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world stock market, us stock market
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3/18/03 Stock Split Report
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Stock Split Report Subscribers:
MARKET ALERTS
Targets hit alerts issued Tuesday: Letting some at the target continue to run
Buy alerts issued: None issued
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:
- Very nice action as market takes a breather.
- Fed leaves rate unchanged and has no opinion on risks as housing market continues to slow.
- Market holds gains on a day of rest.
- Subscriber Questions
Market eases back on the gas pedal.
After a surge up the market was in need of a rest, and the up and down action Tuesday is characteristic of some consolidation. It was good action, however, as the market never sold hard as investors were content to hold positions and the sellers were never able to get much going to the downside.
It was not a day without news, but the news was hardly the type to rule the market. Housing starts were lower, the Fed left rates unchanged, and Iraq was moving around chemical artillery shells. Nothing really took control of the market, and that is a healthy sign. After running up and down on each headline the market has put its head down and made a serious move. As it catches its breath it continues to ignore the news, just minding its own business.
That most likely won't last for long because as the war starts that will impact the market. There is usual uncertainty associated with the start of conflict, and that will put a quick damper on the action, but if it goes well in Iraq the market will quickly come back in some form of victory euphoria. After that we are back to the same old factors: economy (U.S. and world), North Korea, energy.
War sensitive issues easing.
A few weeks back when we noted that something was up in the market, that it was trying to set up for an upside move, some items we were looking at were oil prices, gold, and the dollar. They were reversing their trends, and that indicated something was in the air. That reversed again with the world outcry over war. Over the past few days, however, that change we noted has reasserted itself and the market is moving well again.
Oil tanked $3.26 to 31.67. It was at $39.99/bbl just a week back as the irrational side of war fears jacked it higher and higher. Now it is acting more as it did in the Gulf War, falling ahead of the initiation of the action. Could it be that there is a correlation between then and now? Back in 1991 there was near unanimity on driving back Iraq (France was holding out until the end); it was clear that there was going to be conflict to drive Hussein back and resolve the issue. This time around it has been nowhere near as clear that there was going to be a conflict to resolve the situation. If inspections continued Hussein would continue his artful deception and nothing would really be resolved. Now that war is going to happen, Hussein is going to be gone, the energy market is calming down because energy in the hands of the U.S. and, let's face it, the rest of the UN, is much safer. Thus oil is now acting as it did prior to the Gulf War.
While oil falls the dollar has climbed from its tank down two weeks back. It has now moved over the top of its consolidation range it held from late January through February, surging the past 4 sessions as clarity regarding the war emerged. The firming in January and February and this recent recovery past that level has occurred in the face of another rather poor performance in handling the dollar by the U.S. Treasury secretary. As was his predecessor, Secretary Snow is from a big industrial company that has large overseas markets. These guys are basically in the minority as far as the breakdown in U.S. businesses these days, but they still have this feeling that a weak dollar helps them out as it supposedly makes U.S. goods cheaper. It does, but in the world today that usually means the U.S. economy is hurting and thus other economies that we buy from are hurting. No additional goods are sold, or if there are, it is a very poor tradeoff given the pain in the majority of the economy. Hopefully Snow can get on the ball when the war issue is resolved and promote a strong dollar and the economic package deftly. We will be somewhat surprised if he can.
Will it indeed be like the Gulf war?
In any event, now we see energy falling precipitously in the face of conflict and the dollar simultaneously surging. As we postulated, the reasons for this appear to be the same clarity regarding conflict that has finally emerged similar to that ahead of the Gulf War. It was not that the market failed to respond to coming war, it was the fact that there was great uncertainty as to the coming war that kept it from responding as it did in 1991. It was just last week that there were serious questions about whether a resolution would be delayed long enough and have a long 'waiting period' that would effectively put off any military action until the fall. That has been resolved. The market is now acting as it did before the Gulf war.
In other words, a lot of people have been saying that a war rally was too pat, that it therefore would not happen. What we are saying is that there was a reason for it not happening, i.e., the situations as to the certainty of military action were substantially different. Now they are aligned and the stock market, energy prices, and the dollar are acting as they did before the Gulf War in 1991. Thus, maybe the pat answer is the right answer after all, but the prior comparison was apples to oranges, and that gave the differing lead in to the war and prompted those to think things would be different this time. We are now comparing apples to apples (as far as the certainty of military action; there are still differences as to the degree of world support).
THE ECONOMY
Fed leaves rates steady, has no guess as to bias.
We did not expect Greenspan to change rates as he feels the Iraq war is what is holding the economy back, and that the economy, like a boat caught on a snag, will drift higher with greater speed once that snag is removed. As to the bias we though the Fed could changed it to negative from neutral, but given Greenspan's view on the Iraq snag, we felt that too might be asking too much. Turned out it was, but the Fed went one better (in its mind) by issuing no risk assessment.
The reason: the same geopolitical issues that it feels are holding the economy back. Call me simplistic, but if the Fed thought Iraq was holding it back, the fact that it will be soon removed as an issue would at least warrant the Fed showing some backbone and holding to its neutral risk weighting. But of course when dealing with the Fed you are dealing with invertebrates that like to twist and bend and otherwise contort to avoid being clear. Pretty maddening. The Fed won't shoot straight with anyone on monetary policy, but it is quick to go to D.C. and lecture on fiscal policy. Am I the only one tired of this garbage?
February housing starts fall 11% as permits rise 0.4%.
Weather got the blame for the largest drop in starts since January 1994, and to an even greater degree than retail sales, blaming the weather is credible. You cannot build if the weather is bad. The weather was bad. The fact that housing permits rose for the second straight month helped offset the sting in the decline, a sting that was more like the cold north wind than any plunge in the market. The housing market continues to soften, but it is not yet dead.
THE MARKET
Some were saying it was nervousness about how quick and easy the war would be after this run, and that was what kept a lid on the rally. Well, up 10% from the lows, it is a lot easier just to look at how markets have reacted for centuries to conclude that it was not some fear about how the war would proceed but that the market needed a rest. As noted, it was a good rest with modest breadth, modest volume, and modest gains. That is not a bad way to start a day of rest.
Indeed, the DJ30 and SP500 provided very solid action as they both tested their simple 50 day MVA on the early intraday lows, held, and then did not come close to approaching that level again. That is excellent action as it shows a lot of interest at the key support level. The indexes were not close to being ready to give up their gains; being stingy with the gains is a very good indicator as to a rally's strength. This is the action we want to see as the market digests that big gain and tries to set up for the next move. We expect to see more lateral action ahead, and if it stays like this it will be very constructive.
Market Sentiment
VIX: 35.78; -0.68
VXN: 48.02; +1.35
Put/Call Ratio (CBOE): 0.61; -0.16
Nasdaq
Edged higher on lower volume, coming off the low and surging late to close positive.
Stats: +8.28 points (+0.59%) to close at 1400.55
Volume: 1.617B (-14.28%). Still strong, above average volume.
Up Volume: 1.102B (-610M)
Down Volume: 455M (+300M)
A/D and Hi/Lo: Advancers led 1.25 to 1. Modest gain with the techs turning from negative to positive late in the session.
Previous Session: Advancers led 1.98 to 1
New Highs: 68 (+5)
New Lows: 54 (-26)
The Chart: http://www.investmenthouse.com/cd/$compq.html
Tested to 1378.83 on the session low early in the day and then held in the mid-range until the late action pushed it higher. Some short covering on that as the index refused to give in. Nasdaq held well above support on the low, but we anticipate techs will test lower the next few sessions as war draws near and actually starts. That will create some uncertainty, and we feel that will keep the market a bit lower. That could be perfect timing and action that sets up the next move.
S&P 500/NYSE
Tested the simple 50 day MVA on the low and snapped back to close higher on lower though still solid, above average volume.
Stats: +3.66 points (+0.42%) to close at 866.45
NYSE Volume: 1.535B (-8.23%). Lower but still above average on the modest point gain.
Up Volume: 1.048B (-522M)
Down Volume: 481M (+361M)
A/D and Hi/Lo: Advancers led 1.2 to 1. Nothing spectacular, just quiet upside action as the NYSE took a breather.
Previous Session: Advancers led 2.68 to 1
New Highs: 49 (-17)
New Lows: 33 (-32)
The Chart: http://www.investmenthouse.com/cd/$spx.html
Large caps continued the move higher though the up and down session was not one that you would say was strong. It was an up and down consolidation session that ended higher when some more shorts covered in the last hour when it was clear the market was not going to sell off and had held the simple 50 day MVA on the session low. The large caps have resistance at 875 ahead, and it does not look as if it will make the move to that level before consolidating further. After a 10% move that is not a crisis. The large caps can move laterally to slightly lower, hold the 50 day MVA and then be set up for the next leg.
DJ30:
The blue chips were actually in the leadership roll Tuesday, moving over the top of the January consolidation (8160). In the end the Nasdaq late surge closed them with the same percentage gain, but it was the blue chip index that was positive most of the session, keeping the other indexes in play for the last hour push to positive territory. Not saying DJ30 will assume the leadership roll; its pattern has improved, but it is still coming off a steep downtrend. It may tap 8250 before consolidating more, but that is the point where it will need to regroup, move laterally to slightly lower and then make a run at a new leg.
Stats: +52.31 points (+0.64%) to close at 8194.23
Volume: 1.535B (-8.23%)
The Chart: http://www.investmenthouse.com/cd/$indu.html
WEDNESDAY
No scheduled economic reports, so the market will react more on the 48-hour deadline approaching Wednesday evening and when the U.S. will strike or Iraq tries a pre-emptive chemical move. We are supposedly watching the movement of those chemical artillery shells, and if they get too close we are going to take pre-emptive action to that potential pre-emptive action. And so it goes.
Again we expect some lull ahead of the imminent attack as that represents uncertainty. It could also provide the perfect rest stop for the market. The market waits to see the start of hostilities, drops some on that uncertainty, holds its ground, and when it looks as if things are going well, the market then starts its next leg higher. That is a pretty nice scenario.
The question is whether it happens. Certainly the pieces are falling into place for that scenario, but we will continue to watch the price/volume action as it comes in as that gives a good snapshot as to which side is taking control. Thursday there will be some more economic data out, but that is going to play a larger role next week or after the war effort is well underway. That is, in our opinion, when the real market will stand up. There are still a lot of problems ahead that an Iraq victory will not wash away. A solid, quick, vindicating victory could very well help the economic plan as Bush will be riding a wave of popular support, and that is when Presidents get things done as the opposition has to be more muted to avoid appearing obstructionist.
That leaves us here in the present with some current positions, some of which will continue to rally as they were even before this move and others that will come back to test. That is why we took partial positions on several moves, looking for the consolidation or test to show the move is holding and to take more positions when the market starts back up on rising volume. We then have a good earlier position that held and also has some gains for us as well as new positions at a good, proven entry point. That means Wednesday will be much like Tuesday, mostly watching the action and looking for entry points. It is important not to get too anxious but to let the moves finish making their comeback. We won't turn our back on a good breakout move, but we don't want to rush into a stock that is making a test.
Support and Resistance
Nasdaq: Closed at 1400.55
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 1352. The 200 day MVA (1351). The simple 50 day MVA (1344). Exponential 50 day MVA (1336). The 10 day MVA (1339) and the 18 day MVA (1330). Some price support at 1300. 1261 (the February low) and 1250 is point where some lows have held.
S&P 500: Closed at 866.45
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 (857). The 18 day MVA (835). The 10 day MVA (837) and price support at 825. The September 2000/May 2001 downtrend line at 791 and some price support at 799.
Dow: Closed at 8194.23
Resistance: 8250, the bottom of the October consolidation range and other index lows. 200 day MVA (8460). November and January highs (8800, 8870). December high (9044).
Support: The top of the January range at 8160. The simple 50 day MVA (8096). 8000 and the exponential 50 day MVA (8022). The 18 day MVA (7863). The 10 day MVA (7880) and price support at 7750. 7532, the July low.
Economic Calendar
3-18-03
Housing Starts, February (8:30): -11% (1.622M) actual, 1.728M expected, 1.822M January
Building permits, February (8:30): +0.4% (1.786M) actual, 1.745M expected, 1.779M January
FOMC one-day meeting (1:15): No rate change, no bias or risk statement.
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
SUBSCRIBER QUESTIONS
Q: I see that a lot of your plays have options. Do you play more options than you do equity positions? I do not do options. Can one still make good money if you only trade equity? I understand its harder in a down market, but during a downtrend I sit on the side line, since I'm only using a small amount of money to start.
A: Yes we like to use options because of the leverage they provide and the resulting leveraged returns as well as the ability to use them on the downside without have to short stocks. You need to understand options and why their prices change, however, in order to use them, and the 'Options You Can Use' seminar provides excellent, straightforward explanations of options and straight forward, uncomplicated strategies for using options to enhance returns.
That is not saying you cannot make money without using options. While we do put plays on the reports that we are looking solely at options in order to make the play work better from a risk/reward perspective, the vast majority of our plays are designed for equity or option positions. We evaluate the plays to see if they can provide a solid return on the equity side; if they cannot do it we either drop it or just look to options. It depends upon the type of mrakt we are in, but we typically look for a 15% to 20% return on a play before we are interested. We will drop it to 10% if the market is really choppy, and if it turns on us and we have a 10% gain in it, we won't hesitate to take it. We will also, however, let positions run for us if they continue to perform. We still have stocks that hit our initial target some time back but they continue to perform well and work for us even in that downtrend we just went through. An October position on the Daily in EBAY, for instance has a 32% gain in it (we took some of the last gain on the April options today with a 145% gain; that shows the power of option leveraging), and we are letting it work for us.
Thus we like equity positions because we can hold them indefinitely as long as they work for us. That is what we did back in the late 1980's and 1990's with stocks such as CSCO, MSFT, and DELL that provided huge returns over their long runs. It is indeed tougher in a bear market, but as we are seeing, there are always stocks that make solid moves in down markets as well.
End Part 1 of 3
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world stock market
us stock market
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