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us stock market, trade stock
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12/10/02 Stock Split Report
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Stock Split Report Subscribers:
MARKET ALERTS
Targets hit alerts issued Tuesday: None issued
Buy alerts issued: UNTD; OEX
Trailing stops issued: None issued
Stop alerts issued: HYSL; ELAB; MATK
You can sign up for Stock Split Report alerts at the following link:
http://www.investmenthouse.com/alertssr.htm
SUMMARY:
- Relief bounce on SEC chair announcement, FOMC rate decision.
- Ford administration II? Bush names yet another former Ford advisor to his team.
- Low volume move does not instill confidence as institutions are on holiday.
- Team Trades
Relief bounce finds some positives to rally on.
There was no volume. We want to be clear about that up front. Institutions appear to still be on holiday as volume limped in well below average on both Nasdaq and the NYSE. Sure there were some solid individual moves, but overall trade remained tame as it has been 4 sessions.
After the selling the market was primed for a bounce as we discussed Monday night. The move received some help from the announcement of an old Wall Streeter as the new SEC chairman and the FOMC holding pat on rates and saying it is still on the alert for a slowdown but does see the economy working through the current 'soft patch.' Those helped push the relief rally along, but they did not inspire the big money to move int. It was nice, but it was not a return to stock accumulation. Without accumulation, the market will have a hard time breaking through resistance when it gets there.
Another Ford administration veteran is tapped. Hope the economic success is better.
O'Neill was in the Ford administration. Snow was in the Ford administration. Now the new SEC appointee (Donaldson) was in Ford administration as well. Supply side republicans (those that rightly believe that left to its own devices, i.e. without a lot of intervention, supply will meet demand without causing inflation or oversupply) have reason to be concerned. Despite the Bush administration's lip service to creating jobs, helping small business, etc., the moves in its economic team appear to be resurrecting dinosaurs from the early 1970's that are focused on big business and deficits. Both are necessary, but they are not the primary focus of the economy.
Why the concern? Remember the 1970's? Not many want to. Inflation, high energy prices, high unemployment, weak economic output; you name the malady, the economy had it. What was the solution? Poor speech writing and 'WIN' buttons ('Whip Inflation Now', the brainchild of a much younger Greenspan). A strong leader can make a difference (e.g., Ronald Reagan, Bill Clinton), but it is more than sloganeering and wearing buttons on a lapel. There has to be substance to the policy. Ford did not cause the problem, but his team was impotent at getting the problem solved. Carter followed with equally pathetic attempts to start the economy. It was not until Ronald Reagan cut taxes and provided massive incentives to invest in America (something John Kennedy did 20 years earlier) that supply kicked into gear and led to huge investment in technology that shot the economy out of a cannon.
Unless these boys from the Ford years learned something from the Reagan years there is reason for some concern. If Bush is in fact telling them he wants supply side policies, great. They are not supply siders by nature, however, and the tendency to return to what you know is great when under pressure. And there will be pressure. It is never chocolates and roses when you implement a policy. Reagan was fought, not only by the democratic opposition but also by the Fed. Kennedy was fought. You have to believe in what you are doing to see it through. We have been calling our senators, representatives, etc. to tell them to get the stimulus package to contain real stimulus, not just large corporate benefits and non-incentives such as extended unemployment benefits. Moreover, it needs to be front-end loaded, not spread thinly over 10 years. Take $150 billion of the proposed $250 to $350 billion and put it in 2003. The economy is so huge that it needs that amount of stimulus to get a kick in the pants. Otherwise it is like trying to cure a sugar craving drinking half a Diet Coke diluted in a gallon of melted ice.
Now there is some clever aspects of the appointments if in fact this was the attempt. The appointees are deficit hawks, and that could give the opposition some comfort to go along with the stimulus package, the idea being if they created too great of deficits that the team would tell Bush he needed to cut back. Shrewd or just coincidence? Not even the shadow knows.
FOMC leaves rates unchanged.
The Fed left the fed funds rate at 1.25% and kept its bias at neutral. The Fed specifically noted in its unanimous decision that the economy appeared to be working through the current 'soft patch'. While the Fed kept rates flat, it continues to pump money into the economy, something it did not do in 2000, 2001, or early 2002. Thus, despite the rate cuts, the Fed's other actions were strangling the money supply. You could not get a loan if you were a small business despite lower rates; the Fed had many banks still on restrictive status, and the weak economy made banks doubly cautious of lending. In contrast, money supply the last 4 months has really expanded. This is the lifeblood for the economy, and the Fed has finally turned on the IV bag. This is one reason we have seen business spending starting to tick higher as businesses can now actually get to some of that cheap money.
THE MARKET
The week or so of selling finally gave way to a bounce, but it was not a rush to the buy window. Stocks recovered and the indexes recovered over their 50 day MVA, but volume was light and indicated that the buying was scattered as bargain hunters picked up stocks here and there. The move up was broad but the big money was not buying many stocks with intensity.
Right now the indexes have held where they needed to hold after falling through the 50 day MVA. The lack of volume is not the only thing that was less than satisfying. While it is a long way from completing the pattern, the indexes are starting up on the right shoulder of head and shoulders patterns. Now many technicians were talking about an 'umbrella' pattern back in mid-November, but the price/volume action and the continued strength in chip stocks and other areas told us that the pattern was not a real worry. Now the price/volume action has deteriorated a bit and there is not an important group of stocks that has maintained a solid pattern and is just champing at the bit to breakout. The chips have dropped to the 50 day MVA and may be ready to bounce, but they are not ready to break to new post-October highs. Retail had a very mediocre day at best.
These are reasons for concern, but as indicated, they have not come to fruition, and we have seen again and again how wrong you can be drawing conclusions off of half- or two-thirds formed patterns. That is why we always say even on the best looking patterns 'until you see the breakout it is just a pretty picture.' The big picture shows an improving economy, a stimulus package of some form coming, and a seasonally strong period for stocks. The key will be how the indexes handle the prior highs in the pattern. There needs to be some volume on the move or it most likely won't make the breakout.
Sentiment Indicators
VIX: 31.67; -2.8
VXN: 51.75; -1.23
Put/Call Ratio (CBOE): 0.89; +0.17. Staying at the high end of the range still even as stocks rallied higher.
Nasdaq
Held at the 50 day MVA with a nice 2% bounce, but it had no volume (even less than Friday's rally).
Stats: +23.62 points (+1.73%) to close at 1390.76
Volume: 1.477B (-1.67%). Weak, below average volume, not the kind of surge you want to see that would indicate a return of big money buyers.
Up Volume: 1.175B (+1.071B)
Down Volume: 275M (-1.111B)
A/D and Hi/Lo: Advancers led 1.55 to 1. Very modest gain as the techs struggled all session.
Previous Session: Decliners led 2.69 to 1
New Highs: 33 (-16)
New Lows: 38 (+9)
The Chart: http://www.investmenthouse.com/cd/$compq.html
We were wary of a higher open, but the Nasdaq gapped up and after a very choppy morning managed to hand onto most of its gains. The move was off the 50 day MVA (1370), and you like to see those moves accompanied by a volume surge as that shows buyers jumping back in with both feet, using the pullback as an opportunity to buy. That did not happen, and what we are left with is a nice rally that was nothing more than a relief rally for the moment. It can still pick up strength along the way, and that will be needed. The important resistance point is the August and November high once again (1420 to 1423); a move over that level on strong volume helps break up the small head and shoulders pattern forming since November. The big picture remains the same regarding the economy, but there are now valuation concerns as stocks have risen higher. Nasdaq is in a logical place to rally, but it will need volume to do it or it will struggle at resistance and move in choppy, lateral trade at best.
S&P 500/NYSE
Right back over the 50 day MVA on roughly flat NYSE. In short, it made the move it needed to make but it did not have the volume it needed to 'announce its presence with authority.'
Stats: +12.45 points (+1.4%) to close at 904.45
NYSE Volume: 1.248B (+2.02%). Volume nudged higher, but still well below average.
Up Volume: 975M (+802M)
Down Volume: 277M (-764M)
A/D and Hi/Lo: Advancers led 2.19 to 1. Very solid return to breadth, coming close to matching the sellers.
Previous Session: Decliners led 2.56 to 1
New Highs: 33 (-5)
New Lows: 27 (+3)
The Chart: http://www.investmenthouse.com/cd/$spx.html
Opened flat and after a choppy start rallied higher most of the session. On the close the large caps closed over the 50 day MVA (899.74), the first move in the road back. The July, August, September interim highs (909-911) and the early November high 925) are the next resistance levels. Clearing the latter would help break up that head and shoulders pattern forming. Still needs institutions to come in and buy on those moves. Typically you want to see them jump on stocks at the 50 day MVA. That did not happen Tuesday.
DJ30:
Very similar action, moving back through the 50 day MVA (8517) on some very low Dow volume. The Dow is continuing its slower uptrend that started after the big blast off the October low (though it made a slightly lower closing low Monday), but as with the other indexes, it needs some real volume to move it. The next resistance that needs to be broken is the early November high (8800) that is the top of the left shoulder of the two-thirds formed head and shoulders.
Stats: +100.85 points (+1.19%) to close at 8574.26
Volume: 1.248B (+2.02%)
The Chart: http://www.investmenthouse.com/cd/$indu.html
WEDNESDAY
No big economic news on the agenda for Wednesday, so the market will be left up to its own devices. The recovery from the quick slice below the 50 day MVA was positive, but it was sluggish with not a lot of participants. After hours XLNX reported better expectations, but the stock was down after hours as all was not roses. The response just shows the lack of leadership in the market, the indecision about where to go from here. Valuation issues hit the market after the run and helped the indecision. Monday's bounce did not have the backing to make a statement that the upside move had resumed.
That leaves us with a handful of stocks that broke out on volume. Others that were beaten down started to jump back up off support on solid volume as well (e.g., ISSX). Question is, were they leaders, out ahead of the rest of the market that is going to kick into gear and follow them higher? Or is it just a low volume bounce that is going to run out of gas? As we said earlier, the key will be what happens at the next resistance. To continue the move higher the indexes need to power ahead on some volume and take out the pattern that is trying to develop.
The action has narrowed our action. We are looking at breakout stocks on volume and stocks running up off the 50 day MVA or other support on volume. When the indexes get back to the next resistance they will show us more what course they will take. If they start to fall again there will be some great downside positions set up. If they break through on volume there will be some good upside positions breaking out as well. Overall the economic outlook remains solid and the market needs the next goosing of economic data to get the buyers back. Wednesday won't provide much news, but Thursday November retail sales are released. We are not expecting a surprise given the 'short' November season. Friday is the Michigan sentiment number. As usual we will let the market action drive our decisions. Mostly the uptrend remains in place with the bigger test coming at the next resistance.
Support and Resistance
Nasdaq: Closed at 1390.76
Resistance: The August high at 1427. The 18 day MVA at 1416. The 10 day MVA at 1419 may be some resistance. Price resistance at 1500 and the 200 day MVA (9138). 1574, the May low, is next.
Support: The 50 day MVA (1370.36). 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 904.45
Resistance: The 50 day MVA (899.74) along with the top of the late October consolidation range at 899 is not totally cleared. The July, August and September interim highs at 909 to 911. The 18 day MVA (911.33). 921 is some price resistance. The early 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 849. 850 to 855 (the October 1997 and Q2 1998 lows).
Dow: Closed at 8574.26
Resistance: The 18 day MVA (8645). The 10 day MVA (8655) is possible resistance. The late July and early September interim high at 8726 to 8762.14 (8745 closing). The early November high at 8800 is key. A range of resistance from 9000 on up to 9050.
Support: The exponential 50 day MVA (8517.31). The October high at 8500. Then 8250, the bottom of the October consolidation range.
Economic Calendar
12-10-02
Wholesale inventories, October (10:00): -0.3% actual, 0.2% expected, 0.4% prior (revised from 0.5%).
FOMC meeting (1:15): Rates unchanged, bias neutral.
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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TEAM TRADES
UNTD: UNTD has been an early leader in the rally, and after a quick move down ot the 50 day MVA last Wednesday it drifted to the 18 day MVA. It held in the Monday selling and then blasted off again Tuesday on some huge volume. About an hour into the session UNTD has hit the buy point, moving already on solid volume. No reason to wait on the strength of the move, so we entered with some March options. They were priced at 2.80 by 3.10, and given the strength of the move we were not going to haggle, putting in the order at the ask. UNTD continued the move, on up to 16.40 but then drifted back. It held the breakout point, however, moving laterally the rest of the session and trading between 16 and 16.40. A late move up pushed it to its session high on some great volume. Beautiful start to the move and still a buy.
End Part 1 of 3
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