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world stock market, us stock market
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4/09/03 Investment House Daily
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Investment House Daily Subscribers:
MARKET ALERTS:
Target hit alerts issued Wednesday: BLTI; MSTR
Buy alerts issued: None issued
Trailing stop alerts: AMZN (took nice gains on these plays)
Stop alerts: GENZ; IBM; NBTY
To subscribe to the Daily alert service you can sign up at the following link:
http://www.investmenthouse.com/alertdly.htm
SUMMARY:
- Fall of Baghdad does not stop fall of market.
- Mortgage activity slides a bit more but Congress working on an economic compromise
- Indexes undergo mild distribution as stocks start to stumble again.
- Subscriber Questions
Market focuses on life after war, and the view was fuzzy.
Once again we witnessed historic events in the 'interesting times' the past 12 years have presented. In a scene somewhat reminiscent of the fall of the Berlin Wall, Baghdad citizens pulled down a 20 foot Hussein statue, symbolically throwing off the yoke of Hussein's oppression. They danced in the streets, danced on the statue, dragged the head through the square, threw flowers to marines, chanted 'Bush, Bush, Bush,' and generally celebrated their new liberty. The live shots of jubilant faces and warm embrace of US troops answered the questions regarding the purpose and appreciation of this mission. Even the Al Jazeera correspondent on the scene broadcast live that the Iraqi chant of 'long live Iraq' versus 'long live Saddam' was what citizens of other Arab countries should be chanting about their own countries lest they need to call the Americans to come in and 'fix' the situation. To us that is quite profound.
The market took due notice as trade almost halted during the first hour as the Hussein statue was scaled and then toppled. During that period the market drifted higher, Nasdaq nearing 1400 as it did. To the minute that the statue toppled, however, the market started to sell. DJ30 dropped 40 points in one minute, and the downtrend for the day was on. All indexes broke their near term support, and by the end of the session Nasdaq was hanging onto its 50 day MVA by its skin teeth while the DJ30 and SP500 managed to hold the 18 day MVA.
After the war, the economy is still the primary focus (as always) for the market. There was nothing to indicate a surge in US or world economic activity. The dollar was up on the US march into central Baghdad, but so was oil as US oil supplies were below expectation and Rumsfeld speculated the northern oil fields may be rigged for detonation. The typical daily march of bad news keeping investors nervous.
The action led to another session of distribution, the second such session in the past 8 sessions though you could consider Monday such a day as the market rallied early but then reversed and gave the entire move back. After peaking again Monday at the March high the action has been poor. Leading stocks stumbled some more Wednesday. They hardly collapsed, but many were selling toward support on rising volume. The indexes have not given back the rally, but they are acting as if that is what they want to do.
THE ECONOMY
This is the focal point, and there is still little to show improvement. Even that bastion of economic unsoundness, the International Monetary Fund (IMF), sees the US economy at risk due to the Iraq war. It was also critical of the Bush tax cuts. Given the IMF's abysmal track record, we take its criticism as a sign that we are attempting to do the correct things with a larger tax cut and freeing Iraq. After all, the IMF was constantly on Greenspan to raise interest rates higher and higher. Greenspan moved quickly enough to crash the stock market and then the economy; if the IMF had its way the crash would have come sooner and been steeper. We need to push forward hard on an economic package to stave off the very things the IMF is concerned about.
Compromise possible on economic plan.
Lawmakers are trying to forge an end run around the holdouts on the budget and economic plan. The end result is a suggested $550B to $625B economic plan, kind of an in the middle compromise without having to compromise. What is proposed is a delay of the decision on the amount of the tax cut by having the Senate write their budget bill with $350B in tax cuts and the House writes its own bill with $550B to $625B in tax cuts (though that amount is still in question), thus having a budget with the same overall number but with different amounts for the tax cut. What the deal does is allow Congress to pass the budget(s) and set revenue and expenditure totals for the year. After that is done then they can later take up how much should be tax cuts, etc. If the war goes well and Bush has a lot of clout back at home, the idea is he can then get enough senate votes to allow for more much needed tax cuts to spur the economy. Again, the debate is between those who pinch pennies and hope the economy gets better versus those who understand that you have to give incentives to invest in the economy when economic activity is weak and thus potential returns versus risk are low. The former either do not understand how economies work, or more than likely understand the relationship but want the economy to remain weak for political gain. Either scenario is inexcusable for those entrusted to run our country on our behalf.
Consumer confidence jumps. If only business confidence will as well.
The war results have boosted confidence as several private polls have indicated. IBD's poll saw the largest bounce in confidence since the 9-11 attacks. Consumer confidence is important as that drives consumption of all those products we make. The key is whether business invests.
We have a Subscriber Question that wonders where any business side investment will go given the overcapacity in telecom, tech, etc. While we are including in business investment the replacement of systems that are 3 years old and becoming obsolete, we have to remember that in 1981 when the Emergency Economic Recovery Act was passed, there was no such thing as a personal computer. It was certainly in the works, but the wave of investment leaped our technology ahead years and years in just a short period. Think back to those first Altar, Kaypro, and IBM computers and look at where we are today with cell technology, Blackberries, human microchip implants, and the like. Another massive round of investment in R&D, the birthplace of American ingenuity, could rocket us ahead another 20 years with devices that are not even dreamed of yet.
Given the aging US population, i.e., the aging baby boomers, we will not be the consumption horse we have been. We won't have that to drive the economy. That is why we need technology investment once again to regain our technological lead while other world economies struggle as well. A strong economic bill with big tax cuts and investment credits will again jumpstart investment in the future; as the 1980's showed, that strategy creates massive investment that results in large technological advances. Look at our military and its vast superiority; it uses that technology to easily outmaneuver and outfight opponents even with our most technologically advanced division not seeing any of the action thus far. We need to focus on the future once again; driving programs that will benefit us in the future benefit us today in the certainty they create: you can invest now and be certain of more favorable tax treatment. That is hugely important in corporate decision making.
One subscriber wrote and said there was nothing subscribers could do to change the views of senators. Well, we feel that it is exactly through calls and letter from constituents that their attitudes are shaped. If enough Rhode Island, Maine and Ohio residents (and even those outside those states) would call senators Chafee, Snowe and Voinovich and give them both barrels over balking on the tax cuts and explain why as we have done in these pages, those senators would have to take notice. These elected officials bend in the wind when it comes to votes; all of them say they stand on principle, but principle is the first casualty when threatened with loss of a re-election bid. With that we urge, plead, beg, and basically grovel for you all to get involved and call these offices. No offense to the states, but Rhode Island and Maine contribute so little to the US GDP, the idea that those senators are holding up an economic package that would benefit the rest of the country (those states as well), is somewhat maddening. It is thus every bit in our interest as non-residents of those states to get involved in pressuring them to recognize economic reality and act accordingly. If we bombard them with calls as concerned US citizens and refuse to take no for an answer the results can be dramatic. It has happened before. They are going to have a few weeks to mull it over, and I suggest we hit them with a bunch of phone calls during that time.
Lincoln Chafee: 202-224-2921
Olympia Snowe: 202-224-5344
George Voinovich: 202-224-3353
THE MARKET
As the war outcome firms more and more, the selling gains intensity. All major indexes underwent modest distribution as volume rose while the indexes sold lower. It was modest as volume remained below average, but it was the third session in the last 8 (counting the Monday intraday reversal) where selling occurred as the market sold. Nasdaq dumped to its exponential 50 day MVA while SP500 and DJ30 sold to the 18 day MVA, undercutting near support. All finished at their session lows, and indication that the downside was in control all session.
Now we had expected a pullback to roughly this level, and the volume, though higher, was still quite light. There was not massive dumping, but stocks did stumble all over themselves during the action. Those leaders that had fallen the past few sessions could not recover. Some that tried to recover sold off even more. Leaders all the way up such as AMZN, broke through their near support on volume surges. Others still held up, but we are seeing the ranks of the failing growing. That is a crucial sign. Many of these stocks could still hold their 50 day MVA and resume their moves. We were not in the mood to see if that was going to happen as we took the money off the table as they did. Many of these had already produced us nice gains given their moves, so we still had nice returns even as we closed them. Still, we would rather have that money in hand and get back in if they hold up at the 50 day MVA, versus riding then down to that level and maybe lower.
Again this distribution was not heavy, and the indexes may just have a modest pullback here once again in the mid-March to now trading range. We have moved up stop points and are ready to take gains off the table right away. The Nasdaq performance and the leading stocks are getting most of our attention. Nasdaq is already almost down to the recent lows in this range, and many leaders are fumbling around if not falling on stronger volume. Nasdaq tends to lead, and with earnings worries taking grip and semiconductors rolling over after a lower high, it needs to stage a dramatic recovery on volume.
Market Sentiment
VIX: 30.91; +1.32
VXN: 41.45; +0.53
Put/Call Ratio (CBOE): 0.74; -0.06
Nasdaq
Nasdaq was the leader to the downside, and this time semiconductors were not the worst culprit. Techs are already approaching the bottom of the trading range, selling on some higher volume as they test lower.
Stats: -26.2 points (-1.89%) to close at 1356.74
Volume: 1.312B (+0.97%). Rising volume, though not much, on the selling that pushed the index to the 50 day MVA. There was no heavy dumping, just some greater turnover on news becoming fact in Iraq.
Up Volume: 184M (-195M)
Down Volume: 1.112B (+209M)
A/D and Hi/Lo: Decliners led 1.37 to 1. Still very modest downside breadth, another indication that the selling was not rampant.
Previous Session: Decliners led 1.25 to 1
New Highs: 67 (+1)
New Lows: 29 (-14)
The Chart: http://www.investmenthouse.com/cd/$compq.html
Nasdaq continued the downside action after the Monday reversal, closing right at the exponential 50 day MVA. The bottom of the recent range is 1336, and Nasdaq made no attempt at holding at the interims levels around 1375 that would be a good test. Nasdaq can ill afford a lower low here. The 200 day MVA (1338) is right at that low, backed up by the simple 50 day MVA at that same level. That is the point techs need to hold. The Monday reversal on good news was one trouble sign, the Wednesday selling on further good war news is another. The technical action continues to deteriorate.
S&P 500/NYSE
Made another try at the 200 day MVA early, but that was a salute to Iraq toppling Hussein. Once that was over the large caps started to sell down again.
Stats: -12.3 points (-1.4%) to close at 865.99
NYSE Volume: 1.273B (+5.53%). Stronger selling than Nasdaq though still below average volume. Distribution nonetheless, and after the higher volume Monday reversal, the resumption of volume selling is not a good upside sign.
Up Volume: 347M (-84M)
Down Volume: 924M (+147M)
A/D and Hi/Lo: Decliners led 1.24 to 1. Larger stocks sold more Wednesday, the opposite from the Tuesday action. This flip flopping, equal opportunity selling indicates no buyside conviction.
Previous Session: Decliners led 1.25 to 1
New Highs: 69 (+30)
New Lows: 25 (0)
The Chart: http://www.investmenthouse.com/cd/$spx.html
Tried one more time at the 200 day MVA (8883), but the move was a wave in that direction. Stocks started falling as Saddam's statue toppled, and it did not let up until it closed on its low at the 18 day MVA. This is right in the middle of the mid-March to current trading range and a good place to hold if it is going to do so. The exponential and simple 50 day MVA are at 860 and 847 are the last bastions in this rally if it is going to hold, but it needs to hold at 860. With the recent double top and rising volume on the way lower, those odds are shrinking.
DJ30:
Similar to SP500, DJ30 rallied over the 200 day MVA (8354) and then sold back. DJ30 volume rose to above average levels as it undercut price support at 8250 and the 10 day MVA (8220). It is making the pullback and the next logical support levels are the 18 day MVA (8170) and the exponential 50 day MVA (8122), both right in the middle of the 8000 to 8250 trading range. DJ30 also needs to put in a higher low here to keep the rally looking solid. It sports the same near term double top with a reversal at the second high and higher volume selling as it moves lower. Those are not good signs of continued accumulation. Now that the fate in the war seems certain the market is certainly focused on the next array of problems ahead.
Stats: -100.98 points (-1.22%) to close at 8197.94
Volume: 1.273B (+5.53%)
The Chart: http://www.investmenthouse.com/cd/$indu.html
THURSDAY
The trade balance and jobless claims are out before the open as the market renews its focus on the economy. Not expecting much improvement in those numbers; employment is a lagging indicator in any event, and the economy is still heading down, not up. Sentiment is higher, but so is the savings rate. We are not sure that consumers are all that comfortable yet. Even if they are that is a necessary first step but not a complete one. The consumer did not keep the US out of recession and has yet to pull it out of recession. There is also no certainty about a tax cut as Congress has deferred that for a few weeks. That may be a good thing as the war will have wound down and Bush can work on individual senators personally. That still leaves the market facing near term uncertainty about policy with the backdrop of certainty regarding the continued economic lethargy in the current environment.
YHOO beat the street on earnings and revenues, giving some punch to tech earnings to go hand in hand with Alcoa's solid report last week. That starts the flood of earnings, and earnings are going to dictate the near term the market action. Then when the pattern of the quarter becomes apparent, the market will adjust toward the mean after the knee-jerk reaction subsides.
That leaves the market in something of a near term jumble as the competing forces fight out the short term direction. It is still in the uptrend rally from the March low, but that rally has been pushed back into the middle of the interim trading range making it less desirable to run out and buy a wide basket of stocks. In this environment the focus is on individual strong stocks or individual weak stocks that are breaking down as the overall market is not showing a clear and established trend.
In this environment we are going to be quick to take gains off the table. No use in holding on to the bitter end to see if something turns back up or down. Just take the gain, let the action settle down, and get back in if you want that stock or get into another one you like better. We are fortunate that many of the plays have built in some good gains and even the trailing stops are providing some nice gain.
Support and Resistance
Nasdaq: Closed at 1356.74
Resistance: The 18 day MVA (1371). The 10 day MVA (1376). 1400 is some new resistance. The early November, March and early November highs (1420, 1426, and 1427, respectively). The January high (1467). The December high (1521).
Support: The exponential 50 day MVA (1357) and 1357, the 1998 bear market low. The 200 day MVA (1338) and the simple 50 day MVA (1338). The January 2002/January 2003 down trendline at 1323.
S&P 500: Closed at 865.99
Resistance: 868, the top of the January trading range. The bottom of the October consolidation range at 875. 200 day MVA (883). Then price tops at 911 (July) and 925 to 935 (November and January peaks).
Support: The 18 day MVA (866) and the exponential 50 day MVA (860). 850, the bottom of the January trading range. The simple 50 day MVA (847). Price support at 825.
Dow: Closed at 8197.94
Resistance: The 10 day MVA (8220). 8250, the bottom of the October consolidation range and other index lows is some resistance. 200 day MVA (8354). November and January highs (8800, 8870). December high (9044).
Support: The 18 day MVA (8170). The top of the January range at 8160. The exponential 50 day MVA (8122). The simple 50 day MVA (7994). Price support at 8000 (bottom of January trading range) and then again at 7750.
Economic Calendar
4-7-03
Consumer credit, February (2:00): $1.5B actual, $3.0B expected, $12.3B January (revised from $13.2B).
4-8-03
Wholesale inventories, February (10:00): 0.3% actual, 0.2% expected, -0.1% January.
4-10-03
Trade Balance, February (8:30): -$42.4B expected, -$41.1B January.
Initial jobless claims (8:30): 425K expected, 445K prior.
4-11-03
PPI, March (8:30): 0.3% expected, 1.0% February.
Core PPI (8:30): 0.0% expected, -0.5% February.
Retail sales, March (8:30): 0.6% expected, -1.6% February.
Retail sales ex-autos: 0.4% expected, -1.0% February.
Michigan sentiment, April prelim (9:45): 79.0 expected, 77.6 March.
End Part 1 of 2
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world stock market
us stock market
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