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us stock market, trend trading stock
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6/26/02 Stock Split Report
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Stock Split Report Subscribers:
MARKET ALERTS:
Targets hit Wednesday: MUR; HI; MGA; CUB; FISV
Buy alerts issued: STJ; MMC; CYMI; PII
Trailing stops issued: PCLE
Stop alerts issued: PCLE; BOBE; AET
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:
- WCOM furor sends Nasdaq and SP500 below September lows, but market scratches back.
- FOMC holds rates steady, notes 'moderation' in end demand
- Economic news still showing decent improvement.
- Market: some positives, some negatives
- Subscriber questions
Market again snatches defeat from the jaws of victory.
A bit convoluted, but that is one way of saying the market could have really made some progress toward a bottom today, but it just continued its same old ways. Sure the market 'won' the day, clawing its way back from some pretty hefty downside action that early on undercut the September lows on the Nasdaq and S&P 500. It managed the feat on some very strong overall volume as well. Faced with the fraud of a Nasdaq icon (WCOM) the market came back once again. What staying power. What guts. What a disappointment.
To sound like a stuck record, the action was, well, familiar. Bad news leads to selling that undercuts a key support level. At that point the shorts cover and run the market higher. The indexes turn positive. The indexes then give back positive territory on the close (the Nasdaq managed a positive gain) as selling starts into the intraday rally. Volume is heavy as the shorts cover. Sentiment indicators tick higher but don't hit levels that indicate any type of real bottom getting set.
One of the new aspects the past few months has been the hedge funds jumping back and forth intraday on the market. That has led to this short covering on major sell offs that lead the market higher, and then the selling late in the session or the next session or two that sends the indexes lower once again. This is the same type of action seen in the summer 2001 with swings back and forth on the indexes as they ground lower and lower right before they fell off the cliff in August ahead of the September 11 attacks. It appears as if we are witnessing the same action here. In 2001 mutual funds and hedge funds were chasing the hot sectors on a daily basis, and the rotation was hellacious. Now it is more of a general push higher and a general push lower as opposed to sectors popping up like corks and then falling like lead weights.
The result is the same: the grind lower and lower without ever hitting levels that cause investors of all stripes (retail, institutional or whatever) to toss the white towels into the ring. Thus there is more of the same to come in our book until perhaps there is a similar cascade lower that occurred in August 2001 ahead of the September attacks. The grind may not be a cataclysmic sell off this time, but the sentiment indicators will work higher and higher and finally hit a level that is extreme. It may not be a big reversal session at all that marks the bottom but just a session where the indexes hold their ground as sentiment peaks out at high levels. No bells, no sirens, just the end.
Whether that results in 'the' bottom or not will have to be seen. There is still all of that run up from the 1980's that may need to be more or less released before the real bottom is hit. The 5-year Nasdaq and S&P 500 charts hang over the market like a bad smell. They are just now in the process of completing the patterns. They either hold near these levels and recover, or work lower and lower. The market has definitely not shown us the bottom in our view yet. It could still do it at these levels, but it has not as of yet.
THE ECONOMY
FOMC does nothing as expected.
The Fed held the Fed Funds rate steady and maintained its 'equal' bias (not to be confused with BS). It noted that the economy is still improving but that final demand had 'moderated.' Greenspan has talked a lot to Congress and others about 'final demand,' stating that it was the key. The fact that the Fed says it has moderated is a neon light indicating the Fed is not going to do anything. It noted its belief that final demand would improve at year end, but that was just cheerleading lest the market and consumers get too despondent. The Fed, as it has so deftly shown over the past four year and more (actually throughout its history) has no clue what will happen at the end of 2002. That is not necessarily a bad thing, but it is something that seems to get lost on those bowing down to the 'maestro's' feet.
The Fed is really concerned about deflation right now as opposed to inflation even though its bias would indicate otherwise. The bias is for the rest of the world; it is PR. It is keeping money supply pumped up, trying to get the business side to bite. If it does it will have to raise rates in order to hold off possible inflation from too much money from several sources: the Fed keeping money supply high and the weakening dollar bringing more dollars home. All of that equals more dollars chasing the same supply of goods and that is inflationary. Inflation would sit on the market as it would be read, as it usually is, as crimping corporate profits.
Rest of economy still showing growth.
May durable goods up 0.6%, slightly ahead of expectations (0.5%) and ahead of April that was revised lower by one-half (0.4% versus 0.8%). This is a very volatile number and as the April revision shows, well within the statistical margin of error. In short it is best to say durable goods were about flat. New home sales rose 8.1% to 1.028 million annual units versus 920K expected. Mortgage applications were up as well as interest rates continue to fall; that has been a steady relationship. In short, the rest of the economy is sustaining itself with housing still leading the way as the U.S. invests in homes as opposed to businesses that are proving to be less than trustworthy.
THE MARKET
Last night we pondered whether the market would sell off or make a recovery after undercutting the lows. It had not had much of a respite from the selling, and thus the September lows were somewhat of a danger area for bears. The action proved to be in the pattern, i.e., undercutting the support level and rallying on short covering. To us that means the trend looks to still be in place as the indexes found resistance on Wednesday's rebound at the near term downside resistance.
Some positives.
Not that there were not some intriguing positive intriguing developments. NYSE volume outpaced Nasdaq volume; that can be a sign that the overall market is bottoming as the stodgier index suffers more selling than the speculative index. Of course, WCOM did not trade today. If it had, Nasdaq volume would have been about 400 million shares higher and would have eclipsed the NYSE. With potentially more WCOM's out there, can we really say the Nasdaq or the market overall is sold out? Still, the June volume on the NYSE has spiked up as noted below. That is an important development.
In addition to volume, new lows jumped up with Nasdaq new lows well over 300. That is getting there, but it is not 'there.' In addition, some of those Dow stocks that looked as if they were breaking down just Tuesday recovered. PG rallied back above its up trendline on even stronger volume.
In short, there are some signs there that all of this action could be the formation of a bottom. It is looking very interesting, but it is also not there. Hope won't make it happen. We have to look at the market rationally and take what it is giving. Right now it has not given a signal it has bottomed.
Still quite a few negatives.
The action certainly was no different from what we have been seeing all along. Sentiment did not reach extreme levels, upside volume on the reversal lagged, and the A/D line was still decidedly negative. The indexes could not carry the push higher to the close, a typical sign of the sellers coming back in and nibbling after a big gain. And then there is quarter end shuffling that was occurring today on the big selling and will continue on into Friday. With the exception of February, each month this year has ended with a slight bump higher before the selling resumed.
Sentiment Indicators
VIX: 32.33; +0.86. Hit 35.99 on the high. That is respectable but not high enough. Then it gave it all back as it has done on each one of these short covering rallies after support is broken.
VXN: 64.14; +4.26. Closed near the high of 65.32, being stingy with its anxiety. This is actually getting there. We have said a move into the seventies might suffice, but a real rally over 80 would be the best. Even on the reversal it held most of its gains indicating that WCOM et al may be keeping investors very wary of technology, and that may spread.
Put/Call Ratio (CBOE): 0.98; +0.22. Strong jump on the selling and closed strong as well even with the reversal. No 1.0+ close, but the fact that it closed strong is an indication that anxiety and fear continues to swell along with the rising volatility figures. That is a help.
Nasdaq
Undercut the September 2001 low and held above the October 1998 low and reversed on strong volume. It also held that long term trendline from 1991 that we discussed in the weekend report. That makes the Wednesday action very interesting from a Nasdaq standpoint. As for the rest of the market, however, there is no such support to fall back on, unless, of course, you look at the September lows.
Stats: +5.34 points (+0.38%) to close at 1429.33
Volume: 2.059B (+9.35%). Some strong volume on yet another reversal session. That is a positive, but as we have seen, it is not dispositive.
Up Volume: 876M (+592M)
Down Volume: 1.147B (-437M)
A/D and Hi/Lo: Decliners led 1.44 to 1. Could not pull out a gain overall. Once again the move was in the roughed up large caps indicating that it was short covering that started the move again. That is not necessarily a bad thing as most rallies start with short covering.
Previous Session: Decliners led 1.59 to 1
New Highs: 45 (-29)
New Lows: 353 (+151). This is getting there. Usually you see over 400 for several sessions coincident with a bottom.
The Chart: http://www.investmenthouse.com/cd/$compq.html
Techs undercut the September lows, hitting 1375. 53 on the low, then mounting yet another rally off of an undercut of support. We note that it did also hold above that long term trendline from 1991 that is now around 1385. That is very important that it held. If it was violated on the close on massive volume and could not get back above it, that would be a tremendous negative. Also, the Nasdaq bounced just within the bottom channel line of the March downtrend (roughly 1365). Further, on the close the Nasdaq stalled at the March down trendline; it traded over that line late, but could not push past it on the close. In that sense this move was very much in line with the existing downtrend. It still may try a bounce up from here toward the 10 day MVA (1474.78) or even 1500 and the 18 day MVA (1510.29), but we did not see much to change our mind and say this was the bottom. Holding the long term trendline was great as was the volume when it did it; if the Nasdaq was a solo operation we would be very interested. It is linked to the Dow and S&P 500, however, and they have moved more than less in concert as the large caps have suffered.
Dow/NYSE
Another big reach down and a big rally back up. Looking at a chart just this month there are 5 such instances, each making a lower low for the month as the downtrend continues. This one undercut 9000 and reversed. Magic level hit? Not according to most indicators.
Stats: -6.71 points (-0.07%) to close at 9120.11
Volume: 2.014B (+34.46%). Surging volume that helped bring it back up was a positive, but it was also indicative of short covering as the A/D line was still negative: big names sold down and big names rallied back.
Important notes: It was the highest volume since last September 2001. Also, note how volume has really spiked on average in June. It is well above any month this year and since September 2001. That IS a sign that there is something extraordinary going on here. It could be a sign of bottoming, but it is not definitive.
Up Volume: 641M (+254M)
Down Volume: 1.359B (+264M). Still a lot of downside volume even on this reversal. A familiar pattern.
A/D and Hi/Lo: Decliners led 1.40 to 1. The market rallied back to almost positive but the A/D line worsened over Tuesday where the market sold off hard. Again, another indication of the narrowness of the move and a signal it was short covering.
Previous Session: Decliners led 1.25 to 1
New Highs: 60 (-45)
New Lows: 278 (+178). As with the Nasdaq, getting better.
The Chart: http://www.investmenthouse.com/cd/$indu.html
Held above the bottom channel of the March downtrend (roughly 9060) on the close. A test below support at 9100 to 9000 and the bottom channel of the trendline and then a snap back. This is the same action in the downtrend. It can bounce up to the down trendline and 10 day MVA at 9369.54 or even 9500 and the 18 day MVA (9509.33) as it has done on these rebounds. There is nothing yet to indicate, however, that the bottom has formed.
S&P 500:
Undercut the September 2001 closing low but not the intraday low, testing down to 952.92 Wednesday. Again the NYSE volume was strong and has been strong the entire month. Other than the September 2001 lows, there is nothing under this level until the October 1998 lows. We are not saying the September lows are nothing more than tissue paper, and it is not a far drop to the 1998 bear market lows. Just looking at the sentiment indicators and the continuing pattern in the downtrend, there was nothing really different today other than the undercut of the September lows. The volume keeps us intrigued, however, that there could be something here.
Stats: -2.61 points (-0.27%) to close at 973.52
NYSE Volume: 2.014B (+34.46%)
The Chart: http://www.investmenthouse.com/cd/$spx.html
TOMORROW
There is a ton of speculation about the bottom forming here. One can only assume that is because of the proximity to the September 2001 lows and the fact that a lot of the commentators on the air are feeling their stomachs churning and are praying that is the bottom. There are some tantalizing facts out there such as the NYSE volume we have noted above. There is also the fact that the market could have just imploded on this WCOM news but it did not. It was not all short covering as some big brokerages were buying futures late in the session on top of the short covering, apparently on the belief that the market had taken some of the worst news that could be thrown at it and was recovering. They point to an attempt at building a bottom here, but there is nothing to indicate that bottom is in place. As with each sell off and reversal, we have to wait and see if the market will follow through with some real, sustained buying in a week or so. That has yet to materialize and there are not a lot of leadership stocks in great position on the large cap indexes.
Futures are up a hair, but that means nothing as so much can happen overnight. We look for the 'usual' action on these reversals, i.e., a continued upside follow through in the morning that could take the indexes to the near term down trendlines or short term moving averages. After that we will have to see how they handle those levels. We closed a number of put positions early on today and then opened a few later in the session when things started to unravel a bit late after the rally back up. We were tempted on a few upside positions, but the moves were right at the breakout points and we decided to hold off and see what tomorrow brings for them. That is the beauty of looking over positions late in the session as you can see exactly how they are trading and make informed decisions about where they are closing and with what strength.
Tomorrow we will watch any upside follow through for stalling and react when and if we see it. On the upside we will continue to watch those stocks that performed well during the selling and are ready to make their moves. If the action is right we will pursue them.
Support and Resistance
Nasdaq: Closed at 1429.33
Resistance: Closed a the March down trendline (1428). Then the 10 day MVA (1474.78). After that 1500 and the 18 day MVA (1510.29). Then the May low (1560.29) and the second March down trendline at 1565.
Support: The long term up trendline from 1991 at roughly 1387. The March downtrend bottom channel line at 1365. The September low at 1387.06. 1357.09 is the October 1998 bear market low.
S&P 500: Closed at 973.53
Resistance: The bottom channel of the March down trendline (977). The September 2000/May 2001 down trendline (999.50) and the 10 day MVA (1000.73). The March down trendline at 1007. The 18 day MVA follows at 1016.19. The second March down trendline at 1040. The May low at 1048.96. 1060 offers minor resistance from previous prices. Then the February lows at 1074.
Support: The September closing low is 965.80 and the intraday low is 944.75. 923.32 is the October 1998 bear market low.
Dow: Closed at 9120.11
Resistance: 9250 represents some ressitance from some intraday and closing prices. The 10 day MVA and the March down trendline at 9369.54. 9500 and the 18 day MVA (9509.33). Then 9750 and the April and May lows at 9800 to 9811. The 50 day and 200 day MVA at 9792.54 and 9822.81, respectively. The September 2000/February 2001 down trendline is at roughly 9900. Then 10,100, followed by 10,250 to 10,300.
Support: 9100 from the October 2001 consolidation after the move off of the September low. 9000 is the November low off of the first rally from the September low. There is a rest stop at 8500. The September closing low is 8235.81 and the intraday low is 8062.
End Part 1 of 2
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