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world stock market, us stock market
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3/22/01 Investment House Daily
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Investment House Daily Subscribers:
TONIGHT:
- Dow bounces on very heavy volume after hitting bear territory.
- Chips and big caps lead the Nasdaq higher on strong volume.
- A whiff of change in the air looks like a real trading rally, but a long way to go.
- Ho hum economic news, but that is not bad.
- Subscriber Questions.
- Team Trades.
- Web Seminars!!
The Dow tests the bear market waters and tries to climb out.
The Dow cascaded lower again today, and it looked as if it was going to suffer its seventh day of 200-plus point losses in the last ten sessions. It plowed into bear territory (9400) as it hit 9106.54 on its low with just an hour and a half left (that was down 380 points). Institutions were flat out dumping the blue chip stocks as fast as they could. Then the buying bell was rung and buyers jumped back in. That drove the index higher and almost out of bear territory on the close (9389.48). The popular press said the Dow made it out of the bear market, but when looking at the intraday high on the Dow, it is still there.
Volume was a hefty 1.738 billion shares. Good volume on a potential reversal day, but we note that the volume in the last hour and one half was the lightest of the session other than the first half hour. That does not give us a lot of confidence that this reversal on the Dow has any real staying power as the bulk of the action involved institutions getting rid of blue chip stocks.
Semiconductors and big caps help the Nasdaq higher.
We said the chip stocks were going to key the move on the Nasdaq as it continued to try and put in some form of bottom. Today with the help of some better than average patterns and MU's statement that PC chip inventory was gone, the semiconductors rocketed up. Several of the plays we highlighted last night led the market today on strong volume. We have more for you tonight that are looking very good as well.
As noted, volumes were impressive. The decent patterns, the solid buying volume, and the relative plunge of the other indexes are telling us that this is a tradable rally. We have seen other anemic attempts before, but this has more volume and it has some much better patterns in the tech sector. We are seeing big double bottoms trying to get out of the blocks and chips breaking resistance levels on massive volume surges. That looks like a trading rally.
Wind changing direction?
With the Nasdaq showing signs of life with decent volume and decent patterns, all of the sudden there is a much better chance of at least a real bear market value. Some will jump on this as 'the bottom.' No one other than someone willing to guess can know for sure, but we will more than welcome a trading rally to the upside. There is a long, long way to go, and we still have to see if the institutions are in for the long haul with some confirmation of the move sometime between next Tuesday through Friday. That is no guarantee, but it tells us whether the institutions are at least starting to buy more and more.
What we see is a Nasdaq that is performing much better relative to all other indexes, that includes the small and mid-cap indexes. What we see is a VIX that jumped up to 42.99 on its high today. We see that the vast majority of the analysts and television anchors are only seeing the Dow and not what is going on in the Nasdaq. We also see the Arms' Index give us a reading that has always shown a bottom, i.e., a close over 2.0 one session and below 0.50 the next session. These are not guarantees of a bottom, but the weights are stacking up on that side of the scale. The markets usually test that bottom once again after a very solid rally, and then move up from there. That is how the bear market in 1973 to 1974 ended. That is how the bear market in 1998 ended. The Nasdaq did not exactly hit our 1750 target, but it did crack down to 1794 today. That gives the third leg down in this bear market just enough of a drop. We think we are about to see that trading rally in the Nasdaq that could be the last phase before the final test.
Again, we have to keep our heads and just look and see what the market does. What we are looking at are plays that look the best for the move up in the potential rally. They are at or have broken some resistance and look to move higher. Those patterns are our best bets for the best gains in any rally. There are still many indexes and stocks that are at resistance. The QQQ for example is right at the 10 day MVA, a level that has thrown it back very consistently. If it breaks above this level, it can easily run to the 18 day MVA, giving us a great upside trade. If this is a real bear market rally, the index should break over that level; but, it is one step at a time. If it does not break it, then we can play the downside again. What we see here is a potentially great trading rally. Our theme: play the rally with the strong stocks and play the continued downside with the weak stocks, but watch for the resistance levels. We are pointing out resistance on the plays so you can track them and make plays based on breakouts and breakdowns. As we said, there is still a long way to go and we need to keep our heads and realize that the market is still in a downtrend. Thus, resistance lines still rule unless stocks and indexes show us something else.
THE ECONOMY
Leading Economic Indicators down but improving.
The LEI's look six months into the future of the economy. During last summer when they were weakening they were dismissed as being secondary indicators. We are not sure when that demotion was made in the general economic theory, but to us they have always been solid indicators and leading indicators as the name says. They were pointing to the slowdown, and by golly, they were right. In February they were down 0.2% as was expected. In January they were 0.5% (revised down from 0.8). What this is showing is that the economy is not at recession levels. It also shows, however, that growth is slow. But it is growth. These were accurate last year, and we have no reason to believe they are not accurate now.
Jobless claims 'fall' but are up from what was reported last week.
Another one of those where you have to look at what happened last week to figure out what is really going on. The headline number showed a fall in claims by 1,000. They came in at 379,000, down from 380,000 last week. Problem is, last week's figure was revised to 380,000 from 375,000. The expected number was 368,000, or down 7,000 from the previous week. With the revisions, claims came in 11,000 higher than expected.
Confused again? Here is the bottom line: the four week average rose again, climbing to 377,000, the highest since April 1996. They are getting closer and closer to the 400,000 to 500,000 level that marked the last recession. This trend has got to reverse, but with Dow laying off 9,600 people as announced today.
THE MARKETS
We don't have much faith in the Dow bounce, and the S&P 500 is still not performing well. On those we have to step back and see if they can bounce and play a stall if that occurs. The Nasdaq looks better and we could get a very real trading rally out of this before another test of 1800.
Overall market stats:
VIX: 39.70; +3.31. The measure of S&P 100 option activity spiked to 41.99, its highest since the 1998 bear market. Unfortunately, at that time the index hit 60.63 on its high, and traded over 50 on several occasions during that brief but steep bear market. It was financial crisis time and emotions were high; that is a bit different from this time around. Thus, today's reading may have been enough, but we would have preferred to see it hit over 45, preferably 50. The talk on the tube that 35 marks a market bottom is baloney; don't believe it.
VXN: 71.54; +0.20. Never really got going today as the Nasdaq looked as if it was trying to hold for a move all day. The fact that it moved a fraction higher (+0.3%) even as the Nasdaq gained 3.7% is very interesting; it shows high skepticism, and that often leads to further gains.
Put/Call ratio (CBOE): 0.74; -0.12. Short covering was the theme today as the shorts stepped back to see what was going to happen now that everyone was trying to short the DJX, OEX, etc. Volume on the CBOE, however, backed off a bit.
NASDAQ:
We covered it above, but we are looking for a rally here. It could stall tomorrow, but as noted above, we see some better signs. We are ready to play that move and more moves to the downside as well.
Stats: Up 67.47 points (+3.7%) to close at 1897.70.
Volume: 2.507 billion shares (+11.89%). Finally an accumulation day. Up volume jumped to 1.739 billion shares versus 730 million to the downside. Accumulation volume was in the lead as there was solid buying on the moves up today.
A/D and Hi/Lo: Declining issues still led today as leadership was in the Nasdaq 100 and semiconductors. (1.51 to 1). New highs dropped to 17 (-4) while new lows leaped to 506 (+109).
The Chart: http://www.investmenthouse.com/cd/$compq.html
Still in a steep downtrend; today's action did not change that. Indeed, today's action did not even put the index up to its 10 day MVA, a level that has stopped it cold the past two months. That is right at 1950, and as we said today, if that is all we get, that merely resets the put plays. But we can play the QQQ to the upside for another gain. Further, looking beyond just today, however, we have the Nasdaq starting to toe the line and try to make a stand relative to the other indexes. Futures are up well tonight. We will see soon where how it does.
Dow/NYSE: Hit bear territory and rallied on heavy volume. Is this a reversal? We are not convinced of it just yet, and at this point the Dow has a lot to work through after a massive drop. If the techs lead, it could follow for awhile with IBM, HWP, MSFT, SBC and INTC leading.
Stats: Down 97.52 points (1.0%) to close at 9389.48.
Volume: NYSE volume shot up to 1.738 billion shares (+30%). Down volume continued to swamp up volume 1.299 billion to 434 million shares. Heavy distribution, and the late day recovery volume was the lowest of the session. That makes us leery.
A/D and Hi/Lo: Decliners continued their stranglehold, 2.99 to 1. New highs came home at 54 while new lows rose to 270.
The Chart: http://www.investmenthouse.com/cd/$dja.html
Knifed into bear territory, hitting 9106.54 on its low. The possible bounce we were looking for waited for another 380 points to click off to the downside before it turned back up. Even with the massive volume on the move back up we are not convinced it has upside momentum that will carry it out of this recent dive. With the futures higher right now, we anticipate more upside moves tomorrow, but we think the Dow may stall even with its tech components moving higher. We are looking again at the 9500 to 9650 level as a potential stall point. That gives us a decent move up, however, if we want to play the DJX.
S&P 500: The big caps roared back from a low at 1081.19, finding traction just below our target of 1085 for a 36-point rally in the last hour. If the big techs continue to race ahead as they did today (the Nasdaq 100 was up 96.86), this will really help this index. It is now just 20% tech, so it could still run into trouble at 1150.
Stats: Down 4.56 points (-0.4%) to close at 1117.58.
Volume: NYSE volume surged to 1.738 billion shares (+30%). This is very heavy volume, the heaviest since the Fed cut rates the first time in early January.
The Chart: http://www.investmenthouse.com/cd/$spx.html
TOMORROW
Friday again, and it looks as if it will open to the upside based on the momentum from the last hour and the futures markets. Nasdaq futures are up sharply, and there is some real strength behind some specific moves we saw today. Countering that is the desire of the short term traders to hold no positions over the weekend or at least take profits on short term positions for fear of an economic bombshell from somewhere around the world or another round of negative analyst calls that could put the brakes on any upside move.
Well, if this rally is real and we see good moves tomorrow, we are inclined to take further positions when they present themselves, particularly with respect to those stocks in the leading sectors that are breaking resistance on strong volume. We like what we see, and if we see the move we look to make the play. If stocks or indexes start hitting resistance and bouncing down, that might be the end of the move. The key to us will be when it occurs; if it is late in the session and stocks have enjoyed a good day, we can almost bet it is just some profit taking and position squaring before the weekend. That will not bother us much. If stocks hit resistance early in the session and start dropping like flies, that does worry us, and that would mean that this rally had most likely gone the way of other rally attempts. We would look to reload some put positions and ride them lower over the weekend to Monday. The QQQ is right at the 10 day MVA, if it breaks it tomorrow we are looking to catch it early for a move up to the 18 day MVA; if it hits the 18 day MVA and starts back, we can take a nice gain and go to the house on that one, waiting to see if it can recover for another shot next week.
In short, we like the move we saw today and some of the underlying indicators. We will take positions based on what we saw if we get the moves we want. We have to remain flexible and level-headed, however, because we are still in a bear market. Resistance levels are the key at this point; they have turned stocks back repeatedly. If they continue to hold we are back to the short side. Lucrative, but we would like the change to the upside just because more people are happier. We are always asked about 'that market' by friends as if they expect us to cringe and cry; heck, the downside always makes us money faster than the upside. It is hard to explain to them that for fast and big gains, we love the downside.
Anyway, tomorrow we are looking at some super looking semiconductors once again after some great returns today. There are more we are highlighting in tonight's reports that look solid for a further tech rally. These stocks have the better patterns and look to be where the action is on this rally. If it is a bear rally that precedes another test, we could get some very good gains indeed. Again, we have to be flexible and kill the plays if they hit some resistance and stall or if the move overall stalls. If it is a bear market rally, it will indeed stall, and we will have to be ready to exit, play the downside, and then be ready for the second bottom that marks the turn back up for good. Sounds fairly easy, but we all know how confusing things get in the battle. Focus on resistance points and profit targets and stick to the plan with as much machine-like focus as we can muster. This is actually a very exciting time based on some of the signs we are seeing, but we cannot get carried away either to the upside or the downside. See the moves, execute, make money.
Support and Resistance Levels
Nasdaq: Closed at 1897.70.
Resistance: 2030 to 2050. Then 2250 to 2300. 2400 to 2500.
Support: 1750
S&P 500: Closed at 1117.58.
Resistance: 1150 to 1175 is potential resistance. Then 1215 and 1265.
Support: 1085.
Dow: Closed at 9389.48.
Resistance: 9750. 10,000. Then 10,300 and 10,750.
Support: 9000. Then 8750.
Weekly Economic Calendar (All times Eastern). The figures are the consensus expectations, not ours.
3-20-01
Trade Balance, January (8:30): -$33.0B versus -$33.0B prior.
Treasury Budget, February (2:00): -$44.0B versus -$41.7B prior.
FOMC Announcement (2:15): 50 basis point cut in Fed Funds and Discount Rate.
3-21-01
CPI, February (8:30): 0.3% actual versus 0.2% expected and 0.6% prior.
Core CPI, February (8:30): 0.3% actual versus 0.3% expected.
3-22-01
Initial Claims, 3/17 (8:30): 379,000 versus 368,000 expected and 380,000 prior (revised up from 375,000).
Leading Indicators, February (10:00): -0.2% actual versus -0.2% expected and 0.5% prior (revised down from 0.8%).
SUBSCRIBER QUESTIONS
Q: On several occasions in the last month or two, you have noted that the S&P500 is currently composed of approximately 20% tech stocks. Not long ago, the number reported in the media (papers and TV) was about 35% tech. Can you explain this further, as it does not appear that many stocks have rotated out of the S&P500. Thanks
A: When we refer to techs as a part of the S&P 500, we are referring to the percentage of the S&P market cap. The S&P 500 is a market cap index and we have been referring to the decrease in relative percentage of market cap for the index, not the number of stocks.
TEAM TRADES
IVGN had sold off hard the last two days, and looked ready to continue dropping, to a possible low around 40. The stock had closed Wednesday at 49.88, just above the August low of 49.56 (last support until 40), but the strong volume made a break below that level probable. Again, we were looking for a drop to 40.
The stock gapped down on the open to 45.31, and headed down hard again; it tried a test near 44, but didn't hesitate after that. May $55 put options opened at 12.38 by 13.12, and immediately a buy order was place at 13.25: the stock was heading down fast and it looked like the order could be passed up. That worked (which always makes you wonder if a hit could have been made at a lower ask). We were able to watch this one for a bit, so did not enter a sell order at that point.
The stock continued to drop, and hit our targeted support at 40 and even dropped lower to 38.50, but we didn't catch it there, instead getting out at 10:16 when the stock was at 40 and the bid was 15.75 on the options. The reason we waited was that the stock had already broken 40, and was testing its 5-minute MVA; if it failed, we could get another drop to the May low of 36. When it popped back over the MVA on a volume surge, however, we got out. That garnered a 2.5-point move, not outstanding, but not bad. IVGN continued to bounce from that low, and ended up closing the day at 49.44. We got in on the very tail end of this downleg. We would have ridden it farther, but hitting our target and bouncing was the cue to take the profit.
End Part 1 of 2
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