|
|
us stock market, understanding the stock market
* * * *
9/25/02 Investment House Daily
* * *
Investment House Daily Subscribers:
MARKET ALERTS:
Target hit alerts issued Wednesday: None issued
Buy alerts issued: CCCG; OVER
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
SUMMARY:
- Nice relief bounce on continued solid volume.
- Hold onto your seats: Treasury Secretary O'Neill says economic stimulus is just right. Talk about a goldilocks economy.
- Housing starts a bit light, but market overlooks it. Real issues hit Wednesday.
- Expecting a move to the short term MVA and then it gets interesting.
- Team Trades
Downtrend takes a breather.
Futures were up and stocks were ready to move. The news was better: GE and IP reiterated their Q3 guidance, Europe was up, Ford was increasing its Q4 production. That had us a bit cautious: gaps higher in a downtrend often lead to further selling once the early rush is over. The first two hours were choppy, particularly after housing starts were down more than expected. The key, however, was going to be the Nasdaq as Tuesday it was attempting to turn the corner back up. Twice it tested the recent lows at 1177 to 1180, and then it found its footing for the move higher. The Dow and S&P 500 were ready as well.
The big mover was the SOX and the Nasdaq 100. Those were the stocks that had been beaten, trampled, and spat upon the prior two weeks and they were due for a rebound. Whenever the downtrodden take the upside torch to lead, the rally is suspect. That gives it the taste of short covering. As we have often said, there is nothing wrong with short covering as that is how most rallies start. The key is what happens a week down the road: will the big money holders start buying into the market or is it just a setup for further falling. Right now you have to look at Wednesday's action as a bounce from two weeks of selling.
THE ECONOMY
Rates are plunging, stock prices are plunging, but the Treasury Secretary says all is well.
Remember that scene from 'Animal House' where there is pandemonium in the streets and Kevin Bacon, the young ROTC recruit, says 'remain calm, all is well' just as he is stampeded by the screaming mob? It was d j vu all over again Wednesday as Treasury Secretary O'Neill lamely defended the economy, citing lower unemployment last month (in the face of waves of more recent layoffs), a booming housing market (that is already cold at the high end), and lower interest rates as signs that 'all is well.' Someone should have reminded him that plunging interest rates coupled with plunging equity prices and rising gold prices are classic signs of deflation. Last time we picked up the Eco 101 book, those were not good things for an economy. He also said that fiscal stimulus was 'secondary' right now, that there was 'enough fiscal stimulus' in the economy. We were not sure what economy he was talking about. Certainly not one in the western hemisphere here on earth.
We were told by Senator Gramm's office that the Treasury Secretary's statements were not the administration's view. Well isn't that great. The administration is apparently as inept economically as the democrats charge. Unfortunately, the democrats' solution is to raise taxes, precisely what you don't want to do in an economy that is showing early deflation signs. Here is what you are going to see: the republicans will talk war until the November elections in hope of taking back the Senate and then pushing for more economic stimulus. The Democrats are going to try and talk economy before the November elections to keep control of the Senate. In short, there is not going to be a thing done to help the economy before or after the election even if the republicans take the senate. Why? Because the administration does not know what it wants or what needs to be done.
Existing home sales fall 1.7%.
5.40M were expected, 5.28M were actual. Existing homes are 80% of home sales. Thus these were good numbers without a doubt; still a record year ahead. Easy to rationalize the weakness with the low rates still coming. Problem is, this is what they did when the economy started to falter in early 2000. 'Still strong,' 'aberration,' and other mitigating terms were used to describe the shortfalls.
Yes rates are low, but they are not healthily low; they are low because of a weak economic projection and overinvestment in bonds: PIMCO was going to start selling bonds a couple of months back and then Bill Gross did an about face in what most consider a marketing move to get what he could from the bond run. Now many investors are as overallocated in bonds as they were in stocks in 2000. That is not the sign of health. The high end of the housing market is very weak already, and it is the first sector to show weakness. Starts are falling, sales are falling even as rates continue to fall. The market will get saturated at some point. No collapse, but it won't take a collapse to harpoon the economy. Housing starts and sales are at such high levels, yet there is no sign of a pickup outside the consumer housing market and consumer consumption. If these fade further without an improvement in business spending, the economy slips further. It is a vicious cycle right now, and there is not much to throw into the fire to keep it burning bright. The fuel is running low but no one is out gathering more wood. Not a pretty picture.
THE MARKET
A good relief bounce on some pretty salty volume as Nasdaq volume rose, NYSE volume declined slightly. After such a flogging the past two weeks, however, don't be in a rush to paint the session in glowing colors. Short covering for sure as the SOX and Nasdaq 100, the black and blue group, led the charge back up. When the roughed up suspects lead the charge after a beating, you can bet it is the shorts covering their gains. Not a bad thing, but it will have to show it has the right stuff in a week with some strong, strong rallying. Any takers on that position right now? Probably not many.
There were some good attributes: an early gap up was tested and held; existing home sales were down and the market was able to recover from that; it avoided a late selloff as it rallied back at the close. On top of that volume was solid and there were some very solid volume breakouts from stocks in good patterns. It could be the start of something but again, it is too early to tell. We were picking up good stocks moving higher out of sound patterns, and that was about it.
Sentiment Indicators
VIX: 42.41; -2.97. Never hit extreme levels on the selling, a noticeable lack of concern as it sold lower. A defect in a potential rally, or was the market to a point where no one cared? Given that 70% of those polled still think the market will be higher by the year end, you would conclude the former as opposed to the latter.
VXN: 56.69; -2.71
Put/Call Ratio (CBOE): 0.77; -0.09
Nasdaq
It showed signs of a turn Tuesday and Wednesday it was able to follow through. This time it managed to overcome near resistance and put on a rally that it held onto.
Stats: +40.12 points (+3.39%) to close at 1222.29
Volume: 1.695B (+1.64%). Volume scooted up a hair, the third session in 4 of above average volume. For once it was upside volume but we cannot put a lot into that right now as we know after serious drops the upticks in volume are usually associated with short covering. That can lead to long term buying, but it is too early to tell.
Up Volume: 1.445B (+583M)
Down Volume: 217M (-574M)
A/D and Hi/Lo: Advancers led 1.87 to 1
Previous Session: Decliners led 1.71 to 1
New Highs: 23 (+7)
New Lows: 202 (-172). Nice drop off in this level.
The Chart: http://www.investmenthouse.com/cd/$compq.html
1200 again stopped the Nasdaq twice, but on the third attempt after holding above the recent shelf of support at 1177 it made the breakout and rallied the rest of the session. In the last 1.5 hours things were a bit dicey as the Nasdaq struggled below 1230 resistance. It avoided the big selloff, however, after it had started to drift lower. That was an important development for the next leg up toward the short term moving averages (1233.76, the 10 day MVA; the 18 day MVA at 1258.06). At this point we are not looking much beyond that given the continuing downtrend and lack of a serious spike in sentiment indicators on the last selling round. If it moves further we will play it; it will have to prove the move to us first, however.
S&P 500/NYSE
Jumped back over the first March down trendline bottom channel on another above average volume day. Just one session, however.
Stats: +20.37 points (+2.49%) to close at 839.66
NYSE Volume: 1.643B (-3.52%). Volume slid in lower though still above average. Not what you want to see on an up session, and it indicates just a bounce in a continuing downtrend.
Up Volume: 1.311B (+1.007B)
Down Volume: 348M (-1.033B)
A/D and Hi/Lo: Advancers led 2.73 to 1. Very nice reversal as the small and mid-caps rallied well to help the NYSE A/D line.
Previous Session: Decliners led 2.3 to 1
New Highs: 54 (-7)
New Lows: 167 (-196)
The Chart: http://www.investmenthouse.com/cd/$spx.html
So far it is just a bounce. The large caps held handily above 800 on the low and rallied back over the first bottom channel line on a solid surge. Other than that, it was really unremarkable. Breadth was solid as smaller issues joined in on the NYSE, but other than the fact that the Nasdaq and Dow had already reached their lows (the Dow only on a closing basis) and this could be a bottom, the session was unremarkable: a relief bounce in a continuing downtrend. For now we treat it as just that, looking for some resistance at the 10 day MVA (855.09) and the 18 day MVA (870.80) that coincides with the March downtrend. If the downtrend continues, that is where it should fail.
Dow:
Stats: +158.69 points (+2.07%) to close at 7841.82
Volume: 1.643B (-3.52%)
Recovered to the bottom channel line of the March downtrend channel on the high (7891) and backed off to close. It is more of a follower here, however, and it has some room up to the 10 day MVA (8039.96) and the 18 day MVA (8202.24) where it will be tested in its current downtrend.
The Chart: http://www.investmenthouse.com/cd/$indu.html
THURSDAY
Durable goods orders and jobless claims out before the open, and then new home sales at 10:00. They are all expected to fall. The market will be watching these as a big durable goods number last month helped boost the market short term. It is expected to tank from last month's number; if it does not once again, that will help stocks continue this relief bounce.
We don't think this bounce will end after just one session. The selling has been for two weeks and the indexes are at a point where they will bounce up to the short term moving averages after such a steep selloff. That is the typical action in downtrends, and that is what we are expecting here. At that point they will either roll over or there will be a follow through to Wednesday's rally that takes the market higher. For the near term it looks as if there will be a continuation up to that inflection point.
What we were doing today on the upside was looking at stocks that were already in good patterns, i.e., had held up well during the two week selling trend, and that were moving up out of those patterns on strong volume. That is what the better stocks do in a bad market: they hold their gains and complete their patterns (e.g., build the handle on a cup w/handle or test a breakout on low volume). Then when the news improves they jump up on strong volume. Those were the stocks of the day Wednesday, and we are looking at more of those as this rally continues. They may not be long term holds (though some are thus far proving to be even during the past month), but they can give us a nice gain in these brisk rallies up off the selling. If the selling does not intensify to the point it did in July where every sector was taken apart, these stocks will most likely continue to use the market selling as points where the pullback to test their near term support and then move up from there when the next market bounce comes.
Support and Resistance
Nasdaq: Closed at 1222.29
Resistance: 1230 and 1250 are more price resistance points. The August down trendline at 1231. The 10 day MVA (1233.76). The 18 day MVA (1258.06). 1270 is still more price resistance from the September lows. Price resistance at 1300. 1316, an early August interim high. The March/May downtrend line at 1305. The 50 day MVA (1318.25). 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 1376. 1418, the interim test after the September low. That is followed by price resistance at 1500.
Support: Price support from 1190 to 1200 (the July intraday low is 1192.42). There is price support from 1080 to 1100. Then there is a big shelf of support at 1050 down to 1000.
S&P 500: Closed at 839.66
Resistance: 850 to 855 (the October 1997 and Q2 1998 lows). The 10 day MVA (855.09). The March downtrend line at 869 and the 18 day MVA (870.80). 875 is price resistance of some significance. July and August interim highs at 911.64. The 50 day MVA (902.73). The September 2000/May 2001 downtrend line at 924. The downtrend lines from the March and April highs (936). Price resistance at 950. 965, the September 2001 closing low. Then 1000 is psychological resistance.
Support: The first bottom channel line in the March downtrend (831). The lowest channel line in the March downtrend channel (795) along with price support at that level. Then the July low at 775.68 and marks the culmination of the short head and shoulders pattern. 750 to 760 with an intraday touch to 730.
Dow: Closed at 7841.82
Resistance: The lowest bottom channel line of the March downtrend (7887). The 10 day MVA (8039.96). The August lows (8043) and the September 2001 intraday low (8062). The 18 day MVA (8202.24). The September closing low at 8235.81. 8250 acted as resistance before after acting as support. The March down trendline at 8295. Some price resistance at 8500. The 50 day MVA (8526.33). The late July interim high at 8762.14 (8745 closing). A range of resistance from 9000 on up to 9050. Then 9250 and then 9500.
Support: 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
9-23-02
Leading Economic Indicators, August (10:00): -0.2% actual, -0.1% expected, -0.1% prior (revised from -0.4%).
9-24-02
Consumer Confidence, September (10:00): 93.3 actual, 92.4 expected (prior 95.0 expected), 94.5 prior (revised from 93.5).
FOMC meeting results, 2:15: No change in rates, bias, worried about war.
9-25-02
Existing home sales, August (10:00): -1.7%; 5.28M actual, 5.35M expected, 5.33M prior.
9-26-02
Durable goods orders, August (8:30): -1.8% expected, 9.2% prior.
Initial jobless claims (8:30): 420K expected, 424K prior.
New home sales (10:00), August: 990K expected, 1.017M prior.
FOMC minutes, 8-13 meeting (2:00)
9-27-02
GDP Q2 final (8:30): 1.2% expected, 1.1% prior.
Michigan Sentiment revised (9:45): 86.2 expected, 86.2 prior.
TEAM TRADES
EDMC: In the education sector that held up well in the selling under good accumulation. It was waiting for the next rally, and EDMC was a stock that used the rally to make a breakout of its 5.5 month pattern. We were looking at both stock and options as the stock made the breakout point in the last hour. As for the options we were looking to December and they were trading 5.50 by 6.30, a rather hefty spread. We tried to shave it a bit with an order at 6.10, but we got the cold shoulder. The options even moved up so we modified to 6.30 (just as they started to move). It softened a bit, however, and that moved the price back into range. That is what we get for trying to shave it too fine on a breakout; you can lose it. Anyway, the options closed with an ask near 6.70, but that is often deceiving. It was a good move, however, and we can still partake on a further move up on continued volume.
ONLINE SEMINARS LIVE OR NOW ON CD!!
To take advantage of market direction and trends, to underdstand why the market moves as it doess, and knowing how to turn up or down cycles to your money making advantage, you need to have the knowledge of what to do and the confidence to do it. Our seminars take you step by step through what drives the market up and down, how to recognize when change is occurring and when you should act, and how you to invest to take advantage of that knowledge. We don't really care which way the market goes, we just want to be able to recognize it and then take advantage of it with stocks, options, or both. Our seminar series shows how to put practical understanding of the stock market to use to make monthly income and build (rebuild) retirements and college funds. There is an incredible wealth of knowledge, years of experience, and 'how to' plans of action in these seminars. As one graduate put it, "I had no idea how little I knew about market direction and the reasons behind it until I took your course." Our graduates over the past year and one-half have made the bear market in stocks their own private second bull market because they learned how to and when to enter the downside and make dramatic profit from what most investors dread. Have the knowledge to take advantage of any kind of market as well as the confidence to act when you see the action unfold. We cover it all from trends, to accumulation/distribution, patterns, stocks, buying and selling options naked, covered, or creating spreads. Go to
http://www.stockseminarsonline.com
and look for the link to the CD seminars or the next live series dates where you can learn and ask questions from the comfort of your home without having to incurr costly travel expenses and time away from work, costs and time that very few can deduct from their taxes . This is Jon Johnson's internet site for online seminars and they get you up to speed on how to deal with up or down markets. Hope you check it out.
End Part 1 of 2
|
us stock market
understanding the stock market
|
