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investment help, day trading
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4/08/02 Investment House Daily
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MARKET ALERT SERVICE
Target alerts hit last week: CBH (+$6; +15%); CHBS (+$5.75; +16%); DGX (+$11.45; +15%); MKC (+$4.84; +10%--pre-split); UNTD (+$2.37; +33%); XMM (+$2.20; +17%).
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http://www.investmenthouse.com/alertdly.htm
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SUMMARY:
- The I's have it: IBM and Iraq test the market.
- Bad news does not keep market down today.
- Inventories fall: is this good or bad?
- Nice reversal, but not a lot of volume: look to individual leaders.
- Subscriber Questions
- Team Trades
A couple more kicks and the indexes wake up.
Over the weekend we thought the indexes might dip a bit early in the week with no earnings or other catalysts to drive them higher, but we did not expect such marquee downside news. First Iraq said it was going to cut off production for 30 days effective today. Oil prices jumped at the story, but then Saudi Arabia said it would ramp up production to fill Iraq's shoes, and there is always Russia that could easily do the same and make its end game work, i.e., grab more market share. All in all the market brushed off Saddam's rattling of his oil barrels, finishing about flat on the session.
About 45 minutes before the open, the third time was the charm as it turned Friday's rumor into reality. It warned of a big miss in earnings by about 20%. Revenues were going to be light as well. The story was a familiar one: deferred customer spending. The futures dove on the news and the Dow dove when IBM opened. The entire market was sucking air but held on. Then at noon we saw a buy program kick in and issued an alert about it. The rally grew the rest of the session with the Nasdaq finishing up on rising volume. Take out IBM and the Dow was up over 40 points.
Why rally with Big Blue warning?
The market has taken some body punches of late with several warnings by some big tech names. PSFT set off the software warning spree last week. MCDT warned and spread fear to EMC, SUNW and others. Techs have been taken down and taken apart on the earnings worries. Expectations have been taken way down heading into Q1 reports.
At the same time there has been good news. MMM says things are rocking. DELL is going to meet and revenues will be higher. Today CA, a big name in software, gave an upbeat forecast about its orders and earnings. INTU (tax software) guided higher as well. The better news continued after hours with CPQ stating it would meet or beat its Q1 estimates. Wendy's (WEN) raised its estimates by 3 cents and guided higher for the full year.
What the market and the economy are showing is something that we have been talking about for the last two months. There is a recovery underway, but it is not a recovery in unison. Inventories are being rebuilt in manufacturing, but people are also going out to eat. They are still buying items for their homes. They are still buying some cares. Heck, they are even buying some computers. Businesses, however, are not buying a lot of new IT systems be they hardware or software. IBM's warning does not mean the recovery is off track; it just drives home the point that the recovery is disproportionate with technology getting the smaller end of the stick. There are still good technology names that are growing, but most of them are not name brands. They have niches and are growing their businesses while many of the big names are still wallowing in oversupply.
THE ECONOMY
Wholesale inventories drop more than expected.
After oil and IBM, the wholesale inventories report was in the shadows. It slid in at -0.7% versus the 0.0% expected. Moreover, the prior number was revised to -0.5% from -0.2%. The market did not know what to make of this number. On the one hand inventory reduction has been a cornerstone of the recovery: get inventories down enough so manufacturers would have to start rebuilding. That puts people to work, etc. On the other hand, the fact that they are still falling may be a sign that the recovery is not that strong.
While there is some merit to the latter argument, we have to be cognizant of the economic reports released over the past two months. Steady improvement, particularly in manufacturing. Consumers continue to consume, buying homes, discount goods, prepared meals, home furnishings. Improving manufacturing means there is some inventory rebuilding ongoing. The fact that inventories are still falling while there is a manufacturing rebound underway is a positive. It leaves plenty of room for inventories to continue to build without creating too much of a glut. That is the final test: will there be enough buying to consume these new goods AS WELL AS those goods that are sitting idle, primarily in technology. On the whole, today's report was not bad news.
THE MARKET
The Dow was going to be down with IBM's warning. Indeed, so was the Nasdaq and the S&P as the tech components of each were going to follow IBM down in the morning. The Dow's intraday chart looks the most impressive because IBM did not open with the market. It made a dramatic 150 point plunge, but then all three indexes found there lows and at noon started their rallies higher in earnest. Nasdaq volume was higher but still below average; NYSE volume remained light as well. Not a lot of power behind the move, but it looks as if the trading range on the Dow may just hold. That should help all major indexes as they move into earnings. The fact that they were able to reverse and rally on today's round of bad news indicates they could be sold out enough for a rise into the first week or so of real earnings when they start coming out later this week.
Put/Call Ratio (CBOE): 0.91 (+0.13). Nice bump higher in the ratio, sending it back over 0.88, a level that has triggered interim rallies the past few months. It closed at that level mid-week last week as well. More closes over that level are a better signal.
Nasdaq
Gapped sharply lower but then found support at 1733, roughly splitting the difference between potential support levels 1700 and 1745. From there it rallied to the close, moving on rising though still below average volume. A turn? No. A bounce set up before earnings? That is what it looks like.
Stats: +15.84 (+0.9%) to close at 1785.87.
Volume: 1.598 billion (+6%). Rising volume on a reversal is always good. Still plagued by below average volume, however, and that does not give the move much power, something it needs to get over that wad of overhead resistance.
Up volume: 941 million (+523 million).
Down volume: 634 million (-439 million)
A/D and Hi/Lo: Advancers made a comeback (decliners led 2 to 1 early) with the market, finishing at 1.16 to 1 (decliners led 1.20 to 1 Friday). No real power, just a good comeback. That has been the story both on the upside and the downside late: no real power either way in the A/D line. This does help set up a bounce.
New highs: 164 (+9)
New lows: 70 (+19)
The Chart: http://www.investmenthouse.com/cd/$compq.html
As noted, gapped lower and then split the difference between potential support at 1745 and 1700 (1716 on the close that day), rallying off 1733.84 to turn positive and close just a hair over the down trendline that started at the first few highs in (lower highs) March. A 52-point reversal is always something to take note of, and rising volume helped. Still it does not take the index over the near term resistance at 1800, 1850, 1874, etc. But, it does come closer to forming its own double bottom pattern much as the S&P with its February double bottom. The pattern is off the high in January, down to 1700 intraday (again, 1716 closing low) in late February, back up to 1935 for the middle hump, and now back down to test 1700. The key here is whether this is enough of a test (the second time it has come close to a 50% test of the move off of the September bottom) or if it collapses back down to the September low. With the economy still improving, it is not as likely to test lower unless technology earnings the next few weeks are just horrid, showing no pass through benefits from an improving economy. This test is worth watching; for now we could see that bounce we were looking for late last week. Techs took another gut punch today and came back. They could rally up toward the 1874 level (bottom of the November trading range) on some good earnings news.
Dow/NYSE
Take out IBM and the Dow was positive, but volume was still light. In other words, NYSE volume was lower even with IBM trading 5 times average volume (41 million). There was no heavy selling, but there was no real buying on the move higher that erased a big chunk of a 150-point deficit. This appears to keep the Dow in its trading range for another move up toward 10,400 or higher.
Stats: -22.56 (-0.2%) to close at 10,249.08.
NYSE Volume: 1.1 billion (-1.6%). IBM was 3.6% of the action, not huge, not light. Even with IBM (it did not reverse intraday), volume was light on the bounce off the low. Not much power there, but just enough buying to keep it in its trading range.
Up volume: 601 million (+87 million)
Down volume: 488 million (-96 million). Up volume and down volume traded places, i.e., showing no strength either way.
A/D and Hi/Lo: NYSE advancers reversed a negative morning session to finish ahead 1.37 to 1 (a 1.48 to 1 lead Friday). That continues a very decent A/D line in the NYSE, indicating that it does want to continue in the trading range.
New highs: 184 (+43)
New lows: 44 (+6)
The Chart: http://www.investmenthouse.com/cd/$indu.html
Over the weekend we said the Dow had to deal with and overcome IBM, MSFT, and INTC. We were not looking at for such a dramatic plunge, but it came. The Dow started down hard when IBM opened, and while IBM remained basically flat, the rest of the Dow started higher with many stocks showing intraday reversals equally impressive from a point perspective (e.g., MSFT, INTC). On the low it hit 1,120.87, just above the early December top at 10,114, and undercutting its 50 day MVA (10,171.73). That opened the door for a run down to 10,000 if it held, but from there it was able to follow the Nasdaq higher and basically finish flat. That puts it right at the bottom of its trading range defined by the January high at 10,259.74 on the close and 10,679 on the high. That recovery helped solidify that support from 9500 to 10,100-10,200. With MSFT and INTC's help (their reversals indicate a potential bounce), the Dow could use the strength of its components such as MMM, PG, et al to rally up toward the higher end of the trading range at 10,400 to 10,500, maybe to test the top. A breakout then? That is premature, but it would have to show a lot more strength to do it.
S&P 500:
The S&P split the difference on support as well, digging in between 1125 where it closed Friday and 1100 on the low. When it hit 1111.79 it held ground and reversed along with the other indexes. As with the Nasdaq, it was able to turn positive, but over all it finished basically flat. The move rescued its pattern as the index did not close below established support or the middle of the double bottom pattern. It is set up to bounce up in its trading range, but it has some serious resistance at 1150 and the 200 day MVA (1137.93; not a ton of resistance at this level) that may truncate any bounce. Back up to 1175? One step at a time. For now, the low volume rebound indicates a potential bounce higher into early earnings reports. A stall at the 200 day MVA would be negative.
Stats: +2.56 (+0.2%) to close at 1125.29.
Volume: NYSE volume fell again, dropping to 1.100 billion (-1.6%).
The Chart: http://www.investmenthouse.com/cd/$spx.html
TOMORROW
Monday the selling was on, but the indexes managed a bounce that enabled the Dow and S&P to maintain their trading ranges or patterns. The Nasdaq bounced to just stay alive. Overcoming adversity is a very good thing. Futures continued to move higher after hours as good news came out from WEN, CPQ, etc. After almost two weeks of taking the air out of gains ahead of earnings, today's reversal off the lows indicates that the indexes may give us that bounce higher near term. We were looking for it last week, but there was still too much concern over what shoe was going to fall. Not a big blue shoe has dropped and the indexes recovered. That may just free them up for a run toward the middle and even upper portions of their ranges. Throw in a few good earnings reports and that becomes more of a possibility.
One thing we did notice today. We rode out a bunch of the session's volatility early on. We basically sat on our hands. Then when we saw the buy program kick in around noon we selected a few stocks that were looking good and issued alerts (e.g., KLAC, DRYR). Then as stocks ran toward the close and we could see volumes clearly, we issued more upside alerts. The winners: consumer stocks once again with a smattering of select techs. All of these have superior patterns to 90% of other stocks in the market, and they are continuing to mount the gains. Of course not all are winners, but we had six targets hit today alone on positions we have been building. That is why we are focusing on the good patterns and better numbers; they have more staying power. A little patience helps as well.
That is what we are going to keep on working on. If the market bounces, great; these stocks are already in good patterns and won't have the overhead to overcome. Many were making runs this afternoon, and a bounce should just help them continue.
Support and Resistance
Nasdaq: Closed at 1785.87.
Resistance: 1800 stopped the last bounce attempt. That level is followed by a jumble of trouble at 1850 with the simple 50 day MVA (1837.49). Then 1875, the bottom of the November consolidation and the 200 day MVA (1869.98). 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 held intraday, but it was not pretty. The early November gap up at 1768 and 1745 did little to stop the index today. Below that is 1700.
S&P 500: Closed at 1125.29.
Resistance: The 200 day MVA (1137.93). There is some resistance at 1150 as well; any bounce on low volume might find that level trouble. 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: 1120 has been holding on the low; Monday it held on the close, but not on the low. 1100 has acted as support as well. 1075 marks the bottom of the February double bottom pattern.
Dow: Closed at 10,249.08
Resistance: The January high at 10,300 is the first level to clear, and it held last Friday. Next is 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 (10,171.73) was undercut intraday. 10,000 was almost tested. That is backed up by the 200 day MVA (9961.68). From 9500 to roughly 10,000 - 10,200 is recent support that for now is holding up.
Weekly Economic Calendar (All times Eastern). The figures are the consensus expectations, not ours.
4-8-02
Wholesale Inventories, February (10:00): -0.7% actual versus 0.0% expected and -0.5% prior (revised from -0.2%).
4-11-02
Initial Claims, 4/6 (8:30): na versus 460K.
Export Prices ex-ag., March (8:30): 0.0% versus 0.0% prior.
Import Prices ex-oil, March (8:30): na versus -0.5%
4-12-02
PPI, March (8:30): 0.6% versus 0.2% prior.
Core PPI, March (8:30): 0.1% versus 0.0% prior.
Retail Sales, March (8:30): 0.5% versus 0.3% prior.
Retail Sales ex-auto, March (8:30): 0.4% versus 0.4% prior.
Michigan Sentiment-Prel., April (9:45): 97.3 versus 95.7 prior.
End part 1 of 2
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