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world stock market, us stock market
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3/12/03 Stock Split Report Update
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Stock Split Report Subscribers:
MARKET ALERTS
Targets hit alerts issued Wednesday: None issued
Buy alerts issued: AMZN
Trailing stops issued: None issued
Stop alerts issued: SBL
You can sign up for Stock Split Report alerts at the following link:
http://www.investmenthouse.com/alertssr.htm
SUMMARY:
- Indexes break next support sparking a strong short covering rally.
- Mortgage refinances surge 35%, trade gap narrows by a hair.
- Market still in a downtrend despite the reversal and the Nasdaq potential double bottom.
- External forces on market demand conservative approach.
Market undercuts support then rallies back as shorts cover.
The market is in a downtrend, but it is a downtrend that is waiting to reverse on news. Before the open it was reported from various sources that the head murderer Bin Laden had been captured. Futures jumped up, but when Pakistan and the U.S. denied it, they fell right back down. The market then proceeded to trend lower all session until breaching near support. That started a short covering rally that pushed stocks positive on the close. That was the scenario we expected: a follow through to the downside after the Tuesday selling followed by short covering after the next levels were reached, and it pretty much follows the market pattern of selling for 2.5 days then short covering to push it higher.
The trigger came in the early afternoon when it was reported that inspectors were being told to leave Iraq (the official story hit; they have been leaving) AND the US was 'very close' to getting the 9 votes and was working on getting Mexico and Chile, needing only one of them to get the 9 it needs. That seemed impossible just Tuesday, and it speaks of the massive ongoing effort to win support for a short deadline for Iraq to actually prove what 1441 required it to show in the first place. The new draft resolution is being circulated this evening, and if the US gets 9 votes France is in a crack as Russia and China won't veto with a majority of the council voting in favor. That puts Jack Chirac and his power quest on its own; we can only assume Jack will roll over or turn and run as did his ancestors. Still, all the opposition has to do is to delay long enough to make attack impractical given the weather. It was 90 degrees in Kuwait today.
The point is that the market is ready to turn and run on some good news, and good news today was perceived as the U.S. getting the requisite majority of the UN security counsel.
Bin Laden captured?
A Pakistani politician (deputy head of a small Pakistani party) told an Iranian radio station that Bin Laden had been arrested and was being held at an undisclosed location 'by those that have been chasing him.' He states he believes that the news of the capture is being held back until the war with Iraq is on.
The pattern of the news fits the prior news relating to other terrorist captures. The capture of KS Mohammed was announced with much fanfare, but we heard from sources overseas and then from news agencies that the capture was actually two weeks earlier and then a second 'capture' was staged after much information was already obtained, the idea being not to put other al Qaeda on alert. Then there was the story about the two Bin Laden sons that several reported were captured only to be immediately denied by Pakistan and the US. The news today was out then again vehemently denied by Pakistan and the US.
Our sources indicate that for internal and external political reasons Pakistan does not want it announced that UBL was captured within Pakistan. They want him take to Afghanistan to be 'captured' there by non-Pakistanis. If this sounds crazy to you, remember that we live in a very restrained country with stable laws and government. In Pakistan's corner of the world governments are in jeopardy on a day-to-day basis. The capture of UBL will have tremendous emotional impact on both sides, and it has to be handled carefully. We are going to continue trying to get additional information, and if we receive any after the reports go out we will issue additional emails.
THE ECONOMY
Mortgage applications soar 26.7%.
Refinancing led the way again, up 35% last week as rates continue to head lower. New purchase mortgage applications, however, posted another loss, falling 0.3%. Not much of a drop, but again we see the activity focused in homes people already have. While Greenspan takes comfort from the 'stimulus' of a few added bucks in the pocket each month from a lower interest loan, the bigger impact on the economy is the purchase of homes. A home purchase, either new or existing, sets a chain of consumption to fill that home with new durables. That impacts many more sectors of the economy than the refinancing. It also shows that the housing market boom is getting stale; not as many purchases, just redoing the paperwork on existing homes.
One thing to keep in mind. Interest rates continue to fall despite all of the talk about how the economy is going to improve. The falling interest rates (for now) are telling the same story as the stock market: it sure does not see a nice, sunny economy in the second half (and we are almost through with the first half of the first half).
Trade gap narrows.
It was still the second largest ever, but it was less as US citizens bought fewer foreign goods. At the same time, foreigners bought fewer US goods. That is what happens in weaker world economies: no one buys as much. What it shows is that the US is still buying more goods from overseas than it sells overseas. That is a function of the baby boom economy we have, and it is not something to bemoan. It has been around for 40 years and it is in its twilight; it won't be around much longer to consume foreign and domestic goods and the US will have to find other markets, something the US has not been good at doing. That is why we felt it was imperative that we maintain our technological edge; now that we have squandered a chunk of that thanks to Greenspan and other poor choices, it is imperative that we do what we have to in order to recover from recession faster than the rest of the world and regain some of that lead.
That means Congress needs to act on a serious economic package with both short term and long term aspects AND cut spending. We are very pleased to see the head of the budget committee is actually cutting proposed spending increases, reducing spending by 1% as opposed to increasing it by 4%. He is doing it with cutting expenditures while keeping the economic package fully in tact. Very refreshing, and very rare. It is an idea that we all need to get on the phone and applaud to our senators and House reps.
THE MARKET
Nasdaq undercut the February low, SP500 was not far from the October closing low, and DJ30 was well below the September low when some news hit about the US being close to 9. That was enough for the shorts after 2.5 down sessions after testing the 10 day MVA on the last bounce. They started to cover up and drove the market higher in a furious rally to the close that saw volume turn in its best showing in two months (it beat out the Friday short covering volume, a move with a lot of similarities).
Great volume can indicate a reversal. The Nasdaq now looks as DJ30 and SP500 did just four sessions back, i.e., a potential double bottom off of the February low. You cannot really argue the move was short covering. The A/D line remained negative (-1.3:1), meaning that more stocks sold than advanced. Juxtapose that with the major indexes (and they are driven by the big names) finishing positive and the small and mid-cap indexes closing negative and you can see that the action on the upside was driven by the reversal of the large caps that had been thoroughly squashed the past several sessions. That means there was no broad, institutional buying of a large bag of stocks for longer term gains. The action involved shorts fearful of some good news coming out and sending the market shooting higher.
There is nothing wrong with that, but the indexes are in downtrends at the bottom of their down troughs, and they are going to try and rally back up to test resistance as they wait in limbo on what happens regarding Iraq. Even if the US gets its votes and France does not veto, war won't start for another week after that vote. The market may rally on a positive vote, but we are not convinced it would have strong legs. It will take the bombs dropping or Iraq's total and complete compliance with any new resolution. Ask yourself this, however. If Hussein does not turn over power peacefully or by death, does anyone really think the world will be comfortable just lift all sanctions, opening the oil taps, and sending all inspectors home for good? I wouldn't, and that has nothing to do with whether I think he needs to be removed or not right now. Just don't trust the guy.
Market Sentiment
VIX: 38.99; +0.91
VXN: 47.5; -0.03
Put/Call Ratio (CBOE): 0.89; +0.08
Nasdaq
Tested below the February low and then reversed to close higher on rising, above average volume.
Stats: +7.77 points (+0.61%) to close at 1279.24
Volume: 1.534B (+22.66%). Volume surged as the market reversed and rallied up. Short covering en masse will do that.
Up Volume: 837M (+401M)
Down Volume: 630M (-137M). At least up volume outpaced down volume for the session.
A/D and Hi/Lo: Decliners led 1.1 to 1. It was the large cap techs doing the work as the breadth remained negative, meaning most Nasdaq stocks were down.
Previous Session: Decliners led 1.21 to 1
New Highs: 27 (-6)
New Lows: 143 (+21). Lows rose even as the index reversed.
The Chart: http://www.investmenthouse.com/cd/$compq.html
Gapped lower on the open, and after a brief rally attempt turned over and sold through the February intraday low (1261.79), hitting 1253.22 on the low. 1250 was one of the support levels we were looking at, and after 1261 was cut it held and gave rise to short covering. This puts Nasdaq in an interesting position. As noted Tuesday, all eyes were on Nasdaq as it has shown relative strength similar to how SP500 did at the October low when all other indexes had undercut their prior July lows. The question now is whether it can make something of the move; there are a few good patterns in key tech stocks that could help a move gain some legs.
S&P 500/NYSE
Reached way down below 800 then rallied back hard on strong volume.
Stats: +3.46 points (+0.43%) to close at 804.19
NYSE Volume: 1.54B (+10.59%). Solid, above average volume on the reversal, led by short covering.
Up Volume: 754M (+367M)
Down Volume: 777M (-201M). Down volume still ahead of up volume.
A/D and Hi/Lo: Decliners led 1.35 to 1. Negative breadth; big caps moved up, most stocks did not.
Previous Session: Decliners led 1.42 to 1
New Highs: 42 (-28)
New Lows: 327 (+42). Still rising to high levels even as the index turned back up.
The Chart: http://www.investmenthouse.com/cd/$spx.html
SP500 undercut the July closing low (797.70) and just 13 points from the October closing low (776.76). From there it reversed and rallied with Nasdaq, managing to recover to hold over 800 on the close. A good recovery, but SP500 still remains in a downtrend from January, and it has to deal with its short term MVA on any bounce back up as those are acting as resistance in this downtrend (10 day at 819; 18 day at 827). That is where the bounce will be tested, and we have to remember that there is a strong downtrend in place that has not been really tested since that January peak.
DJ30:
The blue chips were wallowing lower again, down to 7416 (124 points from the October closing low) and then reversing with the market to hold 7500 and the July closing low (7532). We view the DJ30 as following along, not leading. It is taking the lead from Nasdaq and still has to overcome its short term MVA that are the resistance in the downtrend (10 day MVA 7684; 18 day MVA 7773).
Stats: +28.01 points (+0.37%) to close at 7552.07
Volume: 1.54B (+10.59%)
The Chart: http://www.investmenthouse.com/cd/$indu.html
THURSDAY
Despite what has been reported, the news media continued tonight to stat that the US would not get the 9 votes and would not get close to 9 votes. We expect a surprise, and we feel the market is expecting the same as it rallied back on the news. Surprises are okay as long as you are not the one surprised.
In this environment, economic reports might start making some impact on the market if the market has made a decision. It still has a long way to go, but there are some patterns we like in some more name brand stocks. Problem is, there won't be any really good economic news Thursday with jobless claims and retail sales coming out. Still, they won't be the main driver. The near term is being driven by the war and by the dogs barking at Bin Laden's backside. We will know more on the former before the weekend; the latter will be next week at the earliest if there is any good news.
We are willing to take more upside positions as the plays we are running held up and some were even starting to move well again on the rebound: they hold up on the selling and then use the recoveries to make their moves. We will continue to look for those and also take some chances on a few bigger names (primarily Nasdaq) that held up during the latest selling attempt this week. That helped them set up for a move higher to lead up in any rally higher. We call it taking a chance because the indexes are still locked in downtrends; these stocks could run well in 2 to 3 days, however, and if it is just short covering that runs out of steam, there will be more downside plays set up and in much better position than chasing them after they have already fallen.
One of the reasons we are looking primarily upside is the large amount of war premium built in and just how precarious the market is right now. It is dragged around by each story that comes out and then the subsequent headline that retracts or otherwise alters the prior story. We prefer not to day trade, and though the trend is lower, there are many stocks that are holding up well, setting up for an upside move. That is uncharacteristic of a market that is going to totally implode. They may fold as well, something not unusual as a downtrend progresses. Still, much of the current selling is in our view due to the immediacy of and indecision about war. We pulled in our shorts two weekends back as the threat of war escalated; as it turned out the diplomacy broke down and pushed it back. At the same time, however, it did not change the possibility that war could start at any time.
With such major external forces dictating the market direction and the very real eventuality that the market will move many hundred points when some trigger is hit, we have preferred to ply with the stocks that are showing much less volatility, stocks that are building in an anticipation of a move up as opposed to ratcheting up and down each session. As it turns out downside plays would have continued to score gains, but the volatility in puts was much higher making returns much more difficult. It is one of those environments where typical market forces were not necessarily in control. In that situation we tend to slow things down and look for an opportunity here and there while we wait for the external influences to fade and market forces to start to work again. In short, the risk versus reward in this time does not justify a lot of activity as the pre-war volatility rules.
Again we are being patient and conservative while the market works through this period. When we see the market set up again, upside or downside, we will start to get more aggressive as the reward versus the risk improves dramatically. Indeed, we see some stocks starting to set up now, and we are willing to start positions in anticipation of that move that is setting itself.
Support and Resistance
Nasdaq: Closed at 1279.24
Resistance: The 10 day MVA (1297) and some price resistance at 1300. The 18 day MVA (1306). January 2002 down trendline (1310). Exponential 50 day MVA (1330) and simple 50 day MVA (1343). 1357, the 1998 bear market low.
Support: 1261 (the February low) and 1250 is point where some lows have held. After that there is not much before 1200.
S&P 500: Closed at 804.19
Resistance: The 10 day MVA (818) and price resistance at 825. The 18 day MVA (826). Price resistance at 850 to 860. The exponential 50 day MVA (850), the simple 50 day MVA (860). The bottom of the October consolidation range at 875.
Support: The September 2000/May 2001 downtrend line at 796 and some price support at 799.
Dow: Closed at 7552.07
Resistance: The 10 day MVA (7684) and price support at 7750. The 18 day MVA (7773) and 8000. The 50 day MVA (8023). A range of resistance at 8000 to 8150 from the late January lateral move. Then 8250, the bottom of the October consolidation range.
Support: 7532, the July low. The 7750 breach opens the door to test the low at 7197.
Economic Calendar
3-11-03
Wholesale Inventories, January (10:00): -0.2% actual, 0.2% expected, 0.8% December.
3-12-03
Trade Balance, January (8:30): -$41.1B actual, -$43.5B expected, -$44.9B December.
3-13-03
Initial jobless claims (8:30): 418K expected, 430K prior.
Retail sales, February (8:30): -0.5% expected, -0.9% January.
Ex autos: -0.1% expected, 1.3% prior.
3-14-03
PPI, February (8:30): 0.6% 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): -$136.1B expected, -$127.0B Q3
Industrial production, February (9:15): 0.1% expected, 0.7% January
Capacity utilization, February (9:15): 75.7% expected, 75.7% January.
Michigan sentiment, preliminary, March (9:45): 78.0 expected, 79.9 February.
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End Part 1 of 2
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world stock market
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