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us stock market, trend trading stock
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12/6/02 Stock Split Report Update
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Stock Split Report Subscribers:
MARKET ALERTS
Targets hit alerts issued Monday: None issued
Buy alerts issued: BSTE; FAST; SFNT; WFMI; BYS
Trailing stops issued: None issued
Stop alerts issued: CPHD; MSTR
You can sign up for Stock Split Report alerts at the following link:
http://www.investmenthouse.com/alertssr.htm
SUMMARY:
- Broad relief rally on continued below average volume.
- WMT weekly update is more of the same, but retailers are having a good season at WMT's expense.
- Dow and SP500 break over the 18 day MVA to help improve the picture.
- Team Trades
Tone improves after the selling.
LEH announced it was moving more money into U.S. stocks, increasing weighting to 50% from 39%. The New York region manufacturing report rose to 10.6 versus estimates of 6.0, giving rise to the hope that the Philly report due out Thursday would also outdo expectations. We don't see a surprise that economic numbers are coming out stronger, but the expectations game is hard to play. In general things continue to improve, and as the FOMC minutes showed last week, the Fed is hell bent on 'reflating' the economy in an effort to avoid deflation after it was hell bent on stalling the economy in 1999 and 2000.
In addition to the LEH news there was simply a bit of pent up demand after two selling weeks. It was not a massive swing to the buy side as volume indicates. Again, it had the look and feel of a relief bounce after that selling with the low volume and the beaten down stocks performing the best. At this stage, i.e., right before Christmas holiday, this may be the way it is: light volume sessions that are pushed higher or lower depending upon the current market mood.
THE ECONOMY
Wal-Mart's weekly update was the same: hitting at the low end of the range. The response was Pavlovian: WMT at the low end means the entire retail sector is at the low end. This is beyond interesting in that retail sales for November, anticipated to basically reek, were much better than expected. Remember, year over year November sales were up 5% as well. Another weekend survey showed us that stores were busy and customers were buying both sale and full priced merchandise. Certainly the majority of retail stock charts are showing the strength of the season.
Further, WMT is not having a bad season, just not a barn burner. From what we are hearing the reasons are two-fold. First, as we have reported before, WMT is getting hurt by other retailers beating it to the punch so to speak by offering discounted merchandise and nice sales early on in the season. It is not necessary to go to WMT to get discounted merchandise, indeed, name brand merchandise as opposed to the entry level items. Second, there is what we are styling a Wal-Mart backlash. We all know about communities fighting WMT's entry for a number of reasons. Well, we are hearing from many consumers that they prefer to shop at other stores, department, etc., and not have to go to WMT to get discounted items. Remember, much of WMT's success the past two years was due to the value/discount mindset of the U.S. consumer in the economic downturn; it has become a way of life. With others offering what are considered higher end items at considerable discounts, the value/discount itch can be scratched at other stores with style.
THE MARKET
Nasdaq volume was up, but you needed very sensitive instruments to gauge the rise. Techs led the move, but unlike the DJ30 and SP500 they were unable to top the short term MVA that had held the latter indexes back the prior few sessions. The indexes did not blast through major resistance as the key points in the potential head and shoulders patterns are still immediately ahead. They are attempting, however, to turn that pattern on its head with this rise. There may not be any big volume buying coming in behind the move higher, but with Christmas 6.5 sessions away there may not be much volume. We saw how this worked at Thanksgiving with a low volume rise up to the turkey. After two selling weeks, some returning economic optimism this week on the heels of continued solid economic improvement can deliver the same type of action. The key will be taking out the prior interim highs that form the right shoulder in the potential head and shoulders pattern.
Sentiment Indicators
VIX: 29.98; -2.14
VXN: 49.84; -1.08
Put/Call Ratio (CBOE): 0.98; +0.11. Still rising even as the market turned back up showing the continued higher level of anxiety in the market and this rally.
Nasdaq
Moved right back over the 50 day MVA after a one-session close below that key level. Volume edged higher, but that was hardly a harbinger of a new buying spree.
Stats: +37.91 points (+2.78%) to close at 1400.33
Volume: 1.41B (+2.5%). Slight gain in volume, but still well below average again, continuing the stretch of no volume to 8 sessions.
Up Volume: 1.019B (+860M)
Down Volume: 344M (-904M). Buyers were definitely in the lead.
A/D and Hi/Lo: Advancers led 1.66 to 1. The upside breadth continues to lag the downside breadth, a change of character the past week. Needs to start rectifying this on further rallying.
Previous Session: Decliners led 2.25 to 1.
New Highs: 62 (+18)
New Lows: 47 (+6)
The Chart: http://www.investmenthouse.com/cd/$compq.html
After undercutting and closing below the exponential 50 day MVA (1373.20) since regaining that level in mid-October, Nasdaq turned right back up and managed to re-take that key support on rising volume. It was far from a ringing bell that buyers were back, but it was a key move; you like to see stocks or indexes return quickly over this level when it is approached. First step taken. It still has to deal with the immediate problem at 1427 that represents the top of the left shoulder and the August high. That needs to be dashed, stomped, and otherwise broken up to reaffirm the uptrend.
S&P 500/NYSE
Nice move off the simple 50 day MVA and cleared the short term MVA. A little volume would have been nice, but institutions have flown south for the holidays.
Stats: +20.92 points (+2.35%) to close at 910.4
NYSE Volume: 1.241B (-0.48%). Volume edged lower on another gain as there is a palpable lack of institutional involvement.
Up Volume: 1.032B (+693M)
Down Volume: 193M (-717M). As with Nasdaq, those in play were mostly buyers.
A/D and Hi/Lo: Advancers led 2.39 to 1. NYSE breadth is returning toward the upside again outweighing downside. The smaller issues have been underpinning the breadth, and with the large caps returning that shoots breadth higher.
Previous Session: Decliners led 1.96 to 1
New Highs: 40 (+8)
New Lows: 25 (-4)
The Chart: http://www.investmenthouse.com/cd/$spx.html
The move was needed as the large caps were once again able to return back over the 50 day MVA (900) after a one-day close below that key level. That shows some buyside interest, but the low volume indicated it was not widespread. On the close the large caps topped the 18 day MVA (907.85) that had held the index in check the past week. It also puts the large caps right at the July, August and September interim highs (909 - 911). If the SP500 can take out the early November high (926) on this move, it would seriously disrupt the formation of the head and shoulders pattern just as it did the 'umbrella' pattern in mid-November. It needs to do this to turn the bearish pattern on its head.
DJ30:
The Dow and SP500 are trading in step the past several sessions as they dance around the 50 day MVA (8522) but are able to return above that level after undercutting it on the close. The point move was impressive, clearing the 50 day MVA and the 18 day MVA (8610) that had kept the Dow under wraps all last week. Dow volume was lower, so the move did not have massive backing; a huge point move without the volume always gets you a bit uncomfortable, but as noted above, the holiday season is entrenched and volume looks to be on the low side for the duration.
Stats: +193.69 points (+2.3%) to close at 8627.4
Volume: 1.241B (-0.48%)
The Chart: http://www.investmenthouse.com/cd/$indu.html
TUESDAY
The breakdown through support led to that quick rebound discussed as a possibility in the weekend report. That kept the trend in place, avoiding the breakdown. It did not clear the near term resistance, but that would have been a stretch indeed for just one session. The indexes are still struggling under the valuation concerns that cropped up starting two weeks back, and it remains to be seen if they can make the reversal from the two weeks of selling. For now Monday was a nice relief bounce that possibly went a bit too far on too little volume.
There are several economic reports out this week with a few Tuesday before the open. We said over the weekend we still feel the market is not in for a serious downturn here; better than expected results could contribute to the positive sentiment and produce that low volume holiday rise.
As the indexes are still fighting to get out of the bearish patterns, we are not abandoning potential downside plays, but as always we wait until they make the move entering. If the moved does not come, no problem. Monday the action was upside though there were not a ton of stocks powering ahead on volume as for many it was just a recovery from the recent selling as opposed to waves of breakouts.
With that type of action we are going to continue to look for the cream, i.e., breakouts and solid bounces from tests of breakouts. Even as the market pulled back those plays were the most resilient (as always) and help stack the deck in our favor.
Support and Resistance
Nasdaq: Closed at 1400.33
Resistance: The 10 day MVA (1402.57) and the 18 day MVA (1406.33) are still teamed up. The August high at 1427 is the focal point. The 200 day MVA (1475). Price resistance at 1500. 1574, the May low, is next.
Support: The 50 day MVA (1373.20). 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 910.40
Resistance: The July, August and September interim highs at 909 to 911. 921 is some price resistance. The early November high at 925.66 and key resistance. Price resistance at 950. 965, the September 2001 closing low along with the August 2002 high.
Support: The 50 day MVA (900) and the top of the late October consolidation range at 899. The simple 50 day MVA (891) held on the Friday low. The bottom of the October consolidation range at 875 is some price support. The September 2000/May 2001 downtrend line at 860. The March down trendline at 842. 850 to 855 (the October 1997 and Q2 1998 lows).
Dow: Closed at 8627.40
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 (8522). The October high at 8500 is some support. The simple 50 day MVA (8430.60). Then 8250, the bottom of the October consolidation range.
Economic Calendar
12-17-02
CPI, November (8:30): 0.2% expected, 0.3% prior.
Core CPI: 0.2% expected, 0.2% prior.
Housing starts, November (8:30): 1.690M expected, 1.603 Prior.
Building permits, November (8:30): 1.700M expected, 1.722M prior.
Industrial Production, November (9:15): 0.2% expected, -0.8% prior.
Capacity Utilization, November (9:15): 75.4% expected, 75.2% prior.
12-18-02
Trade balance, October (8:30): -$37.0B expected, -$38.0B prior.
12-19-02
Initial jobless claims (8:30): 441K prior.
Leading Economic Indicators, November (10:00): 0.3% expected, 0.0% prior.
Philly Fed, December (12:00): 5.3 expected, 6.1 prior.
Treasury budget, November (2:00): -$50B expected, -$54B prior.
12-20-02
Q3 GDP, final (8:30): 4.0% expected, 4.0% prior.
Chain deflator (8:30): 1.0% expected, 1.0% prior.
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TEAM TRADES
SFNT: This is one of the stocks that produced a strong breakout in November where we were able to jump on board, and then pulled back during the December selling to test the move. It was playing below the 18 day MVA and we were shaken out of some positions we took later in the move but kept the earlier positions. We said at the time we might live to regret that, and sure enough SFNT was heading higher today. The stock was up early, but volume was not really heavy. It cleared the buy point while volume was low. We waited, but at the time we had that same feeling when shaken out that we might not want to let things go. As it turned out SFNT did not slow down, and as it worked laterally in the hours after lunch in a very tight pattern, volume was building. Then in the last hour SFNT started up out of that consolidation. Intraday the stock pattern was the same as a strong stock that makes a strong move up and then forms what is known as a flying platuea, i.e., a pattern where the stock rallies hard and then moves in a flat line laterally. In a strong stock that sets up the next move. that is exactly what happened with SFNT. When we saw the move, volume was solid and we reasoned this was probably the next best chance we would get to take new positions on this early leader. So with the spread at 26.56 by 26.65 we issued the alert and then went about putting in the order. We put in a limit order at the ask but the stock ran up. We let the order stand and SFNT came back; when a stock makes a strong move like that it often comes back to test it once more before finishing the move. That is exactly what SFNT did, and sitting tight saved us a few pennies. The move was strong, however, and we wanted to get a position even if it did not come back to us.
End Part 1 of 2
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us stock market
trend trading stock
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