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us stock market, trade stock
TONIGHT:
- Indexes make it two in a row on better volume, but JDSU warns after hours.
- Have we seen this before?
- Some improving patterns out there.
- Productivity better than expected, factory orders worse than expected, and the Fed seems content.
- Subscriber Questions
- Team Trades
Back to back wins, today with higher volume.
On the face of it today was a much better day: up all day, higher volume, individual stocks climbing on strong volume. The big question today was whether this could stick. As we discussed last night, it appears most think it won't last, and that is not bad news. Markets love to move up on doubt.
After hours JDSU certainly gave more doubt as it announced earnings would come in at 14 cents versus the previously lowered 17 cents. INTC told a conference that there would be no snapback in chip sales. Stocks that had been trying to recover some ground after hours that was lost in the late day fade turned and started down sharply. AMCC, CIEN, GLW, PMCS, and INTC were all down two to three points; not major damage, but it took the flower off the move. The market is going to get another chance to show if it really wants to move up.
Not an enticing pattern.
That brings us to the pattern today. Is it just another step up in the oversold move or is the rally already peaking? The Nasdaq showed us similar action on February 15: a gap over the February down trendline on stronger, but below average volume; a close well off of its intraday high on a move that failed to take out its 10 day MVA; and a doji on the candlestick chart. Gaps to doji's are not the best pattern for continued moves as the initial enthusiasm jumps the market higher, but then it just loses steam. As we saw in February, that can lead to a gap back below the down trendline followed by more selling.
The Dow did not give us a much better picture as it too gapped higher (slightly) and raced to its 50 day MVA at 10,690.93 on its high (near that 10,750 level that could be resistance) before it fell back 100 points to the close. It too moved on higher volume, but it was below average and could not compare to the volume late last week. It has the look of an intraday reversal; if it was a pre-split stock we were playing, we would have been out today.
The S&P looked better, but it too closed well off of its high (1267.42), unable to take out its 10 day MVA. It is trying to turn up off of the tests of 1200, but NYSE volume was the worst in three weeks. The buyers are not running to the rescue just yet.
But things are looking interesting.
Do we panic and throw in the towel on this move? Of course not. We have been patient to this point and we can continue to exercise that patience. Even as the indexes struggle, we have WFT breaking to a new high, and NE, ADSK and TTN ready to do so as well. These have been setting up even when the indexes were heading down. There are some pre-split stocks we are having great luck with as GENI and TWRI soar into their splits. And Dell is making the trading play we were looking for. Moreover, today's action does not mean an automatic selloff. There is great pessimism out there as we noted, and markets tend to thrive on that.
Indeed, we are looking to see if last Thursday's reversal can get some follow through going to confirm a potential new rally. Today would be considered a technical follow through back in the calmer, less volatile times when a 1% gain meant something (actually, it does mean something today with all of the selling on the Nasdaq and S&P), but we did not see the heavy, above average volume on the move that shows the big money is taking part, something that has been sorely lacking on any move up. Further, the A/D line is not there; we like to see at least 2 to 1 on these moves (today it was 1.55 to 1 on the NYSE).
Thus we remain patient and stick to the plays that hit our targets whether upside or downside. There is more talk of a bottom in the market, and certainly there are sectors taking the lead, i.e., the semiconductors, that opens the door for a bigger rally. Look at KLAC and NVLS, two stocks on tonight's reports. We have been tracking KLAC, and today it made an important move that almost breaks it out of the double bottom pattern that it has been forming this last month. Same with NVLS. They may pause here and form handles (slightly downward movement on low volume) after such strong moves to the breakout point, but they are looking solid either way. We have been talking about the lack of patterns to carry a rally very far and noted that double bottoms would be the most likely pattern emerging from the roughed up techs. Here are two examples in the make. The INTC news after hours has hurt some of the semiconductor stocks, but this could just get these to form a handle. It is the same game plan we always have: if we see the move we make the play.
THE ECONOMY
Productivity revised downward to 2.2% from 2.4%. That was better than the 2% anticipated, so it was a decent report, especially when you consider that GDP was revised downward as well. Unit labor costs were much higher, however, revised upward to 4.3% from 4.1%. That was the largest rise since second quarter 1999 (4.3% as well). Still, that was lower than expectations that set the bar at a 4.5% gain.
Factory orders dive 3.8%, well off the 3.3% expected and 1.1% gain in December. Airline orders were the culprit once again; without the drop in demand for new airplanes the fall was 0.3%. You don't like to slice and dice numbers, but when one skews the whole report, it is worth noting. Still, a key part of the economy (air industry) came in a lot weaker than expected.
Dallas Fed President McTeer today stated that the economic slowdown was isolated. McTeer is pretty much a proponent of rate cutting and the new economy, and his comments were taken a bit hard by the market. Indeed, the market lost some of its steam when the statements hit the wire. Maybe some relation, but the market started hard and that usually means it peels back on its own.
THE MARKETS
Overall market stats:
VIX: 27.44; -1.78. After the spike to 34 last week it has been on a steady decline as the market moves up, something we would expect.
Put/Call ratio: 0.57; -0.11. Steep drop in the ratio as it hits the low end of its range that it has tracked for the past month. It did not take much to drop it back down even as the Nasdaq finished off a simply horrid February. No fear is the motto of the investor.
NASDAQ:
A mixed look. We hate the chart but like some patterns and the expressed negative sentiment. That negative attitude does not seem to be filtering out far and wide, however.
Stats: Up 61.51 points (+2.9%) to close at 2204.43.
Volume: 1.988 billion shares (+33%). A nice showing, but the gain is exaggerated given the light snowbound volume from Monday. It was still below average volume. Up volume came in at 1.527 billion shares versus 418 million on the downside. One commentator was crowing about the solid up volume today. Well, looking at February 15, the last day the Nasdaq gapped over the February down trendline, up volume was 1.621 billion shares to 426 million downside shares. That rally ended that day.
A/D and Hi/Lo: Advancing issues did move back in front of decliners, but it was not the rout that it was made out to be on the television. Advancers won the day 1.64 to 1. On February 15 the ratio was 1.5 to 1. Today was better, but it was not the 2 to 1 or 3 to 1 you want at the start of a real rally. New highs rose to 75 (+17) as new lows fell to 58 (-44).
The Chart: http://www.investmenthouse.com/cd/$compq.html
As noted above, the gap up to a doji that closed well off of its high and could not take out the 10 day MVA is not a really promising move. It failed on February 15, and volume was better that day. We will see what the big money does at this point: will it commit or again use the rally to sell? we need to stay the course: play the upside breakouts, solid momentum plays and downside on the moves that fail. If the rally is for real, we will have plenty of rides to take us where we want to go.
Dow/NYSE: The Dow went out like a mouse today, lucky to hang onto its gain after a 100-point deflation from its high. Disappointing move after tapping at resistance on its high.
Stats: Up 28.92 points (+0.3%) to close at 10,591.22.
Volume: NYSE volume jumped back up to 1.096 billion shares (+18%), but that was no magic with the weather problems on Monday. Up volume won at 722 million versus 366 million shares to the downside.
A/D and Hi/Lo: NYSE advancing issues led again, 1.55 to 1 (1.18 to 1 Monday). New highs fell to 118 (-10) as new lows fell to 9 (-8).
The Chart: http://www.investmenthouse.com/cd/$dja.html
Monday the Dow stalled in the last two hours, and today it stalled again and finished well into the lower end of its range for the session. A gain, but it did everything it could to give it back as it hit just below its 200 day MVA on its high (10,690.93) and retreated. Not the move of a champion, but the Dow did touch support at 10,300 three times last week before starting back up, so it has some firm footing below it for another run. It simply needs more volume, i.e., institutions to step in for another shot at 10,750. They are the missing ingredient on the upside action.
S&P 500: As noted, the big caps had a solid day, but they too closed well off of their intraday high as the afternoon fade took hold once again. One could argue it has a little double bottom going here, but it is not what we would call persuasive at this point. It has to make a move on strong volume to give us a follow through or confirmation of last Thursday's reversal on high volume. We need another gain of well over 1% with volume shooting above average. That would set the stage for more gains and allow stocks such as NVLS, KLAC, LLL, SDS and the like to break to new highs and lead for a bit.
Stats: Up 12.39 points (+1.0%) to close at 1253.80.
Volume: NYSE volume plowed higher to 1.096 billion shares (+18%).
The Chart: http://www.investmenthouse.com/cd/$spx.html
TOMORROW
A quiet day on the economic front tomorrow, but the void is being filled by the likes of JDSU and INTC. Seems the market cannot go one day without getting some kind of character test. It seems to be trying to develop some backbone here, but it has a lot of problems to overcome. Yes we see some potentially good patterns forming, and that has been one of the missing ingredients for any lasting move up. That bodes better for a bear market rally, but the indexes (all of them) need to get support from the institutions. We are watching for that on the S&P 500 as follow through, not to mention the other indexes. If it does not come we could see these recent moves stall out at resistance. Indeed, we continue to watch for moves that start to fizzle out as they approach support to play the downside in addition to those breakouts we get.
Futures are up 8 points over fair value on the Nasdaq and 4 points on the S&P. The JDSU warning and INTC chip prognosis have stocks down but not out. Last night we anticipated a modest open and got a barnburner. With this news we are looking for that modest open that will let stocks build during the session, not burn out. That is how we get solid breakouts that are easier to play as we can readily see volumes and movements. Plus, it is bullish action to see stocks start a bit weaker and then rally.
Patience and follow the game plan. We are looking at stocks forming patterns as they give us an edge. We sometimes want to move in before the break, but in this market that more often than not leads to trouble as sellers jump on early; it is best to get the breakout and let buyers rush in to confirm the move. On the downside plays, let the stock hit the resistance and start to fall back; we like to see the move start to fail before we jump in. Patience and discipline.
Support and Resistance Levels
Nasdaq: Closed at 2204.43.
Resistance: 2400 to 2500. Then 2650. 2890 to 2900 is next before the 3000 level.
Support: 2000 to 2050
S&P 500: Closed at 1253.80.
Resistance: 1285 to 1300. Then 1335. Then 1360 to 1375.
Support: 1200 is the next clear level.
Dow: Closed at 10,591.22.
Resistance: 10,750. Then 11,020 - 11,028. After that, 11,400.
Support: 10,300 - 10,400. Then 10,000.
Weekly Economic Calendar (All times Eastern). The figures are the consensus expectations, not ours.
3-5-01
NAPM Services, February (10:00): 51.7% actual versus 52.0% expected and 50.1% prior.
3-6-01
Productivity, Fourth quarter revised (8:30): 2.2% actual versus 2.0% expected and 2.4% prior.
Factory Orders, January (10:00): -3.8% actual versus -3.3% expected and 1.1% prior.
3-7-01
Consumer Credit, January (15:00): $5.3B versus $3.0B prior.
3-8-01
Initial Claims, prior week (8:30): 372,000 versus 372,000 prior.
3-9-01
Non-farm Payrolls, February (8:30): 88,000 versus 268,000 prior.
Unemployment Rate, February (8:30): 4.2% versus 4.2% prior.
Hourly Earnings, February (8:30): 0.3% versus 0.0% prior.
Average Workweek, February (8:30): 34.2 versus 34.3 prior.
Wholesale Inventories, January (10:00): 0.0% versus 0.0% prior.
SUBSCRIBER QUESTIONS
Q: What does Jon mean when he states that Relative Strength has broken out ahead of price, which is a bullish sign?
A: Relative strength is a measure of that particular stock versus some standard. Usually that standard is the S&P 500 as it is rather a broad measure of the overall market. On most charting programs you can put relative strength versus the S&P 500 as an indicator on the chart. When we see stocks in strong patterns, we like to see the relative strength strong as well. That means they are on top of the market. We like to see relative strength breakout of its range when a stock breaks out. That is an indication that the move is strong. When relative strength breaks out ahead of the price, that indicates the stock is holding up very well compared to the broader market. If the S&P 500 tanks and a stock you are watching holds steady, its strength relative to the S&P 500 will rise. Some would say it is doing nothing, but to the contrary, holding steady when the rest of the market tanks is very positive. As soon as the broader market stabilizes and makes a move up, that will usually trigger the breakout in the price that we are looking for.
TEAM TRADES
DELL: A play on the Monday Daily that looked good for a trade as the stock had closed right on top of its 50 day MVA Monday, breaking through a short term down trendline. Volume had been pretty good the previous session, so in a rally we were looking for a stronger move. DELL closed Monday at 23.44 on below average volume of 26.8 million (average volume is 36 million). The stock was featured on the Daily Monday night as a possible trading play up to 28-29.
The stock opened at 24.88 on a gap higher, topping its down trendline on the move. The stock received some favorable comments and was on the move. We decided to open a partial position right away and pick up more on a test. A few minutes after the open the stock was trading 24.88 by 25. We limited in at the ask. We then sat back and looked at other stocks while we waited for the test of the gap. Dell ran up and then pulled back to 25.88, but jumped back up once again. It tapped 25.88 a few more times before running up to 26.88 on the high. It then fell off to the close, dropping back to just over 26. Our target is 28 to 29, the recent January top. When it gets there we will not take chances and close it out if it starts to stall. If it breaks over that level on strong volume, we can make another run at it.
BJ: Decent but not a great move as no split announcement. A new closing high on excellent volume, so we were inclined to let the play ride for now.
For a review of frequently asked questions, please use the link below:
http://www.investmenthouse.com/1questions.htm
End Part 1 of 2
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