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2/18/03 Investment House Alerts Report
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IH Alert Subscribers:
MARKET ALERTS:
Targets hit alerts issued Tuesday: None issued. Some good moves but let the run.
Buy alerts issued: None issued
Trailing stops issued: WFSL. Took the money off the table as not moving.
Stop alerts issued: None issued
SUMMARY:
- Rally broadens but volume mostly fades as buyers still hard to come by.
- New York manufacturing survey falls sharply.
- DJ30, SP500 overtake 18 day MVA, but volume is poor.
Solid upside breadth for a change but no volume to back it up.
The rally started last week with narrow breadth indicating predominantly short covering was driving the bounce back up in the overall downtrend. Tuesday breadth spread out as the SP-400 mid-cap index came to life and posted the second best gain of the larger indexes. Small and mid-caps have been lagging, and the mid-caps came in and provided some breadth to the rally.
The emergence of the mid-caps on the upside indicates there were some 'real' buyers in the market Tuesday, i.e., investors entering to buy and hold some stocks longer term. When it was just the large cap brand names rallying (hence the narrow breadth last week) the action was fairly clearly limited to short covering. When the smaller cap, less frequently shorted stocks move up as well, that indicates some upside money being put to work.
Not a whole lot of money, however. NYSE volume was significantly lower on the session while Nasdaq volume edged just higher. Perhaps the snowstorm had something to due with the lower volume, but with electronic order placement that excuse holds less and less water. What the lower volume means is that the move still involved short covering and not a lot of upside buying strength. Rallies start with short covering, and if they are going to last they need buyers to step in. It is too early to tell if this rally attempt will succeed as it would have to post a follow through session starting Thursday through Tuesday. With the lack of many good upside patterns and the steep downtrend, it has its work cut out for it.
THE ECONOMY
New York PMI weakens.
It received no headlines and it was mostly overlooked in a day of selective cognizance, but the New York manufacturing survey plummeted to 1 from a prior reading of 18. New orders held on better, posting just a 6 point drop from 18 to 12, but the picture painted is what we have been hearing from some regional sampling we have been doing. These regional surveys are mostly business sentiment surveys, the business version of the consumer sentiment reports. Thus they are not made up of hard numbers, but a mix of feeling and fact. The downturn in the New York number reflects the near term uncertainty businesses feel with Iraq, the terror alert, oil prices, general panning of the US by the rest of the world, North Korea, and the status of an economic package to hit the high points.
THE MARKET
The major indexes moved over their 18 day MVA, breaking the steeper shorter term downtrend. Most of the work was done by some large cap stocks that got some more significant volume, mainly some big technology names. That helped edge Nasdaq volume higher, but volume remained low in the rest of the stock world. Many techs moved up sharply on volume while most stocks edged higher in their downtrends, tapping at resistance on lower volume.
That sets up a tale of two markets. There are stocks wedged in their downtrends, moving up to test the trendline on lower volume while some big names attempting to make a move beyond their downtrends on better volume. They are not in great patterns, but they are getting both short covering and some longer term buyside interest.
Most stocks are not doing the same, however, as they rally as well (good breadth shows that), but the volumes are weak. Maybe the big names can lead them out of the downtrend, but as of yet the majority have still not cleared their downtrends and are not attracting the upside volume. Perhaps those big names will provide a follow through session (another big gain on strong volume Thursday or later), but it is very important not to get too excited. It has been awhile since the big names have rallied. We like to wait a few days after the initial rally, however, because in downtrends the moves start with some shorts covering and a few institutions buying, but if there is not a big and broad buying spree as shown by broad gains on heavy volume, it can be just a few institutions painting the tape, and then you get meltdown again. This is particularly important when there is a lack of strong patterns, i.e., stocks are just turning back up from being in a straight and steady downtrend. They tend to run up, then fade again before consolidating laterally a bit more and then making a more significant run.
We always talk with floor traders as well as brokers around the country each session, and at the end of the day they were happy to see upside, but most all said they were looking at shorts still covering and pointed to the lack of overall volume. We heard more than once today the expression about investors getting back in, swimming a couple of laps, and then getting back out soon.
Market Sentiment
VIX: 35.56; -1.54
VXN: 48.4; +0.02
Put/Call Ratio (CBOE): 0.81; -0.17
Nasdaq
Large cap techs continued higher on some stronger volume. The volume was focused in a few big names as overall volume was higher but still weak as techs cleared the 18 day MVA and closed near the 50 day.
Stats: +36.37 points (+2.78%) to close at 1346.54
Volume: 1.32B (+0.59%). Ever so slight volume gain as volume continued below average on the move. No groundswell of buying but volume is a hair higher than it was in the latter part of the downtrend.
Up Volume: 1.146B (+43M)
Down Volume: 158M (-32M)
A/D and Hi/Lo: Advancers led 2.03 to 1. Some of the best upside breadth in two months.
Previous Session: Advancers led 1.66 to 1
New Highs: 70 (+13)
New Lows: 72 (-13)
The Chart: http://www.investmenthouse.com/cd/$compq.html
Gapped over the 18 day MVA (1321) and rallied throughout most of the session. Intraday Nasdaq did not give up its gains but consolidated laterally. In the last hour it started to sell off, cutting one-third of its gain. Then a surge in the last 20 minutes recovered that pullback and closed the index out at a session high. Ostensibly it is an accumulation session, but the volume was focused in a few of the name brands. For the upside move to hold volume would need to spread out and it would need to do so on a follow through session later in the week. Immediately ahead is the exponential 50 day MVA (1350) and the simple 50 day MVA (1365) where the move off the Thursday low will have run 90 to 100 points.
S&P 500/NYSE
Cleared the 18 day MVA on the close, but volume was very low, falling to below average on the move. Not a lot of staying power in that.
Stats: +16.28 points (+1.95%) to close at 851.17
NYSE Volume: 1.188B (-12.17%). Surprisingly heavy fall in volume given the point gains.
Up Volume: 1.014B (-50M)
Down Volume: 169M (-122M)
A/D and Hi/Lo: Advancers led 2.6 to 1. Upside breadth is starting to get the strength it needs, helped by the strong advance by the mid-caps.
Previous Session: Advancers led 1.78 to 1
New Highs: 36 (+13)
New Lows: 41 (-44)
The Chart: http://www.investmenthouse.com/cd/$spx.html
45 points from the Thursday low, quite a run by the large caps. The reversal session garnered some volume, but by Tuesday volume slid back to its lowest level since the first session of the month. The move pushed the large cap index out of the steep downtrend below the 10 day MVA it was languishing in, making a late run in the last 20 minutes to recover and close over the 18 day MVA (848). We typically expect the short term MVA (10 and 18 day) to act as resistance in the downtrends, but after strong moves lower indexes periodically move higher out of the downtrend. There is a swath of resistance from 850 to 860. The lower and lower volume move up is not the best action for a sustained move. We expect the index to run into trouble tomorrow after perhaps another attempt higher earlier.
DJ30:
As did the SP500, DJ30 rallied to close over the 18 day MVA (8027) on the close, it too rallying in the last 20 minutes to retake that level after some last hour profit taking. Volume was lower on the move as the Dow ran into the start of a range of resistance from 8000 to 8150. It has run 400 points from the Thursday low and the Tuesday volume fell back to below average levels. Not a move of incredible strength, but definitely breaking up the steep short term downtrend. We anticipate it could try higher from here for another session or session and one-half before needing a breather. That will tell more as we see how strong the selling is when it comes back in.
Stats: +132.35 points (+1.67%) to close at 8041.15
Volume: 1.188B (-12.17%)
The Chart: http://www.investmenthouse.com/cd/$indu.html
WEDNESDAY
A last-hour attempt to sell off was met with a surge back up. There is still upside momentum in the market, and we anticipate the indexes will try a further move into the resistance the Dow and SP500 hit Tuesday. The indexes have made impressive moves off the low and breadth has improved, both positives. Volume has not rallied with the indexes, and there is still a real lack of good upside patterns that show steady, systematic accumulation and are ready to break key resistance. That typically means the market has some more consolidation to do at best before it moves higher. After another session or so of trying to move higher, we expect this move to be tested with some selling. After that the key will be whether the indexes can recover and put together some strong follow through sessions sometime Thursday through next Tuesday.
We did not do a whole lot in the Tuesday action. We were seeing some big name stocks that had been spiraling lower make the advances. There were other stocks moving higher, some in decent patterns, but the moves were for the most part not convincing enough to get us to convert to the upside. At this stage of the move the upside is a trade, and many of the good pattern stocks were not making the moves but instead watching the beaten down big names do so.
As noted earlier, the majority of stocks moved up Tuesday, but did so on lower volume and are still in their downtrends. While we anticipate that the indexes may attempt to move even higher in the near term, the lack of strong patterns and the continuing downtrends of many stocks even after the moves up off the Thursday lows does not led a lot of support for the indexes. When they run out of gas they will pullback, and at that point we will see if there is much substance to the rally. If it rolls down hard, that answers the questions. If it suffers a mild pullback on light volume and works somewhat laterally and lower, it can make a higher low and start back up.
Again, the many stocks still in continuing downtrends after two rally sessions is indicative of the strength of the downtrend, and we plan on using the bounce up in the downtrend for more downside action. Many stocks are setting up for a move down, rising to near resistance on lower and lower volume. The key will be how hard they roll over when the pullback occurs. At that point we either enter new downside positions or if the pullback is modest, use it as an exit point for existing downside positions.
Support and Resistance
Nasdaq: Closed at 1346.54
Resistance: July, August, and September interim highs at 1345. 1357, the 1998 bear market low. Exponential 50 day MVA (1350).
Support: The 18 day MVA (1321). The 10 day MVA at 1310 and price support at 1300. 1250 after that is another point where some lows have held.
S&P 500: Closed at 851.17
Resistance: Price resistance at 850 to 860. The bottom of the October consolidation range at 875. The exponential 50 day MVA (872).
Support: The 18 day MVA (848). The 10 day MVA (838). The September 2000/May 2001 downtrend line at 813. After that 800.
Dow: Closed at 8041.15
Resistance: 8000 had not been totally cleared, nor the 18 day MVA (8027). A range of resistance here at 8000 to 8150 from the late January lateral move. Then 8250, the bottom of the October consolidation range.
Support: The 10 day MVA (7934). Soft support at 7750, then 7500.
Economic Calendar
2-19-03
Housing starts, January (8:30): 1.775M expected, 1.835M December
Building permits, January (8:30): 1.800M expected, 1.887M December
2-20-03
Initial jobless claims (8:30): 386K expected, 377K prior
PPI, January (8:30): 0.4% expected, 0.0% prior.
Core PPI: 0.1% expected, -0.3% prior.
Leading economic indicators, January (10:00): 0.0% expected, 0.1% prior.
Philly Fed, February (12:00): 11.0 expected, 11.2 prior.
2-21-03
CPI, January (8:30): 0.3% expected, 0.1% prior.
Core CPI: 0.2% expected, 0.1% prior.
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THE PLAYS:
Good moves: AMGN; AMZN; SUMC; VAR; ZMH
New:
Downside: Still setting up nicely
Play Date: 02/18/2003
BEN (Franklin Resources--$32.95; +0.61; optionable): Asset management
http://biz.yahoo.com/p/b/ben.html
STATUS: Put. BEN has been in a continuing downtrend the past month, and as the rest of the market moved back up so did BEN. It moved past its 18 day MVA (32.90) Tuesday, but it closed well off of its high (33.38) as volume continued to decline. We are looking for BEN to run out of steam over the next session and provide a downside entry point.
Volume: 594.5K Avg Volume: 617.59K
BUY POINT: $32.74 Volume=600K Target=$30 Stop=$33.75
POSITION: BEN PG - Apr. $35p (-77 delta)
http://www.investmenthouse.com/ci/ben.html
Play Date: 02/18/2003
CAH (Cardinal Health--$58.17; +1.93; optionable): Wholesale drugs
http://biz.yahoo.com/p/c/cah.html
STATUS: Put. CAH made us some good money just recently as it proceeded in its downtrend, and now it is moving up to set up another play. As with much of the market it managed to move through its 18 day MVA (57.13) Tuesday, but it did so on much lower, below average volume. We are looking for CAH to tap up toward its 50 day MVA (59.27) and then turn back lower there for the downside entry. We want to see that volume pump up on the way back down.
Volume: 2.436M Avg Volume: 2.849M
BUY POINT: $57.94 Volume=3M Target=$54.45 Stop=$60.12
POSITION: CAH RL - June $60p (-51 delta)
http://www.investmenthouse.com/ci/cah.html
Upside:
Play Date: 02/18/2003
APOL (Apollo Group--$45.69; +0.96; optionable): Education and training
http://biz.yahoo.com/p/a/apol.html
STATUS: Ascending triangle. APOL has been a leader, and is putting the finishing touches on a 5-month base that is ready to break to a new high. APOL has done something very interesting as the rest of the market sold: it has held on, avoiding the downtrend and working laterally between 40 and 46. It made a higher low in late January, and it made another one recently as it held the 50 day MVA (43.70). Now we are waiting for the strong volume breakout to push it to a new high and past resistance.
Volume: 1.654M Avg Volume: 1.788M
BUY POINT: $46.25 Volume=22M Target=$52.88 Stop=$43.35
POSITION: OAQ HI - Aug. $45c (58 delta) and/or Stock
http://www.investmenthouse.com/ci/apol.html
Play Date: 02/18/2003
VRTY (Verity--$15.74; +0.27; optionable): Internet software
http://biz.yahoo.com/p/v/vrty.html
STATUS: Trading range. VRTY is moving in a trading range between 14 and 16 the past 5 weeks, working in something of a handle to a cup with handle base that started 13 months ago. It has moved up well off the base, but what we like is the action in this lateral move; as the market sold, VRTY held its ground, working laterally on low, below average volume as money moves into the stock. That tends to build pressure from below, and we are looking for a strong volume breakout of the range to the upside.
Volume: 190.25K Avg Volume: 396.272K
BUY POINT: $16.43 Volume=500K Target=$19.65 Stop=$15.15
POSITION: YQV FC - June $15c (63 delta) and/or Stock
http://www.investmenthouse.com/ci/vrty.html
Revisited: These are from the weekend, but they have set up very, very well, so we wanted to look at them again.
Play Date: 02/15/2003
JEF (Jeffries Group--$38.41; +1.15; optionable): Investment brokerages
http://biz.yahoo.com/p/j/jef.html
STATUS: Put. JEF is making the move we were looking for, a lower volume move up to test the 18 day MVA (38.65). Indeed, volume was below average on the move Tuesday. We are looking for it to try one more run at the 18 day MVA and then fail and resume its 1.5 month downtrend.
Volume: 159.3K Avg Volume: 184.272K
BUY POINT: After a test of 38.60ish again, $38.35 on the way back down. Volume=210K Target=$34.35 Stop=$39.28
POSITION: JEF PH - April $40p (-80 delta, low OI)
http://www.investmenthouse.com/ci/jef.html
Play Date: 02/15/2003
PRU (Prudential Financial--$30.92; +0.2; optionable): Financial services
http://biz.yahoo.com/p/p/pru.html
STATUS: Put. PRU is also doing what we wanted, rallying again Tuesday but on very low, below average volume, stalling right at the 18 and 200 day MVA at 31. It showed us something else we like to see: a doji on the candlestick chart pattern right below that resistance. That indicates that the move is running out of steam. It may try one more test higher toward 31.50, but when it rolls back through 31 we will look to enter.
Volume: 1.201M Avg Volume: 2.244M
BUY POINT: After a test of 31 to 31.50, $30.88 on the way back down. Volume=2.8M Target=$27.88 Stop=$31.45
POSITION: PRU RZ - June $32.50p (-61 delta, low OI)
http://www.investmenthouse.com/ci/pru.html
End Part 1 of 2
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