability without a correlation. We will continue to monitor them and will return them to the report when they once again show predictive value.
Put/Call Ratio (CBOE): 0.66; +0.01. Trading fractions, going nowhere the past three sessions. It remains in the higher end of the range, but it is not providing extreme readings.
Nasdaq
Opened lower but quickly turned positive. It was stopped at 1850 and only made a weak attempt at that level midday. A 30+ point drop to negative territory spurred a few late buyers for a positive close. Hard to be too thrilled with the session.
Stats: +11.68 (+0.6%) to close at 1824.17.
Volume: 1.662 billion (+16.5%). Best volume since the March 15 option expiration session, but still well below average as it has been for almost three weeks. Continues the pattern of now dumping, but accumulation is light.
Up volume: 860 million.
Down volume: 769 million
A/D and Hi/Lo: Advancing issues were able to scratch out a less than spectacular 1.28 to 1 lead. No real push as evidenced from this reading.
New highs: 131 (+13)
New lows: 42 (+18). New lows continued to expand even on an up session.
The Chart: http://www.investmenthouse.com/cd/$compq.html
Held above some potential support at 1800 on the low (1807.47). A modest rebound after a 12-session downtrend that started when the index ran into resistance at the top of the November consolidation on the move off of the September bottom. A 140 point, 8% decline from that interim top. Technically the pattern is not a happy one. Below key moving averages and recent down trendlines with the majority of its key stocks in equally poor patterns. Without heavy selling on the drop (no dumping), however, a 10% correction may be all the index needs before it is ready to make the turn back up. The question is when; buyers may not be ready to return until after the three-day weekend ahead. We keep watching near term support at 1800 and 1775 for now. If it holds on lower volume the rest of the week, it has a passable chance of starting a rally next week.
Dow/NYSE
Managed to turn where it needed to, that is, just above the January high at 10,300. As with the other indexes, it was up on the session, but closed well off of its high and below 10,400. A good place to turn higher, but it still lacks any buy side intensity even with higher NYSE volume.
Stats: +71.69 (+0.7%) to close at 10,353.36.
NYSE Volume: 1.175 billion (+10%). Volume up on the up session, continuing the decent price/volume action. Still well below average and not showing real buying.
Up volume: 683 million
Down volume: 510 million (-330 million).
A/D and Hi/Lo: NYSE advancing issues regained the lead at 1.65 to 1 after a 2.3 to 1 decliner route Monday. The small and mid-caps were back in the game today, holding their gains.
New highs: 113 (-3)
New lows: 79 (+7)
The Chart: http://www.investmenthouse.com/cd/$indu.html
Rallied off a low of 10,276, holding above the 10,259 closing high in January that marks the right side of the two-month cup the index broke out of in early March. As noted Monday, this was the place to hold, and there was modest buying to push it back up. Modest is how to describe it. On the high it broke over resistance at 10,400 (10,432.86), but it could not hold the move as buyers did not rush in to fill the void after the short sellers closed positions. It continued more or less the same action we have seen. About the best thing we can say today is that it bounced where it had to and it did so on slightly rising volume. That means no share dumping and buys it time for when the fund managers come back and give it some definitive direction.
S&P 500:
Same action. The index was sliding toward an important support level at 1125 (the hump in the February double bottom) and the simple 50 day MVA (1127.31) just ahead of that level. It managed to turn ahead of that level and log a gain on some rising if unimpressive volume. It traded over the 200 day MVA (1142.89) on the high (1147.00), but it gave back all of its gain before a late rally pushed it positive. It was a minimalist day; the index did the minimum it needed to do to stay technically fit. Until it gets the buyers, it is not going to be able to beat those double tops at 1175 from December, January and March.
Stats: +6.62 (+0.6%) to close at 1138.49.
Volume: NYSE volume rose on the gain 10% to 1.175 billion shares. Higher but still well below average.
The Chart: http://www.investmenthouse.com/cd/$spx.html
TOMORROW
Two more sessions left this week as Friday is a holiday. Traditionally a light volume week, this one has been really light. There has not been any heavy share selling, but what buying volume there is has been unable to stem the slide lower. The market is somewhat marking time this week waiting for real volume to enter, and we have been more or less doing the same. We have bought and sold positions this week, but patience is really the key on such low volume.
Tomorrow there is not a lot to drive things. New home sales hit the market at 10:00ET. That is the only scheduled economic report before the flood Thursday with final GDP, Michigan sentiment, Chicago PMI, and personal income and spending. That flood of data could actually inspire some stronger action again, but volume will still most likely be light even if it is the end of the quarter. The managers controlling the big money have to be in to make the volume flow. They have been conspicuously absent all week.
Again patience. The small and mid-caps are still performing the best and we continue to look at quite a few of them. They are in some of the best patterns in the market and made some good moves today. Others are set up to move as well. We won't hesitate to enter these stocks as they are still outperforming and will most likely continue to do so when the volume comes back in next week. We will enter those hitting our targets to be positions for next week.
Support and Resistance
Nasdaq: Closed at 1824.17.
Resistance: 1850. Then 1875, the bottom of the November consolidation that stopped the prior attempt. The simple 50 day MVA (1860.11) and then the 200 day MVA (1884.82) 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 held today, but it was not really challenged. Clearer support 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 1138.49.
Resistance: The 200 day MVA (1142.89) and then 1150 (represents prior tops and bottoms). The December high (1173.62) and the January high (1176.97) will be the real key. 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 (1127.31) 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 10,353.36
Resistance: 10,400 just broken Monday and turned back the index today as well. 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 (9988.10).
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): +1.5% actual versus 1.0% expected and 2.6% prior.
Consumer Confidence, March (10:00): 110.2 actual versus 98.0 expected and 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: When you select stocks are you viewing Daily, Weekly or Monthly Charts? A few months back I set up my charting service with 1 day, 2 day, 7 day and monthly charts. I have been taking the charts from the report and viewing them in each of the above charts. I notice that it paints a different picture. For instance looking at NWK on a daily chart I do not see anything that makes me excited about this stock (Probably because of my inexperience). But looking at a 7 day chart of the same stock I see a beautiful pattern forming. Also when I view the different time periods the moving average changes. On the 7 day chart NWK has not closed below the 10 day moving average. As a matter of fact it has been following the 10 day MVA and now seems as though it has come to a point where it must either break above or below the weekly charts 10 day MVA. How do you know when to you use the different time frames, or does it vary with different stocks?
A: Great questions. When we look at a chart for the first time, we back off and look at a daily chart for at least a year. If we need to see an even bigger picture, we take a look at 2-day or weekly. You are right; you can see things from a different perspective backing away and moving in as well. After we get an idea of whether the stock is in an uptrend, downtrend, and where it is in its range we start looking for a pattern. Is it in one of the signature patterns we teach in the Technical Analysis seminars? Is it bouncing up or down a trendline or moving averages? A daily chart is good for this, but we can also look at a weekly chart as well. If we find a stock in a good pattern, then we start looking closer. We look at a weekly chart to see if it is under accumulation or distribution. A weekly chart makes that easier as we can look at where institutions closed a stock for the week as that says a lot about whether they are interested in it or not. It is also easier to match the volume to the price movement as it clears out a lot of the 'noise.'
In sum, we look at the chart from a number of views. We are not trying to see something that is not there, but we are making sure we don't miss something. We may see a stock we like, but then when we look at it from other views it might not continue to show solid attributes. The key is to take a chart and decide if there is something there worth looking at. We start with a daily chart for a year or more and then start narrowing it down from there.
End Part 1 of 3
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