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us stock market, stock trading course
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6/12/02 Stock Split Report Update
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Stock Split Report Subscribers:
MARKET ALERTS
Targets hit Wednesday: UVN; TMCS; KMI
Buy alerts issued: TECD; BRL; ZRAN; JILL; TGH; FDP; ENC
Trailing stop alerts: None issued
Stop alerts: TGCI
To subscribe to the Stock Split Report Market Alert service to get our buy points and sell points 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:
- Another big short covering day making it two out of four.
- Some good news helps: PG raises quarter; MOT hints at beating, and MSFT will beat by a penny.
- Beige book is a sleeper.
- Indexes sell to bottom channel in downtrends and bounce on short covering.
- Subscriber Questions
A second session of short covering on heels of Friday. Something up?
It was an up and down session, but the ups had the upper hand at the bell. What looked as if it could have been a session to build on the prior losses and really spook the market reversed after the Nasdaq undercut 1500 with some authority. The S&P 500 tapped all the way down to support at 1000 and it too then bounced. The indexes were rolling over again when a rumor hit the market: MSFT would provide positive guidance for the quarter. The indexes sparked to life and rallied to close on the session highs.
Volume was massive. It was massive early, however, long before the MSFT announcement. There was a LOT of selling early on. The NYSE had turned over 770 million shares before lunch. Volume was nowhere near Friday's short covering reversal, but it was very strong nonetheless. A second day of short covering on massive volume in four sessions can signal the start of something to the upside: rallies start with short covering, and two big days in close proximity can mean a bounce is coming.
Large cap session, but the results were still mixed internally.
It was all large caps to the upside; the small and mid cap indexes posted losses on the session. Moreover, the internals as they are called were mixed. Up volume led on the Nasdaq, but down volume on the NYSE. The NYSE A/D line was every so slightly positive while the Nasdaq A/D line was decidedly negative. New lows mushroomed on both the Nasdaq and the NYSE, but they are still lower than they need to be to signify a bottom is at hand.
Some big cap news helps upside action, but it is countered by equally negative news.
PG was early support for the Dow as it guided higher for Q2. Then MOT chimed in stating it would meet and might just even beat Q2; translated, that means it will beat it by a penny or otherwise we would not have heard anything about beating the numbers. That provided a boost pre-MSFT.
That was countered of course by the continued warnings. Dow Jones, Safeway (SWY), and Monsanto (MON) all warned. SWY really helped kill the grocers, and MON's warning is somewhat surprising given the strength of the chemical industry; MON's chart was in the toilet already, however. Of course there were tech warnings as well (as usual), this time from SEBL and JNPR, both 'cautious' about the current quarter, saying things just were not getting any better. Cautious means things are still crappy. Surprised? No. We have said that technology was a long way from any recovery. It will have to slog through the summer and try to bottom in September before it can mount a year-end rally of substance. That is the early bird calendar. Technology may wait until 2003 to do anything; since stocks move up ahead of actual reports of improvement, that gives you an idea about the state of the technology scene.
The MSFT rumor became fact after the close: MSFT raised its guidance to 15 cents from 14 cents. That was the cause of the big push late in the session; a penny better translates into a reversal. After hours many said 'that is it?' Yes, that is it. After hours MSFT was holding steady at best. Investors that snapped up shares might feel somewhat like the dog that caught the car; they have it but now what do they do with something that they don't really want? Tech stocks were steady to slightly up after hours on the news; no tanking, but no rallying.
In sum there were reversals on the session, but the indexes and most all of the big stocks are still locked in their downtrends. As discussed below in the market section, the indexes just could not get the selling push and bounced from their lower channels in the downtrends. This is not a reversal in and of itself as the indexes and stocks still have to face their down trendlines if they do need an oversold bounce here.
THE ECONOMY
The Fed Beige Book for May, a summary of economic action from the mountains, to the prairies, to the oceans white with foam, was a repeat of April. We looked at it and tried to determine if the Fed did anything other than change the date on the cover and inside. Housing market remarkably steady, manufacturing improving, overall rebound, but nothing strong. Wake me when its over. Thursday will at least be spicier with the jobless report (can it make it two in a row under 400K?), the PPI (producer price index), and retail sales. More potential to move the market.
THE MARKET
Once again the market avoided a big selloff when it really could have done some 'good' work to the downside. It keeps snatching victory from the jaws of defeat, but these are minor battles in the big war. For long term health, it really needs to let the jaws of defeat close on it and send more investors screaming toward the exits. It just starts to get interesting and then a rally bounces it back up and dissipates the consternation that starts leaning toward mild panic.
This action indicates there is no solid bottom in place. These rallies without getting to the real issue at hand mean there are lower lows to come after the rally dissipates. The volatility indicators are still low, bulls still outnumber bears, and new lows have not swelled enough. In short, the indications that historically show a bottom is in place are not all there. They are on the verge of getting to the right levels and thus line up with the put/call ratio and the percent of decline from the post-September sell-off, but they are not quite hitting that trigger point to spurt higher. They can give minor rallies from these levels, but not 'the' bottom that everyone on the financial waves is talking about.
VIX: 27.01; -0.45. Ran to 29.34 on the high, just about the point it hit Friday before that 'reversal.' On the high end of the 'normal' range, but not at reversal levels that usually are in excess of 50.
VXN: 52.86; -0.26. 54.92 on the high, better than last Friday's high. It is getting there, but it is still about 25 points away.
Put/Call Ratio (CBOE): 0.99; -0.03. Edged back below 1.0 that would have marked its second straight session over that important watermark. It can spark short term rallies, but for long term bottoms it needs the help of other sentiment indicators.
Nasdaq
Undercut 1500 and then reversed off of the bottom of the steep May downtrend. Volume surged on the short covering as some companies reported upbeat guidance and word was out that MSFT would guide higher. That led shorts to take the money off the table and that swelled the volume.
Stats: +21.94 points (+1.47%) to close at 1519.12
Volume: 2.05B (+20.91%). Back above average on the rally, topping Tuesday's distribution volume. Mega volume last Friday on that reversal quickly led to distribution. This volume was less than that, i.e., less covering and less buying.
Up Volume: 1.149B (+886M). Up volume did manage to take the day showing there was some positive buying as well.
Down Volume: 883M (-536M)
A/D and Hi/Lo: Decliners led 1.23 to 1. Even on an up session reversal the decliners still led on the index. As noted earlier, this was a large cap-led rally.
Previous Session: Decliners led 1.74 to 1
New Highs: 50 (-7)
New Lows: 258 (+57). Ballooning, but not at the 400+ level that we would like to see to help set a bottom.
The Chart: http://www.investmenthouse.com/cd/$compq.html
The Nasdaq gapped lower then put on a rally up to 1500. It failed there again and tested well below 1500 (1474.56) on spiking volume. The Nasdaq was flirting with a big sell off. It tapped the bottom channel of the steep March to June downtrend and bounced. That bounce caused some short covering. Then MSFT came out and the index rallied to break 1500 and close at its high. It is still below the May down trendline, and it has all of the usual suspects ahead of it as resistance in the downtrend: the May down trendline (1522), the 10 and 18 day MVA (1558.96 and 1592.07), 1600, the second March down trendline (1620). After two big volume short covering reversals in 4 sessions, it may be time to test toward the 18 day MVA.
Dow/NYSE
The Dow once again undercut 9500 and once again rallied. It fought at the March down trendline for awhile but then surged over that level late on the MSFT rumor. Volume was strong on the covering in large cap stocks.
Stats: +100.45 points (+1.06%) to close at 9617.71
Volume: 1.736B (+24.25%). Volume spurted even higher above average, outpacing Tuesday's distribution session. It was short covering in the large caps that spiked it so high. Again, two such sessions in four trading days; there is some closing out of short positions. Question is, will there be buying to fill the void?
Up Volume: 713M (+355M)
Down Volume: 985M (-56M). Down volume managed to still top up volume even on a triple digit gain in the Dow. Very narrow rally in the big names.
A/D and Hi/Lo: Advancers led 1.02 to 1
Previous Session: Decliners led 1.71 to 1. Advancers edged out that narrow gain on the reversal.
New Highs: 63 (-25)
New Lows: 150 (+63). Rising sharply as the new lows continue a string of two weeks over 40. That is a bad sign for the index' ability to sustain a rally.
The Chart: http://www.investmenthouse.com/cd/$indu.html
Tested below 9500 for the second time in four sessions and bounced as it did before with some massive volume. Was this a follow through attempt or short covering? The action undercut the Friday reversal low, so it was not a follow through. It was another rally sparked more by rumor and news than fundamental buying from what we can see. Now the question is whether it will try to rally further. As with the Nasdaq, the two covering rallies in close proximity signal it may try the move up to the 10 day MVA (9707.62) and 9750. That is backed up by the May lows at 9811 and the 18 day MVA at 9813.61. In the bigger picture the Dow is in a steep downtrend from mid-May and has landed on some pretty solid support. That is causing some shorts to cover. It could rally toward the downtrend resistance after these two rally sessions and somewhat higher sentiment indications. The question is whether buyers step in after the shorts cover.
S&P 500:
This was a large cap rally today. The large caps hit the bottom channel on the March downtrend on the low (1002.58), a level that also marks support from a small hitch in the bounce up off the September bottom. It put together a rally from there and diverted selling back to that low in the afternoon when the MSFT rumor hit. NYSE volume surged as noted as shorts again covered. The S&P is in a steep, steep downtrend and the bounce off the downside channel line means it will try a bounce up toward the down trendline at 1028 and the 10 day MVA at 1037.34. The 18 day MVA is dead on the May low at 1050.45. Formidable resistance to face without having a massive sentiment change behind it.
Stats: +6.66 points (+0.66%) to close at 1020.26
NYSE Volume: 1.736B (+24.25%)
The Chart: http://www.investmenthouse.com/cd/$spx.html
TOMORROW
The sentiment simply has not changed on the market yet. Even after the long bear market, the terrorist threat, and now the 'confidence crisis' reported hourly, the average investor is not throwing in the towel. Thus the market continues to grind in these short upside rallies that are sold into. That is what we mean by winning battles but losing the war of finding a bottom: with each rally the pressure is let off on the sentiment indicators. We are not saying there will be a cataclysmic bottom as in September and October 2001, but it needs to generate more fear on the moves lower to set a bottom.
The grind is working as well, however. Many investors are tired of what they are hearing, but we have the sense from our emails and discussions with investors that what is really irking them are the insider trading issues that we are hearing more and more about. Now it is IMCL and the very coincidental timing of Martha Stewart's sale (allegedly a friend of IMCL chief). That is on the heels of the ENE selling and the buddy-buddy relationship of the Global Crossing CEO and democratic national party chairman where the DNP chairman just made a 'good business decision' to sell at the very top, just as Ms. Stewart made a good decision to sell just a day before the shinola hit the fan, and just as Hillary Clinton made $100K in a week on a $10k investment in cattle futures (something she had never done). That is what gripes investors the most from what we hear.
There is the big question that we are asked again and again: where were the SEC and Justice Department during this time? Snapping at MSFT's heels on the anti-trust case. Only now is the SEC moving against anyone on inside trading now that the cows have left the barn. The SEC had a vested interest in the boom: it received a percentage of the IPO filings and other fees. As long as the market boomed it had a cash cow. If it meddled it could kill the cow. Now that the market has crashed and its ineptitude is revealed, it is out suing people furiously to regain public confidence and justify its existence. Same with the INS, the FBI, the CIA. It is not just the SEC, and the SEC is not the worst offender. Big government is tough to live with: it sucks the money from the economy and then squanders most of it without giving most of us every day people a real benefit. That is what makes hard working investors mad.
That is a long way of saying that investors are getting weeded out of the market through time and frustration from the news stories. If we could spice it up with some spiking fear there could be a bottom set. The market is at the point it could do that. As said earlier, it does not have to be the massive spiking seen in September and October 2001; there has been one big selloff, a test lower, skepticism about the market as an institution. If a sharp selloff over a week would occur with the sentiment indicators spiking higher, that could do it.
Tomorrow we get the PPI and retail sales before the open. Futures are zooming ahead on the S&P and Nasdaq on the MSFT news. The market looks as if it will open and try to rally up to test near the next resistance levels in the continuing downtrend. Is the MSFT news worthy of a big rally? One penny. FCS is also credited for boosting semiconductors when it said Q3 would be flat and Q4 looked a bit higher. With the S&P 500 average P/E at 42, is a penny going to make a difference? Is the faint promise of an improvement 6 months from now worth a strong rally? We are not counting on anything lasting, and we will have to see how quickly the enthusiasm dissipates. As noted above, after such a steep drop since mid-May the indexes may be ready to bounce to test the downtrend on this 'good' news.
Support and Resistance
Nasdaq: Closed at 1519.12
Resistance: May down trendline at 1522. Then 1550 that held as resistance in recent sessions. Then the 10 day MVA (1558.96) and the October lows at 1560. 1600 and the 18 day MVA (1592.07) are next. Then the second March down trendline at 1615. The next March to April trendline now at 1649 and the February low at 1700.
Support: 1500 held on the close. 1460 is some support. After that is the September low at 1387.06.
S&P 500: Closed at 1020.26
Resistance: The first March down trendline at 1028. Then the 10 day MVA (1037.34)) and 1050. 1060 offers minor resistance after that from previous prices. The second March/April down trendline at 1057. Then the February lows at 1074.
Support: 1011 is the September 2000/May 2001 down trendline. The support at 1000 held, and the bottom channel of the trendline is at 1000. The September low is 944.75.
Dow: Closed at 9617.71
Resistance: Cleared the March down trendline at 9565. Then the 10 day MVA (9707.62) followed by 9750 that stopped the index twice the last times it tested that level. The April and May lows at 9800 to 9811 where the 18 day MVA is (9813.61). The 200 day MVA (9860.41) is not far behind. The September 2000/February 2001 down trendline is at roughly 9945. Then 10,100, followed by 10,250 to 10,300.
Support: 9500 to 9600 in the shelf of support from 9500 to 10,100. It is on the bottom shelf right now. Then 9000 to 9100. There is a rest stop at 8500. The September low is 8062.
Economic Calendar
6-12-02
Export Prices ex-ag., May (8:30): 0.3% actual vs. 0.3% prior.
Import Prices ex-oil, May (8:30): -0.1% actual vs. 0.4% prior.
Fed's Beige Book (2:00)
6-13-02
Initial claims, 06/08 (8:30): NA vs. 383K prior.
PPI, May (8:30): 0.1% versus -0.2% prior.
Core PPI, May (8:30): 0.1% versus 0.1% prior.
Retail Sales, May (8:30): 0.0% versus 1.2% priorl
Retail Sales ex-auto, May (8:30): 0.3% versus 1.0% prior.
6-14-02
Business Inventories, April (8:30): -0.2% versus -0.3% prior.
Industrial Production, May (9:15): 0.4% versus 0.4% prior.
Capacity Utilization, May (9:15): 75.7% versus 75.5% prior.
Mich. Sentiment-Prel., June (9:45): 97.0 versus 96.9 prior.
End Part 1 of 2
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