|
|
us stock market, stock watch
* * * *
11/05/02 Investment House Alerts Report
* * *
IH Alert Subscribers:
MARKET ALERTS:
Targets hit alerts issued Wednesday: USNA (took some off the table on an early buy)
Buy alerts issued: KLAC; FOX; CVD
Trailing stops issued: None issued.
Stop alerts issued: CCE
SUMMARY:
- Market hiccups then races ahead.
- Pro-growth move by Fed dovetails with other market positives.
- Another solid follow through to the upside.
- Team Trades
Fed cuts 50 basis points and market pushes ahead on strong volume.
The market was like the dog that finally caught the car: the republicans have control of Congress and can push pro-growth policies and the Fed took an aggressive, pro-growth stance by slashing interest rates 50 basis points to 1.25% and switched its bias to neutral. The size of the cut and the statement speak volumes that some were not listening to. First, the Fed finally decided to attack the problem, not contain it (containment being a strategy history equates with failure regardless of the subject matter), getting far enough ahead of the curve to actually provide incentives to lend and borrow.
Second, to those thinking that the 50 basis point was a signal that the Fed felt the economy was in the toilet at best, the Fed's statement drew a line in the sand. The Fed said basically that rates were now where they needed to be to really accelerate the economy and that with this move it was confident it would have to do no more barring some geopolitical problem that was really large scale.
It took the market a bit to digest this, and it may take a few more days to fully see the impact, but after an initial sell off from those eager to 'sell the news,' the market grabbed those folks by the shorts so to speak and turned back up with a solid, steady move to the close as volume made a solid climb as well.
Things appear to be coming together for the economy and thus the market.
Remember this point above all others: the market looks ahead not behind. Why is this important? Because you are going to continually hear this phrase: 'the market has gotten ahead of the economy and needs to pull back.' We heard this today from one analyst still licking the burn wounds received during the long sell off and now convinced the market cannot ever really come back. Fact: the market is ALWAYS ahead of the economy whether the economy is moving up or down. It was ahead of the economy in 2000 as it started to dive while the economy still on the whole was decent. The market looks ahead, not at the present and certainly not the past. Such statements are the equivalent of lint, and this one simply ignored what is going on right now.
And that is . . . a Fed that is finally ahead of the curve to the extent the rate position could actually encourage lending and borrowing. A republican Congress that will help some pro-growth policies, e.g., tax cuts, capital gains cuts, investment incentives, and that means ultimately a stronger economy and higher tax revenues. DO NOT listen to the rhetoric about 'exploding' deficits. Each major tax cut in history has sparked economic expansion that more than offset temporary deficits and raised standards of living by virtue of the increased technology and productivity as a result of the following investment booms. Both the Kennedy and Reagan tax cuts jump started the economy and provided much greater tax revenues. For those that point to the deficits, look to the absolute figures: deficits as a percentage of the economy actually FELL because the economy was so much bigger. Tax revenues were higher, but for each dollar taken in during the Reagan years, more than a dollar was spent. It worked, but the government could not keep from spending all of those billions and billions of tax dollars that came in.
Then there is the signal that the MSFT ruling sent, i.e., get back to business in the U.S. and start once again investing in the U.S. Why invest if the government was going to try and take it away from you if you were the most successful? The MSFT ruling was, as we said, huge.
The timing of this confluence of events appears to be almost perfect. Over the past three weeks we have seen some promising signs regarding business investment, specifically, the first upturn in certain types of investment in over 2 years. Other business investment doubled month over month. If businesses are finally coming out of their shells and are willing to invest after this horrid slump and then get some stimulus and some assurance that if they do innovate they won't be charged with being too successful, we could be in for a very solid recovery, much better than the 3% predicted. This economy needs a 4% minimum, 5% better, GDP growth rate per quarter to get everyone jobs and have, as John Kennedy first put it, all boats lifted by the rising tide. The timing looks just super.
THE MARKET
This of course impacts the market. The market has double bottomed off the July and October lows, provided follow through sessions, consolidated that first move, and is not breaking out of that consolidation range on once again strong volume. It has been anticipating this recovery just as it anticipated the economy crash to come in 2000. Looking at the solid volume surges as the indexes move up and out of this consolidation, it is hard to rely on a gut feeling that the market is 'ahead of the economy.' If the stocks are making the breakout moves on volume, that tells us that bigger buyers are in there buying stocks. Not listening to the market is what got most in trouble in the downturn. Not listening to the market when it is showing signals there are big buyers back in the fray will cause most to miss out on the early strong moves.
Sentiment Indicators
VIX: 34.48; +0.2. Up slightly, indicating how volatile the session was and how uncertain investors were during the middle of the action.
VXN: 50.06; -1.14
Put/Call Ratio (CBOE): 0.67; -0.1
Nasdaq
Volatile session, but turned and closed on the high on once again surging volume.
Stats: +17.82 points (+1.27%) to close at 1418.99
Volume: 2.184B (+27.59%). A solid surge in volume for the second of three sessions and putting volume back to levels seen in the strong follow through sessions on the move off the October low. This really helps wash away those distribution sessions.
Up Volume: 1.71B (+957M)
Down Volume: 465M (-457M)
A/D and Hi/Lo: Advancers led 1.74 to 1. Solid, but the volatile action early on kept it from being a blowout, runaway session.
Previous Session: Decliners led 1.03 to 1
New Highs: 47 (+4)
New Lows: 28 (+13)
The Chart: http://www.investmenthouse.com/cd/$compq.html
The Nasdaq was all over the map, but even on its low it held above the near term support level at 1357. When the smoke cleared after the cut, tech stocks rallied on that big volume surge, closing at the high but also right at the next resistance level at 1425 that marks the July and August interim highs. It has moved over 100 points in a week. It is not ahead of the economy, but it has run a long way to resistance, it is due for a breather here.
S&P 500/NYSE
Moving up and out of the range, clearing the recent interim highs and setting its sights on the August top.
Stats: +8.37 points (+0.91%) to close at 923.76
NYSE Volume: 1.646B (+25.15%). Solid surge in volume but it was not a blowout volume session. Volume is, however, powering ahead on up sessions again, and the strength of the move helps negate those distribution sessions suffered prior to the MSFT news.
Up Volume: 1.215B (+476M)
Down Volume: 421M (-129M)
A/D and Hi/Lo: Advancers led 2.03 to 1. Much better; a solid, broader rally.
Previous Session: Advancers led 1.11 to 1
New Highs: 27 (+2)
New Lows: 22 (-4)
The Chart: http://www.investmenthouse.com/cd/$spx.html
Tapped toward support at 900ish on the low and rallied to close right at the high on a solid volume surge. The move puts it back at the Monday intraday high before the market reversed that session. That marks a down trendline from the March to May highs, but we don't view this as stopping the index for long if at all. The significant resistance for the large caps at this point is the August high at 962 closing (965 intraday). That is where it will most likely take more of a breather after this move. It has run 50 points in four sessions and it could take a pause here, but we are looking at the August high as our target on our OEX call options as that is the significant level in the pattern.
Dow:
Solid recovery that pushed the Dow just over the interim closing highs in July and August. Solid volume increase helps it.
Stats: +92.74 points (+1.07%) to close at 8771.01
Volume: 1.646B (+25.15%)
Broke over the July and August closing highs (8735 to 8745) on the close, but is still within spitting distance. The higher volume surge helps the move, but it still has some apron strings at that level. As with the SP500, however, the August high (9053; 9077 intraday) is going to be a key point because that level also roughly coincides with price points from October and November 2001. When it reaches that level it will have made a solid run and will need to take another blow.
The Chart: http://www.investmenthouse.com/cd/$indu.html
THURSDAY
On the grand view things are falling together. On the short term we have to deal with CSCO. CSCO beat the street, raised gross margins from 59% to 62%, and sold a ton of product. For the current quarter, however, it is going to have flat to slightly lower revenues. That is way short of expectations, and a dollar gain in the stock after hours is basically flat, and other tech stocks have given back some hefty after hours gains and are basically flat. In the big picture, going back to where they closed is not all that bad because most had really solid upside sessions.
The indexes have run hard in the near term and will be ready for another rest soon. The CSCO news will most likely provide a softer open, but we don't think it will necessarily be the news that causes a pullback at this point. The Dow and SP500 are just hitting stride toward next resistance and could lead a bit higher before that rest. The Nasdaq was up first and fast and it is at the August high already, however, so we could see a breather here. Overall, however, the action is looking much more solid, and as we said, you have to look at the action and not listen to the hand-wringers who have gut feelings about what will or will not happen.
Thursday we expect that softer open as a result of CSCO, but we are going to watch carefully to see where stocks and the indexes try to find some support. There have been some solid moves, and that can lead to a bit of a pullback to test the moves or the breakouts. That can provide very good entry points on strong stocks that undergoing those inevitable pullbacks. As of this writing, futures were down but still ahead of fair value given the spread in the cash and futures market. That is a bouncing ball overnight and pre-market, but it does give an idea of where things are treading.
What we are going to do is continue to read what the leading stocks are telling us. If they are pulling back on lighter volume and holding near support, we will add a few positions here and there. If they test and bounce, ditto. Overall we do not view this as a lame rally but one that has some buying behind it: strong volume up, lateral consolidation on low volume, another strong volume leg up. That is good action that you don't want to get on the wrong side of.
Support and Resistance
Nasdaq: Closed at 1418.99
Resistance: Right at 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 (1531.65).
Support: 1357.09, the October 1998 bear market low. July, August, and September interim highs at 1345. The 10 day MVA (1355.82). The 18 day MVA (1322.40). The 50 day MVA (1294.43). 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 923.76
Resistance: Some resistance at 923, and then price resistance at 950. 965, the September 2001 closing low along with the August 2002 high. Then price resistance at 990.
Support: July, August and September interim highs at 909 to 911. The 10 day MVA (900.02) The September 2000/May 2001 downtrend line at 888. The March down trendline at 884. The 18 day MVA (887.83). The 50 day MVA (881.02). 875 is some price support. 850 to 855 (the October 1997 and Q2 1998 lows). The first March down trendline 803. 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 8771.01
Resistance: Right at 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 (9277.55). 9500 from June and July lows.
Support: 8500, former price points. The 10 day MVA (8514.35). The 18 day MVA (8386.64). 8250 and the exponential 50 day MVA (8311.23) are key. The simple 50 day MVA (8177.79). The second March down trendline at 7985. 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: 50 basis point cut to 1.25% and a change in bias to neutral.
11-7-02
Productivity, preliminary, Q3 (8:30): 4.2% expected, 1.5% prior.
Initial jobless claims (8:30): 400K expected, 410K prior.
Wholesale inventories, September (10:00): 0.2% expected, 0.2% prior.
FOMC minutes (2:00)
Consumer credit, September (3:00): $6.0B expected, $4.2B prior.
TEAM TRADES
CVD: After a good lateral and low volume consolidation, CVD started back up Wednesday. With the up and down action early, we decided to see if the move was going to stick and grow some volume before we got in. If the volume was there, this would be a great entry point coming off the 10 day MVA. Well, as it turned out, that is what happened. After the FOMC announcement we were watching CVD and it was steady as a rock as the rest of the market was up and down. Volume was solid. We sent the alert and then went in and were able to catch CVD just above the breakout point at 23.15. The stock had made a solid move on the session, so we were not expecting it to run to the moon, but liked how it held the move and did so with good volume; there were buyers in the stock. It moved laterally and then ran up to 23.35 before backing down to close just over the buy point. We got into this one where we wanted, and now we let it work for us.
THE PLAYS:
Good moves: ARTI; CVD; EXPE; FOX; KLAC; LBIX; NBIX; ODSY; QLGC; USNA
Upside:
ADI (Analog Devices--$29.00; -0.10; optionable): Semiconductors
http://biz.yahoo.com/p/a/adi.html
STATUS: Testing breakout. ADI moved over resistance at 27.50 early this week on some big volume. It has since come back to test that move, tapping it on the Wednesday low on lower though still strong volume. The semiconductor association said worldwide chip sales would be up 20% in 2003 and again in 2004, and the AMD CEO said the recovery in chips was underway. Solid accumulation since August at 4 up weeks on rising volume to 2 down weeks on rising volume. A good test and we think the good chip news will propel it back up.
Volume: 5.777M Avg Volume: 3.845M
BUY POINT: $29.35 Volume=5.8M Target=$35 Stop=$27.3
POSITION: ADI CE - Mar. $25c (72 delta) and/or Stock
http://www.investmenthouse.com/CI/adi.html
HYSL (Hyperion Solutions--$27.81; +0.15; optionable): Application software
http://biz.yahoo.com/p/h/hysl.html
STATUS: Cup w/handle. We are calling this a cup w/handle because HYSL is moving laterally on lower volume right at the pre-correction high in the 7-month base. The last two sessions it has shown lower and lower volume as it moves just below resistance at 28. Accumulation is outstanding at 12 accumulation weeks to 6 distribution weeks. Relative strength is right there and ready to make the move. One software stock that is taking the early lead; even though well off of its all-time high it is ready to break to a 2 year high.
Volume: 529.205K Avg Volume: 424.136K
BUY POINT: $28.11 Volume=636K Target=$33.75 Stop=$25.94
POSITION: WQE EE - May $25c (79 delta, low OI) and/or Stock
http://www.investmenthouse.com/ci/hysl.html
MDCO (The Medicines Company--$14.82; +0.72; optionable): Drugs
http://biz.yahoo.com/p/m/mdco.html
STATUS: Testing the breakout. MDCO surged to a breakout from its 7-month cup base, not even taking the time to form a handle. It is now moving laterally over 14 for the past week, showing continued strong though slightly lower volume. Accumulation since late March is excellent at 10 accumulation weeks to 2 distribution weeks. Money flow is huge and relative strength has already broke out. MDCO looks ready to make the continuation move.
Volume: 415.769K Avg Volume: 301.863K
BUY POINT: $15.04 Volume=453K Target=$20 Stop=$13.85
POSITION: MQL DV - April $12.50c (74 delta, low OI) and/or Stock
http://www.investmenthouse.com/ci/mdco.html
End Part 1 of 2
|
us stock market
stock watch
|
