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us stock market, trend trading stock
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7/15/02 Stock Split Report Update
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Stock Split Report Subscribers:
MARKET ALERTS:
Targets hit alerts issued Monday: JCI; PHM; ETM; CYN; FO; CTX; FITB; EME; BAC; EME
Buy alerts issued: EXPE; IFIN; STJ; USPI
Trailing stops issued: NFB
Stop alerts issued: ACMR; CHBS; BLI; OVTI; ERES
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:
- Big selloff, big recovery: Newtonian physics strikes again.
- Selling gets more intense each round.
- Greenspan set to take his shot at stemming the tide.
You know the tune: it was selling hard to a new looowwww, then someone sneezed and up we gooooo . . .
Same tune, same words, just a different verse. The market was getting a royal shellacking with the Dow 436 points, the S&P 500 down 45 points. It was a slaughter that, while not of biblical proportions, was certainly fascinating to watch. All three major indexes hit new lows for the year, and then, as usual, the upside bell rang and the shorts started covering and futures traders started gobbling up S&P futures. $00 point reversal on the Dow, 40 points on the S&P 500. The old equal and opposite reaction scenario we learned in high school physics.
The selling was ugly but it was fascinating to see kind of like that old analogy of watching a car wreck: terrible, but you cannot look away. The action was truly hitting extreme measures in some areas, but again, it was sporadic. It was intense, but as we noted on intraday alerts, it was still not intense enough for a real bottom though the speculation rose anew.
At one point the NYSE A/D line was almost 6 to 1 negative (it closed near 3 to 1 negative). New NYSE lows shot over 300. NYSE volume almost, almost eclipsed Nasdaq volume as it shot higher while Nasdaq volume held just about steady. That is some pretty negative action, but not major bottom action because there is just not that washout on all points. It may or may not happen in the near term, but we have not seen anything that would establish a major bottom at this point. Might get a bounce, but not a major bottom.
News stations don't do the bulls any favors.
Then there is the financial news station commentary. The new topic of the past week has been the 'Washington connection' to the selling. The anchors and their surrogates, the Wall Street Journal reporters whom the anchors treat as experts, harp each quarter hour on how the market has sold since Bush's speech last Tuesday (not to mention it has sold since March 2000). Each market analyst that comes on says there is little if any relationship between the speech, the congressional wrangling, the usual finger pointing and what the market is doing. Un-phased, as soon as the guests are excused the anchors and WSJ reporters (apparently the true experts) huddle and discuss how the 'Washington connection' is impacting the market action. Hell, they even had a timeline graphic after the close of the trading around the speech Monday. As long as the journalists play the blame game, they don't help the market bottom. It has to get to a point where it is just selling because the market really sucks, not because of someone else's actions or inactions.
Of course, it is not only the television faces. Even some of the experts on the tube contribute to the problem. A professor of business and frequent CNBC guest was on after the close talking about how the action was 'almost a perfect on-day reversal' in technician parlance. According to him, that is 'often' a sign of the bottom. Moreover, he said the sentiment indicators were getting 'very bearish.' He did not say it, but he implied that a bottom is near.
I can point to 8 almost identical 'one day reversal' sessions in the past two months. Each one taken by itself could indicate a reversal. Each one was not. Sentiment 'very bearish?' Hardly. The VIX hit 43.76 on its high Monday. It hit 41.99 in March 2001. That is well below the levels hit when the market has posted major bottoms at the end of bear markets. Indeed, after that 41.99 reading the market traded higher in its down trendline, but the rally to the resistance died and the market continued lower before slipping off the edge in August.
The problem with this? Other than being maddening to see this continued misrepresentation of history, this buy is going on as a professor of the market, yet his interpretations are just flat out wrong. At best you can argue they are just a fraction of the story taken entirely out of context. If these experts would acknowledge that even though negative sentiment was higher than it has been since the spike after 9-11 they are still not at levels where markets have reversed for good in the past, they would actually be helpful. The average investor listening to these half truths, however, thinks a bottom is near so they hang on. The result? Just what we have seen: sentiment starts getting there but there is no washout. Stocks cannot sell off to levels where they start to really and seriously look like a value based on current earnings expectations. Without selling to a level where they actually are 'values' compared to those earnings expectations, there is no relief from the selling. It will eventually get there; it always does. The issue is how long it takes to get there. This drivel pandered on the financial networks (rapidly becoming the Jerry Springer shows of finance in their fight for the diminishing viewer audience) does not help the bulls and their desire to see that bottom.
THE MARKET
The selling is getting more intense. While the market continues the current downtrend and the action remains very familiar, each selling binge of late has been bigger. Bigger point losses, bigger volume, higher volatility, higher bearishness. The selling is gaining intensity.
It has yet, however, to hit the point where historically the market has put in major, longer term bottoms. That is why when our downside plays were popping off their targets we were taking profits: when this market sells hard to new lows, it reverses. We took a lot of downside profits off the table again today.
Was today the bottom as CNBC queried after the close? Again, there are many of these one-day reversals in the past two months. June 4, June 7, June 14, June 24, June 26, July 3, July 11, July 15. Reversals each session, but they lacked the accouterments of longer term bottoms. Obviously; the upside has only lasted three sessions at most on those rallies.
Now today's reversal was the most impressive in the series and it did come on the highest intraday VIX reading since the levels hit on the market re-open in September 2001. The selling has not relented and the market is very oversold. The Nasdaq is already outperforming, closing positive after holding up all session against the tide of the Dow and S&P 500. The market has been showing signs of a relief bounce coming of more magnitude, but it has yet to overcome the sellers and break away for more than a three-day gain. Our tech plays held up well Monday and then rallied. The bounce is trying to happen, it is, as usual, just occurring in a few narrow sectors.
Sentiment Indicators
There was a plunge Monday and sentiment indicators did hit recent highs, but even with that tanking they did not hit historically significant levels at least levels that lead to long term bottoms. There can be a late summer rally off of these levels, but history says it would not be a major bottom.
VIX: 39.3; +0.97. Topped out at 43.76 on the intraday high, the highest since 57.31 intraday on 9-21-02. As you can see, that is still a long way from even that level that led to the good rally off of the September lows. In prior bear market bottoms it has taken readings in the sixties intraday. The level of anxiety is not reaching or has not reached a point where we can seriously look for a long term bottom. We can get a tradable upside rally, but would not expect it to last.
VXN: 67.85; +1.85. 69.48 on the high, still shy of the Thursday intraday high that topped 70 and well off the post 9-11 high at 91.79. It is getting there but it too obviously has a lot of work ahead of it as today's selling still left it quite shy of the level that indicates longer term reversals.
Put/Call Ratio (CBOE): 0.87; +0.23. Once again the put/call ratio fails to close over 1.0 on a round of strong selling, though the intraday reversal had something to do with that. Still, in times of heightened fear, the put/call ratio will spike higher and still close over 1.0 even on reversals. Indeed, it will stay at high levels for several sessions as the downside gamblers and fund hedgers buy a lot of puts.
Nasdaq
Relatively stronger all session, able to rally positive at the close. Lower volume relative to the NYSE once again, the Nasdaq slightly undercut its Thursday lows for the year and staged another big reversal. The relative strength line is not bright light, but it is moving sharply higher as the S&P 500 staggers around. Our tech upside plays performed fairly well, and a rally up to the 18 day MVA by the overall Nasdaq will put some green in our pockets on those plays.
Stats: +9.12 points (+0.66%) to close at 1382.62. Moral victory or a real move? Has some legs given its relative strength, but that won't carry it too far on its own.
Volume: 2.103B (+4.68%). Some late action pushed volume up almost 200 million shares to slide just ahead of Friday's volume.
Up Volume: 1.2B (+349M)
Down Volume: 874M (-149M)
A/D and Hi/Lo: Decliners led 1.62 to 1. What a turn. At one point the A/D line was over 3 to 1 negative.
Previous Session: Decliners led 1.14 to 1
New Highs: 21 (-4)
New Lows: 244 (+110). Almost over 300 at one point. This indicator has not crossed 400 on this round of selling, and that is another signpost that the sentiment has not hit levels that mark that bottom that everyone (and us as a necessity to discuss their incorrect conclusions) is talking about.
The Chart: http://www.investmenthouse.com/cd/$compq.html
Undercut Thursday's low, tapping below the March down trendline and then reversed. It also struggled on the upside at the May/June higher down trendline. That keeps it below the 10 day MVA (1393.03) and the 18 day MVA (1421.55), the near term resistance. The next big level is 1500 and the March/April/May down trendline. It is oversold enough and the sentiment indicators are high enough to reach that level if this relative outperformance can actually get some breathing room. That remains to be seen as the Nasdaq, though it is performing the best of the big three, is still struggling under distribution.
Dow/NYSE
Man that was some fascinating selling followed by some intense short covering. 9 points from the September closing low sent it moving higher and recapturing 400 of the 435 points it lost intraday. This looks really impressive, but if you look back in June and remove the right side of the chart, you see such moves every few sessions. The last one was Thursday.
Stats: -45.34 points (-0.52%) to close at 8639.19. Too bad it reversed.
Volume: 1.935B (+22.53%). Sharply higher volume on the decline and reversal.
Up Volume: 652M (-38M)
Down Volume: 1.268B (+371M)
A/D and Hi/Lo: Decliners led 2.57 to 1. Was close to 6 to 1 negative at its worst in the early afternoon.
Previous Session: Decliners led 1.48 to 1
New Highs: 38 (+14)
New Lows: 343 (+218). Strong jump in new lows, getting close to levels that indicate closer to the bottom.
The Chart: http://www.investmenthouse.com/cd/$indu.html
The low tapped at the September 2001 closing low (8235.81), hitting 8244.87 and then rebounding to recover 400 points. Just amazing to see it happen, but we were also taking a lot of downside gains off the table ahead of the bounce. A reversal to a rally? Back off the last two sessions on the Dow from your charting service: Thursday looks like a reversal as well on even bigger volume. The sentiment indicators are getting higher and could give a higher move this time. What is higher, however? The 10 (8942.21) day and 18 day MVA (9103.18) are now even farther away, and a rally up to those would be a good move, though still within the range of Monday's move.
S&P 500:
Cut further below the October 1998 lows on the low (876.46) and even closed below that level (923.32). It is still below the March downtrend bottom channel at 921, the 10 day MVA (945.39), and the 18 day MVA (964.63). It too is primed for another bounce attempt, but it is underperforming the Nasdaq so we don't look for the large caps to race back up to recapture all of their recently lost ground. The Nasdaq is relatively stronger and its big names are performing better.
Stats: +0.02 points (0%) to close at 917.93
NYSE Volume: 1.935B (+22.53%)
The Chart: http://www.investmenthouse.com/cd/$spx.html
TUESDAY
Another sell off met with another reversal after some new lows. The Nasdaq is still within its recent downtrend. The S&P is trying to carve out a lower trendline, but it may try to work back up over the bottom of its channel. Even if it does it is susceptible to crashing through it again: it has a long way to go to recover the higher downtrend, and it takes a lot of work to do it and then hold it.
As for the small caps, they are in a major correction of their own. Down 1.6% Monday, again the worst performing of the major indexes. Small caps have abdicated leadership for now. They will most likely get back in the game in the fall, but for now they have lost their backing. These are lagging now, and we will continue to use rallies in the market to lighten up on these positions.
While the small caps are giving up leadership, larger techs continue to show life. We are far from ready to pronounce them good buys, but as we initiated some plays last week, we are not going to close our eyes to their ability to emerge from the coffin on full moons (yes we are mixing our vampire and werewolf tales) and score some nice gains. We saw them show relative strength today and then lead higher again when the market reversed. This is not a great turn in the market but an opportunity to play a sector that is showing some life after selling hard earlier.
As for the downside, it was active again today as we took quite a few profits early. After a reversal it may take another session or two for more downside action to set up once again, and if there is a stronger move upside it will take a bit longer. Even on rallies, however, we see stocks that continue to break down and sell as the market reverses. One thing that works in this market is just having the patience to let the play develop and then stick with it when it is with the trend. We will let those current plays work for us to the downside while patiently letting downtrending stocks work back higher and rollover at resistance.
The Senate is passing corporate reform at this very moment and the market reversed and rallied hard. Greenspan will take a shot at talking up the economy starting Tuesday with his son of Humphrey-Hawkins testimony; we don't expect a lot form him but it will be very interesting to see how he approaches what is happening with the dollar and the market given the improving economy. Futures are up showing the momentum is continuing after hours, though futures are good for direction for about 35 seconds after trading opens. These are, however, indications of some changing tides that could give a further bounce higher, perhaps letting off more of that oversold condition than the one or two day rallies in the past. At this point, however, we cannot assume that the rising VIX and point losses and reversals will automatically produce a bigger upside move. The ride down the trend has been fast, easy, and profitable. The market does not let a pattern become too entrenched without shaking things up a bit. That keeps us on our toes for change, but for now all the signs of a shift in the action a bit are not dramatic. Thus we take what works, and right now that is some upside on some techs, some continuing breakdowns, and then waiting for the puts to set back up.
Support and Resistance
Nasdaq: Closed at 1382.62
Resistance: The September 2001 low at 1387. The 10 day MVA (1393.03). Then 1418, the interim test after the September low, and the 18 day MVA (1421.55). 1500 and the May low (1560.29). The second March down trendline is at 1515. The 50 day MVA (1525.61).
Support: The March down trendline (1348). The July intraday lows may have some stability (1336) for a bounce back up in the downtrend. Then the March down trendline bottom channel line at 1305. 1357.09 is the October 1998 bear market low just for reference. After that is roughly 1250.
S&P 500: Closed at 917.93
Resistance: The lowest bottom channel line of the March downtrend (924). Then the predominant bottom channel line at 950 and the 10 day MVA (945.39). The May down trendline (970) and the 18 day MVA (964.62). After that 981 is the March down trendline. The 50 day MVA at 1014.60 and the second March down trendline (1022). Then the May low at 1048.96. 1060 offers minor resistance from previous prices. Then the February lows at 1074.
Support: 900. Then 855 the October 1987 low and 817 the February 1987 high.
Dow: Closed at 8639.19
Resistance: The bottom of the channel of the March downtrend at 8840. Then 10 day MVA at 8942.21 followed by 9000. The 18 day MVA (9103.18) and the March down trendline at 9230. Then price resistance at 9250. Then 9500 and the 50 day MVA (9492.48).
Support: There is a rest stop at 8500. The September closing low is 8235.81 and the intraday low is 8062.
Economic Calendar
7-15-02
Business inventories, May (8:30): -0.2% actual versus 0.0% expected, -0.2% prior.
7-16-02
Greenspan speaks to Senate
Industrial production, June (9:15): 0.4% expected, 0.2% prior.
Capacity utilization, June (9:15): 75.8% expected, 75.5% prior.
7-17-02
Greenspan speaks to House
Building permits, June (8:30): 1.660M expected, 1.676M prior.
Housting starts, June (8:30): 1.680M, expected, 1.733M prior.
7-18-02
Initial claims (8:30): 395K expected, 403K prior.
Leading economic indicators, June (10:00): 0.0% expected, 0.4% prior.
Philadelphia Fed, July (12:00): 18.0 expected, 22.2 prior.
7-19-02
Trade balance, May (8:30): -$35.3B expected, -$35.9B prior.
CPI, June (8:30): 0.1% expected, 0.0% prior.
Core CPI: 0.2% expected, 0.2% prior.
Treasury budget, June (2:00): $25.0B expected, $31.9B prior.
SEMINARS NOW ON CD!!
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and look for the link to the CD seminars. This is Jon Johnson's internet site for online seminars and the theories taught are the same that have delivered dozens and dozens of fantastic downside put plays during this downtrend. Hope you check it out.
End Part 1 of 2
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