|
|
us stock market, trade stock
* * * *
9/05/02 Investment House Daily
* * *
Investment House Daily Subscribers:
MARKET ALERTS:
Target hit alerts issued Thursday: None issued
Buy alerts issued: TTWO (bonus alert); BEN
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:
- Market gives back Tuesday gains as selling toward July and August lows continue.
- Very mediocre economic news disappoints investors as slow recovery slows.
- Nasdaq sells on stronger volume, but Intel's mid-quarter update not a disaster. Techs were up after hours. Can it last?
Thursday continues the trend lower.
We had an idea that Wednesday was more of a relief bounce from Tuesday's torching than a real rally, and indeed the selling resumed without even allowing the indexes to move higher at the open. Weak German factory orders, a once again weak dollar, and lower retail sales abated any buy side interest. It was a signal that much of the Wednesday action was indeed short covering after the SOX hit a new multiyear low intraday and reversed.
Just as Wednesday was not a surefire rally session, however, Thursday was not an out and out sell-a-thon. Nasdaq volume rose slightly ahead of Intel's mid-quarter update, but NYSE volume backed off a very thin hair. While it was clear that sellers were in control of the session, once again there was no clear cut winner in the war for market control. Given the standoff, however, the downside is winning as the market heads into the great uncertainty of the 9-11 anniversary. We all know markets do not like uncertainty, and leading up to this big event the market bias is down even if there is no wanton selling.
That in itself can be a very good thing longer term as a test of the July and August lows on light volume is not a bad thing. After all, most bottoms in history were rather quiet, coming after a more violent selling spree. Such action would fit into the majority framework quite easily.
THE ECONOMY
Jobless claims 'fall' 8,000 to 403,000.
Last week's 403K level was revised up to 411K, thus the 8K 'drop' in jobless claims. As we have seen, the headline numbers are moving targets because of continual inaccuracies and adjustments. The trend is the key. While the trend is lower for the last 9 months, the recent trend has started higher, and the recent announcements of more layoffs from IBM (another 4K) and others will keep upward pressure on the weekly number. This is shown in the 4-week moving average that rose to 400,000 for the first time since 2001.
Productivity revised to +1.5% versus +1.1%.
Q2 productivity rose more than expected (still well off the +8.4% Q1) as employers seek more from existing employees. Moreover, they are getting more from fewer employees as job losses continue to climb as shown by the weekly jobless reports. What is good news for companies as far as payroll expenses is really not a silver lining. Companies would rather be in the position of needing to hire more workers and put all of that productivity-enhancing technology to work with more employees instead of being able to get by with fewer employees because of reduced business activity (the primary reason) and some productivity gains.
The problem is the same: the productivity is there given the tremendous technological investment made in the late 1990's; the problem is the lack of business activity to make use of all of that technology. The economy is recovering, but much too slowly. There needs to be some incentive to invest in the U.S., and the current finger pointing in Congress and the administration about who is to blame does not address the problem, i.e., a post-boom recession that differs from just a typical cyclical decline. There needs to be some more stimulus for investment in the U.S.
ISM services expanding, but weaker than expected at 50.9 (54.0 expected).
Matching the decline in the manufacturing sector, services (making up 5/6 of the economy) fell below the 53.1 prior and well below expectations. The sector is still expanding (7 month in a row) but at a reduced rate. It is the same old economic story: economy is improving, but at a snail's pace. No one in office seems to be concerned about the recovery, just those of us who are workers in the economy. Again, instead of finger pointing and posturing there need to be real incentives put in place. In an election year, however, the normal 'words no action' MO of the federal government is even more predominant.
Factory orders match expectations at +4.7%.
Factory orders, those orders of goods from factories, rose dramatically in July from the -2.5% level in June. That was not unexpected (hence it met expectations) given the strong durable goods report last week. Consumers continue to consume, and that alone has been keeping the economy afloat for more than a year. Take the hint Congress and President: do something to get the business side of the economy going before the inevitable plateau or slowing of consumer spending. The consumer will continue to spend as we have said, but it cannot keep increasing expenditures on new homes and other big ticket items forever. When they slow, the economy slows unless the other part of the economy is picking up steam.
Retail sales falling.
This is already being seen in back to school sales that have come in well below plan. The department stores took a hit as expected, but even discounters were suffering as WMT came in below 4%. It should be happy; it was one of the few that actually had an increase in sales for the month. Consumer spending went to durables (e.g., cars) during this time. It is still VERY significant, however, that even the back to school season could not generate more buys in discounters and apparel retailers.
Will anyone come to the rescue?
We have already given the answer above. No. Congress is more interested in fighting the last war right now, the war of 'corporate excess,' in an attempt to make hay with voters. They act all indignant and angry on behalf of their constituents, but in most cases we would not be surprised if they were just miffed because they did not have the stroke to get the inside deals to line their pockets. They have already passed (ram-rodded?) the corporate reform bill that was signed into law, and you can bet that extremely few CEO's, etc. are playing it fast and loose right now. Is Martha Stewart's receipt of some inside information on a stock that was not related to her company worthy of Congressional inquiry? Does Congress need to inquire about every instance where a person obtained inside information on a company? Of course not. Spending a few million chasing down a public figure, however, is good for a few photo ops and some appearances on CNBC, and getting out in front of the people is a politician's primary goal.
What they need to be worrying about is getting the economy back on track so we can maybe one day worry about corporate excess once again as the economy and market steamrolls ahead. As it is right now, it will be decades before this will ever be a worry. The cows are out of the barn boys and girls in D.C. It is well past time to take the necessary action to make sure the farm will still be around if the cows ever come back.
THE MARKET
Wednesday was a relatively weak recovery, and it gave way to more selling Thursday. The fact that the market did not even attempt to follow through on Wednesday's action indicates much of the higher volume was attributable to some short covering. Thursday was not a runaway downside rout, however, as volume remained mixed (higher on Nasdaq, lower on NYSE) and well below average. We expected light trade ahead of the 9-11 anniversary, and that is the case. Given the uncertainty and uneasiness ahead of 9-11, however, the bias is downside overall. The action may be mixed day to day, but the uncertainty keeps the indexes heading lower for onw.
Sentiment Indicators
Moving back up on the continued selling, but not as sharp as Tuesday. Still moving in the right direction, and as the indexes sell we want to see a nice rise in the indicators on some orderly selling toward the July and August lows. Rising fear but without volume is a good way to find a bottom after the more frenetic selling in July as most market bottoms occur quietly as opposed to cataclysmically.
VIX: 42.23; +2.29
VXN: 60.72; +3.3
Put/Call Ratio (CBOE): 0.89; +0.15
Nasdaq
A new closing low following the rally from August as volume edged higher. Intel seemed to stir the upside interest after hours by not blowing out the bottom of its estimates again. That may lead to some buying to put back in what was taken out before the news, but it is no reason to rally; Intel's core business is not getting better right now.
Stats: -41.31 points (-3.2%) to close at 1251. Took all of Wednesday's gains back and then some as the course of least resistance is down right now.
Volume: 1.519B (+1.66%). Volume rose on the selling, but barely. It was not a downside rout.
Up Volume: 254M (-937M)
Down Volume: 1.245B (+953M). Once again, the direction of the market was determined by just one side. It is not really a fight, just an issue of whether bulls or bears come to the market. When one is there it controls because the other is absent. The old 'lack of buyers versus heavy selling' situation.
A/D and Hi/Lo: Decliners led 2.45 to 1. Notice how decliners on down days by far outnumber advancers on up days, another sign that the current trend is down.
Previous Session: Advancers led 1.72 to 1
New Highs: 19 (-6)
New Lows: 129 (-11). No huge increase in new lows, a good sign.
The Chart: http://www.investmenthouse.com/cd/$compq.html
Opened lower and one muted midday rally attempt failed, sending the index to close on its lows. Much concern about INTC's report, and it was the SOX and large cap techs that pulled things lower all session as the Nasdaq made a new closing low after the rally off the July and August lows. It is not far from the July and August lows (1192.42 intraday, 1206.01 closing), and a continued and orderly pullback to those levels and perhaps a slight undercut could set the index higher. Gloom about the economy and future for tech stocks is still very high and very much at the top of the list of worries, and rallies are born out of what appear to be the worst of times.
S&P 500/NYSE
Tested a bit lower but on the close roughly held the recent closing levels at 877. Maybe INTC's bad but not as bad as expected news will help large caps regroup.
Stats: -14.25 points (-1.6%) to close at 879.15. Gave it all back.
NYSE Volume: 1.327B (-1.5%). Volume was lighter and still below average, so there was no dumping ongoing, just no buyers willing to enter.
Up Volume: 338M (-684M)
Down Volume: 982M (+662M)
A/D and Hi/Lo: Decliners led 1.91 to 1. Not as virulent selling as the A/D line improved later in the session.
Previous Session: Advancers led 2.3 to 1
New Highs: 78 (+2)
New Lows: 68 (+6)
The Chart: http://www.investmenthouse.com/cd/$spx.html
The large caps touched the low in the first hour (870.50) and then spent the rest of the session moving in a narrow range. As the final hour approached it did not have the guts to move up to the top of the range, but it also did not sell; the old standoff of indecision. For the third session it opened or closed near the 877 level, a sign that there may be some kind of support at that level. The trend from the August top is down right now, and if this 877 to 870 range fails on the close, the pace may pick up a bit to the downside. What we can expect, however, is the volatility to continue as it works its way lower. That takes a patient, steady hand to let the trend work for you, but we feel that the indecision for the next week and possibly more will keep the index trending lower.
Dow:
Stats: -141.42 points (-1.68%) to close at 8283.7
Volume: 1.327B (-1.5%)
Similar to the S&P 500, the Dow closed near the recent close and open prices near 8250, a level that was pegged as potential support ahead of a move toward 8000. On the low the Dow hit 8217 early on, and then spent the rest of the session working up and down in a range between the open and the low. In the end it faded, but did not tank. There was still a lot of damage done on Tuesday, however, and a further move to 8000 at least looks likely. Again, it will be a continuation of this volatile action as it works down the trend.
The Chart: http://www.investmenthouse.com/cd/$indu.html
FRIDAY
The employment report is out Friday before the open, and expectations are for better numbers. That might be, but we have also seen jobless claims rising in the past few weeks and more and more layoff announcements. The employment report is old news, and it won't reflect the current environment. The problem is, the Fed and Congress will look at that report with some job creation as a sign that everything is okay and do nothing, waiting until 'tomorrow' to see if further action is necessary. There is an old saying: 'tomorrow is promise to no one.' That is the perfect description of what is going on with the Fed's, the administration's, and Congress' treatment of the economy. They could do something about this pathetically anemic post-boom recovery, but as noted, they are more interested in keeping or taking power in the fall to take the action that would help the economy and thus help all of their constituents.
That report, however, will key some market action. After a paltry net 6K jobs created in July, expectations are for a 30K gain. It could hit that level and perhaps nudge a bit higher. As for the overall rate, expectations are for unchanged at 5.9%. We expect 6%. The headline number of 6% will at first be a negative, but if net jobs are up 30K or better, that will have the most impact between the two; after all, the economy has to start creating jobs before the unemployment rate can start to decline. Until more jobs are created, with increased layoffs, the rate will climb. It should be no surprise; it is the most basic mathematics.
After hours INTC had futures up on its mid-quarter update that did not shoot out the bottom of its estimates again. Gee, let's all run out and buy Intel because its quarter is not going to be even more horribly crappy than it already is. And buy some Dell and MSFT as well on top of that. It is not a growth story, but it is a damage control story. Does that make these stocks a buy? Hardly.
Still technology was up and the futures were up on the news as investors saw an opportunity to move in at low prices and then catch the wave (ripple?) as the market priced back in some of what was taken out on the pre-meeting nervousness. It may give a pop in the morning, but it is not the type of news that leads to lasting buying. If the jobs numbers are good that may give it some more legs early on.
We actually like seeing the futures up after the INTC news. In this kind of market, gaps higher at the open are usually taken as opportunities to sell. The market topped out on its run off the lows, and it also has 9-11 to deal with next week. We do not see a major resumption of the rally before then, particularly on a Friday of the week before the 9-11 anniversary. Thus we will look for any bounce higher to take on water at some point. The market is not in full retreat, so it is not as simple and pat as during the major downtrend, but the bias is downside given all of the uncertainties ahead. Is INTC's report worth anything if we invade Iraq or something else happens around 9-11? Hardly.
Again we believe the uncertainty is contributing to the downward bias. Take that away and the market may rally sharply. That may happen next week or the following week after we get through the weekend following 9-11, but unless we see this downside bias broken we will continue to look for those opportunities to profit from it. In any event, this low volume selling looks like a good, solid test of the July and August lows that could ultimately set the bottom.
Support and Resistance
Nasdaq: Closed at 1251.00
Resistance: 1300 is price resistance, then 1316 is an early August interim high. The 10 day MVA (1311.10) is right there. Then the 18 day MVA (1322.89). The late July high (1354.48) and 1357.09, the October 1998 bear market low. The March/May downtrend line at 1365. The 50 day MVA (1367.95). 1418, the interim test after the September low. There is another downtrend line from the March and May highs at 1435. 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 879.15
Resistance: The March downtrend line at 900. The 10 day MVA (907.31) and the 18 day MVA (911.26). The top of the wedge at 911.64. The 50 day MVA (929.10). The July up trendline at 935. The September 2000/May 2001 downtrend line at 937 followed by 950. 965, the September 2001 closing low. The next downtrend lines from March and April highs at 956. Then 1000 is psychological resistance.
Support: 875 continues to provide a rest stop for the index. Then 850 to 855 has previously held (the October 1997 and Q2 1998 lows). The lowest channel line in the March downtrend channel (827). 800 is next. Then the July low at 775.68. 750 to 760 with an intraday touch to 730.
Dow: Closed at 8283.70
Resistance: 8500 is some resistance. The March down trendline at 8570. The 10 day MVA (8572.69). The 18 day MVA (8628.76). The late July high that is the top of the ascending wedge at 8762.14 (8745 closing). The July uptrend line now at 8820. The 50 day MVA (8798.32). 9000 is key on up to 9050. A range of resistance from 9000 to 9500, but specifically 9250 and then 9500.
Support: 8250 continues to act as some price support down to the September closing low at 8235.81. The lowest bottom channel line of the March downtrend (8155). 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.
End Part 1 of 2
|
us stock market
trade stock
|
