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trend trading stock, top stock pick
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12/17/02 Stock Split Report
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Stock Split Report Subscribers:
MARKET ALERTS
Targets hit alerts issued Tuesday: None issued
Buy alerts issued: PENN; ANT
Trailing stops issued: None issued
Stop alerts issued: THO
You can sign up for Stock Split Report alerts at the following link:
http://www.investmenthouse.com/alertssr.htm
SUMMARY:
- Relief runs out.
- Economic news steady but no hurrahs.
- Hanging around the 50 day MVA all too often.
- Subscriber Questions
Indexes mired in the mud.
Monday's relief bounce found no further support. The Nasdaq tried to lead the charge, actually trading in positive territory on and off throughout the session. In the end, the techs lost what little punch they had, and without any leadership the entire market closed near the session lows and back near the 50 day MVA. Monday's low volume rally was left looking pretty lonely as the major indexes and many of their component stocks continue to look top heavy, unable to put together a move to shake off the head and shoulders pattern that keeps slogging ahead.
The indexes held the 50 day MVA again and volume was low, but those hardly carry the same weight they would have a week back. That is now commonplace and getting troubling. About the only bright spot were a few small caps that continued the string of breakouts. They were fewer in number, however.
THE ECONOMY
Consumer prices remain tame, but it is disinflation as opposed to inflation.
Prices rose 0.1% (0.2% expected), slowing from the October 0.3% gain. The core rose 0.2% as expected. Some viewed this as deflation rearing its head, others viewed it as disinflation, i.e., mild inflation that in real terms is not moving prices higher. This is what the U.S. has enjoyed for several years even as the economy boomed. Productivity was increasing as businesses put to use the technology the boom had produced. This mutes the deflation cries a bit as it is nothing new, nothing that was created in the recession. Sure if the economy rolls over it is trouble, but we don't see slightly rising prices as the indication that the economy is slipping lower. If that was the key then the economy was heading down even as it was heading up during the boom time. Hard to make that argument stick.
What we have is an economy where producers are still unable to raise prices just as they were unable to do so during the good times. The fact that the economy has slowed significantly makes it harder to turn a profit, something that stock prices have built in during the downtrend. What businesses need is an increase in business. Worrying about prices at this point is no the most important ingredient.
Industrial production and capacity utilization show gains.
Production was up 0.1%, below the 0.2% expected, but much better than October's -0.6% (revised up from -0.8%) and the first gain since July. Capacity edged higher as well, showing 75.6% utilization, beating expectations of 75.4% and October's 75.5% (revised up from 75.4%). The gains were minimal but possibly indicate the manufacturing sector is finally at terms with the late summer slowdown. What was disappointing were the business related areas. Business equipment production was down 0.4%, construction supply output was down 0.9%, and business supplies output dropped 0.2%. The business side is still lagging and needs something to give a reason to buy capital equipment, a reason to invest in American businesses again. It is trying to recover but it is a very small recovery thus far.
Housing starts up 2.4%, greater than expected.
The power of cheese? How about the power of low interest rates that are feared to be heading higher? Once again the lure of low rates that may not be low too much longer lured the buyers to the closing table. The housing market continues to help, but it cannot be counted on indefinitely because it won't go on indefinitely.
THE MARKET
Hanging out in a bad neighborhood.
Even good kids can get corrupted if they hang around with the wrong crowd. Sure some good upbringing will keep their noses clean on the occasional brush the less than desirable elements, but if they start spending more and more time on the bad side of town there is trouble ahead.
The Dow and SP500 and even Nasdaq are spending a lot of time around the 50 day MVA. The fact that they are holding the line thus far is encouraging only because there is nothing else going on. What you like to see from any stock or index on a test of that level is a quick test, i.e., a tap lower and then buyers come back in to pick up stocks on what is viewed as an opportunity. The longer they 'hang out' at the 50 day MVA indicates that there is no major rush to buy at this level. Indeed, there is a battle as to whether stocks should be sold or bought at this point, hence the sluggish action at the 50 day.
The indexes (DJ30, SP500) did this in late October during that consolidation (though they held above that level) so it is not automatic trouble. Moreover, the Dow and SP500 are making some more or less higher lows here than the November low. All in all not bad action though hardly the type of run you would want to see heading into Christmas on light volume. Overlay that with the toppy pattern trying to continue to develop and it is a recipe to keep some powder dry. Throw on top of that MU reported pretty crappy results after hours and the scales may be tipping lower.
Sentiment Indicators
VIX: 30.16; +0.18
VXN: 48.14; -1.7
Put/Call Ratio (CBOE): 0.76; -0.22. Fell on a down session. Indicator is getting somewhat less useful at this point of lateral consolidation.
Nasdaq
In a display of quivering indecision, Nasdaq tapped the 18 day MVA on the high and stalled. Impressive.
Stats: -8.28 points (-0.59%) to close at 1392.05
Volume: 1.339B (-5.07%). Ho hum, another sleeper. No buying, no selling.
Up Volume: 503M (-516M)
Down Volume: 822M (+478M)
A/D and Hi/Lo: Decliners led 1.43 to 1
Previous Session: Advancers led 1.66 to 1
New Highs: 69 (+7)
New Lows: 42 (-5)
The Chart: http://www.investmenthouse.com/cd/$compq.html
Still held above the 50 day MVA (1374), but unable to clear the short term MVA on the high (1408.16). The candlestick pattern showed a doji under this point that has acted as resistance the past week as well as still holding below the key resistance from the August high at 1427. Dull action, plodding through the sessions as the large cap technology stocks cannot find buyers. One of the best things going for it is that the pattern will have to resolve itself relatively soon.
S&P 500/NYSE
Held the 50 day MVA on the low, something of a victory given the recent action.
Stats: -7.41 points (-0.81%) to close at 902.99
NYSE Volume: 1.256B (+1.18%). Edging higher but still well below average as the big sleep in large caps continues.
Up Volume: 369M (-663M)
Down Volume: 873M (+680M)
A/D and Hi/Lo: Decliners led 1.54 to 1
Previous Session: Advancers led 2.39 to 1
New Highs: 40 (0)
New Lows: 30 (+5)
The Chart: http://www.investmenthouse.com/cd/$spx.html
The large caps could not put anything together Tuesday though they briefly managed to peek positive. Despite the lack of traction, they did not collapse, tapping the 50 day MVA at 900 on the low, a point that is also the top of the late October consolidation range. A good place to hold for a run at 926 that marks the top of the left shoulder in the short head and shoulders trying to form the past 7 weeks. Problem is, there is no institutional interest in stocks right now, and without that interest the current drift continues.
DJ30:
Back to the 50 day MVA (8522) on the low, managing to hold that point that, as with SP500, roughly marks the top of the late October consolidation range. As with the other indexes, it is not breaking down but trying to hold support and move laterally. Problem is, at this juncture it has not moved laterally enough to take it out of the short head and shoulders trying to form in somewhat of a move of attrition. It is thus still walking the line, trying to hold up but not able to make a bounce either. On top of that volume edged up a bit, something to keep an eye on. Right now it is still in that toppy pattern, and until it can move over 8800 it is at risk.
Stats: -92.01 points (-1.07%) to close at 8535.39
Volume: 1.256B (+1.18%)
The Chart: http://www.investmenthouse.com/cd/$indu.html
WEDNESDAY
Better economic news, albeit somewhat ho hum economic news, could not push the indexes higher. Wednesday is relatively quiet from scheduled economic reports, but there is always the worry regarding the dollar, oil, war, and earnings woes after MU pretty well stunk up the after hours market with a poor report. That had a lot of techs from all different walks selling after hours. MU's sales really jumped, but its chip prices were lower and accounted for the lion's share of the loss. After hours investors were viewing that as a negative despite the rise in overall sales.
The main problem facing the market is the continued lack of institutional involvement. With the concerns regarding Iraq, Venezuela, valuation, the economy, etc., the market cannot find sufficient upside interest to push stocks higher. On the other hand it has not had enough unsettling news to cause it to break down. The result is the lateral move that has the toppish overtones.
The action is frustrating for sure. About the only action continues to be the smaller issues that are breaking up and out of their patterns. Those are providing nice moves without a doubt, but ultimately the rest of the market will have to join in the move. Overall the economic news continues its slight improvement, but that is not yet enough to drive stocks generally higher.
Given the action it is important not to get too anxious. We are still buying into plays as they make the moves we want, but we are not going all out, instead building positions piecemeal and in most all cases making sure there is the volume we want behind the move. With overall volumes down, strong volume moves tend to stick out. Time to be patient and let the market work through this quiet period and establish its trend.
Wednesday the market has to deal with MU. MU was getting sold rather hard after hours on its earnings report, taking a lot of chips with it. The SOX is a big driver of the Nasdaq, and it will be important to see if the Nasdaq can hold the 50 day MVA and recover.
Support and Resistance
Nasdaq: Closed at 1392.05
Resistance: The 10 day MVA (1400) and the 18 day MVA (1405) are still teamed up. The August high at 1427 is the focal point. The 200 day MVA (1472.77). Price resistance at 1500. 1574, the May low, is next.
Support: The 50 day MVA (1374). 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 902.99
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 (893) 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 859. The March down trendline at 840. 850 to 855 (the October 1997 and Q2 1998 lows).
Dow: Closed at 8535.39
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 (8453). Then 8250, the bottom of the October consolidation range.
Economic Calendar
12-17-02
CPI, November (8:30): 0.1% actual, 0.2% expected, 0.3% prior.
Core CPI: 0.2% actual, 0.2% expected, 0.2% prior.
Housing starts, November (8:30): 1.697M actual, 1.690M expected, 1.603 Prior.
Building permits, November (8:30): 1.725M actual, 1.715M expected, 1.772M prior.
Industrial Production, November (9:15): 0.1% actual, 0.2% expected, -0.6% prior (revised from -0.8%).
Capacity Utilization, November (9:15): 75.6% actual, 75.4% expected, 75.5% prior, revised from 75.2%.
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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SUBSCRIBER QUESTIONS
Q: How can volume on a given day mean anything more than the number of people playing the game on that particular day?
A: At the lowest common denominator that is what volume does tell you. What makes volume more meaningful is its change from day to day or week to week. If the market is making a move higher that means there are more buyers in the market than sellers. On a move lower there are more sellers than buyers. That is rather obvious. To sustain a move higher, however, there would need to be more buyers coming into the market to continue to buy stocks. Otherwise a move would fizzle. We saw that several times during the downtrend with a few insitutions starting to buy that spiked up volume only to see the rally stall as no other buyers came into the market. That is why we look for another solid upside session on big volume a week or so later to confirm the first rally attempt. That means the buyers are coming into the market and overpowering the sellers. The volume is their footprint.
In general, as long as you are seeing more sessions where stocks rise on greater volume as opposed to falling on greater volume there are more buyers in the market than sellers. There can still be down sessions on rising volume, but as with most aspects of the market, the trend is the key. That is why when looking at individual stock patterns we look at the volume to see if the trend in accumulation is stronger than any distribution trend. Thus volume gives you good insight as to whether there is ongoing accumulation of stocks in the market and it can be used for individual stocks as well. If the big money is buying into your stock that gives it more staying power for longer term moves.
End Part 1 of 3
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