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us stock market, trade stock
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2/11/03 Investment House Alerts Report
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IH Alert Subscribers:
MARKET ALERTS:
Targets hit alerts issued Tuesday: ESPD; HIG
Buy alerts issued: None issued
Trailing stops issued: None issued
Stop alerts issued: None issued
Another rally attempt turns back on news.
We talked just last week how news driven the market was, a sign of its overall weakness. Tuesday the market was ready to try and continued some upside from its late recovery Monday. There was some optimism (hope?) that Greenspan might provide some nice comments about the economic status, and that was giving some reasons to buy and cover shorts early. Greenspan's statement was basically benign and that helped fuel the move higher.
Then the question and answer session came and Greenspan avoided making many salient comments on any economic package, taking more of the same wait and see approach that resulted in belated rate cuts and insufficient efforts to get ahead of the downward spiral. The market did not like his very predictable, 'we have done all that needs to be done' statements, and the move started to soften.
More news about a new Bin Laden tape exhorting Iraqis to unite against the imperial infidel and Colin Powell's linking of Iraq and Al Qaeda based on that tap yanked stocks back down from their highs. Once the selling started after a brush against resistance, resistance to the downside was futile.
THE MARKET
Classic bear action Tuesday as the market rallied early on rising futures buoyed by a stronger Europe and rising dollar. Then some negative news hit right as the indexes were tapping at the 10 day MVA (first resistance in a continuing downtrend), and that was all she wrote for the indexes. Early rally, late plunge and on rising volume (though minimal) to boot.
The failed test of the 10 day MVA was a further sign of weakness as was the finish near the session low. Still, the DJ30 and SP500 managed to hold at their recent lows. A very small positive in the bigger picture of another failed test of the downtrend resistance and a fall on rising volume.
Market Sentiment
Volatility is not rising at all as the market sells. That is an indication that the fall is not necessarily high anxiety, but more related to the impending Iraq hostilities.
VIX: 37.35; -0.35
VXN: 46.9; -0.41
Put/Call Ratio (CBOE): 0.87; -0.27
Nasdaq
Tapped just over the 10 day MVA on the high and then fell back on some rising volume.
Stats: -1.22 points (-0.09%) to close at 1295.46
Volume: 1.317B (+8.17%). Still below average volume though it did rise on the rollover after the 10 day MVA test.
Up Volume: 676M (-236M)
Down Volume: 559M (+279M)
A/D and Hi/Lo: Decliners led 1.18 to 1. Not nasty selling, but it was a reversal session where the Nasdaq came off the highs.
Previous Session: Advancers led 1.21 to 1
New Highs: 39 (-3)
New Lows: 99 (-11)
The Chart: http://www.investmenthouse.com/cd/$compq.html
Rallied over the 10 day MVA on the high (1315.04) after testing that level early in the session. That looked like a stronger move, but then the downtrend and general market weakness caught up with it and rolled the techs back over. It was not a downside rout. The techs sold on higher volume, but it was still below average. Moreover, Nasdaq rallied up 10 points off the low in the last half hour. From what we were seeing and hearing from the floor traders indicated this was more short covering than buying. All in all it was a negative session with the test of the 10 day MVA and the reversal from that point. Nasdaq was still too weak on Tuesday to mount a more significant test higher past the 10 day MVA.
S&P 500/NYSE
Similar action to Nasdaq, though the large caps did not quite make it to the 10 day MVA on the high before turning over.
Stats: -6.77 points (-0.81%) to close at 829.2
NYSE Volume: 1.289B (+4.23%). Rising volume that pushed trade back close to average. Mild distribution as the sellers started taking over after another test toward the 10 day MVA.
Up Volume: 393M (-422M)
Down Volume: 893M (+491M)
A/D and Hi/Lo: Decliners led 1.44 to 1
Previous Session: Advancers led 1.33 to 1
New Highs: 41 (-2)
New Lows: 107 (-23). Decliners did fall on the session, another indication the selling was not extraordinarily heavy.
The Chart: http://www.investmenthouse.com/cd/$spx.html
Tapped close to the 10 day MVA (844) on the high (843.02) and then rolled over on rising volume. On the low it hit 825, right at the Monday low (823.53). It too managed to rally late, moving up 4 points off the low. It is something that it held at the prior lows and managed to bounce; that shows some resilience, but we are not putting too much into that given the reversal and fall on higher volume.
DJ30:
Almost a full test of the 10 day MVA (7989) and resistance at 8000 before the blue chips turned over and closed lower. It managed to bounce back from a triple digit decline with a 35 point move in the last half hour on that short covering. Volume edged higher to average and as with the SP500, the Dow held above Monday's intraday low (7801.29) on the Tuesday low (7806.50). Again that is something positive that the Dow could use as leverage to move up to test higher toward the 18 day MVA (8110) after a steady downtrend for the past month. It will have to show it, however, as the intraday action was a bearish test of resistance on the high followed by a drop on rising volume.
Stats: -77 points (-0.97%) to close at 7843.11
Volume: 1.289B (+4.23%)
The Chart: http://www.investmenthouse.com/cd/$indu.html
WEDNESDAY
No scheduled economic data for Wednesday, but Greenspan is speaking again to the House. The speech will be the same as well as the attempts to get him to back one side of the aisle or the other. It usually does not happen though every once in a while the second session brings a surprise as Greenspan finally says something that favors one aspect more than the other. Suffice it to say, however, that no one in Congress will hear what they want in that Greenspan will continue to promote that Congress cut its spending. Funny how they will do all they can to get Greenspan to edge toward their side so they can use the great maestro to their advantage, but when he talks about cutting spending they suddenly lose interest in what he has to say.
Wednesday the market will be back at it, back working in the month-long downtrend. The Dow and SP500 managed to bounce off of the Monday low toward the close. They could be trying to form some support there to bounce higher, but the timing of the action the past couple of sessions is always interesting. Monday the market bounced after five days of selling. Wednesday it tried to move higher but ran into resistance and immediately rolled over on rising volume. It was not a downside blowout, but time and time again during downtrends a rally attempt is turned back the following session on rising volume. What we are often seeing in that situation is short covering after a period of selling that again turns to selling at the resistance level.
We will be watching closely to see how the indexes react to the recent lows, particularly the Dow and SP500 as they have held at the same intraday low for the past two sessions. AMAT reported earnings after hours and while it did not get hammered lower, it faded after hours. The lack of great news by AMAT (it could be construed as indicating lower future earnings trends), the test of downtrend resistance and reversal could add up to much more significant downside action even after a month of steady selling in preparation for the UN inspectors' Valentines Day update. That update could set the stage for a quicker resolution to Iraq, but from what we hear the US will be looking at striking on the new moon with no light in the night sky. Add on top of that the fear of terrorist attack (have your duct tape and plastic sheeting?) and you don't have a recipe for much buyside excitement.
Support and Resistance
Nasdaq: Closed at 1295.46
Resistance: Price resistance at 1300. The 10 day MVA (1311) and then more price resistance at 1327 from the late December low. The 18 day MVA (1330). July, August, and September interim highs at 1345. 1357, the 1998 bear market low. Exponential 50 day MVA (1357).
Support: 1250 after that is another point where some lows have held.
S&P 500: Closed at 829.20
Resistance: The 10 day MVA (844). Price resistance at 840 to 850. The 18 day MVA (857). The bottom of the October consolidation range at 875. The exponential 50 day MVA (879).
Support: 825 is some price support that held Monday. The September 2000/May 2001 downtrend line at 820. After that 800.
Dow: Closed at 7843.11
Resistance: The 10 day MVA (7989). 8000 is price resistance. The 18 day MVA, the other short term MVA (8110). 8250, the bottom of the October consolidation range.
Support: Soft support at 7750, then some at 7500.
Economic Calendar
2-13-03
Retail sales, January (8:30): -0.5% expected, 1.2% December
Retail ex-autos: 0.5% expected, 0.0% January
Initial jobless claims (8:30): 385K expected, 391K prior
2-14-03
Business inventories, December (8:30): 0.3% expected, 0.2% November
Industrial production, January (9:15): 0.4% expected, -0.2% December
Capacity utilization, January (9:15): 75.6% expected, 75.4% December
Michigan sentiment, Feb. preliminary (9:45): 82.2 expected, 82.4 January.
SUBSCRIBERS QUESTION
Q: We have received several questions about continuing downtrends and how to move into and out of plays. Below is a synopsis of what we are looking at in many of these plays.
A: A continuing downtrend is one where a stock has broken an upward or lateral move, tested that breach, and is typically moving down the short term MVA (10 and 18 day MVA). Remember how stocks that breakout and move up in an uptrend tend to use the 10 and 18 day MVA as near support? They rally up then test those levels and then rally up again. 4 to 5 rotations is usually the max before a test down to deeper support at the 50 day MVA. If the move is going to continue the stock will jump back up on some volume.
In the downtrend it is just the oppossite, bouncing down and then rallying up to test the 10 or 18 day MVA and then falling again. In steep downtrends it will hold below the 10 day MVA, using that level as its resistance point. After 4 to 5 bounces down off of the short term MVA it will try to test higher to the next resistance level as the shorts cover up after a long downtrend and some value hunters come in.
We use these tests of the short term MVA in a downtrend as a good entry point for downside positions. We like to see the stock move up to tap that level and then roll over. That is a favorite downside entry point along with the initial test of the breakdown.
Currently the indexes are on what looks to be the third test of the short term MVA in the current downtrend. WE are looking for another playable move down from here, and as noted above, it could give a deeper and quicker plunge before moving back up for maybe the last test that could be much shallower. The Dow and SP500 are trying to make some support here at the recent lows, but with a lot of the action coming to a head at the end of this week with the UN inspectors and the terror threat before a long weekend (market closed Monday), the former seems more likely.
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THE PLAYS:
New:
Downside:
Play Date: 02/11/2003
EAT (Brinker Intl.--$29.12; +0.49; optionable): Restaurants
http://biz.yahoo.com/p/e/eat.html
STATUS: Put. EAT broke through the 200 day MVA (30.40) in January, tried to hold and then tanked last week on volume. It has spent the last two sessions moving up to test the 10 day MVA, doing so on the high (29.50) and then falling back. Volume was declining again, coming in below average. Looking for a rollover after this test as EAT is now starting its continuing downtrend.
Volume: 618.8K Avg Volume: 793.272K
BUY POINT: $28.94 Volume=750K Target=$25.88 Stop=$29.65
POSITION: EAT PF - April $30p (-57 delta)
http://www.investmenthouse.com/ci/eat.html
Play Date: 02/11/2003
JPM (JP Morgan--$22; -0.1; optionable): Money bank
http://biz.yahoo.com/p/j/jpm.html
STATUS: Put. JPM ran up to the 200 day MVA (now just over 26) in January and ran out of gas. It crashed through the 50 day MVA (24) in one trend lower before moving laterally at 23, trying to consolidate to move higher. It failed at the 10 day MVA. Tuesday it gapped higher back toward the 10 day MVA (22.80) and fell back on rising, above average volume. Looking for it to break some support here at 22 on continued strong volume.
Volume: 12.582M Avg Volume: 10.182M
BUY POINT: $21.74 Volume=12M Target=$18 Stop=$22.85
POSITION: JPM OE - Mar. $25p (-71 delta)
http://www.investmenthouse.com/ci/jpm.html
Upside:
Play Date: 02/11/2003
BHE (Benchmark Electronics--$34.26; -0.19; optionable): Circuit boards
http://biz.yahoo.com/p/b/bhe.html
STATUS: Testing breakout. Despite the tech problems, BHE has continued to trend higher, now forming a month-long lateral move that resembles a small cup with handle. It has moved laterally right at 34 the past week after gapping up to form that 'handle.' Volume has backed off each session, and it looks to be massing for another leg up. Solid accumulation at 11 up weeks on rising volume to 4 down weeks on rising volume. A leader in the recent months and we are looking for it to begin a new leg.
Volume: 262.8K Avg Volume: 395.409K
BUY POINT: $35.15 Volume=500K Target=$42 Stop=$32.69
POSITION: BHE GG - July $35c (54 delta) and/or Stock
http://www.investmenthouse.com/ci/bhe.html
Play Date: 02/11/2003
NTE (Nam Tai Electronics--$33.91; +0.91; optionable): Business equipment
http://biz.yahoo.com/p/n/nte.html
STATUS: Breakout. NTE caught our eye in January, a bit late for its first breakout and test. It has now rallied up the short term MVA, and after a two-week lateral move over the 10 day MVA (32.94) it exploded higher Tuesday. Earnings are due out on Tuesday, so there is some risk here, but it can provide quite a move into that announcement with this strong move.
Volume: 92.7K Avg Volume: 141.227K
BUY POINT: $34.25 Volume=200K Target=$40.15 Stop=$31.85
POSITION: NTE FF - June $30c (75 delta) and/or Stock
http://www.investmenthouse.com/ci/nte.html
End Part 1 of 2
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