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money investment, investment help
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1/02/03 Investment House Daily
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Investment House Daily Subscribers:
MARKET ALERTS:
Target hit alerts issued Thursday: None issued
Buy alerts issued: MRK; RBK
Trailing stop alerts: None issued
Stop alerts: None issued
To subscribe to the Daily alert service you can sign up at the following link:
http://www.investmenthouse.com/alertdly.htm
SUMMARY:
- ISM sparks economic optimism, stocks.
- National manufacturing strong as new orders surge.
- Tremendous breadth as beaten down large caps lead the rally back up.
- Subscriber Questions
Signs of economic improvement raise hope for the new year.
There is a saying that as the first days of January go so does the year. Before we get too excited, recall that the indexes were up the first three trading sessions of 2003 before ultimately hitting a new bear market low later in the year. As with most generalizations, that saying applies to normal times. Suffering through the worst bear market for stocks since the Great Depression it is a stretch to say that such a generalization would work right now. As always we have to look at the nuts and bolts behind each rally attempt to see if it has what it takes to stand up.
Stocks were upbeat before the open in a continuation of the Thursday intraday reversal that turned stocks back from their recent selling. Things kicked into high gear, however, when the ISM was released with results far ahead of expectations. Buying picked up at that point and sellers never could enter the picture. Slow mid-day action held the gains, and then stocks drifted higher as institutions started putting some money to work, most likely dragged in by the SP500 and DJ30 clearing their simple 50 day MVA in the afternoon session. Breadth was impressive and volume picked up, but it was not a blowout session as the raw price gains would suggest. Laggards led the move back as there were few breakouts on volume and overall volume was still low. It was a good start to a recovery that may blossom into more.
THE ECONOMY
ISM (National purchasing manager survey) surges in December.
At 54.7, well ahead of the 50.1 expected and 49.2 in November, the national manufacturing sector is finally showing renewed life. The strength of the gain was the surprise, and it had some questioning its accuracy. The sub-indexes showed strength across the board as well, however, indicating there was no distortion or skewing of just one or two factors. Specifically, the new orders component was very solid at 63.7, returning back over 60 after a dizzying drop from that level in October to 49.9 in November. The employment index also showed rising strength at 47.4. That shows continued contraction, but the pace slowed dramatically from the 43.8 reading in November.
The action suggests that November's low reading was more of the aberration. Data gets volatile when there is change underway, but from the volatility a trend emerges. We have been seeing improvement in the reports punctuated by sharp swings in the monthly data. October showed new orders over 60 followed by the plunge to below 50 in November. Then they careened back up in December. That volatility marks a change in the trend, and the trend that is emerging after years of contraction is the resumption of a manufacturing expansion. It is still a very meager recovery at this stage, but it is trying to make the turn again.
Jobless claims back over 400K.
Expectations were for 382K, but the very volatile jobs report (another in the throes of change?) moved up to 403K while the prior week was raised to 390K from 378K. The 4-week average moved up 11K, holding above 400K for the second straight week. Continuing claims were down, but that is mostly because those unable to find work for the longest stretch of time were falling off the benefits roles as Congress did not extend benefits before adjourning for the holidays. In short the jobs market appears to be at the bottom, but that does not mean companies are ready to start hiring by the basketful.
THE MARKET
After holding support Monday and Tuesday the large caps made good on that action by bolting higher, clearing the 50 day MVA. Nasdaq rallied as well as chips finally moved higher, though Nasdaq could not clear the 50 day MVA as trading closed out. It was a day led by stocks rebounding from recent selling as opposed to breakouts plowing higher. The recent selling was more than a small pullback and damaged some patterns, and as noted previously, there are not as many of those 'building patterns' that there were in October when the chip stocks and other sectors were positioning themselves for a nice run higher. Nonetheless, when the market bottomed in October the patterns were not that great. If stocks such as KLAC, NVLS, etc. can break over their 50 day MVA and then test that level on low volume, they would be set for another such run along with the leading stocks that would have had time to finish the last part of the bases.
That is one reason we did not get too excited today. We anticipated a continuation of the attempted move higher though admittedly the Thursday rally was stronger than anticipated with impressive breadth (3+:1) and rising volume. There were just not many breakouts leading the market higher, and there is still work to do if there is a serious move ahead. And it was not a 'January effect' rally as the small caps were lagging, following along for the ride as investors bought into the beaten back name brands. Again, as seen in October, that is not necessarily a bad thing: big names are bought first and then the rest of the market moves. The lack of a significant number of leader breakouts puts a question mark in the margin and keeps us cautious but ready to continue moving in as the moves warrant.
Market Sentiment
VIX: 28.52; -3.51
VXN: 47.05; +0.11
Put/Call Ratio (CBOE): 0.76; +0.11
Nasdaq
Rallied well with the help of semiconductors, closing right at the simple 50 day MVA on some rising volume.
Stats: +49.34 points (+3.69%) to close at 1384.85
Volume: 1.288B (+10.12%). Rising though still below average volume demonstrated some accumulation, but institutions were not jumping in with both feet.
Up Volume: 1.15B (+545M)
Down Volume: 111M (-426M). All buyers.
A/D and Hi/Lo: Advancers led 2.24 to 1. Very impressive breadth, getting back to where it was during the October and November rally.
Previous Session: Advancers led 1.39 to 1
New Highs: 54 (-4)
New Lows: 20 (-38)
The Chart: http://www.investmenthouse.com/cd/$compq.html
As with 2002 Nasdaq started the new year higher after a pullback following a good fall rally. It closed on its high, just eclipsing the simple 50 day MVA (1384.28). It was a solid move on some rising volume that avoided a collapse down in the head and shoulders pattern. Nasdaq is attempting to disrupt that pattern. It still needs to beat 1427 on volume to do it, and the Thursday move was a good start. The problem it has are that so many of its stocks are in the same toppy pattern as well. We can make some good trades up to the next resistance but have to be aware that they could run into trouble at that point. If real buying comes in along with that move that improves the prospect of a breakout. For now we take this for what it is, i.e., the start of a rebound that we can look to trade some but also looking for leaders to breakout to help confirm the move.
S&P 500/NYSE
Large caps were the leaders, plowing over the 50 day MVA to close at the top of the December consolidation range. Promising.
Stats: +29.21 points (+3.32%) to close at 909.03
NYSE Volume: 1.231B (+14.24%). Rising though still below average volume. Some institutional involvement but not a surge of big money buying.
Up Volume: 1.139B (+496M)
Down Volume: 75M (-332M)
A/D and Hi/Lo: Advancers led 3.51 to 1. Very, very impressive breadth as stocks of all sizes moved higher.
Previous Session: Advancers led 1.74 to 1
New Highs: 67 (+16)
New Lows: 11 (-10)
The Chart: http://www.investmenthouse.com/cd/$spx.html
Blasted over the 50 day MVA (902) and closed on the high right at the top of the December consolidation range that also marks the July, August, and September interim highs (909-911). It was a surge that was set up by the two intraday tests below support at 875. Now it remains to be seen whether it can break up the head and shoulders pattern with the left shoulder at 925. Very impressive start.
DJ30:
Tapped support at 8250 intraday Monday and Tuesday, and that was enough (along with a good economic report) to send blue chip stocks over the 50 day MVA (8549). Similar to the SP500, DJ30 needs to break over the early November high (8800) to make anything more happen. Volume was up sharply for the Dow stocks, coming in almost average, but again this was still lower than what you want to see on a surge in buying. Much of the action was spurred by JPM settling its litigation, and the momentum built off of that news.
Stats: +265.89 points (+3.19%) to close at 8607.52
Volume: 1.231B (+14.24%)
The Chart: http://www.investmenthouse.com/cd/$indu.html
FRIDAY
Encore anyone? The close on the high has good momentum for the next session, but HD will be an early drag as it lowered its fiscal 2003 based on the December quarter. After such a strong move, some warnings could put an early damper on the action. That would be our preference; let stocks cool off a bit and then build into the session. Those tend to be the best upside days.
The move was solid, but there are problems with it as indicated. Without breakouts leading the way it is something like putting the cart before the horse. That can make for a nice trading move up to next major resistance and slightly beyond. In short, the move was solid and has the underpinnings to trade higher near term. It is lacking in solid patterns and volume at this stage. We can trade some stocks, buy some of the few breakouts, but be very cautious. If the rally turns into more than just a trading move we will gladly take it and expand our upside exposure. Until then we are treating this with extra caution.
Support and Resistance
Nasdaq: Closed at 1384.85
Resistance: Simple 50 day MVA (1384). The August high at 1427. The 200 day MVA (1447). Price resistance at 1500. 1574, the May low, is next.
Support: 1357, the 1998 bear market low. July, August, and September interim highs at 1345. Some price support at 1300. 1250 is the next price support after that.
S&P 500: Closed at 909.03
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 exponential 50 day MVA (897). The simple 50 day MVA (902). The bottom of the October consolidation range at 875. The September 2000/May 2001 downtrend line at 849. 850 to 855 (the October 1997 and Q2 1998 lows). The March down trendline at 823.
Dow: Closed at 8607.52
Resistance: 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: The October high at 8500. The exponential 50 day MVA (8492). 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): 80.3 actual, 86.0 expected, 84.1 November.
1-02-03
Auto and truck sales
Initial jobless claims (8:30): 403K actual; 382K expected, 390K prior (revised from 378K).
ISM Index, December (10:00): 54.3 actual, 50.1 expected, 49.2 November.
1-03-03
Construction spending, November (10:00): 0.1% expected, 0.3% October.
SUBSCRIBER QUESTIONS
Q: We will be in earnings season soon, good time to play stocks that will be reporting on "anticipation" that they will beat the street. Whether they do or not does not matter because the run up prior to earnings can be significant. However, if you are in an earnings play and the company warns...well you aint a happy camper.
So my question is about the "quiet period". You have mentioned this before but your comments have been vague. Do you have a definition of what quiet period is and the exact time frame that it occurs? How many business days? Calendar days? Is it mandated by the SEC?
Many thanks for the hard work you guys and girls do!!
A: The reason we have been somewhat vague on the specifics in the past is because the SEC regulations that cover disclosures when a registration (e.g., earnings information) has been made are do not set out specific times and days. The term "quiet period" -- also referred to as the "waiting period" -- is not actually defined under the federal securities laws. It generally refers to the period that begins when a company files a registration statement with the SEC and lasts until the SEC's staff have declared the registration statement "effective." During this period, the federal securities laws limit what information a company and related parties can release to the public. The regulations do not set out when the SEC has to declare the statement effective. Thus there is not one day you can point to even if you know the date the company files the registration information. That makes it particularly hard to determine when you should bail on an earnings run if you are concerned of an earnings warning (something that is always a problem in this recovering economy).
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End Part 1 of 2
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