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world stock market, us stock market
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10/17/02 Investment House Alerts Report
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IH Alert Subscribers:
MARKET ALERTS:
Targets hit alerts issued Thursday: PETM (advisory that it hit the target but overall still strong); RINO (Hit target on first buy, still strong).
Buy alerts issued: NVLS; TSCO; MSFT; XRAY
Trailing stops issued: None issued
Stop alerts issued: None issued
THE MARKET
IBM and the other positive earnings reports helped deliver a second follow through to the rally that started last week. Volume moved back up, breadth remained solid, breakouts continued. It was not overly powerful compared to the previous sessions, but it was a continuation of the move and had the credentials for another follow through session. We love to see multiple follow through sessions as that indicates that buyers keep coming back to the table, and they were doing that Thursday after seeing a perceived opportunity after the market pulled back on the INTC earnings.
The Nasdaq and S&P 500 were able to rally over and hold their simple and exponential 50 day MVA; we note both so there is no question that the 50 day MVA has been pierced. The Dow closed just below its 50 day. They are still not through this critical level and the indexes have run a long way with little rest. That will eventually have to come, and it will once the bloom on the earnings reports wears off a bit. Right now investors are excited that companies are beating rather low earnings expectations and the prospect that the futures is not getting worse as companies are saying that the are affirming 2003 earnings. Companies are being conservative, and investors see that as improving earnings in 2003. That has been what is generating the buy excitement. It is going to run out of steam and the market is going to have to take a breather. That is okay. It is nerve wracking to see the market sell at all after such a bear market, but the signals for a bottom of some sort are solid and you have to step in when the market is talking. There will be a pullback, but unless the market flat out deteriorates we anticipate it will be normal backing and filling of gains similar to the pullback in August after the first move; not as steep in our estimation, but a pullback to consolidate the move.
One thing to always keep in mind: what a market should or should not do is based on interpretation of past events and trends under similar circumstances. In October 1998 the market rallied 13 out of 16 weeks after it bottomed. It was not straight up, but it was a pretty straight bullet shot. This market is of course different, but that is why we take positions when the opportunity presents itself. There are trillions of dollars still on the sidelines and shifting out of bonds after that run. That can fuel a lot of upside as that money slowly works back into the market. We noted over a month ago that financial advisors had their clients as overweight in bonds now as they did stocks in 1999, and most of that occurred in the past few months. The bond market is getting slaughtered on this asset reallocation and those that got to the bond party late are getting hammered all over again.
Sentiment Indicators
Some very interesting statistics continued to follow the market this week even as it reversed and rallied. Bullish investment advisors continued their fall, dropping to 28.4%, the lowest since 1994. Bears rose to 43.2%, the highest since the final days before the market bottomed in October 1998. That bears rose in the face of the starting rally is a significant indication: they were not believing what the market was telling them. That is why we say again and again, despite what your guts tell you, you have to look at what the market is telling you and take action based on that. Stocks were improving and breaking out as the indexes held the prior low and started a strong rally. It was time to move into those stocks making the moves.
VIX: 40.16; -1.81
VXN: 56.22; -0.65
Put/Call Ratio (CBOE): 0.66; -0.59
Nasdaq
Gapped back over the 50 day MVA on strong volume, but it could not go anywhere.
Stats: +39.87 points (+3.24%) to close at 1272.29
Volume: 1.825B (+14.94%). Solid surge in volume, putting it back up sharply on an upside session as you want.
Up Volume: 1.594B (+1.364B)
Down Volume: 221M (-1.117B)
A/D and Hi/Lo: Advancers led 2.62 to 1. Solid improvement in the breadth compared to the rather narrow decline Wednesday.
Previous Session: Decliners led 1.53 to 1
New Highs: 39 (+19)
New Lows: 65 (-33)
The Chart: http://www.investmenthouse.com/cd/$compq.html
Techs gapped higher and the Nasdaq cleared both 50 day MVA again (1259.48 expo, 1267.99 simple) on the close on a solid jump in volume. Good action. It was not able to do anything with the move, however, though it did hold on after trying to sell down in the afternoon. The candlestick pattern was a tight doji, and that can indicate topping action as it was unable to drive higher on the session. With the action seen the past few sessions, however, with the big gaps up and down it is not as reliable an indicator. What we have seen is MSFT beat the street handily and send futures back up. What we anticipate is a short-lived run higher Friday before some profit taking before the weekend. Holding the 50 day MVA or 1250 would be great.
S&P 500/NYSE
Solid move back over the 50 day MVA on good volume but struggled a bit again just below the 900 level that provides some resistance.
Stats: +19.18 points (+2.23%) to close at 879.2
NYSE Volume: 1.747B (+13.36%). A good surge in NYSE volume, keeping the price/volume action during this rally solid.
Up Volume: 1.267B (+1.025B)
Down Volume: 503M (-819M)
A/D and Hi/Lo: Advancers led 2.26 to 1. A good but not powerful session.
Previous Session: Decliners led 2.91 to 1
New Highs: 35 (+12)
New Lows: 83 (-10)
The Chart: http://www.investmenthouse.com/cd/$spx.html
Rallied right back up on IBM but again found some trouble just over the simple 50 day MVA (877.39). The MSFT earnings may help the index make another spurt up toward 900 to 911, but it is going to find some tougher going at that point from interim tops in July, August, and September. The index will need a breather soon and a push to 900 would give it room to fall back to 850 and hold for the next move.
Dow:
Stats: +239.01 points (+2.97%) to close at 8275.04
Volume: 1.747B (+13.36%)
Just cleared the 50 day MVA's as well (8177.18 expo, 8273.63 simple) again, right at a tangle of resistance at the 8250 level. As with the S&P 500, MSFT may help the Dow make an opening spurt higher toward the 8500 level where there is some price resistance. After that is 8745 (resistance comes in 250-point blocks it seems). The Dow has run approximately 1,000 points to this close, and it is also going to have to take a breather at some point. Those two resistance points are the next logical points for taking a break.
The Chart: http://www.investmenthouse.com/cd/$indu.html
FRIDAY
Producer prices (PPI) are released before the open along with the trade balance. In the current market that will not garner too much attention from investors as the early trade will be dominated by MSFT et al. Futures are up after hours but not zipping to new heights. There is only so much good news that the market can respond to before it reaches the saturation point. We expect that it is getting near that point now and a push in the morning up toward resistance may be all there is for the week. After a strong follow through to the rally that started last week we anticipate some profit taking before the weekend. There are still world events out there to consider and there is still a lot of bearishness out there. That is good for the rally longer term but it can lead to some profit taking in the near term. It is not a straight shot higher though at times the market tries to make it one.
Given that the rally is getting pushed up near resistance points after a solid run we are going to be careful entering new positions. We have been taking positions as the opportunity arose and we will continue to do that on solid breakouts. On some option plays we will look to take some gains on an early move up. MSFT can jump $2 to $3 in the morning from the Thursday close and give us a nice quick gain on the options; we can take all of the gain or part of it and let the rest run.
One of the opportunities we will look for over the next few sessions will be the pullback stocks, testing the strong moves already made. They present themselves over a series of days as some stocks continue to rally while others that started off early test their moves. As we have said, there is not just one point to buy a stock. Breakouts, tests of breakouts, tests of short term moving averages all provide excellent entry points or add-to points. Thursday we had current plays hitting targets and still in good moves; do you hold or close them out? Many of these stocks are starting to test the moves, beginning that uptrend pattern of testing the short term moving averages after a breakout and using those to rally further. If in doubt you can always take the gain. You can also always take part of the gain and let the rest run. We were letting some run and taking partial gains on some positions Thursday as they continue to show the kind of strong upside moves and orderly lower volume pullbacks. As the market improves we are willing to let those plays continue to work for us as they can really start to build gains beyond the initial 20% move.
Support and Resistance
Nasdaq: Closed at 1272.29
Resistance: 1291 to 1316, an early August interim high. 1357.09, the October 1998 bear market low. There is a downtrend line from the March and May highs at 1321. 1418, the interim test after the September 2001 low, and 1426 the August high.
Support: The 50 day MVA (1259.48). The March/May downtrend line at 1222. The 10 day MVA (1216.17). The 18 day MVA (1212.09). 1200 (August closing low) to the July intraday low at 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 879.20
Resistance: 875 is some price resistance not totally cleared. The September 2000/May 2001 downtrend line at 907. The downtrend lines from the March and April highs (910). July, August and September interim highs at 911. Price resistance at 950. 965, the September 2001 closing low along with the August 2002 high.
Support: The 50 day MVA (868.57). 850 to 855 (the October 1997 and Q2 1998 lows). The 10 day MVA (843.66). The 18 day MVA (841.51). The first March down trendline 830. Prior closing lows and highs at 800 from July and October. The first bottom channel line in the March downtrend (795). The September 2000/January 2001 down trendline at 782. The July intraday low at 775.68. The lowest channel line in the March downtrend channel (755). 750 to 760 with an intraday touch to 730.
Dow: Closed at 8275.04
Resistance: The simple 50 day MVA (8273.63) has not been totally cleared. 8250 acted as resistance before. 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.
Support: The second March down trendline at 8185. The exponential 50 day MVA (8177.18). 8000 (August low at 8043; September 2001 intraday low at 8062). The 10 day MVA (7914.73). The 18 day MVA (7898.85). The August down trendline at 7480.
Economic Calendar
10-15-02
Business inventories, August (8:30): -0.1% actual, 0.2% expected, 0.4% prior.
10-17-02
Housing starts, September (8:30): +13.3% (1.843M actual), 1.636M expected, 1.609M prior.
Building permits, September (8:30): +3.7% (1.727M actual), 1.670M expected, 1.666M prior.
Initial jobless claims (8:30): 411K actual, 398K expected, 389K prior (revised from 384K).
Industrial production, September (9:15): -0.1% actual, 0.1% expected, -0.3% prior.
Capacity utilization, September (9:15): 75.9% actual, 76.0% expected, 76.0% prior.
Philly Fed, October (12:00): -13.0 actual, -4.0 expected, 2.3 prior.
10-18-02
Trade balance, August (8:30): -$35.2B expected, -$34.6B prior.
CPI, September (8:30): 0.2% expected, 0.3% prior.
Core CPI (8:30): 0.2% expected, 0.3% prior.
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SUBSCRIBER QUESITONS
Q: I read something in MSN Money (online financial news) about MME. Some brokerage cut rating from buy to hold, because it exceeded their $39 target (said they couldn't see value much above that). With regard to your target for closing the position ($45.55), would this news change anything, i.e. would you think it necessary to modify the target for exiting this one?
A: Not at this point. In a weak market a 'valuation' downgrade is hard for a stock to overcome as the shorts are ready to jump on stocks considered 'overvalued.' In a stronger market, stocks that are first to reach new highs are those that are the targets to 'valuation' downgrades. MME is such a stock having recently moved to a new high on excellent volume. What typically happens is that these stocks sell back a bit as those following the analysts sell. The reason it has good numbers and good accumulation and is hitting a new high so early in the rally is that it has great fundamentals that big money is buying into. It is a key stock in that respect as it is one of the first to breakout in this rally and whether it can weather the valuation call will be indicative of the rally's strength as one of the early leaders is tested. The reason we bought it is still there; analysts often downgrade at the wrong times as has been seen the past few weeks as the market was bottoming. Thus we are going to stick with our original target and see if the stock holds at the 10 day MVA and rallies from there. That is the pattern a strong stock breaking out follows: breakout, then start riding up the short term moving averages.
THE PLAYS:
Upside:
ESPD (Espeed Inc.--$12.20; +0.21; optionable): Internet software
http://biz.yahoo.com/p/e/espd.html
STATUS: Cup w/handle. Moving through a 7.5 month base with good accumulation at 7 accumulation weeks to 4 distribution weeks. Strong move up this week off the 200 day MVA back at 10, and is now testing that move to form the handle. Specific internet and software companies are showing good action, and we are looking for a good breakout to give us a nice gain.
Volume: 273.339K Avg Volume: 175.727K
BUY POINT: $12.75 Volume=265K Target=$15.3 Stop=$11.45
POSITION: ENU BB - Feb. $10c (76 delta) and/or Stock
http://www.investmenthouse.com/ci/espd.html
HNR (Harvest Natural Resources--$6.19; +0.29; no options): Independent oil and gas
http://biz.yahoo.com/p/h/hnr.html
STATUS: Testing breakout. HNR broke out of a 2-month cup base in late September and is now testing that breakout as it moves laterally along the 10 day MVA (5.90). This is what we like to see: breakouts come back to test and hold the 10 day MVA and then rally up from there. Accumulation is solid at 6 up weeks on rising volume to 3 down weeks on rising volume. It looks to be preparing for its next move up on this breakout.
Volume: 101K Avg Volume: 166.545K
BUY POINT: $6.38 Volume=288K Target=$7.75 Stop=$5.78
POSITION: Stock (no option chain)
http://www.investmenthouse.com/ci/hnr.html
Revisited:
Play Date: 10/12/2002
SHFL (Shuffle Master--$21.9; +0.54; optionable): Card shufflers
http://biz.yahoo.com/p/s/shfl.html
STATUS: Breakout ascending wedge. After a quick test of the breakout that touched back to 21 on lower volume, SHFL moved up again Thursday on rising, above average volume. This was the move we were looking for, and it opens the door to additional positions. Accumulation in the pattern was positive at 6 up weeks on rising volume to 5 down weeks on rising volume. This wedge is part of a larger 6-month cup base.
Volume: 334.856K Avg Volume: 288.136K
BUY POINT: New positions: 22.05 (orig. $20.38). Volume=375K Target=$24 Stop=$18.75
POSITION: SFQ BW - Feb. $17.50c (74 delta) and/or Stock
http://www.investmenthouse.com/ci/shfl.html
End Part 1 of 2
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world stock market
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