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us stock market, trend trading stock
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2/25/03 Investment House Alerts Report
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IH Alert Subscribers:
MARKET ALERTS:
Targets hit alerts issued Tuesday: None issued
Buy alerts issued: VRTY; DAKT; OEX
Trailing stops issued: None issued
Stop alerts issued: None issued
Tennis match action as no side can take control of market.
The most recent headline wins as the market runs back and forth as the news ticker spits out positive or negative stories. Tuesday morning it was the North Korean missile launch toward Japan and weak consumer confidence that continued the Monday rollover. That pushed Nasdaq below 1300 and DJ30 below 7750. Then the volley back. Rumor surfaced on the floor that Russia was brokering a deal to disarm Iraq. Hope springs eternal, and that rumor was enough to get shorts to start covering. Once that happens and the shorts lose their grip, it starts the snowball rolling and position after position is unwound.
Some on CNBC called it bargain hunting. Maybe there was some of that, but the action had all the attributes of short covering. After wiping out all of the gains on the DJ30 and SP500 on the session lows, the indexes started back up on the Russian news. In other words, when the gains on the bounce were wiped out there was some covering, covering that was spurred by the potentially positive rumor. The volume spiked up on the reversal. While that can be a sign of institutional buying, market breadth was barely positive on NYSE and negative on Nasdaq. That shows that it was the big stocks that make up the bulk of the weighting on the indexes that were doing the rallying back. Many stocks moved up, but the big indexes do not move without the large stocks moving up. When breadth is narrow, volume spikes, and the indexes move up off of lows you have short covering driving the action.
That is not necessarily a bad thing as rallies start with short covering, but this is also familiar action as the market has trended lower and lower. This rally attempt is already underway and was threatening to totally implode. It managed to recover to again return to the recent trading range it has tried to hold after bouncing from the lows 9 sessions back. The fact that it is even attempting to hold speaks of some underlying strength, but that strength appears to be based upon a belief that the market will sail higher on the initiation of war with Iraq. That is keeping shorts from getting really aggressive, but it is also keeping big buyers on the sidelines. The result is an overall lack of volume that is punctuated by a higher volume every few sessions as shorts step in to cover. The market is trying to set up for a bounce on an Iraq invasion that the market apparently thinks will happen in early March. It has thus far refused to back off even as it trends slightly lower.
THE MARKET
Another whipsaw session as the indexes gave back their rally gains (SP500, DJ30) with Nasdaq tapping just below support at 1300. That was enough to start some short covering that resulted in a recovery back into the recent trading range. The indexes continue to flirt with breaking down, but shorts are not jumping on in large numbers, and with the theories about a war-time bounce, shorts ready to cover and long players hanging on are keeping the sharp sell offs from getting any real legs even as the market sags lower and lower.
What does this show? It shows that traders are unwilling to let any position run too far right now given the new moon coming in a week and the prospect that might bring the war. The market is still trending down, but it is not allowed to get too far either way as the few players who are in the market are quick to dump or cover on any significant short term move.
As noted, the move back had the attributes of short covering, but regardless of the motives, the move pushed the indexes back to the bottoms of their recent ranges where they have attempted to consolidate the bounce off the lows from 8 sessions back. It also underscores the market weakness as one news story sends buyers and sellers running in one direction while the next news story sends them scurrying right back.
Even as the market gyrates, trying to hold the current range in its downtrend, there is a growing negative sentiment as the geopolitical and economic conditions appear to deteriorate near term. Though market sentiment indicators are not reaching peak levels, these other areas that are providing the main influence on the market are reaching anxious levels. When war does ignite that could indeed send stocks running higher over the short term.
After that there is a real concern at hand. Many reports you read indicate that inflation remains 'tame.' Even as the economy is slogging through this pre-war slowdown, however, commodity prices (and more than just energy and gold) are still rising. We see producer prices spiking; it is just a matter of time before there will be more costs passed along to the consumer. It is already happening in the services sector, and any improvement in the manufacturing sector will see companies trying to pass it on.
Thus while there could be a bump after an Iraq invasion, longer term there is a problem. There will still be plenty of outside forces remaining to work on the economy to keep it hemmed in from a business investment standpoint. At the same time we could see prices start higher as the economy just flounders along. Contrary to what some are saying, prices can rise without the economy improving. It is backing off from deflation bias, but it is not moving back to where it was, i.e., growth without inflation. There are now inflationary pressures that could erupt into that stagflation of the 1970's where there was a long rally in commodities, a weak economy, and high inflation.
How do you avoid that? By removing as many obstacles as possible to the market, letting it allocate the money where it needs to be allocated in order to avoid bottlenecks. A timely example. There is supposedly a lot of money in the economy thanks to the great Federal Reserve's rate cutting and money supply increases. The money is out there, yet we see no investment by small businesses.
Why not? Because it is still incredibly hard for a small business to tap in and get a loan even with low rates. The Fed still has many banks on restrictive status so they cannot go out on even a short limb to loan. Other banks just don't want to take the chance now. We just did a survey on Austin, Texas real estate, and with the tech glut there it is really hard to borrow money for real estate or anything else. My U.S. Congressman was basically dumbfounded when we discussed this issue. He was convinced money was freely flowing until we discussed the difficulty a small business has in getting a loan.
This is causing a HUGE problem in the economy very, very similar to what happened right before Y2K when the Fed put billions of dollars into the banking system that was unused and thus found its way into the stock market as the banks invested it. The market shot higher just to collapse when the Fed pulled the money back in late February 2000. Right now there is a lot of money in the system, but it is not being utilized to help build business and thus the economy. It is instead going into commodities and other non-stock investments as the banks hold it. That is driving up commodity prices, causing the PPI to spike. That ends up raising business costs and squeezing businesses even more. Once again in a sad and ironic twist, good intentions are having the opposite effect of those desired. It would be one thing if that excess money was getting into the hands of business, helping improve the economy even if some inflation resulted. As it is, it is only causing inflation with marginal business improvement and no job creation. That is how we get to stagflation of the 1970's. If there is not an incentive for businesses to spend money (fiscal stimulus, e.g., tax incentives) coupled with banks that are mandated (by the Fed) to go out and actually lend all of that money, this is the scenario we face later on this year after the next Iraq war. Problem is, Greenspan is too afraid of the very inflation that is being caused to do anything. He is trying to protect his legacy, and as you see in sports so often, when you drop the game plan that got you the lead and go defensive to protect the lead, you usually end up losing the lead.
Market Sentiment
Volatility is simply not showing anxiety levels in the market. The anxiety is on the outside as discussed.
VIX: 36.12; -0.65
VXN: 44.33; -0.55
Put/Call Ratio (CBOE): 0.75; +0.12
Nasdaq
Broke below 1300 on the low but that set off a round of buying that pushed it back to the 18 day MVA on rising, average volume.
Stats: +6.6 points (+0.5%) to close at 1328.98
Volume: 1.406B (+14%). Rising, average volume on the move showed possible accumulation but more likely a short covering boost in volume.
Up Volume: 718M (+437M)
Down Volume: 654M (-255M)
A/D and Hi/Lo: Advancers led 1.1 to 1. Very modest A/D line indicates that it was the heavily weighted, large cap stocks that led the move back.
Previous Session: Decliners led 2.12 to 1
New Highs: 66 (-5)
New Lows: 113 (+42). Even with the rally back new lows jumped over 100, a sign of weakness even with that recovery.
The Chart: http://www.investmenthouse.com/cd/$compq.html
Rallied from an undercut of 1300 on the low (1291.96) to close back at the 18 day MVA (1326.56) in a big 37 point swing. Just when the techs were showing weakness it sparked short covering. As noted above, this action shows that traders are not willing to get too far out on any position right now; once they have a gain, on any big swing they are selling to close or buying to cover. That is keeping the action on a short leash. Nasdaq has the 50 day MVA (1346) still ahead, and 1300 below that are keeping it in check for now.
S&P 500/NYSE
Screamed lower below 825 then screamed back up to close at the 10 day MVA on more volume. Where is my neck brace?
Stats: +5.99 points (+0.72%) to close at 838.57
NYSE Volume: 1.467B (+21.62%). Big surge in volume on the reversal from the lows as the big names that were selling hard reversed and rallied on some volume. Short covering hallmark.
Up Volume: 892M (+662M)
Down Volume: 551M (-436M)
A/D and Hi/Lo: Advancers led 1.39 to 1. Narrow advance on the turn back up is indicative of short covering.
Previous Session: Decliners led 2.11 to 1
New Highs: 52 (-7)
New Lows: 168 (+79). New lows still spiked even with the recovery.
The Chart: http://www.investmenthouse.com/cd/$spx.html
Reached below 825 (818.54 on the low) and raced back to close just over the 10 day MVA (839) on above average volume. Maybe there was some bargain hunting there, but it was also laced with short covering as shorts covered on a steep loss and bargain hunters bought when the move back up started. Neither appears willing to let things get too far from this range before next week and the potential start of the war.
DJ30:
Heaved below 7750 (7719.64) and then raced back to recover that key level on the close. A 190 point reversal in the last pushed it into the bottom of its recent range as well, closing just below the 10 day MVA (7932). Most in the index are still in their downtrends, but raced back up on rising volume. Again, this is classic short covering activity. It can lead to something better with the start of a war; for now they are in the downtrends and we will see how they fare.
Stats: +51.26 points (+0.65%) to close at 7909.5
Volume: 1.467B (+21.62%)
The Chart: http://www.investmenthouse.com/cd/$indu.html
WEDNESDAY
No scheduled economic reports, but HPQ did announce after hours. It beat on earnings but missed on revenues. It said the earnings were based on cost cutting and that the prospects for corporate spending looking ahead were 'poor.' It was clubbed down a dollar after hours. There was some collateral damage, but futures were down only modestly. The trend with earnings is that they are beating reduced expectations, but guidance is shrinking. That does not bode well for stock prices once the excitement over an Iraq invasion wears off.
The SOX lagged today, but it had not sold as much as the other indexes to begin with. Thus its 2+ point loss left it still just below the down trendline at roughly 298, having the benefit of reaching down below its 10 and 18 day MVA and finding enough support to bounce back. Again, the move lower on all indexes was just getting some legs when the anticipation of a war pop in the next week to 10 days pulled it back.
Given this action, though the indexes are still trending lower and still below resistance, the action was instructive about how far the traders, the guys that are dominating this market during this volume lull, are going to act. It looks as if they are not going to let any position get too far out without covering it through buying or selling (depending which side they took).
That could keep the indexes and the majority of stocks near the current range. That has us considering just taking 10% to 12% gains on our plays and closing them out given this emerging mindset. That gets us some gains and works us toward getting all of our positions square ahead of the possible onset of war. Our strategy was to capture the trend lower for the next week ahead of the potential start of conflict; if the traders dominating the action are going to keep it on a string, we will adjust our plan accordingly.
Support and Resistance
Nasdaq: Closed at 1328.98
Resistance: Exponential 50 day MVA (1346) and simple 50 day MVA (1359). 1357, the 1998 bear market low. The 200 day MVA (1375)
Support: The 18 day MVA (1326) and the 10 day MVA at 1324 are still holding. Price support at 1300. 1250 after that is another point where some lows have held.
S&P 500: Closed at 838.57
Resistance: The 18 day MVA (845). Price resistance at 850 to 860. The exponential 50 day MVA (866), simple at 876. The bottom of the October consolidation range at 875.
Support: The 10 day MVA (839). The September 2000/May 2001 downtrend line at 808. After that 800.
Dow: Closed at 7909.50
Resistance: The 10 day MVA (7932). The 18 day MVA (7987) and 8000. 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: Soft support at 7750 held on Tuesday. If that gives up, then 7500, but a 7750 breach really opens toe door to test the low at 7197.
Economic Calendar
2-24-03
Treasury budget, January (2:00): $11.8B actual, $10.0B expected, $43.7B December.
2-25-03
Existing home sales, January (10:00): +3.0% (6.09M annual units), 5.80M expected, 5.86M December.
Consumer confidence, February (10:00): 64.0 actual, 77.0 expected, 77.8 January (revised from 79.0).
2-27-03
Durable goods orders, January (8:30): 1.0% expected, -0.2% December.
Initial jobless claims (8:30): 392K expected, 402K prior.
New home sales, January (10:00): 1.045M expected, 1.082M prior.
2-28-03
GDP preliminary, Q4 (8:30): 1.1% expected, 0.7% Q3.
Michigan sentiment, February (9:45): 79.2 expected, 79.2 January.
Chicago PMI, February (10:00): 52.6 expected, 56.0 January.
End Part 1 of 3
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us stock market
trend trading stock
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