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us stock market, trend trading stock
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5/20/02 Stock Split Report Market Summary
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Stock Split Report Subscribers:
MARKET ALERTS
Target Hit alerts issued Monday: AHS; FCX
Buy alerts issued: HI (put); ACN (put); CACI (put); CCMP (put); FITB (put); RCL; CERN, PG, ATK; HGR
Trailing stop alerts issued: SONC; EASI; DGX; SCS
Stop alerts issued: KROL; SERO
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:
- Lower volume pullback is nice, but point losses are heavy.
- LEI's fall more than expected as Gold rallies, dollar falls
- NSM raises its revenue estimates but does not help on the session.
- Subscriber questions
Volume was right, but the price losses were out on the edge.
Sure the Nasdaq looked ready for a pullback to consolidate some of its gains, and it did fall back on significantly lower volume. Lower volume on selling following upside gains means there are less sellers in the market than buyers. Less sellers, that's great. Shows no distribution after the nice gains.
Lower selling volume is good, but we also like to see the indexes and stocks stingy with their gains. A little selling on lower volume is okay. Opening up the gates and letting the air rush out is not being stingy. A 2.3% dumping on the Nasdaq is not that stingy. Yes it did hold at 1700, the level we wanted it to find support, but we did not want it to run down to that level in one session, high or low volume.
Orderly pullbacks, i.e., lower volume and calm selling, are hallmarks of stronger markets. In weak markets or bear markets, how many times have we seen decent upside moves start a pullback rather innocuously on low volume and then see prices swing down sharply in a resumption of the downtrend? More than a few.
The continuing levels of overhead supply keep everyone on edge with each rally pullback. Will this be an orderly, healthy pullback or will it be the start of another spiral lower? With the major indexes again running right up to resistance, necessary pullbacks have added 'excitement' to say the least. Given that today's pullback was on lower volume and on the heels of a prior follow through, we cannot conclude the market is again rolling over. We will watch for the indexes to hold at near support and move up to test the next higher and more critical resistance levels before suffering potentially another leg lower.
THE ECONOMY
Leading Economic Indicators lower than expectations.
The LEI report looks six months down the road. After running mostly higher, April's report showed the second decline in the past six months. At -0.4%, indicators doubled expectations of a -0.2% reading. What makes up the LEI? For one, the stock market. It was lower in April, and that component played a big role in bringing it lower than expected. Still, the LEI has grown at a 5.4% annual clip over the past six months even with the two declining months, and that is a much, much better than normal batting average. This may have been a burden on the market Monday, but the trend continues to show what we know: a steady though unspectacular climb in the economy.
NSM raises its estimates.
National Semiconductor raised its revenue guidance from a 6% to 9% increase to a 9% to 12% increase. Semiconductors are the leading indicator in the tech sector. AMAT has raised its guidance already, another indicator of improvement in the sector. Improvement, but not gangbusters. NSM was up but not wildly. The SOX was lower. There are some decent patterns here (NVLS is interesting if ragged), but investors burned by techs are not pouring money back into these stocks just yet.
Gold jumps, dollar drops.
Gold hit a two year high at over $305 Monday, no doubt at least in part the result of the rising concern of another terrorist strike against the U.S. Gold tends to rise when the strongest economy is under terrorist threat just as its currency tends to fall when it is under heightened terrorist threats. That happened after 9-11 before the dollar started a strong run, and the slide this month was hurried last week by the talk of a heightened terrorist threat here and questions about what was or was not known before 9-11. All of this adds up to a weaker dollar.
As we saw after 9-11, the bigger picture is the key, not the shorter term swings. Talk of a Japanese recovery is nothing new though with the U.S. recovery Japan's statements about recovery carry more weight this time around. In the bigger picture, Japan's economy is still in deep as they say, and is nowhere near the strength of the U.S. Here is what Japan is saying: this CURRENT recession may be ending; it is not saying its 10+ years of deflation and depression is over. The U.S. fell from lofty heights, but it did not make the nasty lows Japan did. From that perspective we view the dollar's weakness as a shorter term phenomena after a big rally in the greenback. Continued, steady recovery will help it hold its relative strength after the shorter term gyrations over somewhat transient fears subsides.
Again, our biggest concern for the market now and over the next 6 months, whether equities or corporate bonds, is that a weakening dollar is indicating slackening foreign investment in the U.S. As noted over the weekend, if investors go elsewhere, dollars are changed for other currencies and there is even more dollar supply and thus lower dollar and that incites more exodus. The dollar was very strong, and this fall off is not necessarily unnatural given its surge post 9-11. The key will be whether it does find a bottom after the near term concerns about terrorism in the U.S. ebb.
THE MARKET
If this is how the market reacts to statements about a possible terrorist attack, there is not a lot of starch propping it up. After a 9% gain the Nasdaq tried to give back a third in one session, falling 2.3%. It was a weak price day across the board with all indexes contributing in fairly equal shares. The A/D line improved in the last hour, but it was still quite weak on the close. About all that can be said about the session was lower volume on the selling and the hold at near term support. That support, however, gives little room for maneuvering to the downside, at least on the Nasdaq. The Dow and S&P 500 still have some room for consolidation, and thus we could see the Nasdaq undercut its near term support intraday and then recover. There is a lot of concern it has rolled over again today, and in the backward way of sentiment, that indicates that after a quick undercut it could indeed turn back up for a bit more upside.
Put/Call Ratio (CBOE): 0.71; -0.01. In keeping with its quirky action of late, the put/call ratio fell slightly on the selling when it would be expected to rise. As we have noted, it did not give the extreme reading on the last round of selling before follow through.
Nasdaq
The doji Friday at the 50 day MVA indicated selling, and there was a bit more than we wanted. Down to the February low in one session. Not much time to work out the gains from last week.
Stats: -39.80 (-2.3%) to close at 1701.59
Volume: 1.426 billion (-13.3%). A significant drop in volume as it continued well below average. Good if you have to have selling.
Up volume: 451 million (-603 million)
Down volume: 963 million (+431 million).
A/D and Hi/Lo: Decliners led 1.93 to 1 (advancing issues led 1.18 to 1 Friday). The first real broad downside action since the CSCO news.
New highs: 117 (-32)
New lows: 76 (+31)
The Chart: http://www.investmenthouse.com/cd/$compq.html
Sold hard early and then traded in a narrow range the rest of the session as two afternoon rallies gathered no strength. The move pushed the Nasdaq back to the February low and the top of the second March down trendline. This is the point we wanted to see the Nasdaq hold on a consolidation, but the plunging price action, tanking to that level in one session, is familiarly weak. We will most likely see the index undercut 1700 and fill the gap down to 1650. In its week condition it tends to fill all gaps. It needs to reverse and hold close above that level to have anything left to the upside. That would give it another higher low. If volume runs higher (not hard to do at these low levels), however, the Nasdaq will test lower. It showed a similar move in February and March, making a higher low off the bottom and then racing ahead before rolling over. The follow through and higher low give some confidence that it will hold, but definitely no warm fuzzy feelings.
Dow/NYSE
The upside momentum Friday was over with weekend comments about terrorists. The Dow was already right at resistance, and the news was a good reason to take some gains. Accordingly the Dow turned right back down from 10,300 though NYSE volume was very light.
Stats: -123.58 (-1.2%) to close at 10,229.50
NYSE Volume: 997 million (-22%). Back below average on the selling. Again, what you want to see if there has to be selling.
Up volume: 367 (-373 million)
Down volume: 622 (-148 million). Downside volume did not run away, just a lot less buyers.
A/D and Hi/Lo: Decliners led 1.63 to 1 (advancers led 1.22 to 1 Friday). The selling was broad as all indexes finished well into the red, down 1% or more.
New highs: 100 (-18)
New lows: 24 (-14). Good to see new lows fall on further selling. A silver lining, though it was a small one.
The Chart: http://www.investmenthouse.com/cd/$indu.html
Turned back at 10,300 to 10,400 after looking ready to continue the move higher. The Dow moved more laterally last week than the Nasdaq, and it looked ready to carry that momentum through. The weekend news put an end to that move, but the lower volume suggests the move is not washed up. As we have said, the Dow is in a much better pattern than the other large cap indexes, and it held near 10,250 today, still easily above 10,100. The price sell off was much stronger than we wanted as with the other indexes, but the Dow has some room to work and still continue the move. It turned down sharply at resistance, but it did not run down on stronger volume yet. It can withstand another selling session of less magnitude, but it cannot afford to see NYSE volume start higher once more.
S&P 500:
The large caps decided not to lead Monday, though the 1.3% loss put it out in front of the Dow. They looked ready to move higher with the Dow, but gapped lower and sold, never to recover. Much worse price damage that desirable on a consolidation even with the lower volume. While a hold at 1100 on any consolidation was a pipe dream, falling almost half way to next support at 1074 would wipe out over half the gains from last week. Once again the large caps are teetering on the edge of disaster after looking into the eye of overhead supply. A weak day but the lower volume kept it from being a washout and complete return to selling. It looks as if it will test toward 1074 though it could find some minor support at 1085ish. It needs to or the downtrend will start gaining the upper hand once more.
Stats: -14.71 (-1.3%) to close at 1091.88
Volume: NYSE volume plunged to 997 million (-22%). At least the selling had no teeth Monday.
The Chart: http://www.investmenthouse.com/cd/$spx.html
TOMORROW
Visions of post-CSCO were dancing in the heads of floor traders today at the close. After that one day wonder the market swooned. Volume was lower, but it gave back all of the gains. This time they are not very positive about a recovery as the market delivered the following week. Let's face it; everyone has misgivings about any selling after a move higher. Will it just roll back over and collapse as usual, or will the market finally find some staying power?
Monday's selling from a price standpoint was excessive. It did not occur on higher volume, however, and it did not wipe out support levels. Came close, but did not take them out. With the follow through and the generally lighter volume selling we saw across the market, we still feel pretty confident the Dow and S&P will try to test the near term highs at 10,679 and 1125 (maybe 1140ish).
Confident, but not willing to bet the farm on it. The market is still choppy water as we noted over the weekend. You talk to technicians and you get just slightly more bulls than bears. Longer term there are those that won't bet against the U.S. and others that don't like the patterns on the S&P 500 for instance (longer term head and shoulders we discussed last month). As for small caps, they are going through their own rockier time right now after surging to new highs a couple of weeks back. The market is either going to transition a bit higher here, making another higher low and testing resistance, or it is going to cave in once more. We were willing to play the DJX and OEX upside if it showed us the continued move, but the weekend news nipped that in the bud.
The volume will be the key as institutions will either continue to pick up shares and notch another higher low or will change their stripes again and start dumping shares. If the indexes close below those recent lows, the follow through and rally attempt is pretty much dead, and then they are either still stuck in their loose trading ranges or start heading to newer lows again. That keeps us cautious, picking stocks that are breaking down even as the rest of the market rallied last week, and also looking for those few upside moves that are still providing decent upside action. We look for more downside early, but then a reversal Tuesday or Wednesday to take it back up to test the next level of resistance. That is where we feel it will stop the rally, but we may be giving the market too much credit.
Support and Resistance
Nasdaq: Closed at 1701.50
Resistance: 1750 and the 50 day MVA (1741.73) are the immediate overhead resistance and held again Friday. The January/March 2002 down trendline is now at 1775 and the 200 day MVA at 1819.59.
Support: 1700 is some support (recent lows and highs). The second March down trendline is at 1695. 1650 is the gap up point. 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 1091.88
Resistance: 1100 is again a point to beat. The 200 day MVA is next at 1120.48. Then price consolidations at 1125. The September 2000/March 2002 down trendline is at 1128.
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 10,229.50
Resistance: Back below 10,300 after a one-day move above that level. Then there is 10,400, the level that has acted as 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: 10,250 is minor support. 10,100 is more substantial. Then the 200 day MVA (9905.31). After that two lows at 9811. Then 9500 to 9600 in the shelf of support from 9500 to 10,100.
End Part 1 of 2
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