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us stock market, understanding the stock market
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11/11/02 Investment House Alerts Report
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IH Alert Subscribers:
MARKET ALERTS:
Targets hit alerts issued Monday: None issued
Buy alerts issued: None issued
Trailing stops issued: IDCC; SCSS; PETM
Stop alerts issued: KSWS; XRAY; UNFI
THE MARKET
From a quiet, orderly pullback to more significant losses on the indexes and in individual stocks. There were not as many players in the market Monday, but those taking part were sellers. The indexes broke near support with the SP500 dropping below the 50 day MVA and to the bottom of its late October consolidation range. It is put up or shut up time for the market after being unable to capitalize on last week's breakout from that consolidation range. It could have been a shakeout, i.e., clearing out the easy sellers from the last rally, but the holiday made it hard to draw conclusions as to how light or strong the selling was. We were protecting gains with trailing stops, getting rid of those breaking support, and holding those that still look ready for a bounce back up. Now the market has to show us it can still make the move up after this pullback.
Sentiment Indicators
VIX: 36.11; +2.55
VXN: 55.71; +3.70. Volatility showed some of its strongest upside gains in over a month. That indicates there was some growing concern Monday, but volatility is still low as far as indicating a change in direction.
Put/Call Ratio (CBOE): 0.78; -0.27. Friday was something of an aberration as the selling was sharper on a point basis Monday but fewer puts were bought.
Nasdaq
Broke below the July and September interim highs as well as the 18 day MVA. Poor technical action with volume about the only thing to hang your hat on, and that was skewed by the holiday.
Stats: -40.09 points (-2.95%) to close at 1319.19
Volume: 1.271B (-20.91%). Significant drop in volume purportedly due to the holiday, and that makes reading the action more difficult. Given the breakdown in the index we have a sneaking suspicion volume may have been up if it was a full session.
Up Volume: 127M (-323M)
Down Volume: 1.135B (+2M). Those in the market were sellers.
A/D and Hi/Lo: Decliners led 2.65 to 1. The selling hit its broadest level in weeks after jumping up last Thursday for the first time in awhile. What the market lacked in volume it made up in bad breadth.
Previous Session: Decliners led 1.3 to 1
New Highs: 29 (-4)
New Lows: 48 (+19)
The Chart: http://www.investmenthouse.com/cd/$compq.html
Opened at the July and September interim highs near 1354 and then sold all day. Weak rally attempts were squashed. Attempts to hold the 18 day MVA (1330) ultimately failed as an afternoon rally attempt (and that is used in the loosest terms) failed and sent the index to session lows. It has some support at 1300 where the 50 day MVA resides as well as the bottom of the late October consolidation range. That is where it has to make its stand for this rally to hold.
S&P 500/NYSE
The large caps thudded down to the bottom of the October consolidation range, breaking the 50 day MVA as they did it. The SP500 was the index that held on at the October low, and it is concerning that it has so easily tanked here.
Stats: -18.55 points (-2.07%) to close at 876.19
NYSE Volume: 1.113B (-22.43%). Volume tanked on the session, along with the index.
Up Volume: 139M (-231M)
Down Volume: 961M (-108M). As with the Nasdaq, those in the market were predominantly sellers.
A/D and Hi/Lo: Decliners led 2.55 to 1. Negative breadth is cropping up again.
Previous Session: Decliners led 1.46 to 1
New Highs: 17 (0)
New Lows: 52 (+16)
The Chart: http://www.investmenthouse.com/cd/$spx.html
The large caps sold to the bottom of the October consolidation range, breaking through the 18 and 50 day MVA (888; 882) as it did. The move was technically a problem for several reasons. It was unable to hold above the prior consolidation range, a sign of weakness, and it broke that key 50 day MVA, closing right near the session low. You never like to see a stock or index fall through a breakout over resistance as that indicates the move has lost its power. The few positives start and end with the low volume and that it did actually hold support at 875, the bottom of the late October trading range and August and September interim lows.
Dow:
After the turn form resistance at 8750 last Wednesday, the Dow also fell into its prior consolidation range.
Stats: -178.18 points (-2.09%) to close at 8358.95
Volume: 1.113B (-22.43%)
Capped out at 8750 last week and could not hold the 10 day MVA (8498) that it did Friday, and Monday it could not hold the 18 day MVA (8415) as it fell back to the 50 day MVA on the close (8331). That also keeps the Dow above the low of its late October trading range at 8250.
The Chart: http://www.investmenthouse.com/cd/$indu.html
TUESDAY
Unfortunately there is not much scheduled news to drive the market before Wednesday when there are some more earnings reports from WMT and AMAT. Of course, there is nothing to say those reports will be positive; AMAT has already said it was not seeing any pickup. Thus the market is up to its own again, and it should be a full strength session so to speak with the holiday over.
The 'on its own' action Monday was not overly encouraging, but we did not see breakdowns across the board. The indexes are still holding up though not in the catbird seat they would be sitting in if they had held on top of the consolidation range. Monday could have been a shakeout, and we held onto several positions that were still in good pullback positions and holding at or above near support. We were also cutting positions that were not performing, breaking down, or that we just wanted to preserve good gains in.
Tuesday we will be watching closely where the indexes and key stocks are able to bottom and how sharp a move off of that level, if any, we get. This market has liked to shake out a bit deeper on the pullbacks, and while we were willing today to let some positions run, we won't let them break down. Overall we are still positive, but if the Nasdaq breaks 1300 on strong volume it will have set the November high as a double top point. As for the SP500, if it breaks 875 significantly on strong volume it will have made a lower high below the August top and broken its trend on the rally back up. That action implies further downside.
We are not going to ignore the technical moves, and the charts are not showing just wonderful action. In the big picture, however, we still feel the overall environment for the economy and stocks is good with the real possibility of further fiscal stimulus, a good seasonal pattern, and the first signs of improving business spending. Getting Iraq out of the way one way or another will lift some of the current pressure on the market. Again, while that broad picture may appear positive, we are not going to ignore the market action as it makes all final decisions. We like the prospects for the future, but this market has not been one where you could buy and hold just any stock indefinitely.
Support and Resistance
Nasdaq: Closed at 1319.19
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 (1522.80).
Support: The 50 day MVA (1300.83). 1250 from some prior price lows. 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 876.19
Resistance: The 50 day MVA (882) and the March down trendline at 881. The September 2000/May 2001 downtrend line at 888 and the 18 day MVA (888.51). July, August and September interim highs at 909 to 911. Some resistance at 921. Price resistance at 950. 965, the September 2001 closing low along with the August 2002 high. Then price resistance at 990.
Support: 875 is some price support. 850 to 855 (the October 1997 and Q2 1998 lows). 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 8358.95
Resistance: 8500 from October high (10 day MVA at 8498.23. 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 (9257). 9500 from June and July lows.
Support: The exponential 50 day MVA (8331.57) and then 8250. The simple 50 day MVA (8166.86). 8000 (August low at 8043; September 2001 intraday low at 8062).
Economic Calendar
11-13-02
WMT earnings
AMAT earnings
11-14-02
Initial jobless claims (8:30): 400k expected, 390k prior.
Retail sales, October (8:30): -0.2% expected, -1.2% prior.
Retail sales, ex autos (8:30): 0.2% expected, 0.1% prior.
Dell earnings: after the close
11-15-02
Business inventories, September (8:30): 0.0% expected, -0.1% prior.
PPI, October (8:30): 0.3% expected, 0.1% prior.
Core PPI (8:30): 0.1% expected, 0.1% prior.
Industrial Production, October (9:15): -0.4% expected, -0.1% prior.
Capacity utilization, October (9:15): 75.7% expected, 75.9% prior.
Michigan sentiment, November preliminary (9:45): 82.0 expected, 80.6 prior.
SUBSCRIBER QUESTIONS
Q: I very rarely buy in after-hours trading due to liquidity. However, Thursday based upon the QCOM news I decided to take a position (even though I paid 36.15). I considered going into the stock prior to the close in the high 34s, but decided against it. My question is in this type of situation, would you buy in after-hours, or should a person wait until the next morning to see how the stock is performing in pre-open trading? I only took a half-position, leaving some funds for later to see how the stock performs in the next few days.
A: I usually do not like to buy in the before or after hours simply because it does not represent the full market that is a better discounter of the value of any news. Now I will use the after hours market and sometimes the premarket to sell positions that have either run up on some news or could be adversely impacted by some news. The latter situation can be tricky as well, however, as sometimes a stock is hit on some bad news and is not impacted the next session nearly as bad. There are times, however, when we have felt the news was really not good and the stock was not getting totally killed. In that situation we have sold and been glad to do it.
In most cases in the after hours a stock will shoot up on good news. There is not an order matching system as there is during regular hours so getting filled is an iffy proposition; you can be willing to pay the ask, but if your trade size is not right you won't get the fill. Also, prices are usually strong on the news already, jumping up as the market maker jumps the price up. Thus the chance of getting a good entry point decline. We prefer to let the stock make its move the next morning and see how it trades. Stocks often gap higher and then come under pressure; if the news is solid and the market receptive, it will test lower and then resume the move. That is when we can enter, after the full market has given its blessing so to speak.
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THE PLAYS:
IBM (International Business Machines--$77.29; -0.3; optionable): Computers, business solutions
http://biz.yahoo.com/p/i/ibm.html
STATUS: Testing the 18 day MVA (76.15). A strong move off of the October low, IBM had to take a breather at some point. Last week it ran to 83.81 and then started the current pullback. The last two sessions volume has tailed way off to well below average as the rate of descent has slowed. On Monday it tested toward the 18 day MVA on the low (76.70) and rallied back to show a tight doji. After a week of selling, a doji over support often indicates a new bounce coming. With the 200 day MVA (81.64) overhead we are looking at this as a trade right now, but we will let it run for us if it will, particularly if the market starts to rebound on strong volume.
Volume: 7.387M Avg Volume: 9.998M
BUY POINT: $78.45 Volume=12M Target=$82.45 Stop=$74.95
POSITION: IBM DO - April $75c (63 delta) and/or Stock
http://www.investmenthouse.com/ci/ibm.html
WCN (Waste Connections--$36.8; +0.32; optionable): Waste management
http://biz.yahoo.com/p/w/wcn.html
STATUS: Testing the breakout. Broke over resistance at 36 nine days back and is now pulling back toward 36, the last two days on lower, below average volume. A very nice test to a stock that has broken to a new high and holding up very well on this market pullback. Early leaders should hold their breakouts on the test, and WCN has done just that.
Volume: 110.2K Avg Volume: 279.954K
BUY POINT: $37.25 Volume=425K Target=$44.55 Stop=$34.64
POSITION: WCN DG - April $35c (66 delta) and/or Stock
http://www.investmenthouse.com/ci/wcn.html
Revisited:
Play Date: 11/02/2002
ARTI (Artisan Components--$15.21; -0.54; no options): Semiconductor
http://biz.yahoo.com/p/a/arti.html
STATUS: Testing the breakout. ARTI is making its first real test of the strong October move, pulling back to test support at 15 (the 10 day MVA at 14.68). Accumulation is strong and this is a very good, low volume pullback. Looking for new positions on a bounce.
Volume: 134.327K Avg Volume: 98.636K
BUY POINT: New positions: $15.45 (orig. $14.85). Volume=150K Target=$17.75 Stop=$14.41
POSITION: - Stock (no option chain)
http://www.investmenthouse.com/ci/arti.html
Play Date: 11/05/2002
CVD (Covance--$21.51; -0.25; optionable): Research
http://biz.yahoo.com/p/c/cvd.html
STATUS: Testing breakout. CVD made a breakout try from its flat base last week and has now come back to test the 18 day MVA on the Friday and Monday lows (21.30). Volume really backed off on the test, and CVD's test has been better than the overall market. Very good accumulation in the August flat base.
Volume: 170.5K Avg Volume: 385.772K
BUY POINT: $23.65 Volume=581K Target=$28 Stop=$21.75
POSITION: CVD ED - May $20c (68 delta, low OI) and/or Stock
http://www.investmenthouse.com/ci/cvd.html
End Part 1 of 2
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us stock market
understanding the stock market
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