|
|
us stock market, stock split
* * * *
6/22/02 Stock Split Report
* * *
Stock Split Report Subscribers:
MARKET ALERTS:
Targets hit Friday: QCOM
Buy alerts issued: MHP; AMGN; COCO
Trailing stops issued: SXT; JNC
Stop alerts issued: CCRD; ABF; LNY; BJS; MEOH; WFMI; VWKS
You can sign up for Stock Split Report alerts 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:
- Breaking lower but will most likely bounce one more time before rolling over for the do or die time.
- Unfortunately, with the Dow's breakdown, the Nasdaq and S&P 500 will most likely undercut the September lows by a significant margin while the Dow finally gets sold off.
- Disconnect between the financial markets and the economy: continued.
- Market approaching the critical level: it will hold or it will fall a lot further.
- Review of game plan.
The week closes out with no rally attempt.
There is an old adage that how a stock closes a session and how closes a week tell a lot about that stock and that market. After the reversal last Friday and the Monday bounce, the sellers took over and drove the indexes to new closing lows for the year on rising volume (huge on Friday). It was a particularly nasty end to a week that saw an earnest resumption of the downtrend. If Friday's action is an indication of things to come, then there are going to be some September 2001 lows undercut.
While the Nasdaq 100 and the large cap indexes closed at the lows on very strong volume, the broader market did not get the torch. The NYSE and Nasdaq A/D lines did not match the carnage on the large cap indexes. The Russell 2000 closed positive. The S&P 600 small cap index looks even more determined to hold its 200 day MVA. As usual, the carnage is in the big cap stocks that were bloated up by the major run from the early 1990's to the peak in early 2000. The air is still being sucked out of those stocks.
After the breach of the recent lows a test higher before more selling.
The breakdown below the June lows to close at 2002 lows had everyone in a very glum mood today. Most think the selling has to continue this coming week. With each new low this year, however, the indexes have tried to recover if only for a day or so. There were three wicked selling sessions to close the week as the indexes broke to lows for 2002. Strong selling and a break to a new low usually leads to a rebound attempt. Thus we anticipate a push lower Monday and then a rebound of some sort.
Thursday we explored if it would be a wimpy bounce or something more substantial. What we really have to be focused on at this point is the Dow as it has not sold off nearly as much as the Nasdaq or the S&P 500. It only took one session to get to the recent lows again. We could easily see the Dow sell off to the next support level from 9000 to 9100 early this week and then get oversold enough to try to bounce higher. That would put the S&P 500 and the Nasdaq at the September 2001 lows.
Maybe that would be enough to set the bottom. If the sentiment indicators spike higher it could be. We will definitely be watching for that, but we have that old 'watched pot never boils' feeling we had in early 2001 and early summer 2001. Everyone but everyone is talking about the bottom being near. Too many feel the bottom is close at hand as the indexes approach the September lows. Makes sense, but now everyone is looking at those levels. Everyone anticipates them to be the bottom after a test. They could be. Problem is, if we don't get the sentiment indicators in line with the selling it most likely won't be sufficient to hold. There could be a bounce of some magnitude, but in this market, if all of the indicators do not line up the chance of such a move being the bottom are small.
The Dow remains the problem for now.
The Dow has not suffered much of a bear market, but it sure looks as if it is going to join the party with the action late this week. As noted last week, it still has a lot of potential selling to get in line with the other indexes. With stocks such as MRK and IBM coming under accounting scrutiny, which 'safe' Dow stocks will be next and send the index sharply lower?
If the Dow breaks down to test its September lows, the Nasdaq and S&P 500, already sitting at those levels, would most likely get dragged below those levels. Now that move may in fact raise those sentiment levels to a point where a bottom could be set, but if the S&P 500 and Nasdaq get hammered too low below the September 2001 lows it is no longer a test but another breakdown.
Sentiment indicators did not rise today enough. The VIX actually fell. To us it appears that it will take the Dow to sell down close to the September lows to get the sentiment indicators spiking. The Dow is only 250 points from 9000; we don't think that will produce the effect. Moreover, everyone will be focused on the Nasdaq and S&P 500 as they approach those levels, expecting that point to be the bottom. We have said it before and don't want to be trite, but bottoms are like love and watched pots: they never perform on cue.
THE ECONOMY: The ongoing disconnect between the markets and the economy.
Last week we again saw some sharply improving economic numbers. The housing market remains hot, manufacturing continues to show solid expansion with the Philly Fed report jumping, and the leading economic indicators showing a solid jump back into positive territory. Even if you put some healthy skepticism in the government reports (and you should), the reports outside the government still show improvement. The markets, not just the stock market, went the other way once again.
Markets down while economy is supposedly rising.
We believe in markets as very good indicators of what is going to happen. They take into account all of the evidence and place their bets based on the sum of all of that evidence. What are the markets doing? Well, the stock market is plunging to undercut where it was after the attacks. Remember, at that time the economy was widely believed to be still in the tank. We saw signs of recovery already there, but that was it; signs. Now the stock market is going to undercut those lows even when the economy looks to be in much better shape than it was at that point. Better economy, worse stock prices. That is a disconnect. Maybe everyone thought the recovery that was going to come at some point in the future was better than the one they ultimately got, blah, blah, blah. That is cutting it too fine; there is a disconnect here.
Then there is the bond market where yields are falling back to levels where the economy looked its worst. When the economy is weak, bond yields usually fall because they are not pricing in any inflation. Once again yields are getting very low, so much so there is talk of yet another refinancing boom. Lower yields do not imply a strong economy where money is in demand for expansion and thus commands higher yields.
And of course there is the dollar heading lower and lower, hitting a 2-year low against the euro last week. Even the pound moved over $1.50 for the first time in a long time. Some call it a correction in an otherwise bull run in the dollar. Some say it is only one quarter of the way down to where it is going. All say if it falls too fast it is a problem. Without a doubt currency issues are very psychologically driven. If there is perceived weakness, it tends to snowball. That is the fear now. It feeds on itself. It is a very slippery precipice when currency issues are involved.
Why are the markets not buying the recovery?
We have discussed in previous issues the earnings/price connection and how the market at the current prices (S&P 500 average P/E at roughly 40, meaning you pay $40 for every $1 of future earnings; the Nasdaq 100 is 50) does not forecast a recovery strong enough to support those prices, much more drive them higher.
There is more in the soup that has been made over the past several years than just P/E's, though a lot of it is all interrelated. For one thing the administration has embarked upon a protectionist course that flies in the face of the free market ideals the U.S. has been espousing to the EU and the rest of the world. Steel tariffs. Lumber tariffs. Farm subsidies. It is very hard to champion free markets and the U.S. as the pinnacle of global free enterprise when you resurrect the very policies you rail against. We tried this in the late 1960's and 1970's; the results are horrid. Short term gain of a few jobs and a few votes is a very poor tradeoff for a stagnant economy and wasteful government. It also has a very detrimental affect on the dollar.
And of course government is growing in the wake of 9-11; it seizes each upheaval or crisis situation as an opportunity to grow: Great Depression, Cold War, 1960's civil unrest. History shows that more government leads to more squandered resources that could have fed economic expansion and thus benefited us all with jobs, lower crime, higher standard of living, i.e., all of those things the economic expansion in the 1980's and 1990's gave us that the government could not in the 1960's and 1970's. The markets react to this as foreign investors sell and all investors tend to view these policies as limiting economic growth and innovation in the U.S.
Then the corporate governance issues that have been opened up with Enron and friends. As we have said, this happens with every boom, but we always act so shocked and stunned. It has happened before and it will happen again. It is a testament to greed and also how no amount of regulation can stop the problems that arise. Again you have to ask 'where was the SEC DURING all of this?' Not doing a damn thing. Now that disaster has struck and it has to justify its bureaucratic behind or risk getting an INS-like retooling it is filing some suits with the justice department and launching some investigations, a lot like a watchdog sniffing around what is left of the flock after the wolves have ravaged it.
On top of that there is the Middle East 'war,' the war on terror, the FOMC bias change (that coincided with the market peak this year in March; the tariffs were imposed then as well), and the IRS announcing it is going ahead with random audits again after Congress had stopped the SS back in the 1990's. We are heading back into the dark ages of our worst economic episodes, making the same foolish mistakes once again. Short term gains in votes, longer term carnage in the economy and markets.
THE MARKET
The Nasdaq was down 4.2% last week as it and the S&P 500 head toward the September 2001 lows at a fast clip. The large caps are in a freefall punctuated by failed weekly attempts at bouncing. The will most likely follow Monday with some more selling and then again try to bounce. That has been their pattern. They are now reaching critical levels (S&P 500 and Nasdaq) where everyone is looking for a bottom. If they do not hold (and it can undercut them and still 'hold'), these big cap indexes could fall a lot farther. The market is not responding to the economic news, indicating at least for now that there is a more fundamental need to drain the pool after the run up from 1995. To put it in perspective, the Nasdaq 100 is already at the 1998 lows in that bear market. The fact that the market is ready to break below those levels is indicative of a much more fundamental problem that has to be worked out of the system for the large caps.
On the other hand, the small cap indexes managed to bounce late and finish positive or just slightly lower. The small cap performance continues in spite of the large cap selling. As we have noted in past issues, small caps tend to outperform the large caps after economic slumps. We play the large caps to the downside and the small caps to the upside.
SENTIMENT INDICATORS
VIX: 31.28; -1.22. Amazingly, S&P 100 volatility fell on a day when the S&P 100 and the Dow tanked. It just is not getting to the level it needs to be for a strong bottom even with the selling Friday. That is one of the reasons we see the indexes falling further even if there is a short term bounce.
VXN: 59.30; +1.37. Getting better but hardly a spike on the selling Friday.
Put/Call Ratio (CBOE): 1.27; +0.23. Another close well over 1.0 indicating excessive speculation in option buyers and anxiety in portfolio managers buying puts to hedge further downside. When all option exchanges are added together, the put/call ratio Thursday was 1.0 and Friday was 1.18. This is even a stronger negative sentiment indicator. If the other indicators would line up behind it we could see some decent upside action.
The sentiment indicators have to ling up for an attempt at a bottom. If the selling continues and the sentiment indicators do not hit extremes, we expect more selling will be necessary for a final bottom. That could be much further down if the September lows do not hold.
Nasdaq
Stats: -23.79 points (-1.62%) to close at 1440.96
Volume: 1.963B (+14.93%). The strongest selling volume in since early May, spiking above average. No doubt something to do with option expiration shuffling, but strong selling volume nonetheless.
Up Volume: 365M (+148M)
Down Volume: 1.563B (+85M)
A/D and Hi/Lo: Decliners led 1.05 to 1. It was a large tech selloff as the broader Nasdaq was not hammered.
Previous Session: Decliners led 1.32 to 1
New Highs: 61 (+3)
New Lows: 199 (+15). Rising, but not anywhere near the 400+ level we see at bottoms. It is either getting sold out or still has a quite a bit of work. More likely the latter.
The Chart: http://www.investmenthouse.com/cd/$compq.html
Rapidly approaching the September low (1387.06), checking up before the point where it tested the September bottom (1418.15) right after making that low. It is going to test those levels this week. After that it bounces toward 1500, a prior support level and the 10 day MVA (1506.87).
There is a long term up trendline from the early 1990's near 1400 that could act as support. After markets balloon higher and then let out the air they tend to return to the point where they started if it is a full blown collapse. That could be this up trendline though that is more wishful thinking. The Nasdaq is in that big head and shoulders pattern, and to get back to where it started from would be near 1000. That is a generous read. Much depends upon how deep the Dow tests.
Dow/NYSE
Stats: -177.98 points (-1.89%) to close at 9253.79
Volume: 1.806B (+31.38%). Volume almost eclipsed the Nasdaq volume, posting the highest volume since the market reopened in September 2001.
Up Volume: 479M (+125M)
Down Volume: 1.31B (+313M)
A/D and Hi/Lo: Decliners led 1.31 to 1. As with the Nasdaq, not broad selling, just the large caps.
Previous Session: Decliners led 1.22 to 1
New Highs: 91 (+5)
New Lows: 145 (+44)
The Chart: http://www.investmenthouse.com/cd/$indu.html
Broke below the recent intraday low at 9260.99 on huge volume, partially attributable to triple witching. A serious round of selling of almost 500 points the past three sessions should continue a bit lower this week on that downward momentum and then try to rebound. 9100 to 9000 is where the index consolidated in October 2001 after the first move off of the September low. That could be the bouncing point. On the upside, the March down trendline is at 9430, and that is followed by 9500 and the 10 day MVA (9537.77) as the key resistance points.
That is for the short run bounce after some significant selling. The September low is still much further at 8062.34. Even with a fall to 9000 that is another 1000 points. That gets it closer to the 7500 level marking the 1998 bear market. If it were to erase the gains since the 'excess' started, however, it has a lot further. There is a long term up trendline at roughly 5900. The start of the run in 1995 is at 4000. But that is not even the real start of the big run in the Dow. You have to go all the way back to 1982 when the Dow broke above 1000 to get back to the real beginning of the run up to March 2000. That is how far the Dow would have to fall if it too retraces the gains that started at the point where it is said the 'bubble' began. If that happens we will all be doing something a lot different than we are now.
S&P 500:
Sold hard on that strong NYSE volume, but did not come close to breaking the intraday low at 981.63 hit the prior Friday. 944.75 is the September 2001 intraday low. Unlike the Nasdaq, there is no near long term up trendline to potentially rescue the index. If there was we would feel a whole lot better about a bottom being set on a test of that level along with the Nasdaq doing the same. As it is there is the October 1998 low at 923.32 that is the next potential support after a breach of the September low. 923 on down to 900 is the point to hold if it is going to do hold. Where is the S&P's long term up trendline? Near 700. Where is the point where the start of the big run would be found? Around 500; that is also the point where the 5 year head and shoulders pattern would reach its full consummation.
Before that happens (if it even does) we expect a rebound after the selling. The September 2000/May 2001 down trendline is at 1002 and the March 2002 down trendline at 1013. That is backed by the 10 day MVA at 1018.21. Those are the resistance points on any rebound.
Stats: -17.15 points (-1.7%) to close at 989.14
NYSE Volume: 1.806B (+31.38%)
The Chart: http://www.investmenthouse.com/cd/$spx.html
End Part 1 of 3
|
us stock market
stock split
|
