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world stock market, us stock market
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3/10/03 Stock Split Report Update
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Stock Split Report Subscribers:
MARKET ALERTS
Targets hit alerts issued Monday: None issued
Buy alerts issued: None issued
Trailing stops issued: None issued
Stop alerts issued: FIC
You can sign up for Stock Split Report alerts at the following link:
http://www.investmenthouse.com/alertssr.htm
SUMMARY:
- Emboldened by waves of negative news, shorts put positions back on.
- Double dip recession is now in vogue, so maybe it won't happen.
- Broad selling, no volume.
- Subscriber Questions
Shorts come back out at start of week with no positive news over the weekend.
Pelted with more negative stories, buyers stayed well away from the market while shorts reopened positions closed in the Friday short covering rally. This is the wartime waiting pattern the market has exhibited, but the Monday action was a bit more potent downside given the barrage of depressing news.
North Korea launched yet another missile, The Fed's Poole came out of the blue yet again and pondered aloud what would happen if Fannie Mae and/or Freddie Mac had some accounting or other irregularity in their financial records (he did this last August; does he know something and is giving an oblique warning, or is he just an imbecile?). Iraq is supposedly placing explosives on its wells and facilities in the north. Warren Buffet says there are still very few values in the market (cheap stock prices do not necessarily equate to value). On top of all that, it was the third anniversary of the Nasdaq peak.
Add it all up and you get negative numbers. No Dow transports or industrials were positive. Large caps were hammered lower again, and small and mid-caps were right with them. Volume was not much, but in this environment that does not mean much. Basically there was no positive news over the weekend to keep the shorts at bay. Not only that, but the news that did come out was bad, and that opened the season on stocks, sending DJ30, SP500, SP600 to new lows for the year. Techs held the mid-February lows, showing some relative strength (not up much of late, not down much of late), but in this market relative strength does not mean much as well, kind of like a skunk that does not smell as bad as other skunks.
THE ECONOMY
No reports were released Monday, but we do note that Boise Cascade (consumer paper products) announced 700 layoffs. Not the big 1500 or more chunks we have seen from others recently, but the march continues: companies are still shedding jobs and weekly claims are accelerating. Jobs are a lagging indicator, and we have seen signs of business spending improving, but it is not near the point where it is ready to start adding jobs. Indeed, companies are still reducing their staffs in order to cut costs; they are not near the point of starting to add jobs and the tremendous overhead involved (training, insurances, benefits).
Double dip views pepper the economic journals over the weekend. Must be time for the economy to move higher.
Kind of a tongue in cheek headline, but we turned negative on the economy two months back and the higher energy prices and lower consumer buying since then have driven some more nails in the coffin lid. It is not a permanent coffin of course, but in the near term there are factors that are acting as cold water on a recovery: businesses and consumers freezing in the headlights of war and the energy tax (we say that tongue in cheek as well because the feds are talking about imposing a huge energy tax to pay for highway infrastructure; as we know, once passed such a tax typically becomes permanent).
Those added problems have slowed things down even more, and history indicates a rise in oil prices as we have seen the last year and the spike early this year is recessionary. There are a few steps that could help as we have outlined: quick resolution to the primary short term economic drag, i.e., the Iraq situation. Then, an economic package that induces businesses and consumers to spend right now and to invest in longer term projects as well (short and long term stimulus). The first gets us over the uncertainty hump near term. The second induces businesses to spend now on near term items they need and also to invest in longer term projects that will inject capital into the market for years to come (new businesses, capital expansions).
One of the problems with recovering from the official recession was the lack of pent up consumer demand as the baby boomers spent just as they have always spent. There was not that need to rush out and buy something for yourself that usually comes with the end of a recession simply because consumers kept buying throughout the recession. That is why consumer-focused stimulus won't do the job even though leading democrats argue 'it has always worked in the past.' Consumers are loaded with debt already; getting $300 in another rebate won't make the difference. The pent up demand is on the business side. Businesses have not spent for three years. Three year old systems are old systems. Businesses would like to replace them, but there is no current incentive to do so. If you give tax credits for replacing machinery, you will do it because you get something for your money as opposed to just a bad taste in your mouth from the stamp you used to mail the check to the IRS.
Given the problems with the energy prices and current standstill in the economy, about the only silver bullet for the economy is to remove the current uncertainty and then counter its effects, higher energy cost effects, and the remaining world uncertainties with a strong economic package designed to induce businesses and consumers to spend in the short term and the long term as well. The long term is key; you have to get businesses to invest for the long term to get them committed to a spending program. Otherwise you risk a short term boost that is not enough to offset the longer term effects of a post-boom bust. Democrats and republicans need to marry aspects of their stimulus and economic packages and produce one with both short term stimulus to spend now and longer term inducements (permanently reduced tax brackets (that are permanent, of course, until Congress raises them again) to enter into the longer range projects. Only in this way can the U.S. avoid another relapse into negative growth rates.
THE MARKET
The indexes are again approaching critical levels, at least as far as being able to hold above the prior lows. There is simply nothing to induce a lot of buyers into the market ahead of war, and the general downtrend continues given the lack of any commitment. Shorts were out but not running wild Monday; volume was extremely light as the market thudded lower and buyers were willing to let it do just that as no one wanted to step in the way of the truck heading south.
The war premium is being ratcheted up as rising world political rhetoric creates an uncertainty cloud that has investors panicking a bit more than they should. Nothing has really changed in the climate regarding war with Iraq: France, Germany and China are still against it, the U.S., U.K., and Spain are for it, and all are vying for the remaining security council members. Regardless it appears the U.S. is going through with its plans. Not much has changed, but the as the fog increases investor anxiety increases. To us that just builds in more of an upside move once the hostilities start and the initial reports are positive. It may not initiate a new long term rally, but there is a lot of downside built into the war that will be released when it starts.
Internals moving toward extreme levels.
The Monday action was skewed heavily to the bearish side. A/D breadth was massively negative with the NYSE at -3:1 and Nasdaq not far behind. NYSE down volume swept away up volume 17 to 1. NYSE trade again outstripped Nasdaq trade, an indication that speculation has long left the tech market. Gloom? It is high. There are so many negative scenarios both short and long term being floated around that investors are just not there. Volume shows there is no interest as trade continues to log below average sessions. Low volume tests of lows after higher volume plunges are very good signals for bottoms that precede nice moves higher.
The internals are bad, but not quite as bad as they were in October when NYSE breadth hit -5.96:1 on the close. Still, -3:1 is hefty, and the negative down/up volume ratio is staggering. The market is definitely getting to a critical point, but the problem with sentiment indicators and market internals is that they are not timing mechanisms. They show things are getting ripe for a bounce, but then you have to look beyond that to see where the market can bounce.
DJ30 is right at the July low, and this is the point it needs to hold in order to keep the reverse head and shoulders accumulation pattern ongoing that some Ralph Bloch, Dick Arms and others are talking about. Nasdaq is right at the February closing lows, falling below 1300 on the close. This is definitely a point where the indexes could put together a nice bounce from a technical point, but they also have to have some catalyst to spring them. With the large premium being built in relating to war, that could provide the trigger for the bounce up from this oversold condition.
On top of all of that, the stocks that have been in good patterns are remaining in good patterns. That is a key insight into any remaining market strength. If they hold up while the rest of the market finally works through this downcycle, that shows there is a core of strength that hung in there and represents a willingness to invest in the current market. If that is not present, there would be no reason to look at any bounce as anything other than that. Indeed, without stocks holding up in their patterns we would be looking for a more cataclysmic fall from these levels.
Market Sentiment
These 'traditional' indicators are not showing levels near those reached in July and October. Perhaps that suggests that the other indicators we noted are not all that significant. In any event, the test of any move is in the strength we actually see as the move starts. For now we have to treat any move as a bounce that we can play, but it must show more after the first runs to keep our faith in it.
VIX: 37.85; +2.2
VXN: 47.03; +0.64
Put/Call Ratio (CBOE): 0.87; +0.12
Nasdaq
Down from the open, Nasdaq could not recover to hold 1300. All it could do was hold the February lows.
Stats: -26.92 points (-2.06%) to close at 1278.37
Volume: 1.117B (-21.81%). Volume struggled to get over 1B shares, a complete reversal in trade from Friday's short covering driven volume advance.
Up Volume: 237M (-302M)
Down Volume: 865M (-1M)
A/D and Hi/Lo: Decliners led 2.53 to 1. Hefty downside breadth, but not beyond that experienced back in parts of December.
Previous Session: Decliners led 1.13 to 1
New Highs: 35 (-16)
New Lows: 127 (+12). Two sessions over 100. Something to keep an eye on as it is also a measure of extremes.
The Chart: http://www.investmenthouse.com/cd/$compq.html
1277 is the February closing low, and Nasdaq held above that by a shade. It started this round of short selling further down than it was last Monday when the shorts came out after covering the prior Friday. That puts it at risk of the February lows (1261 intraday), but it is still in better shape relative to the DJ30 and SP500. As noted, relative to what is the key; Nasdaq is no pillar of strength as it falls further below even its short term MVA running just over 1300. The first step would be holding over the February lows, levels that are not far away.
S&P 500/NYSE
Collapsed back down to the February intraday low as shorts again attacked the large caps with no news warranting further short covering.
Stats: -21.41 points (-2.58%) to close at 807.48
NYSE Volume: 1.203B (-11.43%). Lower volume that outstripped Nasdaq trade again. Low volume tests of prior higher volume lows indicate a lack of selling conviction, basically meaning that they are sold out as they are not attracting more and more sellers on the next ride lower.
Up Volume: 65M (-819M)
Down Volume: 1.146B (+666M). Downside rout at 17.6:1.
A/D and Hi/Lo: Decliners led 3.03 to 1. Not the blowout we saw in October (-5.96:1), but really starting to ratchet up.
Previous Session: Advancers led 1.24 to 1
New Highs: 79 (+5)
New Lows: 258 (+72). New lows exploding higher as the large, small, and medium cap indexes hit new lows for the year as well. Getting there, but 400 is more significant.
The Chart: http://www.investmenthouse.com/cd/$spx.html
Friday's rebound from the intraday low was totally washed away Monday as shorts feasted again on large caps. They did not break the February intraday low (806.29) on the close, but the move underscored the continuing weakness. When there is the chance of positive news, shorts cover. When the need to cover is over, the shorts come out and there are no buyers interested in large caps to step in. If it is going to make that small double bottom, it has a little more wiggle room down to 800 or so (797 is the July closing low).
DJ30:
As with SP500, the Dow large caps could find no interested buyers to take the torch after some Friday short covering. With no good news coming out over the weekend, the shorts were back in play while the buyers continued at bay. DJ30 has a bit more wiggle room over the July intraday low (7532), but it can reach out and touch it from here. Dow was hurt by some components that were down big, e.g., MMM, PG, but overall the losses were less than $1. Tomato, tomato. The Dow has to hold here to maintain the longer term accumulation pattern it is trying to complete to put in a more significant bottom. If it doesn't hold it will test the lows, but we doubt Nasdaq will do the same on this round.
Stats: -171.85 points (-2.22%) to close at 7568.18
Volume: 1.203B (-11.43%)
The Chart: http://www.investmenthouse.com/cd/$indu.html
TUESDAY
Wholesale inventories are out Tuesday, but that will have minor ramifications for the market. There is one mode for the market now, and that is war. Speculation runs from less than a week after France saying for certain it will veto the US resolution and the US/UK pulling it from a scheduled vote Tuesday on up to the first of March. Missing the new moon deadline at the first of March was a big blow to US plans; it is easy to 'see' stealth airplanes on moonlit nights, and the full moon is on March 17. The next new moon is on April 1. Iraq is taking advice from Kosovo, and it is digging oil pits to burn so laser guided bombs won't be accurate as well as making dummy missile launchers. This extra time allows it to get ready as the US scrambles to get its troops re-deployed after the Turkey fiasco. It would be best for the US to wait until April but that means a smaller window to be successful before the summer and a quagmire developing if it is not as quick and easy as everyone seems to think it will be. You have to weigh going later with the wear on the troops who are there now and ready to go. The handling of the diplomatic side has been nothing short of a failure at this stage. No doubt the US and UK will discuss whether they even want to put the resolution to a vote even after Bush said he would. We hear Bush wants to get 9 votes, force France to veto, and then say it is France that is obstructing the will of the UN. That would be great if you were sure you were going to get 9 votes; it is not clear at all that will happen and then it would be the US accused of defying UN will. More fog, more confusion, lower market as the indecision kills the economy further.
It was an off session for the market no matter how you slice it. Internals were bad, and that can in itself point to an upturn, but that does not in itself change what happened either. Bad news made it easy for the shorts to have sway. I don't remember a session that had so many negative news stories released; certainly there were worse stories in the past, but just reading through the negative headlines Monday took a significant investment of time.
Given the plethora of bad news setting the stage for the Monday selling and the continued slow, low volume test with the stocks that have shown good patterns remaining in good patterns, we remain cautious on the upside and the downside. This is a news-driven market. Bad news drives the tests lower, but there are not more and more sellers jumping on board. Unless there is a big breakdown on volume, the light volume, news-driven selling will reverse hard on good news. There is some downside action, then it rallies back on short covering. Shorts are scraping the market, looking for small gains. Just about when you feel it is time to chuck it in and go short given all the negatives is just about the time it reverses.
Today we took no new positions, but at the same time we saw most of the stocks that have formed good patterns holding up quite well. It may not be sexy or extremely exciting, but we are cautiously building positions in stocks that are defying the market, and there are more than a few of them. If the market breaks hard downside, there will not be much to stand in its way and we are keeping our stops tight. We still like what we see from an oversold perspective and the global view that any good news will start stocks higher. That is not the best market and we are aware of that. That is why we remain in no hurry and very cautious in our approach.
Support and Resistance
Nasdaq: Closed at 1278.37
Resistance: The 10 day MVA (1307). The 18 day MVA (1314). January 2002 down trendline (1321). Exponential 50 day MVA (1335) and simple 50 day MVA (1347). 1357, the 1998 bear market low.
Support: Price support at 1300 gave way on the Monday close. 1250 after that is another point where some lows have held (1261 is the February low). After that there is not much before 1200.
S&P 500: Closed at 807.48
Resistance: The 10 day MVA (826) and price resistance at 825. The 18 day MVA (833). Price resistance at 850 to 860. The exponential 50 day MVA (854), the simple 50 day MVA (863). The bottom of the October consolidation range at 875.
Support: The September 2000/May 2001 downtrend line at 799 and some price support at 799.
Dow: Closed at 7568.18
Resistance: The 10 day MVA (7756) and price support at 7750. The 18 day MVA (7831) and 8000. A range of resistance at 8000 to 8150 from the late January lateral move. The 50 day MVA (8064). Then 8250, the bottom of the October consolidation range.
Support: 7532, the July low, did in fact hold. The 7750 breach opens the door to test the low at 7197.
End Part 1 of 2
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world stock market
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