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us stock market, trend trading stock
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3/29/01 Investment House Daily
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Investment House Daily Subscribers:
TONIGHT:
- Web Seminars
- Dow a bit indecisive, and looking weaker.
- Nasdaq tries to toe the line at 1800, and MU's earnings won't hurt.
- The quarter is over this week. Will that bring more confessions on Monday? Downgrades?
- GDP a tenth lower, and jobless claims fall for first time in 2 months.
- Subscriber Questions.
- Team Trades.
INVESTMENT HOUSE ONLINE SEMINARS
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Learn how to read the market and the strategies you need and at the same time gain the confidence that underlies all good investors. Our seminar series shows you what we look at: what stocks to consider, the right patterns, the right strategies.
As noted last night, the seminars are starting to fill up. If you have not signed up yet, we look forward to hearing from you soon! The on-line format is an extremely simple, effective and powerful way to learn. These are real time, interactive sessions made for give and take between the instructors and the attendees.
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THE SUMMARY
Dow finishes positive, but it was no show of strength.
The Dow continues its attempts to find its true identity with another choppy session. It was all over the map, gapping lower, racing higher, crashing back down to the lows, and rallying again in the last hour. The 110-point move in the last hour was impressive, but we saw that action Wednesday before it tanked on today's open.
Moreover, volume peeled back 5.5% on the gain, underscoring the indecision reflected in the price swings. When the smoke cleared, the index showed us a doji on the candlestick chart with a close just below the 10 day MVA. But, it did hold above the 9750 level where there is some support. It can be read either way, but on the scale of investing, it looks weaker than it is stronger. We are looking to play the downside on this index one more time.
The S&P 500 and S&P 100 showed similar action, tossing out a doji after tapping at the 10 day MVA on the high (1161.69). Volume was lower on the fall as it should be, so there is something of a question mark here as well. The selling on Wednesday was on slightly lighter than the buying on Tuesday. Technically the price/volume action is the way it should be, and that casts doubt on an otherwise weak pattern. A little bad news from some more big names could send it lower. Futures are up after hours, however, and it is showing some life. Maybe a bit of a bounce Friday before more selling. It may be ready to try and break the downtrend, but we will have to see it. Our money is on maybe another test of the resistance, but the downtrend is still well in force.
Nasdaq stands its ground pretty well.
The Nasdaq was fighting hard all morning, but then gave it up in the afternoon. It looked as if a rout was in the making, but the Nasdaq hit 1802.76 on its low (prior low for the year was 1794.21 intraday) and bounced 15 points to the close. The candlestick chart showed us a doji while volume came in slightly higher (1.5%). Okay, you say, it sold down on higher volume, a continuation of Wednesday's distribution. That is a bad thing and means more downside. Yes, it was not a show of strength, but there are some items to note.
Primarily, though the Nasdaq sold down, the price loss was -1.8% versus -6% Wednesday. When a stock or an index sells on rising volume but the price loss shrinks, that is an indication that the move down is slowing. The reason: there are buyers stepping in. Think about it. The volume was higher on a down day. If buyers were not stepping in, the loss should be as much or more than the previous session as volume stepped up the pace. No, buyers were stepping in and doing some buying; not a lot of buying, but it was enough to slow down the train.
Second, the candlestick chart was a doji right on top of the previous low after testing that low. That is another indication that the index could be once again trying to find bottom here for another bounce. Great if it does, but after the immediate distribution day after a follow through day on Tuesday, we get a pretty clear image of more sellers out there than buyers. The Nasdaq is definitely trying to hold up here, but it has yet to put together the solid numbers together. It appears to be trading in a range from 1800 to 2000. Maybe it will pull one out of the hat here, but with anticipation of some bad news early this week, it will be tested. We were playing it to the downside today, and we could have (should have?) taken some good profits when the Nasdaq was fighting with its low late in the session. After hours it is up and futures look better. We may get stung tomorrow and in retrospect wish we had sold, but the index is in a downtrend and we anticipate more bad news ahead. We believe that investors may start selling into any rally (if one appears) tomorrow ahead of possible bad news coming out over the weekend and on Monday as the first quarter closes the books. Still, we cannot let any position get away from us.
THE ECONOMY
Fourth quarter GDP grew at a revised 1.0% in the first quarter, down from 1.1% as previously reported. No real major surprise here; this is looking back and we feel there is pretty solid evidence that there has been some improvement in the economy this quarter.
Jobless claims fell, coming in at a lower than expected 362,000, down 20,000 from the prior week (382,000, revised higher from 379,000 originally reported). Expectations were for 375,000 new claims. The four-week moving average fell to 374,750, down from 377,750 the prior week. That is the first decline in this measure in 8 weeks. That is good, good. The new jobless average was starting to get too close to the 400,000 level that is a sign of a recession. We want to see that thing continue to move down, but when Delphi cuts 11,500 jobs in the latest job cut news, it seems as if the economy is fighting an uphill battle.
THE MARKETS
Trying to show some life, but the pulse is not strong. Still, the grave is not dug yet either.
Overall market stats:
VIX: 33.83; +0.61. Volatility rose fractionally even though the session was all over the map. It remains above 30, an indication that there is still significant apprehension in investors. Still, significant needs to turn into white knuckle fear for a session or two.
VXN: 73.22; +4.85. A sharp gap higher on today's selling after really going nowhere on Wednesday's slaughter. Kind of a delayed effect. Well off of its recent peaks at 78 where the Nasdaq found bottom and charged higher. Perhaps it will find it tomorrow, but remember, this is a secondary indicator.
Put/Call ratio (CBOE): 0.91; +0.05. Edging higher in a choppy, mixed market. Overall volume remained flat at 1.12 million. No real jump in option activity, just more put activity. Maybe some short covering going on as well, but not a lot of action in options. We prefer to see the option activity balloon along with a sell off in the markets. That would show real fear.
Sentiment: Bulls and bears are getting cozier. Bullish writers dropped to 48.9%, the lowest in 20 weeks. Bears rose to 30.9%. They are not cozy enough, however. They should stare at each other as bears overtake bulls.
Remember, however, sentiment is a secondary indicator. While the fear being measured in surveys is not high compared to historical levels, it may be enough. What we have to keep our eye on is the pattern the indexes are setting up, the price/volume action, and whether there are solid, leadership caliber stocks ready to breakout.
NASDAQ: As noted, the techs tried to toe the line, and they did a decent job, recovering at the close. Still the selling was on higher volume, indicating the sellers were still in control for now as the big caps on the Nasdaq 100 took the brunt of the selling once again.
Stats: Down 33.56 points (-1.8%) to close at 1820.57.
Volume: 2.1 billion shares (+1.45%). Down volume dropped about 300 million to 1.573 billion shares as up volume rose to 468 million (144 million Wednesday). There were indeed more buyers out today.
A/D and Hi/Lo: Decliners continued to hold the lead, but dropped significantly to 3:2 (2.37 to 1 Wednesday). Much better, but not great. New highs rose to 44 (+8) as new lows rose as well to 262 (+71).
The Chart: http://www.investmenthouse.com/cd/$compq.html
As noted above, the Nasdaq was still distributing today, its second straight day after its confirmation of last Thursday's reversal. However, there were more buyers in play today, and the index held above support showing a doji on the candlestick. It appears poised to try a move up, but we will have to be convinced with another shot of strong volume. It is still within the reversal, so the 'rally' is technically still in effect. The lack of strength, however, leaves us believing it is on thin ice.
Dow/NYSE: The Dow was up and down all session, and when the bell rang it just happened to be on an upswing (at least that is the way it looked). In another 10 minutes it may have been heading the other way as it ran into its 10 day MVA. The gain was on lighter volume, and we remain unconvinced it is heading higher for good.
Stats: Up 13.71 points (0.1%) to close at 9799.06.
Volume: NYSE volume fell to 1.074 billion shares (-18.1%). That is a significant drop on the gain. That always puts up a big question mark as we wonder where the buyers were. Down volume led 660 million (down 200 million) to 564 million shares to the upside (150 million higher).
A/D and Hi/Lo: Declining issues continued to lead, but dropped to 1.04 to 1 (1.82 to 1 Wednesday). New highs rose to 70 (+8) while new lows rose to 66 (+20).
The Chart: http://www.investmenthouse.com/cd/$dja.html
The Dow rallied off of its lows to end the session, always a positive. At 110 points, it was not an insignificant move. The candlestick pattern shows a doji with a close just below the 10 day MVA and above some support at 9750. Declining volume on a move up is not what you want after higher volume selling the previous session. It may make another run at 10,000, but overall the index looks weak to us. The Dow has been a wild ride, but don't check your roller coaster tickets for the merry-go-round just yet. We think it is going back down.
S&P 500: The big caps mirrored the Dow's action today, selling off their highs, but then recovering 12 points on the close. It closed lower on lower volume, technically what you want to see. Indeed the recovery from 1136.26 at the close was also a positive sign. As with the Dow, however, it is right at the 10 day MVA (tested on its high at 1161.69), and that may provide resistance given the doji pattern the candlestick chart showed us. It has risen to the 18 day MVA at 1175 the prior two runs before it sold back. Might try it, but it tends to mirror the Dow, and we feel the Dow is in trouble.
Stats: Down 5.34 points (-0.5%) to close at 1147.95.
Volume: NYSE volume fell harder, 1.074 billion shares (-18.1%).
The Chart: http://www.investmenthouse.com/cd/$spx.html
TOMORROW
Friday's come fast in an up and down market. Tomorrow the big news is the personal spending, Michigan Sentiment, and the Chicago PMI. Income is out before the open, but sentiment and the PMI hit 30 minutes into the session. They are expected to show improvement over last month. With harsh reality finally hitting home with investors, i.e., that the Fed is not going to rush in with more rate cuts, they are actually warming to the idea that improving economic numbers are the good thing they are. No more of this burn the house down to toast the muffins mentality.
Perhaps that will give the market a boost. The Nasdaq could very well be poised to move higher, and the Dow and S&P might try to blow past the 10 day MVA to the 18 day MVA as they did last time. MU beat the street after hours, and the futures on the S&P and the Nasdaq were about 5.5 points above fair value. If we do see that, however, we are not ready to jump headlong into any old rally. We have seen the semiconductors jump up each session only to pullback. They are still holding on above support (except for AMAT, one of our puts that broke support on higher volume today) and can rally, but they have a ways to go to bolt out of their patterns. That means they may move up, but they have to deal with resistance after already running a pretty good race. Unless we see a volume surge again as we saw last week, the odds of failure are pretty high.
That means we may not get to enter the put plays we are looking at in the reports, but we don't have to trade every session (at least not to the downside). We have to patiently let the trades set up for us. The price/volume action the past few days has told us a lot we believe. The Nasdaq showed confirmation, but then has sold on higher volume the following two sessions. The Dow surged off of its low and it is trying to hold on as it sells back. Volume has been decent and it and the S&P could still turn to the upside for the short term, making a run at 10,000. Many patterns do not look solid, however. We are picking out the best of the best, and they are performing well, but overall patterns are not sharp.
That is even truer on the Nasdaq with its former leaders. They have broken down and were leading to the downside today. Looks as if they might try to rally the troops tomorrow, but unless the semiconductors, the best looking group on the whole index, can put together gains that take them up out over the resistance they have been hitting, the odds of success are still not great.
So, we are patient in playing the downside trend, letting the plays develop. We had some great ones today in the QQQ, CHKP, FLEX, NEWP and others. The trend is still down, and if the resistance holds again after a surge higher, or if bad news sends it lower from here, we will move in to play the trend that is in place. We will continue to make the other plays to the upside as they breakout, make their pre-split runs, roll up in their range, etc.
We still anticipate some bad news early next week, and if the indexes run up into it, that will make the downside all that more rewarding. We can play the move up if we get the breakouts we are looking for, but we have to remember we are still in a downtrend and the market has to show us it has changed its stripes. It is trying, but it is not there yet.
Support and Resistance Levels
Nasdaq: Closed at 1820.57.
Resistance: 2000 appears to be the top of the recent range. Then 2030 to 2050. Then 2250 to 2300.
Support: 1750 to 1800.
S&P 500: Closed at 1147.95.
Resistance: 1185. The down trendline is at 1190.
Support: 1085.
Dow: Closed at 9799.06.
Resistance: The 18 day MVA at 9950. There is a down trendline that is now at 10,245 and there is resistance from price lows at 10,300.
Support: 9750 is some support. 8750.
Weekly Economic Calendar (All times Eastern). The figures are the consensus expectations, not ours.
3-26-01
Existing Home Sales, February (10:00): 5.18M actual versus 5.04M expected and 5.20M prior (reviesed higher from 5.13M).
New Home Sales, February (10:00): 911,000 actual versus 912,000 expected and 933,000 prior (revised upward from 921,000).
3-27-01
Durable Orders, February (8:30): -0.2% actual versus 0.5% expected and -7.3% prior (revised down from -6.0%).
Consumer Confidence, March (10:00): 117 versus 105 expected and 119 prior (revised higher from 106.8).
3-29-01
Initial Claims, 3/24 (8:30): 362,000 actual versus 379,000 expected and 382,000 prior (revised from 379,000).
GDP-Final, Q4 (8:30): 1.0% actual versus 1.1% expected and 1.1% prior.
Chain Deflator-Final, Q4 (8:30): 1.9% versus 1.9% prior.
Help-Wanted Index, February (10:00): 76 versus 76 prior.
3-30-01
Personal Income, February (8:30): 0.4% versus 0.6% prior.
PCE, February (8:30): 0.3% versus 0.7%.
Chicago PMI, March (10:00): 44.0% versus 43.2% prior.
Michigan Sentiment Rev., March (10:00): 90.5 versus 91.8
SUBSCRIBER QUESTIONS
Q: Can you explain why SOX performance has such significant impact on the tech stocks overall?
A: The chips, as a group, have been showing the best patterns for the past three months. They are not stellar patterns, but they continue to recover and form up again after each setback. They do this because they have historically been a leadership group. Moreover, the chips (other than the telecom chips, e.g., AMCC, BRCM) have actually been rising this year while other tech sectors have been falling. In what is widely believed to be a technology wipeout, the chips have shown remarkable relative strength. Their patterns are the best, and if they can break out of their ranges, they can lead the techs considerably higher.
TEAM TRADES
VRTS: One of the downside plays we have been looking at, and also a software company. These have been rumored as ready to come clean next week.
The stock opened at 46.55 after closing at 47.50 the previous session. The stock took a shot at its 5-minute MVA at 8:46 CT, reaching 46.39, but was immediately turned down, so we began looking at options, which were trading at 16.40 by 16.80. Put in a bid at 16.75.
The stock continued to drop, reaching a low of 43.56 by 9:15 until it bounced with the Nasdaq. It broke back over the 5 and 15 minute MVA and tapped 46. On lower volume the stock turned back down as the Nasdaq pulled back slightly, holding above the 15 minute MVA, as the index turned into positive territory, at +7.27. VRTS was showing a couple of dojis just under the moving average, tapping on its highs just over the moving average indicating a possible move down if the index failed to rally higher; indeed, at 9:47 VRTS dipped below the 5 minute MVA, and from there dropped on 7.8 million volume (still well below average). That would have been a safer buy point, but by being aggressive we eked out a bit more of the move, getting in earlier (after the news that software companies may not know their quarters until the last few weeks).
At 2:34 we saw the stock testing 43 again, up off the low of 42.13, but the 15-minute moving average was holding it back until 2:55, when VRTS broke back over the resistance to test 43 again, trying to hold just above that level as volume picked back up again. We were not watching, and could have ended the trade at the 42.50 level, because buying volume was showing stronger on the interval chart, popping the price back up. The options pulled back to 18.80 by 18.90, maddening. Still, the stock was sharply lower on sharply higher volume; we think software may have more trouble ahead of next week.
For a review of frequently asked questions, please use the link below:
http://www.investmenthouse.com/1questions.htm
End Part 1 of 2
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