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world stock market, us stock market
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2/26/03 Technical Traders Report
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Technical Traders Report Subscribers:
MARKET ALERTS
Targets hit alerts issued Wednesday: None issued
Buy alerts issued: None issued
Trailing stops issued: ASKJ
Stop alerts issued: None issued
You can sign up for Stock Split Report alerts at the following link:
http://www.investmenthouse.com/alertttr.htm
SUMMARY:
- Tuesday short covering rally gives way to continued bleed lower.
- Mortgage refi's rise, new applications fall as this horse gets tired.
- Oil spikes to a 12 year high as higher energy cost impact almost unavoidable.
- Resuming the downtrend, but doing so grudgingly.
- Subscriber Questions
A familiar story of rally one day, sell the next.
It was fairly clear that Tuesday's action was the short covering snowball that hits and rolls uphill, growing larger as it does. Wednesday made that very clear as the market had absolutely no upside punch, no follow through, no guts, no whatever you want to call it. The market turned over and sold yet again, trying to resume the move down the short term MVA. It was not a strong rollover, however, just another sag lower as volume slipped. Many big names hit new lows (MCD; BA; AMR; NOK) even on rather mild selling. No major selling, just the slow bleeding starting again.
Find somebody to blame. The war was again blamed as somehow it was more important Wednesday than it was Tuesday. There is minute to minute views on the likelihood of war and then minute market moves are linked to that news in the endless speculation of what caused what. News flash. War is going to come, and we take Bush at his word that it will come sooner than later. In other words, he is going to act before summer sets in and things have to be delayed until fall.
The market knows this. Some are scratching their heads wondering why oil prices continue to spike unlike they did before Desert Storm where oil prices dropped before the war started. It is not that the war is uncertain, it is that war is certain but there is uncertainty in what Iraq will do to its oil facilities. It is a concern they will be torched that is keeping oil prices higher for now. Once it is clear that they are secure, prices will come tumbling down.
This is just the fear bred by uncertainty. Remember before the first Gulf war when Carl Sagan and others shrouded in the aura of impenetrable science said we should not fight the war because if the oil fields were torched there would be the equivalent of nuclear winter? One college professor with his IBM personal computer ran models and showed they were simply wrong. Once again facts overcame fear-based uncertainty. Tell you something; you can bet the U.S. already has this well thought out. The last thing we are going to let happen is a major destruction of Iraq oil fields. Special forces will go in and secure them as one of the first actions in any conflict. The French can rest assured the fields will be protected for them; that is, if they decide to participate. Hell, even if they don't we won't hold it against them.
The real problem is what happens as a result of the spiking energy prices ahead of that. Wednesday they hit a 12-year high and have already held high enough and long enough to drive the world economies back into recession. It happened in 1973, it happened in the early 1990's, and it happened in Clinton's last year before the last recession. The correlation is there, and the prospects for the projected strong growth this year are at risk because of it. That is one more reason we take rosy projections of a humming economy after Iraq is resolved as 75% cheerleading and 25% substance. They are looking at the commodities and saying that is indicative of a rising economy. At first blush we felt that way as well, but after further analysis of what is happening, we concluded otherwise as the Tuesday report discussed.
THE ECONOMY
Housing refinances jump 10.1%.
That news was heralded as indicative of the continuing housing market strength. True, the housing market remains the last pillar of strength in an economy that is still languishing. This is getting to be an old story, however. The market is long past thinking that the consumer is going to rescue the economy. As we said two years ago, after the massive buildup of technical systems designed to handle waves of consumption, it is not going to be enough for consumers to just maintain their consumption levels to encourage new business spending. Moreover, consumers are not going to go out and buy Cisco routers, Dell servers, and complex system software. The consumer did not prevent the recession, and it has yet to provide the lift to give the economy a strong push out of the recession. Now the consumer is fading and there is the threat of sliding back down with the high energy prices.
Similarly, the housing market is not going to rescue the economy by itself. It is already showing signs of fatigue even as it continues at strong levels. While refinancing was up, new purchase applications fell 7%. These applications have been flattening with refi's making up more of the activity. When refi's are the primary activity, the housing market has come to the end of the road. Hoping the housing market stays strong is fine; doing so as a basis for not taking action to help the rest of the economy is foolish.
Think of it this way. Greenspan has said for two years 'wait and see' whether the economy recovers. One of the reasons for his approach was a strong housing market. Well, even with the market remaining strong, the economy has sputtered and coughed in one of the most anemic recoveries from a recession ever recorded. Now we are told to wait and see how the economy fares even as the housing market, one of the lone economic strengths, starts to falter. Whose side is this guy on? It certainly is not the side of those that suffered so much for his economic blunders. All of this speculation about his relations with the White House is more comical than anything. Seems no one is willing to say anything negative about him for fear of some reprisal. Greenspan has the same clout as the IRS.
THE MARKET
The short covering over, the market went back to its usual ways, slumping lower below the short term MVA. Volume was not strong, fading back on the selling, but still higher than it has been in the recent lateral movement (on the NYSE, DJ30). Higher volume as seen Tuesday typically accompanies short covering, and that inflates the volume figures. With the market immediately selling back down on volume that still outpaces the prior rally attempts, that is not a great signal for the market.
Breadth was weak, indicating no real dumping, just the same old selling in the downtrend. The indexes closed at a new closing low since the rally started. They have not broken down with a clean break, but they are testing lower and lower after the rally up to the next resistance point. The trend is still down, and while the action remains volatile as some resilience remains ahead of an anticipated 'war rally', it is hard to argue that the market is in good shape.
Market Sentiment
VIX: 37.02; +0.9. Jim Jubak on CNBC called this a high fear level Wednesday. Looking at the past year of SP100 volatility, it is more middle of the road. These indicators are relative to the times. What was high at one point is not high when times have changed. This needs a lot higher reading to show fear.
VXN: 46.97; +2.64
Put/Call Ratio (CBOE): 0.82; +0.07. The put/call ratio has remained over 0.7 for quite some time, but it is not sparking any major moves.
Nasdaq
Tried to bounce off support at 1300, but by the close found its way back to that level.
Stats: -25.3 points (-1.9%) to close at 1303.68
Volume: 1.208B (-14.08%). Nasdaq volume backed off on the selling. Unlike NYSE volume, volume did not move over levels hit in the prior selling and rallying earlier in the month.
Up Volume: 177M (-541M)
Down Volume: 1.018B (+364M)
A/D and Hi/Lo: Decliners led 1.52 to 1. Modest selling that matched the lower intensity sellig.
Previous Session: Advancers led 1.1 to 1
New Highs: 54 (-12)
New Lows: 81 (-32)
The Chart: http://www.investmenthouse.com/cd/$compq.html
Did not breach what is considered some key support at 1300. It bounced from 1300 early in the session, but it found its way back at the close. Nasdaq continues to show some relative strength overall given that it did not sell as far as the other indexes early on. Wednesday, however, Nasdaq suffered the worst loss of the three (-1.9%), dragged lower by the SOX with a 2.9% drop. Without the chips the Nasdaq loses its nerve. SOX fell from a tap of the 50 day MVA on the high, undercutting the short term MVA on the close. This turns the chips back right at their down trendline, just where you would expect a weaker index to turn over. Another higher selling session would break it open to the downside. Same with Nasdaq; a stronger move below 1300 and it is in trouble.
S&P 500/NYSE
Tuesday took the large caps up to the 10 day MVA where they rolled over Wednesday on continued above average volume.
Stats: -11.02 points (-1.31%) to close at 827.55
NYSE Volume: 1.328B (-9.49%). Volume fell but remained above average on the selling. As noted, that keeps it at levels higher than several of the prior rally sessions, and is an indication that the strength of the selling is intensifying.
Up Volume: 462M (-430M)
Down Volume: 865M (+314M)
A/D and Hi/Lo: Decliners led 1.54 to 1. Modest downside breadth as the bigger names fell.
Previous Session: Advancers led 1.39 to 1
New Highs: 38 (-14)
New Lows: 98 (-70)
The Chart: http://www.investmenthouse.com/cd/$spx.html
A new post-rally closing low, closing just over some support at 825. The large caps rallied up to the 18 day MVA in a test higher from the steep downtrend. They tried a break over that level two times and failed. A last attempt to take out the 10 day (837) Tuesday failed as the shorts covered it up to that point. The Wednesday action follows the inability to clear the short term MVA on the test higher. Now we see if bounce is out of its system and the downtrend resumes. It definitely has that look as many of the large caps hit new lows today as previously indicated.
DJ30:
Very similar action to the SP500, failing at the 18 day MVA (7968) twice on the bounce higher in the downtrend, then failing at the 10 day MVA (7909) Tuesday, selling on continued above average volume for the Dow components. DJ30 is going to test 7750 once more. That is a very critical level for the blue chips. Once that level is broken there is only the July low (7532) between it and the October lows (7197).
Stats: -102.52 points (-1.3%) to close at 7806.98
Volume: 1.328B (-9.49%)
The Chart: http://www.investmenthouse.com/cd/$indu.html
THURSDAY
The market gets another round of economic data Thursday with jobless claims, durable goods orders, and new home sales. Jobless claims will still impact the action, but a negative surprise in new home sales would be quite negative. That will eventually happen; perhaps not tomorrow, but in the not too distant future we will see a significant miss and that will be akin to Dell's first earnings miss; harsh reality of the troubles of the techs came home for good at that point.
The selling was not strong, but the downtrend is resuming as the indexes turn back at the short term MVA. It looks as if the indexes are ready to test the recent lows and even the July lows. What will save the market from breaking significantly lower? A rally on war outbreak. That would give some reason to buy, and it would also help alleviate some of the uncertainty that hangs over the market and the economy. We do not feel, however, that the war will bring certain market recovery. Based on what we see still hanging over the market, the action would most likely be transitory. A nice rally, but transitory.
To us it looks as if that will happen soon. The B-2 bombers are being moved up to forward bases, one of the last acts in war preparedness. Canada wants to wait until the end of March for a resolution, but the U.S. is not buying that delay. Turkey and the U.S. have reached an agreement regarding use of bases. The pieces will be in place in 2 to 3 days. The new moon (dark moon) is here March 4.
Our original plan was to ride the re-emerging downtrend through the week. That was interrupted with the Tuesday short covering rally. We are looking for further selling to round out the week, and then we will start looking at banking some gain that is there and squaring some downside positions. A war rally may not last, but it could be sharp and hang on long for awhile.
Support and Resistance
Nasdaq: Closed at 1303.68
Resistance: The 18 day MVA (1324). Exponential 50 day MVA (1345) and simple 50 day MVA (1357). 1357, the 1998 bear market low. The 200 day MVA (1373).
Support: Price support at 1300. 1250 after that is another point where some lows have held.
S&P 500: Closed at 827.55
Resistance: The 10 day MVA (837). The 18 day MVA (843). Price resistance at 850 to 860. The exponential 50 day MVA (865), simple at 875. The bottom of the October consolidation range at 875.
Support: Some price support at 825. The September 2000/May 2001 downtrend line at 807. After that 800.
Dow: Closed at 7806.98
Resistance: The 10 day MVA (7909). The 18 day MVA (7968) 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.
SUBSCRIBER QUESTIONS/COMMENTS
Q: Can you clarify for me the following? 1. Do you collect the dividends paid on a stock when you short sell the stock? 2. Do you collect the dividends paid on a stock when you buy the puts for the stock? 3. What is the best source to find out what the 'owners of record' date is to be eligible for a dividend payment? Thank You Very Much.
A: You are looking into dividends no doubt in part to the proposed elimination of the double dividend tax. That will allow dividends to become something worth capturing as the modest gains will not be eaten up by your income tax rate. We have considered a dividend capturing service for quite some time, and if this bill looks as if it will pass with a 50% or better reduction in the tax, then we are looking at putting such a service together. The idea is to take a fixed amount of money and chart out when dividends are paid by solid companies. You then buy the stock on the record date and then immediately sell it, using the clearing period to go after the next stock paying the next dividend. The idea is to get as many good prospects as possible lined up one after the other and roll that money from one to the next, capturing the dividend using the 'float' to do it.
As for the specifics of your question, you do not collect on a stock you short sell. You don't own the stock; you borrow it and sell it. You have to be able to deliver it upon demand. As you are not the record owner, no dividend. Puts are an option on stock, not ownership. You have to exercise the option to gain record title. A put is the right to sell stock to someone at a certain price (you 'put' the stock to them). Again, unless you buy the stock, you do not own it. Finally, you can find the owner of record date at the company website. We have reviewed a few dividend information sources, but we have found significant errors making them somewhat unreliable for this important information. If we find a better clearinghouse we will let you know.
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End Part 1 of 3
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world stock market
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