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world stock market, us stock market
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9/30/02 Stock Split Report Update
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Stock Split Report Subscribers:
MARKET ALERTS:
Targets hit alerts issued Monday: STE
Buy alerts issued: JCI; MBI; STE
Trailing stops issued: COH
Stop alerts issued: ICUI
You can sign up for Stock Split Report alerts at the following link:
http://www.investmenthouse.com/alertssr.htm
SUMMARY:
- Market picks up from Friday but reverses off S&P July low.
- Manufacturing woes worsen as consumer spends a bit less.
- Keeping an open mind, but also playing the trend.
- Team Trades
Selling continues but finds some footing.
It was ugly with the Dow down about 250 points and taking out its prior low with Nasdaq following suit. The S&P 500 managed to hold just above the July closing low (797.70) and triggered a bounce. Volume rose as the indexes rallied off the lows but could not hang onto the highs on the recovery. It certainly looks like familiar action after the downtrend resumed: a new low and short covering on that. If the pattern holds that is a one-day event that leads to more selling. As discussed below, the only thing we view as significant was the S&P holding above that closing low and starting the recovery at that point.
The news was again against upside action. WMT said it was lowering its Q3 sales estimates (3% to 4%) while personal spending fell and Chicago manufacturing started contracting again in a pretty big way. On its low the 2-year treasury yield fell to 1.65%, below the 1.75% fed funds rate. While that prices in another rate cut soon, the important point to see is that once again the Fed is behind the curve and no matter how many rate cuts it has made thus far, there is no 'easy money' out there as we have discussed before.
THE ECONOMY
Chicago PMI tanks to 48.1 from 54.9.
Expectations were for a drop to 53, but the Chicago area, considered a harbinger for the entire country, showed a contraction in manufacturing. New orders were below 50 as well, indicating that the next month will most likely be lower as well. This is the first contraction since November 2001, and it is just further indication that the bounce related to the 2000 tax cuts that immediately injected some life into the economy is basically over. The back-end loaded tax cuts now basically have a non-impact on the current economy; they don't kick in until the last few years before disappearing completely. This is exactly the scenario we have been predicting the past month as key indicators started rolling over. Obviously not a positive for the economy or the market.
Personal spending and income rise, but don't meet expectations.
Spending rose 0.3% (0.5% expected) while income rose 0.4% (0.5% expected). Spending was up from August (0.0%) but incomes were solidly lower from 1.0%. No major shakeup, but the spending numbers show slight erosion in the consumer purchasing continues. Look at Wal-Mart. It lowered its September sales to 3% to 4% from the 'lower end' of the 4% to 6% range. The consumer, even during the big back to school season, was not there. Now we are in the cyclically slow period from late September to Thanksgiving, so there won't be any major consumption to pull the economy higher.
As if consumption would pull the economy higher . . .
And there is the big fallacy, myth, lie or whatever you want to call this idea that the consumer will pull the economy out of the dumpster. The consumer was 'runaway' according to Greenspan in 1999 and 2000 as he justified his rate hikes. Of course the consumer always consumes until it gets the pink slip. Anyway, consumer spending stayed strong; it was business spending that tanked during the rate hikes. The 'runaway' consumer did not keep the U.S. from the official recession in 2001 or the currently unofficial recession. Consumer spending did not tail off much if at all in the recession; it did not grow by leaps and bounds, but it did not drop dramatically. Did that pull the U.S. out of recession? No. The business side is where the problem is because businesses had geared up with the latest and greatest technology systems in 1999 and 2000. They can still easily handle the current levels of consumption with the current systems.
Again, if that consumption did not keep us out of recession, is it going to pull us out of recession now, particularly as it starts to slow as job losses again rise (CIEN, SBC, LEH, etc.). As long as we are fed and believe the line that the consumer is 2/3 of the economy and will drive the recovery, no action will be taken. Sure the consumer is 2/3 of the economy (even more now that business is at such low levels), but as the last few years have shown, the consumer is not an island. It has kept the waters back, but it is not able to lead the economy out of the recession. One last cheery observation: the longer this stretches out, the more likely the inevitable slide in consumer spending occur at a most critical time and send the entire world into major recession. Look at the European stock exchanges: they were gleeful at the U.S. problems in 2001, but now they are diving to new lows as their economies follow the U.S. that is following Japan.
THE MARKET
Friday's reversal at the 10 day MVA continued Monday, but when the S&P 500 hit 800, just above the July closing low at 797.70, it turned and rallied. A solid recovery was then thwarted late in the session as the Nasdaq and S&P 500 hit the support they gapped below on the open. Some news regarding the west coast dockworkers hit at the time the indexes tested that former support, and that pushed the market back on the close.
Volume spiked higher on the selling and recovery, indicating there was short covering as the Nasdaq and Dow Jones 30 touched new intraday lows but the S&P 500 held above its former closing low. This is very similar to what we saw 7 and 9 sessions back when the indexes tested the 10 day MVA, sold off, then reversed intraday on some higher volume after touching a new post-July low. The shorts came in and covered up positions as they have been doing when new low territory is hit just as they were doing today after 2 of 3 hit new post-July lows and the third and 'strongest' did not take out its July closing low. After those prior sessions the indexes started right back down in some more ugly selling.
The point of note was the S&P 500 holding 800 on the low and moving back up. That is somewhat different from the other indexes simply because it is an important level. It was the target for the OEX put play that the market gapped right passed this morning; it was the target for a reason. The S&P 500 has been relatively stronger on the downside (for lack of a better phraseology), holding above its July lows. There has been a somewhat lower volume, lazier decline to this point after the rather wild July sell off, the news is about as bad as it gets economically (layoffs, strikes, war, profit warnings, deflation, etc.). There is a potential that we saw the bottom today. The small cap index (S&P 600) actually closed positive. We are highly skeptical of that, but for those who think we can influence the market here every time we mention the word 'bottom' understand that we have to take note of the possibilities and realize that the market is not rational and bottoms arise when there seems there is no blame way it can happen. We won't know anything until we see a rally attempt and strong follow through. You might start the clock today on counting up for a follow through with the comeback, but we would prefer to see the indexes finish positive. Again we won't know anything until later this week or next if we see a big move higher on some impressive volume and breadth. One thing that remains different from July is that there are some sectors holding up even on this test, e.g., health services, some drugs, business services (almost shocking). Might be a difference without substance, but again we will just have to see.
So we are on alert for a bottom (sort of), but are still in a downtrend that is showing the same characteristics of the downtrend we have been experiencing all along. We can watch for a reversal, but we are still playing the primary trend, and that is down. It is showing the same characteristics so we are keeping to the same game plan for now.
Sentiment Indicators
Again no real surge. The recovery in the last half of the session pushed volatility down from its highs, highs that were still at or lower than the points hit early last week on that selling. The put/call ratio for the CBOE moved back over 1.0 on the close, a positive signal as options speculators raced back into puts as the selling continued, but this is insufficient in and of itself from a sentiment standpoint.
VIX: 44.57; +1.43
VXN: 58.35; +0.49
Put/Call Ratio (CBOE): 1.09; +0.21
Nasdaq
A new intraday low set off some short covering as volume moved back over average. Still stalled at resistance on the upside and fell back from there late.
Stats: -27.1 points (-2.26%) to close at 1172.06
Volume: 1.684B (+16.35%). Higher, above average volume on the selling and recovery. Technically a distribution session and one that looks much like short covering. Of note, once again NYSE volume outpaced Nasdaq volume indicating the Nasdaq really is taking second chair.
Up Volume: 327M (-139M)
Down Volume: 1.329B (+355M)
A/D and Hi/Lo: Decliners led 1.21 to 1
Previous Session: Decliners led 2.19 to 1
New Highs: 21 (+6)
New Lows: 356 (+111). Big jump even with the reversal and recovery. If there are too many (400 minimum; 500 more telling) new lows that indicates the bottom is not holding and there is more downside.
The Chart: http://www.investmenthouse.com/cd/$compq.html
New 6-year low (again) at 1160.07 before managing a recovery. On the high (1190.74), however, the Nasdaq stalled at a support level it broke on the gap down at the open. As it worked back up in the afternoon that old support became resistance and the Nasdaq fell back from there making a new 6-year closing low as well. We anticipate it would sell more from here rather than rally back to the 10 day MVA (1215.92) so early in the resumption of the downtrend.
S&P 500/NYSE
Tested the low and rallied off that level. Would have been more impressed if it could have taken out resistance and closed positive.
Stats: -12.08 points (-1.46%) to close at 815.29
NYSE Volume: 1.755B (+18.1%). Volume jumped up to match the last 'reversal' session 7 sessions back that was simply a one-day wonder and quickly gave way to more selling. NYSE volume again topped Nasdaq volume indicating the speculation in the market is more or less done, but not a good timing mechanism for defining a bottom. In short, it is an attribute but a bottom can come days or months or more after such a signal (if at all).
Up Volume: 552M (+357M)
Down Volume: 1.163B (-138M)
A/D and Hi/Lo: Decliners led 1.22 to 1. The recovery helped push this back from a 2+:1 level intraday.
Previous Session: Decliners led 2.47 to 1
New Highs: 76 (+15)
New Lows: 313 (+182). Still in control given the S&P held its low and the small caps finished positive. This helped stem the tide.
The Chart: http://www.investmenthouse.com/cd/$spx.html
Tapped 800.20 on the low, just above the July closing low (797.70) and above the intraday level at 775.68. It is possible that the S&P 500 found bottom Monday as it reversed on substantially higher volume and just missed a positive close before that late sell off. It is noteworthy that it started to sell when it hit resistance at 826 that it gapped through on the open. Other than the recovery after a test of the closing low, however, this looks suspiciously similar to the prior intraday reversals that proved to be one-day short covering events that were rest stops before selling started once again.
Dow:
Stats: -109.52 points (-1.42%) to close at 7591.93
Volume: 1.755B (+18.1%)
Undercut the July intraday low (7532.66) on the low (7460.78) in a big blow down early in the session. It recovered over 200 points from the low before it took its cue from the other indexes and sold back in the last half hour. Even with the recovery it is still well below the bottom channel of the March downtrend that has controlled its moves since that point. As with the S&P 500, maybe all it needed was a test of those lows to set a bottom amidst all the gloom about the economy, but that would be a surprise.
The Chart: http://www.investmenthouse.com/cd/$indu.html
TUESDAY
Auto sales before the open then the ISM (national manufacturing) at 10:00ET. When we checked last the ISM had not been revised lower in the wake of the Chicago number, but it most likely will be by the time the morning rolls around. That means little; it is the number that counts, and the Chicago number is considered a good proxy for the national number; that is why the selling on the news.
We were pretty clear in the 'Market' section about what we feel Monday represented. Futures after hours are slightly higher in a continued reflex move off of those tests lower. If they are slightly higher Tuesday it will be something to get ready to sell into. Despite the recovery in the afternoon, most stocks and the indexes themselves are below resistance; the rally only worked to set them up for renewed selling.
As noted above, we will have our eyes open at support levels for reversals and the like, but the Monday action had those familiar characteristics of a short covering move after new lows were hit and key support was not broken on the S&P 500. That does not mean it won't be broken in a renewed round of selling following that short covering move.
Support and Resistance
Nasdaq: Closed at 1172.06
Resistance: Price support from 1190 to 1200 (the July intraday low is 1192.42) turned into resistance on the Monday high. The August down trendline at 1207. The 10 day MVA (1215.92). 1230 and 1250 are price resistance points. The 18 day MVA (1240.39). 1270 is still more price resistance from the September lows. The March/May downtrend line at 1286 along with price resistance at 1300. 1316, an early August interim high. The 50 day MVA (1304.53). 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 1370. 1418, the interim test after the September low. That is followed by price resistance at 1500.
Support: 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 815.28
Resistance: The first bottom channel line in the March downtrend (823). 850 to 855 (the October 1997 and Q2 1998 lows) stopped things Friday. The 10 day MVA (850.03). The 18 day MVA (864.73). The March downtrend line at 867. 875 is price resistance of some significance. The 50 day MVA (897.97). July and August interim highs at 911.64. The September 2000/May 2001 downtrend line at 923. The downtrend lines from the March and April highs (933). Price resistance at 950. 965, the September 2001 closing low.
Support: Price support at 800 held Monday. The lowest channel line in the March downtrend channel (785). Then the July intradaylow 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 7577.50
Resistance: The lowest bottom channel line of the March downtrend (7835). The 10 day MVA (7900.31). The August lows (8043) and the September 2001 intraday low (8062). The 18 day MVA (8072.03). The September closing low at 8235.81. 8250 acted as resistance before after acting as support. The March down trendline at 8255. The 50 day MVA (8438.89). Some price resistance at 8500. 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) was broken intraday. The October 1998 lows are at 7400 and 7467. After that is 7000, at some 1997 lows and highs.
Economic Calendar
9-30-02
Personal income, August (8:30): 0.3% actual, 0.5% expected, 0.0% prior.
Personal spending, August (8:30): 0.4% actual, 0.5% expected, 1.0% prior.
Chicago PMI, September (10:00): 48.1 actual, 53.0 expected, 54.9 prior.
10-01-02
Auto sales, September: 6.1M expected, 6.6M pior.
Truck sales, September: 7.8M exepcted, 8.8M prior.
ISM index, September (10:00): 51.0 expected, 50.5 prior.
Construction spending, August (10:00): -0.1% expected, 0.0% prior.
10-03-02
Initial claims (8:30): 406K prior.
ISM Services, September (10:00): 51.4 expected, 50.9 prior.
Factory orders, August (10:00): -1.5% expected, 4.4% prior.
10-04-02
Nonfarm payrolls, September (8:30): 15K expected, 39K prior.
Unemployment Rate, September (8:30): 5.9% expected, 5.7% prior.
Average workweek, September (8:30): 34.1 expected, 34.1 prior.
Hourly earnings, September (8:30): 0.3% expected, o.3% prior.
End Part 1 of 2
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world stock market
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