|
|
us stock market, trend trading stock
* * * *
7/02/02 Stock Split Report
* * *
Stock Split Report Subscribers:
MARKET ALERTS:
Targets hit alerts issued Tuesday: KLAC; CUB; OEX; AMGN; PII; HSIC; NVLS; ADVP
Buy alerts issued: BGEN
Trailing stops issued: None issued
Stop alerts issued: FTEK; ODSY; HCA
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:
- Another old fashioned butt kicking across the board.
- Talk of a bottom re-emerges at the October 1998 lows, but key ingredients still lacking.
- Ready for a reflex bounce.
Indexes burn to new lows as small and mid-caps tag along.
It was another ugly session for the bulls as the major indexes suffered consecutive session sharp point losses. The Nasdaq punched a hole through the October 1998 intraday low but managed to wiggle back above that point by the narrowest margin to close. The S&P 500 closed below the October 1998 closing low, but did not give the intraday low a run as of yet.
Not just large caps were getting the heave ho today. The small and mid-cap indexes suffered losses on par with the Nasdaq, falling even more than the Dow and S&P 500. Over the weekend we indicated these would help key the action going forward, and the resumption of their plummet below the 200 day MVA is certainly doing that. Many small and mid-caps are holding up, but short sellers are using the general market selling to jump on any stock that has made any type of move higher that distinguishes it above the masses. Case in point: the home builders were all racked up pretty good Tuesday, falling on strong volume. They have been the outperforming group, and shorts did what they could to start them down today.
The selling in the smaller issues exploded the A/D line to the downside. What has been mainly a large cap sell off as shown by the somewhat light A/D line turned to an across the board dumping. The NYSE A/D line was negative by 3 to 1. The Nasdaq was just a hair under 3 to 1. It was a very broad sell off. So broad the indexes are very close to another relief bounce.
More analysts say the bottom is at hand, but indicators say otherwise.
Every time a new low is hit this year the financial channels trot out another analyst or two to say the bottom is very near. My favorite is the 'we are closer to the end of the selling than the beginning.' What utter insight. To their credit we have seen some good technicians of late discussing the head and shoulders patterns on the S&P 500 and the threat of more selling.
In any event, what we call the 'gut feeling' guys were out today saying that redemptions were up, they had never seen it this bad, etc. All of that summed up gave them the idea that the market was bottoming here. We think it was all just giving them gas.
A lot of the talk has to do with the proximity to the September 2001 and October 1998 lows. Those were/are potential bottoms for the market. We had been watching all the way down for the indications that were setting those levels up for a test and then solid set of the market bottom. Those indicators have not arisen and thus we don't give this level much chance to hold for now. It is a matter of divorcing fact from the emotion in your gut. What happens is you see a few signs of bottoming action and get all excited and tend to gloss over all of the other details. You need to see them all conforming more or less, and they are not doing that.
What do we mean? Redemptions are up. That is a sign of the bottoming process. We have talked with brokers and they confirm that there are more redemptions. There are also some big accounts that have given the 'get me out now' calls late last week and early this week. Redemptions mean that the market is getting wrung out. When those that are holding on hoping for a recovery finally all sell out, the sellers are gone; the market can then rise without that overhead supply that will wash away any rally with waves of selling. Problem is, redemptions are not high enough.
The VIX is still way too low. Today it hit 34.64 on the high, but could not even hold that. The VXN hit 61.93, but closed below 60. It sounds like a broken record, but these have not hit historical levels that have shown true bottoms in the market.
On top of that there are those still holding those shot up and left for dead tech stocks that are going nowhere. Sure if the overall market rallies they will rise with the tide a bit, but they won't be leaders. They won't make the money back that was lost. JDSU is at $2.50, down from $150. No offense meant, but we will have colonies on Mars before JDSU gets back to $50. Holding some of these stocks and hoping for a return to glory is a guarantee of underperformance. Yes they will rise when the market bottoms and all stocks start to move up, but tech will lag other sectors as we have already seen, and they won't be the most efficient way to recover lost money. That will come from the stocks that are breaking out when the market bottoms with the right 'numbers' (e.g., VIX, bulls/bears, put/call ratio) and then follows through.
The downside is a great way to make money when that is what the market is giving.
Today most of the action across the market was to the downside. Some upside plays fell out of bed but most found their way back to near term support as a refuge from the storm. If the anticipated bounce emerges they should recover and resume their moves or at least give us an exit point if we want one.
As we have said, the market is not there yet, but there are ways to make money in the market. We wrote about this last week, about playing the predominant trends. Last Thursday we were getting ready for the next downturn at near resistance. We had a bunch of put plays on the reports. Then Friday we started taking positions. We continued Monday. Today we had downside target after downside target hit. When we research these plays we try to find plays that can make us 30% or so on our money. Many of the put plays we have are designed to net us $3 per option when the target is hit. Of course with the OEX puts and others it is different, but that is the goal: keep it similar, keep it to where it can be duplicated, keep it familiar. Today 8 downside plays hit targets on Stock Split Report plays. That allowed us to bank some great profits going into the weekend as we let the upside plays take a rest in the selling. That is why we like playing the trend, especially when it is so well defined. We see it set up, move in, then let the trend work for us. When the action starts to happen we are taking profits as we are not chasing the bus but were waiting for it ahead of time. Now we let the plays set back up and then reload.
This downtrend has made the downside pretty easy, much more so than the upside. As with any market trend, it does not stay so easy for a prolonged period of time. Indeed, as discussed lower, the indexes are ready to bounce up from here. That will either give the put plays another setup for the next round to the downside, or it will develop into some more to the upside. As we said, it does not look like a bottom right now, but it could give a higher bounce given the proximity to the old lows and the hard selling.
After writing this we received a few emails from investors that are 'taking out the trash,' referring to some of the dead wood in their portfolios. They are looking for a bounce up to resistance to exit their positions; as discussed below the market appears to be ready to rebound some after the intense selling, and that can give a good exit point on some of the stocks that are no longer leading and don't have the attributes of leadership.
THE MARKET
Two really rough selling sessions on high volume after a reversal and meek rally late last week that carried the indexes just over the 10 day MVA. The indexes were hammered today with a broad sell off on strong volume, closing at or near the session lows. We anticipate this downside momentum to carry over into the Wednesday session as the foreign markets ride the U.S. close lower and the U.S. markets ride them lower ahead of the July 4 holiday with the continued new terror warnings: go out and have fun, but hey, let's be careful out there. Then we anticipate a bounce. The Dow and Nasdaq are right above the bottom channel in the downtrends, and the Dow actually tapped that level and rebounded today. In addition, in the past reversals, the small and mid caps start getting taken apart just about the time the bounce comes around. Today the smaller issues were sold with as much vigor as the Nasdaq. After some initial downside action we anticipate the next reflex bounce to start. If there is no trouble Thursday, Friday might be a decent upside day for the half session.
Sentiment Indicators
VIX: 33.69; +3.13. A good push higher, but closed off the high of 34.64 even though the S&P did not give much of a bounce. It is getting better, but it is still 20 or so points off what we would consider the minimum for firmly setting a bottom. You have to fight those gut urges that a bottom is at hand and look at what has historically accompanied bottoming. That is a VIX over 50 and usually spiking intraday to 60 or more.
VXN: 59.57; +2.12. Up as well but still even off of its recent highs at 66.14. It too failed to hold its intraday high at 61.93 on no real bounce in the Nasdaq 100. It is the ability of anxiety to fizzle that has kept the market pulse low key. When looking for a bottom you want the market to be a hypochondriac with high blood pressure and an irregular heartbeat. In other words, you want volatility, idiotic knee-jerk responses, redemptions (stocks sales, religious or otherwise), selling anything simply because it is a stock (short or otherwise). Does that look like this market? Some will say 'yes,' but the numbers don't support it. Regardless if it is a massive washout on selling or a grind out, we will see the indicators get ramped up.
Put/Call Ratio (CBOE): 1.08; +0.23. Another close over 1.0, making it six in the past two months. The put action is showing a lot of hedging by the institutions and speculation by the option traders. That is usually a sign of bottoming. It is necessary, but it is not sufficient.
Nasdaq
Pelted with rocks and garbage and in high volume, but it still has some more downside to the bottom of the March downtrend channel before some of the pressure can be released. It usually undercuts an important level and then rebounds in this current pattern, and as of yet nothing has changed that pattern.
Stats: -45.98 points (-3.28%) to close at 1357.82
Volume: 2.713B (-8.85%). Volume was lower as WCOM traded a mere 800 million shares versus 1.5 billion Monday. So, Nasdaq volume rose on the selling over Monday. Another distribution session.
Up Volume: 1.077B (+905M). Up to down volume evened out a bit even with the massive selling.
Down Volume: 1.626B (-520M)
A/D and Hi/Lo: Decliners led 2.95 to 1. Really, really ugly. Two sessions of 2:1 or better downside action. This lopsided action is another sign of a sellout, but it also is not sufficient.
Previous Session: Decliners led 2.12 to 1
New Highs: 33 (-35)
New Lows: 304 (+133). Better downside action as new lows return en masse. Still not at the 400+ for a few sessions to a week or more that often accompanies a bottom.
The Chart: http://www.investmenthouse.com/cd/$compq.html
Reversal Friday, two hard selling sessions this week to prepare for the holiday and anything it may bring. Now the Nasdaq is approaching the bottom of the March downtrend channel (1345), and after the thorough reaming this week and some more downside to scare some people tomorrow, the bottom of the channel will provide the floor for another rally attempt. Not 'the' rally of course, but a bounce in keeping up the pattern it has shown during this downtrend. This is its fourth run down this March downtrend. It is getting a bit extended on this move; four tends to be a magic number on trends and the Nasdaq may try to use the old lows from September 2001 and October 1998 to mount a more credible bounce. If it does, that will be the point to maybe play some upside, get out of some less than stellar positions when it shows topping signs, and then reload for more downside action.
Dow/NYSE
Action much the same as the Nasdaq, actually tapping at the March bottom channel line in the downtrend and rebounding a bit off of that low. Perhaps another test of that level tomorrow and then the start of a modest rebound higher.
Stats: -102.04 points (-1.12%) to close at 9007.75
Volume: 1.806B (+26.89%). Surging downside volume indicating distribution, i.e., selling by the big money. Some were calling it liquidation, i.e., where retail investors as well are selling out of holdings and index funds. Some of that is going on as we indicated, but it is not total liquidation yet.
Up Volume: 199M (-90M)
Down Volume: 1.612B (+490M). Crushing downside volume unlike the Nasdaq. That is another clue. NYSE volume has been a large % of Nasdaq volume, a sign of the NYSE getting sold harder and catching up more with the speculative index. Though WCOM trading has widened the gap the past two sessions, NYSE volume is still strong compared to the Nasdaq and the up/down volume difference is a stark contrast to the selling intensity.
A/D and Hi/Lo: Decliners led 3.07 to 1. What a shellacking. This is the kind of ratio you want to see on upside follow throughs. In that sense it is indicative of the downside washout growing in strength.
Previous Session: Decliners led 1.84 to 1
New Highs: 50 (-46)
New Lows: 220 (+132)
The Chart: http://www.investmenthouse.com/cd/$indu.html
On the low (8960.54) the Dow tapped just below the March downtrend channel bottom and rebounded slightly on the close. That was a signal we were looking for, i.e., that the current downtrend is still holding sway and the selling has not broken down into a freefall. It still could do that, but we anticipate another test of the downside channel bottom Wednesday and then the start of a rebound attempt in conjunction with the Nasdaq. In any event, a lot of stocks are really hard to chase to the downside right now.
S&P 500:
The large caps, though not selling the hardest Tuesday percentage wise, are leading the way lower. The S&P 500 undercut the bottom of its March downtrend channel Tuesday, undercutting the recent lows and the September 2001 low but holding above the intraday low at 944.75. Where this one stops is unclear as it has no real support other than that low and the October 1998 low (923.32 intraday). We think it gives further selling early Wednesday as well, but then tags along with the Dow and Nasdaq as they try to rally.
Stats: -20.56 points (-2.12%) to close at 948.09
NYSE Volume: 1.806B (+26.89%)
The Chart: http://www.investmenthouse.com/cd/$spx.html
TOMORROW
ISM services is out tomorrow a half hour into the session, and that could provide some direction. If it is better than expected, it could actually facilitate a bounce up off of the Dow and Nasdaq March downtrend channel bottoms. As noted, the Dow tested that level on the low today and managed to bounce in the face of all the selling. That indicates the trend is still in control. Coupled with the sharp small and mid-cap selling that in this trend tends to indicate turning points, the very negative A/D line, moderately spiking volatility indicators, the market is ripe for one of its familiar bounces up in the downtrend.
Of course this could also spiral out of control ahead of fears over what might happen over the independence holiday. There is increased indications of selling out (redemptions, 'get me out' orders, etc.), but we always look at the other indicators as well that have historically accompanies bottoms. The VIX and others are not there yet, so if there is a bounce, it is coincidental with the 2001 and 1998 lows. There will be calls that this is the bottom if there is a vigorous rally off of these levels. It could be, but again, we have to strip away emotion and look at what is there. Things are getting 'better' for a bottom, but merely citing some redemptions and upward trending anxiety indicators is not the same as indicators that hit the levels that typically accompany turns.
Therefore we look for more selling early until the Dow and Nasdaq hit or undercut the bottom of their downtrend channels, then an attempt at rallying or at least a cessation of the selling ahead of Thursday. If nothing bad happens Thursday, the market moves up some more Friday. This could set up more downside action next week or we may have to wait a bit if those fourth bounce up in this downtrend has more punch. After four bounces down a down trendline three is usually an attempt to recapture more upside ground before the move stalls. The pent up demand is high enough to bounce the indexes beyond the near term resistance. That remains to be seen; there has to be a bounce and then we see how it handles the short term moving averages and the near term down trendlines.
After today's action we are again somewhat in the 'in between' zone, i.e., where the puts are extended to the downside and many upside plays were taken and shredded. Still, many upside plays held their own once again in this selling though the health services sector was again offered up to the wolves as the newly fallen sector. On a bounce we can look to ride the upside stocks that held their ground in the selling and then use the rally to move up and out of their patterns. That is typically how they have performed in this downtrend. The pickings are fewer, however, as the small and mid-cap indexes have joined in with some vigorous selling of their own. After such a downside boon the past two sessions, I am personally going to let most of the profits sit in the account until things set up a bit. After big action either way it is often good to take a breather; don't quit watching lest you lose your edge, but just not pursue trades as actively.
End Part 1 of 3
|
us stock market
trend trading stock
|
