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us stock market, trend trading stock
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7/03/02 Investment House Daily
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Investment House Daily Subscribers:
Happy Independence Day! What is lost in all of the talk of terror attacks and the enemies of freedom: our strength is in our freedom. We are different, we have different backgrounds, we have different ideas how things should be done. We argue about it all the time. No matter how different we all are, however, we are all stronger because of that diversity and our common love of the land that gives us that freedom. Tomorrow we need to go out and celebrate that love of freedom with renewed vigor, showing those that hate freedom how impossible their fight is. They claim to have the resolve and determination on their side. They have no idea what resolve and determination is because the love of freedom motivates and inspires far more than anger and hatred.
MARKET ALERTS
Target hit alerts issued Wednesday: Another banner downside session ahead of the bounce. CEPH; TKTX; LTR; THQI; NCOG; HP; ATK; SLM all hit targets on the downside.
Buy alerts issued: IVGN, which promptly recovered on QGENF's affirmation late in the session.
Trailing stop alerts: None issued
Stop alerts: None issued
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http://www.investmenthouse.com/alertdly.htm
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SUMMARY:
- The ISM services report almost derailed it, but the relief bounce came.
- Economy still showing moderate improvement.
- Relief bounce should continue in Friday's short session.
Relief bounce enters on queue.
After the selling, the Nasdaq and Dow were down at the bottom of the March downtrend channel. They were ready to give yet another relief move to let some of the selling pressure off and cover some shorts. The move started early, but then the ISM services report was lower than expected. That sent them from the highs to the bottom channel lines in just about one hour. From there a little intraday double bottom action and a rally back up to the session highs on the close.
The fact that the bottom of the channel held is important. It shows that the existing trend is in force and is molding the action. If it were a continued freefall the indexes would not have held up at that point. The bounce coming after undercutting a prior important support level (the September and October lows) and hitting the bottom channel tells us to expect more of the same for now. We could get a bigger bounce on this round given the four bounces down since the last visit up to the 50 day MVA, but the bounce is within the current trend.
Lackluster numbers indicates short covering.
The A/D line improved but was still negative. Volume backed off a bit. Nothing major was going on. Indeed, it was the large cap indexes that were moving up. The S&P 600 was the worst performer along with its brother the Russell 2000. With the broader market lagging as evident by the negative A/D line, it was most likely short covering at work before a long weekend and after some serious downside. It was not, however, that massive reversal rally that has everyone saying 'bottom'. Maybe that in and of itself is worth some bottom talk, but even if it is, it is way, way too early.
THE ECONOMY
Service sector expanding, but not as much as hoped.
57.2 shows continued expansion, but it was not the 58.5 expected and well off the 60.1 reading in May. That looks okay, but the employment sub index for services fell to 44.3 from 49.5, indicating that jobs are still falling in the largest employment sector in the economy, and they were falling at a faster pace in June. Counterbalancing that were new orders rising to 56.9 from 56.8; not whopping, but still showing decent expansion. The bottom line is that there is still expansion at a crisp level (running out of adjectives for this economy) in services, as it too is enjoying an expansion along with the manufacturing sector. As with manufacturing, however, jobs are not turning up. Now all that is needed is some jobs and some corporate buying . . .
Jobless claims fall by 11,000! Or is that just 6,000?
Jobless claims fell for the prior week, once again coming in lower. Each week, however, the headline number is a 10,000+ drop. That is all based on revisions, however, as the prior drop was not as big as originally thought. That makes the headline number look bigger. It is one of the few government statistics that is not adjusted for inflation, i.e., inflation in the estimates each week (remember, there is a LOT of guesswork each week when this number is derived). Claims were 382K down from 393K (revised from 388K originally reported). The 4-week average was down to 392K from 392,250; that shows that the drop was not a heck of a lot. That is how 10,000 fewer claims per week fail to translate into appreciably lower unemployment. More telling: continued claims rose to 3.7 million from 3.69 million. The same conclusions are drawn: layoffs are slowing but jobs are not rising.
Factory orders rally.
Up 0.7% versus 0.5% expected and a revised +0.7% in April from +0.6%. Factory orders are volatile, but they have been showing an expansion that is in sync with the increased new orders in the ISM reports. In sum, the economy continues to expand if not at a spectacular rate.
THE MARKET
The market remained true to its trend, keeping in the confines of the downtrend channel. It also is in keeping with its 'in-trend' action, i.e., once again selling down intraday below a key level everyone is watching (the September 2001 and October 1998 lows) and then reversing in a modest relief rally. We anticipate the bounce to carry through Friday and even early next week.
As noted in the Tuesday report, after four rotations down the trendline, i.e., bouncing up to the short term moving averages and down trendline four times and falling back each time, the indexes might attempt to rally higher once again. Markets do not trend indefinitely in one direction without the opposite side of the market attempting to reassert itself periodically. That 'period' is usually 4 to 5 bounces up or down an existing trendline. After that the other side of the market thinks the time is right and attempts some buying (or selling). The short term resistance that had turned the rallies back gives way to the buying, and a better bounce up to the next resistance occurs. Usually that is the 50 day MVA.
What usually happens is a rally back up to the near term resistance. At that point the indexes have already moved a good way. Then they take a quick breather there, sell back a bit but not much, and then break the short term resistance. It happened in February and then again in May. The current downtrend is much, much steeper than those previous moves lower, and thus the indexes are ripe to bounce to that next resistance level. Or, they are ready to fall off the cliff. As noted, however, today's action was true to the trend, and thus we would anticipate a rally up to the near term resistance, a step or two back, and then a move over those levels to test the next resistance.
Sentiment Indicators
VIX: 33.31; -0.38. There was a lot of misinformation today about the VIX. Tom Costello said at 35.35 it hit its highest intraday since November (it did not; the high was 36.01 hit as recently as June 14 and then 35.99 on June 26). He threw in some talk about how this was high, etc. Then a guest analyst on CNBC said the VIX was at levels that typically show a bottom. No. The VIX is at a level that can show a bounce from an interim bottom. It is NOT at a level that historically shows a major bottom. That is reserved for the 55 to over 60 levels.
VXN: 60.06; +0.49. The high was 62.25; that was still below the 66.14 reached on June 27. It is getting to an interesting level, but it needs really to get over 80 to show a bottom.
Put/Call Ratio (CBOE): 0.95; -0.13. It would have closed over 1.0 but for the rally. As noted Tuesday, it has already flashed a buy, but it needs the other indicators to back it up.
Nasdaq
Tapped the bottom of the downtrend channel on the low and rebounded. Nothing major as it did not even clear the September 2001 lows, but it is in keeping with the trend, and we look for the rally to continue up Friday and early next week.
Stats: +22.35 (+1.65%) to close at 1380.17
Volume: 2.667B (-1.69%). Volume backed off but WCOM was trading a bit more today, over 900 million shares on its own. Backing WCOM out, and you get Nasdaq volume on par with NYSE volume. It also shows that today was not an accumulation session by any stretch.
Up Volume: 2.146B (+1.069B). Massive upside volume, indicating that shorts were covering the big names.
Down Volume: 467 million (-1.159B)
A/D and Hi/Lo: Decliners led 1.27 to 1. Overall the Nasdaq stocks were down. A large cap rally indeed.
Previous Session: Decliners led 2.95 to 1
New Highs: 23 (-10)
New Lows: 276 (-28)
The Chart: http://www.investmenthouse.com/cd/$compq.html
Tapped the bottom of the March downtrend channel on the low (1336.06) and rallied from there. It was pretty much like clockwork, and we were closing out downside positions as the index was tapping at that level. It then rallied on continued strong volume (though lower). It was unable to recapture the September 2001 lows nor the long term up trendline from 1991. It did, however hold the current trend, and it looks to rally higher to test the short term resistance at the March down trendline at 1418, 10 day MVA (1429.12), or the 18 day MVA (1466.26). Any of those levels will be a first test. Indeed, the index will have rallied a bit to get to the 18 day MVA. That may be the upper limit of any rally without some very serious buying action ongoing.
Dow/NYSE
Broke below the bottom of the channel and then rallied back over 9000. We heard a lot of lamenting the break below 9000 this morning, so we were expecting a move back up before the session was over.
Stats: +47.22 points (+0.52%) to close at 9054.97
Volume: 1.536B (-15%). Volume backed off on the rally back. This is somewhat of an anomaly. Usually on the short covering rallies volume spikes to very high levels. Either this is a weaker than usual short covering rally (could be true as it was the day before a holiday and a half day of trading Friday, or it is something different. We believe the former.
Up Volume: 688M (+487M)
Down Volume: 837M (-775M)
A/D and Hi/Lo: Decliners led 1.58 to 1, much improvement over Tuesday, but still showing overall weakness. More proof it was a large cap rally and that indicates short covering.
Previous Session: Decliners led 3.07 to 1
New Highs: 32 (-18)
New Lows: 244 (+20)
The Chart: http://www.investmenthouse.com/cd/$indu.html
As anticipated the Dow tested lower again, reaching down below the bottom of the March down trendline channel on the low (8897.54) and then staging a rebound to close positive and within the channel. After the Friday reversal and then two strong selling sessions, the Dow looks ready to move up to again test the near term support. That is at the 10 day MVA (9206.22), the March down trendline at 9300, and the 18 day MVA (9344.28).
S&P 500:
There were serious tones on the financial channels today. Have you heard? The S&P 500 fell below the September low at 944.75. Prepare yourselves for the inevitable; get your affairs in order. Surely the large cap index was ready to plunge into perdition's gate immediately. Then it did what it has done all the way down: it reversed from the breach of a new support level and rallied back up, turning in a positive close. It followed the Dow and Nasdaq up, or it led them back up, depending upon how you like to look at things. Whatever the take, it punched a new low and then recovered. It now has to deal with its own near term resistance in the form of the bottom channel line from the March downtrend (952), the 10 day MVA (978.59), and then the March down trendline that is just above the 18 day MVA at 995.51.
Stats: +5.91 points (+0.62%) to close at 953.99
NYSE Volume: 1.536B (-15%)
The Chart: http://www.investmenthouse.com/cd/$spx.html
FRIDAY
A half session of trading dominated by the employment report. Expectations are for a 0.1% rise in jobless claims. With weekly jobless claims starting to edge lower, the odds of a higher report are diminished. Thus, we anticipate a session that is used primarily to cover some more shorts, and that will help drive stock prices a bit higher toward that near term resistance.
What do we do on Friday? Not a whole lot. There are some trading plays, some stocks already in good patterns that we are looking at some positions on, but it will be hard to get much gauged or accomplished in a half session. Thus we will be limited in our trades initiated. We are also going to take a more hands off approach to existing positions unless something really falls out of bed.
What we anticipate is an continued bounce up off of the bottom channel lines in the Nasdaq and Dow downtrends, carrying up toward near term resistance in the form of the down trendlines or the short term moving averages (10 or 18 day MVA). That has been the pattern in this downtrend. From there we will either get a resumption of the downtrend or an attempt to test the next level higher, perhaps near the 50 day MVA. That would be a substantial move from here, but we have also noted how the indexes have sold hard and straight down over the past two months, and after four bounces down from the near term downtrend they are ripe to bounce up higher than just the near term resistance levels. That remains to be seen.
That leaves us ready to initiate some action Friday, but as for determining volume, it is going to be more of the WAG method (wild-ass guess) as volume should be lower overall even if it was a full session. That is why we will focus more on momentum plays as they turn up. After the big, big downside days we have had with many targets hit and putting money in the bank over the past two sessions, there is no need to get out there and mix it up when the day's results will be scrutinized in detail Monday when all of the market gets back to work.
Support and Resistance
Nasdaq: Closed at 1380.17
Resistance: The March down trendline at 1385, right at the September low at 1387. The long term up trendline from 1991 at 1406. The September interim test at 1418, followed by the 10 day MVA (1429.12) and the 18 day MVA (1466.26). After that is 1500 and the May low (1560.29). The second March down trendline is at1545.
Support: The March downtrend bottom channel line at 1330. The September low at 1387.06. 1357.09 is the October 1998 bear market low. After that is roughly 1250.
S&P 500: Closed at 953.99
Resistance: The bottom channel of the March down trendline (952). The 10 day MVA (978.59) and the September 2000/May 2001 down trendline at 991. Then the March down trendline is at 998, backed up immediately by the 18 day MVA at 995.51. The second March down trendline at 1025. The May low at 1048.96. 1060 offers minor resistance from previous prices. Then the February lows at 1074.
Support: The September intraday low is 944.75. 923.32 is the October 1998 bear market low. 900 is after that.
Dow: Closed at 9054.97
Resistance: 9100 is some resistance from the October consolidation off the September low. Then the 10 day MVA (9206.22) and the March down trendline at 9300, followed by the 18 day MVA (9344.38). 9500 is some resistance. Then a jump to 9750 and the April and May lows at 9800 to 9811.
Support: 9000 is the November low off of the first rally from the September low. The bottom channel of the March downtrend at 8945. There is a rest stop at 8500. The September closing low is 8235.81 and the intraday low is 8062.
Economic Calendar
7-01-02
ISM Index, June (10:00): 56.2 actual versus 55.5 expected and 55.7 prior.
Construction spending, May (10:00): -0.7% actual versus 0.3% expected and 0.4% prior (revised from 0.2%).
7-03-02
Initial jobless claims (8:30): 382K actual versus 385K expected, 393 prior (reviesed from 388K).
ISM services, June (10:00): 57.2 actual versus 58.5 expected, 60.1 prior.
Factory orders, May (10:00): 0.7% actual versus 0.6% expected, 0.6% prior (revised from 0.4%).
Auto sales, June: 6.1M expected, 5.7M prior.
Truck sales, June: 7.2M expected, 6.8M prior.
7-05-02
Non-farm payrolls, June (8:30): 60K exected, 41K prior.
Unemployment, June (8:30): 5.9% expected, 5.8% prior.
Average workweek, June, (8:30): 34.3 expected, 34.2 prior.
Hourly earnings, June (8:30): 0.3% expected, 0.2% prior.
End Part 1 of 2
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us stock market
trend trading stock
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