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us stock market, trade stock
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11/27/02 Investment House Alerts Report
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IH Alert Subscribers:
HAPPY THANKSGIVING!!
MARKET ALERTS:
Targets hit alerts issued Wednesday: IBM; OEX; KLAC
Buy alerts issued: MATK; VZ; PPD
Trailing stops issued: None issued
Stop alerts issued: None issued
HOLIDAY SCHEDULE
Market update and summary table Wednesday. Full weekend report.
HOLIDAY SCHEDULE
Market update and summary table Wednesday. Full weekend report.
SUMMARY:
- Holiday rally resumes as bond/equity shuffle ends.
- Pre-Thanksgiving rally stuffed with positive economic news.
- Nasdaq at the 200 day MVA, SP500 & Dow still have some upside.
Remember: Half session Friday!
Window dressing gives way to desire to hold stocks.
Wednesday the market resumed its trend after taking a one-day side trip as some portfolio managers rearranged their asset mixes before the end of the month. There has been a lot of buying in stocks and a lot of money has been made the past month, but clients still want to see the 'safe' bonds in the portfolios. So, as we said Tuesday, there was some selling of stocks and buying of bonds even in the face of good economic news to lock in stock gains and make portfolios look 'safe' and still show the gains. Without the need to adjust portfolios before the end of month stocks shot right back up.
In the downtrend the Tuesday action would have brought out a ton of sellers to jump on any move up as an opportunity to short. Given the double bottom and the reasons for that bottom, buyers now use dips as an opportunity to buy as opposed to sellers using rallies as an opportunity to sell. That dip combined with the holiday, NVLS' rosier outlook, and the cartload of good economic news sent all major indexes up close to 3% (Nasdaq +3%; SOX +6.7%). The week is not over, but it looks as if the Dow is going to notch 8 straight weeks (2 months - - we know you can do the math, we just liked saying it) to the upside. Sweet as pumpkin pie but with that nice tang of cranberry sauce.
THE ECONOMY
What is this rally about? The bottom line for stock prices is always earnings, and earnings are driven by economic activity. That is why we focus on it, but we don't just focus on the mainstream. We made our name (at least one of them) back in early 1999 and early 2000 predicting that the Fed rate cuts were actually choking off the economy and that the rally and economic expansion would end if it did not free up money. It did not and sadly millions lost their retirements and a lot of hopes and dreams in large part because the Fed felt that we were too prosperous and having a few million thrown out of work would be good for us. Imagine a politician running on that platform. But I digress, thinking about what could have been.
Back to the present and the opportunities it holds. As we have been predicting, the economy is not as bad as those on the financial stations would have you believe based on their comments over the past two months. Friday's numbers are just further proof that the business spending drought is coming to an end as the stock market has predicted the past two months. It is interesting to note that during that same time the analysts and economists on the financial stations and in many financial rags were predicting the economy was going into hard times (a double dip). Morgan Stanley's chief economist took made well publicized economic prediction about a double dip and once again he has missed. His other great miss was predicting in the early fall 2000 that another 100 basis points of interest rate hikes in starting in January 2001 would be needed. As we have been saying, economists can provide us with a great contrary indicator.
We were indeed using them as such as we conducted our own surveys and determined they were all wrong about what was happening. We talked to businesses that were buying new computers because they had to. We talked with store owners who saw the consumer starting to buy again. We surveyed stores that were offering big discounts to attract customers from Wal-Mart. You could get designer labels for about what you could get the WMT brands. At the same time economists were looking at WMT's sales predictions and saying 'as WMT goes so the consumer and retail season goes' we concluded that WMT was not representing the retail sector but was being challenged by the other retailers at its own game. Then Wednesday one economist on CNBC proclaimed emphatically that the consumer is back. Given the Q3 and Q4 data we suggest the consumer never left. The only thing that left was a good dose of common sense in looking at what the facts were and drawing conclusions.
Here is the data. It was very encouraging.
Jobless claims trending lower.
364K versus the 383K expected and 381K prior (revised up from 376K). That is the lowest reading in 21 months. The 4-week average fell to 385750 from 397K but continuing claims were up to 3.65 million from 3.56 million. It is still hard to find a job, but there are now fewer layoffs and that is always the start of the turn. Indeed the jobless claims are now trending lower. On top of that we expect to see 75K to 100K new non-farm payroll jobs reported on the first Friday in December. The job market is definitely starting to recover.
Durable goods orders jump 2.8% versus 1.8% expected and show business buying.
A dramatic improvement in October over September when they fell 4.6%. It is the biggest gain since July. Computers and electronic equipment orders posted their largest gains in a year, rising 6.2%. Communications equipment posted its strongest gain since January 1997. This is very important. Also very important: non-defense capital goods expenditures rose 5.3%. These are further clear signs that the business side of the economy is improving, and the overall number throws water all over those saying the consumer was weak in Q4. This is the October number and it is surging.
Chicago PMI leaps past expectations at 54.3.
It was expected to show contraction at 48.5, but it blasted higher. The employment sub-index rose to 43.3 from 41.6. Prices paid dropped off sharply to 57.2 from that jump to 62 in October. New orders rose to their highest level since June as production and order backlogs increase. The business spending drought is coming to an end as the stock market has been predicting the past two months.
Never count out the consumer spending more than he makes.
Paul Volker, former FOMC chairman, made that statement once, and the income and spending numbers for October seem to bear it out. Personal incomes rose 0.1% but spending rose 0.4%. While we are not saying that the consumer will carry the economy as it has done so (in fact, it cannot sustain the economy alone), those saying that consumer spending would not be solid this holiday season are just wrong. These are the first Q4 numbers and they are solid, belying the economist belief that the consumer would drop sharply after a big Q3. Indeed now many are saying that the holiday season is not going to be so bad after all. Surprise, surprise, surprise. Hey, go to Best Buy Friday because it is knocking off $500 on some of its flat screen TV's. Now that 42" Pioneer plasma TV is only $10K versus $10.5K. What a deal. Get two. Stores are now predicting a better holiday season as well.
On top of those improved numbers you have the internet purchases figures for the first 25 days of November. Up a startling 40% from last year. That is huge for a consumer that is not going to spend this year when holiday 2001 turned out to be very solid after the fact. Volker was right: never underestimate the American consumer. Hard working, hard spending.
THE MARKET
Energized by NVLS' upbeat views and a chance to buy in on a dip, investors were ready before the market opened. Then jobless claims were lower, spending was up, manufacturing was better and sentiment was still positive and gaining strength. Catalyst upon catalyst sent the markets up. Then the holiday aura took over and the indexes powered higher. It was great to see investors bidding up our continuing positions yet again. We have latched onto some leaders, and they are continuing to run and rest, run and rest, just as they should. Very solid action with techs, retail, telecom, packaging/containers, business services being our focus as the economy recovers.
All indexes were up sharply though not on much volume, though it was hardly dead, pre-holiday action. As we saw even in the Tuesday selling, there are stocks that continue to attract volume buying on down days and on light volume up days. That is a sign that there is big money out there looking to get to work in good stocks. Breadth was breath taking at 3.84:1 on the NYSE. All boats were being lifted.
While this was great action, it was also holiday action after a good set up Tuesday. In Tuesday's report we surmised it was a set up session based on some bond/stock swapping, and it most certainly responded. The Nasdaq is near resistance at the 200 day MVA, and as it is the leader, that bears watching. The Dow and SP500 still have some room to drift up to their August highs before stalling. This has been a strong move. Those saying there has been no follow through look at the market through their stomachs and not their eyes. The market has done nothing but go up since breaking out other than the softball set up Tuesday that set the stage for the Wednesday blast off. With all of that movement the indexes will have to take a breather come next week. The Nasdaq could drift up through the 200 day MVA Friday, letting the Dow and SP500 hit their August highs, but this move is going to have to be digested at some point and most likely next week when everyone gets back to the shop. After all, there has been a good run and the news on the economy has turned from crap to cream. There is a bit of froth there now that needs to settle out.
Sentiment Indicators
VIX: 30.84; +2.1. Curiously higher on a rally session. Volatility tends to increase at the top of a run as well as at the bottom so we will watch this.
VXN: 47.42; -0.57
Put/Call Ratio (CBOE): 0.67; -0.16
Nasdaq
Fueled by positive NVLS comments and SUNW, techs were feeling good and blasted higher toward the 200 day MVA.
Stats: +43.51 points (+3.01%) to close at 1487.94
Volume: 1.734B (-10.18%). Volume was lower but it was not a dog session as trade came in at average levels.
Up Volume: 1.52B (+1.068B)
Down Volume: 157M (-1.288B). Nothing but buyers.
A/D and Hi/Lo: Advancers led 2.99 to 1. Totally impressive, and running higher even as the session ran to the close.
Previous Session: Decliners led 1.58 to 1
New Highs: 81 (+33)
New Lows: 21 (-10)
The Chart: http://www.investmenthouse.com/cd/$compq.html
Nasdaq has been the leader, no question, after the SP500 held the market up by holding its prior lows in October and setting the stage for this move. That is what you call teamwork. Now the leader is running right up to its next resistance level at the 200 day MVA (1496). The Nasdaq has run 65 points above its August high, a move of 112 points on this leg alone. The magnitude of the move as well as the immediate overhead resistance typically indicates that some sort of pullback or lateral move is on the horizon in order to digest this move. The index is action very well as it rises up off of the short term moving averages, then comes back to test them, making a higher low at that point. The breakout over the August high was key, and it puts the index in very good shape moving forward. The best action? A volume break over the 200 day MVA and then a consolidation that tests the 200 day laterally on low volume that gives way to another explosive move off that level. What we think will happen: maybe a drift up through the 200 day on lower volume Friday before coming back to start the consolidation next week.
S&P 500/NYSE
A great looking chart, testing back to the 10 day MVA Tuesday and then blasting higher Wednesday. The one missing picture was volume, but we did not expect we would get much right before Thanksgiving.
Stats: +25.56 points (+2.8%) to close at 938.87
NYSE Volume: 1.347B (-10.99%). Below average as would be expected before the holiday.
Up Volume: 1.17B (+874M)
Down Volume: 170M (-1.037B). Heavy on the buy side.
A/D and Hi/Lo: Advancers led 3.84 to 1. Truly impressive breadth.
Previous Session: Decliners led 1.75 to 1
New Highs: 34 (+4)
New Lows: 12 (-9)
The Chart: http://www.investmenthouse.com/cd/$spx.html
Back over the early November high (925) after a quick test of the 10 day MVA. That is an impressive looking bounce but volume was low; it was holiday buying, but that sure beats holiday selling as far as good cheer goes. The S&P is poised to drift toward its August high at 965 Friday and even early next week. We think it will make some headway toward that level Friday in the half day session but as the Nasdaq is the leader and is currently right below its next resistance we don't think the large caps will make the August high before turning back to take a breather along with the Nasdaq. That is the usual technical pattern, but we would not count out the ability of the SP500 and Dow to continue to move toward that August high and the Nasdaq clearing its resistance before the consolidation starts.
Dow:
Powered right back over the early November high (8800) and the recent high (8880) though 'powered' is not the best description as volume backed off. As with the SP500, the move was a nice higher low bounce up off the 10 day MVA that cleared the November along with the July, August, and September interim highs. It is just a skip from resistance at 9000 to 9050 before that 200 day MVA at 9188. We expect the current momentum to carry the index up to that near resistance with ease. A run up to the 200 day MVA Friday would be impressive but it would also set up a pullback for next week. In any case we can expect the Dow to do some consolidation after a run up to that near resistance. Perfectly normal.
Stats: +255.26 points (+2.94%) to close at 8931.68
Volume: 1.347B (-10.99%)
The Chart: http://www.investmenthouse.com/cd/$indu.html
FRIDAY
A half session day is always a harder read. You have to look at the bigger picture and not be swayed by the low volume moves you see. Wednesday was low volume in itself (though Nasdaq was at average trade levels) so that move we attribute to momentum and the holiday cheer. Still, Friday we expect the momentum to carry the indexes higher. A lot depends on the first half hour. If it is out gangbusters, it will most likely carry a solid move up to the close. If it is so-so, we expect a lazy move higher. After hours stocks were not only holding gains but extending them as well.
What we are going to do is primarily just manage positions. There will be some stocks that were on the bubble today as to whether we moved in, and we may look at them to open Friday, but that is a riskier proposition. If we get some strong moves there are current positions we can take gains on, particularly the option plays that have January expirations. It has been a great month and a rise into resistance on light volume will most likely lead to some profit taking and consolidation next week. Thus we are looking at wrapping up some option gains on stocks that have surged (we still have half positions on several) to lock in the gains, let them pull back, and then be ready for the next move up with some new positions.
Support and Resistance
Nasdaq: Closed at 1487.94
Resistance: Price resistance at 1500 and the 200 day MVA (now at 1496). 1574, the May low, is next.
Support: The August high at 1427 and the 10 day MVA at 1440. Then 1418, the interim test after the September 2001. The 18 day MVA at 1410. 1357.09, the October 1998 bear market low. July, August, and September interim highs at 1345. The 50 day MVA (1350).
S&P 500: Closed at 938.87
Resistance: Price resistance at 950. 965, the September 2001 closing low along with the August 2002 high. Then the 200 day MVA (983) and price resistance at 990.
Support: The November high at 925.66. 921 is some price support. The 10 day MVA is at 919 and possible support. July, August and September interim highs at 909 to 911 and the 18 day MVA (910). The top of the late October consolidation range at 899. The 50 day MVA (895). The September 2000/May 2001 downtrend line at 874. The March down trendline at 860. 850 to 855 (the October 1997 and Q2 1998 lows).
Dow: Closed at 8931.68
Resistance: A range of resistance from 9000 on up to 9050. The 200 day MVA (9194). 9500 from June and July lows.
Support: The early November high at 8800. The late July and early September interim high at 8726 to 8762.14 (8745 closing). The 10 day MVA (8712). The 18 day MVA (8619) and then the October high at 8500. The exponential 50 day MVA (8455) and then 8250.
End Part 1 of 2
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