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us stock market, stock market investment
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9/04/02 Investment House Daily
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Investment House Daily Subscribers:
MARKET ALERTS:
Target hit alerts issued Wednesday: None issued
Buy alerts issued: PETM; COH; DNA; ANN
Trailing stop alerts: None issued
Stop alerts: None issued
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SUMMARY:
- Market takes back some Tuesday losses.
- Car sales boom while construction lags.
- Indexes and stocks nudge back up to resistance.
- Team Trades
Market bounce following the big downdraft.
As expected the market managed a bounce back Wednesday on the heels of the big fall to start the week. Early signals the U.S. was getting ready to roll against Iraq took some of the steam out of the early rally making it appear the market was ready to resume selling. Just after peaking below the Tuesday close, however, the selling stalled. Some shorts covered, some buyers entered, and a lunchtime rally started. That rally brought in some more short covering, and the cycle had begun as the rally fed on itself with shorts covering and buyers stepping in seeing some good moves. The move also received a push from some super August auto sales numbers and late session buy on close orders that fueled even more short covering. The action managed to push the indexes higher right up to the close where they butted against resistance.
Stocks showed similar action with many trying to shake off the Tuesday selling and regaining some lost ground. Many of the moves were on lower volume, but that was not the rule as once again there were some solid breakouts and solid volume recoveries. Overall, however, a lot of stocks still have to deal with near term resistance in the form of support levels they just broke through.
Volume on the indexes was stronger though still impressively weak. There was a combination of buying and short covering, and it looks as if the short covering following the SOX hitting a low not seen since 1998 was the reason for the bump up in volume. While the stronger volume was encouraging for the upside, it was still way to low to think that buyers had finally returned to the market after the Labor Day holiday. Indeed, it appears as if volume is going to be light until 9-11 passes. In that light, Wednesday's rally does not look as impressive as it does taken just by itself.
THE ECONOMY
Tuesday was all gloom from the Nikkei hitting two decade lows to a weaker manufacturing number. Wednesday did not give much better news, but it was taken more in stride. The Nikkei was still down, but the dollar was stronger and that seemed to help get things rolling.
Car sales boom again.
GM August sales +18%, Ford +12% year over year as 0% financing continues to show its power to draw buyers. We noted a month ago that the lament over the weaker consumer was premature as the consumer was merely shifting gears to take advantage of the reintroduction of 0% financing on autos and many consumer durables. As we saw, durable goods sales were huge and auto sales were in fact huge as well. The consumer is there if the consumer feels it is getting a real deal. The auto sales are an indication of just how ready to buy the consumer is.
Construction activity unchanged, better than the -0.4% expected, June revised to -1.7% from -2.2%.
It was all single family dwellings, however, driving the number as opposed to any increase in business or commercial construction spending. The consumer continues to foot the bill for the economy in practically all areas as businesses still do not see enough activity to justify new expenditures. It is always important to have strong single family unit construction as that leads to further expenditures on furnishings and 'stuff' to go inside the home. In this economic environment, however, there needs to be more balance just to show that business is coming back. Thus far it is not.
Retail sales start to come in ahead of Thursday report.
Once again sales are up and down for August, but overall they appear to be lower. Bank of Tokyo Mitsubishi/UBS Warburg weekly sales were up 0.5% ending 8-31 while Redbook logged -1.7% for the 4 weeks in August versus July. WMT sales were up 7.9% again for August but then other retailers saw sales in negative numbers for the month. In short, the consumer is still consuming, but it is not global. The focus in August continued to be on durables as opposed to soft goods. We will see more individual reports Thursday.
As a sign of the slower back to school season, however, HPQ reported that its sales for the season were only 60% of the usual pace. It seems neither businesses nor consumers are buying new computers in quantity right now, and we have heard comments the past two days from some business buyers that they may not be replacing machines until 2003 and some even 2004.
THE MARKET
Reclamation day as the indexes recovered from early war jitters when the President talked with Congressional members and was pretty blunt on his stance and received mostly confirmation from lawmakers. This is somewhat of a preview of what will happen when the jets start flying: the market will sell off at first. In any event, the market did not give up support as it sold after rallying, and that brought in some short covering after the big move down. That also brought in some buying as stocks started to recover. The combination fed on itself throughout the afternoon and pushed them to close just off their session highs on some rising though hardly impressive volume. From the looks of it, the extra volume came from the addition of some short covering, and the indexes are now set up right below near term resistance as are many stocks. The question now is whether they continue the reversal rally or do they fail here and start lower again. As it appears 9-11 will keep most investors on edge and reluctant to commit, we anticipate continued light volume and more downside. The reversal was impressive and it was on higher volume, but it still appears to be a recovery bounce after the Tuesday flogging.
The techs were one of the leaders back up (they lead down and up in percentage terms), but note also that small caps actually performed the best with the S&P 600 rising 2.6% versus Nasdaq +2.3%. That is a more subtle indication that there was some additional buying outside of short covering as investors looked for bargains in the smaller names. Moreover, the small cap index bounced up off of its July uptrend line. The fact that small caps are moving up off of this key level is very important for the market.
Sentiment Indicators
As fast as they shot up on the Tuesday selling, they backed off on the Wednesday rally. Nonetheless, the quick rise Tuesday shows there is still a lot of nervousness in the market, and that is overall an upside positive.
VIX: 39.94; -3.92
VXN: 57.42; -1.37
Put/Call Ratio (CBOE): 0.74; -0.32
Nasdaq
Started higher, and after a very brief dip to negative, the afternoon rally took hold and pushed it right back to close at resistance at 1300.
Stats: +28.47 points (+2.25%) to close at 1292.31. Solid gain to close right under resistance.
Volume: 1.494B (+7.23%). Rising volume over Tuesday's sell volume indicates Tuesday was not that virulent and that there were more buyers Wednesday than sellers on Tuesday. That is positive for upside longer term, but the volume was still well off a strong pace and that puts the move in question.
Up Volume: 1.191B (+1.103B)
Down Volume: 292M (-1.003B). Reversed the fortunes from Tuesday.
A/D and Hi/Lo: Advancers led 1.72 to 1. Breadth was decent, but not the 3+:1 seen on the selling. It was narrower, and that is another indication of short covering beaten down sectors as opposed to broad-based buying.
Previous Session: Decliners led 3.11 to 1
New Highs: 25 (0)
New Lows: 140 (-14)
The Chart: http://www.investmenthouse.com/cd/$compq.html
After dipping slightly negative at the end of the morning selling the techs turned the corner and rallied the rest of the session, triggered in part by a new multiyear low by the SOX that brought in some buyers. The move was solid all afternoon, closing near the session high on rising volume. Again this shows more buyers than Monday sellers, but the breadth was narrower and many of those extra buyers were covering shorts after such a big Tuesday plunge. The index is right at some resistance at 1300 from prior prices, and after that is a price top at 1316 and the short term moving averages at 1324 and 1331. It dug itself into a hole, and while it can climb out if the buyers come in, it has resistance immediately ahead and the pre 9-11 market will most likely keep wallets on the hip.
S&P 500/NYSE
Similar action to the Nasdaq, the big caps sank negative briefly before rallying back. Not far from near resistance, and that will be the test. Even with the higher volume, still looks as if it has lower to test.
Stats: +15.38 points (+1.75%) to close at 893.4
NYSE Volume: 1.348B (+3.76%). Volume edged higher on the buying, but it was still well below average; there was no flood of buyers back in the market.
Up Volume: 1.022B (+920M)
Down Volume: 320M (-871M). As with the Nasdaq, NYSE up to down volume flip-flopped.
A/D and Hi/Lo: Advancers led 2.3 to 1. A very decent move compared to the Nasdaq, and this breadth indicates how important the small caps (+2.6%) were to the market action Wednesday as they far outpaced the large cap move. It also shows how the Nasdaq action was more concentrated, indicating again that it was more short covering some stocks that had fallen the past week.
Previous Session: Decliners led 3.36 to 1
New Highs: 76 (+23)
New Lows: 62 (-7)
The Chart: http://www.investmenthouse.com/cd/$spx.html
Never got down to the next support level 850, nor did it ever challenge resistance at 905 and above. Basically an inside day, meaning it traded inside Tuesday's range. That often means the move did not have much strength on its own though we have to see the outcome from the third session in this pattern. The volume was up, so there were more buyers than sellers Tuesday, but again it was a small increase and continued weak trade. That type of action does not give a strong upside signal, particularly with still a significant move to test the near resistance.
Dow:
Stats: +117.07 points (+1.41%) to close at 8425.12
Volume: 1.348B (+3.76%)
The Dow dipped further into negative territory than the other big indexes, coming close to support at 8250 on the low (8280.40). From there is pushed off and rallied the last half of the session, closing near its high (8452.59), but not challenging resistance at 8500. Maybe it makes a definitive move up from here, but looking at a close line chart, the action is toppy: it made a lower low, undercutting the higher low set August 13, and this action came after a series of quick tests of 9000 that failed. The sharp plunge Tuesday was not really answered Wednesday; it may rally up to 8500 or the March downtrend line nearer 8600, but the vigorous selling Tuesday took a lot out of the market. We still look for a deeper test toward the July low.
The Chart: http://www.investmenthouse.com/cd/$indu.html
THURSDAY
Even with the rising volume Wednesday, it looks as if it still falls in the category of a reflex or relief bounce after the Tuesday thrashing. The buying was triggered when the SOX hit a 4 year low but could not push significantly lower. When it started to recover shorts started to cover as the talk among shorts is that the 300 level or thereabouts could trigger some buying/covering. This was a common occurrence during the long market downtrend: undercutting lows or hitting year lows leading to a session of short covering only to resume the downside after the next resistance (and oftentimes not even that far) was hit.
The market is not in the same type of downtrend of course, but it is showing wear and tear after the move off of the July and August lows, and Tuesday was a glimpse of how ugly things can still get in a hurry. Further, big moves lower such as Tuesday does damage. It takes a lot for the market to recover, and that usually means more time and some more selling. We expect the momentum to try and carry through a bit Thursday but then struggle at or before resistance levels and then return to some selling as the market is still dealing with the 9-11 anniversary in one week.
Thursday morning will bring a flood of retail reports. Wednesday night they were better in some cases and worse in others. That has been typical over the past several months. In addition jobless claims and Q2 productivity revisions are out before the open. Factory orders and ISM services are at 10:00ET; those will be important numbers, but any rally off of those will have to deal with near term resistance. Again, we feel that the market will head lower before it makes a significant move higher. The Wednesday reversal was impressive as noted, but it was also a drop in the bucket to the waves of selling on Tuesday. We thus look for a possible move higher (many times such rallies are followed by just more selling) toward resistance and then a rollover once again.
Support and Resistance
Nasdaq: Closed at 1292.31
Resistance: 1300 is the first resistance point, and started to push on the Nasdaq late Wednesday. 1316 is an early August interim high. Then the 10 day MVA (1324.46) and the 18 day MVA (1331.35). The late July high (1354.48) and 1357.09, the October 1998 bear market low. The March/May downtrend line at 1370. The 50 day MVA (1372.72). 1418, the interim test after the September low. There is another downtrend line from the March and May highs at 1440. That is followed by price resistance at 1500.
Support: 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 878.02
Resistance: The March downtrend line at 902. The top of the wedge at 911.64. The 10 day MVA (913.57) and the 18 day MVA (915.03). The 50 day MVA (931.14). The July up trendline at 933. The September 2000/May 2001 downtrend line at 938 followed by 950. 965, the September 2001 closing low. The next downtrend lines from March and April highs at 958. Then 1000 is psychological resistance.
Support: 875 provided some support and will give a pause on any further selling. Then 850 to 855 has previously held (the October 1997 and Q2 1998 lows). The lowest channel line in the March downtrend channel (830). 800 is next. Then the July low at 775.68. 750 to 760 with an intraday touch to 730.
Dow: Closed at 8425.12
Resistance: 8500 is some resistance. The March down trendline at 8580. The 10 day MVA (8636.91). The 18 day MVA (8669.35). The late July high that is the top of the ascending wedge at 8762.14 (8745 closing). The July uptrend line now at 8815. The 50 day MVA (8819.33). 9000 is key on up to 9050. A range of resistance from 9000 to 9500, but specifically 9250 and then 9500.
Support: 8250 is some price support down to the September closing low at 8235.81. The lowest bottom channel line of the March downtrend (8165). 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
9-03-02
Auto sales, August: 6.2M expected, 6.5M prior.
Truck sales, August: 8.0M expected, 8.1M prior.
ISM national, August (10:00): 50.5 actual versus 51.8 expected, 50.5 prior.
9-04-02
Construction spending, July (10:00): 0.0% actual, -0.4% expected, -1.7% prior (revised from -2.2%).
9-05-02
Initial jobless claims (8:30): 395K expected, 403K prior.
Q2 Productivty, revised (8:30): 1.1% expected, 1.1% prior.
ISM services, August (10:00): 54.0 expected, 53.1 prior.
Factory orders, July (10:00): 4.7% expected, -2.4% prior.
9-06-02
Non-farm payrolls, August (8:30): 47K expected, 6K prior.
Unemployment rate, August (8:30): 5.9% expected, 5.7% prior.
Hourly earnings, August (8:30): 0.3% expected, 0.3% prior.
Average workweek, August (8:30): 34.2 expected, 34.0 prior.
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TEAM TRADES
ANN: ANN dropped its 200 day MVA Tuesday on rising volume, and it started the session Wednesday heading lower. We waited for a bounce, and it came about 20 minutes into the session. The stock peaked out at the open price and started to sell back right before 9:00CT. That had us ready and we wnet in on the downside with some Oct. $30 puts at 5.70. The stock plunged from just under 25 down to 24.40, it bounced, and then sold again down to 24; the selling was underway. Then the market started to turn and ANN moved up in the afternoon, buoyed by the good auto sales (retail is retail). It was leveling off at 25 again, the open price (back to where we started), but then ANN came out and reiterated its quarter and that spurted the stock up to the close. It is still below price resistance at 26, its 200 day MVA, etc., but the surge left our options at 4.80 by 5.10 on the close and in need of a rollover at 26 or the 200 day MVA.
End Part 1 of 2
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us stock market
stock market investment
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