|
|
us stock market, understanding the stock market
* * * *
3/19/03 Stock Split Report Update
* * *
Stock Split Report Subscribers:
MARKET ALERTS
Targets hit alerts issued Wednesday: EXPE; letting IMCL, ERES run
Buy alerts issued: SYK; UOPX
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:
- Another nervous pre-war move higher.
- Mortgages soar as interest rates tick higher, but new purchases still low.
- Not consolidating as much as we want ahead of war.
Up and down action yields another nervous gain.
Nasdaq and SOX were hindered by a chip sector downgrade and less than positive news in the software sector, but they manage to pare their losses as the rest of the market turned in a small gain on lighter volume. Nasdaq churned some, falling 0.2% on rising volume. That action was driven by late short covering for good measure before the 'deadline clock' on MSNBC clicks 0:00:00. That short covering helped spur volume, but Nasdaq was also having some trouble as noted.
There was nothing really great about the action though the gains made everyone feel better. We would have preferred to see more of a slight pullback on this action instead of edging higher and higher on lower volume. Still, many of the solid movers the past week made nice pullbacks to test near support, and they are looking quite tasty. We were mostly into self discipline today (and no, we are not into S&M), looking for some more pullback before things move back up.
While several plays are set up well after a brief test, there is a lot of anticipation that war will start tonight. If it doesn't (and we said earlier in the week that we may very well let the full moon wane some though in early morning in Iraq the moon will have set), there may be some disappointment taken out in the market. There are also going to be some that are going to try and sell into the news, using the start of the war and the pre-war move higher as a 'sell into the rally' opportunity. At least two brokerage houses have advocated doing that given the economy.
We too have our continued doubts about the economy, and unlike Greenspan don't see a resolution to the Iraq war as a catalyst for the massive consumer and business spending needed. There will be some pent up demand released, but there will need to be incentives as well and Congress is already crawfishing on any economic plan. That will test the market, and the key will be how the leading stocks hold up. We still let the market do the talking because time and again at critical junctures a lot of opinion gets trashed in the wake of what the market actually does. Thus we will be focused on the market action whether war comes or not. We have noticed that in addition to those with the solid patterns before the rally started, a few more have been added to the leader list.
THE ECONOMY
Oil prices still falling, dollar surging.
OPI data showed a 5.1 million barrel increase in U.S. stores. That had an already weakening oil price even weaker. Oil is quickly down 25% from its recent peak, and the faster it falls the better the chances for the economy holding up better. The fall was enough to get OPEC talking about production if oil fell out of the range from $22 to $28; if OPEC is worried about oil falling below $22/bbl that is worth noting. We don't want OPEC to overreact and cut production, but it is good to see there is significant downward pressure.
It is also good to see the dollar surging still. It cleared the February consolidation, took a day off Tuesday, and then blasted higher again Wednesday. Sorry Treasury Secretary Snow, a stronger dollar is better for the U.S. and the world.
Mortgage applications higher again.
Last week was a record, and this week added to that record with refinancing applications up 5.2% from the prior 25% jump. New purchases were again the weak link, up just 0.7%. That dragged to overall number down to 4.4%. The trigger has been a tick higher in rates. Often when purchasers/refinancers perceive rates have bottomed and look ready to move, they rush to take action. That appears to be what is driving this 2-week surge in applications.
Why higher rates? Rates typically edge higher when the economy starts to recover. The bond yield curve is still as it should be after the inversion in 2000 and 2001. That indicated the worst of the recession was over at that time. So maybe rates ticking higher shows improvement ahead. Maybe. The housing market has already made its run. Perhaps the improvement will be from other areas of the economy. That is what needs to happen because if interest rates want to climb without economic gain, that is the problem we discussed three weeks back with a slack economy, high commodities prices, higher producer prices, and possibly foreign dollars coming home. All of that contributes to the 1970's stagflation problem.
THE MARKET
Up and down action again edged mostly higher to flat on the close. While that is not necessarily bad action as it shows some resiliency in the market, it is not real consolidation where gains are taken on lower volume and a test to a near term support level. That action tends to weed out the quick sellers and sets up the next move. Instead there has been a low volume rise the past two sessions (except Nasdaq), and that is not the best action to set up the next move.
Now there are many stocks that are in fact set up well for a move higher as they have come back to test near term support to a certain degree, and they have been some of the leaders on the move up. They can move higher on their own, but the market does need a breather. Nasdaq had a rough start and churned on higher volume, closing with a doji after its big move higher. That indicates that the pullback is not over but just getting started. Again we contrast that with some key Nasdaq stocks that have moved higher and made nice pullbacks the past two sessions. A bit of a mixed picture, but after such a long run up we would certainly have preferred to see more consolidation before another attempt to move higher. A move up from these levels just gets things that much more overbought in the short term, and when the pullback comes it tends to be steeper.
The market has reclaimed much of the war premium it built in during the uncertainty leading up to decision to use force. It needs to consolidate some and we anticipate that a start of the conflict could give it that pause until there is clear evidence the action is going well and a victory is near. Remember, there are still oil wells that could get torched, chemical weapons fired upon Israel, Kuwait, our troops (and therein lies the grand irony: Iraq has no weapons of mass destruction, but it is threatening to use them if we attack), and Turkey may move into northern Iraq once fighting starts (we now have a better understanding why Turkey did not want us to base there as we would then have the troops to stop that from happening). If Israel is hit, global war breaks out because Israel will use nukes if its losses are high. That is a lot of uncertainty. Probably won't happen, but as war starts the sellers will try to sell the news, and the nervous will exit. That will pressure the market, but if reports come back well, that could quickly be erased.
Market Sentiment
VIX: 36.18; +0.4
VXN: 48.2; +0.18
Put/Call Ratio (CBOE): 0.74; +0.13
Nasdaq
Tight doji just below some resistance as volume rose. Some churning makes it look like a pullback prelude.
Stats: -3.48 points (-0.25%) to close at 1397.07
Volume: 1.714B (+5.99%). Solid rising volume on the selling. Finished basically flat, but after a move up, such volume on the peak makes it a stronger topping signal. No doubt some short covering was driving it ahead of possible hostilities.
Up Volume: 743M (-359M)
Down Volume: 929M (+474M)
A/D and Hi/Lo: Advancers led 1.06 to 1. Good to see advancers take the lead late in the session.
Previous Session: Advancers led 1.25 to 1
New Highs: 64 (-4)
New Lows: 40 (-14)
The Chart: http://www.investmenthouse.com/cd/$compq.html
150 points off the low just over 1250 six sessions back. The candlestick chart showed a doji on rising volume after the gain. That typically foretells some selling pressure, and we are certain some shorts will try to sell into the news of war or even if war does not come tonight as many are expecting it will. A doji on rising volume just below resistance (1420 to 1430) often indicates a pullback, and we expect Nasdaq to test back some of this move soon, most likely on that war or lack of war news. From there it needs to hold near 1350 to set off the next upside move.
S&P 500/NYSE
Large caps outperformed the techs all day, rallying up to close right at resistance on lower volume.
Stats: +7.57 points (+0.87%) to close at 874.02
NYSE Volume: 1.42B (-7.48%). Another lighter volume (though still above average) upside session.
Up Volume: 907M (-141M)
Down Volume: 504M (+23M)
A/D and Hi/Lo: Advancers led 1.18 to 1. Modest positive breadth.
Previous Session: Advancers led 1.2 to 1
New Highs: 37 (-12)
New Lows: 30 (-3)
The Chart: http://www.investmenthouse.com/cd/$spx.html
Another move higher on still lower volume. The action was up and down, but large caps were relatively stronger than tech stocks all session. The last push moved the large caps up to resistance at 875, the point of several price lows in 2002. That is a logical place for the index to pullback to consolidate the move, particularly with the war deadline coming.
DJ30:
The blue chips also were relative outperformers Wednesday, rallying right up to resistance at 8250, a point where it has prior price lows from 2002 as well. It is still attracting solid volume, but just a bit lighter as it continues the 850 point move off the recent low. It needs a rest as well to digest the nice move. A pullback to 8150, the top of the January range, would most likely not hold as it is so close. 8000 is a bit better as a price and psychological support, especially as the 50 day MVA is right over that level (8031).
Stats: +71.22 points (+0.87%) to close at 8265.45
Volume: 1.42B (-7.48%)
The Chart: http://www.investmenthouse.com/cd/$indu.html
THURSDAY
We will know tomorrow what has happened, but we have a suspicion there will not be an attack this evening. That sets up the market for some disappointment and with the lack of war news to focus on the market can turn its eye on the economic data being released. Those include weekly jobless claims, Leading Economic Indicators, and the Philly Fed.
That combination along with the market's failure to consolidate the past two sessions opens the door for the profit taking to start as well as some shorts trying to make a run at the market. The market has rallied well without any rest, and it is a time tested truism that the market has to come back and test strong moves, even if that test is just a day or two. The start of the war is the perfect excuse to take a day or two to sell back and see if this move is going to hold.
We have been watching some stocks make nice pullbacks. We have noted many making the pullback we wanted the market to make overall, and we will continue to be patient and see if they come back further as the market does the same. The market has yet to fall back to test the move, and while it could continue to rally higher, it is definitely set up to sell some when rumor becomes fact.
We are going to watch still for the pullbacks, and take advantage of those that start bouncing on volume from the tests. There are always leaders ahead of the rest of the market. We have started several plays of late, however, so we are going to be patient and let additional positions come to us without chasing them.
Support and Resistance
Nasdaq: Closed at 1397.07
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 (1348). The simple 50 day MVA (1343). Exponential 50 day MVA (1339). The 10 day MVA (1350) and the 18 day MVA (1337). Some price support at 1300. 1261 (the February low) and 1250 is point where some lows have held.
S&P 500: Closed at 874.02
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 (851), the simple 50 day MVA (856). The 18 day MVA (839). The 10 day MVA (843) and price support at 825. The September 2000/May 2001 downtrend line at 790 and some price support at 799.
Dow: Closed at 8265.45
Resistance: 8250, the bottom of the October consolidation range and other index lows was cracked but is still right there. 200 day MVA (8452). November and January highs (8800, 8870). December high (9044).
Support: The top of the January range at 8160. The simple 50 day MVA (8081). 8000 and the exponential 50 day MVA (8031). The 18 day MVA (7905). The 10 day MVA (7950) 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
SEMINARS ON CD
There is an incredible wealth of knowledge, years of experience, and 'how to' plans of action in these seminars. As one graduate put it, "I had no idea how little I knew about market direction and the reasons behind it until I took your course." Our graduates over the past year and one-half have made the bear market in stocks their own private second bull market because they learned how to and when to enter the downside and make dramatic profit from what most investors dread. Have the knowledge to take advantage of any kind of market as well as the confidence to act when you see the action unfold. We cover it all from trends, to accumulation/distribution, patterns, stocks, buying and selling options naked, covered, or creating spreads. Go to
http://www.stockseminarsonline.com
This is Jon Johnson's own site devoted exclusively to seminars designed to teach you what you need to know about the stock market and stock movement and how to take advantage of those moves without incurring the usual high costs of travel and related expenses usually associated with seminars.
End Part 1 of 2
|
us stock market
understanding the stock market
|
