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us stock market, swing trading stock
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5/07/02 Investment House Daily
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Investment House Daily Subscribers:
MARKET ALERTS
Target hit alerts issued this week: PHTN put (+$3.05 per option); BRCM put (+3.33 per option); RTEC put (+5.45 per option); GMRK (+$8.50; +21%); AROW (+$3.65; +12% on bounce); OATS (+$2.98; +27%); TGIC (+$11; +30%); ATAC (+$4.38; +22%); OEX put (closed some positions at 523, let others ride).
Trailing stops issued to preserve gains, exit flat or cut losses very small: CCL; UAG; ABM; FNF; UPS; HLT
Subscribers to the current reports can sign up at the following link:
http://www.investmenthouse.com/alertdly.htm
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SUMMARY:
- Weak bounce fades, but large caps look ready to bounce from bottom of channel.
- CSCO hits a 'home run' according to its CEO, Barton Biggs almost bullish.
- Fed holds steady, not planning on any near term moves.
- Subscriber Questions
Weak oversold bounce fails to muster much short covering.
After some hefty selling the past week the indexes latched onto some better than expected productivity numbers and rallied early. It was not much of a rally, however, as the indexes ducked in and out of positive territory all session with only the Dow holding green on the close. Some blame the Fed's lukewarm economic assessment, but that is a poor excuse as everyone knew what the Fed was going to say. No, it was a weak oversold bounce that failed to attract much short covering action. The A/D lines were negative and volume accelerated on the selling.
Tuesday may not have been the day, but the indexes and many large stocks left themselves set up to bounce better on Wednesday and Thursday. The OEX is at the bottom channel of its downtrend. The SOX sold down close to 450 on the low and then reversed to close with a hammer doji at 475. KLAC and AMAT have sold back to their 200 day MVA and showed doji's. Doji's indicate a possible change in direction, and when coupled with support or resistance they take on even more importance. Indeed, there are many upside plays set up for some nice bounces, helped along by some more short covering after a strong downdraft.
To be clear, we are looking at more of a short covering bounce and relief bounce as opposed to a sustained move or some reversal off the lows. That could happen, but it has to prove it. The sentiment indicators are not near extreme levels that would indicate this substantial wave of selling has receded for good. Reading the charts we see a bounce coming. There are some stocks and indexes we feel we can make money on as the bounce occurs other than the stocks that have been leading the market. When we see these we will take advantage of them because they can give sharp, fast gains. We have to realize what they are, however, so we don't get wrapped up in a good short move and think it can turn into a long term move. Just wanted to put that in so we are not accused of being eternal optimists that are bucking a trend.
Small and mid-caps stabilize a bit.
It is not at all clear, but the recent weakness in these indexes was not as rampant today though they hardly recovered Tuesday. The rate of decent slowed, but the mid caps still have to deal with the Monday breach of the 50 day MVA, and the small cap index was the biggest loser of the indexes. As we anticipated, these stocks tend to languish a bit as the large caps try to bounce after severe selling. Money moves toward the large caps when they bounce, but once that ends, it makes its way back to what is really and truly working in the market. In this market it has been the small and mid-caps.
Knock me over with a feather. Chambers declares 'home run' operational quarter and Barton Biggs is almost bullish on technology.
Cisco may help spark the bounce that we were talking about in the last alert of the session Tuesday. We noted that some of the indexes were closing with doji's, signaling that they were potentially ready for a change of direction to the upside after the recent downdraft. After hours it was up $2, a 15% move. Other tech stocks were up in sympathy after hours.
CEO Chambers called the quarter an 'operational home run.' This received a lot of hype, but he was referring to how the company executed and not the level of business. Chambers said the company was well positioned to take advantage of any economic upturn, but did not say there was an upturn (Q4 revenue going to be flat with Q3). It was not a great story from a future business standpoint, but it was rallying the techs after hours.
Barton Biggs has not been bullish on America (an old Merrill commercial, and Biggs is chief market guru at Merrill). Tonight he dropped what we consider a bombshell. On CNBC he indicated that prices in tech stocks were finally getting low enough to where there could be a secular bull run in technology triggered 'very soon.' That could be a week, two weeks, two months - - all soon in the bigger picture. The reason: Biggs sees capitulation in retail and institutional investors (he did not say it, but the WCOM slaughter, ORCL dumping and the like where institutions are finally dumping their tech shares). Now he was clear that he did not think technology would lead the next bull market, but that the NDX (Nasdaq 100) could double in two months when the turn came. Now if the NDX can double and it is not going to be the leader in the next bull phase, that is noteworthy.
Biggs is a cranky old fart. He never seems to be in a good mood and I would no doubt hate to work for him, but he sticks to his guns and I like that. This is a sea change in his outlook on the market, and that makes it noteworthy as well.
THE ECONOMY
Foolishly looking to the Fed for signs of hope.
We keep hearing it, but it is hard to believe investors could be so na ve. It is the old line that investors were looking for a hint from the Fed that the economy is recovering. The Fed looks at the same reports that we all do though it has its own 'secret recipe' as to what it thinks the reports mean. The Fed, however, is not the final arbiter of whether the economy is strong or not. Well, at least it is not correct as to whether the economy is strong or not. Look at 1999 and 2000: the Fed was worried that the too strong economic growth and employee wages would lead to inflation. It looked under every rock but could not find actual inflation. So, it made up reasons why it thought inflation was right around the corner. It then jacked up rates, and the 'white hot,' unstoppable 'new economy' came crashing down. The Fed was wrong about the economy then, and it cost us trillions of dollars and 3.1 million people there jobs. You expect the Fed to know what is going to happen 6 months from now? A year? Hardly.
The Fed did give its two cents on the economy: inventory rebuilding leading to economic activity increase seen, but questionable strength in final demand was the wildcard. Nothing new or surprising there, and that is what the market did not like. The selling did not last for long, however. Seems investors are on to the Fed's game of shooting from the hip and hoping for the best.
Fed basically on indefinite hold.
The Fed's statement was one of the shortest ever, something that was refreshing. When I practiced law, if I found that if a court took more than six pages to make its argument, it was making stuff up to justify a shaky ruling. The Fed used to have to justify its rate hikes because there was no need for them. Now that it is pretty clear what is going on and the Fed does not want to stand in the way of recovery, the Fed does not have a lot to say.
What it said: there is no rate hike in the foreseeable future, basically saying that the risks were still balanced and we would just have to wait and see if the inventory rebuild is me with buying demand:
"The information that has become available since the last meeting of the Committee confirms that economic activity has been receiving considerable upward impetus from a marked swing in inventory investment. Nonetheless, the degree of the strengthening in final demand over coming quarters, an essential element in sustained economic expansion, is still uncertain. In these circumstances, although the stance of monetary policy is currently accommodative, the Committee believes that, for the foreseeable future, against the background of its long run goals of price stability and sustainable economic growth and of the information currently available, the risks are balanced with respect to the prospects for both goals."
The key language: "for the foreseeable future." That means that even though the Fed realizes it has the foot on the economic accelerator, it is not going to back off of the gas just on the belief that the current rate levels are potentially inflationary down the road. The Fed is not that worried about inflation versus growth regardless of what the statement says. Greenspan wants to retire, but he cannot do it until the economy is declared to have recovered. To do otherwise would tarnish his storybook (literally, e.g., 'Maestro') career and confirm that his Fed screwed the pooch and killed the greatest prosperity ever and tossed us into the longest bear market in over 25 years.
Productivity surges, but this is normal in a recovery.
Well, normal in that it rose sharply, but perhaps not normal with respect to the actual level. 8.6% is impressive when an already impressive 7.0% gain was expected. Even Q4 productivity was revised higher to 5.5% from 5.2%. Shout with joy? It is good news, but it is not the herald of milk and honey to come. Productivity always rises when an economy starts to recover. Why? Fewer workers are left after the 3.1 million were laid off, and as we have seen, even when business picks up there is no rush to hire new help. Thus, the employees that survived the pink slip have to make up the difference. They become more productive out of necessity as there is more work but no more employees to help out.
Unit labor costs plummet.
No chance of wage-led inflation the Fed feared so much in 1999 (something that has never been proven; it lurks in the subparagraphs of the text of the Phillips Curve theory), as unit labor costs fell 5.4% on top of a 3.1% drop in Q4. More hours worked and increasing personal income have not led to an increase in the cost of labor overall. This is another reason the Fed can sit on its hands even longer.
Wholesale inventories flat versus expectations of -0.4%.
We are back to the argument as to whether this is good or bad. The March number was not really great. It was flat in March after falling 0.7% in February. It was a slower month as sales were down 0.1%. The months of available inventory held steady at 1.27. Thus March was more of a standoff than a positive as seen in February.
THE MARKET
The market gave a bit of a teaser to an upcoming relief bounce today. If you blinked a couple of times you missed it, but the big indexes and large caps stocks touched lower and reversed to close near the open. They look ready to bounce up once more and there are trades there for those willing to step in fast. We are looking at the SOX and OEX and some individual names to capture that move.
The one thing that continues to bother us about any bounce is the lack of any real sentiment extremes. Biggs is the second analyst to come out in the past two sessions to say he was seeing capitulation. Well, last night it was a 'feeling' of capitulation. Sounds like song in there somewhere. We don't see extreme bearishness or lack of bullishness; no high put/call ratio; no real volatility extreme. The mutual funds are dumping certain tech shares en masse, but that is about all we see of any potential capitulation. Overall the market is not demonstrating the usual extremes that would point to a bottom. Perhaps the September extremes will be enough for even this test of those levels. Hate to bank on that. With tests of prior lows the key is fear; you want to undercut a bit and scare the living daylights out of those in the market that it is going even lower. That usually crescendos the fear levels to a point where the last weak holders hit the sell button and that clears the way for an unfettered rally. That is not the case yet, but of course, the indexes still have quite a ways to go to test those September lows. Fear could ratchet up as that happens.
Put/Call Ratio (CBOE): 0.73; -0.04. The put/call ratio certainly is not showing signs of fear. It continued to linger in the upper end of the range, but there are not many points for loitering. It failed to close over 1.0 after two closes in the upper nineties that did not trigger any rally.
Nasdaq
Tried to rally early and then put on a 34 point plunge early in the session. It recovered, but could not hold positive on the close. Volume jumped on the test lower and recovery, and it looks as if the Nasdaq is going to try another oversold rally here that may have a bit more strength than the last one session job.
Stats: -4.66 (-0.3%) to close at 2573.82
Volume: 2.138 billion (+20%). Volume surged on the selling, technically a distribution session, but that is not a bad thing at this point as noted Monday. The fact that the index reversed and closed well off the low on a big volume surge indicates a momentum shift.
Up volume: 1.151 billion (+797 million)
Down volume: 964 million (-435 million)
A/D and Hi/Lo: Decliners still led, but smaller at 1.43 to 1 (2 to 1 Monday). Another broader decline for the index.
New highs: 131 (-81)
New lows: 175 (-14). New lows fell on the higher volume selling. That is much better action as it indicates many stocks were sold out.
The Chart: http://www.investmenthouse.com/cd/$compq.html
Still takes a mothers love to like this chart, but the reversal off the intraday low (1560.20) on high volume indicates an attempt to bounce up toward the near term resistance after another 5 days of heavy selling. The 10 day MVA (1647.21) and the down trendline (1651) are the most likely levels of resistance on any bounce from here.
Dow/NYSE
Tested down to 9800, the late April lows, and showed a hammer doji on strong volume. Another index that looks ready to try another bounce.
Stats: +28.51 (+9.3%) to close at 9836.55
NYSE Volume: 1.343 billion (+21.3%). Volume back above average as the index showed a slight gain and a hammer doji. That is a good signal for another bounce here.
Up volume: 524 (+331 million)
Down volume: 823 (-77 million). More buyers, but not a lot as they were unable to overcome down volume on an up session.
A/D and Hi/Lo: Decliners led again but much lower at 1.27 to 1 (2.05 to 1 Monday).
New highs: 102 (-109)
New lows: 78 (-26). Nine straight sessions of greater than 40 new lows. Not a good longer term sign for the index even if it bounces here.
The Chart: http://www.investmenthouse.com/cd/$indu.html
The Dow tested the late April lows Tuesday (9810.53 on the low) and tried to rally. It moved up to the 200 day MVA on the high (9919.03) and retreated fast. The hammer doji shown today indicates the index will try a bounce before testing 9700 where the bottom channel of the down trendline is. We would prefer a test of that level first, but preferences do not rule the action. A rally will have trouble at the 200 day MVA (9918.63), but then real trouble at the down trendline at 10,010 (the 18 day MVA is at 10,039.46). Those are the usual suspects in stopping a bounce in a downtrend. Now this move did not hit the lower channel, so it may try the next resistance level at 10,100.
S&P 500:
The big caps look as if they are going to make at least a token stand at 1050 as they sold again but then held on to show a hammer doji on the candlestick chart on higher, above average volume. A doji on higher volume at support indicates a change in direction, and many large caps are showing similar action. Resistance will be encountered at 1075 (February lows; 10 day MVA at 1075.55), and then the down trendline at 1085 (18 day MVA at 1088.12). As we have noted in the past, these are the typical levels where indexes and stocks encounter resistance when in a continuing downtrend.
Stats: -3.18 (-0.3%) to close at 1049.49
Volume: NYSE volume jumped 21.3% (1.343 billion), back above average and a good sign on a hold at support.
Summary: Monday we noted the indexes were oversold and that leads to sessions of sharp rallying on short covering. Today they showed indications they are ready to bounce. The CSCO news after hours will help that. We still do not see any extremes that would indicate a lasting rally, but we will let the market show us if there is something more than a bounce.
The Chart: http://www.investmenthouse.com/cd/$spx.html
TOMORROW
No big economic news Wednesday, so the market action will be dominated by market forces. On the close the indexes were shaping up for a bounce. After hours CSCO had its 'home run' quarter and that had stocks starting to move already. We are looking at many bounce plays to put some fast change in our pockets; sell offs are the fastest, but short covering bounces are not far behind.
If stocks gap higher we have that age-old problem of when do we get in. Usually we let the stock test back toward the open price or the prior close. Gaps open in downtrends are suspect, and we like to see them test and hold. It does not have to hit it, but test toward it. As these happen fairly quickly we won't wait around too long to act. These are not long term positions, but taking advantage of the repetitious bounces up and down in both uptrends and downtrends.
In addition to the upside bounce plays we continue to look for the best patterns in leader stocks as these are the most reliable. As for our downside plays, we will not abandon them on a bounce; as we have seen, these bounces have not lasted long in this downtrend and have come right back and given us nice gains.
Support and Resistance
Nasdaq: Closed at 1573.82
Resistance: 1600 to 1620 is some resistance. The down trendline is at 1650 (10 day MVA is at 1647.21), and the 18 day MVA at 1686.79. Then the February lows at 1696 to 1700. That is followed closely by resistance at 1743 to 1750.
Support: 1550 to 1560 are the October lows and could try to hold. Then 1500. After that is the September low at 1387.06.
S&P 500: Closed at 1049.49
Resistance: 1063, the late April lows. Then 1080 (February closing lows and the 10 day MVA at 1075.15). The down trendline is at 1085, and the 18 day MVA at 1088.12. Again, these are resistance points in a continuing downtrend. 1100 also represents resistance from previous price consolidations as does 1125. The 200 day MVA backs that up at 1125.64.
Support: 1050 represents the October lows and the last price consolidation level before the September low. There is possible support at 1000, but it is not much.
Dow: Closed at 9836.55
Resistance: 200 day MVA at 9918.63 was tested on the high Tuesday. Down trendline at 10,010 and 18 day MVA at 10,030.46). Then 10,100 is resistance from prior price consolidations. 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: Still holding at the recent lows at 9811. The bottom of the downtrend channel is at 9715. 9500 to 9600 are next as the index has entered into that shelf of support from 9500 to 10,100.
End Part 1 of 2
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us stock market
swing trading stock
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