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us stock market, trade stock
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11/05/02 Investment House Alerts Report
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IH Alert Subscribers:
MARKET ALERTS:
Targets hit alerts issued Tuesday: BSX
Buy alerts issued: MVL; ODSY (bonus); AMLN
Trailing stops issued: None issued.
Stop alerts issued: None issued
SUMMARY:
- Pre-election action quiet but positive.
- ISM services continues its expansion.
- Soft open gives way to modestly positive, light volume gains.
- Team Trades
Monday reversal from highs does not stick.
The market had every opportunity to go ahead and sell if that was the intention. The indexes rallied up to near term resistance Monday and then reversed. They managed to hold the gains but several were calling the intraday reversal a real problem for the market. After hours AMAT announced a restructuring and layoffs. Tuesday morning stocks were hit with waves of downgrades, mostly based on valuation given the recent upside moves. The entire chip sector was downgraded for that reason.
A sluggish open was expected, but it soon gave way to a rally attempt. Choppy trading all session, but in the end the buyers pushed stocks up though on substantially lower volume. Once again, however, the market managed to drift higher while waiting on big news (election, FOMC) as opposed to sinking in the lack of outside influence.
Techs, and particularly semiconductors, were the drag that kept the lid on things. It was sluggish trade but there were still breakouts and continued rallies on recent breakouts. That kind of character you want to see as the market moves day in and day out.
THE ECONOMY
ISM services lower but still expanding.
The services sector is the largest part of the business side of the economy, and it put in another month of expansion in October. At 53.1 is was lower than the August 53.9 reading, so the expansion is slower but it is expansion. New orders fell to 50.9 from 52.3, and the employment sub index was down as well at 46.2 from 46.6. It was not a stellar report, but it was not expected to be and it still shows the service sector expanding at least in output though not in jobs. Overall those surveyed (360 businesses) said that the business climate was 'mixed.' At least that is better than 'generally crappy', and it should not impede the FOMC from cutting rates 25 basis points Wednesday.
FOMC set to cut, but by how much?
That is the question all are asking, and almost all are following their prediction with a general 'it doesn't mean that much anyway' disclaimer. Regardless of the amount of a cut (though the Fed ought to go ahead and chop 50 basis points if it is going to cut at all), the key question is whether the Fed gets in front of the 2 year Treasury note with the Fed Funds rate so that there is incentive to borrow and loan money. In that respect it does not matter if the rate is 10%, 6%, or 1%; the issue is whether there is an incentive to loan and borrow given the rate versus the cheapest Treasury note.
That is why we said in the beginning of the cuts that the Fed should just drop the rate 150 basis points or so right off the bat and let that jump start the money supply. Then the Fed could fine tune or toy with these puny 25 basis point cuts as needed. As it was the Fed was nearly always behind the 2 year Treasury on the way down. What stimulus that was coming was dolled out with an eyedropper when a frosty mug o' stimulus was needed, and the economy never got that real jolt of investment. The Fed did not help with its restrictive loan status, and it never let money supply really expand. That was choking off the economy without ever giving it any air to breath in the first place.
Thus if the Fed goes 25 basis points tomorrow it will really be more of a symbolic move because once again it will not be in front of the curve by any significant amount. In that sense it is using up its ammunition in a foolish way. Think of it as a soldier in a long battle and he only has 7 bullets left. It is getting close to the end and things will be decided soon. Does he try to keep the enemy that is left at bay by firing off a single round now and then until he runs out of ammunition? Or, does he take a few rounds and charge the enemy to finally take it out and rally his troops around him? Both have associated risk, but sitting around and hoping for the best usually is not the best course of action. The Fed is better doing nothing than cutting by just 25 basis points. If it is going to act, really attack.
THE MARKET
It was not much of a session as far as strength, but the market could have sold but did not. It managed to hold the line on losses and then rally back. No big volume, no great breadth, but in the void before the election results and the FOMC decision the market reversed off lows and moved higher. That continues the overall bullish theme of the market; it certainly could have sold off after the Monday reversal and the AMAT news, but it minimized losses and drifted back up.
Sentiment Indicators
VIX: 34.28; -0.19
VXN: 51.2; +1.98. Rose on a rather choppy day in the Nasdaq. Well off the recent highs near 65 but up off of the lows as well.
Put/Call Ratio (CBOE): 0.77; +0.1. Continues to hang at the higher end of the range, moving back up significantly on a day that reversed and finished slightly higher.
Nasdaq
Held steady, but the key feature was the ability to rise 21 points off the lows to close positive and at the high. Monday the index managed to close near 20 points off the high; a positive change.
Stats: +4.63 points (+0.33%) to close at 1401.17
Volume: 1.712B (-27.91%). Above average but well off the Monday 2+ billion.
Up Volume: 753M (-1.181B)
Down Volume: 922M (+516M)
A/D and Hi/Lo: Decliners led 1.03 to 1. Decliners never really got ahead during the selling, and by the close it was a pretty even session as shown by the close.
Previous Session: Advancers led 1.69 to 1
New Highs: 43 (-40)
New Lows: 15 (-13)
The Chart: http://www.investmenthouse.com/cd/$compq.html
Filled some of the big gap up Monday, testing 1379 on the low and then crawling back up to close at the session high. Still has significant resistance at the September 2001 closing low (1423) and the recent interim highs around 1425. A good recovery though no power behind the move. The Nasdaq and the market need the election and the FOMC meeting results before they can start a further move. We do note that the 18 day MVA continues to move up over the 50 day MVA after crossing over to the upside 4 sessions back. That is typically a significant indication of more upside momentum.
S&P 500/NYSE
Back over the July, August and September interim highs, but not volume to back it up.
Stats: +7.05 points (+0.78%) to close at 915.39
NYSE Volume: 1.315B (-19.83%). Volume was nowhere to be found Tuesday, falling well below average.
Up Volume: 739M (-361M)
Down Volume: 550M (+34M)
A/D and Hi/Lo: Advancers led 1.11 to 1. Modest lead, and as with the Nasdaq, it was never far out of control.
Previous Session: Advancers led 1.44 to 1
New Highs: 25 (-20)
New Lows: 26 (+3)
The Chart: http://www.investmenthouse.com/cd/$spx.html
The large caps moved back over the July, August and September interim highs at roughly 911, holding the Monday breakout on the low (904.91) and then drifting higher to close at the session high. As with the Nasdaq it was not a powerful session, but one where it held on and was able to recover in the face of several downgrades. As with the Nasdaq, the 18 day MVA continues to move up over the 50 day MVA after crossing over three sessions back.
Dow:
Held over 8500, testing that level on the low before leading the move back up in the afternoon.
Stats: +106.67 points (+1.24%) to close at 8678.27
Volume: 1.315B (-19.83%)
The Dow clearly had the relative strength Tuesday as it refused to give up much ground, holding pretty much positive the entire session and leading the rise to the close. On the low it managed to hold the breakout on the low (8544) and then moved back to close near the high at 8691. It still has to contend with July, August, and September highs at 8735 to 8745 that stopped the move Monday. After such a good consolidation of the move off the October low, the action of holding the break over 8500 is positive. In addition, the 18 day MVA is over the 50 day MVA, both pointing higher; that is a good upside momentum indication.
The Chart: http://www.investmenthouse.com/cd/$indu.html
WEDNESDAY
The Tuesday session was a sleeper as investors await election results and the Wednesday FOMC meeting. It was a decent sleep after a restless start, however, as the indexes settled higher and held the Monday breakout move. Holding the breakout when it could have sold down was a positive. In addition, there were still solid breakouts and continued breakouts on solid volume, a signal that even with the downgrades that hit the market early, investors were still in buying stocks that are in good technical and fundamental shape.
The problem is that there probably won't be a lot of election answers Wednesday given the tight races and the new tactic of contesting everything down to whether a voter stepped on a crack before entering the voting booth. With the FOMC results not until 2:15ET, there may not be a lot of action Wednesday either as the indexes continue to swallow the big break higher Monday.
Overall, however, the bias for the market is up. We don't think that the market is betting on a republican or democratic 'victory' or whether the Fed cuts 25, 50 or 0 basis points. The market is discounting a future economic recovery right now. While there will be ups and downs along with positive and negative news, the bias is still upside. That will keep us doing what we did today, i.e., looking for stocks that are making the moves we want on strong volume, building positions for the next move just as we did before the big Monday move.
Support and Resistance
Nasdaq: Closed at 1401.17
Resistance: 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 (1534.16).
Support: 1357.09, the October 1998 bear market low. July, August, and September interim highs at 1345. The 10 day MVA (1341.78). The 18 day MVA (1311.03). The 50 day MVA (1289.35). 1200 (August closing low) to the July intraday low at 1192.42. The March/May downtrend line at 1240. 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 915.39
Resistance: July, August and September interim highs at 909 to 911 have been crossed, but not totally cleared. Some resistance at 923, and then price resistance at 950. 965, the September 2001 closing low along with the August 2002 high.
Support: The September 2000/May 2001 downtrend line at 891. The March down trendline at 886. The 10 day MVA (894.75). The 18 day MVA (883.60). The 50 day MVA (879.27). 875 is some price support. 850 to 855 (the October 1997 and Q2 1998 lows). The first March down trendline 805. 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 8678.27
Resistance: The late July and early September interim high at 8726 to 8762.14 (8745 closing) stopped the move Monday. A range of resistance from 9000 on up to 9050. The 200 day MVA (9282.35). 9500 from June and July lows.
Support: 8500, former price points. The 10 day MVA (8457.32) is possible and held on the Thursday low. The 18 day MVA (8341.42). 8250 and the exponential 50 day MVA (8292.46) are key. The simple 50 day MVA (8178.86). The second March down trendline at 7990. 8000 (August low at 8043; September 2001 intraday low at 8062).
Economic Calendar
11-4-02
Factory Orders, September (10:00): -2.3% actual, -3.0% expected, -0.4% prior (revised from 0.0%).
11-5-02
ISM Services, October (10:00): 53.1 actual, 52.0 expected, 53.9 prior.
11-6-02
FOMC meeting results, 2:15ET
11-7-02
Productivity, preliminary, Q3 (8:30): 4.2% expected, 1.5% prior.
Initial jobless claims (8:30): 410K prior.
Wholesale inventories, September (10:00): 0.3% expected, 0.2% prior.
FOMC minutes (2:00)
Consumer credit, September (3:00): $5.0B expected, $4.2B prior.
TEAM TRADES
AMLN: An ongoing play, AMLN had our eye Monday as it looked ready to start another move up. We like to average up into winning stocks, and AMLN is doing just that. Tuesday it started up again after testing toward 18 and the 10 day MVA. Volume was good early and we decided to go ahead and move in earlier than later as it had already put together a good move and we had that to build on. The stock was right at 18.80. After the alert it was still close to that level, continuing the move higher. It hit 19 on the high, looking solid. As the market drifted lower in the afternoon AMLN held pretty tough, moving laterally and not giving up the gains. It solid down to 18.60 in the last hour, but then surged up to close right at 18.80. Volume was not huge but was solid, and we feel we are well positioned for the next leg up.
THE PLAYS:
Good moves: AVID; BSX; EXPE; IDCC
Upside:
CVD (Covance--$21.99; +0.04; optionable): Research services
http://biz.yahoo.com/p/c/cvd.html
STATUS: Testing breakout. After a massive volume breakout in October, CVD has pulled back to test the 10 day MVA (21.55), showing a doji Tuesday on lower, below average volume. These lower tests act to shake out the last near term profit takers, freeing the stock to move higher. Accumulation is slid at 10 up weeks on rising volume to 5 down weeks on rising volume during the base, and that will help it hold up on this test of the breakout and set it up for another upside move.
Volume: 243.6K Avg Volume: 387.227K
BUY POINT: $22.45 Volume=581K Target=$27 Stop=$20.88
POSITION: CVD ED - May $20c (68 delta, low OI) and/or Stock
http://www.investmenthouse.com/ci/cvd.html
FOX (Fox Entertainment--$25.85; 0; optionable): Fair and balanced broadcast TV
http://biz.yahoo.com/p/f/fox.html
STATUS: Cup w/handle. FOX is moving in 5.5 month base, showing outstanding accumulation at 7 up weeks on rising volume to 3 down weeks on rising volume. Tuesday it showed a doji after a strong move Monday on heavy volume. Money flow is rising ahead of the price move. After hours FOX reported excellent earnings and was up past the breakout point. We anticipate it will make the breakout Wednesday on this good news and we want to be there to take part. What we will do it let it make its first gap run and then come back to test that move. When it bottoms and starts to move up again we will move in.
Volume: 1.601M Avg Volume: 1.064M
BUY POINT: $26.19 Volume=1.5M Target=$31.45 Stop=$24.25
POSITION: FOX DX - April $22.50c (78 delta, low OI) and/or Stock
http://www.investmenthouse.com/ci/fox.html
Revisited:
Play Date: 09/26/2002
IDXX (Idexx Labs--$35.49; +0.39; optionable): Diagnostics
http://biz.yahoo.com/p/i/idxx.html
STATUS: Testing the breakout. IDXX started up off the 10 day MVA (34.30) Tuesday, almost hitting a new high on the move on rising, above average volume. USNA has been banging its head at 35 and looks ready to make a breakout as it sports excellent accumulation and solid money flow.
Volume: 454.908K Avg Volume: 276.272K
BUY POINT: New positions: 35.65 (orig. $32.11). Volume=468K Target=$36.75 Stop=$33.22
POSITION: IQX LF - Dec. $30c (61 delta) and/or Stock
http://www.investmenthouse.com/ci/idxx.html
Play Date: 10/14/2002
USNA (Usana Health Science--$9.25; +0.1; no options): Drug products
http://biz.yahoo.com/p/u/usna.html
STATUS: Testing the breakout. While some medical and health stocks are under fire, some keep performing. USNA continues to consolidate its breakout above the 10 day MVA just over 9. Volume is well below average as it moves laterally over 9, showing a tight doji Tuesday. Accumulation remains excellent during this lateral move, ready for a breakout.
Volume: 23K Avg Volume: 48.863K
BUY POINT: New positions: 9.45 (orig. $7.35) Volume=65K Target=$10 Stop=$8.35
POSITION: Stock (no option chain)
http://www.investmenthouse.com/ci/usna.html
End Part 1 of 2
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