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10/21/02 Stock Split Report Update
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Stock Split Report Subscribers:
MARKET ALERTS
Targets hit alerts issued Monday: None issued
Buy alerts issued: BLUD; IGT; CCE; PENN
Trailing stops issued: SRE
Stop alerts issued: None issued
You can sign up for Stock Split Report alerts at the following link:
http://www.investmenthouse.com/alertssr.htm
SUMMARY:
- Market rallies again but cannot attract any volume.
- Forward-looking LEI down for fourth consecutive month.
- Buyers enter on weakness, but recent lower volume climb is unsettling.
- Subscriber Questions
The price action is bullish even if the volume is not.
The market was poised to start soft with some Monday downgrades, a prior week of gains, and once again some rather peculiar talk from Microsoft. Last week MSFT posted some rather impressive numbers, beating expectations handily as it enjoyed a nice surge from its licensing change. Balmer then comes out later and says the quarter was an 'anomaly.' That harkened back to his statement in 2000 that Microsoft was 'way overvalued;' we all saw what happened to MSFT after that statement. Not nearly as overvalued as it was. At least this time he mitigated the statement saying that it just wasn't like the 'good old days,' indicating that things were not horrible, just not as good as things were in the heyday. Those type of comments, however, are always taken for their worst, and that helped set the tone for the morning session.
Stocks started lower but then again reversed and rallied the rest of the session to close higher. That is bullish price action: soft open followed by a rally and close positive. Volume, however, did not go with it. Another dull Monday that did not give any support to the rally. The more sessions you have like that, the higher prices get without a lot of buy support. That makes the pullback to consolidate the move potentially steeper and more violent.
THE ECONOMY
Leading Economic Indicators down for fourth straight month.
-0.2% as expected, and August was revised up to -0.1% from -0.2%. Small hurrah. The LEI looks ahead 6 months, and it has had four months of negative numbers. Taken literally that means there is a string of rocky months ahead for the economy, and that is in contrast to the administration's take on things. In all fairness things could slow down and still be moving higher overall, but that would mean a slow, painful recovery similar to recovering from severe pneumonia.
On the flip side, bonds are getting hit still, and when bonds start to reverse and yields climb that can be a sign of better economic times ahead as it is anticipated that the cost of money will increase. Some of this is due to the overinvestment in bonds the past few months as investors leaving stocks were convinced that a lot of bonds in the portfolio would give great returns. Many of those new converts have switched asset classes just in time to see a lot of big money leave bonds.
Also note that the commodity index is at the late 2000 highs near 230 and looks ready to try a breakout. Commodities are very economically sensitive, and they rise in anticipation of economic recovery. The rise off of the Q4 2001 lows has been steady at a 45 degree climb. Does that mean economic recovery or inflation? The recovery is not as strong as the government says, but it is not depression either. At this point the job is to get the economy going again and get businesses investing in productivity-enhancing systems so the productivity increases can keep a handle on any inflation pressure based on low interest rates (though that is dubious given that money is not nearly as free and easy as the low Fed Funds Rate would lead one to believe on first blush). Unfortunately we are not going to get anything but sloganeering through the elections and then who knows what will happen. One side says no stimulus is needed, the other proposes something it calls stimulus but is not. A fairly hopeless situation as far as getting anything done timely.
THE MARKET
The market rallied again without taking any rest. That would be okay as we indicated last week; a market that is recovering and in a strong rally can continue to move higher and higher without rest if the volume is there. The past 2 sessions the market has continued the rally but without the rising volume (Nasdaq lost, NYSE gained ever so slightly). Two gains on lower and lower volume is not a good sign. It does not mean that the rally is going to die, but rallies on low volume tend to correct harder because they kept moving up without heavy buy support. This happened in August and the rallied died. Again this is not entirely the same as volume up to this point has been solid.
After hours TXN tossed water on things guiding Q4 to 0.02, plus or minus. Expectations were for 0.11. Revenues are to be 10% lower as well. TXN was getting thumped after hours along with other techs. When the market rallies on low volume it is subject to upset on this kind of disappointment. The market has been able to rally over bad news of late. It will run out of gas trying to continue to do that, particularly if there is no volume. It needs a rest, and after approaching some resistance points it is getting close to a pullback.
Sentiment Indicators
VIX: 38.91; -0.91
VXN: 52.34; -2.99
Put/Call Ratio (CBOE): 0.73; +0.05. Rising on an up session is not the norm. It indicates there is still concern that rises as during the morning selling.
Nasdaq
It did not wait and rest a few days over the 50 day MVA, but rallied on low volume up to the March/May down trendline. It either needs a big volume injection or it is going to find tougher sledding.
Stats: +21.81 points (+1.69%) to close at 1309.67
Volume: 1.576B (-5.56%). Barely above average on the gain. Not inspiring.
Up Volume: 1.154B (+144M)
Down Volume: 395M (-243M)
A/D and Hi/Lo: Advancers led 1.49 to 1. Meager advance though it was quite a turnaround from the morning action
Previous Session: Advancers led 1.1 to 1
The Chart: http://www.investmenthouse.com/cd/$compq.html
Rallied up close to the March/May down trendline (1312), closing near the high. It jumped off the 50 day MVA (1262.52) quicker than we would want, and given the TXN earnings after hours, it may have needed that rest. In any event, it gave itself some cushion above the 50 day MVA to come back and consolidate a big more at that level. It would be nice if the Nasdaq would just pull back in small chunks of 15 points as opposed to 40+ point plunges on down sessions. That would be a better sign of overall strength as no one was rushing to the door to get out. As it is, with the weak volume move up to next resistance, Nasdaq has set itself up for a fall back to the 50 day MVA. The key will be if volume stays under control.
S&P 500/NYSE
No hesitation as the large caps moved off the 50 day MVA as well and on toward the next important test. Volume would have helped.
Stats: +15.33 points (+1.73%) to close at 899.72
NYSE Volume: 1.423B (+1.07%). Again squeaked by average with a slight rise in trade. A gain, but hardly inspiring.
Up Volume: 1.174B (+417M)
Down Volume: 253M (-391M)
A/D and Hi/Lo: Advancers led 1.57 to 1. Middle of the road action.
Previous Session: Decliners led 1.05 to 1
New Highs: 35 (+11)
New Lows: 84 (-11)
The Chart: http://www.investmenthouse.com/cd/$spx.html
The large caps took one more look at the 50 day MVA (870.39) and then rallied. Volume did not back the move, however, as the S&P 500 gets over the preliminaries and now faces the July, August and September interim highs (909 - 911) as well as the March down trendlines (905). That is where some real resistance will show itself, particularly given the lack of volume the last two moves higher. It is showing that bullish intraday action of overcoming early weakness and closing at the highs, but it has to have serious buying behind it or that is just the minority calling the shots for the day. Unless buyers were sleeping in Monday and decide to come into the market Tuesday with some big volume to push it past those down trendlines, the S&P's gas tank will be running dry and another test of the 50 day MVA would appear in order.
Dow:
Stats: +215.84 points (+2.59%) to close at 8538.24
Volume: 1.423B (+1.07%)
The Dow plowed right through that downtrend channel that was discussed Friday without too much hesitation. If it had made the move on stronger volume it would have been more convincing; now it is like the S&P 500: if buyers wake up and decide to buy Tuesday it could cure itself. With TXN disappointing big that will not likely happen, at least not at the close. The indexes will more likely give back the recent low volume gains and the key will be whether they hold the 50 day MVA (8196.81) as an important support level. Upside the Dow still has interim July, August and September highs at 8745ish just as the other indexes, and that will act as the next resistance if it can keep the upward move alive at this point.
The Chart: http://www.investmenthouse.com/cd/$indu.html
TUESDAY
TXN has set the futures back after hours and that is impacting much of the Nasdaq. Without a good consolidation along the 50 day MVA but instead rallying on lighter volume, the stage is set for a disruption such as the TXN news. That will push the indexes back for a test of the recently crossed 50 day MVA, and that has many thinking back to August when the indexes crossed the 50 day for a few sessions and then flew south for the autumn. That pessimism is good when combined with the bullish price action on the indexes. It gives more substance to a test and consolidation at or near the 50 day MVA that holds for another more serious run higher. Again investors could wake up after some selling early Tuesday on the TXN news and then once again rally stocks, this time with volume. That is always something we will be watching for but the better action would be a consolidation along the 50 day MVA; as noted above, at least it has given itself some cushion to fall to that level with the recent low volume gains.
We have naturally been very selective with what we are entering into. There are many stocks that are forming up well and many that have incredibly wild and loose patterns that are providing breakouts but require a steady source of Pepto Bismal to get into. Of those forming good patterns, a few are breaking out on strong volume while others edge higher on lower trade; the latter tend not to hold the breakouts. Thus we are moving into just a few positions over the past few sessions as we look for the volume moves that signal there is a lot of interest in the stock, and that can continue to push it higher and help it hold up better on the market pullbacks.
Tuesday we are expecting that softer open once again, this time on the substantial Q4 TXN warning. We will watch to see if support holds and another big rally off the lows begins or if stocks stay down but fall in an orderly, i.e., low volume and moderate price losses, manner. After the lighter volume rally we would suggest the latter.
Support and Resistance
Nasdaq: Closed at 1309.67
Resistance: There is a downtrend line from the March and May highs at 1312. July, August, and September interim highs at 1345. 1357.09, the October 1998 bear market low. 1418, the interim test after the September 2001 low, and 1426 the August high.
Support: The 50 day MVA (1262.52). The 10 day MVA (1243.84). The 18 day MVA (1229.50). The March/May downtrend line at 1220. 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 899.72
Resistance: The September 2000/May 2001 downtrend line at 905 and the downtrend lines from the March and April highs have merged. July, August and September interim highs at 909 to 911. Price resistance at 950. 965, the September 2001 closing low along with the August 2002 high.
Support: 875 is some price support. The 50 day MVA (870.39). The 10 day MVA (859.91). 850 to 855 (the October 1997 and Q2 1998 lows). The 18 day MVA (851.68). The first March down trendline 827. Prior closing lows and highs at 800 from July and October. The first bottom channel line in the March downtrend (790). The September 2000/January 2001 down trendline at 780. The July intraday low at 775.68. 750 to 760 with an intraday touch to 730.
Dow: Closed at 8538.24
Resistance: The late July and early September interim high at 8726 to 8762.14 (8745 closing). A range of resistance from 9000 on up to 9050. The 200 day MVA (9363.98). 9500 from June and July lows.
Support: Some price support at 8500, but weak. The simple 50 day MVA (8261.69). 8250 acted is some support. The exponential 50 day MVA (8196.81). The second March down trendline at 8175. The 10 day MVA (8088.74). 8000 (August low at 8043; September 2001 intraday low at 8062). The 18 day MVA (8006.05). The August down trendline at 7470.
Economic Calendar
10-21-02
Leading economic indicators, September (10:00): -0.2% actual, -0.2% expected, -0.1% prior (revised from -0.1%).
Treasury budget, September (2:00): $40.0B expected, $35.4B prior.
10-23-02
Federal Reserve Beige Book (2:00)
10-24-02
Initial jobless claims (8:30): 405K expected, 411K prior.
10-25-02
Durable goods orders, September (8:30): -2.0% expected, -0.4% prior.
Michigan sentiment, October final (9:45): 81.0 expected, 80.4 prior.
New home sales, September (10:00): 985K expected, 996K prior.
Existing home sales, September (10:00): 5.35M expected, 5.28M prior.
ONLINE SEMINARS LIVE OR NOW ON CD!!
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.
SUBSCRIBER QUESTIONS
Q: First, I would like to compliment you: After spending 2 years trying to figure out how all this works and going through so much B.S. in the process, you are one of two people and two alone who I now follow. You both tell it like it is with no hype or personal agenda. The other person is John Murphy of Murphy's Message Service so I would say you're in pretty good company as I would suspect he's been around doing this a little longer than you. I understand pretty much everything when you give an explanation of your new picks except your accumulation figures(i.e., 5weeks up to 2 weeks down on rising volume).Would you please explain how you arrive at those figures as I never get the same numbers as you? Thanks and keep up the good work
A: Thanks for the compliment. When we refer to accumulation what we are looking for are clues as to whether the stock is being quietly purchased or dumped during the basing process. The purpose of a base whether cup, triangle, flat, saucer, reverse head and shoulders, etc. is to weed out the sellers and leave those holding the stock that want to hold it longer term. That usually means institutions as they try to acquire stock quietly so as not to tip too much of their hand. Good price/volume action, i.e., rising on up volume, falling on lower volume, indicates there are more buyers in a stock than sellers. In looking at a longer base, we look at the price/volume action on a weekly basis. We look for weeks where the stock gains ground on rising volume (accumulation) versus those weeks where it falls on rising volume (distribution). Each of those respectively shows buyers or sellers in control for that week. We go through the base and count up the accumulation weeks versus distribution weeks. We focus on those stocks that show positive accumulation (i.e., a simple majority of accumulation weeks), particularly those under heavy accumulation (e.g., 4 to 1, 5 to 2, etc.). Stocks with positive accumulation during the base have a stronger base of support and thus are more likely to make and hold strong breakout moves. This is another way of looking at a stock as it works through what looks to be a good base, another way to gain the edge as to what really are the best stocks to put your money into.
End Part 1 of 2
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