|
|
money investment, investment help
* * * *
1/04/03 Investment House Daily
* * *
Investment House Daily Subscribers:
MARKET ALERTS:
Target hit alerts issued Friday: AVID (+140% on options); GRMN (+280% on options)
Buy alerts issued: STK; AGU
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:
- Market holds Thursday rally in spite of earnings warnings.
- Bush stimulus plan to be announced. An opportunity missed?
- Market rebound last week helped but did not change the market character.
- Subscriber Questions
Stocks buck some bad news, avoid a sell off.
Home Depot fell short in December and had to warn for fiscal 2003. Last year HD was offering free financing for 12 months on purchases over $200 and apparently that led to more sales. This year it did not make that offer and sales were off. Go figure. Radio Shack also warned as RSH again failed to live up to its supposed promise (remember back in the '80's when RSH was going to rule the PC market because of its established outlet base?).
Those warnings had the pre-market jittery, but after a modestly lower open stocks recovered and spent most of the session hovering near flat. Early afternoon selling threatened to make the day rather dismal, but a last hour rally evened things back up. Not an impressive session by itself, but considering it followed the big Thursday jump where some softness could be expected and considering the anchor chain from HD on the retail and building sector, the action of simply holding onto gains was not bad from a bullish perspective. Not a ringing endorsement, but in this environment of uncertainty it was something of a victory.
THE ECONOMY
Auto and truck sales surprise analysts.
Auto sales continued to surprise analysts (autos +8.9%; trucks +25% month/month), but is it really a surprise? Each consumer confidence report in 2002 indicated that consumers planned on making auto purchases in the following six months. Fueled by 0% financing auto sales have remained solid in a record setting year. As for the list of things we should have learned from 2002 (or should have already known), add what should be common sense: low interest rates (i.e., lower pricing) leads to greater consumption (a.k.a., greater volume sales). GM blew out Q3 earnings when analysts said it was going to lose money as GM applied the pure and simple economic principle that if you cannot raise prices and make more off of each sale, lower them and make a whole lot of sales.
The auto sales results again show there is no dramatically weakened consumer. Sure the consumer cannot turn the economy on its own, but with a 3% GDP growth rate in the economy, the consumer is far from dead. Just as we saw in the last minute holiday and post-Christmas shopping, if there is a perceived bargain the consumer is ready to spend. Auto sales remain strong because the perceived bargains and the perception that the economy is going to recover. This is a classic case of the consumer saying one thing and doing the other just as the stores are grudgingly reporting after the holiday season. It is not gangbusters; the economy is not what it was three years ago. It is far, far from the collapse that some suggest.
Construction spending +0.3%, beating expectations as October revised to +1.0%.
November construction rose 0.3% versus expectations of a 0.1% gain. Better than expected, and coupled with the revised October figure up 0.7% indicates that construction is on the mend. Perhaps the terrorism insurance bill passed is having the intended effect, but that would show up more here in 2003. What this increase in spending shows is that the market is improving even before this bill was passed. Not bad.
The debate to come: real stimulus and economic growth versus governmental status quo.
One of the problems with the 2001 stimulus package was the lack of significant stimulus. Now there was some structural change in the form of reduced marginal rates, and that is very much necessary for longer term investment in the economy; it sows the seeds of future growth. The rebates helped some consumption, but a lot of that money was saved as well, never making it into the economy. The problem with rebates is the uncertain incentive attached to it; the hope is the consumer will spend it, but in a weak economy there is incentive to save. As for the business incentives in the prior package, those were largely useless. Some meager depreciation increases provided no stimulus to small business (that generate 80% of the nation's jobs) that could already expense $20K of equipment purchases each year. If you can expense in one year the entire cost of several computer systems, etc., why would you want to depreciate it?
The current stimulus package sounds disappointingly similar. There are some more longer term structural changes that are great ideas for enhancing long term economic growth (e.g., accelerating and making permanent the marginal rate reductions; slashing the tax on dividends). Near term stimulus value? Some is there because it frees up investment capital for projects on the shelf due to uncertain tax laws. The package also has short term incentives. We hear there are more extensions of unemployment benefits and more accelerated depreciation. As seen in the 2001 version, those won't provide much stimulus to either the demand or the supply side.
Consumer the answer? No.
In the following weeks you are going to hear a lot of debate about what stimulus is needed and what is fair. You will also hear about the 'costs' of tax cuts. Most all of what you hear will be either a smokescreen for the power seeking agendas of the political parties or will be simply flat out wrong assumptions and conclusions about economics.
Friday evening on CNBC was a classic example of the erroneous assumptions. After two sides debated the effect of dividend tax reduction Maria B emphatically asked the question 'How will this stimulate the consumer?' One economist accepted that premise as correct and went about a long-winded, aimless explanation. The other mercifully and correctly stated that the consumer was not the problem or the issue; it was the need for GROWTH in income and earnings for consumers and businesses that was the key, and fiscal policy should be geared toward those objectives not fueling the consumer. History shows that a lone focus on the consumer is what creates inflationary bottlenecks and logjams in the economy. If you ensure supply, demand will never outstrip supply and cause inflation. If your policies promote economic growth, everyone will be much better off. Thus when you hear politicians and their paid for economists state we have to stimulate consumer demand, remember recent history: 'runaway' consumer demand as Greenspan described it did not keep us out of recession, and it has not rescued us from recession. Ask yourself what is the one area of the economy that has not participated in any recovery; that business sector is the key.
With that in mind, what should be done? The long term economic structure changes are good. But there needs to be a short term stimulus element as well to get businesses to spend. Tax credits for buying computer systems, phone systems, autos, etc. Tax credits for hiring workers. Combine that with accelerated depreciation for those expenses above the credit allowed. Want to overcome the 'corporate welfare' label that many will label this? Target it at small and mid-sized businesses. They provide 80% of all jobs in the U.S., many being mom and pop corporations. Why not stimulate those businesses that are going to do the most hiring in a recovery? No one can argue against that as it cures many of the perceived ills in one stroke.
And what about the 'cost' of such moves? Well, these cuts don't 'cost' us anything. It is no 'cost' for individuals and businesses to keep their money. What costs us money is government spending our tax dollars. What you WILL NOT hear is any party saying the federal government needs to cut its costs. The ONLY debate will be about how to spend your money, not whether there are programs and related government offices that should be pared down or outright eliminated given the reality of budget limitations during a recession. Economic stimulus plants the seeds for economic growth, and that will eventually lead to higher tax revenues and as we saw in the 1990's, the elimination of deficits. If anyone is really concerned about deficits, lets do what you normally do to overcome shortfalls: increase income and decrease expenditures. Income is increased through increased economic activity. Expenditures are decreased by cutting spending on areas that are unnecessary given the current conditions. Providing a paltry $300 billion stimulus package over 10 years ($30 billion/year, not even a blip on the screen of a several trillion dollar per year economy) is not a big issue. The much needed reduction in federal spending in a time of need is the key, and you are not going to hear anything other than the most oblique reference to that during this debate.
Those are your tax dollars being spent without regard. Is that 'fair' to you? You will be told that we cannot 'afford' tax cuts. Can we afford to have the government continue to spend as if there is no recession or deficit? Can we afford to have millions of retirement aged citizens with savings wrecked by the recession and bear market become wards of the state? Is that fair to them? Is it fair to those trying to take the risks and make the economy run that we do not provide them any breaks but require them to pay for all of those the government helped make dependent as opposed to independent? Ask yourselves these questions when listening to the upcoming 'debate' and ask the same of your representatives in Washington, D.C. If the goal is getting the economy back and humming along as fast as possible (and all that goes with that, e.g., jobs, retirement accounts on the mend, funding war, reducing deficits), then the stimulus package needs the short term stimulus and longer term structural changes. We need to demand that from our leaders over the next few weeks.
THE MARKET
The market licked some wounds last week, managing to rally back from the door that leads back down to the cellar. In less colorful language, the large indexes managed to keep from completing the head and shoulders patterns, rallying back up over some near resistance to fight yet another day.
Thursday provided the big move as stocks that had just sold hard rebounded. Volume was up but still overall light. Breakouts were few. It was not a rally that changed the market character; it was a rally that prevented a breakdown. That in itself was somewhat bullish. Once again the market was able to overcome all of the uncertainties of potential war with Iraq, problems with North Korea, and the Venezuela oil crisis and stave off a major drop. While the bias has been to the downside, there are some wire threads underneath the softness that are holding the market up.
Those wires are the prospect of better economic times ahead. Oil price increases are a definite threat to that recovery, but as of yet they are not dampening the economic recovery. Retailers grudgingly admitted that the holiday season saw a sharp pickup late that prevented the predicted disaster. Auto sales shot up yet again. The national manufacturing picture brightened considerably. Jobless claims are showing that a bottom in the job market has been hit. That is the underlying strength that has thus far prevented a real sell off.
The rally did not change the market character, however. There are still the same problems overhanging stocks. Those are the same ones outlines above. That creates the uncertainty that keeps big investors from making bigger bets on the future. If the market avoids breaking down in the head and shoulders pattern and one or more of these issues is resolved there will be considerable upside momentum. Until then we see the pressure on the market, punctuated by rallies such as last week that look pretty decent but lack a lot of punch. Friday there were scattered breakouts, but relatively few. In addition, however, there are some of the leaders off the October low looking better (e.g., BRCM, KLAC); they could trigger a further move up to that next key resistance. Volume remained below average. The market needs some continued positive economic news to really get moving in the face of the war uncertainty.
Market Sentiment
VIX: 27.98; -0.54
VXN: 45.71; -1.34
Put/Call Ratio (CBOE): 0.76; 0.0
Nasdaq
Tapped down toward the 18 day MVA on the low but a late rally pushed it back just over the 50 day MVA on the close.
Stats: +2.23 points (+0.16%) to close at 1387.08
Volume: 1.152B (-10.56%). Volume remained anemic.
Up Volume: 692M (-458M)
Down Volume: 435M (+324M)
A/D and Hi/Lo: Decliners led 1.08 to 1
Previous Session: Advancers led 2.24 to 1
New Highs: 71 (+17)
New Lows: 14 (-6)
The Chart: http://www.investmenthouse.com/cd/$compq.html
A very choppy session that suffered a hangover from the Thursday rally. Up and down all session, it fought off a test of the 18 day MVA (1376) in the early afternoon and rallied to close right at the simple 50 day MVA (1386). A nice recovery after looking ready for the dumpster Monday and Tuesday as it broke and closed below the recent trading range and was ready to complete the head and shoulders pattern. Now it is back in the middle of that recent range with roughly 1350 on the low and 1427 (the August high) on the upside. It was a nice, higher volume recovery, but it was not clear signal that the buyers were back in control. There was no breakdown, there was no breakout. It is still in a standoff.
S&P 500/NYSE
The Thursday rally pushed the large caps to the next resistance point and Friday they could not push past that level, a bit winded from the previous rally.
Stats: +0.01 points (0%) to close at 908.59
NYSE Volume: 1.117B (-9.21%). Volume could not continue the climb on the tail end of the holiday season. The real work starts this week.
Up Volume: 532M (-607M)
Down Volume: 578M (+503M). Stand off.
A/D and Hi/Lo: Advancers led 1.18 to 1
Previous Session: Advancers led 3.51 to 1
New Highs: 69 (+2)
New Lows: 10 (-1)
The Chart: http://www.investmenthouse.com/cd/$spx.html
Managed to hold a test of the simple 50 day MVA on the session low (903), but could not budge past resistance from the July, August, and September interim highs at 911. Without the buy side volume it did not have enough power to break through. Monday we will see if those returning from holiday will be ready to buy and push the index through near resistance and over the left shoulder of the pattern at 925. It is at the top of the current range at 911 with a bottom at 875. There will need to be some good news to break it up and out of this range.
DJ30:
Similar to the SP500 the DJ30 managed to rally off of the bottom of the recent trading range at 8250, the point that also marks the breakdown point in the recent head and shoulders pattern. After twice testing 8250 on the low Monday and Tuesday it has moved in one session to the top of the trading range near 8650 with the left shoulder in the pattern at 8800. Friday it tapped the 50 day MVA on the session low (8552) as it sold in the early afternoon, but it too turned and rallied. It could not close positive but held its ground. Lower volume on such an indecisive session is not bad, particularly with HD losing over 3 sticks on the session.
Stats: -5.83 points (-0.07%) to close at 8601.69
Volume: 1.117B (-9.21%)
The Chart: http://www.investmenthouse.com/cd/$indu.html
THIS WEEK
Another week of economic data starts with the ISM Services and ends with the December employment report. The market needs a continued dose of good economic data to counter the continued overhang from the seemingly unending worries over Iraq, Venezuela, and North Korea. Indeed, there are some saying that Venezuela will hit the boiling point this weekend, and of course that would have a deleterious effect on the market until the issues were on the road to resolution.
With those competing points what we expect to see is simply the indexes trade in the range (where it is already at the peak) or even move up to next resistance at the left shoulder before it runs out of gas. What we will be watching is whether there are more stocks breaking out as the market tries to move higher. Those will key any move higher. As noted, there were more Friday though still scattered and by no means leading the way. In addition to those breakouts, we started to see some of the stocks that helped lead the move off the October low make some similar moves. Those look as if they are going to help provide some upward movement to test the key resistance levels ahead, and they can provide us good money making runs to that point and maybe beyond. Frankly, given the plethora of yet unresolved world events we would be surprised to see enough buyers come in to send the market up over key resistance once reached, but we can make some money on that move.
Yet, Tuesday the President outlines his stimulus package, and if it has the right mix to satisfy investors that will provide some fuel. There will be enough partisan bickering to make you puke as the focus will be on posturing and not what is good for the country. The fact that it is being addressed at all sometimes seems amazing given the rancor and class warfare raised by our representatives each time it comes up. In short, there are going to be positives that are ready to drive the market, but the problem is at next resistance; will there be enough buyers willing to step in to drive prices higher in spite of the global tensions.
We will thus continue to play it conservative, looking for stocks breaking out of good patterns but also looking at a few more trades on stocks that are in good position to rally near term and put money in the pocket. There remain a few out there while the market tries to show some strength in the midst of a lot of uncertainty.
Support and Resistance
Nasdaq: Closed at 1387.08
Resistance: Simple 50 day MVA (1386) has not been totally cleared. The August high at 1427. The 200 day MVA (1444). Price resistance at 1500. 1574, the May low, is next.
Support: The 18 day MVA (1376) is some 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 908.59
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 simple 50 day MVA (902.48). The exponential 50 day MVA (897). The bottom of the October consolidation range at 875. The September 2000/May 2001 downtrend line at 848. 850 to 855 (the October 1997 and Q2 1998 lows). The March down trendline at 822.
Dow: Closed at 8601.69
Resistance: The top of the recent range at 8630 to 8670. 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 simple 50 day MVA (8552) held on the Friday intraday low. The October high at 8500. The exponential 50 day MVA (8495). 8250, the bottom of the October consolidation range. Then 8000.
End Part 1 of 2
|
money investment
investment help
|
