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yahoo stock, us stock market
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4/06/02 Investment House Daily
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MARKET ALERT SERVICE
Target alerts hit last week: ATH (+$5); 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%).
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SUMMARY:
- Growth stocks still suffering in favor of lower P/E cyclicals.
- Earnings warnings had their week, now earnings reports are ready to get it in gear this week.
- Economic news dominates market.
- Indexes slide for the week.
- Subscriber Questions
- Team Trades
Market slides lower in fairly pathetic trade.
Two modest point gains on the Dow could not overcome the earlier selling in the week. The S&P hung on by a thread. The Nasdaq looked downright weak. It was a week that started underwater with the increasing Middle East conflict. It had very few positives to cling to and rally behind. There were a few, but they were not enough to change the red tide that started the week.
Aside from the war and ramifications on oil prices and thus the economic recovery, earnings worries dominated. Twenty software companies warned as they finished compiling the last of the orders (or the last of the non-orders) from Q1. These warnings were led by a surprise warning by PSFT. That renewed fears across technology that the quarter was not as good as hoped. Growth stocks took it on the chin. For the third quarter in a row a rumor surfaced that IBM would not meet its earnings. This time it had the extra spice of the day: a reference that the shortfall would be due to accounting issues big blue has to deal with. With all of that weight, not even an earnings affirmation and slight revenue bump by DELL could get the growth techs to move higher. Many of the big tech stocks have high relative P/E's and earnings that are not improving as far as we can tell thus far. It would take a lot of improvement to get them in a sustained rally.
Cyclical stocks were not left alone either. DD and ROH, two leading chemical stocks, were downgraded early in the week on valuation fears. Seems that cyclical stocks were the stocks to buy in the economic recovery, but they got too pricey for some analysts. Those early downgrades left little to buy last week. Further, Alcoa was first out with earnings, and while above expectations, they were down 46% from same time last year. It was not until MMM came out Thursday night and said it was going to at least meet the high range of its prior estimates (the higher ones) that money started coming back into the cyclical names. Low P/E value stocks were taking the money late in the week as $1.1 billion flowed out of equity funds, $336 million of that from technology funds.
Earnings warnings, and now earnings.
As noted, a lot of negatives from software damaged technology. This week actual earnings reports pick up steam. There will still be warnings because we don't get to the guts of earnings for two more weeks, but there are some big names. Wednesday Yahoo reports. While not a stellar pattern, Yahoo has been building laterally since the first of they year. Reports of an improving online advertising environment may show up in an earnings bump. JNPR, MERQ and ELNT report Thursday. We know JNPR will miss and MERQ might as well; ELNT, a semiconductor, is showing some life. It could provide some life.
As has been the case for a year or more, it won't be the actual numbers that make a huge difference, but what they say for the future. Why? Because everyone has seen improving economic reports, reports that for the most part are exceeding expectations. The idea of an improving economy is pretty much entrenched, the questions being how strong an improvement. Thus there won't be a lot of tolerance for misses in Q1, and there won't be any tolerance for ambiguous statements about the future. We have heard the 'this is the bottom quarter' for two quarters. Investors want 'this quarter was the upturn' and 'orders are growing from here' statements.
That won't happen from networking and telecom most likely, and after this week software and storage are problematic. That pretty much leaves semiconductors to do the work for technology. The chip equipment makers have some of the best tech patterns on the whole for the bigger name techs. That is a better sign for them, but nothing will be clear until we hear what they have to say; it may not be really clear even then as far as when the real upside will come. That will keep money out of a lot of technology even as the economy recovers more.
THE ECONOMY
Nice segue. It was a week of big reports with employment on Friday. This coming week is another important one with PPI, retail sales, and preliminary Michigan sentiment all on Friday. With the week backend loaded with earnings and economic reports, there may not be much early movement (again) in the market.
Unemployment rises, but that is the least important headline.
Unemployment ticked up to 5.7%, 0.1% higher than expected. That is not totally surprising; we have been saying for a long time that employment numbers lag the economy. They get worse as the economy begins improving as employers wait to hire until they are sure things are better and their current employees are ready to mutiny. With the negative views from the CEO's even as the economic reports turn better, it is little wonder employment has not improved overall.
Signs of the continued upturn.
The numbers behind the number tell the story. Non-farm payrolls rose 58,000, better than the 50,000 expected. Sounds great. Not all that great, however. February payrolls were originally reported at +66K. They were chopped 68K to a -2,000. February was the first gain in non-farm payrolls since July 2001. Now March is the first gain since that time. We also point out that the 58K reading is still within the margin of error; it could be wiped out next month as well. Could be, but probably won't. February was already subject to rewrite because of weather and seasonal adjustments. They fact that the number again shows signs of expansion means that it is trying to turn up.
Another problem with the number, however, is where the jobs were created. Services saw a 98K jump. Manufacturing, however, saw a 77K drop. That means net 21K private sector jobs. That means government created 37K of the 58K jobs. That is not the healthiest way for the economy to increase employment. Growing government is not good for the economy. This one time it is probably more palatable: government job growth primarily has to do with defense initiatives, and that is where a lot of good technology is developed that can help us in the future on the private side much the same as it did in the 1980's with the research into missile defense and related fields.
Hours worked improves, a first important signal.
Workers averaged 41.1 hours worked in March, the most since 11-2000. Overtime hours moved up to 4.2 hours, the highest in 14 months. Both of these show employers are working existing employees more to meet increased demand. That is a first step; again, employers won't rush out and hire. They get what they can from their existing workers. That increases the bottom line by less hiring and overall employee costs and higher productivity. That ultimately gives companies the cash to hire more workers. It is enough right now? No. Usually takes 4.4 to 4.6 overtime hours to start bringing on new employees.
Hourly wages rise 0.3%. A very modest rise, the smallest gain since July 2000. While we do not believe in wage-led inflation, the Fed sure talked it up in 1999. All this number does is take that out of the inflation hawk's arsenal as reasons to raise rates to stave off non-existent inflation.
Consumer borrowing huge.
Consumers did not slow down much in February. Borrowing jumped $7.1 billion to, get this, $1.6694 trillion or a 5.1% annual increase. Revolving credit (credit cards) rose 1.2% to $694.4B; non-revolving (auto loans) rose a huge 7.9% to $974.9B. Big jumps that show consumer confidence translating into consumer buying.
ECRI drops on jobless claims jump.
This is the 'fast' leading indicator reading, and it was down to 121.8 from 122.7, led down by the big jump in jobless claims. As reported Thursday, that number was pumped up quite a bit by the recently passed extension of benefits. That kept many on the rolls and pulled others back onto the rolls. Thus the ECRI drop may be a victim of a change in government policy. Garbage in, garbage out. The 6-month indicator was flat, and the inflation gauge was down to 97.6, a 26 year low. No inflation on the horizon from this very accurate gauge.
OECD up along with Japan leading indicators. This measures the economies of all member nations. It was up 0.9% in February to 115.3, a 13-month high. Big movers were the U.S. and Italy, but it is a good sign for western economies. The U.S, as always, is the key for the rest of the world. Japan posted its second straight 50+ LEI reading, meaning that Japan's economy has undergone its second straight month of possible expansion. It has been 14 months since it last had back-to-back readings over 50.
THE MARKET
The Nasdaq and S&P again tested what has been intraday support late in the week and looked ready to try and finally give a relief bounce. The move started at lunch. We issued an alert that the move had started, but it would most likely test one more time. It did. Only problem was it never bounced again, finishing at the bottom of the session's range on lower overall volume. Not much relief Friday as far as the overall market was concerned.
Put/Call Ratio (CBOE): 0.78 (-0.04). Even with the selling on the Nasdaq, the slight rise in the Dow was enough to quell put action. Not by much, however, as the put ratio remains in a very high relative range.
Nasdaq
Tried to show a bit of life early, but that was it. KLAC was upgraded and Dell has affirmed Q1 and raised revenue guidance, but that was chump change. It was good for 14 upside points in the first 10 minutes, but that was it. It closed at 1170, the point where it found intraday support Wednesday and Thursday.
Stats: -19.72 (-1.1%) to close at 1770.03.
Volume: 1.505 billion (-13.1%). Friday lighter volume on the selling. Again, lower volume is usually the best if you have to have selling. However, it has been a buyer's strike all the way down, not really wanton selling. The damage is still there.
Up volume: 418 million (-452 million). Gave back the exact volume it gained Thursday.
Down volume: 1.073 billion (+245 million)
A/D and Hi/Lo: Decliners regained the lead at 1.20 to 1 (advancers eked out a 1.06 to 1 lead Thursday). There continues to be no real power either way, just no buyers.
New highs: 155 (+45)
New lows: 51 (0)
The Chart: http://www.investmenthouse.com/cd/$compq.html
A test of 1770 three hours into the session helped form an intraday reverse head and shoulders pattern that lead to a nice bounce. Unfortunately that is all the session had in it, rolling over at 1785 and closing at 1770, the session low. Instead of bounding up off of that level as it did Wednesday and Thursday, it collapsed to that level to close. That is not bullish action at this level; what had looked like some possible support now looks much weaker. The reflex or relief bounce that looked possible did not even have gratuitous buying. It could still hold, but there is not much to hold it at this level early in the week; earnings don't start seriously until Wednesday, and many companies will be entering their quiet periods, so we won't hear much either way.
The Nasdaq is not undergoing heavy selling, it is just not attracting any buyers. That is keeping it in its downtrend both from the January top at 2100 and the more recent March top at 1930. The index is in a downtrend once again, having made another lower high and lower low. A break from here puts it at 1700. On the upside it has to deal with serious resistance at the 50 day MVA (1840.63) and the 200 day MVA (1871.27) that is also right at the bottom of the November trading range and the January down trendline. It has no buying interest and has a lot of serious overhead resistance. It will be up to some really positive earnings reports and future outlooks to turn the techs around as a group.
Dow/NYSE
Put in a modest gain Friday, topping out just over 10,300 and then fall back to close. Lower volume on the small bounce did not make a constructive session but more one that just held the status quo. MMM helped pump up the gain, but IBM helped deflate it as well.
Stats: +36.47 (+0.4%) to close at 10,271.64.
NYSE Volume: 1.118 billion (-13.6%). Thursday's slight volume gain did not continue Friday as volume left on the further bounce. No accumulation; jus tread water awaiting the new week.
Up volume: 514 million (-80 million)
Down volume: 584 million (-78 million). No real change in strength Friday as buyers and sellers were evenly matched.
A/D and Hi/Lo: NYSE advancers improved to 1.48 to 1 (1.24 to 1 Thursday). Good improvement in the broader market even as big techs slumped.
New highs: 141 (+56)
New lows: 38 (-2)
The Chart: http://www.investmenthouse.com/cd/$indu.html
After finding intraday support Wednesday and Thursday at the simple 50 day MVA (10,162.67), the Dow was able to move up without having to reach for that level once again. It cleared the next step, 10,300 intraday (high at 10,335.30), but could not hold the gain no volume. As with the Nasdaq, it has made some lower highs and lower lows, but it is still holding above the early January top that marks the breakout point in early March. We have said it before: this is the point where it has to hold for this pattern to remain in tact. If it undercuts the simple 50 day MVA, it has an easy run to 10,000 and the 200 day MVA at 9963.89. There has not been some light distribution on this selling, but nothing sustained. It suffers from the same malady as the Nasdaq, however, though to a lesser extent: no real buyers. Late in the week we saw a return to cyclical stocks; that could blossom more this week and pull the Dow higher as it is mostly laden with cyclicals. They will have to overcome IBM, MSFT, and INTC, however.
S&P 500:
The big caps are playing chicken down to the wire. In early March they broke over the hump in a quick double bottom pattern and raced higher. They ran right into resistance at 1175, double topped, and backed down. Tried staying in a trading range from 1150 to 1175, but that failed. Now they are desperately attempting to hang onto 1120 to 1125, the middle of the double bottom and a point of previous price consolidations. Friday the index once again found support at 1120 and rebounded. Nothing powerful at all, and it gave up a good bit of the rebound in the last two hours. It is definitely putting up a fight here, squeezed on the bottom by 1120 and on the top by the descending 200 day MVA (1138.40). If this level breaks it is a pretty easy test to 1100 and most likely to 1075; that could give us a nice quick put play, just the kind we like.
Stats: -3.61 (-0.3%) to close at 1122.73.
Volume: NYSE volume fell on the session to 1.118 billion shares (-13.6%); no accumulation, just working to the weekend.
The Chart: http://www.investmenthouse.com/cd/$spx.html
THIS WEEK
The economic reports have been better and better, while the situation in the Middle East, though far from resolved, now has a process to contain it underway. With those elements no longer at the boiling point, it will be up to the advent of earnings to show the market it has either taken too much air out before the numbers or that it still has to work on taking prices lower.
As far as the Nasdaq is concerned, that is really the end game. Earnings have dropped dramatically over the past two years and while there are signs of improvement, it has been spotty. Overall earnings have continued to decline, and as stock prices are based on where earnings are heading down the road, without the belief that technology earnings can pull out of the dive and then actually accelerate to the upside, it will be hard for the index to recover. The big names are so dominant as far as the index movement that without earnings improvement in those stocks, the index cannot make steady headway.
Outside of the big techs, we do believe there will be significant earnings improvement. We believe there will be surprises to the upside this quarter and particularly in Q2. Companies are lean, orders are improving, and they are getting more work out of existing employees. For product manufacturers and some service companies that translates into a better bottom line. There has been solid improvement in manufacturing and services; that will translate into better earnings and guidance for better things forward. Maybe not glowing guidance, but CEO's will start coming around when they see the numbers start coming in.
Thus, outside of techs, just as we have been seeing, there is room for stock appreciation, and we expect to see that starting in this earnings season and moving into Q2 before perhaps the summer doldrums quiet the market again. Maybe we will even get a surprise with technology, but we think it will be much more focused and limited in scope, such as with the semiconductors and smaller issues.
Early this week the indexes are standing on the edge of another drop-off point with little to push them higher before earnings start coming out stronger later in the week. Last week it looked ripe for a relief bounce, but the buying interest was not sufficient. It the indexes cannot mount a bounce Monday, the S&P may test the next support level down at 1100 or 1075 before earnings. That could provide us a nice OEX play down to that level. The Nasdaq could slide down to 1700; if earnings are disappointing, it will head that way.
End Part 1 of 2
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yahoo stock
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