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stock trading site, stock trading
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1/30/03 Investment House Alerts Report
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IH Alert Subscribers:
MARKET ALERTS:
Targets hit alerts issued Thursday: None issue
Buy alerts issued: WFSL
Trailing stops issued: None issued
Stop alerts issued: BSX; DANKY; LOOK
Honey, that is one weak market.
We were looking for the Dow and SP500 to continue the bounce up to near resistance at that bottom of their former trading ranges. They did not come close, instead giving in after a weak and narrow bounce ran out of gas. Breadth exploded on the downside yet again even as volume lessened. There was no surge in sellers, just a complete lack of buyers given the continued global war tones and economic reports that only show a flicker of improvement.
That economic picture truly has the market's attention now as well as war tidings. Thursday the speculation in DC was that it would be well into the summer before any economic package would be put in place, and that does not even take into account what will be in the package. What does that mean? On top of the war uncertainty that is sapping business investment, continued uncertainty as to what the tax laws will be is also going to obstruct business investment. The reason is that businesses won't go out and make expenditures until they are sure what kind of expenditures, if any, will be rewarded and what expenditures will get no break. It does not matter if there is the promise of retroactivity. If you have finite dollars to spend you are going to spend them in the area that gives you the most bang for your buck. The last thing you want to do is spend and then find out that you miss out on a tax break because you spent on the wrong thing. Thus the economic package fight over the next six months is going to insure lethargic business investment until some plan is clearly coming together.
That means there will be little improvement in the major part of the economy that is the laggard. It has to have some reason to spend when there is no economic or business reason to spend. That will come from favorable tax incentives such as credits, accelerated depreciation, expensing with a suspension of the AMT. We told our senators and House reps last October that if they waited until after the election (that quickly became after the first of the year) there would be no package until July 4 at the earliest and that business investment would be stagnant until then. Looks as if that is turning out to be the sad case.
THE MARKET
Unable to lure anymore buyers and with no further reason for shorts to cover, the indexes ran out of steam on the bounce and rolled over. It was not a cataclysmic turnover, just a slow roll down on lighter volume. It did, however, push the major indexes to a new closing lows since the December highs. Breadth once again swelled to the downside even if volume did not.
There were not many high volume breaks lower, just bleeding from several thousand cuts. Hard to generate any buyside interest but we did not see many breakdowns picking up speed to the downside. The market foundation appears to be eroding, however, and after an aborted attempt to bounce up to test the bottom of the former range that downside could easily accelerate.
Investors are not finding many reasons to buy ahead of the coming war. Seems as if there is a definite timeline we are looking at, and that will be soon after the February 5 Powell meeting where we lift up the skirt and show our allies what we have on Iraq. Some say it won't be enough to convince the likes of France and Germany, but think about this: if we show the goods and enough say 'you know, you are right', they will come around because the last thing they want is to be left out when it is clear that many are joining the coalition and they could be cut out of having a hand in the rebuilding of Iraq.
Market Sentiment
VIX: 36.37; +1.15
VXN: 46.22; +2.58
Put/Call Ratio (CBOE): 0.87; +0.06
Nasdaq
Turned at the 10 day MVA and dropped like a brick.
Stats: -35.71 points (-2.63%) to close at 1322.35
Volume: 1.445B (-4.15%). Falling volume indicates no intense selling, but the point loss told the story.
Up Volume: 276M (-723M)
Down Volume: 1.156B (+684M)
A/D and Hi/Lo: Decliners led 2.12 to 1. Downside breadth zoomed back up as all stocks sold off.
Previous Session: Decliners led 1.01 to 1
New Highs: 45 (-9)
New Lows: 69 (-4)
The Chart: http://www.investmenthouse.com/cd/$compq.html
After tapping the 10 day MVA on the early morning 2-point 'run,' Nasdaq rolled down the rest of the session. It did not close at a new low since December, but it hit a new closing low. Nasdaq is back below the late December low (1327) after failing to mount much of a rebound charge back to the trading range up at 1360ish. Turning back at the short term moving averages is a clear sign of weakness as it appears the index has not absorbed all of the bad news related to the war.
S&P 500/NYSE
Did not even make it up to the bottom of the trading range at 875 before rolling over.
Stats: -19.75 points (-2.28%) to close at 844.62
NYSE Volume: 1.486B (-4.94%). Lighter volume shows the selling was not as intense but the prior distribution is having its effect.
Up Volume: 284M (-652M)
Down Volume: 1.21B (+586M)
A/D and Hi/Lo: Decliners led 2.03 to 1. Heavy downside breadth once again as all stocks fall and the recoveries are then centered on just a few in short covering.
Previous Session: Advancers led 1.33 to 1
New Highs: 46 (+4)
New Lows: 64 (-4)
The Chart: http://www.investmenthouse.com/cd/$spx.html
875 was never tested as the large caps rolled over and hit a new closing low for the year. Volume was lower but still above average. What it looks like once again was higher volume short covering Wednesday followed by a continuation of the selling Thursday. That is a familiar pattern in a downtrending market. Next support is 820 to 815 as the large caps continue to march lower.
DJ30:
As with the other indexes, the Dow made a lower high and then rolled over long before testing resistance at 8250. When the Nasdaq hit the 10 day MVA and failed it took the rest of the market with it. Not only did the Dow fail to test 8250, it also broke below some support at 8000. Some support at 7700 and then 7590. At this stage 7500 is not out of the question at all.
Stats: -165.58 points (-2.04%) to close at 7945.13
Volume: 1.486B (-4.94%)
The Chart: http://www.investmenthouse.com/cd/$indu.html
FRIDAY
More economic reports Friday with income and spending along with Michigan sentiment and the Chicago PMI. They are important reports and we expect them to continue showing the modest economic improvement. With the overhang of the war spreading molasses on the action, however, even good news will have minimal impact. Once that threat is gone the improving economic reports will take precedence until the next crisis erupts. North Korea and Venezuela will keep something of a governor on things once the initial thrill of the Iraq situation resolved.
Until then many stocks look terribly weak and we will look for opportunities to take advantage of that. There is still at least two weeks before action in Iraq starts given the Powell meeting on the fifth; there could always be a surprise such as Hussein absconding to Rio or some other sunny clime. That would jump the market immediately.
It is a touchy time. The market is weak but a major reason for that weakness could evaporate in an instant. That makes playing the weakness riskier than usual. We have always disdained abstaining from the action simply because something might happen. We know something is going to happen in two weeks or so, and we feel we can make money on the weakness until that time. As the time draws nearer we can start pulling in positions.
Support and Resistance
Nasdaq: Closed at 1322.35
Resistance: There is some price resistance at 1327 from the late December low. July, August, and September interim highs at 1345. 1357, the 1998 bear market low. The 18 day MVA (1373) and the exponential 50 day MVA (1378). The simple 50 day MVA (1400). The 200 day MVA (1408). The August high at 1427. Price resistance at 1500. 1574, the May low, is next.
Support: 1300.
S&P 500: Closed at 844.61
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 (894). The simple 50 day MVA (903). 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 826.
Dow: Closed at 7945.13
Resistance: 8250, the bottom of the October consolidation range and the 10 day MVA. The exponential 50 day MVA (8459). The simple 50 day MVA (8551). The late July and early September interim high at 8726 to 8762.14 (8745 closing).
Support: 8000 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): 0.2% actual, 1.0% expected, -1.3% November (revised from -1.5%).
Consumer confidence, January (10:00): 79.0 actual, 78.5 expected, 80.7 December (revised from 80.3).
New home sales, December (10:00): +3.5% to 1.082M actual, 1.035M expected, 1.045M November (revised from 1.069M).
FOMC meeting day 1.
1-29-03
FOMC announcement (2:15): No rate change and no change in bias. Feels that once the global problems are over the monetary policy will work. Have heard that before and it was wrong. Congress should say 'fool me once, shame on you; fool me twice, shame on me.'
1-30-03
Initial jobless claims (8:30): 397K actual, 385K expected, 381K prior.
Advance GDP, Q4 (8:30): 0.7% actual, 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: When using the put/call ratio as a sentiment indicator how do you determine a buy or a sell if they are both recorded? For example: The markets are down for the last week and it rallies a couple days but the p/c ratio is higher. How do we determine if traders are selling puts for profits or buying puts for protection?
A: Another good question. The put/call ratio is a sentiment indicator. What it tries to help you get a handle on is whether there is enough speculation to the downside as well as fear to the downside. If traders are selling puts that they bought in anticipation of or during market selling and others are buying puts for protection against a further market decline, is that not the showing the same fear? Option buyers tend to take put profits rather quickly, knowing that downside action comes fast and can turn back up quickly. Buyers for downside protection will buy and hold those puts. They both are taken as the market falls. Indeed, the selling of puts by those who bought in anticipation of a fall can help make that spike in the ratio that signals a bounce is coming. The fear ran high to the downside as the ratio climbs and finally spikes over 1.0 on the close. That climax is a result of several undercurrents, but all based originally in the belief the market is going lower.
SEMINARS ON CD
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THE PLAYS:
New:
Downside:
Play Date: 01/30/2003
CAH (Cardinal Health--$56.87; -0.88; optionable): Wholesale drugs
http://biz.yahoo.com/p/c/cah.html
STATUS: Put. CAH is in a continuing downtrend that started in November. It just came off of a test of the 50 day MVA now at 61.25 in early January that resulted in a further plummet. It has now moved up to test the 10 day MVA on the Wednesday and Thursday high (58.31), starting to roll back down in the downtrend. It is typical for stocks to move down the short term MVA during a downtrend, periodically testing the 50 day MVA. As CAH just came off of that test and is making its first bounce up to test the short term MVA, this is a good entry point for further downside.
Volume: 2.631M Avg Volume: 2.86M
BUY POINT: $56.68 Volume=2.8M Target=$52.55 Stop=$58.25
POSITION: CAH OL - Mar. $60c (-59 delta)
http://www.investmenthouse.com/ci/cah.html
Play Date: 01/30/2003
HIG (Hartford Financial--$41.75; -1.93; optionable): P&C insurance
http://biz.yahoo.com/p/h/hig.html
STATUS: Put. Insurance is struggling, and after breaking the 50 day MVA (now right at 46) a week back HIG has tested the 10 day MVA at 44 and started to fall Thursday on rising, above average volume. It is in the process of breaking through some support at 42, and that gives it plenty of downside room to fall.
Volume: 2.207M Avg Volume: 1.474M
BUY POINT: $41.62 Volume=2M Target=$37.85 Stop=$42.75
POSITION: HIG OI - Mar. $45p (-62 delta)
http://www.investmenthouse.com/ci/hig.html
Play Date: 01/30/2003
MCHP (Microchip--$21.63; -1.17; optionable): Semiconductors
http://biz.yahoo.com/p/m/mchp.html
STATUS: Put. Plunged through the 200 day MVA near 25 in early January and has spent the last week fighting back up to the 10 day MVA. Thursday it tapped again at the 10 day MVA on the high (22.75) and then rolled over. It looks ready for a quick move down as the war pace crescendos.
Volume: 3.986M Avg Volume: 4.507M
BUY POINT: $21.45 Volume=4.5M Target=$18.05 Stop=$22.85
POSITION: QMT PX - Apr. $22.50p (-50 delta) or QMT PE - Apr. $25p (-66 delta)
http://www.investmenthouse.com/ci/mchp.html
End Part 1 of 2
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