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us stock market, trend trading stock
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11/25/02 Investment House Alerts Report
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IH Alert Subscribers:
We apologize for the tardiness tonight. We have experienced some server difficulties just as some writers are in transit for the holidays.
MARKET ALERTS:
Targets hit alerts issued Monday: AMZN; QQQ; OEX
Buy alerts issued: LMLP; HAR; BMRN; IMN; PECS
Trailing stops issued: None issued
Stop alerts issued: None issued
HOLIDAY SCHEDULE
Full reports Monday and Tuesday. Market update Wednesday. Full weekend report.
SUMMARY:
- A test of support and buyers come back in.
- Existing home sales continue strength, rising more than expected.
- Market continues the move, attracting more pre-holiday buyers.
- Team Trades
Another test of support brings in the buyers.
It was not a powerful session, but the action was solid and the volume was better than you would expect on the Monday of a holiday week. The usual choppy action in the first part of the session ultimately gave way to an afternoon rally back up to the session highs. This is the type of action we anticipated for the week: a mostly modest push higher up toward the near term resistance. What will be the most interesting action is that at resistance as light volume could give the market a pause, but there is a sense right now that investors are missing out on a real rally or bottom in the market. That could drift the indexes higher and through resistance before they actually start to consolidate after the holidays. With the higher volume we are seeing, that could definitely be what is happening, but given the holiday it will also bring lighter volume this week. That is where the positive bias comes in that can continue the drift higher in the absence of big volume.
THE ECONOMY
The move was helped by some positive news on housing and from National Semiconductor about a chip bottom occurring before June 2000. This market is keying off of improving economic news, news that we noted was turning positive a month back while what you heard on the media front was how bad the economy was and how bad it was getting. Over the weekend we read a few financial rags and newspaper articles that were basically raising the question whether in fact the holiday shopping season would be all that bad after all. Indeed, they went on to discuss our hypothesis that most retailers were becoming discounters themselves to combat the results from last year where WMT garnered a large chunk of the holiday business. That is exactly what our sources have been telling us for the past month; nothing beats going to the source as opposed to the blanket theory that if WMT is having slower sales the entire retail sector must be hurting.
Another point to consider for its relative foolishness but that is being used to denigrate the shopping season: the supposed six less shopping days during the holiday shopping season due to a late Thanksgiving. This is based on the traditional idea that all the shopping is done after Thanksgiving and before Christmas. That is historically true. It is also somewhat Polly Anna in its view of consumer shopping. The idea is that if consumers don't have all that time to shop they won't buy as much. While that may be true with impulse buys, if you look at the surveys of how much consumers will spend this holiday season you note that they are going to spend more than they did last year. The consensus is for a 4% increase. The lesson here: the number of days is a comfort feature for the retailers. Consumers, however, will do their shopping and spend what they are going to spend whether they have 20 days or 30 days. They may just be a bit more frenzied late in the season, but the shorter holiday season will not adversely impact the overall sales nearly to the extent that is attributed to it.
Existing home sales surge 6.1%.
Existing homes are 80% of the housing market, and their sales surprised with a strong upside showing. Ah, the power of low mortgages rates to drive sales. The trendline continues to rise but it is flattening; this spike pushes it higher but the past few months have been flatter and it is no doubt the recent sharp drop in rates has spurred another round of 'they won't get any lower than this' buying.
Indeed, when you look at the treasury yield curve it is indicating a recovery in the overall economy. We noted the past couple of weeks how the commodities index has been improving the past year. It had moved laterally for the past two months, tested the 50 day MVA, and has now jumped up off of that level and is threatening a new 52-week+ high. Treasury yields have been falling with the short end really dropping disproportionately. That puts the long end of the curve, i.e., the longer term maturities, up more vis- -vis the short end. What does that mean? That means that investors of all types are agreeing that money will cost more in the future as there will be more economic improvement that makes money more in demand. That is the risk portion of debt instruments; in 'normal' times of economic expansion the longer term maturities are higher giving an upward sloping yield curve. That is a long way from the inverted curve seen in 2000 when shorter term instruments were in demand as the longer term instruments priced in the coming recession just as the stock market was doing. Now we see the opposite. As you know, we are big believers in the signposts of the market, and the commodities action and the treasury yield curve are some large signposts on the economic highway.
THE MARKET
There are times you can feel the market, and the past few weeks we were getting a definite feel that there was more upside to come even in the face of (and also in part because of) all of the negative economic and market views being espoused on the financial stations. This was on top of the good price/volume action in the indexes and accumulation in the stocks. We do not base our investing on feelings, but when that feeling is derived from a sound investigation of the important indicators, that gives you even more confidence to make your plays.
The action this week continues to have that feel. Monday the market was generally upbeat to start, but then tested the near support levels on the Dow and SP500. That brought the buyers right back in and pushed the indexes back up to their session highs on some very solid volume for a holiday week Monday. That continues the generally bullish intraday and interday action the market has shown. The bias is up and that is a nice change from recent holiday events where the market found itself unable to make any real advance. As we discussed last week, it is a phenomena of rising markets that they tend to drift higher on lighter volume during holiday weeks. That certainly was the case today, but it had different elements than just a drift higher: the test of support and solid rally from there on some solid volume.
That provided some more excellent moves as National Semiconductor joined TSM in saying things were better and then even went on to say a turn was going to occur before June. Moreover, we saw quite a few good moves from existing plays and new entries that occurred on very strong volume. There is some real buying ongoing, and there is also that sense of missing out on the rally as if the idea that there is just one time to buy into the market on a solid upward trend is actually true. As we have already seen since the October follow through, there are several opportunities to enter into stocks as they move higher. Today we were enjoying both worlds: taking some gains again on stocks and options that have performed very well and entering new positions that were showing excellent breakouts on excellent volume. That is the indication it is not all just feel good buying.
Even with that we need to keep an eye on resistance points. We would not be surprised to see the market drift through them if volume gets light Wednesday and then on Friday (half session), but we are not banking on that. The indexes have made solid moves up on this breakout from the October consolidation range and they will need to take a breather. After this holiday run they will most likely have to take some time off.
Sentiment Indicators
VIX: 26.95; +0.22
VXN: 45.68; -0.81
Put/Call Ratio (CBOE): 0.59; -0.11
Nasdaq
Tapped down but was never in danger of even touching support before turning and closing at the session high on just a hair lower volume.
Stats: +13.16 points (+0.9%) to close at 1481.9
Volume: 1.956B (-0.41%). Very solid, above average volume for a Monday on a holiday week.
Up Volume: 1.424B (+438M)
Down Volume: 429M (-507M). Buyers were back in the market.
A/D and Hi/Lo: Advancers led 1.54 to 1. Not a powerful session, but not bad after being negative mid-morning.
Previous Session: Advancers led 1.19 to 1
New Highs: 76 (+8)
New Lows: 30 (+7)
The Chart: http://www.investmenthouse.com/cd/$compq.html
Nasdaq was again the leader, closing near its session high after its early session low kept the index well above support (1427) on the low. What turned the market back up had a log to do with the NSM CEO stating that the chip sector would see the turn before June 2003. That helped many chip stocks power higher, many that are current plays on the report. The Nasdaq, being the leader, is once again near overhead resistance at 1500 (200 day MVA). Seems it just broke resistance in the form of the August high. Being so close to the next resistance level in combination with a healthy dose of holiday buying, the Nasdaq is the one index we feel could move over that resistance during this week before testing back lower to consolidate this solid move.
S&P 500/NYSE
A fractional move higher on some solid volume, but the large caps are struggling just a bit, showing a doji with little gain the past two sessions.
Stats: +2.33 points (+0.25%) to close at 932.88
NYSE Volume: 1.545B (-3.92%). Solid volume right at average.
Up Volume: 939M (+140M)
Down Volume: 616M (-196M)
A/D and Hi/Lo: Advancers led 1.36 to 1
Previous Session: Advancers led 1.12 to 1
The Chart: http://www.investmenthouse.com/cd/$spx.html
The large caps are moving up still but they do not have the pop of the techs right now. They have struggled a bit and with some December OEX options we decided to take some gain given the struggle at the 935 level. While the doji gives us some concern about the ability to continue the move, there is no immediate resistance until 962 the August high. That leaves plenty of room for a slower, low volume drift higher into the holiday.
Dow:
The Dow is looking pretty good at this point, using the November highs from 8762 to 8800 as support (low Monday was at 8756) and then moving higher to close. It is good that it is holding at that level on the tests lower and rallying to the close. Now it has resistance at 9000 to 9050, and then the 200 day MVA at 9200 that it will have to deal with, but again, that still leaves it plenty of upside room to drift higher during the holiday week before getting to a point where some profit taking may enter to consolidate the nice break over the November high last week.
Stats: +44.56 points (+0.51%) to close at 8849.4
Volume: 1.545B (-3.92%)
The Chart: http://www.investmenthouse.com/cd/$indu.html
TUESDAY
The economic news starts to flow Tuesday with the preliminary Q3 GDP before the bell and consumer confidence and new home sales at 10ET. This could be some important news in that we are anticipating a bit better GDP than the 3.2% expected. That would no doubt help the market as it is trading on economic expectations, anticipating better economic times ahead. We cannot get too excited if GDP is better than expectations as confidence is out just as the market really gets going. Expectations are for improvement given the Michigan sentiment report beating expectations, and thus the number needs to at least meet. With the rising market and inklings that there is some business activity, we do expect confidence to exceed hopes a bit.
Monday we were focused on stocks that were making strong price moves coupled with volume as well as stocks hitting our targets. To our pleasant surprise there were more volume moves than we expected, and the current plays continued to move toward their targets Sure there were some stocks running without volume, but there were enough in good patterns that were showing volume breakouts to keep us interested. As the market continues to move higher, however, we will continue to narrow the scope because we do not want to chase stocks up into a correction. Buying solid patterns when they breakout, however, mitigates the downside because in a rising market strong breakouts tend to hold up or simply test the breakout and then move higher, a great point for adding positions.
Thus while we are aware that the market has made a good move and will need to rest a bit after the holiday move, we will also keep the eyes open for those stocks that are making the moves that show there is real ongoing buying. In this market we are seeing fewer and fewer failed breakouts as stocks are breaking out and moving up the short term MVA. That is very solid action, and if the market continues to give it, we will continue to take it.
Support and Resistance
Nasdaq: Closed at 1481.90
Resistance: Price resistance at 1500 and the 200 day MVA (now at 1500 as well). 1574, the May low, is next.
Support: The August high at 1427 and the 10 day MVA at 1425. Then 1418, the interim test after the September 2001. The 18 day MVA at 1395. 1357.09, the October 1998 bear market low. July, August, and September interim highs at 1345. The 50 day MVA (1339).
S&P 500: Closed at 932.88
Resistance: Price resistance at 950. 965, the September 2001 closing low along with the August 2002 high. Then the 200 day MVA (986) and price resistance at 990.
Support: The November high at 925.66. 921 is some price support. The 10 day MVA is at 915 and possible support. July, August and September interim highs at 909 to 911. The top of the late October consolidation range at 899 and the 18 day MVA (909). The 50 day MVA (892). The September 2000/May 2001 downtrend line at 875. The March down trendline at 864. 850 to 855 (the October 1997 and Q2 1998 lows).
Dow: Closed at 8849.40
Resistance: A range of resistance from 9000 on up to 9050. The 200 day MVA (9200). 9500 from June and July lows.
Support: The November high at 8800 and then the late July and early September interim high at 8726 to 8762.14 (8745 closing). The 10 day MVA (8660). The 18 day MVA (8571) and then the October high at 8500. The exponential 50 day MVA (8426) and then 8250.
Economic Calendar
11-25-02
Existing home sales, October (10:00): +6.1% (5.77M actua), 5.35M expected, 5.40M prior.
11-26-02
Q3 GDP, preliminary (8:30): 3.2% exepcted, 3.1% actual.
Consumer confidence, November (10:00): 83.0 expected, 79.4 prior.
New home sales, October (10:00): 980K expected, 1.021M prior.
11-27-02
Initial jobless claims (8:30): 376k prior.
Personal income, October (8:30): 0.0% expected, 0.4% prior.
Personal spending, October (8:30): 0.2% expected, -0.4% prior.
Michigan sentiment, final, November (9:45): 85.0 expected, 85.0 prior.
Durable goods orders, October (10:00): 3.0% expected, -4.9% prior.
Chicago PMI, November (10:00): 47.5 expected, 45.9 prior.
Fed Beige Book (12:00)
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THE PLAYS:
AVP (Avon Products--$52.02; -0.37; optionable): Cosmetics and personal products
http://biz.yahoo.com/p/a/avp.html
STATUS: Double bottom w/handle. It may not be sexy (but then again, maybe it is), but AVP sells a lot of product with its efficient distribution network. That translates to bottom line profit growth, and that is what the pattern is showing in the 7-month base sporting positive accumulation. What is characteristic of many stocks that have gone on to post big breakouts is the money flow that is racing up ahead of the price even as the stock moves laterally to form the handle to the base. It has a really nice handle forming over the 10 day MVA (51.65) as it tests back on some lower volume. AVP is capable of delivering excellent moves, so don't let the sector dissuade you.
Volume: 812.8K Avg Volume: 1.285M
BUY POINT: $52.94 Volume=1.8M Target=$61 Stop=$50.25
POSITION: AVP DJ - April. $50c (66 delta) and/or Stock
http://www.investmenthouse.com/ci/avp.html
BOBJ (Business Objects--$19.44; +0.76; optionable): Business software
http://biz.yahoo.com/p/b/bobj.html
STATUS: Reverse H&S trade. Coming off the bottom of its base, BOBJ is one of the many business services stocks that is showing good signs of buying. Accumulation is positive and money flow is racing up ahead of the stock. This is not one that we plan on buying and holding forever, but it is one that has formed a nice upside pattern off the lows and it looks ready to give us a good trade up toward the 200 day MVA just over 25.
Volume: 982.627K Avg Volume: 1.464M
BUY POINT: $20.18 Volume=1.8M Target=$24.94 Stop=$18.77
POSITION: BBQ DW - April $17.50c (70 delta, low OI) and/or Stock
http://www.investmenthouse.com/ci/bobj.html
JEF (Jeffries Group--$44.1; +0.15; optionable): Investement brokerage
http://biz.yahoo.com/p/j/jef.html
STATUS: Reverse head & shoulders. JEF is part of the financial services sector that has come to life, and it has formed a 3-month base sporting solid accumulation at 4 up weeks on rising volume to 2 down weeks on rising volume. As with many stocks that are going on to make strong breakouts, JEF's money flow is shooting up well ahead of price. It broke over the 200 day MVA (43.60) Thursday, and it has moved laterally on top of that MVA the past two sessions, showing doji's on lower volume as it tests the move. Looking for another day or two of lateral movement and then the bigger breakout move to the upside.
Volume: 215.7K Avg Volume: 236.727K
BUY POINT: $45.35 Volume=300K Target=$53 Stop=$42.18
POSITION: JEF DH - April $40c (72 delta) and/or Stock
http://www.investmenthouse.com/ci/jef.html
End Part 1 of 2
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us stock market
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