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us stock market, stock trading
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5/22/02 Stock Split Report Market Summary
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Stock Split Report Subscribers:
New subscribers: Monday and Wednesday we provide an update of the good plays for the next session. Full reports are issued Tuesday, Thursday, and Saturday.
MARKET ALERTS
Target Hit alerts issued Wednesday: None Wednesday
Buy alerts issued: LNY (put); IWM (put); DHR (put); STT (put); DROOY; ALC; DRYR (put); HLT (put)
Trailing stop alerts issued: SBSA; CTAS
Stop alerts issued: ROIA; IFIN; CAKE; RCL; INVN; URBN; SKS; BGP
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:
- Indexes plod near support, rally late on a false rumor.
- Small cap indexes show doji's below support thanks to late rally.
- Indexes hold and bounce where they had to.
- Mortgage applications fall again.
- Team Trades
Late rally but the reason is less than inspiring.
Stocks moved higher the first half hour after the Nasdaq closed the gap from last Tuesday early and bounced. It was not a bad start given that Goldman Sachs cut 26 software firms before the open and pretty much drained some more blood from the market. That move lasted all of 20 minutes, however, before the familiar sell off started.
The selling continued with little respite with the Nasdaq undercutting the 1652 gap up point with just over an hour to go. The Dow was below support at 10,100 while the S&P 500 managed to float above the February lows at 1074. Then the rumor hit: Osama Bin Laden was dead or captured. All indexes reversed and ran straight up to positive territory on the close.
A return to buying? Even if there were buyers on this news, that provides no real substance. Once they find out the rumor is false where is the reason to buy? Talking to brokers and traders, we did not see any evidence of big money buying. What happened was that shorts had been entering the market as it topped out Monday, and the rumor of good news led them to cover shorts just in case. Voila. Instant late rally.
Late move checks up small and mid-cap fall.
The smaller cap indexes were heading lower again after breaching their 50 day MVA. The late rally breathed some life into them, but note that they were the indexes that finished down on the session. The rally brought them back, but they still showed doji's below the 50 day MVA. That looks like a test of the breach coming, and that can result in our favorite downside entry point, the test of the breakdown, a.k.a., the kiss goodbye.
Indexes manage to hang on where they have to.
Maybe we are being way too pessimistic. Maybe we are suffering from a hangover after once again comparing the 5-year charts on the Nasdaq and S&P 500 to the Dow back in 1928 to 1933. That ballistic rise that was crushed by the central bank fell a lot farther on the downside of the head and shoulders pattern than the current S&P and Nasdaq charts have. We are not saying the U.S. economy is as it was in the 1930's. It is not. Certain parts of the economy, however, are in depression. The technology boom has been crushed, and despite hints here and there of recovery in capital investment, we don't see much sustained recovery until 2003. Semiconductors may start to move up ahead of the overall recovery as they are want to do, but overall there is no reason to buy technology. The systems bought in the late 1990's are very adequate and are helping old economy businesses show that great increase in productivity. The weak economy and no real tax incentives have kept businesses from replacing any capital equipment. Technology may have whittled down inventories, but if there is still no demand surge, business is going to be weak inventories or no. (It is important to note that the Nasdaq and S&P have not even completed their patterns. It is dangerous to assume a pattern will be completed as there are so many variables that could disrupt it.)
In any event, the indexes held today where they had to, and if they do manage to rally from here they will have posted another higher low in action that looks to be following the game plan laid out in "The Snails Guide to Making Forward Progress." Volume rose on the Nasdaq on the rebound, making it look like a good higher low. That is the view from the positive side.
The Nasdaq and S&P 500 are still in downtrends, the patterns of their leading stocks are still heavy with overhead supply, there is continued fear of new terrorist attacks, the dollar continues to weaken to levels that could cause even further dollar value drops and thus foreign flight from U.S. investments, and the economy is just not going to recover that fast with all the money spent on housing, cars and ourselves in the recession. That is the negative side.
In short, while there is sustained though slow economic recovery in many sectors, it is not enough to spur real buying in technology yet. The ECRI is still showing longer term recovery, but the short term indicators are not quite as strong. That could indicate a double dip or softening scenario before the recovery really takes hold. That will continue to hurt technology and it is the one real wild card out there other than terror attacks. Right now there is no empirical evidence that the economy is slowing into a double dip scenario. The horrid patterns in the Nasdaq and S&P 500, however, indicate continued problems for those stocks. The result: more of this bifurcated action that we have seen already.
THE MARKET
With that less than rosy picture of the action in the market it is time to step back and say okay, is it thus time to rally? The indexes were picking up steam to the downside with the Nasdaq undercutting its gap point right about the time the rumor hit. It was looking like another mild distribution session that then jumped higher and benefited from the stronger volume. Technically, for the short term another higher low which indicates building up off the recent lows. Overall the Nasdaq and S&P 500 are in downtrends. Thus, there may be more short term positives as the indexes work their way higher toward significant levels of resistance. Longer term they have a lot of work to do to break the ugly patterns. One thing we know: shorts are ready to cover in this market if there is any good news, and that can fuel another 2 to 3 day move higher if it occurs. But for the rumor that induced the late rally, however, the Nasdaq was in trouble while the S&P and Dow were holding decently. Disturbing is the continued weakness in the small and mid-cap indexes, again under performing the larger cap indexes.
VIX: 21.59; -0.97
VXN: 44.7; +0.05
Put/Call Ratio (CBOE): 0.86; -0.04
The sentiment indicators are still not indicating anything extreme that would suggest a sustained move higher.
Nasdaq
Filled the gap as expected and then rallied from there with the aid of the late rumor regarding Bin Laden. A nice move off the gap point, but we have to take it with a grain of salt.
Stats: +9.27 points (+0.56%) to close at 1673.45
Volume: 1.735B (+4.57%)
Up Volume: 948M (+691M)
Down Volume: 741M (-624M)
A/D and Hi/Lo: Decliners led 1.28 to 1
Previous Session: Decliners led 1.8 to 1
New Highs: 61 (-31)
New Lows: 104 (+8)
The Chart: http://www.investmenthouse.com/cd/$compq.html
Filled the gap at 1652 on the low (1643.96). Indeed, it did a perfect fill early in the session and tried to rally but then undercut it late. It looked to be an ugly session as it turned lower on rising volume, but it was saved by the bell: the Bin Laden rumor rallied the market, and it was not until just after the close that the defense department denied the rumor. You see? Saved by the bell. Indeed, the QQQ turned lower right after the news came out. Did not tank, just a natural letdown. Now the issue is whether the buyers can make something out of the rally that the shorts started on fear of being caught short. The trendline that turned the index back this week is now at 1715, followed by more resistance at 1750 (50 day MVA) and the January/March down trendline at 1772. Technically a higher volume gain, but behind the scenes it was heading for a higher volume loss until the last half hour.
Dow/NYSE
A lazy, low volume sell off below 10,100 was underway until that last half hour. Volume was still anemic, so there was not a lot of pre-rumor selling or post-rumor buying.
Stats: +52.17 points (+0.52%) to close at 10157.88
Volume: 1.149B (-5.09%)
Up Volume: 580M (+231M)
Down Volume: 540M (-261M)
A/D and Hi/Lo: Advancers led 1.04 to 1
Previous Session: Decliners led 1.78 to 1
New Highs: 92 (+12)
New Lows: 30 (-3)
The Chart: http://www.investmenthouse.com/cd/$indu.html
Scrambled to recover after breaking below 10,100 on the low (10,063.50). Just as the Nasdaq cannot really claim a higher volume gain, we cannot call this a really weak day because of the lower volume gain. After all, it was on its way to a low volume decline before that last half hour. Thus its action was a bit better. Its pattern overall is better as we have been noting. It is in a position to move higher having held at support at 10,100 after three days of selling back after last week's big moves.
S&P 500:
Unlike the other large indexes, the S&P did not undercut its near term support at 1074 (February low). It tested twice and then rebounded on the late rumor. A good move, but on such rallies you want to see more volume. NYSE volume was lower and remained below average. Not a bad session for the near term as the index was drifting lower on light volume while holding support. It looked as if the selling Tuesday was worked out of the system. If there is not massive disappointment Thursday over having been duped by a rumor, the large caps could make another run toward next resistance at 1100; is 1125 too much to ask? It has been lately.
Stats: +6.14 points (+0.57%) to close at 1086.01
NYSE Volume: 1.149B (-5.09%)
The Chart: http://www.investmenthouse.com/cd/$spx.html
TOMORROW
Thursday economic reports kick back in with durable goods and initial claims. Today the weekly mortgage figures came out and they were down 5.6% last week, making three out of the last four weeks where mortgages application rates have dropped. Slower mortgage activity indicates slower housing sales. Durable goods are as volatile as the March wind, but if it is good it could spark more upside after the late rally attempt. It is supposed to post a gain of 0.4%. Something stellar in the range of +1% would be needed to really spark upside action.
There is certainly a wall of worry out there, but the sentiment indicators have not shown extremes to underscore a stronger move up. In any event, the indexes are attempting to build higher in the short term, mounting a series of higher lows since early May. Today's late move was not convincing based on the circumstances, but more than one rally has started on some short covering as the result of unfounded conclusions. For now, the Nasdaq and S&P 500 are trying, but are still in pretty ugly patterns. The leaders from the past several months, small and mid-caps, are in trouble. That leaves the unlikely prospect of the Dow leading the market as its pattern is better and shows more accumulative than distributive action.
That leaves us extremely cautious until the indexes can establish a clearer trend. Short term there is some building going on, but it is in the context of a continued downtrend. While any pattern can turn on you, we have been focusing on those stocks that are breaking down through support and those stocks that have established uptrends and have been taking a breather during this period. The former tend to breakdown even if the market recovers; the latter show good strength because they have used overall selling to take a breather and prepare for their next leg higher when the market makes its next advance.
Support and Resistance
Nasdaq: Closed at 1673.45
Resistance: The second March down trendline at 1685. 1700 (February low). 1750 and the 50 day MVA (1736.13) are next. The January/March 2002 down trendline is at 1772 and the 200 day MVA at 1816.06.
Support: 1652 is the gap up point and it held Wednesday. 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 1086.02
Resistance: The March down trendline is at 1082 and has not been totally cleared. Then 1100 is a point to beat. The 200 day MVA is next at 1119.23. Then price consolidations at 1125. The September 2000/March 2002 down trendline is at 1126.
Support: February lows at 1074 held Wednesday. 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 10,157.88
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 was broken intraday but held on Wednesday's close. Then the 200 day MVA (9902). 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
End Part 1 of 2
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