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world stock market, us stock market
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3/08/03 Stock Split Report
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Stock Split Report Subscribers:
MARKET ALERTS
Targets hit alerts issued Friday: None issued
Buy alerts issued: STN
Trailing stops issued: RHD
Stop alerts issued: BMC
You can sign up for Stock Split Report alerts at the following link:
http://www.investmenthouse.com/alertssr.htm
SUMMARY:
- Impressive recovery as investors sort through more news and cover ahead of any weekend surprises.
- Jobs report impressive in its weakness.
- Energy recession seems baked in the cake if no further stimulus for business investment.
- Indexes have set up a short double bottom to try and start something much bigger.
- Subscriber Questions
The news was bad but the market shrugged it off.
Intel and a woeful employment report along with anticipation of the UN inspector report piled on to bury the futures pre-market. The indexes all gapped lower with the news overhang. Intel narrowed its range, raising the bottom but lowering the top end; it did not change its 2003 forecast, but for this quarter it was not going to do it. Once again we see Intel misjudging the market; last time it ramped up Pentium 4 production but the PC market did not ramp up as well. This time it was flash memory it loaded up on, and looks as if it will remain loaded with flash chips after the quarter. Non-farm jobs tanked big time; no surprise as we saw the weekly jobless claims rise each week since the first of the year.
Blix and his group reported Iraq was not breaking toothpicks, that there was real 'proactive' cooperation now. He did not say Iraq had disarmed. Indeed in inspector 'cluster documents' the inspectors flatly state that they are 'extremely skeptical' that Iraq has destroyed all of its anthrax, VX, and other biological and chemical agents. When and even more importantly, how, will the inspectors ever know this if Iraq is not telling? Iraq is roughly the size of Texas. I live in Texas. If I had 200 people searching Texas for buried chemical agents there would be about zero chance of finding them even with spy planes and ground penetrating radar. If you ever tried to just drive across the state you get a feel for its size. In any event, Iraq has not disarmed, the inspectors are saying one thing and writing others (hey, its great job security playing up to those wanting indefinite inspections in order to maintain the status quo and hope nothing bad happens in the future.
Then news of the capture of two Bin Laden's sons helped turn the early tide. The market held most of the gains as the UN inspectors spoke. It sold back at lunch, but recovered in the last hour and one-half on continued reports of the OBL news and on short covering fear that something further could happen over the weekend to give the market more upside.
In short it was an impressive recovery. It didn't exactly snatch victory from the jaws of defeat, but it avoided a death plunge with the indexes, particularly the Dow, tested support and then jumped higher on impressive volume. Short covering was again a primary factor, but as we noted last week, the market has refused to give up and is trying to put together a more substantial upside move. With many stocks holding up in very nice patterns and a neat little double bottom pattern forming, the market is trying to get poised for a war rally.
THE ECONOMY
Unemployment increases to 5.8% as non-farm payrolls plunge.
The unemployment rise was expected, but economists thought the economy would produce 20K jobs. They were only off by a factor of 15 - - in the wrong direction. The economy lost 308K non-farms jobs, and the losses were across the board. Retail -92K, manufacturing -53K, construction -48K. According to government statistics it was the largest month of job losses since September 2001.
The plunge in jobs was no real surprise, but as usual with government accounting, actual results may (& do) vary. Weekly jobless claims have been rising along with announced layoffs. In addition, the military is calling up a lot of reservists. In a bizarre, only in the government world of accounting, however, they are counted as jobs lost. Sure they are not working their jobs, but it is not because any jobs were cut. It's just that the workers left to go serve their country. So, knock off about 150K minimum from the 308K reported loss to get a better idea of the damage. Moreover, though private payrolls only actually fell 97K in February, the crazy method of government accounting made that a 321K loss because jobs did not rise as much as they usually do in February. January was revised up to 185K jobs created versus 147K; upward revisions are always better. Still, there is clearly no job creation ongoing, at least in February. As jobs lag behind any economic recovery, there won't be much creation for March either.
Average hourly earnings jumped 0.7%, the highest since August 1997. The Fed was always so worried about average hourly wages in what it called 'wage-led inflation.' There was none of that during the boom and the rising productivity. Now that companies have had to lay off everyone in sight, they have to pay more for those they work more, i.e., overtime pay. Thus, there is no reason to worry about the rise in wages; indeed, there was no reason to worry about them even in the boom time. 'Wage-led' inflation is nonsense in a historical sense. That is, it never has happened and it was just another Greenspan Fed invention to have another reason to raise interest rates.
'Wait and see' another recession.
Greenspan admonished Congress again to 'wait and see', and now we are. We see business and consumer consumption at a standstill ahead of the war. Restaurants are empty, store parking lots are as well. This is exactly what happened right before and during the Gulf War, and it resulted in a recession as everyone hunkered down and stayed at home. It is mind boggling to think that the sage and omniscient Greenspan could not foresee this; it is a history lesson.
On top of the stifled consumer and business activity an impending war brings, there is the spike in oil prices. In the Gulf war, oil prices rose 67% in 1990 ahead of the war. Recession followed the war. Since early 2002, oil prices have climbed 75% with no real economic improvement behind the move. There is research to suggest that recessions follow sharp fuel cost increases by one year. A 75% increase in 2002 and the recent spikes toward $40/bbl are definitely in the ballpark. The war/oil combination is not a pleasant one for the economy.
Possible silver bullet.
Up until the very recent weeks, there has been an increase in business spending seen in various economic reports from GDP to factory orders, durable goods, and ISM (manufacturing). That is very promising as there has not been much economic improvement or incentive to invest. Perhaps it is just replacing systems as needed given that prices are low after three years without buying. Whatever the reasons, there is some pent up demand.
In the early 1980's the U.S. economy was in recession from the horrid 1970's that saw its own oil shocks. The 1981 economic tax package provided strong incentives for businesses and individuals to spend with across the board cuts in the marginal tax rates, investment tax credits (you buy some equipment, you get a credit off the bottom of your taxes), accelerated depreciation and expensing. There were other features, but those were the meat. They helped set off an investment boom (investment in U.S. businesses, etc.) that we rode for 20 years. With the progressive tax increases thereafter (Bush, Clinton) in an effort to tap into the prosperity for more and more tax revenue to pay for more and more federal government spending, the fuel of the expansion was being siphoned off. As the federal government's take of GDP continued to grow, the well that created the incentives to produce the bounty ran dry. There is need for a new well.
That is where a serious economic package comes into play. It should now be apparent to even the most economically ignorant in Congress that there is a need for massive incentives to get businesses and consumers to spend in order to jumpstart the economy and thus help pay for war, social security, etc. If we just hold on to what we have that won't happen. If we raise taxes to pay for deficits we will insure ourselves of much more massive deficits as the economy shuts down for good. It worked in the early 80's when economic times were dire indeed. This is our one hope now: a quick war that gets rid of a guy that most Arab leaders say they want removed when out of the pubic eye, followed by strong economic stimulus both short and long term. With the progress on the terror war we are getting, the impacts would be significant and could very well upset the relation between sharply higher energy prices and recessions.
THE MARKET
When the market gapped lower and sold the shorts could have piled on and pushed it much mower. As the DJ30 approached the July intraday low, however, they started to cover. There were stories hitting the wire about the war and terrorist arrests, and with the weekend near and possibly more success against the terrorists possible they started to cover. The higher volume coupled with overall narrow breadth show that covering was a large part of the action.
That is a given on any of these rallies after some selling. But despite the general downtrend in the market it has been on a short leash as we noted the past week. It won't sell off as shorts are quick to cover while those that are buying leading stocks are not selling them. There are more and more stocks forming up very good patterns. Sure a lot of the household names look like what is in the cat box, but those stocks that have been under accumulation remain solid. They held up during the early dip and many started to make moves toward the breakout.
The intraday action was rather impressive as well. Again there was short covering, but on the SP500, DJ30, SP400 there were big reaches low intraday that tested the intraday lows hit three weeks back when the indexes snapped back as well. After the big double bottom pattern July to October, these indexes are now showing the start of another shorter double bottom pattern that has shown strong support at the bottom.
Overall the indexes are still in downtrends, but the action in leading stock patterns and the indexes suggests something else is in the works. In addition, despite the recent bumps in oil and gold and the dollar dip related to the heightened tensions the past week as war comes closer, those have stabilized over the past month. It may just be preparing for a bounce up to take back some of the war premium given the less than spectacular economic data, but the action is very interesting. There are a lot of negative, but the market is trying to set up for a move higher in the very midst of them. From the depths of despair, rallies are born.
Market Sentiment
Volatility 'spiked' somewhat on the open but sold back intraday as the market started right back up. Even with the 'spike' volatility is still very mild.
VIX: 35.65; -0.69
VXN: 46.39; +0.74
Put/Call Ratio (CBOE): 0.75; -0.19
Nasdaq
Gapped lower on Intel but then fought back to once again close over 1300, a level that is proving to be sticky.
Stats: +2.4 points (+0.18%) to close at 1305.29
Volume: 1.429B (+12.25%). Nice surge to above average volume. Certainly some short covering at play as the index is heavily weighted in a few stocks.
Up Volume: 539M (+148M)
Down Volume: 866M (+25M). Note that down volume led on an up session. Another indication it was not a powerful session, just a good recovery at a necessary level.
A/D and Hi/Lo: Decliners led 1.13 to 1. Decliners still ahead on an up session.
Previous Session: Decliners led 1.54 to 1
New Highs: 51 (+3)
New Lows: 115 (+10)
The Chart: http://www.investmenthouse.com/cd/$compq.html
Nasdaq gapped down and tested 1280 on the low, still holding above the February swatch of lows near 1275 and recovering to again hold over 1300. This was hardly a break from the downtrend. Indeed, Nasdaq is still very much in the downtrend with the downtrend from January 2002 overhead at 1324, and just above the 18 day MVA (1318). If there is anything to this move that should not be a hindrance. The real test is the simple 50 day MVA at 1350 and the 200 day MVA patrolling at 1360. Lots of overhead to peel away.
S&P 500/NYSE
Another reach down to test near 805 and a snap back on above average volume. Very interesting.
Stats: +6.79 points (+0.83%) to close at 828.89
NYSE Volume: 1.358B (+5.78%). Rising, above average volume sent it back off the lows.
Up Volume: 884M (+467M). Unlike Nasdaq, up volume doubled up down volume on the move up.
Down Volume: 480M (-368M)
A/D and Hi/Lo: Advancers led 1.24 to 1. Puny breadth indicates the move was driven by short covering as well.
Previous Session: Decliners led 1.65 to 1
New Highs: 74 (-7)
New Lows: 186 (+12)
The Chart: http://www.investmenthouse.com/cd/$spx.html
Three weeks ago SP500 hit 806 on the intraday low and bounced sharply back intraday. That set off a big two-session surge to 850; of course, it then sold right back down. Unlike Nasdaq, however, this is a clearer second deep test and strong intraday recovery that looks to be setting up a shorter double bottom that is holding above the larger July to October double bottom. Basically it looks like a pattern that could conceivably cap off the prior double bottom and set up a much more significant move higher.
DJ30:
A very similar pattern to SP500. DJ30 looked really pathetic, cracking 7750 and opening the door lower to the October low (7197). Instead it did what it needed to do, holding above the July intraday low (7532, Friday low at 7562) and bouncing hard on very heavy DJ30 volume. In the process it undercut the mid-February intraday low (7628), action you want to see on a double bottom. The fact that it held the July intraday low is also important. That marks the bottom of the left shoulder in the 7.5 month reverse head and shoulders that some of the old timers are talking about. Dow is not the leader, but at least with the move it does not undermine the other indexes.
Stats: +66.04 points (+0.86%) to close at 7740.03
Volume: 1.358B (+5.78%)
The Chart: http://www.investmenthouse.com/cd/$indu.html
THIS WEEK
A full economic calendar with retail sales, PPI, current account, Production and utilization, and Michigan sentiment. That will take back seat to the continuing swirl of world news regarding the war, UN resolutions, and the suddenly fast-paced terrorism war. It will no doubt change before Monday morning, but as it stands the U.S., UK, Spain and perhaps others will float a resolution with a March 17 or else deadline. France said it will 'not allow' it to pass, but France is praying that the U.S. will not get 9 votes so France won't have to veto. Without Jack Chirac, Germany, Russia and China would not be as resolute. With Chirac making his play for leadership of the EU, they can go along for the ride. It is clear from the Bush press conference that the US will seek a resolution whether it has the votes or not, something like polling a jury to see if any flinch when they have to stand up and look the world in the eye.
If it is defeated, and the likelihood of passage is small, will the U.S. then still feel the need to give Hussein 10 days to fully disarm? That date was most likely given in order to give all troops the chance to get into position, namely the troops the US wanted to deploy out of Turkey. It could happen sooner, however, if the vote is early this week. Nothing seems to happen quickly with the UN.
Despite the continued bee swarm of geopolitical events and up and down economic data, the market grudgingly refuses to give in and tries to set up for upside moves. It will bounce up and down as it has on the news de jour as it did Friday, but it has not imploded when it has had every opportunity to do so.
We are going to continue looking for opportunities in those stocks that are clearly stronger than the indexes, using the selling to consolidate and further complete their bases, using the up sessions to start their breakouts. Many solid stocks simply continue to show impressive action despite the turmoil. There is something brewing as these stocks are showing, and we will continue to accumulate the best ones when they provide the good entry points.
Support and Resistance
Nasdaq: Closed at 1305.29
Resistance: The 10 day MVA (1314). The 18 day MVA (1318). January 2002 down trendline (1324). Exponential 50 day MVA (1337) and simple 50 day MVA (1349). 1357, the 1998 bear market low. The 200 day MVA (1360).
Support: Price support at 1300. 1250 after that is another point where some lows have held.
S&P 500: Closed at 828.89
Resistance: The 10 day MVA (831). The 18 day MVA (835). Price resistance at 850 to 860. The exponential 50 day MVA (856), the simple 50 day MVA (865). The bottom of the October consolidation range at 875.
Support: 820 to 825 is (roughly) hanging in there. The September 2000/May 2001 downtrend line at 800 and some price support at 799.
Dow: Closed at 7740.03
Resistance: The 10 day MVA (7798). The 18 day MVA (7862) and 8000. A range of resistance at 8000 to 8150 from the late January lateral move. The 50 day MVA (8084). Then 8250, the bottom of the October consolidation range.
Support: Soft support at 7750 is cracked but not gone. 7532, the July low, did in fact hold. The 7750 breach opens the door to test the low at 7197.
Economic Calendar
3-11-03
Wholesale Inventories, January (10:00): 0.3% expected, 0.8% December.
3-12-03
Trade Balance, January (8:30): -$44.9B expected, -$44.2B December.
3-13-03
Initial jobless claims (8:30): 410K expected, 430K prior.
Retail sales, February (8:30): -0.2% expected, -0.9% January.
Ex autos: 0.0% expected, 1.3% prior.
3-14-03
PPI, February (8:30): 0.7% expected, 1.6% January
Core PPI (8:30): 0.1% expected, 0.9% prior.
Business inventories, January (8:30): 0.2% expected, 0.6% December
Current account, Q4 (8:30): -$136.5B expected, -$127.0B Q3
Industrial production, February (9:15): 0.2% expected, 0.7% January
Capacity utilization, February (9:15): 75.7% expected, 75.7% January.
Michigan sentiment, preliminary, March (9:45): 78.5 expected, 79.9 February.
End Part 1 of 3
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world stock market
us stock market
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