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2/19/03 Investment House Alerts Report
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IH Alert Subscribers:
MARKET ALERTS:
Targets hit alerts issued Wednesday: None issued
Buy alerts issued: JEF; PRU; BEN
Trailing stops issued: None issued
Stop alerts issued: TARO
A turn lower but no rising volume.
One problem the market has suffered time and again in its downtrend is when a rally attempt is immediately slapped down by a higher volume selling session. That occurs when some buyers and shorts move in after a steady downtrend to pick up bargains and to take profits on the downside moves. As soon as that occurs, however, shorts jump back on the move higher to start selling again, and institutions use the bounce to unload some shares as well. Volume jumps up on the selling as the bounce is viewed as a selling opportunity by the majority of those involved in the market.
Wednesday the market was ready to sell back after the move off the Thursday low, but there were not shorts and profit takers lined up 10 deep ready to sell. Instead stocks faded back on very, very low volume, the lowest of the year on NYSE. They also managed to hold the near short term MVA, bouncing in the last hour off of those levels. The A/D line was weak, but not horrid at -1.6:1.
All in all Wednesday was a day of rest, a low volume consolidation session that had some almost bullish aspects, e.g., bouncing up off the short term MVA intraday and rallying toward the close. The market is not out of the downtrend, but it did what it had to do after the sharp rally higher, giving some back on lower volume as it tries to consolidate the gains and provide a follow through session over the next 4 sessions. It is still in the downtrend as are many, many stocks, but it is trying to show some life and make a change. It has tried that many times in the downtrend and failed, however, so we are cognizant of the slightly different action and potential change, but we have to see a strong follow through session to change the character.
THE MARKET
The market is still in its downtrend, but Wednesday was not a resurrection of the selling. Though the markets slid lower all session until the last hour when they were rescued by a sudden buy program, volume was extremely light. Even before the rebound it was clear there was not a return of distribution, even mild distribution. Investors were satisfied to basically hold the status quo though it did take that buy program late in the session to turn a market that was getting uglier as far as the price losses.
The Wednesday action was more consolidation of the recent gains than any reversal of that move. No volume, no heavy downside breadth, managed to bounce late to close well off the lows. It was not the strong return of the downside action we were keeping an eye out even though there were individual stocks that turned lower on higher volume and many, many, yea verily the majority of stocks remain in a downtrend.
That is one of the points that is the most troubling as far as the chances of this rebound having legs to carry it much further or even more provide the next strong leg higher. There is a dearth of solid patterns and many of the stocks rebounding don't have even those 'building patterns' we saw back in November (where they have started some lateral movement, made a higher low, and are clearing significant resistance showing some good price/volume action. There has been a lot of stock selling, and for this move to have some legs we think it will need to hold these gains more or less, move laterally, shake out some sellers, and then put together a higher move. The odds of a sharp turn right from the downtrend that carries the market up out of the downtrend and challenges the December and January highs are remote; not out of the question, but remote.
Starting Thursday the market moves into the 4-day window where it can provide some follow through to the rally that started Friday. We like to see a pause between the initial move and the next round of strong buying because that reduces the chance it was just some short covering and a few institutions buying up some stocks for a couple of days. The buying that comes in a week or so later shows some commitment to keep on buying. There needs to be strong volume and solid breadth, not just price gains.
Given the continued uncertain Iraq outlook that is at the head of the list of uncertainties as well as the lack of really good leading patterns, the odds are indeed long. There are some stirrings here just as there are in each rally attempt. Right now the market remains in its downtrend and most fund managers and investors are in a 'show me' mood.
Market Sentiment
VIX: 35.22; -0.34
VXN: 47.63; -0.77
Put/Call Ratio (CBOE): 0.87; +0.06
Nasdaq
Gapped a bit lower, tapped the 18 day MVA on the low, and regained half the losses. No real selling as volume was very light.
Stats: -12.22 points (-0.91%) to close at 1334.32
Volume: 1.191B (-9.83%). Not the lowest volume of the year, but plenty weak and less than the volume on the previous upside sessions.
Up Volume: 362M (-784M)
Down Volume: 815M (+657M)
A/D and Hi/Lo: Decliners led 1.62 to 1. Not very virulent.
Previous Session: Advancers led 2.03 to 1
New Highs: 44 (-26)
New Lows: 66 (-6)
The Chart: http://www.investmenthouse.com/cd/$compq.html
Nasdaq rallied up toward the 50 day MVA (1349) Tuesday, but after two solid upside sessions it was time to take a breather. Techs tapped the 18 day MVA on the low (1322) and were in some bad shape until they bounced in the last hour to recover over half the loss. No share dumping, just taking a breather.
S&P 500/NYSE
Ran into resistance at the 850 to 860 level and stalled out but again, low volume.
Stats: -6.04 points (-0.71%) to close at 845.13
NYSE Volume: 1.066B (-10.3%). Weakest volume of the year. No dumping of those shares just acquired.
Up Volume: 321M (-693M)
Down Volume: 739M (+570M)
A/D and Hi/Lo: Decliners led 1.61 to 1. As with Nasdaq, the breadth was not bad at all on the selling.
Previous Session: Advancers led 2.6 to 1
New Highs: 29 (-7)
New Lows: 51 (+10)
The Chart: http://www.investmenthouse.com/cd/$spx.html
Similar action on all the indexes, selling down to the short term MVA on the low (838, right at the 10 day MVA) and then recovering half the losses in the last hour on a rebound from the short term MVA. Low volume, rebound from the 10 day MVA; it was not distribution, just a day of rest.
DJ30:
Stalling some at the 8000 level, tapping down just below the 10 day MVA on the low (7935) and then rebounding to close at 8000, that point the news media is fixated with. It is the start of the range of resistance that includes the 18 day MVA (8024) and runs on up to 8060, the top of the range at 8150. Lower volume rally up off the lows, running into some resistance at the 18 day MVA and January consolidation range. This is the natural resistance point on this move, and we are watching to see if downside volume picks up on some further selling or if the index consolidates more laterally on continued light volume.
Stats: -40.55 points (-0.5%) to close at 8000.6
Volume: 1.066B (-10.3%)
The Chart: http://www.investmenthouse.com/cd/$indu.html
THURSDAY
Wednesday gave the almost obligatory pullback after the rally off the Thursday low. As noted Tuesday, the type of pullback it gives tells more about the move. Thus far the upside move is holding the balance given the general action: rally higher after downtrend, lower volume pullback that found support and bounced back late to cut the losses.
That suggests there is still an attempted change afoot as the indexes and stocks try to make a break from their downtrends. No doubt they have pulled back far enough to test the prior moves, but the pullback was a bit too far to allow an immediate rebound to the recent highs. There was a lot of damage done in the selling with many solid upside patterns trashed and most stocks now sporting downtrends. The transition from the downtrends is not instantaneous if it does even occur.
Wednesday did not provide the answer, but we do know that the market and most of its stocks are still in downtrends, and we saw several more set up for downside action Wednesday, bumping up against resistance and stalling on some lower volume. The key now is whether the current trend holds or if the market further consolidates and sets up an upside move.
As noted above, the market is now in the window where it can provide a follow through session, but one session of rest is not really going to set up moves higher given the continuing downtrends and the depth of the pullback. If we see a big volume or at least a much stronger volume move upside with stocks moving up and out of their downtrends, the trend will be breaking down and we will have to act accordingly. If the market starts working laterally, consolidating the gains and setting up some better patterns, we will again have to take action on the downside positions. As of yet the market has not shown it has changed its stripes.
We still see several stocks setting up well for more downside action, and a few forming decent upside patterns. For the new positions we will let the market action direct us, but the majority of stocks are still struggling in downtrends.
Support and Resistance
Nasdaq: Closed at 1334.32
Resistance: July, August, and September interim highs at 1345. Exponential 50 day MVA (1349). 1357, the 1998 bear market low.
Support: The 18 day MVA (1323). The 10 day MVA at 1314 and price support at 1300. 1250 after that is another point where some lows have held.
S&P 500: Closed at 845.13
Resistance: Price resistance at 850 to 860. The bottom of the October consolidation range at 875. The exponential 50 day MVA (871).
Support: The 18 day MVA (848). The 10 day MVA (840). The September 2000/May 2001 downtrend line at 812. After that 800.
Dow: Closed at 8000.60
Resistance: 8000 still has not been totally cleared. The 18 day MVA (8024). 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 (7946). Soft support at 7750, then 7500.
Economic Calendar
2-19-03
Housing starts, January (8:30): +0.2% (1.850M), actual, 1.775M expected, 1.835M December
Building permits, January (8:30): -5.6% (1.781M) actual, 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.
SUBSCRIBER QUESTIONS
Q: Dear Investment-House Staff: What sectors would you expect would gain the most upside from the beginning of the war through the end of March "window dressing"? By the way: Love your newsletter; wish I could take advantage of the alert service, but my day involves securities clearing. Thanks for the excellent service.
A: Thanks. We have been pondering this issue as we debate whether the start of the war and its first successes provide a bounce and whther that bounce will be sustained. This is a work in progress and subject to chage as we kick it around further.
One thing Greenspan has said and many are buying into is that the removal of the Iraq issue frees up the economy. If that is the case we would look to those stocks that are the initial beneficiaries of economic recoveries. Those tend to be financial stocks (many regaional banks are already trying to firm up), consumer products, some of the roughed up retailers that are seen as 'values', and even some of the management services stocks that have held up quite well in the selling this year. It will be interesting to see how commodities react when the war is well underway and if the outcome looks good. If they tale off but do not collapse, that could be a sign that there is economic strength out there as gauged in the economically sensitive commodities. That would bolster the argument that these 'early bird' sectors wold benefit.
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THE PLAYS:
Good moves: BRL; DCX; EAT; MSN
New:
Downside:
Play Date: 02/19/2003
CCMP (Cabot Microelectronics--$42.77; -2.87; optionable): Special chemicals
http://biz.yahoo.com/p/c/ccmp.html
STATUS: Put. Peaked in late November and started the current downtrend. CCMP tested higher in mid-January and then resumed the trend. It is now doing the same thing, rising Friday and Tuesday on some rising above average volume, but after tapping the 50 day MVA on the Tuesday high (46.75) it rolled over on much stronger volume Wednesday. Looking to jump on board here as its downward moves in the trend can easily cover $10.
Volume: 1.601M Avg Volume: 978.136K
BUY POINT: $42.45 Volume=1.2M Target=$37.12 Stop=$44.45
POSITION: UKR PI - Apr. $45p (-59 delta)
http://www.investmenthouse.com/ci/ccmp.html
Play Date: 02/19/2003
FDS (Factset Research--$25.68; -0.21; optionable): Information and delivery service software
http://biz.yahoo.com/p/f/fds.html
STATUS: Put. FDS is sliding lower in a downtrend that started at the beginning of December. It tested higher in mid-January and failed, forming the down trendline. It slide down the short term MVA, and after hitting 24 last week it bounced up to test the 18 day MVA (26.17) Tuesday and then rolled over Wednesday on rising, above average volume. It tried to come back to hold the 10 day MVA on the close, but FDS looks ready to continue its downtrend.
Volume: 318K Avg Volume: 264.136K
BUY POINT: $25.45 Volume=300K Target=$22.12 Stop=$26.45
POSITION: FDS RE - June $25p (-40 delta) or FDS RF - June $30 p (-74 delta)
http://www.investmenthouse.com/ci/fds.html
Upside:
Play Date: 02/19/2003
BMC (BMC Software--$18.94; -0.13; optionable): Application software
http://biz.yahoo.com/p/b/bmc.html
STATUS: Cup w/handle. BMC is in a large base totaling 13 months. The last 1.5 months can be described as the handle of that base or another short cup with handle all its own. Accumulation in the big base is 12 up weeks on rising volume to 8 down weeks on rising volume; solid enough to support a move higher. BMC has rallied from support near 17, stalling right at the early January high. It shot up to that level Tuesday on a strong volume surge, and then took a breather Wednesday on very low volume. Excellent money flow and good accumulation leading up to this move. It may move laterally for another session or two and then give the breakout, but we want to be ready.
Volume: 1.252M Avg Volume: 1.832M
BUY POINT: $19.29 Volume=2.5M Target=$23.15 Stop=$17.94
POSITION: BMC HW - Aug. $17.50c (69 delta) and/or Stock
http://www.investmenthouse.com/ci/bmc.html
Play Date: 02/19/2003
DKS (Dicks Sporting Goods--$21.8; +0.04; no options): Sporting goods stores
http://biz.yahoo.com/p/d/dks.html
STATUS: Double bottom w/handle. A new issue in October, DKS has been moving well and is just now looking at completing its first base. This is when we like to pick up new issues as it gets out the early buyers who want to sell and make a quick gain. It has moved back up to the center of the pattern (the 'hump') and looks as if it is going to form a lateral handle here over the next couple of sessions. That is what we suspect will happen, but we want to be ready for it in the event the market gets another surge of upside interest.
Volume: 207.3K Avg Volume: 143.59K
BUY POINT: $22.75 Volume=225K Target=$27.35 Stop=$21.16
POSITION: - Stock (no option chain)
http://www.investmenthouse.com/ci/dks.html
End Part 1 of 2
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