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world stock market, us stock market
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4/02/02 Investment House Daily
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MARKET ALERT SERVICE
Target alerts hit this week: AHC (+$10.20); NVDA put (+$4.28 per option); RTN (+$7.25; +19%); ZRAN (+$7.65; +19%)
Subscribers to the current reports can sign up at the following link:
http://www.investmenthouse.com/alertdly.htm
SUMMARY:
- Techs pummeled with warnings, estimate cuts, downgrades.
- From leader to goat: Nasdaq suffers distribution on more below average volume.
- Retailers of all stripes hammered.
- Economic news fails to beat expectations.
- Hanging on by the teeth (are they using Fixodent?)
- Subscriber Questions
- Team Trades
War, warnings, downgrades: nervous market takes punches to head and body.
Turn on the tube again today and more red arrows. I am reminded of Crocodile Dundee turning on the television again after 25 years and seeing an "I Love Lucy" rerun. Yep, that's what was on 25 years ago. More of the same was ahead. The only question was whether the market would stage another comeback or just give up. As it turned out, it gave up but barely held on to support.
Warnings. PSFT said it would miss its numbers. This remade semi-darling (a darling in the software sector for sure) spooked tech investors. It was not supposed to warn. The fact that it warned opened the season on all software stocks and by association all tech stocks. Post-holiday sale: PSFT at 30% off Monday's closing price.
Downgrades. Goldman Sachs decided that it was time, after 3 months of drifting lower, to cut its estimates on most of the big tech names (e.g., IBM, SEBL, MSFT, SUNW) lest we get fooled into thinking their poor patterns indicated they were reasonably valued. With the conflict between Israel and Palestine raging higher and talk of using oil as a 'weapon,' the big techs, after trying to lead 3 of the last 7 sessions, said "I'm out of here" and sold off on strong volume. Poor price patterns are subject to bad news. Bad news came from all sides today, at least as far as the market was concerned.
It was that kind of day. GMST announced that its revenues would be hurt if SFA did not win its lawsuit. That is nothing new, but the company put it in writing. Never mind that most pundits expect SFA to win the patent infringement case. Adopting Pharaoh's 'so let it be written, so let it be done' attitude, investors used the formalization of the remotely possible earnings impact as a reason to sell the stock. GMST still said it would meet its numbers, but that they would not be the windfall if the suit was not won. Somehow that was translated in to a sell. BBY jumped earnings by 51% and said March sales were 'slightly' better than estimates. What?? Only slightly better? Sell!! It was that kind of day.
Nasdaq and NYSE drop on stronger volume.
The Nasdaq distributed, i.e., sold on heavier volume. It was not above average volume, but sellers so dominated buyers it was amazing. It did not take much. Poor patterns that show the lack of accumulation (not even distribution, just no one buying) are very susceptible to suggestion. The suggestion from analysts today was that tech stocks were overvalued and were not going to live up to hopes come earnings season. That suggestion had the authority of fact, and investors ran over each other to get to the door.
The Dow was able to rally back up and close in the upper half of its session range. When a stock or index does that we usually ignore the session. It would not have been bad action but for the Nasdaq and S&P stinking the place up. Not a breakdown, but flirting with it.
Retailers get the boot as well.
BBY reported good earnings and was ahead in Q2, but after Monday's downgrades of some big names, there was not much that was going to please investors. Downgrades during shaky world events can be self-fulfilling prophecies to a certain degree. Both of those elements are certainly present right now. If the Middle East conflict further impacts energy, that could raise costs and slow the economy. Slower economy means fewer retail sales, lower earnings, and lower stock prices. Today it was sell now, consider the facts later.
Food sellers, wholesalers, and makers were hammered in many cases. That seems strange; no matter what happens, we all have to eat. That did not stop the selling in these issues, however. Again it is indicative of the type of session it was: sell first, sell again, and then let the dust settle.
THE ECONOMY
February factory orders slide to -0.1%.
This is one report that did not beat expectations. Factory orders were expected to rise 1.0%. The weakness reached back into January with the original +1.5% number toned down to +1.1%. The report did not act as a salve on a nervous market as the Nasdaq had managed a modest bounce that was wiped out in the 5 minutes following the release of the report.
What does it mean? Well, factory orders are considered a 'second tier' economic number, one that is not a powerful real time indicator of activity. Still, it has its place in the overall framework. The earlier durable goods report was very solid, beating expectations. In today's report this component was revised upward to 1.8% growth versus 1.5% previously reported. These are orders for factory equipment and household items that are designed to last 3 years or more. The fact that the overall factory orders number was lower implies that the consumer items that we buy day to day took a major drop in February in order to offset the strong durable goods component of factory orders. Indeed, nondurables fell 2.4%. It is not all roses on the economic front; the weak orders for our day to day items is the latest indication that the continued consumer buying through the downturn will slow any acceleration in demand as the economy picks up.
One bright spot: factory inventories in the report were down 0.4% (-0.8% prior report). Thus, even with the inventory rebuilding that is ongoing and driving most of the manufacturing sector, inventories are still contracting. That gives room for more manufacturing activity increases without ballooning inventories above demand that is still somewhat weak as the non-durable numbers show.
Job cut speed declines.
Challenger's weekly report of planned job cuts fell to 102,315 from a previous 128,115. While that does not sound like much to celebrate, it is a 10-month low for planned job cuts. As with all trends, they have to slow down, show some volatility, then adopt the new trend. Employment is lagging. CEO's are still skeptical and are not going to open the gate for major rehiring until their pessimism over the 'fastest downturn ever seen' is assuaged by some positive results. Right now the job loss trend is slowing as the rest of the economy is picking up. That is fairly standard action as we have noted the past few months.
Japan getting with the program?
Earlier we reported Japanese business confidence was trying to come out of its shell. Today it is reported that the ruling party wants to adopt U.S methods of dealing with recessions: tax cuts to encourage investment. There is nothing like seeing another's success to make one rethink a plan of action that has not produced results (at least the desire results). The U.S. tax cuts helped turn the recession from getting any deeper (although the drop from 7% GDP growth to -1.3% GDP growth is a steep drop even if not a technical 2 negative quarter recession). This would be welcome news; the world needs Japan producing and consuming once again.
Oil still a problem.
Iraq's threat to use oil as a weapon is receiving what can be labeled a favored response from Iran. Iran was labeled as one of the 'axis of evil' members, and it has not real tender feelings for the U.S. right now as it may see itself with an invasion complex as does Iraq. Together they control 10% of the world oil supply. Spiking oil price up to $30 and beyond would severely hamper any economic recovery attempts in the U.S., Japan, and other western countries.
THE MARKET
This was one of those sessions where the big indexes give a distorted picture of the events. The Nasdaq 100 (biggest techs) was down a whopping 4.6% while the overall Nasdaq was down 3.1%; not a small loss, but it was clearly the big techs that were sitting on the market. The S&P 400 and 600 were down 0.9% and 0.5% respectively. Along with the Dow they held up relatively well. The NYSE A/D line was tilted just slightly negative. It was not a market-wide selloff as we saw several stocks from the reports make the moves we wanted.
It was distribution on the big indexes, however, meaning they sold off on rising volume. It was not huge volume, but it was real selling, no question. All three held onto recent support, but that support is in question now that selling has started on higher volume. That is a change in the character of the action that has the most ominous tones for overall upside action.
Put/Call Ratio (CBOE): 0.85 (+0.12). Again jumping higher on selling as more option players anticipate a further move to the downside. This contrary indicator is about at the 0.88 level that has set off small rallies since the new year. The proximity to the bottom of the recent trading ranges as the ratio climbs toward 0.88 is very intriguing and suggests a possible rally off of these levels if the trading ranges are undercut and the ratio spikes a bit higher. Might be nothing more than a trading rally as it has been thus far.
Nasdaq
Negative news is upsetting to stocks in poor patterns. That includes most of the big techs. Earnings fears reared up along with estimate cuts of big names. That put a bullet in the small move up the prior sessions and retuned the index to the last support before things get ugly. It is interesting to note that small techs still performed just fine (e.g., DRXR); as we noted Monday, good patterns showing accumulation fight off sellers; they have happy owners who tend to want to continue to hold their stocks.
Stats: -58.22 (-3.1%) to close at 1804.40.
Volume: 1.697 billion (+9.25%). Still below average but the highest in over two weeks. A clear distribution day as there were not only more sellers, but just no buyers.
Up volume: 192 million (-815 million)
Down volume: 1.489 billion (+969 million). No buyers, more sellers.
A/D and Hi/Lo: Decliners ramped the lead to 1.58 to 1 (1.24 to 1 Monday). Downside action clearly taking charge.
New highs: 125 158 (-33)
New lows: 51 (+4)
The Chart: http://www.investmenthouse.com/cd/$compq.html
Its upside moves have been hard fought and then they are all swept away in one session. Rattled by a key earnings warning and downgrades of the biggest names the index gapped lower and never made a real recovery attempt. 1850 was gone in the first few seconds. 1812, the recent trading low, was taken out with an hour left. The area around 1800 represents some remaining support, but the break below the recent lows in the range on a distribution day does not bode well. We have said it many times before: the patterns on the big names do not show accumulation. Weak moves higher are tossed back at resistance or at the next news story that this the wire. It is like moving on eggshells; you make a bit of progress and some hope grows. All the while, however, you know you are on eggshells; if you hit any real resistance you are going to crush them. It is just a matter of time before you do.
1800 is some support, but 1775 has a better chance if not much better. 1700 held in February and is the clearest level. Again, the stocks making up the index are not in any shape to really rally seriously. We trade some of them, but for long term investments they are set up to do just what they did: inch higher and then dump many times lower in a few quick sessions to the downside. It is very, very hard to build off of that and even harder to take out stiff resistance such as the 200 day MVA, the November trading range, and the March top for starters.
Dow/NYSE
Held up relatively better, testing again down to the January top and rebounding to hold onto the trading range. As with the Nasdaq, however, the index showed distribution with higher NYSE volume. It is hanging on, but its grip is slipping.
Stats: -48.99 (-0.5%) to close at 10,313.71.
NYSE Volume: 1.175 billion (+11.8%). Higher volume selling though still overall below average volume. The first distribution session in 8 sessions. It did close in the top half of the trading range and that mitigates the action to a certain extent: rebounding off of support on higher volume can signal buyers came back in. Not much buying today, however.
Up volume: 392 million (-46 million)
Down volume: 754 million (+223 million).
A/D and Hi/Lo: NYSE decliners slid lower to a 1.10 to 1 lead (1.17 to q Monday). The NYSE held up relatively well.
New highs: 150 (+12)
New lows: 54 (+18). Back over 50. First day to do so. Four straight sessions of +50 new lows is a potential sell signal.
The Chart: http://www.investmenthouse.com/cd/$indu.html
The Dow once again tested the January closing high (10,259.74) on the low at 10,264.86. From there it managed a rebound, but stalled three times at 10,325 as it continued to make higher lows. It was building pressure for an upside move, but it did not have the buyers and ran out of time. Thus, unlike the Nasdaq and S&P, the Dow was building toward the close and finished well off the lows. Indeed, it closed in the upper half of its range, a signal that the session was not a full out selloff. Yes there was selling, but the buyers were able to come in at that January high support level and push the index off that level. It remains in the lower half of its 2-part trading range (10,250 to 10,400 is the lower half; 10,400 to 10679 is the upper), holding above the 50 day MVA (10,230.80). A move below the January high and the 50 day MVA puts it down to 10,000 pretty fast. Today's action kept us in the upside game on the Dow.
S&P 500:
The large caps did not make a recovery Tuesday. Selling throughout the session, they crossed the 200 day MVA (1140.29) early, broke over that level mid-morning, but then sold back and could not clear this key level for the remainder of the session. It kept bouncing up from 1136 on the low; four times it tested that level and it bounced. That is just below the 50 day MVA (1137.12) and still above support at 1125 (the simple 50 day MVA at 1127.80 is there as well) that marks the bottom of the trading range and above the breakout point from the February double bottom. The distribution and close near the low is a concern for further selling. However, the index can take another drubbing such as today and still be above that key 1125 level. The action today shows what can happen if the big techs really get spanked. Even at 20% of the S&P, they still have their impact when they sell hard. As with the Dow, we still give the S&P good odds of holding at 1125.
Stats: -9.78 (-0.9%) to close at 1136.76.
Volume: NYSE volume jumped to 1.175 billion (+11.8%).
The Chart: http://www.investmenthouse.com/cd/$spx.html
TOMORROW
ISM services are out 30 minutes into the session. Originally they were slated to come in at 57, but with the good manufacturing ISM, expectations were nudged up to 59. While manufacturing has been in the recession the longest, services are critical to the economy and the number really does have to come in at or better than expectations to soften the foreign news and what may be even more negative analyst views. When they get on a kick (and they usually do after a holiday), it takes them a week to get it all out. Then stocks sell lower and the following week analysts come out and defend the stocks saying they are fairly valued after the selling. Then they rally for two weeks and become overvalued again as far as the other group is concerned. Valuation tennis.
All three indexes are still within their recent ranges. Tuesday wiped away the work of the prior few sessions, but they were not doing any heavy lifting on that move. Thus the slap back down while disappointing for bulls was not a complete shock nor was it a breakdown. The higher volume is a problem to be certain, and how the indexes handle near support is key. The S&P has some room to work with while the Dow and Nasdaq are cutting it pretty fine. Any break below the support may be intraday, but we will be watching volume to see if there is a complete breakdown. A close below support on higher volume signals the trading range action is most likely over and the indexes will test lower. With that we will wait for the indexes to test support and roll over again, and then move in on the downside. No point in getting in too much of a hurry. Otherwise we get a bounce back up in the trading ranges toward the middle or even the upper half.
That does not sound too exciting and it is not. That does not, however, mean there are not plays out there making us money. We continue to see healthcare, oil, small tech and others hold good patterns and then break higher. Remember, the A/D line is not 2 to 1 or 3 to 1 negative. The NYSE was getting pretty close to flat on today's selling action. There are many stocks still moving very well to the upside.
End Part 1 of 2
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world stock market
us stock market
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