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world stock market, stock split
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3/17/03 Stock Split Report Update
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Stock Split Report Subscribers:
MARKET ALERTS
Targets hit alerts issued Monday: EXPE; XLNX
Buy alerts issued: QQQ; CGNX; ELAB; ICST; SBUX; BSX; NSM; ADI; MXIM; PSUN
Trailing stops issued: None issued
Stop alerts issued: None issued
You can sign up for Stock Split Report alerts at the following link:
http://www.investmenthouse.com/alertssr.htm
See Jon Johnson's comments on reverse stock splits in the April 1, 2003 issue of The Bottom Line Personal.
SUMMARY:
- Clarity regarding war provides basis for strong follow through without any further consolidation.
- New York PMI very weak, pointing out the problems still there after an Iraq war.
- Indexes run through resistance on strong volume.
One day of rest is all it takes if you get the right news.
We were looking for a bit more rest, but when you have clarity regarding the big issue impacting the market in the near term, that can unleash some short covering and buyside interest. That clarity came from the summit of the willing where the conclusion was reached that diplomacy was over. The ambassadors came on the tube, Powell held a press conference, UK lawmakers yelled at each other. Inspectors were told to get out within 24 hours to avoid getting blown up. Iraq continues it preparations with some evidence it is opening production in some fields in anticipation of setting them ablaze. Just another Monday morning.
Futures were lower, but when solid upside moves are underway, softer opens often lead to better action. The indexes quickly reversed and started higher. We were taking some partial positions early, but with the market raging you were not going wrong in buying any of the plays. In the end it was a strong follow through session with indexes gaining anywhere from 3% to 5.6% on the session. NYSE A/D line was solid at 2.5:1. Volume was strong and higher. Good stocks were making good moves (bad stocks were making good moves as well). It was a follow through session on the fourth day from the rally, the first day we start looking for such a move. We would have preferred another day or two of rest, but early follow through is a sign of strength. With Nasdaq over its 200 day MVA and SP500 and DJ30 over their simple 50 day MVA on strong volume, it was also a technically good move.
THE ECONOMY
There is a pre-war bounce ongoing, and the question is how long it will last once bombs fall. Another question is whether there will be a 'war bounce' in the economy as well. We noted the past month how the economy had hit a standstill waiting on whether there would or would not be a war. It is going to happen, but unlike the market, the war won't automatically set off economic activity. The war has to go well, be quick, and have the look of a relatively simple exit when it is over.
That is still up in the air, but if those contingencies turn out favorably, that can set off some pent up consumer and business economic demand. The key is whether there is enough demand to spike activity much higher. There is still the North Korea situation, and many will also be waiting to exhale on whether any new terror attacks come as a result. Looking at the attacks that were apparently in the works according to the recently captured Bin Laden planner (e.g., tankers driven into gas stations, cutting cables on suspension bridges), however, we see any such attempt having a lot less impact than all of the worries being expressed about an attack.
Still a lot of headwinds.
Monday was another example of the trouble facing the economy because of the continued slow activity as well as the more recent shutdown of activity on the rumor of war. JCP said it would not increase sales in March but expected them flat to down. JCP has been a retail leader. AMAT is laying off 2000 workers (14%) of its staff in a continued slowdown. On top of that the New York region PMI (manufacturing) report showed a very poor -2.5 readign from 1.1 in February. Better than the -14.6 in October, but new orders fell to -6.9 from 12.3 and employment tanked to -17.3 from 0.1. Weak recovery turns into stronger contraction. Again, that is the war effect, but it also shows how an economic slowdown from war jitters can really gum up a weak recovery.
FOMC holds one-day meeting Tuesday.
The market is expecting some sort of rate cut though that expectation was dampened by the recent market action that the Fed will view as helpful to the economy. For proclaiming to have a long term look, the Fed sure uses short term data to set its policy. More than likely we get a bias change, but the Fed may not change anything. The Fed historically has a problem getting ahead of the curve. Moreover, Greenspan has said that it is the war worries over Iraq that have slowed the economy. If he sees the market jumping ahead of the war and the apparently near term start of that war, the Fed may just decide to keep some more ammunition in the event the war is not a cakewalk like most are expecting.
That is one thing we need to be cognizant of. Unlike 1991, everyone expects this (or the majority at least) to be an easy war if such a thing exists. In 1991 it was 'the war we cannot win' with tanks supposedly going to get stuck in the sand, helicopters crashing right and left, and a sage and swarthy desert military machine in the form of the Iraqi army. When it was clear we were going to walk on the Iraqi army's head the market shot higher. Now we have rallied ahead of the actual event. That sets up the possibility of letdown as investors then focus on the economy recovering as opposed to the war that they already expect to be over quickly.
THE MARKET
The market provided a quick follow through to the start of the rally last Wednesday. Monday was the first day we look for a follow through. We would have preferred the market wait another day or two and then provide the move as that removes it further from the initial rally and showing more buying than short covering. Even with that caveat, it was a strong session.
Nasdaq broke through its 200 day MVA as well as the January 2002/January 2003 while the SP500 and DJ30 closed over their 50 day. Volume was strong on the move. That is a strong technical indicator. It does not change the downtrend, but then again, in any bear market the bottom is formed while the market is still in a downtrend. What you have to do is gauge the strength of the move off the lows and use that as your gauge. Such a strong move and follow through is no guarantee the selling is over as we have seen rallies turned back time and again in the downtrend. A good move is a good move, however, and we will take advantage of it if it presents itself.
The market now has put together a strong rally off the lows. We were looking for some more lateral movement early this week, but as noted, the news would not let it wait. After such a strong move and the war still yet to start (it may be a week away still) there is now the real possibility of a 'now what' few sessions. That could provide that lateral consolidation we were looking for, but we would like to see another strong rally Thursday, sort of another follow through. That would indicate that yet another surge of buying is taking place after those first rounds of short covering.
Merrill is saying 'sell into the rally', meaning we suppose that you should sell existing positions. We have been taking positions and some gains on positions previously taken when we saw the rally stirring, but with the power it is not to be ignored. It may fizzle out again; as we mentioned over the weekend, these strong reversals tend to burn themselves out. Everyone has ideas, but no one knows for certain whether such a rally is another one prone to failure to resume the downtrend or will ultimately be the end of the downtrend. What you do is position yourself to take advantage as we started a week back and then ride it as long as it continues to 'act' right, e.g., up on stronger volume and down on lighter volume while maintaining itself comfortably above where the rally started.
Market Sentiment
Volatility: Both indexes gapped higher on the open but then sold back all session. Still managed to turn in a positive session indicating how strong the swing was. This never gave a high reading on the selling. Some think that would indicate the rally is flawed while others say it just shows how the market was going out on the last selling with a whimper. This is a secondary indicator. We noted the low volume test being positive, and that was more of a key for us.
VIX: 36.46; +0.13.
VXN: 46.67; +0.87
Put/Call Ratio (CBOE): 0.77; +0.07. Ratio was up but a lot of shorts were closing put positions and some upside players were selling puts as well.
Nasdaq
Blasted through the 200 day MVA and the next downtrend on a solid, above average volume follow through.
Stats: +51.94 points (+3.88%) to close at 1392.27
Volume: 1.886B (+16.98%). Strong blast of volume, the strongest of the rally thus far.
Up Volume: 1.712B (+1.037B). Overpowering up volume.
Down Volume: 155M (-758M)
A/D and Hi/Lo: Advancers led 1.98 to 1. Strong but not as strong as you want to see on a follow through session.
Previous Session: Decliners led 1.08 to 1
New Highs: 63 (+17)
New Lows: 80 (+24)
The Chart: http://www.investmenthouse.com/cd/$compq.html
Nasdaq was down early but surged shortly after tapping lower. It cleared the near term downtrends, namely the 200 day MVA (1350) and the January 2002/January 2003 down trendline. There is a series of tops leading up to the December top (1521) that have to be dealt with next. August (1423), early November (1420), and January (1468). Powerful move that has scored 140+ points in four sessions. It will need some rest but it has a great spot to come back and test, i.e., the 200 day MVA.
S&P 500/NYSE
Cleared the simple 50 day MVA as it struggles to get out of its downtrend. Strong start.
Stats: +29.52 points (+3.54%) to close at 862.79
NYSE Volume: 1.672B (+9.4%). Another strong volume session as stocks power to the upside.
Up Volume: 1.57B (+789M)
Down Volume: 120M (-589M). Huge buyside volume.
A/D and Hi/Lo: Advancers led 2.68 to 1. This is follow through caliber breadth. 3:1 would have been nicer. You can never have enough when trying to break a downtrend.
Previous Session: Advancers led 1.25 to 1
New Highs: 66 (+23)
New Lows: 65 (+14)
The Chart: http://www.investmenthouse.com/cd/$spx.html
Blew through the exponential 50 day MVA (850), price resistance at 850, and the simple 50 day MVA (858). Powerful move and we did not expect it to go again so soon, but that war news set the market off on some pent up demand after building in some more war premium as the market got tired of waiting.875 is a lot of price resistance from some September, November, and December lows. Then there is the 200 day MVA (896) and some price tops at 925 to 935 from the November and January highs that bracket the December high (954). A strong move that will need some rest as will Nasdaq. A move up to 875 will give it a chance.
DJ30:
The blue chips also jumped over the bottom of the January range at 8000, clearing the exponential and simple 50 day MVA (8015, 8099) on the close. The chips are still in the January range, however, as it runs up to 8160 or so. That seems to be little resistance given this type of move. The real resistance comes in at 8250 that represents some lows from September, November and December. The 200 day MVA (8469) and 8500, then the early November high (8800), December high (9043), and the January high (8869) follow. That December high is the point it has to break along with the August high (9077). Just a boatload of resistance, and after a run to 8250 to 8450 it will be in need of a breather to come back and test this move.
Stats: +282.21 points (+3.59%) to close at 8141.92
Volume: 1.672B (+9.4%)
The Chart: http://www.investmenthouse.com/cd/$indu.html
TUESDAY
Lots of after hours action. The President is speaking regarding the war, AMAT is laying off staff, and GTW is doing the same. To borrow a phrase from the weekend, the situation remains 'fluid.'
A strong finish is always good, but the market has run hard and on specific news. We anticipate a follow through effect up to the next near term resistance on the indexes and then the need to step back and take a breather to assess the move to this point. There has been a response to a relief of some tension and uncertainty. That tension will build again as we prepare for imminent war to start over the next week (Bush is going to give Iraq 48 hours; full moon right now, so we don't expect anything for a few days; special ops may be in tonight or tomorrow, however, to secure oil fields on reports Hussein is getting ready to torch them). Tension and uncertainty, particularly after a strong move, will lead to some nervous investors.
So we are going to go into a period of tension where the various market views will go head to head. We thought we would get that early this week but that was pre-empted. Now after another good move and a little more tacked on tomorrow the market will have to simmer and stew some as those wanting to sell into the rally will do so. The key as we pointed out will be how the market responds to selling on a volume basis. Will there be significantly fewer sellers as signified by modest losses on lighter volume? There are still large quantities of bad economic news out there and potentially troublesome world developments, and the market looks beyond the current events. How it responds remains key, and to continue the move it has to take on faith that the consumer and business spender is going to ramp up spending.
That is a pretty big leap of faith. As we saw in October and November, however, we can get a really nice rally while it hashes that out even if it does move laterally for several sessions at a time. Again, the key is the price/volume action as it does so. Good, lateral to slightly lower moves on lower volume consolidate the move and build for the next. That can provide nice gains even if the move ultimately fails as did the October and November move.
We have opened a number of positions over the last week or so. We took some gains today as we bought into other positions. We are still taking gains, at least partial gains, when they come; the market is moving well but it is not a confirmed uptrend. Tuesday we will be very careful about new positions as the market has run hard and is heading into near resistance. We would prefer to see a modest pullback and then move in when stocks start the next leg. There will be a few stocks that make good moves that are still early in the pattern that will be worth moving into; we were looking at those late in the session and will continue to do so. For the big momentum movers, however, we will let them test back and then form up for the next leg.
Support and Resistance
Nasdaq: Closed at 1392.27
Resistance: August and November highs (1423, 1420). The January high (1467). January high (1521).
Support: 1357, the 1998 bear market low. The January 2002/January 2003 down trendline at 1354. The 200 day MVA (1351). The simple 50 day MVA (1344). Exponential 50 day MVA (1334). The 10 day MVA (1326) and the 18 day MVA (1321). Some price support at 1300. 1261 (the February low) and 1250 is point where some lows have held.
S&P 500: Closed at 862.79
Resistance: Price resistance at 868 from top of January range. The bottom of the October consolidation range at 875.
Support: The exponential 50 day MVA (850), the simple 50 day MVA (858). The 18 day MVA (832). The 10 day MVA (831) and price support at 825. The September 2000/May 2001 downtrend line at 792 and some price support at 799.
Dow: Closed at 8141.92
Resistance: The top of the January range at 8160. 8250, the bottom of the October consolidation range and other index lows. 200 day MVA (8469). November and January highs (8800, 8870. December high (9044).
Support: The simple 50 day MVA (8100). 8000 and the 50 day MVA (8015). The 18 day MVA (7824). The 10 day MVA (7810) and price support at 7750. 7532, the July low.
Economic Calendar
3-18-03
Housing Starts, February (8:30): 1.755M expected, 1.850M January
Building permits, February (8:30): 1.745M expected, 1.779M January
FOMC one-day meeting (1:15): Expect a bias change but no rate cut.
3-20-03
Initial jobless claims (8:30): 410K expected, 420K prior.
Leading economic indicators, February (10:00): -0.4% expected, -0.1% January
Philly Fed, March (12:00): 4.0 expected, 2.3 February
FOMC minutes (2:00)
Treasury Budget, February (2:00): -$80.0B expected, -$76.1B January
3-21-03
CPI, March (8:30): 0.5% expected, 0.3% February
Core CPI (8:30): 0.2% expected, 0.1% February
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End Part 1 of 2
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