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world stock market, us stock market
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6/27/02 Investment House Daily
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Investment House Daily Subscribers:
MARKET ALERTS
Targets hit Thursday: IGEN
Buy alerts issued: MWRE; BL
Trailing stop alerts: None issued
Stop alerts: None issued
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SUMMARY:
- Market fights off urge to sell late and closes at highs.
- Economic news better than expected.
- A solid move to the close but still below near term resistance.
- Team Trades
A stronger finish tries to put a different face on the market.
There was some upside impetus Thursday. No bad corporate news, some good economic news, and some upgrades allowed the indexes to continue the upside momentum spawned in the Wednesday reversal off of new year lows.
The indexes fought off two selling attempts, one mid-morning and then one as the last hour got underway. The last round of selling came after the indexes hit session highs; that always has ominous overtones: a new high gets sold into. This one was brought on mostly by the release of the FOMC minutes for the May meeting where the Fed saw, in its new favorite word, 'moderation' in the recovery. That put a damper on the market and gave sellers an opening. It did not last, however, as buyers came back in the last half hour pushed stocks to their session highs.
It was not much of a selling attempt, not at least as we have seen in the past. Volume was lower, but it was strong still. The internals were better; not great, but better. It is still too early for a follow through session to the Wednesday reversal, but the lack of distribution immediately following a rally was an upside positive. Before we break out the champagne, it is still too early to call a rally and we have seen this action two times already just in June: a reversal on very strong volume, a rally the next day on lighter though still strong volume, and then a turn back at the near term resistance as sellers give the bulls a little room to run and then the rally is used as another selling opportunity.
There is also some quarter ending shuffling ongoing. Institutions are moving in and out of different stocks to paint a good picture for fund holders at the end of the quarter. They are buying some recognized names, selling some recognized names, buying some beaten down stocks in hopes they will rise, and buying some stocks that have already moved up and are performing well in order to say 'see, we are in these great stocks.' That is having an effect on the volume and the upside action we are seeing right now. The short term resistance levels will tell us more about just how strong this rally attempt is.
THE ECONOMY
Economic news is still improving. We stated three weeks back that there was going to be an increase in the economic numbers after a brief lull, and they are doing just that. It is nothing showing a zooming economy, but an upturn after some softening. The economy is the same as any other dynamic process; it rallies at a stronger pace, then it backs off. When it is suffering, it falls faster then it falls slower. It is never straight up or down. After a 'moderation' in activity, it is showing an upturn again.
Final Q1 GDP 6.1% versus 5.6% expectations.
The best GDP growth since an 8.3% mark in Q4 1999. Business inventories provided the largest factor in the stronger showing as they fell $27.7 billion versus the $119.3 billion in Q4. That boosted the GDP by 3.4%. In English: businesses were making more stuff than they were in order to replace some inventory that was being eaten up. That grew the GDP as opposed to reducing inventories decreasing it. Real final sales, the measure of what is sold as opposed to inventory reductions, etc., was revised to +2.6% from 2.0% previously reported. That was good news as well as it is final business demand that will help pull the economy out of its doldrums.
Jobless claims fall across the board: weekly, 4-week average, continuing claims.
New claims down to 388,000 from 398,000; wow, another 10,000 drop. Well, the prior week was revised up 5,000 jobs. It is the same each week: headlines look good, but then they take back at least half of the 'drop'. Still it marked 4 consecutive weeks under 400K, and that is a significant level. It is still very close and within the margin of error, however, so we cannot get too pumped. The trend, however, is falling as the 4-week average shows, falling to 391,000 from 397,500. Continuing claims fell to 3.7 million from 3.75 million the prior week. That marks another drop, but it is almost illusory given the revisions higher to the prior week and its small drop; that is within the statistical margin of error. About the best that can be said is it is not rising right now. That does not mean jobs are being created but simply that there is a bottoming going on as far as job losses. In itself that is good and part of the normal process. It is not enough for the market at this point though it keeps the Fed at bay for a bit longer.
ECRI data tends to back peaking of unemployment.
The ECRI, a 'fast' leading indicators basket, had its unemployment data show an 18-month high in May. That marked a peak in the unemployment measure of ECRI and indicates that the worst is most likely over for employment. As the jobless claims show, that does not mean job creation, but means that unemployment has peaked. Important, but hardly equal to job creation.
THE MARKET
More positives Thursday as the market held off selling attempts and closed at the highs on strong volume. It was lower volume so it was not a clear accumulation session, but we note that overall volume levels on the Wednesday reversal session and the Thursday rally session were higher than past episodes. NYSE volume still remains very high for the month, and it is still a very high percentage of Nasdaq volume. In the past when NYSE volume spiked to a high percentage of Nasdaq volume the market was close to bottoming. There is something trying to form here at the September 2001 lows, but it has not solidified. It is still in the same pattern we have seen several times the past months (reversal, rally session, then stalling at near term resistance) without any marked change in sentiment, and thus more likely than not ready to continue the existing trend. There are some improvements in indicators such as volatility and volume, but they still have not shown historical indications of a serious bottom.
Sentiment Indicators
VIX: 30.02; -2.31. Back down to the top of the 'normal' range on the session gains. It has hit 36 intraday. Good but not nearly the turning point level.
VXN: 63.13; -1.01. Not much of a decline even on some solid upside action. Volatility on the Nasdaq 100 is a bit sticky; that is a good upside indication though not conclusive.
Put/Call Ratio (CBOE): 0.76; -0.22.
Bulls versus Bears: The weekly survey of advisors is out and it shows an uptick in bulls to 42% from 40.8%. Bears ticked up ever so slightly to 36% from 35.7%. Disappointing movement given all the selling as we want to see bears surpass bulls in numbers to give us the minimum indication. It must have been the selling down to the September levels that emboldened some to feel the bottom was at hand. To us this just pushes the timetable back as another sentiment indicator fails to show levels that historically market significant bottoms.
Gallup Investor Sentiment poll. Investor sentiment fell to 72 in June, down from 90 in May and at the lowest level since readings in the 50's after September 11. In the contrarian world of sentiment indicators, worse is good for upside action. There is no magic level for this poll to show a bottom, though the fact that it traded in the fifties after September 11 is a good benchmark.
Nasdaq
Picked up where it left off Wednesday, mounting a solid gain on solid though lower volume. Cleared the March down trendline, but it closed at that level so that was no big deal. The key will now be the 10 and 18 day MVA directly ahead.
Stats: +29.87 points (+2.09%) to close at 1459.2. Man. A 30 point gain is a 2% increase. My the techs have come a long way . . . down.
Volume: 1.94B (-5.83%). Lower volume than on the reversal, but still very solid, above average volume on the session. It was technically not accumulation but relative to the prior selling and buying sessions it was not bad. It was on part with the Friday selling and the Monday buying earlier this week.
Up Volume: 1.464B (+587M). For once up volume did take over solidly from down volume.
Down Volume: 436M (-711M)
A/D and Hi/Lo: Advancers led 1.67 to 1. The first solid advance since . . . the last time the index tried to reversed after a big tanking.
Previous Session: Decliners led 1.44 to 1
New Highs: 96 (+51)
New Lows: 155 (-198)
The Chart: http://www.investmenthouse.com/cd/$compq.html
Cleared the March down trendline where it closed Wednesday; that was a given. Now comes the real test: can it clear the near term resistance from the 10 and 18 day MVA (1471.05 and 1504.91, respectively). These levels have stalled each rally attempt since mid-May when the Nasdaq was able to fight back to its 50 day MVA before it rolled over again. After hitting the bottom channel line of the March downtrend, it is due for a rally up to the 50 day MVA (1600.44) as that has been the result on two of the last three times it hit that level. The last time it did this was just two weeks back, but it only made it up to the 18 day MVA that time. Again, after the quarter end shuffling is over Friday and we see the action early next week, we will know more about this rally attempt. That will also be the first day we can look for a follow through session. We are not very hopeful though we do note that there could be a rally higher from here given where it sold down to (equal and opposite effects), but longer term the index has not shown the extremes that would indicate a solid bottom.
Dow/NYSE
Continued the Wednesday reversal as well on strong but lower NYSE volume. It still has all of its short term resistance ahead of it.
Stats: +149.81 points (+1.64%) to close at 9269.92
Volume: 1.866B (-6.22%). Lower but still strong NYSE volume. The NYSE volume continues to surge in the first summer month, an unusual feature in and of itself given volume usually backs off as summer starts.
Up Volume: 1.2B (+559M). Doubled up down volume.
Down Volume: 608M (-751M)
A/D and Hi/Lo: Advancers led 1.74 to 1. As with the Nasdaq, the best A/D line since it last tried a rebound.
Previous Session: Decliners led 1.4 to 1
New Highs: 99 (+39)
New Lows: 144 (-134)
The Chart: http://www.investmenthouse.com/cd/$indu.html
Tapped the bottom channel line of the March downtrend on the low (9034.96) as it felt for firm footing, and then rallied higher. It closed near some possible resistance at some prior June price points hit intraday and on the close; not much resistance there. The real test is the March down trendline and the 10 day MVA, roughly coincident at 9351.43. After that is the 18 day MVA at 9484.13, just in front of price resistance at 9500. These are very key levels for the Dow on any attempt to move higher from here.
S&P 500:
The large cap index also fought off a selling attempt and rallied at the close to finish at the session high. Volume was lower but still very strong. It did not break over any resistance on the move. The September 2000/May 2001 down trendline and 10 day MVA are also coincident at 998.99. Then the March down trendline is at 1004, backed up immediately by the 18 day MVA at 1013.50. There is a lot of near term resistance to overcome without having shown extreme negative sentiment. It can rally higher still, but if it beats the 10 day MVA, it has a real tough time ahead at the 18 day MVA.
Stats: +17.11 points (+1.76%) to close at 990.64
NYSE Volume: 1.866B (-6.22%)
The Chart: http://www.investmenthouse.com/cd/$spx.html
TOMORROW
More economic news before the open that could provide some upward impetus given the low bar set by expectations is combined with quarter end shuffling that has one more session to put on a good face for mutual fund investors. That should keep things a bit volatile, not to mention it is Friday. Shortly after the open there is Michigan sentiment and then the Chicago PMI, the national manufacturing proxy that always precedes the real thing the following Monday.
Today was a good up session. As usual we did not run about picking up on beaten down stocks as they made their rebounds to catch some air after being sent underwater once again. We were looking at leading stocks that had set up good patterns, and when they made their moves we were on top of them. We picked up some early and suffered through the mid day selling, and then picked up some more late when they were still well within the buy zone and were showing some good volume. Some we held off on buying even though they hit the price target because they had not put up the volume we wanted. Maybe they will do it tomorrow; they are still well within striking range.
That continues to be the pattern to invest into: let the downtrending stocks set back up on the move up to resistance, and if they roll over again, pick up some more downside action. This week saw many downside target hit alerts triggered as those stocks that were in downtrends proceeded lower once again. We wait patiently for the plays to set up and the trend to re-establish itself, then we move in once again.
As for the upside, we see the good stocks in solid patterns shrug off the selling with relative ease. They go about the business of building their patterns even as the rest of the market sells off. The strong selling overall leads to low volume pullbacks in many leaders that have or are ready to make their moves; that sets up further upside action on the sessions such as today when the overall market moves higher. Stocks building their patterns get the breakout once the rest of the market has an upside session. The common component: good, accumulative patterns that survive the selling by weeding out the last week holders. When the market is ready to advance, all of the sellers are gone and the stock can make a strong move (e.g., NWRE, MMSI, ECOL, BL, ERTS Thursday).
Again, it is a two-way market with the large caps trending lower and small and mid-caps trending higher. The big boys are trying something here but they have not shown they are going to do anything other than what they have done in the past. The smaller caps can still turn on you, but the winning patterns are winning out. Stick with the trends; you don't have to be 100% right because the trend is more forgiving. Don't get in a rush; let the downside plays set up just as we let the upside patterns set up and then make their moves. Be a machine and execute the plan. That is what we do with the alert service: we watch the stock, look at the volume, look at the price action, look at the overall sector, look at the market. When it makes the move we like, we jump on it. Again, we could have bought some more positions today, but they just were not what we wanted even though they had hit the buy point or showed good volume. Having today's action in hand, we can see what tomorrow shows us in those stocks and then we can make a decision. It is not always a game of seconds that is sometimes portrayed on the television; if a stock is making a solid move, we will have several opportunities to get in on the action. There are very few meteors whizzing by that we have to hit just at the right time or forever forgo.
Support and Resistance
Nasdaq: Closed at 1459.20
Resistance: The 10 day MVA (1471.95). After that 1500 and the 18 day MVA (1504.91) team up for some important resistance. Then the May low (1560.29) and the second March down trendline at 1562.
Support: The March down trendline (1425). The long term up trendline from 1991 at roughly 1390. The March downtrend bottom channel line at 1360. The September low at 1387.06. 1357.09 is the October 1998 bear market low.
S&P 500: Closed at 990.64
Resistance: The September 2000/May 2001 down trendline and 10 day MVA are also coincident at 998.99. Then the March down trendline is at 1004, backed up immediately by the 18 day MVA at 1013.50. The second March down trendline at 1038. The May low at 1048.96. 1060 offers minor resistance from previous prices. Then the February lows at 1074.
Support: The bottom channel of the March down trendline (975). 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 9269.92
Resistance: Closed just over 9250 that represents some resistance from some intraday and closing prices. The March down trendline and the 10 day MVA, roughly coincident at 9351.43. After that is the 18 day MVA at 9484.13, just in front of price resistance at 9500. Then 9750 and the April and May lows at 9800 to 9811. The 50 day MVA (9772.04) is at price point resistance at 9750. Then the 200 day MVA (9819.00). 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. The bottom channel of the March downtrend at 9025. 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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world stock market
us stock market
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