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world stock market, us stock market
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6/06/02 Stock Split Report
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Stock Split Report Subscribers:
MARKET ALERTS
Targets hit Tuesday: None issued
Buy alerts issued: CPS; KLAC; QCOM; AT; BOBE; BMET; EXPE
Trailing stop alerts: WFC; PZB
Stop alerts: ATK; COL; XTO; ATVI; MTB; BRO; PMI
To subscribe to the alert service you can sign up at the following link:
http://www.investmenthouse.com/alertdly.htm
SUMMARY:
- The short bump higher ends giving us a good entry for more downside action.
- Same store sales mixed as usual as jobless claims fall, yet don't.
- "It's different this time" uttered again today. Bottom must be near.
- Friday will be a down open with Intel's warning and lack of significant movement on the jobs front.
- Team Trades
Two session bump higher craps out.
We knew it would not last, but were looking for more of a move up before the selling started again in order to get a few more put plays set up. The downtrend is steep, however, and it was not going to play along with another weak rally session. That is fine as we were able to take advantage of KLAC, QCOM, EXPE, etc. and get some good entry points. There are more that actually rose today toward resistance, setting up their downside action tomorrow. Intel's announcement will gap the techs lower, but there are non-techs that are woeful and we can pick them off as well.
It all started (or more correctly received the next excuse to sell) with a downgrade of Intel by Joe Osha who had just upgraded Intel a month back. In fairness he was trying to determine the future revenue streams, and when he had more data he downgraded the stock. Turns out he was right as Intel warned revenues would be light after hours. After hours it was getting kicked, mauled, spat upon; you know, the usual stuff in this market. The revenue range was lowered to $6.2B to $6.5B from $6.4B to $7B. Definitely not the improvement wanted, and more like the seasonal slowdown Jonathon Joseph talked about a little over a month ago.
TXN news lost in the tempest.
Lost in the crowd was TXN, another semiconductor, saying that the first two weeks of the quarter were 'strong.' That is the market we are in: don't tell us things are better when we know better seems to be the mindset. The problem remains: performance is mixed at best for technology and the prevalent belief is that tech is not near the turning point.
THE ECONOMY: Steady improvement.
Jobless claims fall below 400,000.
For the first time in months new jobless claims fell below 400,000 for a week. 383,000 new claims were filed last week, down 32,000 when 405,000 were expected. A very nice drop and a signal that perhaps the layoffs are slowing. Well, we do know, however, that IBM, GLW, HP and others have announced more layoffs recently, so just how long can the number keep falling? Also, some do fall off the rolls even with the extended jobless benefits. On top of that, continuing claims were up another whopping 29,000, yet another 20-year high. The unemployed are still unable to find work yet. That, however, is typical action in a recovering economy even though it is very difficult for those looking for work.
Same store sales mixed.
WMT was up along with BBY, CC, KSS, and the other discounters and specialty retailers. JCP, MAY, S, and department stores were down. Despite gains in most retail areas, there is still that bifurcation: when things get tough the discounters and specialty shops perform better. Today's numbers showed us that again, and we will see some more numbers out tomorrow that will reflect the same thing. What this means is that there is still good consumer demand though it is not the kind of demand that all retail feels.
THE MARKET
It was a thrashing. NYSE volume exploded, and it was not INTC leading the rout. The dollar. Intel. The President's speech. Terrorism. War on the Indian subcontinent. Man you could sense the fear out there; my dogs were excited all session. Futures are massively lower on the INTC news. If I sound enthused, I am. The market is in need of a kick in the pants or other part of the anatomy to get it going. Right now it looks down and we started some plays and have some more tonight that can make us a lot of money. Getting some solid direction will help those positions and ultimately help the recovery come about.
VIX: 27.46; +2.75
VXN: 49.76; +1.74. Getting closer to levels that mean something (VIX spent the last 9 months in the low 20's), but it these readings are not at the 50 and 80 levels respectively that mean an extreme has been hit.
Put/Call Ratio (CBOE): 1.03; +0.25. This is the second close over 1.0 in the past month and an indication that the anxiety and fear in the market is getting to a level that can lead to a turn back up in the market. It usually takes 2 or more such closes, and it is not an indicator you can say 'buy now' on. It is part of the big picture that is forming.
"It's different this time" as a sign of reaching a bottom.
We heard it back in late summer 2001 and shortly after 9-11: "It's different this time; the indicators cannot be trusted." About that time the indicators we were watching (VIX, VXN, put/call ratio, bulls/bears, high volume confirmations) were saying that it was at least an important bottom if not THE bottom. The Nasdaq rallied 40% off of that low. That is a significant bottom whether it ultimately holds or not.
Tonight we heard this line uttered again. A LEH political analyst said that exact line, his premise being that investors were not going to start buying stocks until they see actual, tangible recovery. In other words, investors are going to do something they have never done before, that is, wait until the recovery is here and earnings are already running higher before they invest again. All investors were thrown in the same category, but time and time again there is a sharp bifurcation between retail and big money. Historically big money is in first and retail is in after the fact. In that case, if that does happen it will be no different than in past recoveries. But, alas, that is not what the analysts was saying.
He was saying no turn in the market until there was a turn in earnings. The reason: "September 11 made it different" as some sort of fundamental change in investor psychology. All of the sudden we are all from Missouri after 9-11 (you know, 'show me'). Each generation has its big event. Ours was truly terrible. But at the time of Pearl Harbor, was it any less a 'fundamental change' to the American Psyche? We were vulnerable to attack on our own soil. We were defeated horribly and would have to drag ourselves off the floor and face the prospect of entering the world war that could last for untold years and whose outcome was very questionable. Different from the Cuban Missile Crisis? For the first time we were at threat from nuclear weapons just 90 miles away, not 9,000 miles away (don't go check my geography). Different from Iraq? Remember the Newsweek headline "The War We Cannot Win"? There were serious questions about whether Iraq was going to overrun the Middle East and control world oil prices, and there was real fear we could not stop it.
In each one of those scenarios the economy and stock market took a hit or had already been flagging. Out of each crisis came a strong economic rebound and a surging stock market. As we noted shortly after 9-11, it is sad but usually true: out of tragedy comes success as the 'sleeping giant' is awakened.
We love to hear analysts, traders, etc. utter 'it is different this time.' That means the pot is getting stirred enough and it is starting to boil. Many of those still in the pot will jump out because they feel the end is near. Yes it is near; the stew is almost done when we hear the experts say 'it is different this time' because history tells us it is never different but only our fears getting the best of our rational thought. The action today, the futures smashing lower after hours, the put/call ratio over 1.0 again, and an analyst saying 'things are different' give me more confidence in an approaching significant bottom than in a long time. Now we need to see a major selloff Friday and Monday to spike the VIX and VXN massively higher. Today you could sense the fear. We want to be able to smell it and see it.
Nasdaq
Gapped lower and couldn't get up, giving the lowest closing low of the year. It fell toward but did not take out the Tuesday low as volume was up, but not crushing. The techs were not the downside leaders today though they will be hurt tomorrow.
Stats: -40.38 points (-2.53%) to close at 1554.88
Volume: 1.628B (-0.25%). Volume edged Wednesday, giving a day of distribution following the turn Tuesday.
Up Volume: 319M (-505M)
Down Volume: 1.294B (+502M). What a shellacking.
A/D and Hi/Lo: Decliners led 2.57 to 1. Wednesday was mild; today was ugly.
Previous Session: Decliners led 1.04 to 1
New Highs: 44 (-3)
New Lows: 194 (+71). Ouch.
The Chart: http://www.investmenthouse.com/cd/$compq.html
The lowest close of 2002, but it did not take out the Tuesday low (1548.31). At this point that is academic. Tomorrow the Nasdaq will take that level out and we hope it tests 1500. 1387 is the intraday low from September, and we want that tested over the next week. We do not need to see massive volume on the selling; we have had that back in September. What we need now is a test of that level while the fear continues to cascade higher. The VXN needs to drive higher by 30 points over that time.
Dow/NYSE
Reversed from Wednesday's rally and just tanked. Volume was massive, and it was not due to Intel, not even TYC. There was a ton of selling on the NYSE.
Stats: -172.16 points (-1.76%) to close at 9624.64
Volume: 1.611B (+23.93%). Take note: massive volume that was ALMOST equal to the Nasdaq. When the speculative Nasdaq suffers less selling than the NYSE that is another sign that the market is getting sold out. The planets look to be aligning.
Up Volume: 247M (-494M)
Down Volume: 1.342B (+826M)
A/D and Hi/Lo: Decliners led 2.21 to 1
Previous Session: Advancers led 1.28 to 1. Ouch.
New Highs: 63 (-17)
New Lows: 110 (+51). Seven straight sessions over 40 and rising. More selling ahead.
The Chart: http://www.investmenthouse.com/cd/$indu.html
The Dow did not undercut its Tuesday low either (9592.79), but as with the Nasdaq, the point is moot. The question is whether 9500 will hold when it is tested. The Dow looks massively oversold already, but as we have seen in the past, it can start this cascade lower effect as it did in March 2001 and then in August 2001. The bad news and fear just starts piling up and the sellers keep selling. In any event we are looking for a selloff down close to 9500 Friday. From there it might try to rally and close somewhere above that level. We feel that is just a rest stop, however, before it rolls over and tests further toward the September low. That is what we want at this point because we need to get the Dow down in a selloff that can spike the VIX higher to match the other indicators. It has been the hold out of the big three, and now it is cracking open. We want it to have the appearance of falling apart.
S&P 500:
No question where the big caps were heading today. The rally up Tuesday and Thursday look more like a struggling swimmer coming up for air the last time before ducking under for good. It smashed through Tuesday's intraday low on massive NYSE volume. Futures are down over 12 points, and the next point of mild support is at 1000 where it took a day of rest coming off the September bottom. The S&P 500 has been easily underperforming the Dow and the Nasdaq of late, and it is doing a bang up job. It has a bottom channel at 1012 that could try to hold the line, but we want to see it make 1000 on the run; that would show real weakness. Then it can bounce up a bit before testing the 944.75 low.
Stats: -20.76 points (-1.98%) to close at 1029.15
NYSE Volume: 1.611B (+23.93%)
The Chart: http://www.investmenthouse.com/cd/$spx.html
TOMORROW
Intel is killing the market after hours. The employment report cannot really help tomorrow from our view, but it can hurt if the numbers are a bit worse than expected (hoped?). Those numbers will be interesting from a historical sense, but we do know that jobless claims have been crappy and there are more announced layoffs. Other than government number juggling, we don't see much good in the report though the average work week will be somewhat useful.
What we expect is a tank at the open based on the momentum and the Intel news. Maybe the President can rally the troops, but we don't feel that will last for long. We are going to be looking at buying to the downside early and not waiting for a bounce and seeing where that takes the market (a.k.a., fizzles). This is a more aggressive stance than usual, but we see some things that we like: an acceleration of bad news and fear selling, and that can give us fast gains. As we do not anticipate a strong bounce off the first round of selling, we are willing to be more aggressive and get in early and ride them down as a bounce won't get us much better positioning.
The problem is the gap down. Many techs will gap lower. If they gap too far we will have to end up waiting for them to test that gap. If the make it back to that point where they opened and fail, then we can move in. There are more than just techs, however, that are in trouble. Banks were hurting, defense electronics made weak bounces; there are other areas set up to fall that might not give the big gaps lower, and we are looking at those plays as well tonight.
While indexes look oversold and the fear is rising and that indicates a potential turn could come over the next week, we sense that cascading effect where the indexes and stocks can rush lower and lower near term. Kind of like treading on the slippery edge of the hill for miles and then sliding over the edge a bit. It does not take long to fall to the bottom where you then have to claw your way back up. Those fast moves lower can make a lot of money, and we were able to initiate some plays today that will pay off handsomely, e.g., KLAC, AT, QCOM, etc. As noted, there are more out there ready for downside action.
That is our take on the situation. It is getting better for the upside given the fact that it is getting worse and the sentiment indicators are starting to rally higher. They are not, however, at the point where they are screaming a reversal is at hand. That gives us the room to continue some more downside action.
Support and Resistance
Nasdaq: Closed at 1554.88
Resistance: 1600 is some resistance. The 10 day MVA (1608.53). The 18 day MVA (1632.73. Then the second March down trendline at 1640. The next March to April trendline now at 1665 and the February low at 1700.
Support: 1550 to 1560 are the October lows. Then 1500. After that is the September low at 1387.06.
S&P 500: Closed at 1029.15
Resistance: The first March down trendline at 1040. Then 1050 is some resistance, backed by the 10 day MVA (1056.13). 1060 offers minor resistance after that from previous prices. The second March/April down trendline at 1064 and the 18 day MVA at 1066.12. Then the February lows at 1074.
Support: There is possible support at 1000, but it is not much. The September low is 944.75.
Dow: Closed at 9624.64
Resistance: 9811, the April and May lows. The 200 day MVA (9875.06). The 18 day MVA at 9937.80. The September 2000/February 2001 down trendline is at roughly 9970. Then 10,100, followed by 10,250 to 10,300.
Support: 9500 to 9600 in the shelf of support from 9500 to 10,100. Then 9000 to 9100. There is a rest top at 8500. The September low is 8062.
Economic Calendar
Jun 03
Auto Sales, May (00:00):5.7M actual versus 6.3M expected and 6.3M prior.
Truck Sales, May (00:00):6.9M actual versus 7.4M expected and 7.5M prior.
ISM Index, May (10:00):55.7 actual versus 55.0 expected and 53.9 prior.
6-05-02
ISM Services, May (10:00): 60.1 actual versus 56.0 expected and 55.3 prior.
6-06-02
Initial Claims, 06/01 (08:30): 383K actual versus 405K expected and 415K prior. (revised from 410K)
6-07-02
Nonfarm Payrolls, May (8:30): 75K vs 43K prior.
Unemployment Rate, May (8:30): 6.1% vs 6.0% prior.
Hourly Earnings, May (8:30): 0.3% vs 0.1% prior.
Average Workweek, May (8:30): 34.2 vs 34.1 prior.
Wholesale Inventories, April (10:00): 0.1% vs 0.0% prior.
Consumer Credit, April (15:00): $6.0 B vs $4.6B prior.
TEAM TRADES
QCOM: There were some stocks already set up to fall, and QCOM was on the down trendline and the 50 day MVA, giving it another test. One analyst said it was ready to move up last night, and that analyst is one of our favorite contrarian indicators with respect to techs. So, when the stock hit the buy point at 31.40 about 40 minutes into the session, we had no problem taking positions. One thing about this market, the lower volatility over the past several months has narrowed option spreads. The puts were trading 5.10 by 5.20; that is not even enough to haggle over. I remember playing the QCOM split in late 1999 and buying options right before the close. I paid over $30 per option and a $4 spread. Of course, the stock ran up $400 after announcing, so that covered the spread somewhat. So much for reminiscing. We put in a limit order at the ask, and it was quickly filled; the beauty of highly liquid options in a big tech stock. The stock fell to 31, but it held its ground. The rest of the market tried a rally in the afternoon, but QCOM did not; that was a good sign of weakness. Then a late bump higher ran into resistance at 31 again, and then it fell hard toward the close. It was down more after hours. We are going to let QCOM run the other way for us now. It does not have room to fall $400, but we can make great money off of it on this move lower.
End Part 1 of 3
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