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us stock market, trade stock
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2/13/03 Technical Traders Report Update
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Technical Traders Report Subscribers:
MARKET ALERTS
Targets hit alerts issued Thursday: None issued
Buy alerts issued: GPN
Trailing stops issued: MERQ
Stop alerts issued: Cleaned out laggards that were starting to crack. NXTL; MRCY; ANF; ROK; BBY
You can sign up for Stock Split Report alerts at the following link:
http://www.investmenthouse.com/alertttr.htm
SUMMARY:
- Selling on continued war and terror rumors gives way to last hour short covering.
- Retail sales did in fact hang on in December and January as expected, but they are slumping now.
- Furious rally late in session recovers losses after plunging to another new low.
- Subscriber Questions
Market reverses the pattern, selling first and rallying late.
Rumors of another Bin Laden tape and general worries regarding this weekend and possible terror incidents (along with several reports of incidents at schools and airports regarding suspicious packages, hand grenades, etc.) had the market selling once again. Each rally attempt was pushed back as the selling continued.
There was a bit more volume associated with the selling Thursday, and the breadth was very poor at -2.3:1 on the NYSE in the early afternoon. As the indexes cut to a new low with just over an hour left some shorts started to cover. It might have been the UN inspector speech Friday or it may have been nothing specific at all. In any event, shorts started covering and that started the market higher. There was also a big buy of OEX call options; we hear that a lot of that was covering a short position.
The covering also led to some speculative buying given the general idea circulating today that the market was oversold. It is somewhat oversold, but the overhang is tremendous heading into the weekend. In short we do not think the recovery Thursday indicates any big bounce higher. DELL met estimates after hours and affirmed its next quarter guidance. That was met with almost euphoria (as close to it as this market can get, that is), indicating that the market is starved for anything positive. In reality the earnings were not great, showing no surprises, but people are so used to disappointment and the prospect of receding corporate earnings that they got carried away. Dell is not starting a new growth path, just stealing more market share in a dismal PC market. Thus, any euphoria on Friday could very well get slammed back rather hard. The rally Thursday was so sharp and furious that it has the look of a one-day wonder rally
THE ECONOMY
Surprise! December sales were not that bad after all, and January hung on as well.
We said at the time that it looked as if there were going to be a lot of vehicles under the tree at Christmas, and sure enough that is what happened. December's retail sales were revised higher to 2% from 1.2%. Take out autos and they rose 0.2% versus the 0.0% first showing. Not very exciting, but it did show that consumers did what they had done all 2002: alternated their spending between various sectors. The still spent respectably overall; it was just the month to buy vehicles as we saw in other months of 2002.
In January overall sales fell more than expected (-0.9% versus -0.6% expected), but this time it was the autos that were not selling. Take out car sales and spending rose 1.3% versus the 0.5% gain expected. Consumers were still spending, they simply shifted their emphasis again, moving in January to pick up on post-holiday sales.
That is all well and good. Problem is, reports we are getting from our surveys across the nation are showing that the consumer is pulling back this month as there is a real concern about the economy now. That concern has been growing over the past 4 to 5 weeks but is now manifesting in overall lower consumer activity. The business side? It was showing some life, but the recent tensions regarding war, Venezuela, and now the headwinds against any tax and economic plan because we 'cannot afford it' (remember how we also could not afford it when the economy was blowing and going? Sure you do. And the reason? Because Congress wanted to have every penny it could take in to fritter away on special interest projects) have shut spending down. No business is willing to start any projects or larger acquisitions without some certainty as to what the tax ramifications will be and without an idea of what the Iraq war will do to the economy. Things have come to a standstill before a war once again, and they are not looking to improve until that is moving down the road.
Weekly jobless claims fall again, but are not making enough progress.
Jobless claims came in at 377K, down 18K and lower than the 390K expected. The 4-week average rose to 389K, up 3500. Continuing claims fell 12K. What does this show? Not much. While claims are not rising, they are still within the statistical margin of error. At best they show the absence of further deterioration, but with some hefty job layoffs announced in the past three weeks that could change over the next two months. It is safe to say the job market is not improving as shown by the weekly figures despite what those trumpeting the recent employment report. As we discussed, those results are so obscured they don't come close to reflecting reality, particularly when the Labor department just switched its database to reflect the new census. As the disclaimers on many advertisements say, individual results may vary.
THE MARKET
Volume was up Thursday as the market sold on stronger volume and then rallied back furiously in the last hour as volume continued to rise. What does that all mean? Well as we said in one of the late market alerts, some will call it a reversal day as the indexes tested lower and rallied back close to flat on a solid volume increase. There is no doubt it was an intraday reversal, but it sure does not look like a rally led by buyers wanting to hold longer term, i.e., buyers that believed the market was ready to rally sharply.
Breadth was very poor on the selling, reaching well over -2.2:1. Volume was up on the selling. After hitting new lows for the years the markets rallied furiously back; the Dow shot up 80 points in just under two minutes. Breadth improved, but it was still weak at the close (roughly -3:2). What started it all was short covering on the large cap issues that had been hammered to the consistency of refried beans. Then there was a big OEX call option trade that further sparked the move. The short term trading shorts were ready to cover and that sent the move up. Lots of talk about an oversold market helped the rally.
When the dust settled the indexes remained slightly negative after peeking into positive territory right before the close. The action suggests a further rally on into Friday simply on momentum. Certainly Dell was being treated as a savior after hours on earnings that simply met expectations; investors were slathering all over it after hours like an abandoned puppy on a kid with a hotdog. Call us cynical, but with the long weekend of uncertainty ahead on many fronts, this reversal and love fest with Dell looks short-lived. It may jump up early, but we think it is a one-day event and that the market will it difficult to move up ahead of the weekend.
Market Sentiment
VIX: 38.45; -0.65. The reversal took it back off of its high at 40.68.
VXN: 50.97; +3.54. Still light years from the 70+ readings at the bottom of a market.
Put/Call Ratio (CBOE): 1.18; +0.28. Another close over 1.0 even after the rally back, but we also note that again there was some heavy activity with respect to some big money/institutional spreads. That limits the significance of the reading though we note that it was still very high earlier in the session before the rally back and the OEX option trades.
Nasdaq
Was plowing some much lower ground when it reversed and rallied back to flat.
Stats: -1.53 points (-0.12%) to close at 1277.44
Volume: 1.329B (+9.08%). Volume was up but not a huge jump as the index reversed. Overall volume remained below average.
Up Volume: 508M (+302M)
Down Volume: 766M (-199M)
A/D and Hi/Lo: Decliners led 1.45 to 1. Finished flat but decliners were still significantly in the lead.
Previous Session: Decliners led 2 to 1
New Highs: 40 (+1)
New Lows: 149 (+50). New lows continued to expand to the highest level in weeks even on a sharp rebound from the lows.
The Chart: http://www.investmenthouse.com/cd/$compq.html
Tapped 1261.79 on the low as wave after wave of selling turned each rally attempt on its head. When it hit the low it was near some support at 1250, but that really was not the turning point. There were some shorts covered and a big OEX option trade that started the SP500 up and that set the whole market on the mend. Nasdaq just tested the 10 day MVA (now right at 1300) Tuesday, and it may try to bounce further here on the Dell news, but we don't see a major recovery just yet given the continued massive uncertainty before the weekend.
S&P 500/NYSE
All indexes showed similar action, sliding lower and lower in the downtrend and then reversing with a ballistic one-hour rise that started 1.5 hours before the close. The action was so characteristic of short covering it seems rather foolish to try and label it as anything else.
Stats: -1.3 points (-0.16%) to close at 817.37
NYSE Volume: 1.467B (+18.96%). NYSE volume jumped well above average. As with Nasdaq, it was running hotter before the upside rally started, but there is no question that the short covering jumped up the volume. Indeed that is characteristic of short covering.
Up Volume: 518M (+286M)
Down Volume: 934M (-53M)
A/D and Hi/Lo: Decliners led 1.44 to 1. Decliners led well over 2:1 right before the shorts started to cover.
Previous Session: Decliners led 2.21 to 1
New Highs: 22 (-6)
New Lows: 204 (+50). Expanding new highs even on the reversal. That is a sign that a few stocks recovered in the NYSE as opposed to a broad rally back up. That is another sign of short covering as opposed to broad based buying.
The Chart: http://www.investmenthouse.com/cd/$spx.html
Rallies start with short covering, but this does not look like the start of a major upside move. On the low the SP500 hit 806.29, just over some soft support at 800. The SP500 has sold a long was down from 862 to start the month, but it is not what you would call really oversold. The intensity of the Thursday selling started punching up the oversold condition, and that got some shorts to decide to cover ahead of the UN inspector report and Dell's earnings. This was no dramatic move, and the SP500 still has to deal with 825 near term as well as the 10 day MVA (836). It would be very hard pressed to reach the 10 day MVA Friday, and we think after an early pop higher it will turn back over.
DJ30:
Plowed through 7750 and then found support in the middle of nowhere (7628.99) to stage a rally to recover to 7750. Dow volume moved up to average on the selling and recovery as the Dow showed a tight doji on the action. That can signal a move higher, and we are expecting a bounce early Friday as a follow through move to the Thursday rebound.
Stats: -8.3 points (-0.11%) to close at 7749.87
Volume: 1.467B (+18.96%)
The Chart: http://www.investmenthouse.com/cd/$indu.html
FRIDAY
The market is starved for good news and after hours when Dell hit its estimates and affirmed for the current quarter it was as if Dell had upped estimates 25% and said business had made a major turn. It was a great quarter for Dell, but it was all about Dell in that it did so well by shoving its model down the throats of competitors, stealing their business as well as continuing its cost savings. From time to time we see reactions to companies that improve performance without an overall improvement in business climate. Again, it is great for Dell but not for the rest of the economy.
Given the recovery and the reaction to the Dell results we are anticipating a pop on the open as a follow through. Momentum was backing off during the last half hour after the initial surge in the recovery, but there was still interest. Dell helped refocus that, and though futures are a bit down after hours, there could be some continued enthusiasm early Friday.
We are going to be very wary of any higher open, particularly a gap to the upside. In a downtrend a reversal session followed by a gap higher often ends in failure of that move. Sometimes the rally back manages to last through the session, but with the long weekend coming and terror threats every way you look it is very unlikely that buyers will be ready to jump in. Further, while there might be some more short covering early in the session to square up some positions, we doubt there will be a big run to do so Friday; the major short covering occurred Thursday. On top of that the dollar weakened Thursday after mounting a small recovery over the past week, and that will continue to pressure the market.
In the final analysis we don't see any change in the market other than it is getting a bit longer toothed in the downtrend. It will need to test the downtrend in the near term and perhaps Thursday was the start of that; as outlined above we do not think it will continue that move Friday, but after the weekend it will be ready to do some regrouping if nothing major happens. There has been so much hype over a possible attack that it will be relief to just get past the weekend. Before that it will be very nervous trade.
Friday we will use any early bounce to clear out of upside positions that are struggling and need a bounce to get a good exit point. As for the downside we will ride out any early bounce and look for the market to resume its slide ahead of the unknown and long weekend. If we get a good push down after that we will bank some profit ahead of next week. If there are some really good looking downside plays we will venture some positions, but ahead of the weekend we won't get very aggressive. If nothing happens over the weekend, the market will be ready to move up after a long string of selling, ready to test the downtrend with a bit of force.
Support and Resistance
Nasdaq: Closed at 1277.44
Resistance: Price resistance at 1300. The 10 day MVA (1300) and then more price resistance at 1327 from the late December low. The 18 day MVA (1320). July, August, and September interim highs at 1345. 1357, the 1998 bear market low. Exponential 50 day MVA (1351).
Support: 1250 after that is another point where some lows have held.
S&P 500: Closed at 817.37
Resistance: The 10 day MVA (836). Price resistance at 840 to 850. The 18 day MVA (850). The bottom of the October consolidation range at 875. The exponential 50 day MVA (875).
Support: The September 2000/May 2001 downtrend line at 816. After that 800.
Dow: Closed at 7749.87
Resistance: The 10 day MVA (7911). 8000 is price resistance. The 18 day MVA, the other short term MVA (8039). 8250, the bottom of the October consolidation range.
Support: Soft support at 7750 held on the Thursday comeback, then 7500.
Economic Calendar
2-13-03
Retail sales, January (8:30): -0.9% actual, -0.5% expected, 2.0% December (revised from 1.2%)
Retail ex-autos: 1.3% actual, 0.5% expected, 0.2% January (revised from 0.0%)
Initial jobless claims (8:30): 377K actual, 385K expected, 394K prior (revised from 391K)
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.
SUBSCRIBER QUESTIONS
Q: Johnson has been pretty accurate, and he's getting awfully negative right now. Other reasons to take pause here. Not so much to exit equities, but more to either hedge by buying puts or selling covered calls to generate income in a falling market. Watch for the war, as it should provide a pop to the market, but it may not last very long. This is just my humble opinion.
A: Yet a good humble opinion. Maybe Greenspan will be right and a quick Iraq war will have us all happy by Memorial Day. That kind of rose colored outlook is what has hurt the economy and the market all along. Everyone thinks that because the economy has always recovered that it will do so just fine again. No one really doubts that won't happen, but how long will it take? We just came out of a stock run and then crash with only one other real comparison. The economy is also working out of that tank. After such a run up and collapse, it could take years to mend on its own even with low interest rates (Japan ring a bell?). Given all of the added baggage of the terror war, higher oil prices, North Korea, etc., even a healthy economy would be in a fight. To just let it sit without real help is foolish. To worry about a $300 billion in deficits over the short term to the extent you would rather do nothing is a collossal blunder. If we do that we will look back on this period as the time that the US lost its economic power, the very scenario we laid out 3 years ago.
As for getting defensive we have been looking to puts mostly and calls on some stocks that always seem to make the comeback after the selling is over (e.g., QLGC). If a stock totally breaks down, however, it can lose 50% or more of its value and you won't make that up on a covered call sale. After two weeks of a month of downtrend the market is soon due for a bounce. We think it will wait until next week to really start, and the start of the war could provide some more upside once the first strikes are known to be successful. Unlike 1991, however, after we get rid of Hussein we cannot sit back with the contentment of believing all obstacles are removed. It is simply time to go down to the next item on the list. And of course there is the long term battle on terrorism with a clever opponent who outsmarted our commanders during the Tora Bora seige.
Thus the 1991 comparison is too easy, too simplistic. We do expect a rally on that simply because there is so much downside already built in and stocks do not stay in severe downtrends indefinitely; they move up to higher levels to test higher support and that can take weeks not days. If we could take economic steps to stimulate domestic activity as well as do what we have to do to protect ourselves we would at least be putting up a fight. Right now there is not enough push for the former to get done quickly, and that is a big part of the problem. And the most galling is that Greenspan is pushing a Japanese attitude to Congress; Japan took a wait and see approach and lost. After looking as if we were not going to follow its footsteps we are now doing just that, waiting too long and throwing too little at a major problem. That is why I am negative.
End Part 1 of 2
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