|
|
trading system, trade stock
* * * *
6/5/02 Stock Split Report Market Summary
* * *
Stock Split Report Subscribers:
MARKET ALERTS: We were letting things set up today.
Targets hit Monday: None issued
Buy alerts issued: MUR
Trailing stops issued: None issued
Stop alerts issued: None issued
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 bounce finds strength late.
- Services sector shows sharp gain.
- Beware of promises of more regulation in transition times.
- Bouncing toward the down trendlines.
- Subscriber Questions
Indexes bounce up from the selling.
It was not a strong bounce and it took a session of mostly back and forth trading before a late rally definitively logged the gains. As usual, an early rally on the services ISM report was frittered away, and a late trading range was resolved to the upside, purportedly on news that ORCL 'blessed' its current earnings outlook.
Word has it that at an industry conference Larry Ellison more or less said 'if we were going to warn we would have done so.' That supposedly was the catalyst that sent all indexes higher. Ellison over the economy? Maybe. Problem is, Ellison has about as much credibility as the aluminum siding salesmen in the move 'Tin Men.' If he did say that, sounds very similar to 'read my lips . .' We will see. In any event the market bolted higher with 40 minutes left, giving it a nice push into the close. Not much power, but the bounce higher as we anticipated.
THE ECONOMY
A battle between improving economic fundamentals and large corporate reality.
Services sector scores a sharp jump to 60.1 from 55.3.
The national services May survey posted a much better than expected gain from the largest business sector of our economy. Much is made of the manufacturing number, primarily because it was in recession first and for a longer period than the rest of the economy, but manufacturing is not the backbone of the U.S. anymore. Thus the services survey is very important.
The report was solid almost across the board. new orders were up to 56.8 from 56.4. Business activity as measured by the survey was at its highest level since August 2000 (remember, that is when the weakness started to be felt after showing signs early that same year). Importantly, prices paid fell to 55.5 from 59 in April; workers income may be higher, but prices for services is not rising. Employment was the remaining disappointment in the report: at 49.5 it was better, but not expanding. Any reading below 50 means contraction. A series of higher reports that read less than 50 show a slowing contraction. This report was almost an expansion; almost, however, is not good enough for those looking for work.
Job slashing continues.
Last night we reported on more layoffs from IBM, HPQ and GLW. Today WCOM joined the new wave of job cutters, announcing a new round of its own. This is the battle noted in the headline: the economy is improving, but all the investor and consumer sees is continuing corporate downsizing in the face of better news. The conclusion drawn: the recovery is not that great. That is not really on the mark. Of course, Greenspan said the economy 'cannot' recover rapidly because it did not fall very deep (as pointed out last night, it was indeed deep), so what is the consumer to believe otherwise?
What is happening is what we have discussed before: these giants cannot grow their sales and revenues as they used to. They were expanding operations in the 1990's, but that growth curve is gone. So in order to increase earnings they have to cut costs. A huge part of that is employment costs. Trim the staff, utilize the new (relatively new) technology systems put in place, and enjoy better bottom lines through the savings. That is what we are seeing now. It does not mean the economy is not recovering. It is just hard for these huge companies to grow at the same pace. A smaller company that is growing on the other hand is usually always understaffed as its growth exceeds it ability to hire. It is already efficient and has expanding sales and revenues for its product: it is growing those at a high rate with its efficiency built in. There is the big disconnect that we get from the headlines of economy improvements versus corporate layoffs. It is hard, however, for the smaller businesses to sop up the thousands of job cuts even recently announced. That is where the lag time between a recovery and job growth lives.
"Gaming the system" in California? Taken to its logical limits, a potentially huge morass.
Extremes are the name of the game in society. We swing from largess to austerity, from free markets to over-regulation. It goes in cycles. It repeats again and again. The new hoopla over boards of directors is no different from the problems experienced in the 1920's and early 1930's when Wall Street crashed and corporate corruption was exposed (every wonder why the securities act is called the Securities Act of 1933?). There is an old book called "The Solid Gold Cadillac" that describes the largess of corporate boards and their abuse of their corporations. This is nothing new, not even the feigned sanctimony of our leaders in Congress.
Question is, now that the pendulum has swung from pro growth to pro regulation again, how many babies (and individual rights) will be tossed out as well in the name of fixing the system? The hard (and startling) reality: once the pendulum swings definitively in one direction, critical analysis is tossed aside. Take this California energy situation. The net gets wider and wider in the hunt for a scapegoat. The networks report the prosecutorial headlines verbatim, feeding the country one side. The headline jockeys race to the cameras to be the first to broadcast the latest allegations.
Here is a headline: what ENE, El Paso, PPG, PER, etc., etc. did in California is done in every aspect of the energy business across the world. It is SOP for companies to increase or decrease supply, produce more or less, move contracts here and there, and other almost innumerable transactions to take advantage of the market and the regulatory system as it exists IN ORDER to maximize profits. That is what they are in business for. As the protagonists grudgingly admit, the actions were within the law, i.e., within the framework that those VERY legislators established. There is no penalty built into the regulations for following the framework in order to maximize profits. The angst and sanctimonious whining we see from those legislators more properly should be directed at them and the question asked: how could you craft such a preposterous piece of legislation? Now some will say that the companies did the crafting of the legislation. Certainly California had input from the energy industry, but it also had input from the Sierra Club, Ralph Nader, etc. That is they way it is supposed to work. The legislators still came up with a piece of work that was going to fail for several reasons. The recession brought out one aspect of the legislation's weakness.
It is not just energy. In every business in the land and most likely across the world, large and small businesses work to maximize profits within the existing legislative parameters. Oversights in the legislation or just too much regulation creates imbalances and opportunities to profit at the expense of others. Farmers grow certain crops, decide to limit production, etc. in order to maximize the gain. In efficient markets (that is unregulated), no one farmer or group of farmers can overly influence prices. Throw in subsidies and price controls and you have problems like the dairy industry in the 1960's. In a free market, producers rush to fill voids. In heavily regulated industries, voids are created by the regulatory legislation and they cannot be filled because of price controls, etc. That is where the problems arise. Even with the much stated 'deregulation,' there really was no deregulation in California. It was not a free market if companies such as Enron could in fact have influenced prices for long (not to mention that price controls were in the 'deregulation' legislation) without another company seeing an opportunity and taking advantage of it. Then there is the argument that they should have acted 'within the spirit of the law.' What is the spirit? Lawyers fight in court over legislative intent every day. Are companies supposed to second guess the legislature and create their own set of regulations that define the 'spirit of the law?' You can see how this witch hunt never ends. But it should: it starts and ends at the legislature's door.
Two points: 1) We need to be careful of allowing legislators free reign to 'fix' the problem. The problem is in the manner of regulation; more regulation has most often proven to be less efficient in providing efficient (as to price and product) markets. True deregulation would have helped avoid the very problems being complained of because no one company could have come in and created the imbalances in the power supply for a market as vast as California. 2) If this is the standard (i.e., operating within the law being held to be unlawful or worthy of contempt or fines), then we are in for a firestorm of inquiries and regulation as maximizing profits within the law comes under fire. One of the reasons the U.S. is a desirable investment destination is the rule of law. How we howl when foreign governments act arbitrarily and confiscate property. What we need to do is make sure our leaders make regulations that are clear and easy to follow; that eliminates the gray areas. Each time there is a 'crisis' we are at risk of losing rights through overzealous legislators looking for a re-election platform, and we make the U.S. a less desirable investment destination. We just need to make sure they are honest about the task and reasonable in the fix.
THE MARKET
It was trying all session but just could not put the move together. Finally it got the jolt it needed to bounce up in the last hour. After the pretty fierce selling it was due a bounce. This is just what we expected: a lower volume bounce that is taking the indexes up towards the down trendlines. They are not there yet and it is our hope they continue higher Thursday and maybe even Friday.
VIX: 24.71; -2.23
VXN: 48.02; -1.64
Put/Call Ratio (CBOE): 0.78; -0.09
Bulls versus bears: The weekly comparison of investment advisors is out and bears rose a bit while bulls fell a bit. Bulls dropped to 48.9% from 53.0%. Bearish action is a reading of 55% or more, but it is still very high. Bears rose to 31.3% from 29.0%. A bullish reading is greater than 50%. At a minimum you want to see bears overtake bulls even if the bears do not climb to 50%. That happened back in October 2001. It is not close to that yet, so this sentiment indicator also has yet to show a level warranting a turn in the market.
Nasdaq
Bounced up after initial hesitation. Wednesday action was in the broader index as the SOX and NDX lagged. It was not much: if ORCL's affirmation was the catalyst, the move is built with sticks.
Stats: +17.14 points (+1.09%) to close at 1595.26
Volume: 1.632B (-13.22%). Back to below average volume on a gain. No accumulation today, just bouncing.
Up Volume: 824M (-326M)
Down Volume: 792M (+78M)
A/D and Hi/Lo: Decliners led 1.04 to 1. It was not a strong rally as decliners were still the majority.
Previous Session: Decliners led 1.18 to 1
New Highs: 47 (-5)
New Lows: 123 (-82)
The Chart: http://www.investmenthouse.com/cd/$compq.html
It was all over the map in the first three hours, rising to near 1600 on the ISM, then falling to the Tuesday low and basing out before the last hour jump higher. Lower volume, negative A/D line, flat up to down volume. It was a rally without a cause, simply a continuation of what started Tuesday. We want it to make more headway, and it has some momentum behind it. It has had a problem putting together more than two up sessions back to back, but it is still well below the usual resistance for continuing downtrends. The first could be the 10 day MVA (1620.45), but we are focusing on the 18 day MVA (1641.89) and the second March down trendline at 1645 as the points that will stop the move higher.
Dow/NYSE
Up and down for the Dow as well, but it was time to continue the bounce after the Tuesday doji, and that is what it did. Volume tailed off but was still close to average. Not a bad move, but still in that downtrend again with a lot of overhead resistance.
Stats: +108.96 points (+1.12%) to close at 9796.8
Volume: 1.3B (-11.47%)
Up Volume: 741M (+217M)
Down Volume: 516M (-430M)
A/D and Hi/Lo: Advancers led 1.28 to 1. Improving, but still not powerful.
Previous Session: Decliners led 1.26 to 1
New Highs: 80 (+11)
New Lows: 59 (-30). Another session of greater than 40 lows, making it six in a row. That does not bode well for the future.
The Chart: http://www.investmenthouse.com/cd/$indu.html
It was more wild action, but the index rallied sharply at the close to finish near the session highs. It was an improvement, but as with the Nasdaq, it was far from powerful. The Dow is making a lower volume bounce up toward resistance as expected. It stopped below the April and early May double bottom lows at 9810ish, but the 200 day MVA (9878.99) and the 18 day MVA (9974.65) are more likely to turn the index back if it cannot generate more upside volume. Maybe the Dow has formed a double bottom after undercutting the left leg of early May. Maybe, but it has to prove it. For now it is in a downtrend and is bouncing up on lower volume. That does not change the character of the index at this point.
S&P 500:
Bounced higher off of the Tuesday doji, closing at its high and right at the May low near 1050. Volume was lower but still at average levels; there was not accumulation over recent distribution, but it was still a solid bounce. That does not trump the distribution, and the index has serious overhead resistance. The 10 day MVA is at 1062.18, a substantial move in itself. After that is the March down trendline at 1067 and the 18 day MVA at 1070.47. We anticipate those holding as resistance in the continuing downtrend unless the large caps come under some heavier accumulation.
Stats: +9.21 points (+0.89%) to close at 1049.9
NYSE Volume: 1.3B (-11.47%)
The Chart: http://www.investmenthouse.com/cd/$spx.html
TOMORROW
Initial jobless claims out before the open, but this number has not been market moving the past two weeks, overshadowed by geopolitical events. It will be overshadowed again tomorrow by the Friday employment report. Friday's report is really ancient history as far as the market is concerned while Thursday's report is real time, but the Fed looks at Friday's report, so that is the focus.
Today was a very quiet day for us. We did very little because the market was in transition, moving up from the bottom of a trough of selling. We did not want to jump into upside plays and attempt a short term trade on the bounce. We looked at a few upside breakouts, but did not find much we liked. We preferred to wait and let the rally show more as to where it will test and then either breakout to the upside or continue the downtrend. We are anticipating a continuation of the downtrend when the indexes hit their down trendlines or sooner, knowing that there will come a time when all of that good economic news is going to turn the market. Right now the market is not responding to that economic improvement as the big techs and large cap stocks are still in the process of shedding excess overhead and costs. There will come a point when they are slimmed down and business is good enough to warrant sustained price increases. They are not there yet.
Support and Resistance
Nasdaq: Closed at 1595.26
Resistance: 1600 is some resistance. Then the second March down trendline at 1645 and the 18 day MVA (1641.89). The next March to April trendline now at 1672 and the February low at 1700. The 50 day MVA (1701.21) and the January/March 2002 down trendline is at 1750.
Support: 1550 to 1560 are the October lows and held Tuesday. Then 1500. After that is the September low at 1387.06.
S&P 500: Closed at 1049.90
Resistance: 1050 is some resistance. 1060 offers minor resistance after that from previous prices. The March/April down trendline at 1067, right at the February lows at 1074. The 10 and 18 day MVA at 1062.18 and 1070.47. After that 1100 and the 50 day MVA at 1090.22
Support: There is possible support at 1000, but it is not much. The September low is 944.75.
Dow: Closed at 9796.80
Resistance: 9811, the April and May lows. The 200 day MVA (9878.99). The September 2000/February 2001 down trendline is at roughly 9975, right with the 18 day MVA (9974.65). Then 10,100, followed by 10,250 to 10,300.
Support: 9500 to 9600 in the shelf of support from 9500 to 10,100.
End part 1 of 2
|
trading system
trade stock
|
