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us stock market, trend trading stock
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5/21/02 Stock Split Report
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Stock Split Report Subscribers:
MARKET ALERTS
Target Hit alerts issued Tuesday: None Tuesday
Buy alerts issued: LEN (put); UVN (put); XL (put); FRX (put); AMHC; TMCS (put); BSX
Trailing stop alerts issued: SCTC; CLHB; COCO; MCY; SKYF
Stop alerts issued: BYBI; LIN; UAG; RACN
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:
- Volume runs higher as slide lower continues
- Broad selling again as small and mid-caps continue to struggle after new highs.
- Retailers beat the street then get beaten.
- Semiconductors continue to report better business but to no avail
- G7 capital investment shows first increase in 5 quarters.
- Subscriber Questions
Cisco-like selling following another short rally.
A nice run up to near term resistance was turned back, and as we were concerned about, volume increased as the selling continued. Not massive volume indicating widespread dumping, but rising volume in conjunction with selling and very poor market internals that pushed the Nasdaq below near support and left the Dow and S&P fighting to hang onto the best support they have near term. The upside momentum died at the first sign of resistance, and now the selling momentum is gaining speed.
It is important to note that the selling volume is not nearly as strong as the buy side volume. That is a silver lining and indicates there were still more buyers on the upside. That, however, is hard to gauge as we know some of the buying volume was due to shorts closing out positions by buying back the shares they had sold short. Overall, however, buy side action was stronger, and thus there is still plenty of room for the indexes to hold, make a higher low, and turn back up. As we noted over the weekend, the Nasdaq tends to blast off with a gap higher, then comes back to fill that gap before the next move up. That keeps it making higher lows as it tries to work its way out of the test of the September bottom. Two steps forward, 1.75 steps back, however, is a slow crawl up the hill.
Market was under duress all session.
News of Pakistan and India being potentially close to 'war' did not help the market. Pakistan is one of the U.S. allies in the terror war. If it is preoccupied with war, less critical help in rounding up the ruffians and thugs that feel killing innocents wins them a seat in heaven. Couple that with the administration continuing its clear statement that it expects more terror attacks and the heightened alerts regarding the Brooklyn Bridge and Statue of Liberty, and there was no one willing to buy. Indeed as we saw with the rising volume, more were willing to come in and sell.
Selling was non-discriminate.
The small cap indexes (S&P 600, Russell 2000) undercut their 50 day MVA after failing to the recent attempts to post another new high. The S&P 600 has formed a triple top; as we teach in the seminars, if you cannot make it on the third attempt, you need to go back and revisit the next support level (best case) before making another run at resistance. The small caps have enjoyed a nice run. They are now having to digest some of those gains, and they are not immune to overall selling in the market. They may not sell as sharply, but they need to complete this basing or consolidation process before they can make a sustained run to a new high. The bearish tops thrown up indicate they have further consolidation and downside before moving out laterally to form the base that is the platform to make that next attempt.
When good news gets you a kick in the stomach, someone is trying to tell you something.
When KSS reported good retail earnings it blasted out of its base. When LOW did the same it gapped higher. Today, just a week later, HD and TGT beat the street handily and get whacked with a 2 by 4 with selling on sharply higher, above average volume. Might as well sell WMT while you were at it. When good news is sold it is a topping signal.
NSM raised its revenue guidance Monday. Ho hum, then sell it today. CHRT, another semiconductor company, raised Q2 revenue forecasts from a 25% increase to a 40% increase. It gapped higher and managed a fractional gain, but the news did not come close to breaking it out of its downtrend.
Maybe it was just the general concern about terrorist attacks that caused this good news to get such a cold reception. Maybe it was just a one-day event. Put up against the backdrop of the turn back from resistance and resumption of significant selling, that seems less likely. The market is in a tough spot trying to climb out of the downtrend. The poor technology patterns that show predominantly selling and not accumulation are subject to these quick reversals as soon as the momentum and good news runs out. We were looking for the momentum to take the indexes up to the next level of resistance; they did not make it past the near resistance before making the roll back down, however. Even with the follow through session, there is still a lot of work to do for the technology and large cap stocks that still have to rid themselves of that overhead supply.
THE MARKET
The backdrop to the renewed selling is an economy that is still improving. One of the big brokerage economists tonight stated that G7 economy capital investment has increased after 5 quarters of decreases. That does bode well for the economy; there is no doubt there is a recovery underway. The big question is will it last or will there be more downside before it gets to get rid of its walker?
The market is trying as the higher low and follow through sessions show. Trying is good, but as we saw all through the bear market, there were several tries that just fizzled and resulted in more selling. The market is still in short term downtrends. Longer term we have previously discussed the S&P 500's 5-year head and shoulders pattern. The Nasdaq is in its own, but after its big rise and fall, its pattern is not as precarious as the large caps, at least relatively. In short, the longer term patterns on the indexes are not yet pointing to a strong economic recovery. Remember, despite all of the rhetoric on the tube about investors needing to see real economic improvement before buying back in, smart money, big money, anticipates the recovery and buys; the markets move up ahead of the recovery. They are not showing out and out strength.
While the longer term charts may point to more downside before the market is ready to move higher, we also do not want to fall into the trap of saying the bear market won't be over until the old highs are regained. You might be waiting longer for that than a Chicago Cubs fan has waited for a pennant. Sir John Templeton, a brilliant strategist, indicated Monday evening that the bear was not over at all, but he also indicated his view that a bear is over when the old highs are reached. That is not our definition. We can make a lot of money long, long before the old highs are hit. We just have to play with what the market gives us, staying in tune with the short and longer term trends.
VIX: 22.56; +1.00
VXN: 44.65; +1.77
Volatility rose, but it is still at such pathetically low levels it is showing no indication of a turn up or for that matter a turn down. It has been off in its own isolation tank.
Put/Call Ratio (CBOE): 0.90; +0.19. Getting there, but not there.
Nasdaq
Rising though below average volume on more selling. It is going to fill the gap at 1650.
Stats: -37.41 points (-2.2%) to close at 1664.18
Volume: 1.659B (+16.15%)
Up Volume: 257M (-194M)
Down Volume: 1.365B (+402M)
A/D and Hi/Lo: Decliners led 1.77 to 1
Previous Session: Decliners led 1.93 to 1. Backing off but it took a late move higher to keep it from 2 to 1 or better.
New Highs: 92 (-25)
New Lows: 96 (+20)
The Chart: http://www.investmenthouse.com/cd/$compq.html
Undercut the February lows at 1700 early after a brief attempt at holding, and then headed lower. The gap will be filled at 1652, and when it filled the gap after CSCO it rallied higher. Maybe, but as they like to say, past performance is no guarantee of success. What has happened is that the Nasdaq turned down from the trendline connecting the March and April highs, and is selling on rising but not heavy volume. It has a long way to hit the bottom of the channel if it cannot hold at 1650 or 1600, and it does not have a lot of support from its big names. 1600 does not look out of the question as the downtrend continues.
Dow/NYSE
Peeling off big chunks of real estate to the downside as well, the Dow undercut but then checked up at 10,100. Still in decent shape compared to the Nasdaq and S&P, but it too is in the 2 steps up, 1.75 steps back routine.
Stats: -123.79 points (-1.21%) to close at 10105.71
Volume: 1.183B (+19.95%)
Up Volume: 349M (-18M)
Down Volume: 801M (+179M)
A/D and Hi/Lo: Decliners led 1.78 to 1
Previous Session: Decliners led 1.63 to 1. NYSE decliners expanded, evidencing broader selling once again as the small and mid-cap indexes suffered selling as well.
New Highs: 80 (-20)
New Lows: 33 (+9)
The Chart: http://www.investmenthouse.com/cd/$indu.html
10,300 slammed the door again, and now the index has quickly retraced to some pretty decent support at 10,100. Volume was higher, indicating distribution, but still below average; not out and out dumping. The inability to crack 10,300 with any resolve after a very solid follow through session underscores the continued weakness in the market, even with one of the stronger indexes. There is good support here. If the Dow is going to be able to take out 10,300 and then 10,400, it needs to hold here. Giving this level up for a move down to the 200 day MVA at 9903.83 will be a sign of weakness that the bears and short sellers won't let it forget. Just as closes above resistance trigger short covering, when an index starts breaking below key support levels the short sellers smell blood in the water. That can lead to these rising volume selling sessions just as short covering can lead to higher volume covering rallies.
S&P 500:
Still in that 5-year head and shoulders pattern, and after stalling at 1100 Friday, it has done little to change that pattern. Shorter term it has once again sold below the higher of the March/April down trendlines as it heads for a test of the February lows at 1074. That will give it about a 50% retracement of the move that started two Monday's back. As with the Dow, that is where it needs to hold or else bear even more short selling to try and push it to 1050 again. For those wondering, the breakdown point of the head and shoulder pattern is at roughly 925 to 950; quite a bit more downside before that pattern is even consummated.
Stats: -12.00 points (-1.1%) to close at 1079.88
NYSE Volume: 1.183B (+19.95%)
The Chart: http://www.investmenthouse.com/cd/$spx.html
TOMORROW
No scheduled economic news Wednesday, but with the terror threats, the New York attorney general's hourly press conferences and appearances on CNBC, and the 'Wall Street confidence crisis' as the financial stations call it, who needs economic news?
Important points of support are in the crosshairs. Last night we commented that we may be giving the rally attempt too much credit, and today's action would argue in that direction. The willingness to give up upside momentum so quickly is counter to the solid follow through of the prior week. Again there is the continuing, toe to toe fight between sellers and buyers. Buyers stuck their toes back in the water last week with some success. Sellers are back in trying to cut those toes off. How the indexes respond to the key support levels will determine the next round. Selling has not been heavy, and the indexes can still sell a bit more and still put in another higher low.
The continuing downtrends keep us very wary of upside action, however, and much of what we did today was downside action as we saw what looked to be rising volume selling. Combine that with stocks that are already in patterns that are breaking down, and you have a good combination that transcends the action on the session. That is a lot of what we are looking for right now: what patterns indicate that the stock will continue to move in the same direction regardless of what the market does? Since the overall trend is still down despite last week's follow through, many of those patterns are downside. Today retail upside plays came under fire; another leading sector is struggling. That keeps us looking at shorter term upside plays and using trailing stops to keep what we have or cutting a loss short. Last week we were contemplating loosening up the loss points, but decided to wait and see how the market consolidated the move. Right now we have kept the stops tighter.
Support and Resistance
Nasdaq: Closed at 1664.18
Resistance: The second March down trendline at 1690. 1700 (February low). 1750 and the 50 day MVA (1738.69) are next. The January/March 2002 down trendline is at 1773 and the 200 day MVA at 1817.82.
Support: 1652 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 1079.88
Resistance: The March down trendline is at 1083. Then 1100 is a point to beat. The 200 day MVA is next at 1119.85. Then price consolidations at 1125. The September 2000/March 2002 down trendline is at 1127.
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 10,105.71
Resistance: 10,250 to 10,300. 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: 10,100 is substantial support. Then the 200 day MVA (9903.83). 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.
5-20-02
Leading Indicators, April (10:00): -0.4% actual versus -0.1% expected and -0.1% prior
Treasury Budget, April (2:00): $72.5B versus $189.8B prior
5-23-02
Durable Orders, April (8:30): 0.4% versus -0.5% prior
Initial Claims, 5/18 (8:30): NA versus 418K prior
5-24-02
GDP-Prel., Q1 (8:30): 5.8% versus 5.8% prior
Chain Deflator-Prel., Q1 (8:30): 0.8% versus 0.8% prior
New Home Sales, April (10:00): 883K versus 878K
SUBSCRIBER QUESTIONS
Q: Why would a stock that is below 11.00 split? RE: WTRS.
A: WTRS announced a 3:2 split with a stock price just below $11. One of the ways a stock can make strong moves higher is to attract institutional investors. Institutions buy large blocks of stock in order to be efficient. If a company does not have adequate float, institutions cannot buy that stock even if they like the company. All that will do is drive the price higher on the buying, and once that is done there is no other buying that can come in and drive it further. So, a company such as WTRS may want to increase its float. One way to do that is to split the stock. Now WTRS split 3 for 2; you would think it would split 2 for 1 to get more shares outstanding if this was its goal. You also have to consider price. Many funds cannot own stocks less than $10 or $15. It does not want to split its stock down too far as then it might take quite a long time to reach that dollar threshold. We have not contacted WTRS as to their reasoning, but we do know that companies with small floats that want to get on the radar screens of institutions will split their shares at a lower value in order get the float up and then maybe get the attention of some big money investors.
End Part 1 of 2
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