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world stock market, trend trading stock
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4/30/02 Stock Split Report
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Stock Split Report Subscribers:
MARKET ALERT SERVICE
Target hit alerts issued Tuesday: HLYW (+$4; +22%); CNMD (+$5.45; +25%); CMX (+$3.60; +19.5%); FRED (+$5.56; +16%); RCII (+$8.80; +17.5%); ACDO (+$8.73; +16%; initial target & still holding positions).
Trailing stops issued Tuesday: CBSH; SYMC
Stop alerts issued Tuesday: PRGX; SPIL
Subscribers to the current reports can sign up at the following link:
http://www.investmenthouse.com/alertssr.htm
Emails: We love your emails. We receive hundreds of emails a week, but we don't mind. We respond to them all as fast as we can, so bear with us.
SUMMARY:
- Relief rally has strong attributes, but cannot crack near term resistance.
- Strong sectors have the strongest session.
- Economic numbers not blowout, but strong enough for the oversold market.
- Team Trades
Indexes rally on strong volume.
Break out the glasses. A high volume up session. Normally a good thing, and given all the selling, it was indeed a nice bonus to the relief rally we have been looking for. In and of itself it is nowhere near sufficient. How many times over the past two years have we seen a high volume reversal session that gets slapped back down the next day on even higher volume, or just peters out after 4 to 5 sessions as no follow through emerges. Initial buying is either jumped on hard by short sellers, or the buying runs out of steam with no more institutions jumping on board. The result is a continuation of the downtrend. Not to take anything away from today, but without more, a one-day rally is just that.
Was this the ARMS rally we discussed last night? We don't think so, though we will happily say we were wrong. Usually an ARMS rally is much like a follow through session: it occurs about a week after the signal is flashed. Moreover the indexes were unable to crack near term resistance. The Nasdaq stalled at the down trendline; the Dow cleared the 200 day MVA, but closed well off the high; the S&P 500 closed well off the high, right below the February closing lows. If they were able to close above resistance and then hold on a test Wednesday, that would cause a few shorts to cover and add some strength to the rally. Tomorrow the shorts will be out early on any weakness, trying to push the indexes lower from resistance levels. That is the unending tug of war in a downtrending market.
What about the big names that flashed a signal Monday they were ready to bounce? Most did just that and on stronger volume to boot. Hey, stronger volume reversals; that must mean a good rally. Again, much the same as with the indexes in their downtrends, the majority of the big names are in distributive, not accumulative, patterns. A rally on higher volume from the depths of a based or just a downtrend does not garner much sustained buying. All of those buying higher, the overhead supply, will sell into the rally to 'get even,' and that is a lot of pressure on a stock in a downtrend.
Strong sectors rally well.
As we indicated, it appeared that many of the stronger sectors were holding up well though Monday was tough on all stocks. When the relief move came, the stocks that were outperforming the market and had pulled back to test their moves sprang to life. Thus, while the big techs were spiraling down for instance and managed a bounce up toward resistance today, the leading stocks started their upward moves again, unhindered by a lot of overhead resistance. When the next inevitable bad news hits, most of the leaders won't be yanked back down in a surge of sell orders as sellers again rush to the exits. They have happy shareholders who are not so quick to push the eject button.
Heck, when most of the market that most of the investors (retail and institutional) still chase is still in the dumpster and being sold off on high volume on each bad story (e.g., WCOM), why wouldn't these shareholders be happy and want to hang onto their winners? That is the exact psychology at work. At some point everyone will want these stocks and they will go into a climax run. They are not at that point yet for the most part, but that is also how the market psychology works. Just as say QCOM shot higher and higher in 1999 in just a few weeks, big investors were unloading shares as the latecomers rushed in to get this 'have to own' stock. Huge volume, ballistic move higher at the end of an already huge run. The story was played out, and the big institutions were using the rush of buyers into the stock to unload their shares. When the institutions had left and the latecomers were all that was left, there was no more money to push it higher. With the big money gone it nosed over and then tanked.
Any problems? Small caps funds were up 2.7% in April, and are getting a lot of money pushed into them at this point. They have to buy small caps, so they are buying more small caps. That pushes the prices higher. Eventually this can cause a problem. We don't believe that is a problem yet, however, because small caps have underperformed the market and large caps for years. This is more of a historical trend that is true to past recoveries thus far, and we could see small caps outperform for a long time to come.
THE ECONOMY
Better sentiment numbers help market rally as opposed to Friday's numbers.
The Conference Board released its sentiment indicator, and it scored 108.8, better than the 107.5 expected. It was lower than the 110.2 in March, but there were some positives here not seen or more accurately, noticed, in the Michigan numbers reported Friday. First future expectations were down just 0.2, basically holding steady despite all of the negatives of the market and Middle East fighting. This continued tenacious positive outlook toward the future is a notable characteristic. It is the first time in 10 years (i.e., the last recession) that future expectations were greater than present conditions. According to the conference board, that is a strong positive. Indeed, plans for buying new cars and new houses rose after dropping in the prior report. Again, given the negatives in the stock market and overseas, that resiliency is noteworthy.
Chicago PMI falls but remains in expansion mode.
For the third straight month the Chicago PMI (manufacturing survey) was above 50 (54.7). Lower than expectations (55.0) and March's 55.7 reading, but still solidly expansive. The orders backlog was the highest since November 1999. Rising backlogs of orders mean that orders are rising faster than manufacturing can keep up. That ultimately means more workers brought on, and/or more capacity brought online. New orders fell to 59 from 62 in March; slower after shooting up in March, but still quite robust and again, still at expanding levels. Chicago is considered a good proxy for the national manufacturing report due out Wednesday after the open. This year it has been, so we can expect a slight dip nationally, but a still expanding manufacturing sector.
Fluor (FLR) sees better times ahead. FLR is a large-scale manufacturing concern that handles massive construction projects around the world. It reported earnings that beat consensus estimates by 3 cents. More importantly it said it was seeing the early stages of a long-term capital investment cycle take shape. It noted large, complex projects that were not far in the future. These projects take massive amounts of capital. That fact that they are close to getting off the drawing boards and into production is huge for the U.S. economy and the world economy. FLR is usually very quiet and stodgy. When it says it sees improvement, it is improvement.
THE MARKET
The relief rally was on today with an oversold market finally getting a trigger to release some pent up demand after a very steep decline in an overall downtrend. The move was broad with NYSE advancers topping decliners better than 2 to 1 and volume shooting higher on all indexes. Buyers were definitely in charge today just as sellers have been in charge on the way down. That makes it about 8 to 1 if you toss out last Thursday's hiccup. That does not make for a lasting upside rally, but it does make for the start of a relief rally.
Question is always the same with these: so how long does it last? Right now all indexes are at resistance levels. Yes, after one session of gains they are at the first resistance level. That shows how deep and severe the selling was as the down trendline on the Nasdaq was very steep. It also shows what we were saying the other day, i.e., indexes often tank lower and just undercut support before they turn and rally. Same theory as in the double bottom: the second leg undercuts the first and scares out the last sellers for the bounce higher.
The fact that the indexes could not take out near term resistance (the Dow did cross the 200 day MVA) with all of that volume is less than comforting. Again, we have seen those big rallies pushed right back down the next session when indexes could not cross resistance. As noted earlier, if they can cross resistance and hold, some shorts will cover and give the rally more fuel. If it crosses resistance, tests it, and then moves up again, that gives shorts even more incentive to cover and thus more rally fuel. Tomorrow the sellers don't even have to wait for the market; they can jump on it right off the bat. What we have to watch for is a rally up to today's highs that stalls. That could be trouble if buyers don't come right back in.
Put/Call Ratio (CBOE): 0.80; 0.00. Interesting action as the strong volume rally did not discourage put buyers anticipating a subsequent fall in the indexes. Usually this has an inverse relationship with the market action.
Nasdaq
After testing the bottom of the channel on Monday's low and rising, Nasdaq staged a strong move on heavy volume right back up to the near term down trendline at 1700. On the high the index crossed over that trendline, but could not hold the move. There was buying power, but not runaway power. How it handles this level and the 10 day MVA at 1716.75 will be instructive. We anticipate strong headwinds from 1716 to 1745.
Stats: +31.30 (+1.9%) to close at 1688.23.
Volume: 2.089 billion (+13.5%). Strong reversal volume, the highest since very early March. Buyers were in the market today, but as always, we will need to see them hard at work a week from now as well to put much into this move other than a strong oversold bounce from a very strong downtrend.
Up volume: 1.565 billion (+901 million)
Down volume: 498 million (-637 million). Major swing between buyers and sellers. It was a strong day no question.
A/D and Hi/Lo: Advancing issues took back the lead at 1.72 to 1, topping decliners leading 1.46 to 1 Monday and 1.93 to 1 Friday.
New highs: 195 (+72)
New lows: 108 (-31). Still no indication the Nasdaq is sold out based on this data.
The Chart: http://www.investmenthouse.com/cd/$compq.html
The relief rally was really underway today after Monday's close off of the low after tapping the downside channel line. Stronger volume, closing near the high. Bullish action, but it usually does look bullish at the start of a bounce after very heavy selling. We are still looking at the 1700 level (the index hit 1697 on the high) and the steeper down trendline where the index closed today to present resistance, but after this strong move we could see the momentum carry it to the 10 day MVA (1716.75) and the 18 day MVA (1742.76), the typical barriers in sharp downtrends. The next down trendline using the April high (that high was a one-day pop, so we tossed it out on our main trendline) is just above 1750, backing up the 18 day MVA. Pretty tough resistance in a steep downtrend. Again, we don't see anything that would change the downtrend at this point given the economic and earnings news, but a test of the April 2001 low was enough to send it higher on this relief bounce. Indicators never reached extreme levels on this selling, so not all elements of a sustained rally are in place. The improving economy continues to be the wildcard that controls the market's success, and continued strong numbers this week could help fuel the rally further.
Dow/NYSE
The Dow jumped off of the lower channel to the downtrend today and moved back over the 200 day MVA on the close. A solid move but for it giving back 60 points from the high that just edged past 10,000. It has more room to maneuver here toward 10,100.
Stats: +126.35 points (+1.3%) to close at 9946.22.
NYSE Volume: 1.531 billion (+15%). Strong volume seen only a handful of sessions the past month, the most recent being the Dow's reversal attempt last Thursday that was torpedoed by the Michigan sentiment report. Ironic that it was helped by the Conference Board's sentiment reading today.
Up volume: 1.168 billion (+860 million)
Down volume: 367 million (-581 million). Trading places as buyers came in and sellers left.
A/D and Hi/Lo: Advancing issues leaped back to the lead at 2.36 to 1. When the buyers come in, they come in big time. All of the big up sessions the past month have sported better than 2 to 1 sessions. The broader market continues to perform well; decliners never took over the broad market in the selling, at least on the NYSE.
New highs: 161 (+56)
New lows: 69 (-15). Fourth consecutive session with greater than 40 new lows. 5 consecutive sessions above 40 new lows is a further selling signal for the Dow.
The Chart: http://www.investmenthouse.com/cd/$indu.html
Bounced off the bottom channel line, closing above the 200 day MVA (9929.15). It closed 60 points off of the high (10,006.28) and that gives the sellers some fuel heading into tomorrow. Still, the move has just started, and if they cannot smack it down tomorrow it has plenty of room to run to 10,100, the prior level of support that just broke. The 18 day MVA is also right there at 10,110.28), and that often acts as a point of resistance in continuing downtrends. If today's move reverses tomorrow, it has quick downside exposure to 9500. We anticipate a brief rally here, some selling, and then another stronger rally attempt next week.
S&P 500:
The big caps followed the other indexes higher after giving the worst performance Monday. The move pushed it back over the February intraday lows at 1074, but could not take out the closing low (1080) after testing up to 1082.62 on the session high. The move pushed it back over the lower channel in the downtrend, but the 6-point close off of the high and below the February closing low leaves the door open for the sellers to come back in tomorrow and whack it back down if continued solid economic news (e.g., the ISM, national manufacturing report at 10:00ET) does not sustain it. If the big camps can continue the move, the resistance comes in at the 10 day MVA (1092.50) and the March down trendline at 1097. The 18 day MVA is right there to back that up at 1103.86. In downtrends, those are the key points of resistance.
Stats: +11.47 points (+1.1%) to close at 1076.92.
Volume: NYSE volume jumped sharply to 1.531 billion (+15%).
The Chart: http://www.investmenthouse.com/cd/$spx.html
TOMORROW
Economic numbers helped spring today's move from the oversold condition. Tomorrow the ISM (national manufacturing survey) is released 30 minutes into the session along with construction spending. That could continue to prime the pump of the relief rally to the next level of resistance ahead of the employment report on Friday. That report is expected to show climbing unemployment as employment lags the economy. With the slower expansion, employment is not yet ready to move up. The increased income shows more hours being worked by workers, and the Chicago orders backlog also shows things continue to pick up. It is slow going for now, and most are gloomy. Capital investment is picking up, however. We could see a move in that soon; not in technology per se, but in other areas of the economy along with some technology. It still won't usher in a tech recovery until 2003 or later, but it will help the overall economy.
Tomorrow we would expect the relief rally to carry on up to the near term resistance levels cited above. There is always the chance of the immediate reversal as sellers jump on a rally session. Some of today's action was short covering after the steep downtrend and then the bounce up late Monday. This will most likely keep the shorts at bay for a session or two more as the indexes move up toward those near term resistance levels. When they hit those levels the shorts will become active and try to push the indexes lower again. That is where we anticipate the rally to be pushed back and then have to regroup at the recent lows for a stronger move higher. It will be important for them to hold at those prior lows or near them to mount the rally the ARMS index is pointing to.
For now we are continuing to ride most of the shorts as we do not anticipate the rally to last beyond the near term resistance. We have some trailing stop losses set on some that we are looking at to decide if we want to keep them in place or let the stocks rally back up to resistance levels and roll back down. We are inclined to do the latter. At the same time we focused today on those continuing stronger stocks that had pulled back or were in the process of forming good bases rather than chase the big names in poor patterns that can get clocked with the next report that is seen as negative.
Support and Resistance
Nasdaq: Closed at 1688.23
Resistance: Closed right at the steeper march down trendline (1688) and was unable to take out the February low (1696). The 10 day MVA is at 1716.75, and the 18 day MVA at 1742.76), right at resistance at 1743 to 1750. After that is 1775, followed by 1850 and the 200 day MVA (1844.40). Then the bottom of the November consolidation at 1875.
Support: 1613 to 1626 (April 2001 low at 1619 intraday).
S&P 500: Closed at 1076.92
Resistance: 1075 (February intraday lows) to 1080 (closing low). Then the 10 day MVA at 1092.50 and the March down trendline at 1096. That is backed up by the 18 day MVA at 1103.86 (1100 is another resistance point). The 18 day MVA is a usual resistance point in a downtrend.
Support: 1050 represents the October lows and the last price consolidation level before the September low.
Dow: Closed at 9946.22
Resistance: Closed above the 200 day MVA (9929.15), but is still going to have to fight with it. Tapped 10,000 today but failed to take it out. 10,100 (18 day MVA at 10,110.28) is the point where we see real resistance to this move coming in as the March down trendline is right at that level. 10,300 blocked the move the last time it made to that level. After that 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.
Support: The bottom of the channel is at 9800. 9500 to 9600 are next as the index has entered into that shelf of support from 9500 to 10,100.
Weekly Economic Calendar (All times Eastern). The figures are the consensus expectations, not ours.
4-30-02
Chicago PMI, April (10:00): 54.7 actual versus 55.50 expected and 55.7 prior
Consumer Confidence, April (10:00): 108.8 actual versus 108.0 expected and 110.2 prior
5-1-02
Auto Sales, April (00:00): 6.0M versus 6.0M prior
Truck Sales, April (00:00): 7.3M versus 7.3M prior
ISM Index, April (10:00): 54.6 versus 55.6
Construction Spending, March (10:00): -0.1% versus 1.1% prior
5-2-02
Initial Claims, 4/27 (8:30): NA versus 421K prior
Factory Orders, March (10:00): 0.7% versus 0.3% prior
5-3-02
Nonfarm Payrolls, April (8:30): 60K versus 58K prior
Unemployment Rate, April (8:30): 5.8% versus 5.7% prior
Hourly Earnings, April (8:30): 0.3% versus 0.3% prior
Average Workweek, April (8:30): 34.3 versus 34.2 prior
ISM Services, April (10:00): 57.5 versus 57.3 prior
End Part 1 of 3
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