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world stock market, us stock market
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9/12/02 Investment House Daily
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Investment House Daily Subscribers:
MARKET ALERTS:
Target hit alerts issued Thursday: None issued
Buy alerts issued: DJX; C; CMA; CVS; AVE
Trailing stop alerts: None issued
Stop alerts: None issued
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SUMMARY:
- Weak rise gives way to the lower volume, but big price selling
- Jobless claims continue to spike but Greenspan sees resilient economy
- Lower volume test of the July/August lows still on.
- Team Trades
Market rollover from Wednesday peak.
Prices dove early and deep Thursday after the intraday reversals at the 50 day MVA Wednesday. Volume on the indexes rose, but it was still very anemic. That means there was not widespread dumping, just a resumption of the selling toward the recent lows after a pre 9-11 rally.
President Bush gave a somewhat reconciliatory UN speech, offering to hold off lowering the boom on Iraq if it would unconditionally live up to all of the UN resolutions it agreed to following the Gulf War. It was a clever speech, playing to how the UN could live up to its promise if it would insist that its resolutions be enforced. This was designed to appease those saying the U.S. should not pursue immediate action against Iraq by giving Iraq one last chance to unconditionally live up to the UN resolutions it agreed to. After that Bush indicated that if Iraq did not agree to each and every resolution, the U.S. would want UN approval, but would not require it to take care of a global thug. For those who had forgotten or were off the planet back in the early 1990's, Bush detailed Iraq's litany of abuses and atrocities committed against other countries as well as its own citizens.
That conciliatory bow toward the UN turned the war drum volume down a bit, but the market still did not rally. It bumped higher at the close of the speech given that war was not imminent (at least not in the next week), but there were other worries ahead, number one being the economy that refuses to show any increase in upside momentum. As we noted earlier in the week, even if 9-11 came and went with merciful calm there was still the war and economy to worry about. Take away the imminent threat of war and you still have the economy that is worthy of investor skepticism.
THE ECONOMY
Ah yes, the economy. It has definitely hit an air pocket. The ECRI numbers are still not showing a double dip for now, but there are cracks all over the place. The continual bleeding in the jobs sector (belying last Friday's employment numbers) is harpooning the future. Housing market raging, consumers consuming, but they cannot continue the pace if jobs continue to erode out from under the economy. We said it over two years ago when the Fed was on the warpath against the 'runaway' consumer: consumers consume until they don't have a job or they perceive a job loss is imminent. That is why the Fed's rhetoric about slowing down the consumer and not hurting the economy was nonsense; consumers were going to buy until they were losing their jobs, and that only occurs AFTER the economy is going down. Lower rates and no interest deals have kept consumers buying, but it won't last if jobs continue to fall. The rest of the economy MUST pick up or it is all going to implode when the housing market slows a bit and the consumer again fears losing the paycheck.
Jobless claims over 400,000 for third straight week.
Here is what we mean. 426K new jobless claims, 400K expected, and the prior week was revised up to 407K from 403K. The trend has shifted back up now with the 4-week average at 409,500, up from 400,750 and the highest level since June 8. Hiccup or new trend higher? The spate of recently announced layoffs will only pressure the figure more during the coming weeks as those announcements become reality.
Not only are jobs being lost again, but jobs are not being created regardless of last week's employment report. As we noted at the time, there was a net loss of private sector jobs. The only thing that gave the illusory increase was government jobs, and those are not very helpful. After going through the filter of the federal government, the tax dollars used to pay for those new jobs are watered down by the time the new employees actually get the money. For every tax dollar put into the system, far less than $1 comes out the other end in terms of government employee wages and spending power. Even the increase in government jobs is not reducing the unemployed, regardless of the merits of government jobs. Continuing claims rose to 3.569 million, up 38K. That figure has been climbing since early summer. For a while there were fewer and fewer NEW claims, but a continuing increase in those that could not find work (the continuing claims). That rise is occurring even as the rolls are purged each month as longer term unemployed lose their benefits and are no longer counted (the unemployed black hole). Now there is the squeeze from both ends: increasing layoffs the drive up the number of unemployed and no new jobs to get them back to work.
Is there any wonder we keep calling for more stimulus? We have an ongoing war, are ready to start another one, have a Congress that won't cut one dime of its own spending, and an economy that is too weak to generate the tax revenues to pay for it all. The economy provides the government its money. It is easy to say 'raise taxes' or 'cancel tax cuts' to pay for interim shortfalls. That is so short sighted, however. It is like telling someone in college to quit and take a menial job because short term the finances are going to be tough. You should cut spending, stay in college, and prepare for a better future that is provided by a college education. That is how to make things better in the long term. History shows tax cuts work: lower taxes increase investment in the country. They lay the groundwork (via investment) and then build the economy to provide revenues long term by virtue of increased economic activity.
The biggest cause of the current deficit? The recession and Congress' failure to cut a dime from spending; the tax cuts you keep hearing about have yet to take effect. There was a nice surge in economic activity from the small portion already in place. More cuts and making those in place permanent would provide another much needed spurt of economic activity. On the other hand, with tax hikes (the effect of eliminating the current tax cuts and the planning based on them) you see a short term gain and then revenues fall, particularly in an ALREADY WEAK economy. The hikes squash whatever small investment there was and the economy falls flat. Then revenues really fall and another recession is assured. The way to win wars and influence the world for the better starts with a strong economy. Do not give up calling and writing your representatives in the House and Senate.
Some help from Greenspan.
You almost choke saying that given his masterminding the run higher and collapse through a series of monetary missteps, but in front of the House Budget committee he flatly stated that the current tax cuts should not be rescinded and that Congress had to cut spending. His logic on why is still perverted (i.e., believing deficits equate to higher interest rates, a plausible sounding theory that only has historic evidence to the contrary against it), but the message was good. What would sound better? How dare you (Congress) think about raising taxes on hard working citizens and small businesses that drive this economy when Congress has not cut one dime from any of its programs or fat pensions. When we went to war in the 1940's federal spending on non-war projects was cut 25% and we came out of the war as a world power. Today our socialist bent makes Congress balk at cutting programs. Certain elements in Congress want the country to feed at the federal trough; that is how they maintain the power base. Cutting those programs may require recipients to actually become productive and discover they don't need the feds. Heaven forbid. That is the kind of mindset we are facing regardless of the politically correct rhetoric we are hit with each day. They forget what the U.S. is about: guaranteeing an equal chance to succeed, not guaranteeing that you will get whatever you need if you choose not to try. In this respect Greenspan's comments helped, but Congress listens to what it wants to hear; when Greenspan agrees with them he is a god. When he says something it does not like, it rationalizes why Greenspan is wrong in this instance. Hard to argue when the opponent won't stick to its beliefs.
THE MARKET
The anticipated rollover that was signaled Wednesday began in earnest Thursday. While volume was light, the point losses were heavy. This is typical of these falls: start weak, then pick up some speed. What we want to see on this fall is a continuation of the low volume test of the July and August lows. That sets up the best scenario that a double bottom will be in place that gives rise to a more meaningful recovery. What was remarkable was how light Nasdaq volume was compared to NYSE volume. Nasdaq is the more speculative index, and when NYSE volume equals it, there is not a lot of dumping. Again, that is a good sign for a successful test of the July lows.
Of course, the economy has to have some hope for the future for that to happen. The dollar continues to strengthen, a signal of perceived economic improvement, but it is volatile and at resistance right now. Something needs to be done economically, i.e., fiscal stimulus, to set up the underpinnings of a belief in a stronger economy ahead. Bottoms are made out of gloom. If the indexes sink back to the July lows there will be gloom. There needs to be something to stake a recovery on, and a recovery that does not linger anemically for years needs some governmental help since it was the government via the Fed and uncontrolled spending that has put us in this situation.
Sentiment Indicators
The sentiment indicators showed a big spike on the selling, particularly the put/call ratio. As we have stated before, we want to see the sentiment readings spike higher on a low volume test of the July and August lows. That is the best scenario: not widespread dumping but high fear and anxiety.
Bulls versus bears: Bullish advisors are still in the lead at 40.9%, but that fell off sharply while bears rose to 35.5%. We would like to see another crossover and then have the bears spike higher to near 50%. If ifs and buts were candy and nuts, we would all be happy at Christmas.
VIX: 40.72; +3.49
VXN: 56.44; +2.44
Put/Call Ratio (CBOE): 0.91; +0.22. Solid spike in put activity as the market rolled over. Investors were ready to jump on the downside and that shows continued disbelief in the overall market health. That is ultimately a good sign as sentiment is a contrarian indicator.
Nasdaq
Gapped below the 10 day MVA and never looked back.
Stats: -35.77 points (-2.72%) to close at 1279.68
Volume: 1.194B (+10.79%). Volume was up but very low. You cannot call this a distribution session.
Up Volume: 151M (-517M)
Down Volume: 1.035B (+646M). The ones in the market were sellers.
A/D and Hi/Lo: Decliners led 2 to 1. The move was obviously stronger to the downside as the recent upside sessions could barely post a positive A/D ratio.
Previous Session: Advancers led 1.01 to 1
New Highs: 16 (-6)
New Lows: 105 (+49). Want to see new lows stay in line on the way down. So far okay.
The Chart: http://www.investmenthouse.com/cd/$compq.html
Never tried to rally Thursday, gapping lower and falling below some potential support at 1300 that we did not anticipate would hold. Now the key is whether it holds above 1250 for a higher low to build on or whether it sinks lower. 1250 is roughly the neckline in the 'mini' head and shoulders pattern that began in late July. It could provide a pause there before a further drop.
S&P 500/NYSE
Broke below near term support in a rather aggressive selling session.
Stats: -22.54 points (-2.48%) to close at 886.91
NYSE Volume: 1.191B (+39.69%). More significant volume than the Nasdaq, equaling the recent trade though that was still below average as well.
Up Volume: 158M (-314M)
Down Volume: 1.004B (+630M). As with the Nasdaq, those in the market were sellers.
A/D and Hi/Lo: Decliners led 2.6 to 1. Serious downside action versus the weak A/D line on the upside. As noted at the time, the narrow rallies denote short covering in the battered sectors.
Previous Session: Advancers led 1.26 to 1
New Highs: 45 (-2)
New Lows: 51 (+33)
The Chart: http://www.investmenthouse.com/cd/$spx.html
Broke interim support at 900 and is now looking at the recent September lows near 878. Frankly those have little chance of holding on this round. 850 is more serious support where we can look for more of a bounce attempt before another round of selling toward the July low.
Dow:
Stats: -201.76 points (-2.35%) to close at 8379.41
Volume: 1.191B (+39.69%)
Mirroring the other indexes, the Dow is heading toward the recent lows at 8250 where there is some support. It may find some support there to bounce it up, but the Dow lagged on the recent rally and we would not expect much of a bounce there without some outside force. This type of selling, then a bounce, selling, then a bounce is typical in a downtrend. Upside or downside, indexes do not move straight down unless there is some serious trend in place (e.g., July). There is still a trend, however, and that is what we look to be in sync with.
The Chart: http://www.investmenthouse.com/cd/$indu.html
FRIDAY
Closely watched economic news will hit before and early in the session. Retail sales and the PPI are out before the open, and retail sales will be key, key, key. So much is being placed on the consumer to hold the economy up (the sickening irony of relying on the consumer to save us after Greenspan expressly stated he was targeting the 'runaway' consumer back in 1999 is tragically sad), that any miss will not be good for a market whose overriding concern is obviously the economy. After that number the Michigan 200 is released 15 minutes into trade. That is the preliminary September sentiment number that compiles all of 200 responses to tell us how the entire nation feels. Truly an amazing feat.
Whatever the numbers, unless they (and even if) they are upside blowouts, we anticipate continued downside action. The market sold, had its relief bounce into 9-11, and is now rolling back over. Thursday was a big down session, but we do not believe it is the only down day in the move. The indexes will test the near support, bounce a bit, and then most likely go down for a closer test of the July low.
One thing to keep in mind: the market does not go down each day in a downtrend just as it does not go up each day when it is in an uptrend. There will be days were they market bounces the other way but the overall trend remains in place. Keep focused on the trend and not so much the individual daily moves. You usually do not live or die over one session, and it is too easy to start thinking you do. We were anticipating further downside action, but got to thinking 9-11 had more downside significance than it actually did. We knew the selling was going to come, however, so we held steady and did not panic over a few up sessions on light volume
Support and Resistance
Nasdaq: Closed at 1279.68
Resistance: The 10 day MVA (1305.19). The 18 day MVA (1314.17). 1316, an early August interim high. The March/May downtrend line at 1345. The late July high (1354.48) and 1357.09, the October 1998 bear market low. The 50 day MVA (1356.15). 1418, the interim test after the September low. There is another downtrend line from the March and May highs at 1418 as well. That is followed by price resistance at 1500.
Support: 1260 to 1250 provide some support from recent lows. Then 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 886.91
Resistance: The March downtrend line at 887. The 10 day MVA (902.67). The 18 day MVA (906.59). The top of the wedge at 911.64. The 50 day MVA (923.91). The September 2000/May 2001 downtrend line at 932. The downtrend lines form the March and April highs (952). The July up trendline at 954 and price resistance at 950. 965, the September 2001 closing low. Then 1000 is psychological resistance.
Support: 875 continues to provide a rest stop for the index from recent closes. Then 850 to 855 has previously held (the October 1997 and Q2 1998 lows). The lowest channel line in the March downtrend channel (816). 800 is next. Then the July low at 775.68. 750 to 760 with an intraday touch to 730.
Dow: Closed at 8379.41
Resistance: The March down trendline at 8485. Some price resistance at 8500. The 10 day MVA (8525.29). The 18 day MVA (8573.98). The late July high that is the top of the ascending wedge at 8762.14 (8745 closing). The 50 day MVA (8744.52). The July uptrend line now at 9025, in the range of resistance from 9000 on up to 9050. Then 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 (8065). 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
9-09-02
Wholesale inventories, July (10:00): 0.6% actual, 0.2% expected, 0.3% prior.
Consumer Credit, July (2:00): $10.0B actual, $9.2B expected, $8.4B prior.
9-11-02
Fed Beige Book
9-12-02
Initial jobless claims (8:30): 426K actual, 400Kexpected, 407K prior (revised from 403K).
Export, Import prices, August (8:30): 0.0% actual versus 0.2% prior.
Current Account Q2 (8:30): -$130.0B actual, -$125.0B expected, -$112.5B prior.
Greenspan (10:00): Addresses House Budget Committee: Nothing new here but he did rebuke Congress for overspending and said he would not be inclined to eliminate the current tax cuts.
9-13-02
Retail sales, August (8:30): 0.4% expected, 1.2% prior.
Retail ex-Autos (8:30): 0.2% expected, 0.2% prior.
PPI, August (8:30): 0.2% expected, -02% prior.
Core PPI (8:30): 0.1% expected, -0.3% prior.
Michigan Sentiment preliminary, September (9:45): 87.9 expected, 87.6 prior.
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End Part 1 of 2
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world stock market
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