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us stock market, stock split
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10/22/02 Stock Split Report
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Stock Split Report Subscribers:
We apologize for the later report. Again the heavy rains in Texas have caused some power and flooding problems and some of the staff had to scramble a bit to get to a better and safer place to get the report out.
MARKET ALERTS
Targets hit alerts issued Thursday: None issued
Buy alerts issued: HNR; QCOM; KLAC
Trailing stops issued: None issued
Stop alerts issued: AG; OEX
You can sign up for Stock Split Report alerts at the following link:
http://www.investmenthouse.com/alertssr.htm
SUMMARY:
- Mild consolidation turns to distribution as Iraq gives a reason to sell.
- Jobless claims fall below 400K once again.
- Second distribution day in three sessions increases risk to rally, but internals were very modest.
Tuesday the market sold on rising volume, Wednesday it made an effort at rectifying that selling, then Thursday it returned to selling on much higher volume. The market was in a very nice, moderate volume consolidation until word that Iraq ordered all western journalists out. While not horrid news bids were cancelled and when that happens it is like kicking the supports out from under a stock. It starts to fall until it finds a buyer. If there are not a lot of buyers the momentum picks up and then the sellers get interested, and before you know it you have rising selling volume. Given that the market still had not given back much of its gains from the recent run up it was a somewhat easy target for sellers. They closed the day out near the lows, marking a second quick distribution session. The indexes are still over key levels at the 50 day MVA, but the sudden shift to selling on higher volume could mow those down if the buyers do not reassert themselves soon.
THE ECONOMY
Jobless claims fall below 400K.
389K (-25K) versus the 405K expected. After the spike higher the previous week, jobless claims moved back below 400K for the second time in three weeks. A new trend? Some were saying so, but there are still seasonal adjustments being made as the retail sector continues to transition from the back to school to holiday mode, and that always distorts the numbers. As proof of a trend change, some point to continuing claims that fell 115K, a reversal of almost all of the dramatic spike the prior week. That had them calling the spike an aberration. Funny, in statistics an aberration is a piece of data that is outside the normal range or the current trend. The drop of 115K is well outside the trend of rising claims. Yes the number of continuing claims is flattening, but the trend has not changed.
It is positive, however, that data fluctuations are cropping up. As discussed many times in the past, fluctuations in reported numbers indicate possible change underway. Something is happening (hopefully not all government bungling) that is causing the wide swings. That still has to be tempered with what the facts are. Notice how there is a renewed push to extend jobless benefits as part of one of the proposed 'stimulus' packages? That is a recognition of a fact: over time if new jobless claims hold roughly steady and then show flattening (as they have at the 400K level), continuing claims will hold steady and then fall because jobless benefits only last so long and then benefits are lost. You don't get a job, you just fall off the continuing claims roll because you are no longer collecting benefits. This is another fallacy of living by each economic report. In a 'normal' situation you could draw the conclusion from lower continuing claims that the job market was improving. In this environment that conclusion does not necessarily follow. This could indeed be a good sign. It is too early to say, however, that the trend is changing and use that as a reason to limit action on the economy.
THE MARKET
A good consolidation session turns ugly.
The second distribution session in three tries is heralding a potential change in character in this rally. Up days on rising volume and intraday moves from low to higher closes marked the action until Tuesday when it sold on higher volume. Wednesday's upside attempt was calming, but just as soon as it could it turned and headed sharply lower on sharply higher volume. The second distribution session in quick succession is more of the Mr. Hyde personality for upside action. Talk about a change in character.
Given that, there was not a lot of crushing downside volume in many of the stocks that have been performing well. They tended to drift back on lighter volume though some had their problems. Moreover, the up/down volume ratio was not seriously negative, and the A/D line was just mildly weaker. Those are some positives that blunted the selling. Indeed, a lot of the downside volume was found in stocks such as GE, DOW, CAT, stocks that are well off their highs and really struggling. Nonetheless, if their bottoms drop out there is collateral damage to the indexes given their weighting and that can trigger more selling.
The indexes did hold above their 50 day MVA, and that is brewing to be the key test for this move, particularly the Nasdaq as it has a pretty steep drop before its could catch support if that level goes. The Dow and S&P 500 have some nearer support at 8000 and 850 that could still very much hold the rally if the 50 day MVA breaks, but bulls would prefer not to give the shorts that much of a chance.
In short, the market is still holding up but the sellers are starting to exert more force than the buyers, and if the indexes break the 50 day MVA on continued stronger volume the rally will be in trouble, having shown action very similar to August when it peaked over the 50 day MVA for about a week and then dove back under for some more downtrend action.
Sentiment Indicators
VIX: 39.9; +0.52
VXN: 54.58; +2.21
Put/Call Ratio (CBOE): 0.81; +0.08. Put activity picked up, but it did not surge higher as it was doing on down sessions a week to two weeks back.
Nasdaq
Ran higher and then reversed to give back Wednesday's gain to close right at 1300. The selling volume spiked once again.
Stats: -21.52 points (-1.63%) to close at 1298.71
Volume: 1.947B (+21.64%). This is a significant jump in the selling volume and a clear day where sellers outnumbered buyers.
Up Volume: 821M (-468M)
Down Volume: 1.105B (+811M). There were more sellers, but not overwhelming in the tech sector.
A/D and Hi/Lo: Decliners led 1.15 to 1. By no means a rout and actually quite mild as the decliners were well off the advancers' Wednesday pace.
Previous Session: Advancers led 1.72 to 1
New Highs: 38 (+2)
New Lows: 67 (-5)
The Chart: http://www.investmenthouse.com/cd/$compq.html
Tried to make the bullish comeback after early selling and was cruising until it got within a stone's throw of the late July and early September interim tops (1345ish, 1331 on the high Thursday). Then at midday there was a sudden drop, hiccup, belch, or whatever, and that brought in some sellers. Volume was looking good on the buying, and it continued pace on the selling. Dow volume outpaced up volume on the close, but not by what you would think given the reversal and higher volume. The A/D line was moderately negative. The selling winds are blowing a bit harder and the Nasdaq is set for a showdown at the 50 day MVA (1267.21). It needs to make a higher low at that point because there is not a whole lot to hold it until 1200 to 1220, and a break below the 50 day, if not quickly reversed, would be a big blow to the rally and a boost to the sellers.
S&P 500/NYSE
It too was closing in on those July, August and September interim highs when that midday hiccup came and rolled it over.
Stats: -13.64 points (-1.52%) to close at 882.5
NYSE Volume: 1.68B (+9.04%). A significant but not huge jump in volume, but it was still another distribution session.
Up Volume: 671M (-336M)
Down Volume: 1.002B (+459M). A bit stronger to the downside than the Nasdaq, and that selling was really showing up in CAT, DOW and industrial stocks after the TEX warning.
A/D and Hi/Lo: Decliners led 1.25 to 1. As with the Nasdaq, the decliners were not very broad, showing the selling was limited to the big names on the news. The small cap index fell 0.8%, indicating that the broader range of stocks did not have a rotten session.
Previous Session: Advancers led 1.66 to 1
New Highs: 27 (+6)
New Lows: 61 (-16)
The Chart: http://www.investmenthouse.com/cd/$spx.html
The large caps came close to the interim highs of the last three months roughly at 909 to 912 (high at 902.92) and then rolled over at that resistance point on a second day of distribution in the last three sessions. The large caps were definitely under the gun Thursday with the TEX warning that set off selling in many big industrial giants. The S&P is also going to give the 50 day MVA (872.55) a closer inspection over the next session or two. Now it does have some layers of potential support after the 50 day MVA that could bounce it on a move through that level, e.g., the 18 day MVA (862.35) and price support at 850. That gives the S&P a bit more room and it could work to its advantage if it undercuts the 50 day MVA, gets the fear level up, and then rallies back over it. Overall there has been some distribution and that is a warning sign, but the selling to date has not been approaching a rout. We will have to see how the test of the 50 day MVA is resolved, but at this point in time it does not look as if it will fail.
Dow:
Stats: -176.93 points (-2.08%) to close at 8317.34
Volume: 1.68B (+9.04%)
8500 continued to be a roadblock for the Dow (high at 8558.63) as that level stopped the attempted move off the lows Thursday. The Dow was really hurt by stocks such as DOW, CAT, BA, IP that sold on rising volume. If you take all of the Dow stocks and add up their volume, however, volume was lower on the Dow. In short, a few stocks with news tied to them sold hard while most moved lower on decreased trade. The 50 day MVA (8221.91) is the first real test, but the Dow does have some wiggle room as it can test down to 8000 that was the August low and the late September interim high and still be in good shape.
The Chart: http://www.investmenthouse.com/cd/$indu.html
FRIDAY
Durable goods orders before the open, Michigan sentiment 15 minutes into trade, then home sales at 10ET. There has not been that much economic reporting all week. If there are some surprises to go on top of the better jobless claims on Thursday, that might be the spice the market needs to push it up off the 50 day MVA. Otherwise we see the full test of the 50 day MVA unfolding. Thursday had the look and feel during the morning session that a test was going to be averted; as we saw, that was scuttled in the early afternoon as buyers could not bring enough buyers in at the critical time. The best action would be a run down to the 50 day MVA, a bit of an undercut intraday, and then the start of a march back up. It could happen over Friday and Monday or Tuesday. In any event, selling volume will have to slack off.
Given the distribution sessions, we are not going to be in any hurry to jump into positions. There were many stocks flirting with buy points all session, but we were not moving into many of them. We were buying some additional positions on this weakness, something that turned a bit against us as the selling intensified and the consolidation session turned to a distribution session. Given the market internals, however, we still feel comfortable with the action as long as the distribution ceases here. The strength of the upside sessions has been superior thus far and the leading stocks for the most part are holding up. The market has the foundation to hold up on a test of support; now it just has to do it.
We are approaching this pullback from various angles. For one, there will continue to be leading stocks that make their breaks. If we can get a good entry point (i.e., no major gap) we will continue to look at those because of the continued solid internals discussed above. Second we will continue to use some of the pullbacks by strong stocks as entry points. This is banking on the support holding, and we will enter these if the volume is lighter and support is holding. Again we did some of that today; some worked better than others. Third there are some stocks that are making breaks downward and we are looking at these as well. Even if the market holds support and rallies, some stocks just won't join the party. Those in downtrends and are at the point where they are going to or are already resuming them are fair game for downside plays.
Support and Resistance
Nasdaq: Closed at 1298.71
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 (1559.37).
Support: There is a downtrend line from the March and May highs at 1300 that could still hold. The 10 day MVA (1271.14). The 50 day MVA (1267.21). The 18 day MVA (1250.66). The March/May downtrend line at 1202. 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 882.50
Resistance: The September 2000/May 2001 downtrend line at 902 and the March down trendline at 901. 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 10 day MVA (873.09). The 50 day MVA (872.55). The 18 day MVA (862.35). 850 to 855 (the October 1997 and Q2 1998 lows). The first March down trendline 824. Prior closing lows and highs at 800 from July and October. The first bottom channel line in the March downtrend (784). The July intraday low at 775.68. 750 to 760 with an intraday touch to 730.
Dow: Closed at 8317.34
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 (9338.08). 9500 from June and July lows.
Support: The simple 50 day MVA (8248.64). 8250 acted is some support. The 10 day MVA (8234.62). The exponential 50 day MVA (8221.91). The 18 day MVA (8122.22). The second March down trendline at 8120. 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): 389K actual, 405K expected, 414K prior, revised from 411K.
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.
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End Part 1 of 3
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