|
|
successful investing, start investing
* * * *
9/16/02 Investment House Daily
* * *
Investment House Daily Subscribers:
MARKET ALERTS:
Target hit alerts issued Monday: MGT put (big gap lower on the revised outlook).
Buy alerts issued: MCK (put); FTN (put)
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:
- Defense, oil services prop up large caps as techs lead the weakness.
- Business inventories on the rise as consumers cannot handle all production.
- Indexes again manage to hold near support as they continue to consolidate well in the worst month for the market.
- Iraq statement turns futures market upside in a big way.
- Team Trades
Non-tech large caps support the Dow and SP 500.
Boeing set the pace for defense as more and more responses from around the world appear to be falling in line with action against Iraq once UN sanctions are tried again and if they are not successful or are disregarded by Iraq. Defense continued its move higher on these fears, and it was joined in part by the energy sector, another industry that benefits from higher oil prices. These two areas helped float the market above critical support levels, and that gave rise to afternoon recoveries in banking, drugs and health care.
Techs led the way lower, particularly big techs and the semiconductors. A belief about weakness in consumer electronics in the next two quarters hurt semiconductors and other techs as they make up the guts of electronic systems. The concern seems to echo the one we had last week: the consumer cannot hold the tide alone; without business investment as well the recovery is going to at best wheeze and sputter along.
There was no help from the small and mid-caps as they put in a negative session. Again, it was a large cap move led by specific, narrow sectors; small and mid-caps perform better when there is a groundswell of investing across the board. That is obviously not the case right now, and that is one reason this rally in the Dow and S&P 500 on low volume was not comforting with respect to near term upside, but it was also a continuation of that nice, low volume consolidation during a historically volatile and downward time period for the market.
THE ECONOMY
Business inventories rise 0.4% versus 0.2% expected.
This is one of those half full or half empty indicators. The half full view is that production is picking up, i.e., businesses are ramping up production to meet consumer demand. There can be no doubt that there is consumer demand as retail sales remain solid and home sales are at record pace. That means a lot of 'house stuff' will be sold to fill those houses (there are always new appliances, sofas, etc. to buy). Production has to meet that demand, and it has been up 7 months straight. Yes, there is some increased production underway; it is not a total failure of the consumer.
The half empty view points to the increase with the argument that if the consumer was so good there would not be such increases (last month was revised to +0.3% from +0.2%). There has been a 27-month recession in manufacturing, and even though production is increasing, it is on the order of a 0.1% gain per month; it is barely budging higher. The argument is that is not enough to account for the rising inventories alone, an indication that the consumer is not as strong as it was.
They are both right to a degree as the answer is in the middle ground. Certain parts of the economy are indeed ramping up production (autos have done so for the past 2 quarters and are doing it again now), but other parts are not (the continued sloggishness - - our new word to describe the malaise - - in the chips and other technology). Companies started cautiously, cautiously increasing production and building inventories in anticipation of an improving economy, and those increases are not being absorbed. Business is not good enough to where they are cranking out huge amounts of goods. It is a small production increase, and thus far the economy has not been able to absorb even that. Not a great sign of economic strength, but we know that. Seems everyone in America knows that buy Congress, Greenspan and his Fed, and some economists that insist 'all is well.'
WMT confirms September is much better than August.
Last week we reported WMT was saying things were better in September, and the company confirmed that today, stating that September sales were up 4 to 6% and in line with expectations. That helped buck up the retail sector Monday, but it did not lead to any big gains or dramatic breakouts. At least the biggest retailer feels it is back on track with modest growth.
THE MARKET
The holiday kept volume very low, and but for defense and some oil sectors, the action would have been a drift lower. Instead the gains in BA, et al managed to hold the indexes above near term support after yet another test until some help came from banking, energy in general, drugs, and health. Technology lagged all session, threatening to undercut support as the SOX hit another multiyear low. The gains in the broader market kept the Nasdaq above support on the close as well as the major indexes held on to continue the consolidation above near support.
It was a narrow move higher with only the Dow and S&P 500 (barely) gaining ground; it would not have taken much to send the indexes lower early in the session. They managed to hold the line again, however, at the nearest support moved on low volume. This is stretching out September, historically the worst month for stocks. Given that the indexes did not rally quite as high as we wanted, the ability to hold this support as the market consolidates and tests the July low is good for longer term upside action. Our concern was that the market cascaded lower early in the month and seriously undercut the July lows; that would jeopardize the success of a test of that level. If this orderly consolidation stretches out another two weeks, September is basically over. An invasion of Iraq would immediately send things lower briefly, but that won't happens during September now that Iraq has said it would allow inspections with no preconditions. That will ultimately break down as Iraq won't just open its doors and break out the milk and cookies. It is enough to avoid imminent war, however, and that will take that pressure off the market (futures jumped higher and are rising sharply). After the initial euphoria, then it will be the market and the economy again. Can the numbers and the Bush administration convince investors things are getting better? Hmmm.
Sentiment Indicators
Everyone is watching them, so they really will have to get to extremes to make a difference. That means those watching them will have to start questioning themselves, and that means they have to tank hard and scare folks. A languid, calm move won't give much of an indication.
VIX: 40.54; +1.23
VXN: 57.73; +1.88
Put/Call Ratio (CBOE): 1.09; +0.2. Put activity was high as soon as the market showed an indication that there was more downside. That shows hedging and speculation to the downside, and the close over 1.0 is a good signal. It is not sufficient, however. We wanted to see the sentiment indicators rise on the way down, and this one has been the fastest to start spiking on selling.
Nasdaq
Weakest link as the SOX hit a post 11-98 low. Managed to hold support once again, however, and closed off the session lows.
Stats: -15.52 points (-1.2%) to close at 1275.88
Volume: 1.099B (-13.31%). Very low holiday volume, so the selling did not have a lot of teeth. No dumping just as there has been no real accumulation.
Up Volume: 180M (-527M)
Down Volume: 909M (+363M). Typical action: on the down days there are many more sellers, and on the up days there are many more buyers.
A/D and Hi/Lo: Decliners led 1.82 to 1. Not nearly as bad as it has been on the down days were 2+:1 was the rule.
Previous Session: Advancers led 1.23 to 1
New Highs: 26 (+2)
New Lows: 126 (-12). New lows fell on the selling, a very good sign of the orderly move lower.
The Chart: http://www.investmenthouse.com/cd/$compq.html
Looked pretty grim for technology as the futures eroded all morning and at one point during the morning session the Nasdaq undercut 1270. Not by much (low was 1267.69), and it was able to recover off of support once again. The SOX made another multiyear low, and that has often triggered upside action. This time we are not so sure that will be the case though MCHP came out after the close and affirmed its quarter and the Iraq news hit the wire. We were going to say that if the Nasdaq fails here, 1250 is the next shelf before it gets more serious about the July and August lows. At this point it looks as if the Nasdaq will quickly test the next resistance at 1300 first and then 1350.
S&P 500/NYSE
Another test of support at 875 and another move back up to hold just above the March down trendline. Low volume and tenuous action, but holding up as good as could be expected.
Stats: +1.29 points (+0.14%) to close at 891.1
NYSE Volume: 986.368M (-19.23%). It was a gain, but on no volume on the holiday. No dumping, no accumulation, just status quo.
Up Volume: 433M (-152M)
Down Volume: 545M (-94M). Much more evenly matched but the up volume did not win the day on an up session. Weak action.
A/D and Hi/Lo: Decliners led 1.23 to 1. Decliners led on an up session. That highlights the thin rally.
Previous Session: Advancers led 1.29 to 1
New Highs: 43 (+21)
New Lows: 76 (+2)
The Chart: http://www.investmenthouse.com/cd/$spx.html
Held 878.91 on the low (875 is support) and rallied back to close just over the March down trendline (884). It is moving in a very narrow range from 875 to 900, and there is a reason for that. First it is a generally poor time for the market. Second, there are the July and August highs and key short term moving averages ahead. The two doji's on the candlestick chart may (repeat, may) indicate a potential move higher, and with the Iraq news that looks to now be the case. We were not anticipating anything strong with the general lack of buy interest, but this outside news is going to bring buyers, justified or not, into the market.
Dow:
Stats: +67.49 points (+0.81%) to close at 8380.18
Volume: 986.368M (-19.23%)
The Dow posted the largest gain of the indexes, but it was on the back of its defense components. Without them there would not have been much green. Kind of the reverse to Friday when HON, MMM, and UTX accounted for the downside. The fact that just a few components are swinging the index up one day and down the next is simply indicative of the lack of conviction either way. It is still within the channel outlined by the March downtrend highs and lows, tapping at that level and support at 8250 on the low (8257.69). Looks as if it will test 8500 with the news on Iraq.
The Chart: http://www.investmenthouse.com/cd/$indu.html
TUESDAY
With Iraq's 'concession' to allow inspections without restrictions, the futures market took off as the war premium ratcheted lower. Fortunately the White House was saying it was narrow in scope and did not address anything but inspections. The U.S. is not just interested in inspections, however. States that harbor and abet terrorists have been declared U.S. enemies post 9-11, and the U.S. will push for the UN resolutions to incorporate language regarding terrorist camps, activities, etc. Indeed the documents should give license to actively seek those out and if they are there, destroy them. That probably won't happen as the UN won't go that far. The U.S. speechwriters should have put that in the speech to the UN in addition to the Gulf War requirements, anticipating that Hussein would capitulate given the rest of the world coming around to the U.S. view and given the choice between sure invasion and removal from power and the chance to hoodwink the world again (if you can do it once, it is worth the roll of dice to do it again given the stakes). What happens now (without UN resolutions addressing it) if evidence of terrorism support is found? In any event, you can bet that when the inspectors start getting close they will be harassed, called spies, etc. once more. Without 'or else' language in the resolutions allowing immediate reprisals at that point this thing could again drag on for months with nothing being done.
Regardless of the problems still ahead, the knee-jerk reaction in the futures market was up and up. We will see what happens overnight, but the market is staged for a big gap higher Tuesday. That will immediately put pressure on all downside positions and the question is whether you exit fast, wait for a dip, or hang on and see if the news runs its course and reality sets back in with the lack of a consensus on the terror aspects of inspections and the continued lethargic economy. As to that last point, while it will most likely ultimately prevail and send things back down, we know the market always overshoots on good news and bad news. Just when things looked ready to start really rolling down this news will shoot the market higher in a typical overreaction.
With October option positions we are not going to do much waiting around. Friday is the September options expiration and if the rally lasts a few sessions and then does not fail, those will lose a lot of value and have a hard time recovering that value. We were in good shape on many downside positions at the close, but a gap upside tomorrow will take away some gain, put some back to flat, and others will be in the red. Tomorrow before the open we will have a better feel for how this news is playing overseas and in the futures market, and that will help make the determination. If the futures are eroding from their highs all pre-market session that indicates that a gap open is already under pressure, and we will let it settle lower and see if it takes out the Monday close or even goes down to test recent support. That would be a gift indeed looking at the strength of futures tonight (+13 above FV on both the S&P and Nasdaq).
If futures are strong and holding or rising through the morning session, that is an indication of some staying power (the market is not so bad and the news not so weak to automatically give that gap higher then tank scenario), and suggests we may want to exit early and look at some of the strong upside patterns on the reports. Not chasing the crappy patterns that run up and then dump on you, but catching the stocks in solid patterns making breakout moves on volume. Those are what we want anyway as they tend to have the staying power. There is usually a test of a gap higher, but the big issue on good news is will the test be low enough to outweigh selling early versus holding and waiting for the market to come back. On strong news you can take profits on the positions where there is profit and then the rest; they may come back down after the initial surge and give a better exit.
As can be seen, this type of news upsets what was working out quite well, and the actions taken depend on how things look in the morning. It is safe to assume for now that the things will be strong. Futures versus fair value are now +15 (S&P) and +16.17 (Nasdaq) in the short time it took to write the last paragraph. If that holds and there are no serious reservations voiced before the open we will be leaning toward closing them out fast and not looking back.
Big picture, this comes a bit early. The market is not really ready to make a big move at this point; it would have been better to test the July low and then have this move. As it is, however, it looks to be a big jump higher; at least there has been some consolidation on this interim support level to give it something of a base to work off of. Will it be enough by itself to launch a new major rally? That remains to be seen, letting the market tell us that. In the short term, however, we will have to take care of business with our downside positions just as the trend was setting up to really benefit those plays.
Support and Resistance
Nasdaq: Closed at 1275.88
Resistance: Price resistance at 1300, followed by the 10 day MVA (1297.81). The 18 day MVA (1307.99). 1316, an early August interim high. The March/May downtrend line at 1335. The 50 day MVA (1350.56). The late July high (1354.48) and 1357.09, the October 1998 bear market low. There is another downtrend line from the March and May highs at 1410. 1418, the interim test after the September low. That is followed by price resistance at 1500.
Support: 1270 is support as is 1260 to 1250 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 891.10
Resistance: The 10 day MVA (898.65). The 18 day MVA (903.38). July and August interim highs at 911.64. The 50 day MVA (921.34). The September 2000/May 2001 downtrend line at 930. The downtrend lines from the March and April highs (949) along with price resistance at 950. The July up trendline at 966. 965, the September 2001 closing low. Then 1000 is psychological resistance.
Support: The March downtrend line at 884. 875 continues to provide near term support. Then 850 to 855 has previously held (the October 1997 and Q2 1998 lows). The lowest channel line in the March downtrend channel (812). 800 is next. Then the July low at 775.68. 750 to 760 with an intraday touch to 730.
Dow: Closed at 8380.18
Resistance: The March down trendline at 8465. The 10 day MVA (8467.28). Some price resistance at 8500. The 18 day MVA (8528.97). The late July interim high at 8762.14 (8745 closing). The 50 day MVA (8713.96). A range of resistance from 9000 on up to 9050. Then 9250 and then 9500.
Support: 8250 continues to act as price support down to the September closing low at 8235.81. 8062, the September 2001 intraday low, has tried to hold on a couple of occasions. The lowest bottom channel line of the March downtrend (8015) near the August lows. 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
9-16-02
Business inventories, July (8:30): 0.4% actual, 0.2% expected, 0.3% prior (revised from 0.2%).
9-17-02
Industrial production, August (9:15): 0.2% expected, 0.2% prior.
Capacity utilization, August (9:15): 76.2% expected, 76.1% prior.
9-18-02
CPI, August (8:30): 0.2% expected, 0.1% actual.
Core CPI: 0.2% expected, 0.2% actual.
Trade Balance, July (8:30): -$37.0B expected, -$37.2B prior.
9-19-02
Initial claims (8:30): 426K prior.
Housing starts, August (8:30): 1.650M expected, 1.649M prior.
Building permits, August (8:30): 1.690M expected, 1.712M prior.
Philly Fed, September (12:00): 2.5 expected, -3.1 prior.
9-20-02
Treasury Budget, August (2:00): -$55.0B expected, -%80.0B prior.
End Part 1 of 2
|
successful investing
start investing
|
