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world stock market, us stock market
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3/22/03 Stock Split Report
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Stock Split Report Subscribers:
MARKET ALERTS
Targets hit alerts issued Friday: None issued. Let CELL, IMCL, EBAY run.
Buy alerts issued: MXIM; DSCM; DCLK
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:
- Market rise shocking in awe over US military success.
- Consumer prices rise on energy spike, but that won't last from the look of it.
- Indexes surge higher on expiration, war success, reaching the 200 day MVA.
- Team Trades
Market ramps higher as oil fires limited, ground troops advance, and missiles pound Iraq.
Putting on a display similar to that of the firepower unleashed against the Iraqi military, stocks again rallied higher with the DJ30 and SP500 breaking and closing over their 200 day MVA for the first time in just about a year. The move capped a record week for the Dow, notching an 8.4% gain, the largest weekly move since October 1982.
While US, UK, Australian and other troops moved through and over Iraq liberating Iraqis and securing oil fields and air bases, gold and oil prices plunged and the dollar soared. Oil shed another $1.21, falling to $26.91 per barrel, a 32.7% drop from its peak at $39.99 less than two weeks ago. Lower energy prices are lifeblood to world economies, and a strong dollar is good for the US and thus good for just about every other economy on the earth.
Just before the war started we focused on the sudden drop in oil prices and the jump in the dollar. At that time we opined that once it became clear war was coming the pieces fell in place similar to 1991. It was a delayed effect because of the UN turmoil kept military action in question, but once it was clear the war was happening soon oil, stocks and the dollar started rallying as in 1991.
With it clear that the oil fields were in good shape, oil falling, and the war going quickly, energy related stocks (airline, leisure/travel, chemicals, diversified manufacturing) shot higher. They stole the limelight Friday while other stocks that had plowed the ground for them continued to take a breather (e.g., techs). You love to see the market rotate among leaders, a few sectors picking up the baton when the recent leaders take a breather. That is very healthy action as the market is not dependent on any one particular group to lead.
THE ECONOMY
Consumer prices rise on the back of rising energy prices.
Prices end users pay rose 0.6% in February, ahead of the 0.5% expected and the 0.3% gain in January. Take out energy (+5.9%) and food, core prices rose just 0.1%, less than the 0.2% expected and matching the 0.1% in January. That core rate rose just 1.7% year over year, the smallest yearly rise in 37 years. It is clear for now that prices other than the externally influenced energy spike, are not rising yet as producer prices have still not worked through to the consumer. That is good for consumers even as commodity prices continue to rise. That really impacts corporate profitability, however.
The price rises were all energy, and that shows the power of what we have written about the past two weeks, that is the relationship between higher energy prices and economic slowdowns. Consumer spending is two-thirds of the US economy. When consumers have to spend more and more of their disposable income on gasoline, heating oil, and electricity generated from fossil fuel sources, there is less money to spend in other areas of the economy. Yes energy producers and sellers have better margins and thus bottom lines, but that is cold comfort to the economy.
Enough optimism generated to fend off another recession?
The key will be how low energy prices drop and how much pent up demand from the past two months is released upon the end of the aggression. It has to be dramatic to overcome the rise in energy prices over the past year and the 2-month economic slowdown/shutdown ahead of the war. Restaurant, leisure, and other consumer related stocks have surged the past two sessions as the war progress looks good.
Congress is working on the economic package to help the economy, but of course it will not be easy. An amendment to cut the economic plan in half based on the argument that there was 'no pot of money to draw from' was defeated. It is more than ironic that an economic package is the target of cuts during a recession and war as opposed to the huge, bloated spending programs that are already in place. Cut programs to make room and then do everything you can to stimulate the economy. That is how you grow enough to survive.
In the end the amendment was defeated, but a $100 billion trimming was allowed to pass. We hear from our sources in DC that the reduction will not be there once the reconciliation between the House and Senate bills is done. The House has no reduction in its bill. We feel the economy needs every bit of stimulus it can get to coax along consumer and business spending in the face of continued world unrest in North Korea, terrorism threats, and continued world economic troubles.
THE MARKET
The market did not need chip stocks or tech stocks Friday. It was the day of the consumer, chemical, travel, and leisure stocks as oil prices plunged and solid war progress was made. As noted, this type of rotation while other sectors, e.g., techs, take a breather is what you want to see in an improving market.
That rotation was evident in the breadth. 2.3:1 on the NYSE and 1.85:1 on Nasdaq. While Nasdaq was so-so, NYSE breadth was again solid and underscores the fact that other sectors were moving as well once again. Indeed, the action is another follow through session on the eight day of the rally. Multiple follow through sessions are good signs of the health of the rally. Another good sign are breakouts from good stocks. GE stormed higher over its 200 day MVA, MMM drove to an all-time high, UTX powered through its 200 day MVA. Friday it was not just the techs that have led to this point; they passed the baton to the next group while the techs continued to take a breather from their leadership up to this point.
Techs were not left out in the cold as Nasdaq rallied to its August high. You may remember that was a key level for Nasdaq as that was the lower high that the index finally broke in November. That step managed to break the back of the downtrend, at least it set the stage for a real attempt to move higher. It has not moved back through that August high, but it is working on the handle to its nice double bottom off of the February and March lows.
Thus all indexes have made significant moves and now face the fact that they have rallied for over a week and 10% or better without any rest. They continue to power higher on stronger volume, however, so the near term trend is good. At some point this week they will need to take a breather, but the neat thing is that the Nasdaq has set up somewhat for another move higher. After a couple more days of lateral moves it could lead higher while the other indexes take a needed rest.
Market Sentiment
VIX: 33.62; -1.64
VXN: 45.78; -2.7
Put/Call Ratio (CBOE): 0.63; +0.07
Nasdaq
A solid point move on volume, but Nasdaq struggled with not a lot of big breakouts as money was funneled to other areas of the market that have not enjoyed such solid moves as the techs.
Stats: +19.07 points (+1.36%) to close at 1421.84
Volume: 1.885B (+19.5%). Big volume jump. Floor traders tell us there was not much short covering, but much more institutional, i.e., longer term, buyers. March expiration also played a role in generating the strongest volume of the year and the rally.
Up Volume: 1.194B (+246M)
Down Volume: 672M (+80M)
A/D and Hi/Lo: Advancers led 1.85 to 1. Solid, but not really great breadth on the gains.
Previous Session: Advancers led 1.23 to 1
New Highs: 95 (+36)
New Lows: 38 (-7)
The Chart: http://www.investmenthouse.com/cd/$compq.html
Nasdaq gapped higher, tested 1400, rallied, gave it back, then rallied to the close. It was not all upside, not as powerful as the prior move. Nasdaq tested the August 2002 high (1426.76), reaching 1425.73 on the high before closing slightly lower. The move was a breakout over 1400, the level that had more or less acted as the top of the lateral handle the prior three sessions, but it was not convincing. Many of the big names were up but chips were still taking a breather and many Nasdaq stocks in good patterns were not making sharp breakouts. Moreover, Nasdaq stalled out right at that resistance from August and early November.
After leading the way up off the lows with its nice double bottom off the February and March lows, Nasdaq can take a breather. It would not be bad for it to move laterally along 1400 for a few days and then make a more serious move higher. The move Friday was a tag along move; Nasdaq did not really have the kick to make the move, but with the entire market rallying on the war progress it made a perfunctory move with the crowd. After a 150 point move it is entitled to a rest.
S&P 500/NYSE
Powered higher on volume and breadth, clearing the 200 day MVA on the close for the first time in a year.
Stats: +19.96 points (+2.28%) to close at 895.79
NYSE Volume: 1.802B (+25.18%). Super volume surge, the strongest of the rally. Aided by expiration no doubt, but a strong move regardless.
Up Volume: 1.451B (+603M)
Down Volume: 366M (-177M). Another overwhelming upside volume session.
A/D and Hi/Lo: Advancers led 2.27 to 1. Excellent breadth on the move, another follow through caliber level.
Previous Session: Advancers led 1.39 to 1
New Highs: 81 (+30)
New Lows: 30 (+11)
The Chart: http://www.investmenthouse.com/cd/$spx.html
107 points (13.5%) off of the low (789) just eight sessions back, adding over 18% of that move Friday. Strong volume, strong breadth, and clearing the 200 day MVA (893) on the close, the large caps put an exclamation point on the rally from the March low. Clearing the 200 day MVA was excellent, but there is also immediate overhead resistance from the September, early November, and January highs at 925 to 935. To say the least SP500 is extended at this point and will need a breather. A good point would be a consolidation between 935 and the 200 day MVA (893).
DJ30:
The blue chips were led by a rampaging MMM that broke to an all-time high and WMT continued its surge as consumer products stocks soared. GE joined the move, but IBM, JPM, IP and others made important moves as well. There were many breaks above the 200 day MVA in the Dow that followed the overall action of the index. That is a key breakout point, and it was done on some impressive volume. DJ30 barely paused at 8250 resistance marked by several prior lows. It is now at some resistance just over the 200 day MVA (8440) at 8550, but the next real hurdle is 8800 to 8870, the early November and January highs. Those lead into the December high (9043) and August high (9077), points that will ultimately have to be broken.
1106 points off the March low and 8.4% last week alone. It let out a lot of pent up war anxiety or war premium if you rather. As with the SP500, a consolidation over the 200 day MVA would be great action.
Stats: +235.37 points (+2.84%) to close at 8521.97
Volume: 1.802B (+25.18%)
The Chart: http://www.investmenthouse.com/cd/$indu.html
THIS WEEK
The pre-war and war set off a pent up rally that was building from back in late February when we picked upon the change in oil prices and the dollar as Nasdaq showed some relative strength. Now the market is extended after a violent upside release of that demand. While there may be some short term need to pullback, there is a strong rally in place and more upside room before the DJ30, SP500, and NYSE composite run into their double tops. There are a lot of vocal disbelievers in the rally, yet the rally remains in spite of and indeed in part because of their skepticism. We still have many concerns for the economy and thus the market down the road, but we don't ignore strong moves when we see them set up and then start the move.
Now after this big move up, the climate does shift a bit to where a lengthy calendar of economic data this week could start to have more impact as, after all, there is the economy and the world and domestic influences on it after the war concludes. Still, it is data reflecting times before the war started.
Consumer confidence, home sales, durable goods, personal spending, and Michigan sentiment are on the calendar, and after the initial war rally investors will be taking a closer look at these economic reports. They will, however, reflect the pre-war slowdown, so their weight should not be long term. It will be the numbers on the other side of the war that will have more impact. What the market is more concerned about are stories such as Solectron (SLR) laying off 14,000 employees. Those are real-time stories that transcend the pre-war slowdown, and we won't see any better stories coming in the near future. Indeed, earnings warnings will be starting up again as we saw Friday with INTU announcing it would miss and the stock falling off a cliff. That is the harsh reality the market faces as it tries to digest this rapid rise on the war initiation.
We noted in the 3-8 report that rallies are born in the midst of despair, and that is where this one started. Economically things still seem very weak, but again, we don't know how strong the potential surge after the pre-war standstill will be. That being the case, we continue to let the market be the guide. Nasdaq started showing relative strength in February and early March and that is when we closed out our shorts. It made the move we thought was developing. Now it has to either consolidate the move or break down again. There are those betting it will break down again, but the market has not indicated that. It has shown a rally with follow through and has continued higher. As it does Nasdaq is already working on a consolidation for a next move. Again, that is not an indication of an imminent breakdown.
What we do expect is that the market will have to come back some this week after the initial drive higher with the military's drive into Iraq. There is still a big battle to come when our tanks cross the Euphrates River and meet the Republican Guard armored divisions. B-2's could wipe them out like so much cottage cheese, so it may not be that much of a battle. Then there is the question as to whether the inner circle will surrender when Baghdad is surrounded. Some are looking at things being over on Monday; that is optimistic. Maybe Tuesday.
With the strong moves up we are not going to chase the momentum plays but look at the breakout plays, i.e., the stocks that are breaking out of patterns and through resistance. As laggard sectors rallied Friday the leading tech stocks took another breather. They will be ready for their next move mid-week or so if they want to make the move. A lot of ground has been covered and they will need more than a day or two before starting again. Still, we let the market tell us, and if we see those strong breakouts from strong patterns we will go with them as the market has embarked on a strong rally thus far.
Support and Resistance
Nasdaq: Closed at 1421.84
Resistance: August and November highs (1423, 1420). The August 2002 high (1427). The January high (1467). The December high (1521).
Support: The 10 day MVA (1371). 1357, the 1998 bear market low. The January 2002/January 2003 down trendline at 1350. The 18 day MVA (1352). The 200 day MVA (1347). Exponential 50 day MVA (1345). The simple 50 day MVA (1344). Some price support at 1300. 1261 (the February low) and 1250 is point where some lows have held.
S&P 500: Closed at 895.90
Resistance: 200 day MVA (893). Then price tops at 911 (July) and 925 to 935 (November and January peaks).
Support: The bottom of the October consolidation range at 875 is still being tested. Price resistance at 868 from top of January range. The 10 day MVA (858). The simple 50 day MVA (854), the exponential 50 day MVA (854). The 18 day MVA (848). Price support at 825.
Dow: Closed at 8521.97
Resistance: November and January highs (8800, 8870). December high (9044).
Support: 200 day MVA (8440). 8250, the bottom of the October consolidation range and other index lows. The top of the January range at 8160. The 10 day MVA (8104). The simple 50 day MVA (8071). The exponential 50 day MVA (8060). 8000 and the 18 day MVA (8006). Price support at 7750 and 7532, the July low.
Economic Calendar
3-25-03
Consumer confidence, March (10:00): 63.0 expected, 64.0 prior.
Existing home sales, February (10:00): 5.85M expected, 6.09M prior.
3-26-03
Durable goods orders, February (8:30): -1.0% expected, 2.9% prior.
New home sales, February (10:00): 928K expected, 914K prior.
3-27-03
Initial jobless claims (8:30): 415K expected, 421K prior.
Q4 Final GDP (8:30): 1.4% expected, 1.4% prior.
3-28-03
Personal income, February (8:30): 0.2% expected, 0.3% prior.
Personal spending, February (8:30): -0.1% expected, -0.1% prior.
Michigan sentiment final, March (9:45): 75.0 expected, 75.0 prior.
End Part 1 of 3
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world stock market
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