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world stock market, us stock market
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1/27/03 Stock Split Report Update
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Stock Split Report Subscribers:
MARKET ALERTS
Targets hit alerts issued Monday: URBN
Buy alerts issued: RE; CHS; CVH; BVF
Trailing stops issued: IGEN
Stop alerts issued: AME; NBIX
You can sign up for Stock Split Report alerts at the following link:
http://www.investmenthouse.com/alertssr.htm
SUMMARY:
- War climate keeps stocks on the slide.
- Existing homes sales surprise to upside as housing market hangs in there.
- Techs show relative strength again, indicating an attempted bounce coming.
- Subscriber Questions
UN inspectors have questions, US still ready to fight, stocks still ready to sell.
Monday brought more of the same after a weekend of serious talk by the U.S. regarding Iraq had overseas markets trading lower. The U.S. market sold as well, falling to the next support level where it could try to make a bounce up to test the trading range bottom it just fell through.
Why would it bounce? The UN has reported and the lines are still drawn in pretty much the same place: U.S., Britain and some others are ready to go in, France, Germany, Russia and others are ready to block UN action, but the U.S. won't be ready for a couple of weeks. After some serious selling that respite can give the market a chance to bounce up and test the bottom of that range.
In addition, Bush and Blair are meeting this weekend to discuss strategy and figure out what they can give allies to convince them to convert. They may get a few more publicly on board over the next few weeks but it will be hard to get France and Germany to join. Those two have two problems. First they are countries that like to be in NATO but their citizens, at least the vocal ones, don't like to enter into war looking as if they are U.S. pawns. The recent German elections showed the invertebrate classification of its leader as he twisted himself into a pretzel in an attempt at appeasing and pleasing every voter. If they wanted to, however, the governments of these countries could still take a stand and support action, but doing so would not be in their economic interest. France has a nice trading partnership with Iraq despite the sanctions. France sold Iraq its nuclear reactors and nuclear technology. It has valuable oil contracts with Iraq. Simply put, France does not want to act against its own interest in favor of the US' interests in security and oil flow. That is why it is reading the UN resolution as requiring a smoking gun and won't agree to any action unless there is obvious and unequivocal evidence of weapons of mass destruction.
Thus the U.S. is going to have to act without France and Germany, and if the debate were focused on the true interests of the parties there would not be so much finger pointing. There are economic interests and security interests and each country places a value on those and acts accordingly. Just recognize that and do what you need to do. Right now, however, they are trying to veil economic reasons in arguments over how to interpret a UN resolution and that only adds to the uncertainty: there is going to be some action in Iraq or a quick regime change. That bickering among allies makes the world markets uneasy.
The impact of all this has the market pricing in the war and potential complications post-war. It will be resolved, but in the interim the market has taken out a war premium. There will now be a lull in the activity as the U.S. and U.K. work on allies the next two weeks. That can allow the market a chance to pop up to test that recent support that was broken. We expect to see the signs of a relief bounce on any such move: narrow breadth, questionable volume, lack of real breakouts.
The bigger problem for the market, however, is the continued uncertainty. Any bounce won't be one that is factoring in the end of the Iraq situation, just a break from the bad news. If Bush does not stick to demanding quick action and gives UN inspectors more time, the stock market has its own version of groundhog day: Bush comes out and says there will be more time allowed and then the market has to suffer through 6 to 8 more weeks of weak action waiting on what the inspectors find or don't find. Best course of action to get things resolved quickly (but maybe not the best action long term for other reasons): get together the compelling evidence the U.S. has, finish getting the troops in place over the next two weeks, show the holdout allies the evidence just before the troops are in place, get their answer yeah or nay, and then go in. At least that way the market has some certainty to work with.
THE ECONOMY
Existing home sales jump 5.2% to 5.86 million annual units.
Existing homes sales make up 80% of the market, and they put in another solid showing in December as low interest rates continue their positive impact. Before we get too excited, remember that these sales represent deals in the works for 2 to 3 months and there has been a slowdown in mortgage applications for new buys and refinancing. When the slowdown in applications works through the system there will be some slower months ahead. It is not a major drop off or collapse, but it is more of the type of slowing seen in the consumer sector.
Greenspan cool on the Bush economic plan.
We talked with some democratic House reps last week. They keep referring to the Bush plan as a stimulus package. You correct them on that and they acknowledge the administration is not calling it a 100% stimulus package, but then 5 minutes later they are calling it a stimulus package again. It is hard, very hard, to get a rational, reasoned discussion of economic plans right now, and that is not good for the market as it was looking to a rather quick passage of some economic package.
This shows up in the sketchy reports on the Greenspan meeting last week with some senators. There is not complete reporting on it yet, but Greenspan was supposedly somewhat cool to the Bush package because Greenspan supposedly wants it to be more stimulus oriented. That is interesting as the last we heard from Greenspan when talking to Congress was that he felt that no stimulus was necessary. Has he had a change of heart or was he just saying that the package was not a stimulus package in response to some questions? Again the reports are too sketchy right now, but it is being reported that the Fed chairman, after saying in public again and again that he would not comment on fiscal policy as it was not the Fed's purview, now potentially advising some in Congress on fiscal policy. Is it any wonder you get jaded if you keep up with this stuff?
THE MARKET
The downtrend continued Monday on the heels of more world news. While Friday's action was distributive with more sellers entering the market, Monday sold on lighter volume. That indicated it was more a lack of buyers than overwhelming sellers. It was enough, however, to push the Dow and SP500 down just below the next support level.
Nasdaq tried to show some relative strength again as it did last Wednesday when it held the line more or less, showing a hammer doji after some strong selling. It did the same Monday, sporting another hammer doji as it flirted with the late December low at 1327. Many tech stocks were not selling hard on the session with some chips actually closing with some small gains. As noted earlier, this could lead to a bounce up to test the bottom of the range just broken as a lot of the new and anticipation has been priced into the market at this point.
Market Sentiment
VIX: 39.77; +4. Another big jump in volatility as the indexes continued to sell and jitters remained high regarding the war outlook.
VXN: 46.59; +1.54. Getting a slow start, but Nasdaq is showing relative strength. It usually starts slow and then leaps into action compared to the VIX
Put/Call Ratio (CBOE): 1.02; +0.19. Up over 1.00 on the close, a sign that anxiety is getting to a point where a move up could occur, but this indicator has lost some of its utility during this bear market. It could, however, indicate a bounce up to test that broke trading range.
Nasdaq
Gapped lower to the December lows and rallied, but gave it all back. It did show some relative strength and may be ready to try to lead a bounce back to the bottom of the range.
Stats: -16.87 points (-1.26%) to close at 1325.27
Volume: 1.44B (-9.4%). Lower, below average volume on the selling indicates fewer sellers.
Up Volume: 354M (+155M)
Down Volume: 1.075B (-301M)
A/D and Hi/Lo: Decliners led 2.28 to 1. Declining breadth continues to swamp upside breadth on up days.
Previous Session: Decliners led 2.64 to 1
New Highs: 46 (-9)
New Lows: 102 (+45). Over 100 for the first time in a few months.
The Chart: http://www.investmenthouse.com/cd/$compq.html
Gapped lower and rallied up to 1350, roughly the bottom of the trading range. It could not hold the move and sold back to hold near the late December lows at 1327. Showing a hammer doji as it did last Wednesday, Nasdaq was the stronger index Monday and may try to lead a bounce in the market during this lull in war news.
S&P 500/NYSE
Broke some support at 850, but it did not smash below it on high volume. Another test lower intraday could lead to a bounce after some serious downside.
Stats: +0.05 points (0%) to close at 847.48
NYSE Volume: 1.426B (-6.03%). Lower though still above average volume on another day of selling.
Up Volume: 156M (-96M)
Down Volume: 1.281B (+13M). All sellers though fewer than Friday.
A/D and Hi/Lo: Decliners led 3.52 to 1. Very, very weak breadth. While this is a sign of weakness, remember back in October when we spotted the massive negative breadth as an indication that the selling was coming to an end. This is not at that level yet, but it is very broad selling.
Previous Session: Decliners led 2.93 to 1
New Highs: 58 (-16)
New Lows: 118 (+34). As with Nasdaq, the first move over 100 new lows since October.
The Chart: http://www.investmenthouse.com/cd/$spx.html
Continued the selling below the bottom of the trading range at 875, large caps broke the next support level at 855 to 850. The break was not on massive volume so the break below this lower support was not a death blow. It is holding roughly at this level, and a bounce from Nasdaq could help pull it up. It is also riding just above the January 2000/May 2001 at 828.
DJ30:
Blue chips took the hardest beating among the big indexes, something of the norm of late. There is some support at 8000, and the Dow fought hard to stay at that level that last 4 hours of trade. While it failed to hold 8000 on the close, it is within throwing distance and the break was on steady Dow volume. It is a mighty steep plunge, and now the Dow sits right at a 50% retracement of the October to December move (7992). That is considered one of the key retracement points when a stock or index tests a recovery move. It could easily reach lower intraday, but after 7 of 8 sessions heavily to the downside, another attempt at selling could initiate a recovery bounce to test the breakdown.
Stats: -141.45 points (-1.74%) to close at 7989.56
Volume: 1.426B (-6.03%)
The Chart: http://www.investmenthouse.com/cd/$indu.html
TUESDAY
Monday provided the further downside follow through after the breakdown that we were looking for, and with the Nasdaq trying to show some strength compared to the rest of the market Monday, we expect sometime Tuesday the market will try to make the rebound to test the break below the bottom of the trading range.
We don't expect the quality of the rebound to be all that great, e.g., narrower upside breadth, recovery of beleaguered stocks and an absence of breakouts by leading stocks. This is particularly true before the state of the union address Tuesday night. Though the administration is saying it won't be a call to arms there is still speculation about that. Bush will have to pull together a good speech to reassure everyone, but even that will be temporary. Investors have heard good talk before and the test will be what happens after the words are spoken then reported and dissected.
As for initiating new positions, we will look at some upside stocks that have held up during the selling and then can continue their moves, but that will be just about the extent of that action on a relief bounce such as we anticipate. On the downside we will look for stocks that make weaker moves up to resistance points and then buy into or add to positions as they roll back over after resistance is hit. In this time of continued market uncertainty it will be hard for stocks to make significant headway until some resolution or perceived resolution arrives.
Support and Resistance
Nasdaq: Closed at 1325.27
Resistance: July, August, and September interim highs at 1345 is still in the picture. 1357, the 1998 bear market low. The exponential 50 day MVA (1383). The simple 50 day MVA (1403). The 200 day MVA (1414). The August high at 1427. Price resistance at 1500. 1574, the May low, is next.
Support: There is some price support at 1327 from the late December low, then 1300.
S&P 500: Closed at 847.48
Resistance: 850 to 855 (the October 1997 and Q2 1998 lows). The bottom of the October consolidation range at 875. The exponential 50 day MVA (898). The simple 50 day MVA (905). The July, August and September interim highs at 909 to 911. The early November high at 925.66.
Support: The September 2000/May 2001 downtrend line at 828.
Dow: Closed at 7989.56
Resistance: 8250, the bottom of the October consolidation range. The exponential 50 day MVA (8512). The simple 50 day MVA (8579). The late July and early September interim high at 8726 to 8762.14 (8745 closing).
Support: 8000 support is not totally broken. Then 7500.
Economic Calendar
1-27-03
Existing home sales, December (10:00): +5.2% to 5.86M actual, 5.61M expected, 5.56M November.
1-28-03
Durable goods orders, December (8:30): 0.7% expected, -1.5% November.
Consumer confidence, January (10:00): 79.0 expected, 80.3 December.
New home sales, December (10:00): 1.035M expected, 1.069M November.
FOMC meeting day 1.
1-30-03
Initial jobless claims (8:30): 385K expected, 381K prior.
Advance GDP, Q4 (8:30): 1.0% expected, 4.0% Q3
Employment Cost index, Q4 (8:30): 0.9% expected, 0.8% prior.
1-31-03
Personal income, December (8:30): 0.2% expected, 0.3% November.
Personal spending, December, (8:30): 0.7% expected, 0.5% November.
Michigan sentiment, January (9:45): 83.7 expected, 83.7 advanced reading.
Chicago PMI, January (10:00): 52.2 expected, 51.3 prior.
SUBSCRIBER QUESTIONS
Q: Why has gold broken out, but gold stocks lagged? A tough question, but I would appreciate your opinion.
A: Great question. Several gold stocks are shaping up in good patterns but they are not following the price of gold up. Many are saying gold is where to be, but unless you are buying the metal there are not many underlying stocks that are enjoying that performance.
Gold was rising some before the war anxiety ratcheted higher, so the rise in gold is not all based on war fears. During that time many gold stocks were moving as well, but not any better than the rest of the market for the most part. Much of the run has come after the fear of war became more palpable. During that time gold stocks have moved, but have not soared like the price of gold. To us that indicates that the gold move is not, at least predominantly, based on any structural issues. In other words, there is nothing in the underlying world economies that is causing gold to rise (e.g., no major inflation concerns). If there were some underlying force driving the move other than relatively transient global conflict tensions there would be stronger movement in the stocks that represent the companies that provide the gold to make up the increased longer term demand. Again, the lack of movement in these stocks indicates there is no underlying reason for increased price other than war tensions.
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End Part 1 of 2
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world stock market
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