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us stock market, stock market result
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2/12/03 Investment House Alerts Report
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IH Alert Subscribers:
MARKET ALERTS:
Targets hit alerts issued Wednesday: None issued
Buy alerts issued: EAT; JPM
Trailing stops issued: SINA
Stop alerts issued: AVP; CURE; DAKT
Another early rally bites the dust.
Stocks opened lower but turned positive. That lasted about a half hour before the buyside bids dried up and the upside momentum died. After that it did not take much selling to push the market lower. It did not roll over hard, but spent several hours just slightly lower before the last hour when it lost what little resilience it had.
Talking with floor traders, the obvious was stated: continuing inaction ahead of the UN inspectors on Friday and how that might speed up or delay war with Iraq, the weekend terror threat, and a report that North Korea has long-range missiles that could deliver a nuclear warhead to the US west coast were all contributing to absolutely no buyer interest. It also did not help that Greenspan was again on the Hill basically stating he was against any tax cut that would create a deficit; investors have been viewing this as at best lengthening the time before any economic package is passed and at worst scrubbing the whole attempt. In any event, it creates more uncertainty as to any economic help, and that also has the effect of squelching buyers.
In the end it was yet another downside session with the market bleeding lower as opposed to breaking lower on massive selling. This is the nervous, 'I am not doing anything' action that takes place with uncertainty. The market is marking time, but unlike what Mr. Greenspan thinks, time alone (at least not in the next year or two) is not going to cure the problem.
THE ECONOMY
It is not just Iraq holding back the economy as Mr. Greenspan suggests. He believes that the economy will grow roughly 3.5% this year if Iraq is resolved and if nothing else comes up. Well, there are many issues piling on that are basically driving business to a standstill. Consumers have tailed off their spending as the worries are finally getting to them. If enough certainty is not engendered and done so relatively quickly, the forecast of 3.5% will fail even if nothing else comes up.
A couple of months ago we went over the litany of events that have clobbered the US economy the past four years. None of these were expected, but as we wrote back in 1999, it is always the unexpected events that hurt the worst. The Fed was hiking interest rates in an attempt to contain the consumer and the economy even as we said he should be letting it run. Then the shocks started to hit, and the economy kept getting knocked back again and again The Fed was behind the curve all the way, and the economy kept falling. Perhaps without all of the setbacks the Fed's slow go monetary approach would have worked. With those setbacks, however, reality was the economy was getting worse. Instead of waiting it was time to act. If the tax cut in 2000 was not passed and the modest stimulus it supplied, things would be truly grim right now.
Buying is now quiet on both business and consumer side.
As it is, things are not good. Confidence in several private polls has tanked. Businesses continue not to spend given the war uncertainty as well as uncertainty about an economic package (why spend now hoping a package that may fail gets passed?). Then end result is that there is a shutdown in business in the US right now. Greenspan's 'wait until Iraq is over' statement is truly shallow and even former Clinton Economic aides were wondering about that statement today. No one knows what is going to happen and there are just too many factors and variations that could play out. What happens in that scenario? Inaction. If nothing occurs to relieve that inaction, the economy slips into the second recession. We would not call it a double dip; the second dip was not going to happen until the recent events. If things don't change, however, it will happen.
Many look back to 1991 as a guide, and it can provide a general outline, but an outline only. What people did then was stay home ahead of the war breaking out, and when it did breakout they stayed home and watched the war. The recession deepened. In 1991, Iraq was all there was. When it was clear that the US was going to be basically unchallenged the stock market took off. This time around Iraq is just the first on a long list of problems confronting the economy internationally and domestically. Eliminating it might give the economy a small boost, but if any of the remaining problems flare up to hot, same story.
We do not mean to be pessimistic. We don't necessarily buy into those saying that the level of private debt will crush the economy and other predictions of economic Armageddon unlike any ever seen in the US. Of course, with the other problems mounting and lingering, that too becomes a greater concern. We were somewhat positive on the economy's prospects for later in the year, but things have devolved. The Venezuela oil strike has lingered and caused steadily increased prices; that can be a lead in to recession if not rectified and especially if it comes with other baggage.
From what we glean from our sources, economic activity has sharply dropped since Christmas. This is also found in the corporate earnings forecasts; it looks as if they are going to start to backslide yet again. Again, the boost from a quick Iraq resolution would help, but unless that is met with continued reason for consumers and businesses to spend (i.e., economic incentives) the economy will be hamstrung again by the remaining problems that are far from resolution. Thus we conclude that Greenspan's wait and see advice to Congress is again off the mark and will only work to keep the economy in the malaise it has recently returned to.
THE MARKET
More classic bear action: an early small rally attempt failed and the indexes finished at the session lows. Volume was lighter, but the SP500 slipped below its recent soft support at 825. It was not a major breakdown and Nasdaq managed to hold above the recent lows though the Dow slipped down to 7750 to some soft support. As for individual stocks there some breakdowns from stocks that had lead to the upside but were starting to struggle (several internet stocks). This erosion of leadership is a sign of a continued weakening market.
At this juncture the indexes are in a steep downtrend that is marked by light volume and low fear levels as measured by the volatility indicators and volume. They have made roughly three tests of the 10 day MVA on the move lower and will be due for another bounce in a couple of sessions. We would be surprised to see that happen before this weekend, however, given the UN inspectors out Friday, the long weekend, and the fear of a weekend terror attack.
Market Sentiment
VIX: 39.1; +1.75. Moving back up toward its recent highs at 40, but no real strong move.
VXN: 47.43; +0.53
Put/Call Ratio (CBOE): 0.9; +0.03
Nasdaq
Further fell below 1300, just missing a new closing low for the year.
Stats: -16.49 points (-1.27%) to close at 1278.97
Volume: 1.219B (-7.43%). Lower volume selling was again more of a buyer strike than selling.
Up Volume: 206M (-470M)
Down Volume: 965M (+406M)
A/D and Hi/Lo: Decliners led 2 to 1. Downside breadth expanding yet again, indicating the selling is spreading out.
Previous Session: Decliners led 1.18 to 1
New Highs: 39 (0)
New Lows: 99 (0)
The Chart: http://www.investmenthouse.com/cd/$compq.html
Tapped at 1300 on the high as the index tried to rally back early, but lost its momentum and rolled over. On the low it just missed a new closing low for the year, but it did close right at the session low. After the Tuesday test of the 10 day MVA (1305) failed, this action is not too surprising as Nasdaq continues its month-long downtrend. It has another session or two of falling before it tries another bounce, and given the events leading up to and during the weekend, we don't think it will rally appreciably back up before then. We look for a test of 1250 as the next support level that could induce a move back up to test the move lower.
S&P 500/NYSE
Fell through 825 to a new closing low on the year. No heavy selling, just slip-sliding lower.
Stats: -10.52 points (-1.27%) to close at 818.68
NYSE Volume: 1.233B (-4.31%). Lower and below average volume selling.
Up Volume: 232M (-161M)
Down Volume: 987M (+94M)
A/D and Hi/Lo: Decliners led 2.21 to 1. Not just the big names were selling Wednesday.
Previous Session: Decliners led 1.44 to 1
New Highs: 28 (-13)
New Lows: 154 (+47)
The Chart: http://www.investmenthouse.com/cd/$spx.html
Similar to Nasdaq, SP500 tapped the 10 day MVA (840) Tuesday and fell, but SP500 fell to a new closing low for the year. It managed to close on the long term down trendline from back in September 2000/May 2001, but we would be surprised if that resulted in much of a bounce at this point. There is a lot of overhang before and during the long weekend that we anticipate will override this potential support level. 800 is the next real support level, but unless the market really rolls over and tanks we believe it will bounce back up in the downtrend before it reaches that level.
DJ30:
The blue chips slid to a new low for the year along with the large caps. The Dow managed to close at some soft support at 7750, but 7500 is stronger. If selling picks up its intensity the Dow could easily make 7500; it did, after all, just break below 7800 that was trying to act as support.
Stats: -84.94 points (-1.08%) to close at 7758.17
Volume: 1.233B (-4.31%)
The Chart: http://www.investmenthouse.com/cd/$indu.html
THURSDAY
Once again the market will open facing fresh lows for the year (Dow, SP500). New lows often prompts some short covering that sends the indexes on a bounce, but after just tapping the 10 day MVA on the Tuesday high, it looks to be a bit early in the move down to look for that type of bounce. As noted, there is plenty of uncertainty ahead of this weekend we anticipate that to keep a lid on the action. Dell reports after the close Thursday, and even if it hits a good number and says things look rosy, that most likely won't help. First, you have those other issues. Second, no one will believe it.
We are looking for a continued slide lower toward the end of the week. There may be some short covering at some point that provides some lift off the lows, but we are not looking for any real short covering rally. Now if nothing happens over the long weekend (Presidents' Day Monday), that could help spur a relief (a real relief) move. That would be just about right with our assessment that there are a couple of days more or less on this current moved down from the 10 day MVA. Thus if we get a pretty steady move down through Friday afternoon we will be looking at closing out some of the downside positions that have moved well.
That is more looking at the market technicals than banking on good or bad news coming out. There can always be good or bad news that gaps the market one way or the other, but the market is a decent handicapper and it tends to move in these patterns that takes the news into account. Instead of guessing about what might or might not happen it is better to let the market point the way. Right now it is pointing down for at least part of the next two sessions before trying a move back up. It can break down here and plunge much deeper as discussed regarding the indexes, but if that happens that will be part of the additional selling before the weekend.
In short, we do not anticipate any change of the trend heading into the weekend. We expect more selling Thursday and then again on all or part of Friday. At that point there will have been 4 selling sessions and time for a relief bounce. On top of that the dollar is slowly improving; if we get through the weekend without any major events that will also provide some support to buck stocks up in a relief bounce.
Support and Resistance
Nasdaq: Closed at 1278.97
Resistance: Price resistance at 1300. The 10 day MVA (1305) and then more price resistance at 1327 from the late December low. The 18 day MVA (1325). July, August, and September interim highs at 1345. 1357, the 1998 bear market low. Exponential 50 day MVA (1354).
Support: 1250 after that is another point where some lows have held.
S&P 500: Closed at 818.68
Resistance: The 10 day MVA (840). Price resistance at 840 to 850. The 18 day MVA (853). The bottom of the October consolidation range at 875. The exponential 50 day MVA (877).
Support: 825 slipped away Wednesday. The September 2000/May 2001 downtrend line at 818. After that 800.
Dow: Closed at 7758.17
Resistance: The 10 day MVA (7947). 8000 is price resistance. The 18 day MVA, the other short term MVA (8073). 8250, the bottom of the October consolidation range.
Support: Soft support at 7750, then 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.
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THE PLAYS:
Good moves: ANF; BLE; CAH; CELG; CVH; DCX
New:
Downside:
Play Date: 02/12/2003
PNRA (Panera Bread--$27.6; -1.12; optionable): Specialty food
http://biz.yahoo.com/p/p/pnra.html
STATUS: Put. PNRA has been in a strong downtrend since early January and has made us some money in the past. Tuesday it bounced up off a doji to test the 10 day MVA (28.80). Wednesday it tapped the 10 day again and then turned over and closed lower on rising volume. We really like the reversal at the 10 day MVA in a continuing downtrend. This is the second test of the 10 day MVA during this downtrend and we are using it to enter for another part of the downtrend as there is plenty of room to the downside.
Volume: 1.518M Avg Volume: 689.09K
BUY POINT: $27.48 Volume=1.2M Target=$24 Stop=$29
POSITION: UPQ QF - May $30p (-62 delta)
http://www.investmenthouse.com/ci/pnra.html
Play Date: 02/12/2003
TARO (Taro Pharmaceuticals--$31.08; -0.35; optionable): Drugs
http://biz.yahoo.com/p/t/taro.html
STATUS: Put. TARO is really starting to get into its downtrend after having broken and failed a test of the 50 day MVA (34.70). Friday it plunged through the 200 day MVA (31.62) and has made a low volume rally up to test that level. It did that on Wednesday and fell back. Looking to jump on to the downside on a failed attempt to retake the 200 day. It can fall fast when it starts to fall.
Volume: 186.914K Avg Volume: 351.363K
BUY POINT: $30.94 Volume=300K Target=$27.35 Stop=$32.05
POSITION: QTT PG - April $35p (-74 delta)
http://www.investmenthouse.com/ci/taro.html
Revisited:
Play Date: 02/10/2003
BPRX (Bradley Pharmaceuticals--$12.58; -0.21; optionable): Drugs
http://biz.yahoo.com/p/b/bprx.html
STATUS: Put. Tapped at the 18 day MVA (13.22) again on the high and rolled down on rising volume. Looks like a failed test of the 18 and 50 day MVA, and it is still in the buy zone.
Volume: 206.185K Avg Volume: 218.409K
BUY POINT: New: 12.54 (orig. $12.64) Volume=250K Target=$10 Stop=$13.48
POSITION: BUB PC - April $15p (-50 delta)
http://www.investmenthouse.com/ci/bprx.html
End Part 1 of 2
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us stock market
stock market result
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