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10/26/02 Investment House Alerts Report
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IH Alert Subscribers:
MARKET ALERTS:
Targets hit alerts issued Friday: None issued
Buy alerts issued: RINO; LNCR; GYMB; VAR
Trailing stops issued: None issued
Stop alerts issued: ETR
THE MARKET
Friday gives mixed signals once again.
After Thursday's distribution session stocks turned back up to close the session and the week positive. An early tap of the 50 day MVA by the Dow and SP500 led to an afternoon rally. It was Friday, however, and volume was Friday light.
The move kept the indexes in a range between the 50 day MVA and the next resistance points. That makes for a fairly narrow range, not a bad way to consolidate some gains. Indeed the Dow, S&P 600 and S&P 400 (mid-caps) all have very nice lateral consolidations ongoing. Overall volume was down on the week. Price/volume action took a turn for the worse, however, with two distribution sessions and no accumulation sessions. That could be viewed in different ways. Good that volume was lower during a consolidation week where you want to see trade calm down, but bad that there were distributions sessions and that the indexes moved higher on overall lower volume.
On top of that there is the continued bullish price action as buyers have moved in on each dip and bought stocks. That happens intraday as well as inter-day, and Friday they did it once again after a test of the 50 day MVA on the Dow and SP500. The ability to stay in the consolidation range with buying on each move down is a strength. The distribution days last week raised a caution flag as did some failed breakouts. Two distribution days don't kill a rally, however, there were continued breakouts from strong stocks (and some recoveries as well from some that tanked), buyers stepped in on bad news, and the indexes continued to consolidate in their ranges. This week will show more, but based on what we have seen thus far we are still inclined to believe an upside breakout from the range is coming.
Sentiment Indicators
It was a week that saw bullish investment advisors overtake bearish advisors once again, but by a slim margin at38.9% versus 35.6%. Still a close heat and it shows that many remain unconvinced that the rally will succeed. Indeed, CNBC ran a piece Friday asking the question why investors were not ready to believe in the rally.
All of that negative sentiment is a good thing. If people are not buying into a rally that has shown follow through (i.e., institutional support) and good breakouts, that means there is still a lot of money sitting on the sidelines. Money drives the market. If it all comes in at once a rally races up and flames out. If there is skepticism, that holds money back from the market. That means there is still fuel out there to come in as the market continues to move.
VIX: 36.27; -3.63
VXN: 50.39; -4.19
Put/Call Ratio (CBOE): 0.77; -0.04. Slight drop on a 2% gain. That shows that continued skepticism we have been talking about.
Nasdaq
Another move up on low volume. The Nasdaq is getting a bit too far out on no volume as it has all week. Each time that has sent it crashing back down on higher volume. Maybe it is trying to edge out on the move ahead of the Dow and SP500 as those continue to work in their ranges.
Stats: +32.42 points (+2.5%) to close at 1331.13
Volume: 1.472B (-24.38%). Now that is a drop in volume. Low volume can lead to big moves, and the afternoon action saw the techs rally. Some individual volume moves scattered through the otherwise very low volume.
Up Volume: 1.146B (+325M)
Down Volume: 310M (-795M). Those in the market were buyers.
A/D and Hi/Lo: Advancers led 1.82 to 1. The advances have been on much better breadth than the declines, one of the more subtle indications that the selling is not getting out of hand.
Previous Session: Decliners led 1.15 to 1
New Highs: 25 (-13)
New Lows: 56 (-11)
The Chart: http://www.investmenthouse.com/cd/$compq.html
Another 2+% gain on lower volume, the third gain of the week and the third gain on lower volume than the preceding selling session. That indicates there were not as many buyers in the market as sellers last week though we do note that overall volume on the week was lower. The move pushed the Nasdaq over the highest down trendline you can draw from the March peak and brings it close to the July and September interim highs at 1345. It never did move back toward the 50 day MVA (1269.72) as we anticipated it would after the second distribution session Thursday. The Nasdaq is cheating up, and it may be leading the move but will need the better consolidations by the Dow and S&P 500 to give it the support it needs. Still uncomfortable with the lower volume climbs and the failure to put together a real consolidation this week. It is bullish that investors keep coming back in, but nothing beats a real consolidation.
S&P 500/NYSE
Tapped at the 50 day MVA and then rallied right back up. It was perfect action but for the volume.
Stats: +15.15 points (+1.72%) to close at 897.65
NYSE Volume: 1.327B (-21.03%). Again volume faded on a move higher, but the lateral move all week took some of the sting out of the distribution. Some, but not all.
Up Volume: 972M (+301M)
Down Volume: 370M (-632M). As with Nasdaq, most were buyers.
A/D and Hi/Lo: Advancers led 2.16 to 1. Much, much better breadth on the up sessions than the two down days.
Previous Session: Decliners led 1.25 to 1
New Highs: 14 (-13)
New Lows: 49 (-12)
The Chart: http://www.investmenthouse.com/cd/$spx.html
The large caps finished the week higher but on lower volume. Still the week was more of a lateral consolidation than a run higher, and it finished the week on an up note. The 50 day MVA is down at 873.53, and that was again tested on the low Friday (877.03). Once again that was all it took to get the index to jump back up as buyers came in at the 50 day. The pattern is a weeklong lateral move between the 50 day MVA and 900. The top of the range is right where the March down trendline and the September 2000/June 2001 down trendline currently reside. That is a key resistance point along with price resistance at 909 to 911 from the July, August and September interim highs. It needed this sideways rest to get ready to take those resistance points out.
Dow:
Stats: +126.65 points (+1.52%) to close at 8443.99
Volume: 1.327B (-21.03%)
Of the three major indexes the Dow has the best look of a consolidation as it has tested lower and lower intraday each session as it moves laterally and lower during this consolidation. In short it looks like a handle to a stock pattern. It is using the 50 day MVA (8230.61) as support on the lateral move and roughly 8500 as the top of the range. It is a good consolidation pattern, and the volume of the 30 Dow stocks has shown very good price/volume action (up on up days, down on down days) as opposed to the Nasdaq and SP500. The Nasdaq may be edging up, cheating ahead, but the Dow is actually putting in a very good consolidation move.
The Chart: http://www.investmenthouse.com/cd/$indu.html
THIS WEEK
After a drought of earnings information next week is a huge week with more consumer confidence, Q3 GDP, Chicago PMI, auto sales, the unemployment report, personal spending and income, the ISM, and construction spending. That was a mouthful. Earnings will still be coming but some key economic reports that receive a lot of attention will also be driving the action somewhat.
Somewhat because the market is looking ahead to better times; it has to be because the economic numbers certainly are not very good yet. Not to beat a dead horse, but the market looks two to three quarters ahead; it starts its move when the jury is still out on when a recovery will start. That is why it has been able to hold its own when the economic news is not so great.
Some think the rally is not the real thing, some think it is good but still needs to correct, others think it is going up from here. That is a good mix of indecision, and the market tends to like all that worry. The indexes have formed a weeklong lateral consolidation and that may be enough to digest the move and send them higher. If price/volume action had been better during the week we would have little doubt about the continued move.
As it is we still like what we see. The market responded to some improving earnings, got its fill of earnings and then had some bad news, and was able to hold onto its gains with some choppy sideways action where it continually overcame the downers to close positive. There may still be another test of the 50 day MVA, perhaps a bit of an undercut, before it moves higher again. There is often a final shakeout on these consolidation moves. In any event we still see it moving higher after that shakeout.
We will be looking for the move up out of the range this week, but before that we will continue to pick up stocks that have pulled back to test their breakouts or otherwise have pulled back to good support. There will continue to be leaders that start moving up and out ahead of the market just as occurred this past week. We will take advantage of those and also be ready on the actual breakout moves.
Support and Resistance
Nasdaq: Closed at 1331.13
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 (1555.79).
Support: There is a downtrend line from the March and May highs at 1299 that could still hold. The 10 day MVA (1269.72). The 50 day MVA (1269.72). The 18 day MVA (1259.13). The March/May downtrend line at 1198. 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 897.65
Resistance: The March down trendline at 900, the September 2000/May 2001 downtrend line 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: The 10 day MVA (877.55). 875 is some price support. The 50 day MVA (873.53). The 18 day MVA (866.07). 850 to 855 (the October 1997 and Q2 1998 lows). The first March down trendline 822. Prior closing lows and highs at 800 from July and October. The July intraday low at 775.68. 750 to 760 with an intraday touch to 730.
Dow: Closed at 8443.99
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 (9329.96). 9500 from June and July lows.
Support: The 10 day MVA (8272.69) is possible. 8250, the simple 50 day MVA (8241.15) and the exponential 50 day MVA (8230.61) are key. The 18 day MVA (8156.09). The second March down trendline at 8110. 8000 (August low at 8043; September 2001 intraday low at 8062).
Economic Calendar
10-29-02
Consumer confidence, October (10:00): 90.2 expected, 93.3 prior.
10-31-02
Q3 GDP, Prelim (8:30): 3.6% expected, 1.3% prior.
Employment Cost Index, Q3 (8:30): 0.9% expected, 1.0% prior.
Initial jobless claims (8:30): 405K expected, 389K prior.
Chicago PMI, October (10:00): 50.0 expected, 48.1 prior.
11-01-02
Auto sales, October: 5.7M expected, 5.5M prior.
Truck sales, October: 7.6M expected, 7.3M prior.
Unemployment rate, October (8:30): 5.8% expected, 5.6% prior.
Non-farm payrolls, October (8:30): -10K expected, -43K prior.
Hourly earnings, October (8:30): 0.3% expected, 0.3% prior.
Average workweek, October (8:30): 34.2 expected, 34.3 prior.
Personal income, September (8:30): 0.4% expected. 0.4% prior.
Personal spending, September (8:30): -0.2% expected, 0.3% prior.
ISM Index, October (10:00): 49.0 expected, 49.5 prior.
Constructoin spending, September (10:00): -0.3% expected, -0.4% prior.
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SUBSCRIBER QUESTIONS
Q: What is your view on these chip stocks such as KLAC AMAT and NVLS? Especially NVLS seems to be showing strength. Would you move in now at the current levels, or will there be a pretty sharp consolidation to bring the stocks back down to earth?
A: It is said that recoveries are led by financials and chips. Financials have been trying to pick up the pieces; most of the patterns for large banks at best can be described as double bottoms (e.g., BAC) though C has a very interesting consolidation ongoing. The chip stocks are not even that close. They have been roughed up. The best that can be said is that they are in building patterns, trying to claw their way out of the hole. That does not mean we cannot take advantage of the moves. When they reverse the trend, rally and then consolidate, they are ripe for another move up that can provide a great trade. NVLS has made a solid move and there is some resistance at 30. If it breaks through there it has upside to 35 with relative ease. KLAC is banging between 30 and 35, resistance there at 35. A move up to that level, some consolidation and a breakout over that level gives it room to the next significant level at 40. If either tests back to the bottom of the range on lower volume and starts back up, a trade in the range can be made. Not stocks in position to race to new highs with all of the overhead supply, but they can definitely be traded.
End Part 1 of 2
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