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world stock market, us stock market
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7/23/02 Investment House Daily
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Investment House Daily Subscribers:
MARKET ALERTS
Target hit alerts issued NVLS
Buy alerts issued: BER; OVTI;
Trailing stop alerts: NWRE
Stop alerts: ENC; ORCL; QLGC
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SUMMARY:
- Burning lower again as new sectors get ripped.
- Everyone looking for love. Some find it, some don't.
- Dow showing signs of one of its short bounces ahead.
Utilities ripped open as another sector gets crushed.
Several down sessions straight and the sellers were looking for another area to sink. Today it was utilities getting the nod, and they were hammered along with financials. Of course the selling was not limited to those areas as the entire market once again (sans retail) went under the knife, but those were in the limelight Tuesday.
Retail 'rallied' Tuesday on some good earnings and good projections for the next two quarters. That sparked some buying/short covering in those sectors that had just been hammered the past month. Even with the 'rally,' these stocks went nowhere, floundering about at the bottom of the recent steep decline. The action was not a strong endorsement of the retail news; it may give some upside, but these stocks are in it deep, so to speak, after their recent steep plunges.
All in all it was a typical session of late with the indexes finding new multiyear lows on strong volume with the market internals getting worse and worse. It was also somewhat frustrating; the trade was very choppy, lacking the clear direction usually evident in this downtrend. Indeed the Dow was bouncing back and forth from positive to negative similar to a tennis match before finishing slightly lower. The action left some of our new plays stuck in the mud for the time being as the Dow indicates it may try one of those day and one-half rallies it pops off every now and then.
Looking for bottoms under every sell off.
Everyone is talking about it, including us. You have to take note of the events regardless of how many are discussing bottoms, capitulation, or whatever you want to call the endpoint of the selling. That does not mean the beginning of a rally, but the cessation of the downward push.
Tuesday was no exception with some more discussion of what, when, and where a bottom will come. Maria B on CNBC made the exasperated statement that we should just admit we are in a bear market and start shorting the market. Well, everyone has admitted there is a bear market and lots of people have been shorting it for months. Right on top of the action as usual, live from CNBC headquarters.
Then there was Investor's Business Daily stating to the effect that we were all knowledgeable now as opposed to our investor ancestors, and with everyone looking at the put/call ratio, VIX, bulls versus bears, short interest, etc. that finding a bottom would be harder this time around. We like IBD as it likes to look at the facts. That is what we do; look at facts and history and winnow out all of the hype. IBD also likes to knock analysts, market technicians, and basically anyone that looks too far down the road or gets too emotional in their analysis. We have to agree with that. But when we see IBD start to get emotional as well, that is something to note. Though not expressly stated, the theme of the IBD editorial is that things are different this time, and to use the old indicators as a go by might just not work because this time around we are all much more savvy investors.
In 1999 when the market was churning in a late summer/early fall selling bout we received lots of emails along the same lines: after 1998 investors were not going to sell out so fast because those that did in 1998 got burned with the sharp reversal; thus investors were wiser and were not going to do it again. Well, they sold in September and October, and the market shot higher in the fall. We all like to think that we are smarter this time around, but there are a lot of mutual fund managers going through their first real sell off and even bear market, and it is historically one of the worst in U.S. history. Just as they got sucked into buying stocks at higher and higher multiples and then did not have the discipline to sell them, they are now adopting doomsday scenarios of 3 to 4 more years of selling, Dow at 6,000 for three years, etc.
The point: it really looks as if sentiment is at least starting to get extreme no just by the numbers but by the statements from market veterans. Market moves are a result of human greed and fear working in varying degrees. Despite all of the knowledge, technology, economic 'science,' and market history, investors, whether fund managers, IBD analysts, or just you and me, are still ultimately ruled by their emotions. When the pros start to say things are different this time, that is a sign that the pessimism (e.g., fear) is reaching high levels. When the pros start doubting what the market has shown again and again based on some 'new market' dynamics (remember the 'new economy') it is a pretty safe bet that the same old dynamics are at work and are in the process of turning the pendulum the other direction. The neat thing about it is, the pros don't think they are being irrational or led by their emotions; it seems really clear that things are different. Once that mindset becomes commonplace, you will see a change. Just about when the 'white hot new economy' was going to really start taking off, it didn't. It was not new; it was just the same economy with some new features, kind of like a nice new vehicle with the newest voice recognition and GPS capabilities. It still is a vehicle used to get you from point A to point B, it just does it a bit slicker.
So, our view is let everyone get comfortable with the fact that this is going to be a much longer term grind it out market and economy. It may just be that. The sooner the majority concludes that, however, the sooner that scenario ends if it ever starts. Investors have been told to stay the course so many times the past 20 years they are partly brainwashed to do just that; but as we noted Monday night, if they are that dyed in the wool, they are already ground down to nothing and are going to hold on long term. We have interviewed investors who still owns stocks that are 90% and more off their highs. At this point they just don't care. They don't look at their statements. They are not going to sell because they don't see any benefit in doing so. They don't think they will get into anything that will get their money back faster because all they see is even the 'safe' sectors they would get into selling off. If it goes up, great. If not, they have already resigned themselves to the lost money. They just don't care and are not going to change their position regardless what the market does.
Now THAT IS the kind of 'give a s - - t' attitude that is exactly what post-crash bottoms are made of. That mindset is being misread by many experts as requiring more selling to flush them out. Well, you can either flush them out with a big selling binge, or you can wear them out with continued selling lower and lower. When they don't care anymore what happens, they are in the latter category whether they hold stocks or not.
Does that mean a bottom is here? No, but it is a sign that things are getting worked off just as they should be. You don't know there is a bottom until the market says there is a bottom. That means the selling stops, and then there is some massive upside with huge internals (follow through). Not just a day, but sustained action that comes back to the well after taking some time off and digesting the moves. Then we can at least start thinking seriously about some sustained upside moves.
THE MARKET
The market keeps making history with each selling session, with each sector that gets the wood put to it, with each new milestone hit. This will sound strange, but you know how doctors, therapists, best friends, etc. all say we should stop and smell the roses, look about in wonder at the world we live in? Well, while you take what the market gives, and that is predominantly to the downside with this amazing bear market downtrend, stop and think about what has happened and is happening. This is something that does not come every generation. Our parents and grandparents tell us of WWI, the Great Depression, WWII. We will tell ours about the fall of Soviet communism, the technology boom, the war on terror, and the Great Stock Market Crash of 2000 to 2002 (?). We have really enjoyed a downside bonanza the past month in particular as we operate as smart investors, recognizing where the money is to be made and then taking it when it is offered. Take a minute from the trading to think about how amazing an event we are living through. It is not something we would want; we don't like the hardship so many have and are enduring, but it does make us appreciate our ability to maybe see a bit clearer what is going on and the fortune we have had in being able to take advantage of the market direction.
Sentiment Indicators
VIX: 50.48; +2.25. Intraday at 52.48, the highest close since the 1987 crash when it spiked near 150 in that violent selling. It did not get a close this high in 1998 nor in September 2001. It is not at the intraday highs of 60 in 1998 or 172 in 1987. That 60+ level still looks like the threshold of really starting to talk about this indicator of fear and anxiety to be high enough. As can be seen, it can take even higher readings, but that typically happens in a binge. What we are seeing here is a historically high close that is also getting close to historically extreme and significant intraday levels.
VXN: 66.39; +3.81. Rising again as the Nasdaq comes under some fire, but it has still not eclipsed its recent highs just over 70.
Put/Call Ratio (CBOE): 0.85; -0.02. Again put action was pretty calm given the selling, but the market action was a bit different today with the back and forth trade and the Dow showing indications it was trying to start a brief bounce.
Nasdaq
Came under pressure again and sold on rising volume. After trying to hold up while the Dow and S&P 500 broke lower, the Nasdaq is giving way some ground.
Stats: -53.60 points (-4.18%) to close at 1229.05. A solid spanking.
Volume: 2.6B (+10.14%). A solid spanking on rising volume indicating high share turnover and less interest in holding tech stocks than last week.
Up Volume: 742M (-257M)
Down Volume: 1.835B (+480M)
A/D and Hi/Lo: Decliners led 3.41 to 1
Previous Session: Decliners led 2.29 to 1
New Highs: 13 (-3)
New Lows: 428 (+89). Finally broke 400. This is a minimum level you look to in order to see selling getting to extreme levels once again.
The Chart: http://www.investmenthouse.com/cd/$compq.html
The Nasdaq has turned lower with the Dow and S&P 500, losing its silver lining of relative strength to those two indexes. It has solidly undercut, on high volume, the October 1998 bear market lows and is heading lower now. It may try to bounce with the Dow and market as a whole, but it has now joined those two indexes in a failed attempt to hold one of the last credible support levels before a test of 1200 and then most likely toward 1000. That sounds dire, but the long term head and shoulders pattern has been completed on high volume as a back up to the S&P 500 doing the same, just as the Dow did in the 1929 to 1932 period. The Dow sold significantly after it completed its pattern. This was a scenario we discussed in May and June, and it looks to be coming to fruition. It is never a straight drop, however, and we will look for the Nasdaq to perhaps test higher on a bounce with the Dow up toward 1300 or the 10 day MVA. That will give a good entry point, but it looks as if the damage is done to the pattern and it will ultimately fall further as did the 1929 Dow.
Dow/NYSE
The Dow was up and down, bouncing positive to negative in the last hour before late selling took is decidedly lower. Volume was up again, but it looks as if it is ready to try a short bump higher as the consumer products companies were stronger on the retail numbers. The consumer stocks were already setting up some more downside action if they rally another session.
Stats: -82.24 points (-1.06%) to close at 7702.34
Volume: 2.415B (+11.39%). Rising volume again for the third 2 billion+ session in a row.
Up Volume: 469M (+190M)
Down Volume: 1.948B (+69M)
A/D and Hi/Lo: Decliners led 4.76 to 1. The ugly get uglier.
Previous Session: Decliners led 4.06 to 1
New Highs: 12 (-9)
New Lows: 728 (+170). Down right nasty.
The Chart: http://www.investmenthouse.com/cd/$indu.html
The Dow was bucking the trend Tuesday, trying to rally back after about 1700 points down in the last two weeks. It was trading positive a couple of times in the last hour before the sellers asserted themselves and closed it lower. It has the signs of trying a bit of a pop higher after the slaughter, seeing if it can come up and catch its breath. The support came from the consumer stocks on the back of better retail sales numbers and some good earnings reports. Even with those stocks up, however, the index was lower. What this may produce is another shorting opportunity if the index can move higher for a session or two and before the sellers really get after it again. As for how high, there is no real near term resistance. The 10 day MVA is near 8300. The September 2001 low is the closest at 8062. That seems more in the realm of possibility, but it may just waive at that from a distance.
S&P 500:
We mentioned the Nasdaq head and shoulders completion joining the S&P 500. The large caps broke through their head and shoulders pattern about 200 points back (closing prices). It has thus fallen 20% from the bottom of that pattern just as the Nasdaq completes its pattern. Where from here? Well it is at the 1997 levels and looking for the 1996 'irrational exuberance' at 730 to 755. If it takes the head and shoulders to the textbook level (the fall equaling the height of the neckline to the top of the head), that puts the S&P 500 at roughly 450 to 500. There is a long term up trendline just over the 700 level, and it will be interesting to see how it handles that along with the 1996 levels as they try to team up in the low 700's. This action is just like the Dow in the 1929 to 1932 era when the Dow completed its head and shoulders pattern and plunged lower before bottoming. You may not put much stock in longer term patterns, but history does repeat itself because we are all humans with human emotion that is the same as it was back when we first realized that there was something different about us from the other animals. On a drop to 700, it will be interesting to see where the sentiment indicators hit. Before that, however, the index is going to bounce, but it is showing no signs of slowing down just yet other than the Dow giving its weak attempt to stem the tide today.
Stats: -22.14 points (-2.7%) to close at 797.71
NYSE Volume: 2.415B (+11.39%)
The Chart: http://www.investmenthouse.com/cd/$spx.html
WEDNESDAY
No melt down and the Dow did its best imitation of an index trying to put in some upside action after a thorough whipping. It has been torched for over 1700 points in short order, and it is trying to bounce on some good numbers from consumer and retail stocks. It most likely will not succeed, but it can give us a bounce up that sets up some of those rallying stocks for more downside action. Indeed, many of the bounces higher today by the consumer stocks and some defense stocks were on some pretty weak volume. Another half-hearted effort at some upside could give a good selling opportunity.
With the Nasdaq losing what little charm it had over the past few sessions, the focus on the downside continues the key. After so much selling good entry points were becoming scarcer, and the downside action in some weak sectors indicated the same as the stocks tanked, rallied, tanked, and rallied along with the Dow. That extra volatility up and down indicates a test higher may be coming. At this stage the sentiment indicators are still not all at levels indicating a more dramatic bottom, so we would expect one of the short bumps higher that then rolls over for more selling. The market is so oversold at this point it is much the same as the indexes were overbought in 1999 and early 2000 when we reported daily that the indexes would at some point have to start correcting as they were well above historical measures of their 200 day MVA. We are seeing higher volatility, etc., along with that oversold condition; one would think a move up would have to have more than just a short pop, but the moves on 'good' news today in the consumer stocks could only stem the losses, not put the index into positive territory.
On top of the Dow's action, we have the Nasdaq undercutting an important level, e.g., the neckline of the long term head and shoulders pattern. It has been the pattern for the Nasdaq to move up to test the move each time it has undercut an important level. We are not counting on it, but we are looking at it as a possibility. The markets are in the tank, spiraling downward in their downtrends, and we cannot lose sight of the fact that they are in downtrends no matter how much talk or hope is put out about potential bottoms. Until they show it with solid follow through to the upside.
Thus, if we get another move higher toward resistance and these consumer stocks (PG, MMM, CL, CLX, etc.) run into their downtrends or short term moving averages, we expect them to start dropping like flies once again. That sets up another shorting round. The rally could move further to the upside; unfortunately, the selling just does not continue unabated until the market bottoms. As we have seen, it works lower, bounces, works lower, then bounces again. The last few weeks have been extraordinary in the selling. In all probability, not all of the downtrend toward the low will be that way. Of course, one thing this market has shown the ability to do is sell like a bat out of hell, so that is why if we see these stocks roll over at near term resistance on a bounce we will be on them to the downside along with the indexes.
End Part 1 of 2
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world stock market
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