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understanding the stock market, successful investing
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11/16/02 Investment House Alerts Report
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IH Alert Subscribers:
MARKET ALERTS:
Targets hit alerts issued Friday: KLAC (took the rest off on an older options play)
Buy alerts issued: PNRA
Trailing stops issued: Closed some slower positions to free up money for better moving areas while still preserving some gains. STE; BLUD
Stop alerts issued: ODSY
THE MARKET
It was not easy. It was just like one of those days you go out to run and just feel crappy. Every step is hard, but you stay with it and eventually you are done and you feel better, at least in your mind, for having done it. The early action was painfully slow, the market unable to make the Michigan sentiment numbers pop stick, stocks milling around lower on what was some stronger early volume. They refused to break support, however, got off the mat, and worked steadily higher from 12ET on. It was not a surge, not a shot higher, just a dogged rise off the lows to close right at the session highs.
The moves put the indexes flat to slightly positive. Volume backed off. It was not a spectacular move, not a move that will come to mind as overly significant. It was important, however, for a few reasons. It set the indexes up well for next week. It was a resumption of the ability to rise in the face of negative news as opposed to being jerked around by the nose on each headline hot off the wire. When the market has needed a move, it has delivered. Despite the less than rosy prognoses bandied about late last week, the market opted for a more bullish posture Friday. Sure volume was lower so it was not dynamic reversal, but it had every reason to sell and did not.
Okay, that was the rosy picture. Technically there are still some big hurdles to jump that Friday's turn off the lows did not alleviate. Primary concern is the Nasdaq August and early November highs, a twin peak that is a major roadblock. The higher low it made helps, but it has to clear this level next week. The Nasdaq has been the leader of late and its failure would weigh down the rest of the market. On the positive side, as a whole money flow readings on Nasdaq are at a positive divergence, i.e., they are already higher than they where at the August high and they are racing up ahead. That combined with the price/volume action and leading stock moves makes it look as if Nasdaq is going to make the break.
Sentiment Indicators
VIX: 30.83; -1.77. Interesting that after all the fall the VIX is still at a level that was called high back in June.
VXN: 49.68; -2.72
Put/Call Ratio (CBOE): 0.57; -0.01
Nasdaq
Closed flat, coming back from an INTC downgrade and the Dell earnings that were less than expected by the market. Still at he crossroads with that August and November high right overhead.
Stats: -0.38 points (-0.03%) to close at 1411.14
Volume: 1.704B (-3.12%). Volume slid slightly lower as the Nasdaq slid slightly lower. Still nice price/volume action.
Up Volume: 1.012B (-477M). Good indication in that up volume significantly outpaced down volume even on a slight loss.
Down Volume: 675M (+414M)
A/D and Hi/Lo: Decliners led 1.12 to 1. Basically flat after the good surge in positive breadth Thursday.
Previous Session: Advancers led 2.15 to 1
New Highs: 55 (0)
New Lows: 37 (-6)
The Chart: http://www.investmenthouse.com/cd/$compq.html
Came back from the dead, though it never came close to selling down to the gap up point or even the short term moving averages. It has that immediate problem with the August high (1426.76) and the November high (1419.04) that must be cleared. The higher low on the recent pullback is a very good indication along with that money flow racing up ahead of price with a positive divergence where money flow is much higher at this point (and climbing fast) than it was at the August high. That indicates that there is real money moving into the technology and other Nasdaq stocks, and as with smoke, where there is money there is fire. Lending support to this move is the 18 day MVA crossover of the 50 day MVA that occurred in late October. Now the 10, 18 and 50 day MVA are stacked one on top of the other and all rising. That is the start of a stronger trend, something not seen since the index was moving off the lows in . . . November 2001.
S&P 500/NYSE
Tested the 10 day MVA and moved to the July, August and September interim highs, the next step in resistance.
Stats: +5.56 points (+0.61%) to close at 909.83
NYSE Volume: 1.378B (-7.89%). Lower volume, but not bad action given the recovery.
Up Volume: 954M (-315M). Doubled the downside volume.
Down Volume: 413M (+198M)
A/D and Hi/Lo: Advancers led 1.47 to 1
Previous Session: Advancers led 2.71 to 1
New Highs: 34 (+3)
New Lows: 24 (-12)
The Chart: http://www.investmenthouse.com/cd/$spx.html
After a test of the bottom of the October consolidation range early in the week the large caps found some life, rising off that level on stronger volume. Not blowout sessions demonstrating heavy institutional buying, but decent action. It closed the week right at the interim highs from July, August and September (909-911), and that is followed by the November high at 925 and then the August high at 965. With stocks such as CAT reporting things are picking up, the large caps may be able to garner some strength and follow the Nasdaq higher.
Dow:
Cleared the October high Friday on rising Dow volume. Ready to test the July, August and September highs.
Stats: +36.96 points (+0.43%) to close at 8579.09
Volume: 1.378B (-7.89%)
The Dow is moving better than the SP500, rising over the October high (8547) Friday on rising Dow volume. It was still below average but with rising money flow showing a positive divergence (though not as strong as Nasdaq), the Dow is in good position to run through the November high (8800) that is just above the July, August and September interim highs from 8762 to 8796. Friday the Dow tested the 18 day MVA on the low (8461) and then rallied to close at the high and over the October high. As we said last week it looks ready to stair step up over the next resistance.
The Chart: http://www.investmenthouse.com/cd/$indu.html
THIS WEEK
Earnings have petered out, but some more economic news hits this week with CPI, housing starts, Leading Economic Indicators, and the Philly Fed. That will not be all, however. Friday gave a preview of some of the analyst calls that are coming. Analysts burned in the bear market by continually giving 'super, super strong buys' on stocks that had rolled over because they did not understand that the market can actually trend lower have now converted to the downside and don't know or are too cautious or have been told not to be too positive. Thus when stocks make strong moves or breakout, they are subject to valuation or other downgrades. That was the genesis of Joe Osha's Intel downgrade Friday, arguing that Intel's price was 30 times earnings. Any improvement in the economy, however, and the valuation changes rather dramatically.
The market continues to price the prospect of economic recovery in. Whether one thinks it is a bear market rally or the start of a new bull market, the market moves higher in anticipation of better earnings. It may prove to be wrong, but that is what it is pricing in on this more sustained move. Ultimately the economy will have to produce some results to sustain the move, but the market looks 6 or more months down the road. With the move starting in October that would put the market looking for some solid improvement at the end of Q1 2003. That is why stimulus now is important to get businesses investing once again.
With that in mind we anticipate that the market will continue to price in better economic conditions, stepping higher to test and break over the near term resistance points. The action will be similar to what we have been seeing: not a shot up, but a stair step higher that has starts and stops that try the patience and keep the pessimism up. The analyst valuation downgrades are going to promote the choppy action and keep pessimism higher. Overall, however, that helps fuel sustained market rallies as we have said before as money is dragged in reluctantly as the market continues to move higher. There is no rush to get in all at once that burns itself out. Overall, however, we see the market continuing to trend higher, and working with the trend will payoff. Many plays are working very well, trending higher despite the ups and downs.
The action has been very good. Stocks on the report are performing very well as we have zeroed in on the leaders near new highs as well as those coming off important breaks over resistance that have been tested and are now moving up again. Indeed on several we have had more than one entry point as the stocks have established fine uptrends and are using the short term moving averages as pullback points before running higher. That is a sign of an improving environment as the leaders hold breakouts and continue to add to the gains. After starting to crack and break apart three weeks back they have regrouped and are doing very well.
Monday we expect some downgrades given the moves up in stocks in face of the bad news Friday and given the proximity of the August highs. Analysts that have been reconditioned to fear price increases will see the August high as the end of the rally. That was apparent last week with the steady commentary on how the market was breaking down technically. It was not moving in a powerful uptrend, but it was not breaking down. Until it does make a strong breakout move over the August highs, however, expect to hear negative comments related to that resistance and valuation downgrades for the same reason.
That will keep the action choppy but trending higher and we will step in when there are good buy points, i.e., breakouts and successful breakout tests. Several stocks are extended at this point as many have run well. We don't want to chase those but again will let them come back to natural buy points and then step in to take advantage of the trend.
Support and Resistance
Nasdaq: Closed at 1411.14
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 (1512.21).
Support: 1357.09, the October 1998 bear market low and the 18 day MVA at 1850. July, August, and September interim highs at 1345. The 50 day MVA (1313). 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 909.83
Resistance: July, August and September interim highs at 909 to 911. Some resistance at 921 up to the November high at 925.66). Price resistance at 950. 965, the September 2001 closing low along with the August 2002 high. Then price resistance at 990.
Support: The 10 and 18 day MVA (897; 892). The September 2000/May 2001 downtrend line at 885. The 50 day MVA (884). The March down trendline at 875 as well as price support at that same level. 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 8579.09
Resistance: The late July and early September interim high at 8726 to 8762.14 (8745 closing) and the November high at 8800. A range of resistance from 9000 on up to 9050. The 200 day MVA (9230). 9500 from June and July lows.
Support: 8500 from October high and the 10 day MVA (8497). The 18 day MVA (8441). The exponential 50 day MVA (8354) and then 8250. The simple 50 day MVA (8176). 8000 (August low at 8043; September 2001 intraday low at 8062).
Economic Calendar
11-19-02
CPI, October (8:30): 0.3% expected, 0.2% prior.
Core CPI: 0.2% expected, 0.1% prior.
Trade balance, September (8:30): -$37.3B expected, -$38.50B prior.
11-20-02
Housing starts, October (8:30): 1.710M expected, 1.843M prior.
Building permits, October (8:30): 1.698M expected, 1.733M prior.
11-21-02
Initial jobless claims (8:30): 394K expected, 388K prior.
Leading Economic Indicators, October (10:00): -0.1% expected, -0.2% prior.
Philly Fed, November (12:00): -3.0 expected, -13.1 prior.
Treasury budget, October (2:00): -$51.3B expected, -$7.7B prior.
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End Part 1 of 2
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understanding the stock market
successful investing
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