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us stock market, trend trading stock
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5/9/02 Stock Split Report
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Stock Split Report Subscribers:
MARKET ALERTS
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:
- Rally dips, but avoids a heavy volume sell off.
- When all is said and done, the downtrend remains thus far for the big stocks.
- Jobless claims drop a bit, retail sales do same.
- Team Trades
'Disappointing' session, but better than what usually happens.
No question the tech stocks did not perform as they did Wednesday with the Nasdaq and the big techs fading. After such a large gain that was to be more or less expected. Still, there was not much of an attempt to even mount a small rally. The indexes tried to form an intraday double bottom, but that fizzled late and they tanked to session lows on the close. Most labeled the day a disappointment.
There are several things to note, however, before Thursday's action is labeled an out and out disappointment. First, it was not that high-volume reversal that is most feared in a continuing downtrend following a big upside session. That was a moral victory right there. Second, the selling was on much lighter volume, indicating that there was not a lot of dumping of those shares purchased Wednesday (though a lot of those were bought to cover short positions). Third, any 'follow through' session would not occur today, but next week. Sure we don't want to see the indexes tank, but as long as they don't suffer heavier volume selling prior to any follow through session or undercut Wednesday's low, they can still follow through on Wednesday's surge. What the later surge (4 to 10 days after the first rally session) shows is that the big money is still interested in taking upside positions well after the initial buying surge. There is always a lot of speculation as to whether a rally attempt has staying power. Why not let the market show you with buyers coming back in a week later? Historically it has preceded each major rally, so it is something worth waiting on.
Still have the same problems to deal with.
On the downside there are the same problems: very poor patterns in technology stocks that led the rise Wednesday. They are not showing accumulation, but continued distribution. Most are not even in remotely positive price patterns as they have been continually hammered lower and lower. Some are asking so what? Well, the problem with those price patterns is the overhead supply. Those are levels where investors bought heavily only to see the stock fall from there. If the investors have not sold out, then when the stock hits each such level as it struggles back up, those investors sell to get out 'even.' The stock has to continually come up with more and more buyers to overcome this excess supply hitting it each time it makes a good run. As one subscriber noted, there are still investors out there that cannot afford to sell and take losses at these levels. Apparently there are many mutual funds in the same boat looking at the recent selling in issues such as WCOM and ORCL.
That is why the sentiment indicators are so important. They never hit extremes that would flush those still holding, i.e., the overhead supply ready to sell shares when they get in the same time zone of where they were bought. You literally want to have those that feel they cannot sell finally say 'I have to sell' based on the idea it is not going to get better. That is what some of the analysts were looking at with the WCOM selling: they were finally giving up on that dog. That is a sign, but it is not complete. Bulls still better than 50%, put/call ratio not spiking over 1.0, volatility comatose. In short, none of the sentiment indicators gave the first signal of a possible rally with legs. Pile on top of that the distributive patterns in technology, and there is little hope of a sustained rally that is led by tech. What it looks like is more of what we have seen before: small caps and their kin leading the market after a nasty, 3-leg bear market strolls to an end in light of a slowly improving economy.
THE ECONOMY
Jobless claims fall but remain above 400,000.
Jobless claims fall 11,000 to 411,000. Well, kind of. Last week was originally reported at 418K but was raised to 422K. Thus the 11,000 drop was really a 7,000 drop. Close to expectations, but still over that 400,000 level that is a sign of recession. The government says it is the extension of benefits causing the lingering high numbers, but again continuing claims rose 61,000 putting 3.8 million on the roles receiving jobless benefits. They have come back to the job pool, they are ready to work, but there are no jobs for them to take. Business spending is not increasing, and without that there won't be a lot of hiring. It is a slow recovery, particularly from an employment perspective.
It is heresy to say it with all of the hand-wringing over social security, but the solution is more tax cuts in the form of investment credits that this time will motivate the smaller businesses to buy capital goods. If you can expense $25,000 of equipment per year as a small business, you are not going to increase your spending just because you get some accelerated depreciation; it is better to expense them immediately. If you want to get businesses buying, 80% of all businesses are small businesses; give them something they don't already have, e.g., tax credits. Then you will see a surge of investment because you either pay the money to the government and get nothing, or you use that money to buy a PC or some other equipment. No brainer, and it has empirical evidence to back it up. Moreover, it is small business week. Do something for the majority of U.S. businesses, i.e., small businesses.
Retail sales are mixed as usual, but lower overall.
It was a disappointing April. Apparel retailers had a hard time of it, but they still performed well Thursday thanks to raising guidance. The action was mixed, reflecting the S&P retail index' troubles of late. WMT was up 3.2%, TGT just 0.4%. Those were suffering. Others such as CHBS, ANN, CHS, i.e., some niche players, were doing much better. Overall, we are concerned about retail numbers coming in Q2. The demand seems a bit weak right now, and the revenues may not be there in Q2. The consumer continues to consume, but as we have said over and over, the consumer cannot and never has done it alone. The consumer consumed like mad to keep the economy in a shallow recession. Still, it could not keep the economy out of recession. Now the Fed is still betting on the consumer to pull the economy out of recession, but it is having a hard time. At most it will be a slow recovery.
And, that is what the Fed is hinting at to Congress. When the Fed talks about final demand as the second stage rocket that is needed, it is not talking about the consumer. The consumer is almost a given right now with good future expectations and its track record of spending everything it makes. The Fed is saying businesses have to pick up, i.e., that final demand ingredient that is missing. A decade of massive consumer spending has not kept business spending going. How is it going to do so now? The 'hints' are plain but no one is listening. The Fed does not like to take political sides, but it is hinting loud and clear there needs to be something to motivate businesses to buy equipment.
THE MARKET
The indexes turned right back down, but did so on lighter volume. While the indexes did not build on Wednesday's gains, they did not reverse and distribute. That gives them a chance to consolidate a bit and then look to a follow through next week. As noted Wednesday, there are no tech stocks in good patterns to lead in a sustained manner. What we most likely would see is a return to the smaller issues leading, though the Dow is not in bad shape to mount a recovery. Its problem, however, is very similar to the Nasdaq: a big shelf of overhead resistance starting at roughly 10,300. Each time it has moved up to that point recently, it has been banged back down.
Put/Call Ratio (CBOE): 0.77; +0.12. Up as it should be on some selling, but still nowhere near the 1.0 level needed to signal a potential rally. More than that, it usually takes at least two such closes. Not there yet.
Nasdaq
A modest pullback compared to Wednesday's gain, but on any other session, a 2.7% loss is a big move lower. It did not distribute, a good sign, but the candlestick action was not great. Friday will tell the tale as they say.
Stats: -45.80 (-2.7%) to close at 1650.49
Volume: 1.788 billion (-25.5%). Big drop in volume. Big drop. That shows there was no dumping of the shares bought yesterday, but we do note that some big tech names sported heavy volume again, e.g., KLAC, NVLS. It was not all roses.
Up volume: 281 million (-1.749 billion)
Down volume: 1.479 billion (+1.132 billion). What a reversal in action.
A/D and Hi/Lo: Decliners reversed the tables, leading 1.95 to 1 (2.28 to 1 Wednesday). This shows how fragile things were Wednesday in the rally.
New highs: 133 (-14)
New lows: 69 (+11)
The Chart: http://www.investmenthouse.com/cd/$compq.html
An inside day, not the greatest pattern. On the candlestick chart it showed a closing tweezer. Tomorrow's action is determinative as far as these patterns are concerned. Basically, as noted last night, we don't have a lot of faith in a Nasdaq-led recovery, at least not in the near term. The patterns making up the bulk of the index have a lot of work to get done. Someday tech will lead the market; in this age it almost has to. It most likely won't be the familiar names that do it when that happens. Between now and the end of the year and 2003 there will be a lot of new companies or more accurately, companies new to most people, that will assume tech leadership. For now the index does not have a lot of strength, but it can, as we saw last fall, mount an impressive run out of some questionable patterns. That will keep us looking for a follow through next week along with some better looking stocks that can make us some good returns during any rally. At the same time, however, we see several puts developing once again. Again, tomorrow's action will tell us more about which way it is going near term as we wait to see if it can muster follow through next week. The quick reversal in the A/D line, however, is almost like a quick distribution session.
Dow/NYSE
Stalled at 10,100 again and slid lower to close on the session low. A triple digit loss, but just a third of Wednesday's gain and on very low volume. Still in decent shape if it can hold here for a few sessions and then try a follow through. Talk about looking for silver linings.
Stats: -104.41 (-1.0%) to close at 10,037.42
NYSE Volume: 1.140 billion (-23%). Well below average volume on the selling. If there was much buying Wednesday (there was some as opposed to all the short selling) there was not much selling Thursday.
Up volume: 313 million (-921 million)
Down volume: 832 million (+557 million)
A/D and Hi/Lo: Decliners moved ahead 1.86 to 1 (advancers led 1.72 to 1 Wednesday). It was not a strong session Monday for the NYSE overall, and the fact that decliners led today on rather mild selling underscores the weakness in the move.
New highs: 96 (-18)
New lows: 30 (+8)
The Chart: http://www.investmenthouse.com/cd/$indu.html
Held in check by 10,100 and the 50 day MVA (10,128.55) and then closed near the low (10,016.73) as the index fell hard in the last hour. It closed near the down trendline (9975), still riding above it on Wednesday's break. It is over its down trendline, but could ride down to 9900 (200 day MVA at 9913.64) as it consolidates Wednesday's move. If it can successfully do that it still has significant resistance at 10,300, the key to it moving higher.
S&P 500:
Its brief foray above the March down trendline was brief indeed, stalling at the 18 day MVA (1076.80). It is now at the February lows (1074) as the large caps resume their downtrend. The late April lows are at 1063, then the lower channel of the downtrend at 1053. The index could still follow through next week, but it is in a downtrend still. We cannot let Wednesday's move override what the market has been telling for months.
Stats: -15.84 (-1.5%) to close at 1073.01
Volume: NYSE volume backed way off to 1.140 billion (-23%).
The Chart: http://www.investmenthouse.com/cd/$spx.html
TOMORROW
The Producers Price Index is out before the open Friday. This is more of an inflation gauge, and inflation has been pretty tame in all reports though prices paid components have been rising. We have to remember, however, that even those do not mean a whole lot. Businesses continually state that they have no pricing power and have to eat price increases. Good for consumers, not good for companies. So while prices paid may not mean much as far as inflation is concerned (and that is usually the focus when you hear the numbers), it has a big impact for on profits. That is what the market reacts to, not inflation worries.
Friday will show more about the near term move. After a rally, a down session inside the prior move indicates weakness. The third day, however, tells the near-term story. Being a closing tweezer pattern on the candlestick indicates a downward bias (the general trend of the market). That does not mean there is no possibility of a follow through next week; as long as the Wednesday low is not undercut, the reversal remains alive. That is worth keeping in mind, but the trend is still down on the Nasdaq and the S&P 500. Wednesday tried to reverse that, but it will take more than Wednesday.
As for tomorrow, we don't expect much from the big indexes. We could be totally wrong, but again, we feel the moves will revert to the recent mean, i.e., the smaller issues in economically sensitive sectors outperforming the big names. Thus we stick to the primary game plan we have been playing.
Support and Resistance
Nasdaq: Closed at 1650.49
Resistance: The February lows at 1696 to 1700. That is followed closely by another down trendline from March at 1733 and resistance at 1743 to 1750. The 50 day MVA is at 1755.65
Support: 1650 held today on the close. That is followed by 1620. Looks like it is going to try and fill the gap to 1600. 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 1073.01
Resistance: As noted Wednesday, 1080 (February closing lows) had not been completely broken. They are still unbroken in the big picture. The down trendline at 1080 is now back in control, backed up by the 18 day MVA (1086.60). Then the next down trendline at 1095, backed up by 1100 from price consolidations. 1125 is the serious resistance as that represents strong price points and the 200 day MVA (1124.34).
Support: Hanging onto the February lows at 1074, but barely. After that is 1063, followed by 1050, 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 10,037.42
Resistance: 10,100 continued to keep the index in check along with the 50 day MVA (10,128.55). After that, 10,300 holds the key to reaching toward the March high. 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 down trendline is now at 9975, and the index could ride down that. Not much support, however, as it can trend lower and still hold above that line. The 200 day MVA (9913.64) is the next real level. Then recent lows at 9811. The bottom of the downtrend channel is at 9675. Then 9500 to 9600 in the shelf of support from 9500 to 10,100.
Weekly Economic Calendar (All times Eastern). The figures are the consensus expectations, not ours.
5-7-02
Productivity-Prel., Q1 (8:30): +8.6% actual versus 7.0% expected and 5.5% prior (revised from 5.2%).
Wholesale Inventories, March (10:00): 0.0% actual versus -0.4% expected and -0.7% prior
FOMC Meeting (2:15): Rates held steady
Consumer Credit, March (Consumer Credit): $6.0B versus $7.1B prior
5-9-02
Initial Claims, 5/4 (8:30): 411K actual versus 407K expected and 422K prior (revised from 418K)
Export Prices es-ag., April (8:30): NA versus 0.2% prior
Import Prices ex-oil, April (8:30): NA versus 0.0%
FOMC Minutes, 3/19 (2:00)
5-10-02
PPI, April (8:30): 0.4% versus 1.0% prior
Core PPI, April (8:30): 0.1% versus 0.1%
TEAM TRADES
Though retail is showing some signs of stress, there continue to be retailers that are strong, showing very good consolidations and then great buy points on the continued moves higher. LIN had formed a big cup with handle over the past year, riding up the 50 day MVA as it climbed the right side of its base. It had pulled into a three-week handle where volume just dried up, coming in well below average for two weeks as buying indicators continued to rise, i.e., good price accumulation. We had good moves from ANN on Wednesday, and LIN showed a volume spike that day though it lost a bit of ground. Today with the same store sales numbers coming out, we were looking at the leaders. CHS, CHBS, LIN, ANN all made great moves.
LIN was moving well early, but we did not want to rush in. We wanted to make sure it was amassing the volume needed for the breakout of such a long pattern. We watched and waited as it build toward the breakout at 36.60. Volume was solid, and looked as if it was going to meet our target. It made two runs toward 36.60 before lunch, and then backed off in a very tight range. We noted this and set a buy point alert below the buy point but above the session high to keep us right on top of it. That triggered right before noon central. Volume was solid. We were watching volume move into the stock as it hit the buy point. We shot out the alert and then looked at picking up some positions on this one. It could be a split candidate soon so we were looking at some stock positions. The spread was anywhere from 5 cents to 2 cents. We were going to try and shave it a bit as it was showing 36.55 by 36.60, but then the spread narrowed to a penny; obviously someone was trying to do what we were thinking of doing. With the market maker playing that game and with the volume good, we did not want to mess around too much. Instead we went ahead and limited the order at 36.60; if we got better, great. If not, at least we should get the fill at our breakout price. The latter is what happened. The stock made a continued move higher during the session with some profit taking at the close that pushed it back a bit, but still in the black for the day. The key is the good volume as it cleared resistance. This is one we want to try and hold for quite awhile.
End Part 1 of 3
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