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us stock market, trade stock
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10/31/02 Investment House Alerts Report
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IH Alert Subscribers:
HAPPY HALLOWEEN!!
MARKET ALERTS:
Targets hit alerts issued Thursday: VZ; CVX
Buy alerts issued: NBIX; ATRS
Trailing stops issued: None issued
Stop alerts issued: HCA; MME; UHS; INGR. Cleared out some dead wood.
THE MARKET
Nasdaq posts second modest accumulation session, but not much power. SP500 distributes.
The Nasdaq was positive most of the session, but it was positive within a volatile range. It even turned negative with just over a half hour of trade left but managed to climb into the black at the close as volume edged higher. Technically that markets back-to-back accumulation sessions. Practically those sessions were not very strong ones. About all you can say is that Nasdaq price/volume action has improved the past two sessions as the techs still work through their trading ranges. That makes it 3 distribution session to 2 accumulation sessions the past 8 sessions. This is better news but it is fighting the other indexes and some major breakdowns in leadership groups in health care, medical, and education.
SP500 distributes.
Four of the last eight large cap sessions have resulted in sell offs on rising volume. Thursday's action came on the heels of a slight accumulation session Wednesday, effectively washing out that action. Larger institutions, the really big money in the market, have been selling the shares they bought on the way up in larger quantities than they have been buying lately. The market has done a good job in holding up given the distribution in the large caps, but you have to look at distribution as erosion, undermining the foundation. Get too much erosion and things start to fall apart. Four distribution sessions in eight trading days is getting to the critical level, but we also note that some of that volume could have been driven by year-end selling by some big mutual funds trying to spruce up the portfolios and lock in some gains on the big names that moved well.
Who knows what evil lurks in the heart of the market? Not even the shadow.
If you look at the price pattern alone the Dow, SP500, SP400, SP600 look great: double bottoms forming tight, lateral consolidations or handles. That is classic, classic consolidation action preceding a further upside move. Merge the volume action with the price pattern, however, and the large caps have been distributing with sufficient frequency to lead to a rally breakdown. Health services, medical, and education have already suffered failed breakouts, another negative. We still like what we see with many stocks, and now actually see some real indications that there is some growth in the business side of the economy. That is why we continue to build positions for an upside breakout from the range. The market has the final say, however, not us. If it breaks through the bottom of the range on further higher volume that is trouble.
Sentiment Indicators
Bulls versus bears: Bulls moved out ahead of bears the past week in a sharp reversal of attitude. After not buying into the rally, they started to do so just as it was starting to show distribution sessions in the lateral consolidation. This is a contrary indicator, and it is a secondary indication that the distribution is a problem the market has to deal with.
VIX: 35.91; -0.17
VXN: 52.99; +1.7
Put/Call Ratio (CBOE): 0.87; +0.02. Up again, remaining in the high end of the range.
Nasdaq
Edged higher again after hitting toward the bottom of the range Tuesday. Not a lot of power, but volume did move up along with a positive A/D line and up to down volume.
Stats: +3.02 points (+0.23%) to close at 1329.75
Volume: 1.763B (+5.11%). Volume rose for the second session of gains. Technically accumulation. On its own that would be sufficient to start offsetting the distribution days, but then there is the SP500 where distribution continues to grow.
Up Volume: 1.085B (-305M)
Down Volume: 654M (+401M)
A/D and Hi/Lo: Advancers led 1.11 to 1. Weaker advance as the breadth narrowed. Much of the trading was in larger names for month end shuffling.
Previous Session: Advancers led 1.67 to 1
New Highs: 46 (-3)
New Lows: 47 (-3)
The Chart: http://www.investmenthouse.com/cd/$compq.html
Gapped higher and ran up to 1347.58, right at resistance from the prior tops and bottoms from July to present. The techs stalled at that point and after selling from that high had to rally back in the last hour to close in the black. The candlestick chart was a doji, a classic sign of tiring when it occurs at the top of a trading range. Volume did increase and up volume was in the lead, but the techs were not ready to make the breakout ahead of the employment report, ISM, etc. out Friday morning. The Nasdaq is trying to shake off the distribution, but it is not getting any help from the SP500 though some of that volume was due to month end shuffling as some major mutual funds have their year ending today. Note that the 18 day MVA continued to move up over the 50 day MVA after just breaking over that key point Wednesday. It is still close and may not hold, but it is a start. The SP500 and Dow have not had the same luck yet.
S&P 500/NYSE
Held in the consolidation range but could not hold positive as volume moved higher. Another distribution session, but looking at the narrow breadth and the fact that it was the year end for funds such as Janus, there was selling in big names and that was part of the volume.
Stats: -4.95 points (-0.56%) to close at 885.76
NYSE Volume: 1.523B (+7.71%). Rising volume produced the fourth distribution session in 8, but there was also some year-end shuffling going on as well in the large caps that pumped the volume a bit.
Up Volume: 650M (-319M)
Down Volume: 874M (+419M)
A/D and Hi/Lo: Advancers led 1.26 to 1. Note the breadth. Even with the selling advancers were in the lead, i.e., large and small stocks were generally higher. This is an indication that the selling was not as severe as the volume indicates. The action was concentrated in the larger caps and we think due to portfolio shuffling as opposed to a major desire by institutions to unload stocks.
Previous Session: Advancers led 1.82 to 1
New Highs: 34 (+8)
New Lows: 41 (-2)
The Chart: http://www.investmenthouse.com/cd/$spx.html
The SP500 is being squashed between the down trendlines from March and the 50 day MVA. As noted, that is good consolidation action but for the distribution sessions indicating there is broader selling of stocks. Thursday was somewhat of an aberration to that as discussed, but that still leaves several distribution sessions to contend with. Techs are trying to lead, but as seen in the test of the July lows, the SP500 was the lynchpin; it held while the others undercut, and that is what helped the turn back up. Moving into a new month and the employment report will help set the direction.
Dow:
A modest loss to follow Wednesday's modest gain. Dow volume edged ever so slightly higher, but was really another wash, i.e., a good consolidation session.
Stats: -30.38 points (-0.36%) to close at 8397.03
Volume: 1.523B (+7.71%)
The Dow continues to show the champion consolidation action with its price/volume action (measured by the actual Dow stocks' volume as opposed to NYSE volume) looking good. In fact, the Dow continues to hold above the March downtrend channel line as well as the 10 day MVA (8339.52, tapped on the Thursday low) as it works through this consolidation. Consumer staples are doing well and IBM sees the economic cycle bottom. If the other indexes looked this good the upside breakout odds would be very high from our perspective.
The Chart: http://www.investmenthouse.com/cd/$indu.html
FRIDAY
Futures were down Thursday as the market braced for the employment report due out before the open. The weaker economic data this week has investors expecting worse news. That leaves the door open for something better to help the market. Open? Maybe unlocked. Whether the results open the door is another matter. So much importance will be placed on the employment data, but it is also such a lagging indicator. The GDP report showed signs that business investment improved at the best rates in over 2 years in Q3. That is real improvement and indicates the economy is starting to make a turn. That will not show up in the employment report yet; businesses typically start buying equipment and replacing systems right before they start hiring. More important will be the ISM. 48.9 was expected heading into the Chicago number, but that could be juggled lower ahead of the number tomorrow.
Now the biggest question of all: other than the very short term, will the economic data mean a whole lot to the market? It could if it causes a massive breakdown from the current range on some massive volume. The market, however, has already been pricing in some better economic times, and when talking about the market we are not talking about the current reports that reflect month-old data at best; the market is not pricing in the future based on those reports. The market is looking out 3 to 6 months and even further ahead. The current rally started in October; it was not pricing in September and October data into that move. The GDP showed some of the kernels of business strength the market has started the current move on. As we said before, the market will be making its moves well before the data becomes apparent to everyone. Those saying investors need to see sustained economic improvement before they will invest and the market will rally are flat wrong. The market is already factoring in improvement. That is subject to adjustment and change based on new data that can change the intensity of the move and in extreme cases (war, terror attacks and the like), stop it dead in its tracks.
All that said, way down deep in the GDP report we saw some first signs of something other than consumer-led improvement. It is not much yet, it needs encouragement, it needs mothers' milk, but it is a start. A Fed rate cut will help more than some think, less then others hope. Further progress on a more tax friendly government after the elections can help it grow. It is tenuous, but this is exactly what the market prices in ahead of time, and it is one reason we continue to add to positions as we see stocks hit buy points. We are not going whole hog into the positions but getting situated for a breakout. If the market does not provide we have to exit. In that regard we are also looking at some downside action that continues to spring up in specific stocks and sectors that are under pressure. That also positions us for downside, but safer downside as these stocks are already under pressure and will most likely remain so even if the market breaks higher.
Support and Resistance
Nasdaq: Closed at 1329.75
Resistance: July, August, and September interim highs at 1345. 1357.09, the October 1998 bear market low. These mark the top of the range. 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 (1542.36).
Support: The 10 day MVA (1302.98). There is a downtrend line from the March and May highs at 1279. The 18 day MVA (1280.70). The 50 day MVA (1276.94). 1200 (August closing low) to the July intraday low at 1192.42. The March/May downtrend line at 1182. 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 885.76
Resistance: The March down trendline at 892. The September 2000/May 2001 downtrend line at 897. 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 (882.82). 875 is some price support. The 50 day MVA (875.55). The 18 day MVA (873.64). 850 to 855 (the October 1997 and Q2 1998 lows). The first March down trendline 812. 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 8397.03
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 (9300.19). 9500 from June and July lows.
Support: The 10 day MVA (8339.52) is possible and held on the Thursday low. 8250, the simple 50 day MVA (8200.42) and the exponential 50 day MVA (8254.34) are key. The 18 day MVA (8240.92). The second March down trendline at 8055. 8000 (August low at 8043; September 2001 intraday low at 8062).
Economic Calendar
10-29-02
Consumer confidence, October (10:00): 79.4 actual, 90.0 expected, 93.7 prior (revised from 93.3).
10-31-02
Q3 GDP, Prelim (8:30): 3.1% actual versus 3.6% expected, 1.3% prior.
Employment Cost Index, Q3 (8:30): 0.9% expected, 1.0% prior.
Initial jobless claims (8:30): 410K actual, 400K expected, 394K prior (revised from 389K).
Chicago PMI, October (10:00): 45.9 actual versus 49.0 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): 0K 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): 0.5% expected. 0.4% prior.
Personal spending, September (8:30): -0.2% expected, 0.3% prior.
ISM Index, October (10:00): 48.9 expected, 49.5 prior.
Constructoin spending, September (10:00): 0.1% expected, -0.4% prior.
THE PLAYS:
Upside:
GTK (Gtech Holdings--$26; +0.55; optionable): Runs lotteries
http://biz.yahoo.com/p/g/gtk.html
STATUS: Cup w/handle. A former splitting stock, GTK started the current base in May right at the time the split became effective, something that impacts splitting stocks; the bear market did not help. GTK has formed a cup and now a handle above the 200 day MVA at 24.50. Thursday it started higher on rising, average volume. Accumulation in the base is solid at 5 accumulation weeks to 4 distribution weeks and money flow has surged ahead of price on this move. Relative strength is higher now than it was in May and June when prices were higher, a positive divergence.
Volume: 691.9K Avg Volume: 708.5K
BUY POINT: $26.15 Volume=900K Target=$30 Stop=$24.32
POSITION: GTK CX - Mar. $22.50c (79 delta) and/or Stock
http://www.investmenthouse.com/ci/gtk.html
Downside:
JCI (Johnson Controls--$78.00; -1.00; optionable): Auto parts
http://biz.yahoo.com/p/j/jci.html
STATUS: Put. JCI has made us a bit of money as it gyrates up and down, and now it is on the downswing again, breaking through the 50 day MVA Wednesday on some massive volume. It continued the move Thursday though it checked up at 77.50 as volume remained strong. It may try to test the 50 day MVA once more, but we are going to be ready to jump on it as the stock heads lower from here.
Volume: 1.024M Avg Volume: 648.636K
BUY POINT: $77.45 Volume=800K Target=$73.45 Stop=$78.75
POSITION: JCI MP - Jan. $80p (-53 delta)
http://www.investmenthouse.com/ci/jci.html
MME (Mid-Atlantic Medical--$36.4; -0.4; optionable): Health care plans
http://biz.yahoo.com/p/m/mme.html
STATUS: Put. This one turned over on us, broke the 50 day MVA, tested it, and started down on rising volume again Thursday. Some support at 36, so we are going to let it fall below that level and then jump on for a further ride down. The losses have been tremendous in these sectors. They fall, try to recover, then tank. We want to catch that next big tank.
Volume: 887.6K Avg Volume: 560.545K
BUY POINT: $35.22 Volume=839K Target=$32.85 Stop=$38
POSITION: MME XH - Dec. $40p (-71 delta)
http://www.investmenthouse.com/ci/mme.html
End Part 1 of 2
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