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world stock market, us stock market
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4/11/02 Investment House Daily
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MARKET ALERT SERVICE
Target alerts hit this week: GE put (+$2.77 per option); PII (+$9); PII (+$5.85); GGG (+$5.90); HB (+$4.10 per option); MIL put (+$3.02 per option); WRI (+$2.38 per option; pre-split run); ISLE (+$3.53; +20%); 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%).
Subscribers to the current reports can sign up at the following link:
http://www.investmenthouse.com/alertdly.htm
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SUMMARY:
- Off again: IBM and GE tank the large caps.
- Most stocks fall, but the degree of tankage varied widely.
- Retail sales solid, but mortgages fall.
- Market still fighting to set the trend.
- Subscriber Questions
Score: 30 - 30
The bulls' forehand down the line was met with a blazing cross-court forehand as GE's revenues were light and the SEC is poking around IBM's financials. The tennis match continues with the bulls and bears starting to press the limits, i.e., volume is starting to run higher and trading ranges and support levels are tested and re-tested. The stakes are rising as the intensity increases.
GE, the stalwart blue chip, met earnings but revenues were light. Earnings can be toyed with for a quarter or two; sales and revenues are harder to finesse. That is why the report generated a negative reaction; double digit earnings growth has been forecast, but if revenues decline it is hard to grow those earnings other than through internal adjustments. IBM is already in the tank after Monday, and today's continuing story about SEC inquiries started the bleeding anew with volume rising as the company hit 15-month lows. With those two in the doghouse, the Dow was going down. Toss on MSFT resuming its selling, and the Dow was tanking.
NYSE volume swelled under the GE and IBM selling pressure, but it was not limited to those issues. Volume was significant across the board. It is interesting to note that NYSE selling volume was less than 200 million shares below the Nasdaq. That has interesting connotations in most contexts, but there were special circumstances due to IBM and GE that mitigate that somewhat (higher NYSE volume versus Nasdaq volume indicates a speculative sell out). It is more than interesting to note the A/D line reversed with decliners leading 2:1; a true tennis game between evenly matched opponents.
After hours, however, IBM announced that the SEC had closed the investigation. Kind of like a 'no flag' in football. IBM was up $3 after hours and the Nasdaq and S&P futures were sharply to the positive side. See what we mean about a news-driven market?
Most stocks fall, but not a total washout.
All of the indexes were low, including the small cap and mid cap indexes. As always there were different degrees of selling. As always there were winners. Selling ranged from dumping IBM, GE, COGN, YHOO, to just mild pullbacks. The majority of our active plays fell into the latter category as they pulled back after nice moves higher or continued to build in their patterns. And there were even winners from previous breakouts that kept pushing higher, e.g., GBBK, AMGP, HARB, TGIC, WTW). Many people don't believe it, and of course there are always exceptions, but poor stock patterns usually presage bad news and good stock patterns foretell better news. How many times do we see an unexplained gap lower one session that is followed by some directionless trading before the bad news hits a couple of weeks later and really rips a stock? IBM gapped below its 50 day MVA in January and quickly broke the 200 day MVA thereafter. Since then it moved in a range below the 200 day, failing four weak tests of that key level. Something was wrong and it was not getting better.
THE ECONOMY
More same store sales strong.
It was not across the board, but then again, it never is. WMT +9.5%; TGT +9.4%; KSS +9%; TJX double digit gains. Then ANN, GYMB, PIR, ROST, and TGT all guided higher for the future as well. ANN announced a stock split (some confidence in the future there for sure) and PIR raised for the third (or fourth?) straight time. It is a continuation of a theme: discounters doing very well indeed during and after the downturn as consumers shifted their habits. But it is not all discounters. Sears beat street estimates by 50% on strong retail and services. DDS (Dillard's) Q4 net jumped 11%, easily beating estimates. Economic stalwarts doing better and better as well.
Several analysts were once again crying about how the move was not across the board, i.e., not all retailers were enjoying the gains. Well, in the real world in a 'normal' economy, not every company in a sector enjoys the gains. Even in a 'white hot' economy of 1999 and 2000 (get the air sick bags out as I uttered that phrase again) companies such as Sears, Montgomery Ward, JCPenney, did not enjoy the action. They saw store traffic falling, losing to WMT, ROST, KSS and company. This idea that a recovery is not a recovery unless every business takes part is hogwash. It is a changing world; it is natural selection; it is the strong surviving. That is business. That is the real world.
Jobless claims fall, but revisions continue to cloud the picture.
Headline: jobless claims fall 55,000 to 438K. All right! After a surge last week they are down. Yes they are down, but not by much. The prior week's surge was revised even higher to 493K from the 460K originally reported. Over 400K is a recession number. Now last week's number was credited to the extension of benefits in the stimulus package. This week's drop in the overall numbers indicates there is some truth in that.
Along with that, however, there is a continued nagging problem in the continuing claims. They should not have been impacted by the extension as much, but they are up again, this week rising to a 19-year high at 3.779 million. Despite the greater CEO optimism reported earlier in the week, the job floodgates have not opened yet. Moreover, the 4-week average naturally rose as well, up to 433,750; the 4-week average at a recession level is not a great sign though it must be reiterated that the 4-week average is greatly impacted by the extended benefits.
Mortgage applications still falling.
We cringe when we hear phrases such as 'red hot housing market.' Flashbacks to early 2000. Housing industry optimism is as far to the ebullient end of the spectrum as CEO dejection was to the gloomy side just last year. The point: when optimism or gloom gets extreme you are usually at a turning point of sorts. CEO's were gloomy even as the better reports came out ("I don't see it" was the catch-phrase). The economy has continued to improve and now we see CEO confidence rising a bit. The continued optimism, almost euphoria, in homebuilding is a caution flag to us.
Not to mention the fact that mortgage applications continue to fall. For the April 5 week, applications were down another 5%. They have been falling steadily for the past two months. Refinancing applications are doing the same, plummeting sharply in March and hitting its lowest level since July. The purchase index is up, but that is because the purchases already in the pipeline are closing. There is not the same steady inflow of new activity; fewer applications mean fewer purchases down the road, fewer durable goods purchases, etc. One of the drivers of the economy is having a slowdown that it had to have. The signs of a slowdown in the housing market are there but they are not being heeded. The stocks are still performing well, but they are exhibiting that volatility after a strong run that is a caution flag. It can be just a correction, a new base before another strong run. Or it can be a change in trend. We are watching for those big volume breaks of trends; those tend to tell a big part of the story, especially on the longer term trendlines.
THE MARKET
Wednesday the market rose on sharply higher volume without a lot of news to drive it. That is usually a good sign; you can tell a lot about a market by what it does in a news vacuum. Still, when bad news hits key stocks, damage will be done. Wednesday's gain on lack of news was trumped by big news. Now the indexes are right back down at critical levels, NYSE volume continuing to expand on the selling while Nasdaq volume took a breather. That is 4 out of 9 NYSE sessions where selling took place on rising volume. The frequency of distribution is hitting the critical level, but each session has been met with stronger buying. It would be hard, very hard, however, to say the market is ready to race up for good.
Put/Call Ratio (CBOE): 0.91; +0.11. Second close above 0.90 in less than 2 weeks. It is starting to smack of some sort of capitulation, but a reading or two over 1.0 would be good. Most likely we will get a rally attempt out of a big day of selling that will prevent that close of greater than 1.0.
Nasdaq
Broke below its recent lows, giving back Wednesday gains and more. Volume was lighter as the Nasdaq continues to move lower toward its February low at 1196.55.
Stats: -41.83 (-2.4%) to close at 1735.24.
Volume: 1.704 billion (-15%). Volume dropped back sharply on the selling, but it was still above average, only the second such session in a month. As a percent if NYSE volume it was 113%. When the Nasdaq starts dropping to these levels versus the NYSE, that is often a sign that the more speculative tech sector is getting sold out. We saw that in September after the market reopened, and we saw it in February right before the March run. Perhaps that is setting up again; the NYSE was taking the air out of some old standbys, IBM and GE, as it works to catch up with the share price deflation on the Nasdaq. Once that runs its course, the Nasdaq could test the 1700 level and be ready to move higher near term.
Up volume: 255 million (-648 million).
Down volume: 1.333 billion (+305 million). Wednesday's weak upside volume on the rally was a tarnished lining to that move, and that move was gutted today.
A/D and Hi/Lo: Decliners turned the tables with a 1.93 to 1 lead (Advancers led 1.49 to 1 Wednesday). Stronger downside breadth than upside on positive sessions.
New highs: 223 (-39)
New lows: 90 (+37)
The Chart: http://www.investmenthouse.com/cd/$compq.html
Last night we noted they were still subject to news, and the lukewarm YHOO earnings and the IBM probe were more than it could handle. The action left the index locked in the downtrend formed from the March high and ready to see how strong the February low at 1696.55 is. At this point we want it to hit that level and get it over with. We would prefer it to slightly undercut it and then rebound off of a double bottom pattern after a second 50% test of the move off of the September bottom. It may have to wait, however, as the IBM news has the Nasdaq futures jumping up after hours. It now looks as if the index will try to move higher on the open, not giving us the chance for real washout selling and a reversal at this level. Maybe it is good news; maybe IBM's truncated SEC probe will renew buyers' faith. Something tells us that just is not the case. The tech troubles go deeper than any SEC probe of IBM. We may get an up session out of it, but will it clear the down trendline? Even that is not an all clear signal. It will have to test it and then things will look better. That is a lot of ground to cover.
Dow/NYSE
Slammed by IBM and GE the Dow gave back all of Wednesday's gains as NYSE volume surged. It is now back down and scratching to hang onto the breakout and the trading range. As we say in the seminars, however, it is spending a lot of time in a bad neighborhood, and when it does that, the chances of those bad habits sticking become higher. IBM's after hours announcement will help, however, and that will give an automatic boost to the index.
Stats: -205.65 (-2.0%) to close at 10,176.08.
NYSE Volume: 1.499 billion (+2.8%). The second above average volume session in a row after slogging through below average sessions for over a month. That is 4 distribution sessions in 9 tries. That usually indicates further selling ahead, and that would mean a breakdown of the trading range.
Up volume: 206 million (-366 million)
Down volume: 1.295 billion (+817 million). Massive selling volume as no one wanted to be a part of blue chips today.
A/D and Hi/Lo: Decliners turn to lead at 1.96 to 1. Less than the advancers 2.55 to 1 rout Wednesday, but a big swing. The market is heavy in whatever direction it decides to take that day. A big, big fight ongoing.
New highs: 265 (-106)
New lows: 62 (+19)
The Chart: http://www.investmenthouse.com/cd/$indu.html
The bounce from 10,100 did not last long. The Dow tanked down below the simple 50 day MVA (10,200.58), the level that held intraday as support the prior week. A continued volume rise did not take any sting out of the move. The drop also broke the up trendline connecting the September bottom and the February lows. That is not a good sign, nor is the fourth distribution session in nine. There have been as many bad signs as positive signs, and they alternate days of late. The IBM news is sure to bounce the Dow higher in the morning or at least take some selling pressure off. Then we see if it can hold any move higher. If not, 10,000 is the first test lower, and a loss for the bulls in the daily struggle to set the near term trend.
S&P 500:
Matched the Nasdaq in selling intensity as GE and IBM are a big impact on the large cap index. It broke 1125 and the 1110 level that had been attempting to hold. It is now sitting just over the next support level at 1100, the level we set as our target for the OEX puts. As with the Dow, the IBM news will most likely give it a boost in the morning and help it recover some lost ground. The break of 1125, however, was a significant breach, and it was done on higher volume (the fourth out of nine sessions where there was distribution). The pattern indicates a breakdown all the way to 1075, the February lows. Each session, however, is a shift in the tide as the fight to establish the trend continues. Near term the scales are tipped toward a test of 1075 as the selling has been increasing in strength.
Stats: -26.78 (-2.4%) to close at 1103.69.
Volume: NYSE volume rose once again to 1.499 billion (+2.8%), another stronger volume selling session.
The Chart: http://www.investmenthouse.com/cd/$spx.html
TOMORROW
Big economic day Friday. Producer prices, retail sales, Michigan sentiment. Same store sales have been good; will they translate into positive overall sales? More than likely, but will continued consumer strength be enough to spur market gains? The Fed is talking out of both sides of its mouth again with one Fed governor saying the consumer (not business) is the key (this is contrary to what Greenspan and others have been saying; some on the FOMC are trying to show they are conservative Phillips Curve boys- - as if we did not know that) while McTeer says the economy is slack and that the recovery is uncertain. Thus, economic reports continue their significance.
Tomorrow we expect a morning rise, particularly if the PPI is benign and retail sales are solid. Futures are up on the IBM after hours announcement even if JNPR said Q2 would be flat on the technology side. Once again the question will be whether any gain can hold through the first hour.
The bigger picture involves tests of the February lows and how they hold up. This will tell more about how the market is going to perform nearer term. For now we are going to continue with what has been working. Selective puts, selective upside plays on the best patterns. Patience on top of all of that.
Support and Resistance
Nasdaq: Closed at 1725.24
Resistance: 1770 to 1775 is the next higher level. After that is 1800 that stopped the prior bounce attempt. That level is followed by a jumble of trouble at 1850 with the simple 50 day MVA (1826.70). Then 1875, the bottom of the November consolidation and the 200 day MVA (1866.11). 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: 1700 is next. Then 1613 to 1626.
S&P 500: Closed at 1103.69
Resistance: 1125. The 200 day MVA (1136.51). 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: 1100 Then 1075, the February low. After that 1050. The S&P moves in 25 point increments.
Dow: Closed at 10,176.08
Resistance: 10,240, the up trendline from the September bottom. Then 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 (10,200.58) finally gave way. 10,000 is next. That is backed up by the 200 day MVA (9956.18). 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): 425K expected versus 460K prior.
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): 0.7% versus 0.2% prior.
Core PPI, March (8:30): 0.1% versus 0.0% prior.
Retail Sales, March (8:30): 0.4% versus 0.3% prior.
Retail Sales ex-auto, March (8:30): 0.5% versus 0.4% prior.
Michigan Sentiment-Prel., April (9:45): 96.8 versus 95.7 prior.
End Part 1 of 2
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world stock market
us stock market
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