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us stock market, trend trading stock
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12/30/02 Stock Split Report Update
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Stock Split Report Subscribers:
MARKET ALERTS
Targets hit alerts issued Monday: VRNT
Buy alerts issued: ATRSWGO; MLHR
Trailing stops issued: None issued
Stop alerts issued: Cleaning out some positions before year end. SFNT; WFR; NTAI; BWS
You can sign up for Stock Split Report alerts at the following link:
http://www.investmenthouse.com/alertssr.htm
SUMMARY:
- Dow attempts bounce off support but techs lag the market.
- Chicago manufacturing expanding, but at a disappointing rate.
- Relief bounce does not have much muscle.
Selling gives way to modest buying, but no change in character.
After sustained selling two of three large cap indexes managed to rally, but Nasdaq could not advance. Volume rose giving a mixed picture of some weak accumulation, some technology distribution, but it still remained well below average. In short, the continued global concerns of Iraq, North Korea, and Venezuela kept a lid on the market because the uncertainty those items place on the attempted U.S. economic expansion. Stock prices are driven by future earnings expectations, and if those are in jeopardy, that is reflected in weaker stock prices. Thus the selling mode continues despite the attempted bounce Monday.
Techs were a notable anchor chain, unable to trade positive in even some bargain hunting. Chips were hurt by the ISM report on global chip sales. They were up 1.3% sequentially in November and +19.6% year over year. Those numbers seem stronger but Bear Stearns said the seasonal jump in chips was over and it was not enough to push chips higher. With that semiconductors had a hard time. When the chips are down, Nasdaq drags and that holds the rest of the market in check as well. That has been the story as global concerns outweigh a slow but steady economic recovery. When and if these issues are put to bed there will be plenty of pent up upside.
THE ECONOMY
Chicago PMI still expansive, but at a slower rate.
51.3% indicates there is expansion ongoing, but it was lower than the 53.0 expected and 54.3 prior. That was disappointing as there continues to be no strong surge as there usually is coming out of a recession. The sub-indexes reflect this mixed picture. Employment was a nugget that was more golden, showing a strong jump to 50.3 from 43.3. That was due primarily, however, to Chicago's strong manufacturing employment base and Illinois Tool Works' hiring. Still, it was an increase as a big manufacturer is seeing better business conditions. New orders, however, fell to 53 from 60.8; this reflects the continued expansion but the slower pace of that expansion. All in all the report is status quo: the recovery is ongoing, but you need highly sensitive instrumentation to measure it. Perhaps that is why the scientific and technical instrument sector is performing well (ha).
Existing home sales fall 3.5%.
These home sales represent 80% of the housing market. Thus when they came in with a larger than expected drop it did not help the market. The level remains strong and we attribute that to the continued low interest rates. The numbers show, however, that low interest rates or not, we cannot count on housing to carry the torch in 2003 the same way it did in 2002. The market simply cannot stay that hot based simply on numbers. Housing turnover would have to accelerate sharply for this to occur. With continued slow economic activity it is highly unlikely that turnover will increase.
Retail analysts start changing their tune.
In a script taken right from the 2001 holiday season, several retail analysts Monday issued releases saying that the 2002 holiday sales season was not a disaster as they had been stating just the week before. Some don't look at online sales, some don't look at catalog sales, and some apparently don't look beyond Wal-Mart. In any event, JC Penny reported better than expected sales to go along with OMX and others, and that started to change the tune. The commerce department releases its numbers on January 9, and the speculation is already running high as observers such as ourselves and the more recent results coming out have caused the adamant retail analysts to soften their ludicrous rhetoric.
We have pointed out many factors over the past two weeks such as a surge in online sales that many of the major retail analysts don't even count. Then there is the gift card phenomena that was up 70% this year and is not booked until they are redeemed. On top of that many retail analysts were saying how discounts were hurting retailers. There is nothing like facts to help clear up a picture, and here are some more that the 'cookbook' retail analysts in the big houses don't take into account. First, retail prices are simply lower this year than in 2001. That is the disinflation or deflation effect of the slowing economy. As we know retail sales are measured in dollars and not units, falling prices will distort this method of looking at sales. Second, the discounting and lower prices were not crushing retailers because the retailers were driving hard bargains with suppliers months back when they were ordering their goods. They were getting discounts on their merchandise from the manufacturers and wholesale houses. These are additional facts that tend to indicate that consumers were not as weak as many were crowing with misleading headlines in order to gain attention and also that retailers are not going to take the big hit assumed because of discounting. It would seem that accurate reporting would be a requirement from these 'professional' analysts, but it is just another example of Wall Street attempting to garner the spotlight at any cost.
THE MARKET
Stocks try to bounce in relief but the results are mixed.
Techs held the market back, unable to rally with the other large caps. The moves up were primarily in retail on the softened retail analyst rhetoric and financial as visions of economic recovery still dance in some investor's heads. In the end it was not much of a bounce with the Dow and SP500 rising less than 1% each while techs lost more than the other two indexes gained.
Volume was up on the gain and loss, turning in a mixed picture from a price/volume perspective. Volume was still well below average, however, lending little credence to the DJ30 and SP500 gain. Moreover, there was nothing to change the character of the major influences on the market, i.e., war in the Middle East, potential conflict in the Far East, and an oil strike in the southern hemisphere. Perhaps Monday was the late start to a Santa Clause rally, but there were as many questions about the weak action as a 12 year old has about whether Santa Claus really exists.
We view the action as a reflex bounce from the selling that does not change the current market character. A Santa Claus rally can still occur and then lead into a January rally of smaller stocks. Can, but the holiday rally is based on a drift higher on low volume in the absence of strong negative sentiment. This time around there is that deck of bad items out there that stands ready to step up each time a small rally starts. As seen Monday that can lead to some tenuous buying it was not the general rise in stocks these rallies typically produce. Indeed, the rally was limited to pockets of stocks that had been recently kicked around and were ready to bounce (e.g., retail).
The lack of a holiday rally can set up a down start for the following year. Now before we get too far into that we have to acknowledge that such a conclusion is also the same kind of seasonal trend analysis that the Santa Clause rally sprang from. There are, however, reasons for the slow start to the year without a holiday rally. Something was keeping the holiday rally under wraps so to speak, and that same something keeps the market from rallying in January when another seasonal rally sometimes occurs (the January effect). In other words, whatever put the kibosh on the holiday rally holds over and keeps stocks under pressure into the new year.
Thus, until there is some resolution of the Iraq war (i.e., it actually starts) and some headway with Venzuela (maybe OPEC actually starting to produce more to make up for the shortfall), stocks have a lot of uncertainty to deal with. They will give some relief bounces in that time, but until there is some movement on those fronts the uncertainty remains and will erode stock prices. We will continue to see individual stocks post gains as they have all along, but the broad surge is less likely. Remember, there are not a lot of sectors that have built into a position to rally as they did in October and November; they are still roughed up and have not put in any kind of short base to move up off of. That makes it hard for the market to make headway near term. As noted, when some resolution to these problems occurs the market will have a date with the upside.
Market Sentiment
VIX: 32.56; -1.59
VXN: 46.49; -0.22
Put/Call Ratio (CBOE): 0.72; -0.24
Nasdaq
Lagged the entire market, unable to participate in the bounce and breaking down below the recent trading range on rising volume.
Stats: -8.77 points (-0.65%) to close at 1339.54
Volume: 1.056B (+30.84%). Still well below average volume and notably just slightly stronger than NYSE volume. As we have noted in the past, when Nasdaq volume falls to or below NYSE volume, there is not much speculation ongoing in the market. Longer term that is a positive.
Up Volume: 238M (+76M)
Down Volume: 793M (+168M)
A/D and Hi/Lo: Decliners led 1.56 to 1
Previous Session: Decliners led 1.79 to 1
New Highs: 48 (+2)
New Lows: 58 (+13)
The Chart: http://www.investmenthouse.com/cd/$compq.html
Nasdaq could not hold some support in the recent range at 1346, breaking below that range and the bottom of the 1998 bear market low on rising volume. It was not a major collapse, but given the light volume holiday environment, the rising volume selling is significant. Techs were lagging well behind the rest of the market as the DJ30 and SP500 attempted a bounce. Perhaps Nasdaq will provide the same bounce after it undercut support, but the bias for now remains negative.
S&P 500/NYSE
The large caps dropped further below the recent range and undercut support. They then managed a rebound, reversing and closing above support on some rising though low volume. Held on by its teeth.
Stats: +3.99 points (+0.46%) to close at 879.39
NYSE Volume: 1.037B (+38.53%). Rising volume on the gains suggests some accumulation, but volume was still well below average and thus does not wipe away the recent distribution.
Up Volume: 587M (+495M)
Down Volume: 427M (-230M)
A/D and Hi/Lo: Advancers led 1.3 to 1
Previous Session: Decliners led 2.11 to 1
New Highs: 48 (+12)
New Lows: 32 (+8)
The Chart: http://www.investmenthouse.com/cd/$spx.html
SP500 tapped 870 on the low, undercutting support at 875 and then reversing for a nice push higher to the close. The bounce kept it from a major breakdown, holding where it had to and also showing some improving volume. This is the move it had to make to hold up and not complete the bearish head and shoulders pattern. The bounce by no means takes the heat off, however, as the large caps have considerable resistance near the 900 level.
DJ30:
The blue chips tapped support at 8250 on the low (8252) and rebounded to close near the session high. That move put it back at the bottom of the recent trading range, but the Dow closed well off of its intraday high (8364) in doing so. As with the large caps that kept the Dow from collapsing below the neckline in the head and shoulders pattern, bit it did not rescue the blue chips either. They have considerable resistance at 8500 from prior prices as well as from the 50 day MVA (8492 exponential; 8547 simple).
Stats: +29.07 points (+0.35%) to close at 8332.85
Volume: 1.037B (+38.53%)
The Chart: http://www.investmenthouse.com/cd/$indu.html
TUESDAY
Consumer confidence is out at 10:00ET, the only scheduled economic release on New Year's Eve. Tensions have mounted that there could be some type of terror attempt during the celebration with the FBI looking for 19 men that recently crossed the border from Canada. That is another layer of negative news that makes it harder for stocks to move higher.
Nonetheless stocks may try and continue the recovery shown Monday, a further relief bounce after the selling. Stocks tend to move up and down even as they trend in one direction. The market has not broken down into another downtrend, but it is fighting right now to avoid doing that. The rising volume on the bounce in the Dow and NYSE was encouraging, but the rising downside Nasdaq volume was equally discouraging for upside. In short, without any resolution to the current problems overlaying the market, any rally is most likely going to be relief from the selling. That is what Monday showed us as the downtrodden retailers were one of the upside leaders.
With late January being the first point when the U.S. would be ready for Iraq action one could argue that nothing happens until then. That is certainly what the market is looking at right now. Those events, however, are very fluid and OPEC upping production, and a resolution of the Venezuelan problem would improve the picture tremendously. These overhanging geopolitical events continue to weigh on stocks; when they are lifted stocks will pop higher. For now, however, there are not a plethora of great patterns in the market, indicating further weakness or more sideways action. The major indexes continue to flirt with a breakdown, but as has been the case, even with the large doses of negative news they have yet to do so.
Tuesday we expect a continued bounce up toward resistance with techs starting to join in more. Without solid patterns to support the majority of stocks, however, the move will run into trouble when it hits resistance. That leaves us with a rather narrow play list as we wait for the return of the rest of the market to give it some direction, but there are stocks that continue to make moves up and down. We are being limited in our positions but will move in when the opportunity presents itself on a stock by stock basis.
Support and Resistance
Nasdaq: Closed at 1339.54
Resistance: 1357, the 1998 bear market low. 50 day MVA (1370 exponential; 1381 simple). The 18 day MVA (1378). The August high at 1427. The 200 day MVA (1451). Price resistance at 1500. 1574, the May low, is next.
Support: July, August, and September interim highs at 1345 is trying to hold. Some price support at 1300. 1250 is the next price support after that.
S&P 500: Closed at 879.39
Resistance: The exponential 50 day MVA (896). The simple 50 day MVA (902). The top of the late October consolidation range at 899. 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 bottom of the October consolidation range at 875. The September 2000/May 2001 downtrend line at 851. 850 to 855 (the October 1997 and Q2 1998 lows). The March down trendline at 828.
Dow: Closed at 8332.85
Resistance: The 10 day MVA (8435) may provide resistance. The October high at 8500. The exponential 50 day MVA (8492); simple at 8547. The top of the recent range at 8630. 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: 8250, the bottom of the October consolidation range. Then 8000.
Economic Calendar
12-30-02
Existing home sales, November (10:00): -3.5% (5.56M actual), 5.69M expected, 5.77M October.
Chicago PMI, December (10:00): 51.3 actual, 53.0 expected, 54.3 November.
12-31-02
Consumer confidence, December (10:00): 86.0 expected, 84.1 November.
1-02-03
Auto and truck sales
Initial jobless claims (8:30): 382K expected, 378K prior.
ISM Index, December (10:00): 50.1 expected, 49.2 November.
1-03-03
Construction spending, November (10:00): 0.1% expected, 0.3% October.
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End Part 1 of 2
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