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us stock market, stock watch
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3/12/01 Investment House Daily
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Investment House Daily Subscribers:
TONIGHT:
- Indexes rally back on mixed volume after bad beating. Is it another rally or a bounce after being slammed?
- More calls for another oversold rally.
- Weak retail sales, GE's double digit growth appear to act as catalysts for the move up.
- Mixed news after hours, but it did not slow the momentum.
- Team Trades
A solid bounce that did not fade.
The market action is what you love to see if you are a bull: a weak to moderately higher open, some selling, and then a long, steady rally that build momentum through the close. It even held on after the close as the big names kept on rising. That is solid action, and after a whacking as it took on Monday, the fact that sellers did not rush in to sell before the close is a positive. We were looking for that fade, but the hiccup in the last half hour never got on track and the market on close buy orders rallied things back up on the close.
As noted last night, stocks and indexes often move the other way after a really bad beating or a very strong upside move. After a strong move profit takers come in and stocks then digest their gains on some selling. After a hard dive stocks often bounce as bargain hunters come in to load up on the bargains. The key is to look at the quality of the moves. If the profit taking following a big gain is on light volume, that shows the selling is marginal and the rally is usually in good shape. If the rally after a big slam is on even stronger volume to the upside, that is a positive as well. If the move back up comes fast and immediately breaks back through resistance, that is also a positive.
What was today?
A real mix of indicators that does not say the bottom has been hit or that the rally attempt is a dud. For one, the Dow rallied right up to 10,300 but did not take it out. Perhaps it just ran out of time in the session because it was on a steady climb in the last two hours and the bell rang as it approached 10,300. The Nasdaq 100 had a strong day (it led the Nasdaq higher), but it is still facing some near-term resistance as well.
Volumes were overall pretty darn good. NYSE volume jumped 10% on the Dow's and S&P 500's climb. The big-name techs that led the rally were mixed, with some moving on stronger, above average volume and others moving up on lower volume or rising but still well below average volume. After the Monday's slaughter, however, the fact that many moved up on solid, rising volume was good indeed. We had almost expected a low volume rally, but today, while not giving us a full 'thumbs up' from volume, was much better than we expected.
The market, however, still remains bifurcated, i.e., money rotating (and rapidly when it does) from more defensive sectors to back into big name techs whenever conditions are oversold enough. Look at the rally on the Nasdaq: it was all the household names that are more often than not in really pitiful patterns. JNPR raced up $10 today (counting after hours trades), but the 21% move comes after two months of a 45 degree decline. It is still in a wicked downtrend and does not appear to be in any position to make a lasting move. AMAT, NVLS, KLAC look better (indeed the entire SOX is etching out a big double bottom pattern) and can possibly provide some leadership, but among the big names there are not many leadership quality patterns. Instead, we saw the pharmaceuticals sell off as money ran from these areas into the household name techs. The leading techs of late (the no-names, e.g., SDS, LLL, ACS) also did not fare well in today's up market. It is as if a switch goes on and investors run back to the old names for new bargain prices. It could very well lead to a more sustained rally along the lines of the January move, but no guarantees on these: look for good volume and grab your favorite if you want to play that game. Problem is, without a real building period in these big name stocks, there is a high risk of failure, and that just adds more overhead of disgruntled sellers with each failed rally attempt.
This left many of the television analysts talking of another rally, oversold or otherwise. No one rightly wants to say this is the real thing, and many were saying it was most likely a bear market rally with Merrill Lynch saying investors could see the most significant rally of the year over the next 60 days. Volume and the action of the real leading stocks over the next week will tell us more about whether this looks to be the case or not.
Weak retail sales the catalyst we were searching for last night?
Retail sales for February limped in at minus 0.2% when they were expected to rise 0.3%. that is the first decline in three months while January was revised to a much higher 1.3% gain from the originally report 0.7% gain. Once again we see that the numbers that are coming out the past three months have been way off the actual numbers. Is it that confusing a time even for the number crunchers? There is no doubt the continual revisions are keeping the market on edge.
But, the sharply lower retail numbers appeared to have a positive impact. After dipping right after the news, they turned and raced higher. Seems that bad news for the economy is still viewed as good for the stock market even as the economic news overall appears to be improving. Now we have been saying that at some point the stronger economic news would be factored in by investors as a positive. Either something else is going on or we are still not there yet. Poor retail sales, one of the handful of really bad indicators for the economy, is not what we need. Yet, it was enough to raise the hopes of more aggressive Fed action, and that apparently is still seen by investors as more desirable than an actually improving economy. Perhaps investors do in fact believe the economy is stronger but slyly still want more rate cuts knowing that will be the nearest term first aide for the market. Don't underestimate the collective.
Onward and upward? Put/Call ratio closes over 1.0.
Can retail sales keep things going? Of course not. This first step of a rally has a long way to go. We have the rubble of two dozen rally attempts littering the path from March 2000. It helped get things started, but there has to be something to carry the torch from here unless today saw a major shift (that's shift) in investor psyche.
Consider the put/call ratio. The CBOE reported the ratio at 1.01 today, and the overall volume was heavy compared to the spike in December (1.2 million overall on the December peak versus 1.7 million overall today). Will this be one of the final pegs falling into place? We have been looking for this result, but we want to see the final figures tomorrow. One thing that has been skewing the number of late has to do with the low (low enough?) prices of a lot of big tech stocks. They are buying back shares (MSFT, DELL, and others) by selling puts on their stock. The idea is the same that we often employ when we want to buy a stock at a certain price: we sell the put and let the stock be put to us. That way we get some cash for doing it and buy the stock where we want and get paid some money for doing so. So far, however, the numbers look good with a spike above 1.0 on the close and solid option volume.
Good after hours momentum
Stocks continued to rise after hours. All of the big names that enjoyed solid days kept on moving up after the close. That means most of the bigger names were the movers. This momentum continued even as MOT announced 7000 more layoffs and MetLife warning. Those were counterbalanced by Comverse Technology beating the street by 3 cents and Kohl's once again sporting rising sales and earnings. That company is so consistent even when the economy is down; great management.
THE MARKETS
Overall market stats:
VIX: 30.73; -4.38. Quick to rise, quick to drop. The VIX did in fact help turn things up today (despite our prognostication otherwise last night). Will it last? Volatility has not hit historical highs, but with the put/call ratio spiking, it might have been enough. Now we watch the action of leaders and price and volume.
VXN: 72.67; -3.58. Never reached 79 before the turn. Enough? Too early with this indicator to tell.
Put/Call ratio: 1.01; +0.10. Finally broke over 1.0 on the close, and that has historically been one of the elements that has occurred when the markets bottomed. Option volume appeared solid and index put options outnumbered calls while equity call options outnumbered puts. That does not mean a whole lot, but tells us that a lot of option players felt more comfortable in shorting the market than individual stocks.
NASDAQ:
Opened higher, tested the move, and then was off and running to the close. It was mostly big names as the Nasdaq 100 gained 109.06 points to the overall index' 91.40 point gain. Volume was 2% lighter, but volume on the biggest names was either up sharply or just so-so. Could be a transition, but we need to see better indicators over the next week in the A/D line.
Stats: Up 91.40 points (4.8%) to close at 2014.78.
Volume: 2.104 billion shares (-2%). 1.625 billion upside to 439 million downside. Good reversal in up to down volume, but overall volume fell back below average. Not a huge difference, and we did see individual stocks jump on very strong volume. Perhaps this is a slower steady build starting as opposed to the jump up and flameout we have seen in the past.
A/D and Hi/Lo: Advancers pulled back ahead 1.26 to 1 after Monday's 4.4 to 1 drubbing. We said those were cathartic levels. With the put/call ratio hitting over 1.0, the sentiment indicators may just be falling into place to support a more sustained move up. New highs remained low at 35, while new lows fell to 263.
The Chart: http://www.investmenthouse.com/cd/$compq.html
Tested Monday's low in the morning and then mounted a solid move. If volume had been lower we would be very concerned about the 2050 level; the volume today, while not overpowering, showed some real bright spots that may indicate a further building move up. this was different from the reversals we have seen of late: the index sold off all day on stronger volume Monday, and then moved up solidly today on decent volume. A small difference, but with the other indicators (put/call) showing supportive moves, it could be a significant difference. We have to see volume expand significantly on the move up.
Dow/NYSE: Tested 10,100 and recovered to close just below 10,300. Some are calling this resistance that will send it down, but the volume on the NYSE was impressive.
Stats: Up 82.55 points (+0.8%) to close at 10,290.80.
Volume: NYSE volume showed excellent pop, rising to 1.359 billion shares (+10.5%). Up volume led down volume 693 million to 660 million shares. The ratio was close, but we have to realize that the Dow sold down another 100 points from Monday's close before it started to fight back up. The up volume had to overtake the down volume.
A/D and Hi/Lo: NYSE decliners still led, but it shrank to 1.26 to 1 (3.48 to 1 Monday). New highs fell to 73 (-29) as new lows fell to 72 (-17).
The Chart: http://www.investmenthouse.com/cd/$dja.html
Tested 10,100 and then made a steady climb to the close and finished the day just below the former bottom of its range (10,300) that could now very easily act as resistance. Volume was solid, however, and that is the key to breaking resistance; a quick move back over on strong volume would be a very nifty save for the Dow: remember the 'outrider' theory, i.e., if a stock or index can recover quickly, it can resume its move.
S&P 500: The big caps hit 1175 on the low but then they too made a steady recovery to close at the highs. NYSE volume was superb for the move, the highest since January. As with the Dow, there is resistance ahead at 1215, a point the S&P was using as support in late February and early March before the recent plunge. Good volume can help clear resistance as we noted with the Dow. We need to see that good volume on the break and hold over 1215.
Stats: Up 17.50 points (+1.5%) to close at 1197.66.
Volume: NYSE volume jumped to 1.359 billion shares (+10.5%).
The Chart: http://www.investmenthouse.com/cd/$spx.html
TOMORROW
Upside momentum heading into tomorrow as the indexes closed on their session highs and continued to rise after hours. Nasdaq futures are up 13.50 (+7.30 over fair value) and S&P futures up 0.40 (+0.39 above fair value). Not a lot, but then again, we prefer to see modest opens build in strength as we saw today.
The real test will be whether the Dow and S&P 500 can break back over resistance and hold above it on strong volume. They might bounce down first before making another run. They might bounce down and crater. If not for the stronger NYSE volume today and the strong volume in certain stocks, we would not be very confident of the attempt. If volume can build on a move up just as we have seen it build on the moves down, we could have a very tradable rally.
Could have. The big names are still in pathetic patterns and that is not conducive to long term moves. Maybe a trading rally, maybe a crash back down. Every rally day is met with calls of an oversold bounce or a bottom. Today was no different, but there is more skepticism out there. That is helping and it is indicated in the put/call ratio. That is strong evidence a bottom is being put in. What we need to have now is patience to see if the Dow and S&P 500 can break back over resistance on strong volume and see some of these stocks we are tracking that are in good patterns start to break out. It is great to see the big names move well; makes everyone feel as if things are back to normal. The patterns belie that, and while we can play some bounces if there is no immediate resistance overhead, we have to be ready to pull the plug.
In the interim we have to remain patient and let the plays come to us. Let them move to resistance once again and start to fail for the put plays (the market is still in a downtrend), and for the upside plays let the strong patterns breakout on good volume. We rushed a play today and had to exit with a loss all because we did not let the play set up and come to us. The market is giving us good plays if we are patient to let them develop. We anticipate the market to move higher in the morning, but it will have an early test and it may be a rocky day as the bulls and bears fight it out. Friday is triple witching, and with the overall volatility that is an added spice. We have seen big moves fade fast; this one is a bit different, but we are still in a downtrend with the big names in bad patterns. The move has to start at some point, but we don't think these names will necessarily be the leaders long term just yet. Be flexible and patient. Set alarms and let the breakouts and breakdowns unfold for the plays. As for current short positions, if you are still in after today, be ready to close them out if the Dow and S&P 500 smash through resistance.
Support and Resistance Levels
Nasdaq: Closed at 2014.78.
Resistance: Possible at 2050. Then 2250 to 2300. 2400 to 2500.
Support: 1750
S&P 500: Closed at 1197.66.
Resistance: 1215. Then 1265, followed by 1285 to 1300.
Support: 1130
Dow: Closed at 10,290.08.
Resistance: 10,300. 10,750. Then 11,020 - 11,028. After that, 11,400.
Support: 10,000. Then 9750.
Weekly Economic Calendar (All times Eastern). The figures are the consensus expectations, not ours.
3-13-01
Retail Sales, February (8:30): -0.2% actual versus 0.3% expected and 1.3% prior (revised up from 0.7%).
Retail Sales, ex-auto, February (8:30): -0.3% actual versus 0.1% expected and 0.8% prior.
3-14-01
Business Inventories, January (8:30): 0.0% versus 0.1% prior.
3-15-01
Initial Claims, 3/10 (8:30): 370K versus 370K prior.
Export Prices ex-ag., February (8:30): 0.2% versus 0.2%.
Import Prices ex-oil, February (8:30): 0.3% versus 0.3%.
Current Account, Q4, (10:00): -$117B versus -$113.8B.
Philadelphia Fed, March (10:00): -25.0 versus -30.5
3-16-01
PPI, February (8:30): 0.1% versus 1.1% prior.
Core PPI, February (8:30): 0.1% versus 0.7% prior.
Housing Starts, February (8:30): 1.6M versus 1.651M prior.
Building Permits, February (8:30): 1.697M versus 1.697M prior.
Industrial Production, February (9:15): -0.2% versus -0.3% prior.
Capacity Utilization, February (9:15): 80% versus 80.2% prior.
Michigan Sentiment-Preliminary, March (10:00): 87.0 versus 90.6 prior.
Options expiration, March.
TEAM TRADES
Today we went to the well one too many times, trying to rush a play that was not set up just yet. We compounded the problem by not playing the move that did set up after that first mistake.
We were looking at index options again as one of our potential plays, and after about an hour of trading we saw the QQQ and OEX hit right at their morning highs and start to pull back. Now that can be a resistance point, and they could have fallen from there after such a massive drop on Monday: a bit of a bounce and then a fall. We decided to jump in on the QQQ and wait a bit on the OEX. We got in when it started to roll back down (43.20) with some April $50 puts just to see it catch itself at an interim top formed in the first half hour. It bounced up from there but we got lucky and it made a lower top and started to fall. Great we thought; double top means more blood letting ahead. It started to roll down, we put in a sell order that would give us about a point on the options (we were figuring on a move below the opening drop of the day or close to it and calculated our profit from there and set the order). We then went off to do some other tasks.
It hit 20 cents above the morning low and turned right back up. Did not even call the broker to let him know what we were doing. Checked on the market and gee whiz, it was rising. We could have had a gain of half a point or more (we knew there could be a bounce, so we were not going to ride it for all it was worth this time) and been satisfied. We had taken a pretty big position. Well, when we checked the indexes had formed a bullish 'flying W' pattern and were trading just over the highs. Volume on the move up was high. It crossed had crossed the morning high so we bailed. It then sold down almost 70 cents and we would at least have broken even. Angry (that darn emotion) we started looking elsewhere, ignoring the play right in front of us: the perfectly formed flying W that was testing the mid-point of the W. It then shot back up for another $2. We could have played that move up, made our money back and made a nice profit on the day.
Moral: think about what can happen and plan accordingly. We should have called our broker, set an alarm, done something to let us know. This was not a day to be ignoring the moves, especially since we said last night there could be a bounce. Also, we saw the upside pattern and the market was looking strong. We did not play what we saw. If we had not made the put play, we would have seen it unemotionally and made the play. No, we let a previous play cloud the judgment. Fight it.
For a review of frequently asked questions, please use the link below:
http://www.investmenthouse.com/1questions.htm
End Part 1 of 2
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us stock market
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