|
|
us stock market, trend trading stock
* * * *
8/20/02 Investment House Daily
* * *
Investment House Daily Subscribers:
MARKET ALERTS: Slow session overall.
Target hit alerts issued Tuesday: None issued
Buy alerts issued: None issued
Trailing stop alerts: None issued
Stop alerts: None issued
To subscribe to the Daily alert service you can sign up at the following link:
http://www.investmenthouse.com/alertdly.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:
- Major news of the day: Martha Stewart gives Congress documents.
- Low volume pullback holding the 50 day MVA.
- Trade balance grows, gap shrinks.
- More testing ahead.
- Team Trades
When the big story is Martha's documents, you know it was a slow day.
The Weather Channel has the 'Local on the 8's'. CNBC has the 'Martha document quarterly,' the quarter being measured in hours. Yes Martha was mentioned more than the market itself today, a testament to the sluggish action. By the way, the documents were in fact delivered, and they were delivered before the deadline. Now we can all breath a sigh of relief and go redo the entry hall in faux paint.
Low volume selling looks good for continued market health.
Tuesday Nasdaq volume slid lower and NYSE volume was ever so slightly higher on the selling. Hardly a higher volume reversal and more like a good day of rest. Used to be when we had a day of light volume selling after a good rally we were bracing for an onslaught of additional selling, looking for downside positions. Just a couple of months back the norm was a rally attempt that was overwhelmed by wave after wave of selling that would push the indexes to new lows. When the selling started, the downtrend was reasserting itself and we would look to downside positions.
While the market is still far from vibrant, for now the sellers are at bay and these low volume pullbacks have been used as opportunities to enter long positions as opposed to short positions. Moreover, instead of sending the indexes knifing to new lows, there have been a series of higher and higher lows. Tuesday the Dow and S&P 500 even managed to hold onto their 50 day MVA on the close. They could still undercut them on some further profit taking after the rally, but the fact that those indexes moved back up to hold support levels on the close is indicative of the different market character exhibited since the July low.
With this type of action the indexes are trying to consolidate the moves again and set up another run higher toward 25% above the July lows. We will not fight the market if it wants to move past that level after another pause or consolidation period here, we will just keep it in mind and analyze any worsening action to see if it indicates the market topping out after a strong move off the lows ahead of a re-test. For now it appears the market is ready to take a breather and then make another attempt higher.
THE ECONOMY
Trade deficit narrows while it grows overall.
Imports and exports were both up in June. To us that is a win-win. While many say imports drag growth, it is only a numbers game as imports are deducted from GDP because they are goods and services that are not home grown. They are, nonetheless, bought, and that indicates there continues to be demand in the economy. It also is a sign of strong capital inflow into the U.S.
Exports also grew, and they grew faster than imports in June. That shrank the trade gap a bit, but as for the trade gap we are not too concerned about that. Again, a lot of goods flowing into the U.S. means consumers are buying and foreigners are investing in the U.S. Rising exports is good for domestic businesses and it also gives a boost to GDP as these are U.S. goods made as a part of the U.S. economy. Make more of these goods and then sell them and you have a stronger GDP. Heck, the way the government counts beans, you don't even have to sell them but just produce them (inventory is added to GDP). In short, the final number is fairly mushy and what looks good (or bad) can actually be good. The key point is that U.S. producers made and sold more stuff abroad while at the same time U.S. consumers continued to consume goods made at home and abroad, a good sign of continued economic stabilization.
Oil supplies rise 6.6 million bbl versus -3 bbl expected.
After hours API gave the current stockpiles, and that helped push oil futures into the low $28 range after trading up over $30 intraday. That takes some pressure off of prices even with the Iraq situation. That means that stockpiles are not as low as thought and gives us a cushion in the event of any Middle East action.
THE MARKET
Sold off early, tried a modest rally off the lows, and settled in the lower half of day's but off the lows. Looks like another constructive session as the Dow and S&P 500 held the 50 day MVA on the close and breakouts held up well. Volume was slightly higher on the NYSE, lower on the Nasdaq, but barely in each case. That is decent action. We did not expect the indexes to rally back and close positive, but it would have been a bit stronger session if they had held the late rally attempt a bit better. Still a decent session with the hold above near term support.
Sentiment Indicators
VIX: 32.56; +0.99
VXN: 47.71; +0.69
Put/Call Ratio (CBOE): 0.74; +0.13. Good to see the ratio rise on some rather modest selling. This indicates there is still lingering concern, anxiety, disbelief, etc. in this move of the lows. The more worry and concern the better as that means not everyone is partaking in the action. That leaves more ammunition on the upside if the rally continues and they are converted from bears to buyers.
Nasdaq
Never got on track, gapping lower and unable to hang onto two rally attempts. It managed to close off the lows and held the simple 50 day MVA though it gave up the exponential 50 day MVA on lighter volume.
Stats: -17.95 points (-1.29%) to close at 1376.59
Volume: 1.502B (-4.95%). Lighter overall volume on the selling, continuing some good price/volume action.
Up Volume: 562M (-689M)
Down Volume: 902M (+597M). Not a downside rout with downside volume nowhere near the level of upside volume versus downside volume during the rally days.
A/D and Hi/Lo: Decliners led 1.48 to 1. Flip-flopped with Monday.
Previous Session: Advancers led 1.5 to 1
New Highs: 39 (0)
New Lows: 99 (0). Unusual to get no change in new highs and new lows. Even with the selling there was not an increase in lows or a reduction in highs.
The Chart: http://www.investmenthouse.com/cd/$compq.html
Was unable to hold the 50 day MVA (1387.85) after gapping lower and testing that level on the high. It was able to hold the simple 50 day MVA on the close (1373.02), somewhat significant. Volume backed off on the selling which is what you want. The index is now at the pre-July selling level and that level is providing some resistance along with the 50 day MVA. Once again it appears that the Nasdaq is going to move sideways for a few sessions before trying to take out this next resistance at 1400. As long as the price/volume action remains solid its prospects look good.
S&P 500/NYSE
It was not pretty, but it managed to hold onto the 50 day MVA on just slightly higher volume.
Stats: -13.27 points (-1.4%) to close at 937.43
NYSE Volume: 1.318B (+1.37%). Volume edged higher, something that is not exactly what you want on selling, but it was a small gain and we have seen the market move right through these small aberrations. We still are watching this closely, however, as technically there were more sellers Tuesday than buyers Monday. Not a high volume turnover, however, no matter how you slice it.
Up Volume: 475M (-595M)
Down Volume: 832M (+645M). As with the Nasdaq, not a rout to the downside.
A/D and Hi/Lo: Decliners led 1.52 to 1. Selling not nearly as intense as the Monday buying.
Previous Session: Advancers led 2.1 to 1
New Highs: 33 (-7)
New Lows: 23 (-10)
The Chart: http://www.investmenthouse.com/cd/$spx.html
950 stalled the index for the second session. On the low it undercut the 50 day MVA (935.04) but did hold the simple 50 day MVA on the intraday low (931.86). The recovery to hold the 50 day MVA was good action. The index has more upside before it recaptures all of the July selling, and that could carry it up to the 980, maybe 1000 level on this move off the low before it really runs out of gas. Looking for some more consolidation at the 50 day MVA and perhaps down to the 10 day MVA (917.31) before another run is made.
Dow:
Stats: -118.72 points (-1.32%) to close at 8872.07
Volume: 1.318B (+1.37%)
9000 shut the Dow down again as it failed to move up to ever really challenge the Monday high. Similar to the S&P 500, it held the 50 day MVA on the close (8870.70), rallying back from below that level. It closed in the lower half of the session range, recapturing some of the losses but losing most of a late rally that had some promise. It was not a day the buyers were ready to step back in with full force. After the good move up we can anticipate a couple more days similar to this session before an attempt over 9000 to the 9250 level is made (9500 possible?). At that point the rally gets a bit old and that is when it may try to test the July lows. Best case scenario is that takes it into September, the usual month for some serious selling that sets up an October bottom.
The Chart: http://www.investmenthouse.com/cd/$indu.html
WEDNESDAY
The market needs another session or two of lateral movement to consolidate these gains before it can make one more attempt at a full 25% rally off of the July low. While the current action remains very solid, we are watching the action of breakouts and price/volume as well. The volume has not been nearly the level of the July selling and buying, something we noted and debunked a bit on Monday. Still, it would be nice to see some big buy side volume sessions thrown into the mix. Without it, the action is not as strong and can turn. That is why we are watching volume and breakouts so closely in conjunction with this current resistance.
The action this week has been solid, and Wednesday the market will be on its own without a lot of outside news. The chip equipment book to bill ratio came in at 1.16 as new orders fell 2% to $1.15B while billings rose 7% to $915M. That throws some more water on the chip equipment sector and by implication, on the rest of the economic recovery. The theory goes that chip stocks are the first to recover as they are in everything. If they do not show a robust increase, the economic recovery is not as robust. That has put some after hours pressure on stocks and won't give rise to a robust open Wednesday.
Still, Wednesday we expect similar action, more consolidation, more testing of the recent move higher. Once again the indexes need to hold above near term support and make a move up off the lows later in the session to maintain its bullish tint. The late moves do not have to drive to session highs, but just take back earlier losses as seen Monday. If that action persists for another session on positive price/volume action, we will look upon the current action with even more favor.
It is time to be patient, to let the current trend work for us. In an uptrend there will be rallies then consolidations before the next move. In this market the urge is to shift more to a daytrader's mindset based on a fear that the market is going to roll over on you. If the moves are solid and on good volume while the overall market holds up and shows solid action, we let the existing trend work for us. If it rolls over on higher volume selling and pops the support levels, that is a different story; at that point you exercise the better part of caution and close them out. Otherwise we be patient and let the current market direction work for us, riding the moves up, riding out the inevitable consolidations, and taking our gains when they are there. At this stage that is one thing we have not changed yet: we have rather conservative upside goals on our plays. That will change when the market shows us there is more upside, and that will more likely be the case after some form of test of the July low.
Support and Resistance
Nasdaq: Closed at 1376.59
Resistance: The 50 day MVA (1387.85). 1418, the interim test after the September low. The second March down trendline at 1389. There is another downtrend line from the March and May highs at 1435. That is followed by 1500.
Support: 1357.09, the October 1998 bear market low. The top of the wedge pattern at 1354.48. The 10 day MVA (1338.34). The 18 day MVA (1328.50). Some price support at 1300. The July lows at 1240 to 1230. Price support from 1190 to 1200 (the July intraday low is 1192.42).
S&P 500: Closed at 937.43
Resistance: 950 is some resistance. 965, the September 2001 closing low. The next downtrend lines from March and April highs at 978. Then 1000 is psychological resistance.
Support: The 50 day MVA (935.04). The March down trendline at 923. The August uptrend line at 930. The top of the wedge at 911.64. The 10 day MVA (917.31) and the 18 day MVA (907.94). The July up trendline at 890. The lowest channel line in the March downtrend channel (854). 850 to 855 has previously held (the October 1997 and Q2 1998 lows). 800 is next. Then the July low at 775.68. 750 to 760 with an intraday touch to 730.
Dow: Closed at 8872.07
Resistance: 9000 represents some price resistance. After that price resistance at 9250 and then 9500.
Support: The 50 day MVA (8870.70). The late July high that is the top of the ascending wedge at 8762.14. The March down trendline at 8746. The 10 day MVA (8733.13) and the 18 day MVA (8663.29). The July uptrend line (8455). The May down trendline and the lowest bottom channel line of the March downtrend (8350). The September closing low at 8235.81. 8062, the September 2001 intraday low, has tried to hold on a couple of occasions. Then the July low (7532.66). The October 1998 lows are at 7400 and 7467. After that is 7000, some 1997 lows and highs.
Economic Calendar
8-19-02
Leading Economic Indicators, July (10:00): -0.4% actual versus -0.5% expected. -0.2% prior (revised from 0.0%).
8-20-02
Trade Balance, June (8:30): -37.2B actual, -$37.5B expected, -$37.6B prior.
Treasury Budget, July (2:00): -29.2B actual, -$31.0B expected, $2.8B prior.
8-22-02
Initial jobless claims (8:30): 380K expected, 388K prior.
SEMINARS NOW ON CD!!
To learn more about options so you can take advantage of up and down markets, check out the Options You Can Use seminar now on CD's! Also be sure to look at the Technical Analysis series on CD as well as the stock splits and covered call series. Go to
http://www.stockseminarsonline.com
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.
TEAM TRADES
BYD: Resorts and casinos are doing well again and BYD was ready for a breakout showing good volume the past several sessions. That indicates a lot of interest and often is a precursor to a breakout. BYD was cruising along all session, continuing to build good volume as it neared its breakout over the recent handle high. With about an hour left in the session it makde the breakout on a huge volume surge over 10 minutes. We were watching, but it was moving so fast we missed the first move. When you see this, never panic. The inclination is to race out and chase it on the good move. Often in the market, however, the best action is to fight your natural inclination and let those others chase it higher, burn out a bit, and then catch the stock after it tests the move and rebounds. This can be done intraday or over several days if you miss the first breakout move. BYD ran up to 17 in that quick burst, and then fell back to 16.60 over the next half hour. From there it held and started to show life for another bounce. That is when we got in. The stock was trading at 16.65 by 16.70. We limited the order at the ask, and it looks as if it would bypass us. It moved higher but then pulled back right at the close and that did the trick. We had a good volume breakout and caught it on an intraday test of that move after seeing the action all session.
End Part 1 of 2
|
us stock market
trend trading stock
|
