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7/16/02 Investment House Daily
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Investment House Daily Subscribers:
MARKET ALERTS
Target hit alerts issued Tuesday: None issued
Buy alerts issued: CREE; PTEK; BLUD
Trailing stop alerts: None issued
Stop alerts: ABCW; CLF
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SUMMARY:
- Nasdaq leads the market up to the 18 day MVA, then reverses.
- Greenspan takes his turn at soothsaying with predictable resuts.
- INTC fails to provide any earnings comfort moving forward
- Subscriber Questions
Monday reversal from the lows leads to Tuesday reversal from the highs.
Tonight no attempted country and western lyrics though the market action was a prefect bear market two-step: step and slide to a new low, step back to resistance, then step and slide lower again. After a Monday session that saw a 400 point Dow reversal and had some saying it was a very important session, the market resumed its pattern. The Nasdaq, not the Dow, had been showing the relative strength, and it was the Nasdaq that tried to lead things higher this week after last week's slaughter. The techs hit the 18 day MVA (or close to it) mid-session and rolled over, forming a perfect intraday head and shoulders pattern. The bell rang before it could really get ugly in breaking lower from that pattern.
This is familiar action though it was not brutal. After a new year low intraday Monday, the Nasdaq started a rally back. It continued that rally the first half of Tuesday's session. Then it hit that near term resistance and rolled back down to a negative close. Volume shot even higher on the reversal, never a good sign when testing and bouncing down from resistance. The candlestick pattern showed a tombstone doji as well, another indication that the move has run out of momentum at the 18 day, just as it did 7 sessions before and twice in June.
The other two large cap indexes and the small cap indexes never even made a game of it. There was no attempt to rally, just a gap lower and more selling. Just another round of selling after one more feeble blip on the EKG.
Selling not brutal, just familiar.
The move lower was not an out and out slaughter. It was a slow, deliberate start. Many times in the bear market the turns lower start with lower volume and flat internals, and then just keep building on the way down. That happened last week when the indexes rolled over on light volume and then built into that real night screamer as the week wore on. Thus the fact that the internals were not massively negative cannot be taken as a really good sign; after all, after a rally internals usually look decent when the turn starts as the upside momentum lingers.
THE ECONOMY
Greenspan gives the economy a half thumbs up.
Greenspan said it so it has to be true. After all he is the greatest Federal Reserve chairman of all time as pointed out by senator Gramm. Yes the economic fundamentals are solid and will eventually lead us into a nice level of growth, jobs, and prosperity for all. The industrial production and capacity utilization figures today were up a bit and added even more to the slow but steady recovery argument Greenspan has been pushing. About the only thing Greenspan cautioned on was the need to curtail spending, a point Congress is all too ready to agree to in principal until they actually have to make a cut. To them, making the cut is something that professional golfers do on Friday. The federal budget should be more accurately referred to as the congressional wish list where wishes always seem to come true and then some. In that way Hollywood and Washington, D.C. have a lot in common: they do not appear to live in the same world as the rest of us do, but some fantasy world.
Greenspan had some decent commentary even if it was uninspiring. First he said business investment was showing signs of coming off the mat. Not much yet, but showing signs; he is still not convinced that final demand is picking up yet. Second, Greenspan said not to worry about the dollar because it was too complex to control. That is correct. Too many times in the past the leaders decided the dollar needed to move higher or lower and then set about to achieve that goal. They always end up going way too far. Currency issues are indeed too complex for any one group or nation to manipulate to its liking. It a lot like the Fed and its manipulation of interest rates. It cuts, cuts and cuts and nothing happens. Then it makes that last cut (it is always that last cut) that goes too far. At that point the market scurries to the corner like a scolded puppy and refuses to come out until it is fed enough rate cuts to lure it out bit by bit.
Greenspan spent a lot of time on corporate governance as expected. He said Congress cannot legislate good CEO's, and thus Congress should be vigilant and not over-regulate. He noted that the problem was already over for this time around and what Congress was working on was legislation for 7 to 10 years down the road when the next big rally might give rise to similar overreaching; better to get it right than to get it fast.
Greenspan saw corporate accounting problems, so why didn't the SEC?
During the course of the discussions of the current accounting issues Greenspan stated that during the past few years he was seeing the 'most creative accounting ever' in his years of public service and that we thus should not have been surprised by all of this hitting the fan.
Question: if Greenspan could see this was happening, where were the public 'watchdogs'? Where was the SEC during the 1990's? Sitting back on its fat rear doing nothing. There are plenty of laws and regulations on the books to handle what was happening. The chairman of the Federal Reserve said he could see it happening. Again, where was the SEC and the head of the SEC who made all of those grand speeches about accounting and auditing after the fact of ENE? Sure he claimed to have been whining about this type of problem beforehand, but if he was looking at it, why did he not see it as did the Fed chairman and then do something?
He had reasons. As noted before, the SEC gets part of its funding from activity on Wall Street. The more IPO's the more money for the watchdogs of Wall Street. Of all the hyperbole and rhetoric tossed out on recent weeks about the fox guarding the hen house, etc., this glaring little feature remains overlooked. This was a disincentive for the SEC to work just as a corrupt and bloated welfare and social security systems create disincentives for able bodied people to work. Moreover, there was an attitude from the top that style was everything while substance was secondary. Let's face it, if the leader feels he can lie under oath, looks his constituents in the eye and lie, obstruct justice, and then throw up his arms in wonderment as to why some people have a problem with that, then lax or nonexistent enforcement of securities laws is an easy jump.
Question 2: What was all of this slobbering in the Senate about how the market turned from negative to positive while Greenspan was speaking, implying that Greenspan had something to do with it. If his words were all that reassuring would not the market have continued higher instead of reversing in the afternoon? Brother.
THE MARKET
The reversal reverses.
As fast as the market reversed off of Monday's lows, it turned back south. It stuck its head up above water just long enough to make sure it was at resistance and could start back down, and then it did in fact start back down. We read just about everything printed relating to the markets, and there were several that once again called Monday some kind of important bottom just as they had called a few of the previous one day reversals bottoms.
We have to admit we were expecting a bit more from that reversal, but when you think about it, a 92 point move low to high from Monday to Tuesday on the Nasdaq, 42 points on the S&P 500, and 391 points on the Dow in about 3 hours time is a hefty move. It is easily the normal bump higher in this bear market. We have said it before: we hate those big reversals or those big point days to the upside. They are typical bear market short covering rallies. We would much prefer to see a turn, a bit of a meander upward to sideways for a few sessions, then some bigger follow through, then repeat. That action is healthy, not this sell off hard then reverse and rally back just as hard. You burn up all your fuel. You are spent. You need Viagra, but for the market, the FDA has not approved any.
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: 42.05; +2.75. Highest close since September 2001. It is working on moving higher. When/if it does get up over 50 and near 60 we can anticipate a rally, bear market ender or not. Even if this is a secular bear market, there are long rallies and a high VIX along with the other negative sentiment can trigger one of those rallies. Not there yet, however.
VXN: 67.94; +0.09
Put/Call Ratio (CBOE): 0.76; -0.11. Put action has become a drag on a reversal. It did spike up earlier in the year, but of late it has not been spiking higher. It is either that option players have stopped playing (not likely) or that funds are not hedging positions as much as they have unloaded a lot of stocks.
Nasdaq
Led higher but then got weak knees before the Intel numbers. INTC was a disappointment, but it is not selling off. It is not rallying higher, but it is not selling off. The numbers were not good and it holds its ground. If the Nasdaq does not sell off tomorrow on this news that would be a sign of that relative strength that has been showing up: when the market just does not care about bad news anymore it is ready to start building higher.
Counter that with the doji on the candlestick pattern at resistance. That is a continuation of the downtrend action, i.e., the rallying to near term resistance and then reversing. High volume. The relative strength may help it ultimately reverse the selling, but near term it looks as if it is going to resume lower overall. There are pockets of continuing strength, and again, that may help to keep a lid on any selling off the doji.
Stats: -7.36 points (-0.53%) to close at 1375.26
Volume: 2.375B (+12.95%). A jump in volume on the reversal that followed Monday's reversal. Tuesday's volume on the reversal was bigger than Monday's volume on reversal. Tuesday wins.
Up Volume: 932M (-268M)
Down Volume: 1.428B (+554M)
A/D and Hi/Lo: Decliners led 1.02 to 1. Again, it was a mild day as far as the internals were concerned.
Previous Session: Decliners led 1.62 to 1
New Highs: 22 (+1)
New Lows: 146 (-98)
The Chart: http://www.investmenthouse.com/cd/$compq.html
Again, a tap at the 18 day MVA on the high (1407.59), then a reversal to close lower on rising volume. It sure looks like another reversal at near term resistance. Intel's numbers do not appear to be anything to spark a significant upside move as it missed on just about every category though it still says its margins will improve. Improving margins is nice for the company itself, but they don't say much about the overall business climate for the sector. In other words, INTC might be able to improve its margins through internal controls without the market for its products changing much. Similar to that Cisco 'home run' quarter or Dell beating the street by capturing additional market share. There is not much upside to those types of rallies as we have seen, but that relative strength in many big techs could keep any further selling off of today's reversal contained to the near lows.
Dow/NYSE
Whereas the Nasdaq may have come up for air, we don't really think the Dow made it to the surface. It gapped lower, made a weak run higher but never broke into green. Then it rolled over and dove to 8500. Seven losing sessions in a row. The history books are getting some more fodder.
Stats: -166.08 points (-1.92%) to close at 8473.11. Loves those triple digits so much, after closing down double digits Monday it tanked to comfortable territory.
Volume: 1.848B (-4.52%). The Nasdaq reversed on rising volume, the Dow sold on lighter volume. As the Nasdaq is the leading index now we put more weight on its price/volume action.
Up Volume: 606M (-46M)
Down Volume: 1.211B (-57M)
A/D and Hi/Lo: Decliners led 1.48 to 1
Previous Session: Decliners led 2.57 to 1
New Highs: 19 (-19)
New Lows: 123 (-220)
The Chart: http://www.investmenthouse.com/cd/$indu.html
Seven straight selling sessions with no real respite other than a 400 point or so intraday reversal now and then. The Dow has just fallen off the table the past week in a move that is starting to bring back memories of August 2001 when the Dow slid down the slope and looked just ready to turn on 9-10. It needs the fall. It needs to washout its gains since then and undercut those lows and get sentiment indicators extremely negative. Conventional wisdom says it is way too oversold on a short term basis and has to rally. Problem is, when real selling starts, conventional wisdom does not apply as the situation is no longer conventional. The Dow is entering that situation now. Not unlike the twilight zone. After all, you see intraday 400-point reversals one session followed by a resumption of the business as usual selling the next.
S&P 500:
The S&P had one up session in the middle of the selling, so it does not get that 7 in a row. Other than that, however, the large cap index looks a lot like the Dow or the Dow looks a lot like the S&P. The large caps have sold harder of the two; pick your poison. The point is that this is looking more and more like a real meltdown coming similar to that in August 2001. Longer term that is not a bad thing for the bulls as it seems unavoidable. Shorter term it is a great shorting opportunity even if the selling is getting long in the tooth.
Stats: +0.08 points (0%) to close at 899.99
NYSE Volume: 1.848B (-4.52%)
The Chart: http://www.investmenthouse.com/cd/$spx.html
WEDNESDAY
While anything can happen in this back and forth market, the trend is down. We shut down the semiconductor upside plays before the close today before the Intel owners when the market was rolling over. We had good gains on some, modest on others, and were flat on others. With the Nasdaq tapping the 18 day MVA and rolling over on high volume and forming up that tombstone doji, we were not willing to hold them longer. We were playing a bounce higher and the patterns shaping up looked as if that bounce was ending quickly; take it off the table and look for better game.
Intel missed its earnings and revenues, but it was not selling off after hours, just wandering laterally. Is this a case of the market absorbing bad news and going about its business? Well, yes, because the business it is going about is working lower in its downtrend. The Nasdaq is the leading index and failed at the 18 day MVA today (near resistance) on a volume spike. It looks as if its bounce is over, and it will now go about its usual business of selling lower in its downtrend. Yes the market has already sold hard and is due for a bounce, but it gave it its best shot from the looks of it, and it could only muster a Nasdaq move to the 18 day MVA. It looks ready to resume the downtrend, and if it does, it may be quite a trend lower as the Dow and S&P 500 are already looking like they are sliding down the side of a canyon.
The Nasdaq may not be heading down as vigorously. It has shown relative strength, and though many techs show signs of rolling back over, many others held onto good moves on strong volume Tuesday. Again, that is that overall relative strength holding up. In addition, it is trying to set up a range in the 1300 to 1400 range. Thus it may not be carte blanche selling on technology. Again, we will have to see how INTC is treated. We are frankly surprised it is not selling down after hours. It does not even have a Cisco-like story to tell or figure out; the numbers were just crappy. Some techs look ready to fall, others look ready to continue their move.
Support and Resistance
Nasdaq: Closed at 1375.26
Resistance: The September 2001 low at 1387. The 10 day MVA (1389.80). Then 1418, the interim test after the September low, and the 18 day MVA (1416.67). 1500 and the May low (1560.29). The second March down trendline is at 1510. The 50 day MVA (1519.72).
Support: The March down trendline (1345). 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 1300. 1357.09 is the October 1998 bear market low just for reference. After that is roughly 1250.
S&P 500: Closed at 900.94
Resistance: The lowest bottom channel line of the March downtrend (922). Then the 10 day MVA (937.31) followed by the predominant bottom channel line at 948. The 18 day MVA (957.91) and the May down trendline (965). After that 978 is the March down trendline. The 50 day MVA at 1010.14 and the second March down trendline (1021). Then the May low at 1048.96. 1060 offers minor resistance from previous prices. Then the February lows at 1074.
Support: 900 held on the Tuesday close. Then 855 the October 1987 low and 817 the February 1987 high.
Dow: Closed at 8473.11
Resistance: The bottom of the channel of the March downtrend at 8838. Then 10 day MVA at 8856.92 followed by 9000. The 18 day MVA (9030.86) and the March down trendline at 9220. Then price resistance at 9250. Then the 50 day MVA (9452.50) and 9500.
Support: The rest stop at 8500 was cracked on the close Tuesday. The September closing low is 8235.81 and the intraday low is 8062. The October 1998 lows are at 7400 and 7467.
End Part 1 of 2
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