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world stock market, stock watch
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4/04/02 Investment House Daily
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MARKET ALERT SERVICE
Target alerts hit this week: CHKP put (+$7.20 per option); ISSX put (+2.80 per option); MSFT put (+2.70 per option); IGT put (+4 per option); MTEC (+7.21; +22%); 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:
- President demands end of hostilities and the market calms a bit.
- Kuwait says 'no' to oil as a weapon.
- Earnings and analysts: MSFT gets an aggressive buy upgrade and MMM revises much higher.
- Jobless claims have shock effect.
- Indexes firm up for a relief bounce.
- Team Trades
U.S. call to end violence and Kuwait stance helps calm the market.
Early in the session the President went live to demand an end to the Middle East violence and get on with enforcing the UN resolution regarding coexisting Israeli and Palestinian states. The market let out a guarded sigh and floated higher as if one weight dragging it down had been cut free. In other words, there was not a lot of buying on the news, just a release of some of the selling pressure.
Oil prices were at $28.80/bbl early in the session, but then the President's call and Kuwait's announcement it would not agree to use oil as a weapon helped bring some stability and closed oil much lower at $26.60/bbl. A little certainty goes a long way, but it did not solve all of the problems or answer all questions. It lessens the likelihood of full-scale warfare and an even higher oil price spike; that helps one concern re the economic future. The proposed action, however, did not alleviate any concerns on near term earnings.
Earnings war continues to rage.
Wednesday night BMY fell through the bottom while Dell said revenues would rise slightly. Good news versus bad news in a weak market? Bad trumps good. Thursday morning CHKP announced it was going to miss by about a quarter mile, the latest in an illustrious group of software stock warnings. CHKP tanked fast and hard. The put play was closed early in the session. Looked pretty grim once again.
Wednesday we closed the MSFT put play. This morning AG Edwards raised MSFT to an aggressive buy. At the same time another brokerage house downgraded DD, ROH and chemical companies in general on a valuation call; another too much gain for this economy downgrade. A bit better action; at least there were offsetting calls.
After the close more of the same. MMM guided higher. It went back to its previous guidance that was higher, and said it would hit the top of that ($1.20 per share) at least. It popped up like a cork, rising $3.50 after hours. Then a BMY replay from Wednesday: MDCT in the storage sector, a company that had warned in early March and was taken to the woodshed, came out and once again said its numbers were going to be even worse. Much as with BMY, MCDT was blowtorched, and it took the storage sector with it, bringing down BRCD, NTAP, QLGC, EMC, et al after hours.
Warnings and upside alerts are going toe to toe right now, a bit better than the warnings dominated action of the three prior quarters. This may not be what investors were wanting, but it is signaling a change in process. As noted earlier, however, in a weak market, the upside news is fighting with one hand tied behind its back.
THE ECONOMY
Jobless claims jump. Extensions or economic?
Claims shot over 400,000 to 460K, well above the 380K expectations. The prior week was revised slightly higher to 396K from 394K. The 400K level is considered important as that is loosely labeled a point where the numbers are recession-like. On the other end, less than 300K indicates more 'normal' times. The 4-week average 403,650 from 384K prior. Continuing claims were up 101K, or to 3.61 million from 3.51 million.
The government said that there was no change in the economic outlook based on the numbers, expressly saying that the jump was due to the extension of benefits pursuant to the recent stimulus package. That makes some sense. The numbers were running at 360K to 390K, and extending the benefits would have kept more on the rolls as new were added and those that had been kicked off reapplied for benefits. Still, the extension should have impacted new claims the most; the 100K jump in continuing claims belies the government's explanation to a certain extent. Still we must remember that there are still job losses ongoing; the employment indexes are declining at a slower rate, but they are still declining. They have not turned and hit the expansionary levels.
Problem is, it has been impossible to determine if the government's story holds water as it has not released the numbers. Another problem is the early Easter and adjustments made because of that. In the maze of government reports, adjustments to the numbers are somewhat similar to voodoo. They try to take into account events that cause fluctuations and smooth out the numbers, but as with most attempts at controls, they usually distort the picture. In short, the jump may not be as large or as significant as it seems at first blush.
Kuwait: Oil is not a weapon.
Kuwait helped dampen the oil fervor with its refusal to use oil as a weapon, economic or otherwise. That along with Wednesday's announcement of higher stockpiles and Powell's visit to the Middle East next week helped drop oil from a session high over $28 to close at $26.60. As we indicated earlier in the week, oil prices would fall as the 'news' about the conflict was no longer news. Kind of like a crisis is no longer a crisis once it becomes old hat; nothing may have changed, but because it is no longer a new event it loses some of its 'crisis' proportions. Word games? Of course. After all that is what oil prices are all about. It is a commodity with a lot of world supply. The only way price changes dramatically is through manipulation as we saw in late 2000 with OPEC production cut threats.
More Fed comments.
McTeer from Dallas said after the close that he would consider a rate hike if unemployment falls below 5%. That means he won't be wanting to raise rates in the near term. Why? Because unemployment is going higher in the near term, not lower. That is the normal pattern coming out of a recession: employment lags, rising even as economic output improves. If that criteria is used, it will be the Fall before rates are raised.
THE MARKET
The selling was on again early, but as with Wednesday, it was not as aggressive as on Tuesday. Many of the big tech names that showed doji's on Wednesday's close (BRCD, EMLX, BRCM, INTC, QLGC) moved up today off of those patterns. Not strong moves (except for QLGC), but the heavy pressure on them eased.
Today the big indexes mirrored that look. We issued an alert in the last hour stating that the candlestick patterns on the Nasdaq and the Dow were shaping up in a bullish fashion at least for a relief rally. Basically, they had tested the same level as Wednesday, rallied intraday, then pulled back to flat. At the bottom of a run that often presages a move back up. With that late move the A/D line turned positive as well on both the NYSE and Nasdaq. The fact that the turn came on slightly higher volume was a positive as well. When the indexes started to rally off the lows shortly thereafter, a near term relief rally looks more likely. A relief rally is just that; a bounce higher, usually up to the next resistance. If no volume buying comes in, they are usually destined to fail.
Put/Call Ratio (CBOE): 0.82 (-0.05). Wednesday's 0.88 reading is a level that has set off previous minor rallies. Combined with the hold at support, Thursday the indexes started what looks to be a rally attempt. Thursday's close still above 0.80 gives the move more fuel as option speculators are still betting heavily for a further fall.
Nasdaq
Twice undercut 1775 (early and then late), but rebounded both times. 1800 held it in check on the upside, but rising volume on a move up off support indicates a relief rally coming after another week of selling. MCDT's second warning in a month has undercut some big names after hours (EMLX, BRCD, QLGC), but this was not new news; MCDT had announced its bad tidings before. How the index handles this setback just as it is trying a relief bounce will be instructive.
Stats: +5.40 (+0.3%) to close at 1789.75.
Volume: 1.731 billion (+2.8%). No big jump in volume, still holding below average for almost a month. Some accumulation, but nothing serious.
Up volume: 870 million (+452 million)
Down volume: 828 million (-321 million)
A/D and Hi/Lo: Advancers regained a meager lead 1.06 to 1 (decliners led 1.55 to 1 Wednesday).
New highs: 110 (+3)
New lows: 51 (-2)
The Chart: http://www.investmenthouse.com/cd/$compq.html
Tapped 1720 on the low again today (twice) as it did Wednesday, and then rallied once more to close slightly positive thanks to the 20-point last hour rally. Early in the session it had no strength to top resistance at 1800. That is the first resistance level from the close, and it is not the strongest. The simple and exponential 50 day MVA (1843.67 and 1852.14) are next, and then the 200 day MVA (1873.03) teams up with the bottom of the November consolidation range (1875) as the next serious level. The easiest route is to the downside, and as noted Wednesday, it needs some very solid earnings news to give it the drive higher for a move that holds. The index is set up for a relief rally at this point, but without some push that first level of resistance at 1850 may be all that it can muster, 1875 at the most.
Dow/NYSE
For the second session it found support at the simple 50 day MVA (10,151.85) and rallied from there. Volume expanded slightly and as the Nasdaq, it looks ready for a relief move, particularly with MMM stating its earnings would at a minimum hit the high end of its previously guided range (before the more recent forecast of lower earnings).
Stats: +36.88 (+0.4%) to close at 10,235,17.
NYSE Volume: 1.254 billion (+1.9%). Gaining some strength, but still below average on the reversal off the 50 day MVA.
Up volume: 594 million (+332 million)
Down volume: 663 million (-278 million). Buyers gained some strength but they did not overwhelm the sellers on the reversal off of the 50 day MVA.
A/D and Hi/Lo: NYSE advancers regained the lead 1.24 to 1 (decliners led 1.71 to 1 Wednesday). A turn positive showing the overall market improved, but not much of an improvement.
New highs: 85 (-4)
New lows: 40 (+6)
The Chart: http://www.investmenthouse.com/cd/$indu.html
As noted, the simple 50 day MVA (10,151.85) held on the intraday low and bounced the index higher. The move higher did not, however, clear the January closing high (10,259.74) though that does not appear to be the major obstacle to any move higher. those come in steps at 10,300 then 10,400 (the barrier to the top half of the trading range), and then 10,679, the March high. Its resistance is not as well-defined as is the Nasdaq's, but with the current investor mentality it is plenty to deal with. 10,400 is the first real test on any move higher. For now we have to view any move as a relief bounce.
S&P 500:
Similar to the other indexes the large caps used 1120 for the second straight session as support and moved from there to close just above resistance at 1125 (still below the simple 50 day MVA at 1127.89). It has similar problems as does the Nasdaq. The 200 day MVA is at 1139, and that presages some solid resistance at 1150. On a relief bounce, 1150 could be the limit of the upside move if the 200 day MVA does not stop it first. The 200 day is just about at the down trendline from the second March top. A short trendline, but one we need to watch.
Stats: +0.94 (+0.09) to close at 1126.34.
Volume: NYSE volume rose once again, up 1.9% to 1.254 billion shares, this time on some buying.
The Chart: http://www.investmenthouse.com/cd/$spx.html
TOMORROW
The unemployment report is out Friday before the open and the economy is expected to have added 50,000 jobs (the first estimate was +23K), the second straight increase. Unemployment is expected to tick up 0.1% to 5.6%. That would be normal in a recovery. If there is an upside surprise on job creation that would help fuel the upside relief rally that appears to be trying to form.
If the market does rally from here we pretty much have to presume it is a relief rally unless it smashes some resistance on very strong volume. Next resistance is not too far away for any of the indexes; without strong volume on the move we have to anticipate those levels to stall out any move. At that point we can look to some downside action, particularly if the reversal comes on some stronger volume.
That limits the room we have on the upside. On the outside, 1875 on the Nasdaq, or another 100 or so points. We may find some trades on the big tech names and maybe something longer term with AMAT or KLAC, but most of those would be shorter term and taken with the expectation to get in and then out fast.
For now we are going to continue to look for those stocks that have shown accumulation and are in position to clear significant resistance for a solid and relatively fast move higher or ready to break to a new high out of a solid pattern. In a move higher in the overall market we can grab15% to 20% on those stocks and even better on some options. This market is still very unproven at this stage and any plays have to be taken with the mindset that it will be taken off the table when the target is hit or the move starts to stall.
Support and Resistance
Nasdaq: Closed at 1789.75.
Resistance: 1800. Then a jumble of trouble at 1850 with the simple 50 day MVA (1843.67). Then 1875, the bottom of the November consolidation and the 200 day MVA (1873.03). 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: 1775, the October high, and 1170 are trying to hold. Then the early November gap up at 1768 and 1745, where it launched from on that gap. After that it is 1700.
S&P 500: Closed at 1126.34.
Resistance: The 200 day MVA (1139.00) still has tire tracks all over it, but we have to watch for resistance there. There is some resistance at 1150 as well. After that the December high (1173.62) and the January high (1176.97) are the real key. Those points also mark 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: 1125 (former price consolidations and the 'hump' in the brief November double bottom) are trying to hold. 1100 has acted as support as well. 1075 marks the bottom of the February double bottom pattern.
Dow: Closed at 10,235.17
Resistance: The January high at 10,300 is now a level to clear along with 10,400, the barrier to the upper half of the March trading range. The top of the June, July, and August 2001 trading range at 10,600 (10,679 intraday high) marks the top half of the March trading range. 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 simple 50 day MVA (10,151.85) held on the low today. Then 10,000 followed up by the 200 day MVA (9966.89).
Weekly Economic Calendar (All times Eastern). The figures are the consensus expectations, not ours.
4-1-02
ISM Index, March (10:00): 55.6 actual versus 54. expected and 54.7 prior.
Construction Spending, February (10:00): 1.1% actual versus 0.5% expected and 0.8% prior (revised down from +1.5%).
4-2-02
Factory Orders, February (10:00): -0.1% actual versus 1.0% expected (raised from +0.5%) and 1.1% prior (revised from 1.2%).
Auto Sales, March (8:30): 5.6M versus 5.6M prior.
Truck Sales, March (8:30): 7.5M versus 7.6M prior.
4-3-02
ISM Services, March (10:00): 57.3 actual versus 57.0 expected and 58.7 prior.
4-4-02
Initial Claims, 3/30 (8:30): 460K actual versus 380K expeced and 396K prior (revised up from 394K).
4-5-02
Nonfarm payrolls, March (8:30): 50K versus 66K prior.
Unemployment Rate, March (8:30): 5.6% versus 5.5% prior.
Hourly earnings, March (8:30): 0.2% versus 0.1% prior.
Average Workweek, March (8:30): 34.2 versus 34.1 prior.
Consumer Credit, February (3:00): $7.5B versus $12.8B prior.
End Part 1 of 2
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