|
|
us stock market, trend trading stock
* * * *
5/14/02 Investment House Daily
* * *
Investment House Daily Subscribers:
MARKET ALERTS
Target hit alerts issued Tuesday: HARB (+$3.72; +18%); JILL (+$5.90; +20%); KLAC (+$3.60).
Stop alerts issued (closed several put positions): JDAS; ARW; GCI; BRCD; ZLC; POSS; KSS; BZH; CTX, and the rest of the tech puts.
Trailing stops: BUD
Subscribers to the current reports can sign up at the following link:
http://www.investmenthouse.com/alertdly.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:
- Retail sales fuel market surge.
- Nasdaq, S&P 500, 400, and 600 all post solid follow through sessions.
- Still plenty of trouble for big indexes, but all boats lifted in Tuesday rally.
- Volatility in daily action indicates change.
- AMAT likes its future, but is it enough to further the rally?
Hope gets some substance with strong retail sales numbers.
Monday's hope turned into substance from an unexpected source. After mixed same store sales results reported last week, retail sales more than doubled original expectations, landing at +1.2%, the biggest jump since October 2001. Exclude gasoline sales (remember, retail sales are based on dollar sales, not numbers of units) and you still get +1.2%. This was real buying and not just having to pay more at the pump. Exclude autos: +1.0%. Again, consumers were in a buying mood still (what is new), supposedly bolstered by higher tax refunds.
With this "important indicator of the economic health of the economy" (a quote from a CNBC anchor with questionable brain power) in its back pocket, market futures shot higher and the indexes gapped higher and held the gains. We noted over the weekend that the focus would be on economic data now that earnings were mostly over. The blowout numbers were a salve for investors nervous about the recovery's health as they received something of substance to invest in.
Follow through sessions on some big indexes.
The major indexes and the mid-cap index posted follow through sessions to last Wednesday's rally. A follow through is important because it shows that there is buying (short covering and/or real position taking) by the big money a week or so after the initial rally attempt. This gives a better indication that the rally attempt has support from the institutions that control the big money and thus it may not flame out as fast.
Still, techs keep us very wary right now with their steadily diving patterns. That does not mean they cannot post great gains when the sentiment turns their favor as it has the past two sessions. It is just that they can turn on you like a wounded bear when the good feelings ebb. Volume was great on the session, but with WCOM accounting for 620 million shares (about 25% of the trade), the final figures were a bit skewed. Still a follow through session even backing out WCOM, however, so there was real upside action today.
With the continued tech uncertainty we were glad to see the S&P 500 provide a follow through session as well with its 2.1% gain on stronger volume. As noted, it was joined by the mid-caps with a 2.4% gain. The Dow was close enough for horse shoes itself with a 1.9% gain on rising NYSE volume. The Dow looks the best of the big three indexes, and its move was key for the market as well.
No clear sailing ahead, but all boats lifted Tuesday.
Two big days and all is well. If only it were so. The action was enough to drive us out of many put positions before they got out of hand, but it was not something we were happy to do. We stuck to our rules when the Nasdaq broke its early session downtrend, exiting positions. Why the misgivings? Because tech patterns are still in the toilet for the most part. There are a very few that are forming something of double bottoms, but they are the rare exceptions.
A follow through session is a starting point. With a follow through session the stage is set for a further rally. It is no guarantee, but each big market move has had one. The problem with this one is the techs as noted. They led the move the past two sessions, but they are subject to the greatest disruption. They will have to use any rally to rebuild patterns to the point where they could be longer term buys when they clear major resistance. Until then they can be really moody. Still, we can see great gains come in a hurry when investors decide they want them. Thus we are not going to overlook them at all; we are, however, going to put out flashing lights and banners when we enter one of these plays so everyone knows what we are getting in, similar to the KLAC play we entered last week that hit our target today.
Remember, there was no big spike in sentiment indicators accompanying the sell off last week. That indicates that there was no real shakeout of investors still holding onto shares in hope of recouping gains. That keeps in place those massive levels of overhead supply above tech stocks and many of the indexes. We have said this before, but when stocks then rally back up while those holders that bought higher still own them, there is dumping as each major top is reached (i.e., where the last big buying spree occurred). When the stock hits there, most of those shareholders (shareholders that are already upset over the poor performance after they bought) are ready to jettison their shares. As we have seen in the bear market, that often triggers another downtrend. Thus, the panicky selling of shares is usually a big part of the bottoming process. It did not happen on this last downtrend, and thus we are skeptical of the move higher. We still receive many emails from investors still holding these stocks because they do not want to take the loss. That along with the clear readings from the sentiment indicators tells us there is overhead still out there.
On the good side, all boats rose Tuesday.
The saving grace is that almost all sectors were rising Tuesday. As noted, the mid-cap followed through with a big move, and the small caps rose even more with a 2.7% gain (no follow through technically because it undercut its rally lows). The broad A/D lines show significant action across the board. That gives the basis of a good rally base.
All things considered, what appears to have been established is a tradable upside rally as signaled by the Arms index a couple of weeks back. There is not a lot of muscle here that we can see: poor tech patterns, no sentiment spikes. Still, the indexes have cleared near term downtrends and some good news is trying to give them some upside room to run. After two sharp days of gains we would expect a pause to test the breaks over the downtrends, but the action has further upside potential if it can clear this next level of resistance where they closed the action today.
THE MARKET
Two quick up sessions and the upside move already looks long in the tooth. The moves have been big, and that has put them right at the next resistance levels on the close. Thus even after springing the lock on their near term downtrends, the indexes may have to take a breather before moving higher.
We often note volatility in how the indexes perform. When they start to show that up and down action that last more than a session, there is some worthy change afoot. The steady downtrend, Wednesday's leap higher, the immediate selling, and now the jump right back up are signals along with the breaks over trendlines that there is at least a short term change in direction. We are certainly seeing the volatility, and today it got a bit of volume to back it.
AMAT after hours delivered a nice earnings report, at leat nicer than CSCO's operational triumph. AMAT beat on earnings, revenues, and then posted a big 51% jump in new orders led by a 71% jump in Asian sales (that bodes well for DELL's numbers coming out later in the week). The new orders are the future, and the increase in demand for complex chip making equipment is taken as a good sign for this 'leading indicator' technology sector.
Again, after two big days of anticipation, it will be very interesting to see how the market treats the report. There was great anticipation of the report and techs rose to meet it. The stock was up after hours, but not racing. If it is sold on the news, that could be a problem; maybe just a rest after a nice run, but if volume turns higher again on these stocks after the news, that is real trouble. We already had a distribution session after the rally attempt, and that weakened the subsequent rally somewhat. If the techs can take a rest and hold their gains on light volume, that is a good sign. The worst case: a gap higher again and a reversal on stronger volume. As you can tell, even with the follow through, we are skeptical of most techs and prefer to stick primarily to good patterns though we won't back off from a chance to catch an upside rally on a tech stock that is showing strength ahead of the pack. For tomorrow we are not all fired up about chasing them as they actually look weaker after the close. We will give them a chance to catch the breath and see if they can move back up.
Put/Call Ratio (CBOE): 0.57; -0.18. Big drop in put activity on the gains after never reaching 1.0 on the close. Another reason we are somewhat wary of the run continuing with a lot of force.
Nasdaq
Another gap higher, clearing the February lows and closing at the next March down trendline. A follow through session on strong volume, but WCOM's exit from the S& P 500 accounted for 25% of that trade. Techs still have a ton of work ahead of them, but this is a start as there are those wanting to own them.
Stats: +66.51 (+4.0%) to close at 1719.05
Volume: 2.603 billion (+58%). Massive increase in volume though WCOM accounted for 600 million of that. Still, backing out WCOM there is still rising, above average volume, good enough for a solid follow through.
Up volume: 1.697 billion (+455 million)
Down volume: 892 million (+505 million). Up volume surged, but so did down volume. It was not a runaway.
A/D and Hi/Lo: Advancing issues stretched the lead to 2.18 to 1 (1.50 to 1 Monday). That is follow through caliber, and it tops the recent decliners at 1.95 to 1 on Thursday. That is what you want to see.
New highs: 170 (+72)
New lows: 55 (-26)
The Chart: http://www.investmenthouse.com/cd/$compq.html
Gapped up to resistance at the February low and then continued the climb. It made it to the second March down trendline and stalled there on the close. More resistance at 1750 (50 day MVA at 1744.73), 1775, and then up to 1800 (January down trendline). After such a steep dive, the recovery is not easy and it is exhausting. If it can maintain the move higher, we are going to see the up a step, back a step, up two, back one, etc. as it fights the current. The index closed at the next down trendline, and after two big sessions, it looks as if it may turn lower at least to consolidate the gains. Futures were very meek after hours and AMAT was up, but it was not leading a runaway charge.
Dow/NYSE
The best looking of the big three, the Dow continued its run past its short term trendlines and is now facing a serious challenge from the January/September 2000 down trendline and 10,300. It looks good, but it does not get any easier.
Stats: +189.24 (+1.9%) to close at 10,298.90
NYSE Volume: 1.401 billion shares (+29%). Nice jump in volume to push past average on a follow through session.
Up volume: 1.131 billion (+340 million)
Down volume: 278 million (-20 million)
A/D and Hi/Lo: Advancers continued a strong lead at 2.26 to 1, follow through caliber breadth (1.67 to 1 lead Monday). As with the Nasdaq, the NYSE breadth to the upside outpaced the downside breadth on last week's losing sessions.
New highs: 139 (+54)
New lows: 28 (-35)
The Chart: http://www.investmenthouse.com/cd/$indu.html
After making that higher low off the 200 day MVA Friday and Monday, the Dow has found its feet, breaking its short term downtrends and moving up to the threshold of the next shelf resistance. This is the big area of overhead supply from 2000 and 2001. It is a massive ridge of prior price ranges where the Dow traded for, well, years. It starts at this level near 10,300, and then gets very intense at 10,500 to 10,600. It also closed at the down trendline from the January/September 2000 down trendline, a major and important level. That said, the Dow is moving very well as it has off the September bottom. It has now broken over its short term down trendlines and is rising on strong volume. The majority of its stocks are those we cited over the weekend as being those taking advantage of the massive technology investment at the end of the 1990's. We expect the index to take a pause here after two very strong moves, and then take on the 10,500 to 10,600. As always it needs the support of its tech components to make significant moves as we have seen this week. They need a rest as well, and this is a natural point to do it before trying higher.
S&P 500:
The large caps added another chunk of real estate Tuesday, moving up to the next resistance level near 1100, closing just over the second March down trendline. Tearing off gains in 25-point chunks covers a lot of resistance at a time. The rising volume gives it some power finally on an upside move after it made that higher low this week. It is still in a very steep short term downtrend, and hardly out of trouble. Large caps have been suffering along with the techs. As with the other indexes, after two big moves it looks ready for a rest at this resistance point, but as noted before, the big test is at 1125, a point of prior resistance and the 200 day MVA (1122.39).
Stats: +22.72 (+2.1%) to close at 1097.28
Volume: NYSE volume jumped above average on the buying to 1.401 billion shares (+29%).
The Chart: http://www.investmenthouse.com/cd/$spx.html
TOMORROW
CPI is out tomorrow, but the focus will be on business inventories and the two schools of thought: good that they are higher or worse? That debate makes the industrial production report more important. The circle of life ala economic reports.
Even with a great number it is hard to imagine the market getting too much more upside movement on this leg. The indexes closed at significant resistance after very strong moves; they need to take a breather. How they do that will be key. Markets that are stronger tend to be stingy with their gains, refusing to give them up as they consolidate on lighter volume. The action after hours Tuesday on the heels of the AMAT earnings was sluggish, and it showed the market was a bit winded after the big moves. Now will it hang onto what it has fought for or will it be punted away in a continuation of the fall? There are the positives of the higher lows put in, follow through on strong volume, the broad rally where small, mid, and large caps all benefited. That indicates at least a further trend higher even if the rally does not mark a major bottom on the test of the September bottom.
This may not mean that we do a whole lot tomorrow. With the nice improvement in the small and mid-caps once again we will of course focus on those good upside patterns. We are also going to let some big techs that are 'outperforming' the rest set up and make moves for us. They can provide some fast upside action, but we have to realize they are not necessarily long term investments at this juncture. We rode some of them down to nice gains that we banked, and then we went back to the well and had to close out the last round without the same success. In short, we will let the move over the last two days iron out the kinks, and then when we see the moves enter positions. For now it looks as if it will continue the rally up to the next resistance levels after a pause that hopefully refreshes.
Support and Resistance
Nasdaq: Closed at 1719.05
Resistance: The second March trendline is where the index closed. Then the simple 50 day MVA at 1773.99. That is followed by 1800 where the January/March 2002 downtrendline hits, followed by the 200 day MVA at 1825.08.
Support: 1700 is some support. Some support from 1600 to 1620 from the October consolidation. 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 1097.28
Resistance: The second March down trendline at 1090 is still not totally broken. After that is 1100 from price consolidations. 1125 is the serious resistance as that represents strong price points and the 200 day MVA (1122.39).
Support: February lows at 1074. The October lows at 1050 are the last price consolidation level before the September low. There is possible support at 1000, but it is not much. The September low is 944.75.
Dow: Closed at 10,298.90
Resistance: Closed at the January/September 2000 down trendline. 10,300 is the next level that 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: 10,100. Then the 200 day MVA (9907.33). After that two lows at 9811. 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.
5-14-02
Retail Sales, April (8:30): 1.2% actual versus 0.7% expected (revised from 0.5%)
Retail Sales ex-auto, April (8:30): 1.0% actual versus 0.4% expected
5-15-02
CPI, April (8:30): 0.4% versus 0.3% prior
Core CPI, April (8:30): 0.2% verus 0.1% prior
Business Inventories, March (8:30): -0.1% versus -0.1% prior
Industrial Production, April (9:15): 0.4% versus 0.7% prior
Capacity Utilization, April (9:15): 75.7% versus 75.4% prior
5-16-02
Housing Starts, April (8:30): 1.63M versus 1.646M prior
Building Permits, April (8:30): NA versus 1.63M prior
Initial Claims, 5/11 (8:30): NA versus 411k prior
Philadelphia Fed, May (12:00): 11.0 versus 12.3 prior
5-17-02
Trade Balance, March (8:30): -$32.3B versus -$31.5B prior
Mich Sentiment-Prel., May (9:45): 93.0 versus 93.0 prior
End Part 1 of 2
|
us stock market
trend trading stock
|
