|
|
understanding the stock market, trade stock
* * * *
10/23/02 Stock Split Report Update
* * *
Stock Split Report Subscribers:
MARKET ALERTS
Targets hit alerts issued Wednesday: None issued
Buy alerts issued: BSX; COH; IDXX; OEX
Trailing stops issued: None issued
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:
- Buyers step in again after a test lower.
- Mortgage applications slide as interest rates rise.
- Positive consolidation continues with reversal of lows, but volume light.
- Subscriber Questions
Market back to shaking off negatives.
Give it a day and seems all is forgotten. Tuesday no amount of positive outlooks could turn things up from the TXN gloomy Q4 outlook. Wednesday several chip stocks reported weaker outlooks and that had the market selling. Then the market, along with those chip stocks, reversed and closed positive. Buyers once again were ready to step in, continuing the overall bullish bent the market is taking. It was not a breakout session; volume was still light and there may be more testing ahead, but good stocks continued to test their breakouts as investor shook negative news, preferring to look further into the future.
THE ECONOMY
Mortgage applications sink on rising rates.
After hitting new lows two weeks back, mortgage rates started to rise in the recent flight from treasuries. Rates went from below 6% on the 30-year fixed to 6.21%. As a response, mortgage applications for the week dropped 12.4%. Refinancing applications were down 17.7% while home purchase applications were up 5.7%. Overall rates were still high, but this shows how sensitive the market is to changes in interest rates. While there is no tangible and imminent inflation threat, continued pressure on the treasuries would continue to tick rates higher and that would put more and more pressure on the home market which, as we know, is one of the only solid areas of the economy.
On top of that was the aberration in the bond market where investors were steered into overweighting bonds over the past few months after the bond market had already made a run. The surging bond market lured even more investors, worsening the cycle. Then the stock market bottomed and big money started to move out of bonds faster. That exacerbated the swing back the other way. Rates are still low on a historical basis, but not compared to the point at which many of the recent investors were told to shift the build of their assets to that market.
THE MARKET
Market snaps right back but volume is mixed.
The indexes closed positive and that had all the financial station anchors breathing easier about the recovery after the Tuesday selling. Don't all exhale at once. Nasdaq volume backed off on the move back up after Tuesday's distribution session while NYSE volume was a push. Tuesday was a mild distribution day, but the buyers that came back in Wednesday were fewer than the sellers the prior session. No breakout, no washing away the distribution session.
What the day did show was a resumption of the overall bullish characteristic of buying when there is some weakness and overlooking negative news. The indexes held above the 50 day MVA and rallied back up, and that continued the overall consolidation action in spite of the Tuesday slight distribution session. Given the lower volume, however, there was still a lack of sufficient buyers on the turn back up and the indexes could test the 50 day MVA further.
The Dow and SP500 both continue to move laterally over their 50 day MVA as volume has backed off considerably from that when those indexes rallied higher off the October lows. That action indicates continuing consolidation of those gains. The Nasdaq resumed its climb higher, moving to a post-October high as it continues to lead price-wise. Once again, however, the lack of volume is a problem; Pushes higher and higher on lower volume usually lead to more significant selling as seen Tuesday. The Nasdaq needs to move laterally and then make a higher volume breakout. The buyers represented by Monday and Wednesday's volume are not numerous enough to sustain a move higher.
Sentiment Indicators
VIX: 39.38; +0.04
VXN: 52.37; -1.24
Put/Call Ratio (CBOE): 0.73; -0.1. Giving 0.1 back and forth this week. The thing to note: it is in the high end of the range and jumps higher on any selling.
Nasdaq
Held up better than the other indexes all session, turning positive first and rallying to a post-October high. Unfortunately volume did not follow.
Stats: +27.43 points (+2.12%) to close at 1320.23
Volume: 1.6B (-7.1%). Above average again, but still lower than the Tuesday trade when the index sold on the TXN outlook.
Up Volume: 1.289B (+495M)
Down Volume: 294M (-613M). The investors that were in the market were buyers at least.
A/D and Hi/Lo: Advancers led 1.72 to 1. Not bad as the A/D line was higher on the up day than it was down on the selling session.
Previous Session: Decliners led 1.44 to 1
New Highs: 36 (+2)
New Lows: 72 (+2)
The Chart: http://www.investmenthouse.com/cd/$compq.html
Again the price action was bullish with a test down to the Tuesday low and then a rebound from there. Wednesday the index managed to rally positive on the close, but volume did not follow. The 27 point gain inflates the index without a lot of buying support. That action could breed trouble down the road if no volume comes back in. On the other hand, it beats another distribution session as the intraday action continues its overall bullish tilt as investors look for opportunities to move into stocks. Ultimately there have to be a lot more buyers moving in once again to support the move.
S&P 500/NYSE
Tapped near support at 870 and the 50 day MVA (872.15) on the low and turned into a gain. Lateral action on lower overall volume is not bad action.
Stats: +5.98 points (+0.67%) to close at 896.14
NYSE Volume: 1.541B (-0.58%). Ever so slightly lower volume. It was so close you cannot call it a failure. Indeed, it looks more like a continued consolidation over the 50 day MVA.
Up Volume: 1.007B (+537M)
Down Volume: 543M (-499M)
A/D and Hi/Lo: Advancers led 1.66 to 1. Not a strong rally, again indicative of a continued consolidation.
Previous Session: Decliners led 2.11 to 1
New Highs: 21 (+4)
New Lows: 77 (-12)
The Chart: http://www.investmenthouse.com/cd/$spx.html
Tested down toward the 50 day MVA (872.15) on the low and buyers took the decline as an opportunity to move back in. Overall the action maintains the large cap index in the range of the past three sessions as it moves over the 50 day MVA and below the March down trendlines. Overall this is good action to work off the fluff after the big rally off of the lows. It helped mitigate the Tuesday distribution session somewhat as the index is holding onto its gains as it works to digest the move. That is what you like to see in the bigger picture.
Dow:
Stats: +44.11 points (+0.52%) to close at 8494.27
NYSE Volume: 1.541B (-0.58%)
The Dow also tested lower, holding well above its 50 day MVA (8257 and 8218, simple and exponential) on the low (8294.38) and a recovery to positive territory. As with the SP500, that keeps it in the recent range above the 50 day MVA and 8500 on overall lower volume as it holds onto its gains off the lows.
The Chart: http://www.investmenthouse.com/cd/$indu.html
THURSDAY
Still light economic news with initial jobless claims at 8:30ET as the only scheduled report. AMGN and AOL reported decent earnings and that had futures up modestly after the close. That is what we like: modest opens as opposed to the wild jumps that can lead to equally violent whipsaws. The market needs to continue its consolidation through this week and then make a strong move higher on volume. That will give the indexes the time to digest the hefty gains off the lows.
The indexes continue to show overall bullish intraday action, but as noted Wednesday, there are still leaders that have been dropped hard that are trying but have not made a recovery yet. Growth stocks have to be something that investors want over what are termed 'safe' stocks that pay dividends, or have been crushed down into the mud and accordingly have low P/E ratios. One positive sign is a recent survey by one analyst group that is showing investors showing a slight but growing bias in favor of growth stocks as opposed to dividend stocks. Growth stocks are the forte of bull moves; if they cannot succeed the market is not going to make large sustained gains.
While the indexes finish consolidation (and we say that knowing that bull moves don't always give a nice, full consolidation and then a breakout, but sometimes jump the gun), there are leading stocks that are already putting the finishing touches on testing their breakouts, e.g., SLE, TSCO, BSX, and are ready to or are already starting back up. Hence the name leaders. They will be a big part of the picture on a further move up; they need to resume there moves on rising volume, followed by stocks making their first breakouts. Those were starting Wednesday as well with moves by COH and IDXX for example.
Thus we will be ready for the move up, but we also are not going to be too surprised with a drift toward the 50 day MVA the rest of this week before some attempt to rally next week once the consolidation is completed. All in all the action remains on the bullish side given the refusal to break down on less than news and earnings that are not clearly indicating companies are out of the woods. Again, however, the market moves while the end result is still very questionable. That is why we react to what the market shows while applying some common sense to what is going on. In the end the market is the decision maker and we are just along for the ride.
Support and Resistance
Nasdaq: Closed at 1320.23
Resistance: 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. Then some price resistance at 1500 and the 200 day MVA (1563.10).
Support: There is a downtrend line from the March and May highs at 1305. The 50 day MVA (1265.93). The 10 day MVA (1265.01). The 18 day MVA (1245.01). The March/May downtrend line at 1203. 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 896.14
Resistance: The September 2000/May 2001 downtrend line and the March down trendlines at 902. 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 and showed that Wednesday. The 50 day MVA (872.15). The 10 day MVA (871.00). The 18 day MVA (859.98). 850 to 855 (the October 1997 and Q2 1998 lows). The first March down trendline 825. Prior closing lows and highs at 800 from July and October. The first bottom channel line in the March downtrend (786). The September 2000/January 2001 down trendline at 776. The July intraday low at 775.68. 750 to 760 with an intraday touch to 730.
Dow: Closed at 8494.27
Resistance: 8500, former price points, is acting as the top of this range. 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 (9346.96). 9500 from June and July lows.
Support: The simple 50 day MVA (8257.16). 8250 acted is some support. The exponential 50 day MVA (8218.02). The 10 day MVA (8216.24). The second March down trendline at 8145. The 18 day MVA (8099.27). 8000 (August low at 8043; September 2001 intraday low at 8062).
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): Sluggish, home sales keeping things afloat. Nothing new or surprising.
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: On 10/15/02 you said in "THE MARKET" summary that... " Big institutions were buying Tuesday, putting in 100k+ orders all during the session." I was curious how you see that as it's happening? My trading platform is Cybertrader. Thanks for your help.
A: It is important to try and determine if large institutions are buying or selling stocks. If there is a rally in its early stages you know that a chunk of the action is going to be short covering as short sellers repurchase the stock they sold before it runs back up; that is how they make their money, i.e., selling high and buying low. When a rally starts or a key resistance point is broken they will tend to cover. After a rally gets underway you need to see longer term investors move in as well as that indicates the rally is turning into more than just short covering.
Watching block trades on certain stocks is one indication; big 100K blocks are usually the footprints of big money at work as institutions control 70% of the trade and the really big money on the street. Those big trades could be institutions buying stock longer term or hedge funds covering shorts. The block trades show there is a lot of activity by some big money movers. To pin it down further we look at breadth; if it is a narrow session with the beaten down stocks leading back up, that is a sign of short covering as well as the shorts are simply repurchasing stocks they already sold. If the move is broad and smaller stocks and those stocks in good bases are breaking out on volume that is a sign there is some longer term money being put to work. In addition, however, we talk with floor brokers and traders to get a handle on just who is placing the big orders and get their understanding as to whether the short coverers or the longer term buyers are in the majority. There are two sides to every trade and a short coverer could be selling to a long term buyer; that is where talking to the floor guys helps understand the dynamics a bit more. It is a combination of seeing block trades going through, noting which brokerages are putting the orders in, and then calling some contacts to get a better picture of what is behind the action.
End Part 1 of 2
|
understanding the stock market
trade stock
|
