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us stock market, stock trading information
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4/16/02 Investment House Daily
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Investment House Daily Subscribers:
MARKET ALERT SERVICE
Target hit alerts issued this week: ICBC (+$5.55; +21%); ICUI (+$6.18; +18%); UCI (+$3.34; +20%); HRLY (+$4.45; +22%); OEX put ($8.55 per option); JH (+$4.05; +21%); SLGN (+$5.62; +17%).
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SUMMARY:
- TXN, NVLS, GM and others: earnings help drive the market higher, not lower.
- Nice point gains on big volume, but not blowout volume.
- Economic numbers mixed again: housing cannot hold the pace.
- Another good session. One day wonder or something more?
- Subscriber Questions
Positive outlooks help rally the market.
TXN's positive comments about the future got things going. Technology has been the 'leader' the past few sessions (among the big three indexes), and it was again out in front. The big techs were the big movers, up 4.3%, but the move was very broad with both the NYSE and Nasdaq A/D lines showing a better than 2 to 1 move.
It was more than TXN of course. Its brighter outlook was mirrored by GM. GM rolled past expectations by 15 cents and upped estimates for the entire year. Of the 75 S&P companies reporting thus far, 42 beat, 21 matched, and only 12 missed. The one-two punch of better technology results and outlooks along with old economy wins was powerful medicine for a an oversold market. It was easy to get a bounce here on some good news.
Wouldn't be prudent . . .
Small and mid-caps gained as well, but with money moving into technology on the first big earnings reports slowed the gains. While many posted modest gains others used the day to take a breather. The question everyone asked was how much stamina today's action holds. It is very easy for broken down stocks to rally a bit on some positive news; they are news driven as we have seen. It will take steady solid earnings with solid outlooks to keep driving them. While RMFD and MOT beat the street as well (MOT saw chip orders up 18%), we already saw some amelioration of the TXN and NVLS news after hours Tuesday: INTC said it saw no broad economic recovery, and VRTS said conservative revenue guidance was 'prudent' given the economic conditions. VRTS was getting killed after hours.
Thus, while we did go after some technology names last week and this week, we are not abandoning the best performing areas. Until technology proves it has a really turn ongoing, they are going to be subject to news. Keep after the best patterns in technology as well as the best patterns in the market.
THE ECONOMY
Housing starts and permits fall.
Housing starts dropped 7.8% while building permits dropped 9.9%. Single family homes dropped 11.4%. These numbers represent the largest monthly drop in 12 years. Most of the drop was blamed on the mild weather in January and February when housing projects were pushed up into those months because of the conducive weather. Was that correct? Building permits plunged 9.9%, continuing their three-month fall. Even if some projects were pushed up due to good weather, permits have been dropping off. While it is not an overnight phenomena, if permits continued to fall, housing starts will do the same.
It is interesting to note that Barron's weekend edition questioned whether a housing bubble had developed. We delved into that a month back. We think there are signs of a bubble, but not overwhelmingly so. Home prices are up, but people are not wildly speculating on real estate as they did back in the early 1980's before the real estate market popped a vessel. What we do have is a very hot market that could not keep up the pace and will not most likely keep up the pace through the year. That means that a lot of the consumer boom in electronics, furnishings, carpeting (MHK's numbers tell that story), etc. will wane as the summer and fall progress. They won't provide the continued strong stimulus, and once again it comes back to final demand in other areas, particularly business buying. That is the big question: will businesses start to spend again with improving outlooks.
CPI: consumer inflation tame even with jump in energy prices.
Overall up 0.3% (+0.5% expected), and it was all energy as core prices rose just 0.1% (+0.2). That is a very low level even with the spike in energy prices, and it really keeps the heat off of the Fed as far as interest rates. The Bank of Canada raised rates today, citing improving economic conditions; some pressure on the Fed, but not a lot.
Industrial production and capacity utilization stronger than expected: manufacturing recession over.
Production, particularly manufacturing production, rose 0.7% (+0.5% expected). That is the best level since March 2000 when the market started to dive as it read the Fed's moves as finally starting to end the economic run. How right it was. Capacity hit 75.4% (75.1% expected), up from 74.9% prior. Manufacturing production was up 0.8%; that too was the best gain since March 2000.
These numbers prompted the Institute of Supply Management to pronounce that the recession in manufacturing ended in February after 18 months of recession. Raise a glass, ring the bells, the recession is over. Right. As we have said in other areas, official proclamations of corrections, bear markets, recessions, recoveries, etc. is after the fact.
THE MARKET
A very broad rally on both the NYSE and Nasdaq. Volume was higher, reaching back above average on the NYSE and Nasdaq. It was still not a blowout day, unable to top the heavy volume on the NYSE selling just 4 sessions back. What we like was the breadth. Even though it was sparked by NVLS and TXN, the rally was across the board.
After hours it was earnings again. MOT posted a much narrower than expected loss and said chip sales were up 18%. It will be profitable by second half Q2. RFMD beat the street. ISSX guided higher for 2002. HDI beat the street and is upping production. On the other hand VRTS was getting killed. Will the INTC crowd win out for tomorrow? So far the earnings news has been enough to carry the day, but it is very early in the season and a lot of this is just a relief move after many worries and much selling heading into the numbers.
Put/Call Ratio (CBOE): 0.64; -0.09. Falling on a strong rally in the market. Pretty much as expected. Still well above any range where we would worry about complacency.
Nasdaq
The Nasdaq 100 was the leader (+4.3%; SOX +5.6%), but all of the big indexes scored gains greater than 2%. The Nasdaq's move would have qualified for a follow through session, but it was a day early, coming on the third day following the latest reversal session. A strong move, and it looks as if it could be forming that double bottom. It was not an 'all clear' signal, however. Lots of stocks just bouncing from lows for now.
Stats: +63.01 (+3.6%) to close at 1816.79.
Volume: 1.790 billion (+33.8%). Back above average on the gain, continuing the improving price/volume action. Toss out last Thursday's drop, it would have been a confirmation move. It looks like it given the price pattern over the past week, but it is not textbook.
Up volume: 1.579 billion (+852 million)
Down volume: 200 million (-396 million).
A/D and Hi/Lo: Advancing issues blew away decliners 2.46 to 1. Definitely follow through action even if not a technical follow through because it was a day early.
New highs: 277 (+55)
New lows: 38 (-22)
The Chart: http://www.investmenthouse.com/cd/$compq.html
Ran past 1775 with ease, and closed right at the simple 50 day MVA (1818.06). The next real level to test the index is at 1850. The January down trendline is just over that level, and the 200 day MVA (1862.12) is right behind it. With the February interim top right at the bottom of the November consolidation range at 1874, the Nasdaq obviously has a lot of work ahead of it. Earnings will have to be good, have to be better than expected, and have to continue to guide higher. Even then a lot of big names won't make lasting moves. There are, however, a number of stocks in better patterns than will move well (e.g., KLAC, AMAT, KLIC, CMOS, etc.). Perhaps a double bottom has been formed. For now we look for that follow through session and breakouts from the leading tech patterns.
Dow/NYSE
Sharp bounce off of 10,100 from nearly all Dow components. CAT was notable exception as it missed its earnings. Volume was good but not the best of late. It is trying to break that recent downtrend, closing right at that level.
Stats: +207.65 (+2.1%) to close at 10,301.32.
NYSE Volume: 1.344 billion (+19%). Rising, above average volume on the gain. A good turn of events after the distribution we had seen in the prior two weeks. It did not top the selling volume from last Thursday, but it was a powerful punch to the index turning where it needed to turn to avoid a plunge.
Up volume: 1.167 billion (+716 million)
Down volume: 186 million (-479 million)
A/D and Hi/Lo: Advancers took over 2.4 to 1. That puts advancers ahead 2 to 1 or better for three of the last five sessions. Very broad action to the upside, definitely follow through caliber.
New highs: 240 (+24)
New lows: 12 (-18)
The Chart: http://www.investmenthouse.com/cd/$indu.html
Held where it had to at 10,100 and above that down trendline from September 2000 that kept the index in check earlier in the year. It is now right at the down trendline from the March high, a short term level that is some resistance. With the power of this move, the real test is at 10,400, the point where it would enter the upper half of its 10,100 to 10,679 trading range. The larger financials performed better today as well, helping the technology and older economy stocks that were already showing signs of life again. We have seen one-day moves before, the most recent just last Wednesday and that was followed by a Thursday drubbing on very heavy volume. Today was a good start and for a decent reason: TXN and GM had good things to say. Whether it lasts is another story. The key as always is to stick with the good patterns.
S&P 500:
Similar story on the S&P. Last Wednesday is was a ball of fire, jumping higher on the first above average volume action in over a month. Then it reversed on even higher volume. Another one-day wonder. Now it is trying again, this time with a bit of actual news to use. In addition, MOT had good things to say. The move carried the index over 1125, the first level of resistance on the road back. It still has the 200 day MVA (1134.80) and the 1150 as resistance. For now it was a good start, but that was the case last Wednesday. It has to clear 1174 before it can really make any move. Until then, we will enjoy any ride it gives, picking good patterns and working with them until it shows it is going higher or coming back down in the range. Tomorrow and Thursday will be instructive, but what we really need to see is how the index performs over the next week as more and more earnings hit. The market tends to rally well on the first round of good news, especially after a sell off, and then it resumes its more familiar action. We will see if it can continue to put together solid action or if it reverts.
Stats: +25.82 (+2.3%) to close at 1128.37.
Volume: NYSE volume rose again to above average at 1.344 billion (+19%). Another good-looking start. Again.
The Chart: http://www.investmenthouse.com/cd/$spx.html
TOMORROW
Not a lot of economic news Wednesday, but earnings are going to drive the car for now with another chunk of the S&P reporting tomorrow. INTC's numbers were okay, but they were not anything unexpected. The stock was higher after hours as were other stocks, but we saw them peeling back late. INTC did not have the same 'rah, rah' comments as did TXN Monday. Indeed, INTC said it saw the usual seasonal activity: up a bit in Q1, down in Q2, stronger in the second half. Futures were up, but that means little overnight.
After a day such as today it is easy to chase extended stocks or stocks in poor patterns that made a move higher. Poor patterns are those that indicate selling and a lot of overhead supply. They can provide impressive jumps higher only to collapse. We would like to see the entire market continue to rally on better and better earnings reports. Looking down the road, while there is economic recovery in progress, it is not the strongest. It has the look of slow and steady, not explosive. Housing starts at record highs starting to slow down, IT spending still not showing any real gains, businesses still reluctant to rehire and ramp up production. It is a slower recovery that will take time. That will allow patterns in many of the beaten up sectors to form back up, but it does not support multiples of 60 or 70 times earnings. The growth just is not that fast. Therefore we are still reluctant to just go in broadly and just buy stocks that appear to be 'values.' We never do that as a standard practice, and today was not reason to change that view.
What we are doing is being patient on both sides. When the market was selling we were patient to let stocks hit our buy points and work for us. On days such as today, we were patient not to run out and grab at any big name moving higher. We picked some good patterns on the better techs. We continued to look at the same stocks that have been performing well even as the market was selling. Given the recent history, we are not going to abandon that action on one session.
Support and Resistance
Nasdaq: Closed at 1816.79
Resistance: Not totally free of 1800 where the prior bounce attempt. That level is followed by a jumble of trouble. It closed right at the simple 50 day MVA (1818.06). Then there is 1850, followed by 1875, the bottom of the November consolidation and the 200 day MVA (1862.12). 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. These are nice levels, but they are a long way off.
Support: 1750 held, barley. Below that is 1700 (February low at 1696.55). Then 1613 to 1626.
S&P 500: Closed at 1128.37
Resistance: Has not totally cleared resistance at 1125. The 200 day MVA (1134.80). 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 to any longer term move higher. 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 held on the last round. Then 1075, the February low. After that 1050. The S&P moves in 25 point increments.
Dow: Closed at 10,301.32
Resistance: Cleared the up trendline from the September bottom at 10,290, and is also just above the down trendline from March. It now faces 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: 10,100 finally held on this round. After that 10,000 represents some support. That is backed up by the 200 day MVA (9949.28). From 9500 to roughly 10,000 - 10,200 is recent support off of the September bottom that for now is holding up.
Weekly Economic Calendar (All times Eastern). The figures are the consensus expectations, not ours.
4-15-02
Business Inventories, February (8:30): -0.1% actual versus 0.0% expected and -0.1% prior (revised from +0.2%).
4-16-02
CPI, March (8:30): +0.3% actual versus 0.5% expected and 0.2% prior.
Core CPI, March (8:30): +0.1% actual versus 0.2% expected and 0.3% prior.
Housing Starts, March (8:30): -7.8% (1.646M) acutal versus 1.7M expected and 1.785M prior (revised from 1.769M).
Building Permits, March (8:30): -9.9% (1.599M) actual versus 1.685M expected and 1.774M prior.
Industrial Production, March (9:15): +0.7% actual versus 0.5% and 0.3% prior (revised from 0.4%).
Capacity Utilization, March (9:15): 75.4% actual versus 75.1% expected and 74.9% prior (revised from 74.8%).
4-17-02
Trade Balance, February (8:30): -$29.0B versus -$28.5B prior.
4-18-02
Initial Claims, 4/13 (8:30): NA versus NA.
Leading indicators, March (10:00): 0.4% versus 0.0% prior.
Philadelphia Fed, April (12:00): 13.4 versus 11.4 prior.
Treasury Budget, March (14:00): NA versus -$50.7B prior.
SUBSCRIBER QUESTIONS
Q: Many of your readers, myself included, do not yet do options, covered calls etc. When you say that a stock " looks to test the 50 day MVA at 'x' and that you will sell calls on the pullback and buy them back when the stock hits the 50 day MVA and bounces," are you telling those of us who do only stocks to sell them and buy them back when they hit the 50 day MVA, or to just sit through these growing pains and not sell , but to keep the stock , since you feel it might keep on going higher ?
A: One of the great things about long term holds that are performing well is that we can ride them down to support levels, particularly after they have made a strong move up the short term moving averages and need to come back and test the 50 day MVA. Even strong stocks adhere to this pattern. When everything looks okay with the stock, i.e., it has not raced up in a blow off top or it is not tanking on heavy volume, we have no problem letting it perform these periodic corrections. It is part of how a stock rallies, consolidates, rallies and consolidates.
While we are in the stock for the long term price appreciation, we also want to get the stock working as hard as possible for us. Our goal is to get our accounts large enough to do what we want to do when we want to do it. Thus we want to work our stocks for all they are worth. We know they are going to pullback from time to time; we use that period to improve our returns. The stock is pulling back, but we are getting paid on the pullback while we wait for it to find its bottom and then rally again. Sell calls when it tops out, buy them back when it hits support. If everything looks just fine with the stock, that is how we handle it. If the stock continues to tank we sell the stock position and ride the calls lower (this requires 'going naked', i.e., short the calls on the call sale with no stock to cover it; in IRA's you cannot do this).
When we are looking at a call sale that means we are comfortable thus far with what looks to be a normal pullback to consolidate some of its gains. Thus we don't mind holding the stock because it still looks very solid. If it did not, we would be looking more to selling the stock and getting out of it with our gain rather than riding it lower and risking a total breakdown. Thus, on covered call plays we are looking at, that typically means we are not ready to pull the plug on the stock play as it looks like a normal pullback. The thing to do, however, is to learn about options and how to use covered calls so you can use these great tools to increase your returns on stock positions you are already holding. You can view these seminars live or on rebroadcast. For more information please click on the following link.
www.stockseminarsonline.com
End Part 1 of 2
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