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stock split, stock market result
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12/09/02 Stock Split Report
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Stock Split Report Subscribers:
MARKET ALERTS
Targets hit alerts issued Monday: COO
Buy alerts issued: MRK
Trailing stops issued: MCHP; NVLS; SNDK
Stop alerts issued: ADI; VSEA; COH; HNR
You can sign up for Stock Split Report alerts at the following link:
http://www.investmenthouse.com/alertssr.htm
SUMMARY:
- Market slumps on weak appointment to Treasury, unimaginative stimulus package.
- Low volume breaches of the 50 day MVA, lower lowers show a struggling market.
Market poised to recover gets a wet blanket with Treasury secretary and stimulus package details.
Friday the market recovered on the prospects of a new, exciting Treasury head and the promise of a real stimulus package that would actually provide some real economic stimulus. It was poised for the move higher with mild touches down to the 50 day MVA and a move up from there.
Friday's promise was Monday's lost cause. Former Treasury secretary O'Neill was replaced with O'Neill 2, another head of a huge corporation with no Wall Street ties or experience and definitely not a supply side thinker. The administration could have hit the ball out of the park and given the market something to really cheer about. Instead it made what appears to be a change without substance, swapping one corporate executive up in the cloudy mists of the one hundredth floor of the skyscraper for yet another. The 2-minute biography on Snow reads like O'Neill's, the saddest part being his lack of supply-side beliefs.
Adding insult were the early releases regarding the proposed stimulus package. The reports are that it will be a lot of the same tired items in 'stimulus' package 1: bonus depreciation (that does nothing for small businesses), extended jobless benefits that don't get to the root of the problem and are hardly stimulus, some investment loss changes, some elimination of dividend taxation, a slight acceleration of the marginal rate cuts, and maybe, maybe some capital gains elimination. The only slightly stimulative items are the last two and they are 'maybe.' On top of that it is reported to be just $150 billion versus the $350 billion originally floated out. Now many will say it is still early in the game as it won't be released until January. You have to remember, however, that the package was going to be released this month until Bush decided he could not push it through Congress without a new Treasury secretary and economic advisor. With that you know it is already pretty much completed.
Where is the help for small businesses that the administration pledged? 80% of the jobs are created by small businesses, yet there is nothing in the draft proposals we have seen that provides help for them. The depreciation bonuses do little when a small business can already expense $24K of equipment per year. Why depreciate when you can expense? The point: there is no new incentive to invest in America that was not there before, and the previous incentives did not do it. That was the problem with 'stimulus package 1' and it looks to be repeated with 'stimulus package 2' (a.k.a. son of stimulus). There is no real stimulus. It is apparent that the Bush administration believes that keeping consumer demand strong will pull the economy out of recession when the consumer could not keep the economy from recession nor pull it out despite huge home sales and continued massive consumption.
Downgrades don't help, but it is the future economic clarity that drives prices.
For those reasons the market sold, i.e., the future of the economy looked a lot less rosy than it did just two weeks ago or even on Friday with the promise of change. It did not help that there were valuation downgrades, but those are just fluff. The market will rally or fail on the prospects of future economic growth, not the momentary views of analysts that are still scared of valuations as a result of their bear market hangover. When it was clear that Bush had nothing new to offer the economy (a twist, but still the familiar George Bush I 'stay the course' attitude), the market responded as it usually does: it boos the action by selling.
THE MARKET
A trio of 50 day MVA breaches.
All three major indexes broke the 50 day MVA on the session, leaving the small cap S&P600 as the only widely followed index able to hold above that key support level. The Nasdaq barely breached it, and volume was low or lower on all indexes, but the action was a clear vote of no confidence for the economic recovery. Making lower lows is the first real sign of a weakening market. Higher volume would be the death blow, but with many stocks breaking through their 50 day MVA on the action, the tone has turned a bit negative.
The tech leaders off the October low are in a massive struggle now to hold on. Other leaders are managing to hang on, an important part of a continued rally. The market is at a key juncture; the selling is starting to get too severe to keep the rally in tact if it does not snap back soon. Pullbacks are important and necessary as they are used to take the fluff off of the moves up, to shakeout the easy sellers and leave only those wanting to hold the stocks. If it cuts too low and starts making lower lows and cutting through support, that triggers those sell programs we have discussed and it also triggers stop points. Those combine to increase the selling pressure just as shorts are starting to sell more based on the close below support. That is hard for the market to overcome and it builds in another layer of overhead supply that makes it all that harder to recover on the next attempt.
With that said the action was not the death blow. Volume was anemic, leaving the action to be controlled by those that wanted to be in the market. Monday that was the sellers as they wanted to get out of stocks. The Dow and Nasdaq slid below the 50 day MVA, but it was a minor break on low volume. Chips had another rough session after looking ready to recover, but many leaders held their ground rather well. It was not a day of stock dumping, and technically there is still recovery room though it is getting pretty close to the limit at this point. Friday they looked poised; after Monday they are hanging on.
Sentiment Indicators
VIX: 34.47; +1.79
VXN: 52.98; +0.7
Put/Call Ratio (CBOE): 0.72; -0.19. Fell on a session you would expect it to rise. Not a lot of put buying after the strong surge most of last week. That can indicate that the action has pretty much played out, but that is stretching this indicator a bit further than is useful.
Nasdaq
Getting a very toppy look to it as it failed to capitalize on Friday's attempted move higher, stalling at the August high and rolling over to close at the 50 day MVA.
Stats: -55.3 points (-3.89%) to close at 1367.14
Volume: 1.502B (-2.34%). Volume contracted on the move, about the only good thing you can say about the session.
Up Volume: 104M (-863M)
Down Volume: 1.386B (+884M). It was all sellers.
A/D and Hi/Lo: Decliners led 2.69 to 1. Ugliest A/D line in quite some time as tech stocks were the bane of investors. Even with the light volume, when you see the negative A/D days start to far outpace the positive days the bias is shifting.
Previous Session: Advancers led 1.16 to 1
New Highs: 49 (+7)
New Lows: 29 (+5)
The Chart: http://www.investmenthouse.com/cd/$compq.html
Gapped lower and continued lower all session. Each attempt to rally back was pushed lower and a 12-point push down late in the session punctuated the selling bias. That move took the index just below the 50 day MVA (1369.52) on the close, but it did not bring in a lot of selling volume. The move pushes the Nasdaq to a lower closing low (1374.51 in mid-November). After its bounce Thursday that closed right at the August high (1422.95), the turn back down gives the Nasdaq a very toppy appearance resembling a head and shoulders pattern: left shoulder at the early November highs, the head topping the first of the month, and then the right shoulder forming with the Friday bounce before the Monday dump. After selling the past 5 of 6 sessions, however, we would not be surprised to see a bounce attempt off of the 50 day MVA. If it fails at the August high, the prospects for the tech index have turned down.
S&P 500/NYSE
Sliced through the 50 day MVA on the close as volume was still low and below average.
Stats: -20.23 points (-2.22%) to close at 892
NYSE Volume: 1.224B (-0.62%). Volume backed off a hair on the selling, remaining well below average. Lower volume is better but not a great showing otherwise.
Up Volume: 173M (-563M)
Down Volume: 1.041B (+555M). As with Nasdaq it was all sellers.
A/D and Hi/Lo: Decliners led 2.56 to 1. The A/D lines are flattening out and starting to buck the uptrend just as the indexes. Sometimes you see the A/D line positive even as the indexes sell lower, a positive. Now the A/D line is confirming the price action in the indexes.
Previous Session: Advancers led 1.59 to 1
New Highs: 38 (+7)
New Lows: 24 (+9)
The Chart: http://www.investmenthouse.com/cd/$spx.html
Cut through the 50 day MVA (899.55) with a late plunge similar to Nasdaq after testing the 50 day MVA on the Friday low. This makes a lower low and pushed the large caps back into the middle of the late October consolidation. When you look at a stock and see that action you figure the breakout has failed. There are usually two scenarios: it continues to work in the consolidation once again to try another move up, or it breaks down. If Nasdaq and the Dow can turn things around here (they did not slice as far through the 50 day) then the SP500 may manage the third alternative, i.e., the turn back up. That will have to be proved, however, as the lower low and the failure at the July, August and September interim highs gives it the same toppy look as the Nasdaq.
DJ30:
After testing the 50 day MVA (8515) Friday on the low and bouncing back, Dow stocks found no relief with downgrades of IBM and MSFT kept the index negative all session. Dow volume really fell, indicating no dumping, but the action mirrors the other indexes with the lower low and move through the 50 day. It barely made a lower low, however, and the move below the 50 day MVA was not deep. It could find bottom after this slight undercut, but the ice has cracked and it did not close below the 50 day MVA in October or November when it tested that important level. Momentum is fading and it needs something to restore the confidence in the economic recovery. It did not find that today.
Stats: -172.36 points (-1.99%) to close at 8473.41
Volume: 1.224B (-0.62%)
The Chart: http://www.investmenthouse.com/cd/$indu.html
MONDAY
The pullback looked like the prior one, but the next catalyst to send it back up after the pullback was not there. Indeed, the catalyst was to the downside as the market wanted some assurance that the economic recovery would get a boost in the form a the Treasury secretary appointment. It did not.
The momentum is to the downside, but there has been a week of selling even with the Friday bounce. That sets the market up for a bounce, but there are competing forces. After a breach of important support such as the 50 day MVA on the close there are certain sell programs initiated that can exacerbate the breach. This is the same on the flip side as moves over resistance on the close can drive shorts to cover and thus strengthen the move higher.
This is not always an exact science because of the numbers. Not all programs initiated are sell programs. Some use this as a buying opportunity and move into stocks. Futures were up after hours, but modestly, more of a reflex bounce. After several downside sessions a softer open once gain can lead to an attempted bounce to test the support just broken. If the volume is there and if the bounce is a solid move over the support, a one-day breach can be rectified. The real key, however, will be if the indexes can take out the recent high that formed the right shoulder of sorts in the indexes. If they fail at or below that level there is more downside ahead.
Tuesday about the last thing you want to see for the upside is a higher open, at least without some really fantastic news to drive it (e.g., Saddam deciding to go into exile, Bin Laden found dead with DNA verification attached to the body). It would most likely be a relief bounce from the selling that would die out and roll the indexes over. In that case we would be hard-pressed not to use the bounce as an opportunity to exit some upside positions as well as look at some downside positions.
A test lower early might not be the worst thing to see. After so many selling sessions one more down session to clear the pipes could give a more sustained move, but it still depends upon how the index trades at the 50 day MVA on the way back up. What we are going to do is prepare for some further selling on an early bounce with some downside plays to take advantage of the deteriorating technical picture (and a bounce would help set the plays up; we love to see tests of support that was just broken as our entry to the downside). There are also enough continuing solid upside plays to take advantage of if we get the good breakouts on volume to the upside. The momentum plays are out of momentum, and now it is back to the solid plays in good patterns whether upside or downside.
Support and Resistance
Nasdaq: Closed at 1367.14
Resistance: The August high at 1427. The 18 day MVA at 1425. The 10 day MVA at 1438 may be some resistance. Price resistance at 1500 and the 200 day MVA (1487). 1574, the May low, is next.
Support: The 50 day MVA (1369.52). 1357.09, the October 1998 bear market low. July, August, and September interim highs at 1345. Some price support at 1300.
S&P 500: Closed at 892.00
Resistance: The 50 day MVA (899.55) along with the top of the late October consolidation range at 899. The July, August and September interim highs at 909 to 911. The 18 day MVA (912). 921 is some price resistance. The November high at 925.66. Price resistance at 950. 965, the September 2001 closing low along with the August 2002 high.
Support: The bottom of the October consolidation range at 875 is some price support. The September 2000/May 2001 downtrend line at 862. The March down trendline at 850. 850 to 855 (the October 1997 and Q2 1998 lows).
Dow: Closed at 8473.41
Resistance: The exponential 50 day MVA (8515). The 18 day MVA (8653). The late July and early September interim high at 8726 to 8762.14 (8745 closing). The 10 day MVA (8673) is possible resistance. Top of the July, August, & September interim highs at 8762. The early November high at 8800. A range of resistance from 9000 on up to 9050.
Support: The October high at 8500. Then 8250, the bottom of the October consolidation range.
Economic Calendar
12-10-02
Wholesale inventories, October (10:00): 0.2% expected, 0.5% prior.
FOMC meeting (1:15)
12-12-02
Current account, Q3 (8:30): -$135B expected, -$130B prior.
Retail sales, November (8:30): 0.3% expected, 0.0% prior.
Initial jobless claims (8:30): 393K expected, 355K prior.
FOMC minutes, November (2:00)
12-13-02
PPI, November (8:30): 0.0% expected, 0.1% prior.
Core PPI: 0.0% expected, 0.5% prior.
Business inventories, October (8:30): 0.1% expected, 0.6% prior.
Michigan sentiment, December preliminary (9:45): 85.0 expected, 84.2 prior.
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End Part 1 of 2
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stock split
stock market result
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