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world stock market, us stock market
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4/21/03 Investment House Daily
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Investment House Daily Subscribers:
MARKET ALERTS:
Target hit alerts issued Monday: None issued. Too many are making good moves to cut off, e.g., NTES; OVTI; SCLN; SOHU; SSYS; FWHT, MSTR. Letting them continue to work for us.
Buy alerts issued: ABTL
Trailing stop alerts: None issued
Stop alerts: None issued
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http://www.investmenthouse.com/alertdly.htm
SUMMARY:
- Large caps flat line as small and mid-caps move higher.
- Leading Economic indicators are not leading, at least not up.
- Indexes take a breather at the top of their range, trying to form up for a breakout.
- Subscriber Questions
Market pauses overall as many leaders add to gains.
The market was range bound all session. As typical of the morning session, the indexes swung higher to test near resistance, lower to test near support, and then moving in a tight, lateral range the rest of the session. After moving up to the top of their trading ranges last week they need to take a rest, particularly Nasdaq that rallied from the bottom of the range to the top without hardly a pause. It most likely needs more of a rest here at resistance before moving ahead, and how volume responds will be very important. Monday it was fine with a lower volume drift lower.
Also key will be the action of the market leaders, and Monday many of those stocks rallied again on strong volume. The leaders continue to perform well even as the overall market just survives. Their ability to base, breakout, run, rest, then run some more is indicative of a healthier (though not necessarily robust) market.
Several of these leaders are small or mid-cap stocks, and for awhile the smaller cap stocks were underperforming the market. Monday these indexes were leaders, albeit modest leaders, as they pushed up to their next resistance at the 200 day MVA, led by this group of leaders that show up on the report. Small and mid-caps tend to outperform first when the initial signs of economic recovery appear. Financials are also something like the swallows that return first to indicate an improving economic picture. Financials have been doing better from regional banks to big investment houses. If the smaller cap, i.e., non-large cap indexes breakout over resistance, that would be a positive sign. It would not mean we could all sit back and crack open a cool one, but it would be a missing element to the move off the March lows.
In any event, the indexes, large cap or small cap, are now at resistance, and on any hesitation or pullback will need to show lighter volume and continued leadership from EBAY, APOL, UNTD, SSYS, YHOO, etc. as it does.
THE ECONOMY
March Leading Economic Indicators fall 0.2%, twice the expected level.
This is a basket of economic barometers that purportedly look out 6 months to see if the economy is moving higher, lower, or just holding steady. After three years of recession, its second month of negative gains is a very bad sign. Expectations were for -0.1%. February was revised lower from -0.4% to -0.5%. The economy continues in Alan Greenspan's 'soft spot' despite the end of the war. Our informal surveys indicate that businesses see no reason to jump out and start spending merely because hostilities in Iraq are ebbing. Iraq oil is still somewhat offline from a logistical standpoint, and even if its wells were up to speed it could not sell the oil because sanctions have not been lifted and there will be moves to block them from being lifted. That helped push oil back over $30/bbl Monday.
While the LEI are down again, the ECRI (Economic Cycle Research Index), a purportedly 'faster' read of turns in the economy, shows that the economy has turned away from a second recession near term. Of course, how you define a recession makes a big difference. The government does not view a drop in GDP growth from 8% to -1.5% in just three quarters as a recession. Manufacturing has been in a recession since 2000 and really even before that time. Moreover, when you look at the elements that turned the ECRI back up (rising stock market, falling weekly jobless claims), you realize how fugacious the reading is week to week. We do believe the market is a leading economic indicator, but overall it is still in a downtrend and is just now going through the preliminaries as it tests first resistance. As for jobless claims, well we saw them jump back up last week. You have to look at the trends and no the minutia. The minutia can tip you off to potential changes, but ultimately the trend plays the key role. The trend is not good yet though the leading indicator of the market is, as noted, improving.
Tax package compromise offer waters down immediate impact.
The White House must be looking long term, at least when all else fails. There is no doubt that several elements of the economic proposal had longer term horizons along with the nearer term stimulus elements. As disagreement continues regarding how far taxes should be cut, the White House has suggested a partial dividend cut is acceptable as long as the double tax is removed in 10 years. More critically, however, it is also apparently willing to do what it did last time, i.e., extend the cuts in everything else over 10 years, including eliminating the reduction in the top individual bracket for 2003. In short, the watered down version will have hardly any stimulative effect simply because there won't be enough stimulus hitting the economy at once. Ultimately it may help, but the key is making to 'ultimately.' Japan keeps coming to mind as it also refused to do what was necessary to rectify its economic slide.
The US is backing off when it has the recession on the ropes and can deliver the knockout punch. Those worried about deficits and social security because of deficits for a few years are going to have nightmares when the economy does not grow and social security truly goes broke. My generation never expected to see any of this 'trust fund' anyway, and if we continue going into decline and refuse to take the necessary steps to rectify it that expectation will turn to reality. There are too many straws in social security that were never meant to be in the glass. It is ironic and grossly incorrect for those pundits on television to smugly state that the US has taken the necessary steps to avoid a Japan-like depression. They talk about how Japan failed to make the 'tough decisions' required to bring its economy in line. Yet these same pundits fail to acknowledge that the US refuses, for political reasons, to address the equally 'tough' problems of social security, welfare fraud, and medical care. It is d j vu all over again, American style.
THE MARKET
The indexes paused Monday, trading flat on lower volume after good moves last week. SP500 and DJ30 are still in their small ascending triangles and Nasdaq has at least made a higher low. All are, however, at resistance and will need to make a breakout. Once again they cannot afford to make a lower low on any test. They need to make another higher low just below this resistance and then make a breakout. The market still has several layers of overhead resistance/supply, and it needs to make some headway at these lower levels before it goes into a longer consolidation. In short, if the indexes turn over here on this third try at the top of this range, they are at risk of giving the March move back. Still, as we noted over the weekend, good expiration Fridays often lead to poor Mondays. If this was a poor Monday, we will take it.
The Monday action was not bad as noted above. Lower volume, modestly positive A/D line even with negative closes on the large cap indexes. That is a sign the small and mid-cap stocks were making some headway even as the large caps took the day off. Additionally, the stocks that have led from the March low are still moving higher and doing so on volume.
Still the market is in earnings season. What is perceived as good news one night is seen as bad the next. After hours Monday the earnings news was not as robust and stocks were selling back on the results. After favorable reception in the first few earnings sessions, the market may tire of the earnings news. This is a familiar pattern we noted last week: the first earnings results that surprise a bit to the upside are received well. After investors feel they are seeing a replay with little insight into the future, the shine wears off and the results no longer get that favorable reception. Blow out earnings are still blow out earnings. There are some as we have seen, but they are not widespread.
In sum, the market is at a critical stage, trading to the top of its current trading range. If the market pauses now, something it looks ready to do, it needs to move laterally and slightly lower on contained volume, then provide a breakout at some point this week. It is still at risk, however, from some higher volume selling as it makes this third try at the top of the range.
Market Sentiment
Bulls versus bears: There appears to be something of a dichotomy between individual investors and 'professional' investors. Individual investors remain mostly bearish according to surveys from the AAII. At last count there is roughly $2 trillion in money market funds earning less than 1%. That is a lot of money that is not going into any form of savings as many individuals view just hanging onto dollars regardless of the 3% inflation rate year/year as a moral victory.
At the same time, readings from financial advisors continues to show more bullish bias (50% bulls, 30% bears). That is not yet at levels that have historically indicated correction (55% bulls, 20% bears), but it is indicative of the general professional bullish view. NYSE short interest has also fallen well off the highs from last year and early 2003. It is still well above the mid range, but fading.
What is the conclusion? There is complacency creeping in to be sure; you cannot ignore those indicators that have historically shown when extremes are approaching. Individuals, the most bearish group, do not drive the market in the sense they do not rush out and buy millions of high dollar shares themselves. They put their money into institutions and the institutions wield the big stick. Still, the money sitting in money funds at the behest of individuals is very important. The major concern in looking at bulls and bears? That all the ammunition for rallies is used up. If the mutual funds have most of the money and they are mostly bullish and fully invested, where does the fuel for further moves come from? With a couple of trillion dollars in bank accounts, there is additional fuel out there for the rally to continue. This money will work its way toward the market as success begets success. Already $10.3B moved into the markets last week after weeks of outflows. Thus the bearish individual does have a more important role in this bear market scenario.
VIX: 24.27; -0.32
VXN: 35.49; -0.39
Put/Call Ratio (CBOE): 0.71; +0.19
Nasdaq
Cleared near resistance in the first hour, but could not hold the move, instead settling for a flat session on low volume. A late move higher by SOX (+0.4%) helped keep things under control.
Stats: -1.13 points (-0.08%) to close at 1424.37
Volume: 1.255B (-22.69%). Very modest volume on the return from the Friday holiday, though this is a traditionally light volume session.
Up Volume: 656M (-643M)
Down Volume: 554M (+244M)
A/D and Hi/Lo: Advancers led 1.15 to 1. Good to see advancing issues lead on a down session, another indication that there was no hard selling.
Previous Session: Advancers led 2.14 to 1
New Highs: 147 (+50)
New Lows: 31 (+5)
The Chart: http://www.investmenthouse.com/cd/$compq.html
Took out the March nigh (1430) intraday (1432), but could not hold the move. Nasdaq was obviously feeling around on the session, testing down to the December/January down trendline on the low (1413) then rebounding to close in the upper half of the session's range. Nasdaq is still making its third attempt at breaking through this 5-week trading range. After running up from 1350 last week, it needs a bit of rest and it can handle a pullback to the 10 day MVA (1395) and even the 18 day MVA (1385) as that will again turn a higher low. That would keep it in the pattern and continue to build that buyside pressure from below to break it up and out of this range. If not, it has the same risks as before (1350, 1338) toward the bottom of the range, even further if volume spikes on the selling. Monday was not a bad day, at least nothing to indicate major trouble. Until it can clear this near resistance with some authority we are cautious.
S&P 500/NYSE
Similar action, i.e., a doji at resistance as it builds in its short ascending triangle.
Stats: +0.02 points (0%) to close at 892.01
NYSE Volume: 1.104B (-19.62%). Very low volume as the large caps took a second day off.
Up Volume: 616M (-539M)
Down Volume: 485M (+277M)
A/D and Hi/Lo: Advancers led 1.27 to 1. As with Nasdaq, positive breadth on NYSE on a down session is a good indication and shows the strength in the smaller cap issues.
Previous Session: Advancers led 2.84 to 1
New Highs: 136 (+27)
New Lows: 14 (-6)
The Chart: http://www.investmenthouse.com/cd/$spx.html
Could not even clear 900 on the early high (898.01) as the large caps were sluggish all session. They too moved rather well last week, back toward the trading range high (904 intraday, 896 closing) as they again tested the top of what has turned into a 5-week ascending triangle making higher and higher lows (last at 875) as it compresses against 900 on the high. A breakout here opens the door to tackle yet further resistance at 911 and then 925 to 935 (January high at 935) on up to the December high (954). We mostly anticipate a test toward 882 (10 day MVA) or 880 (200 day MVA) before it makes an attempt at that breakout.
DJ30:
It was a struggle, but DJ30 managed to hold the 200 day MVA (8325) on the close as blue chips worked through a narrow trading range of its own Monday. Unlike Nasdaq and SP500, DJ30 is sitting right on top of the 200 day MVA and is in position to move up right from here. It has been, however, a follower and not a leader of late as it is still in the middle of its recent range with 8522 as its next level to beat. We would not complain if MRK et al helped it take a leadership role, but we won't count on it.
Stats: -8.75 points (-0.1%) to close at 8328.9
Volume: 1.104B (-19.62%)
The Chart: http://www.investmenthouse.com/cd/$indu.html
TUESDAY
No scheduled economic reports Tuesday, so it is earnings and the market itself will be in control. That is, of course, if none of the other potential hotspots in the world or regarding the US economic future (tax package included) jump to the forefront. The Monday action was not bad at all with smaller issues coming to the fore and the lack of any real selling in the large caps after a solid move upside last week.
Tuesday and Wednesday (or at least some part thereof) we anticipate some further testing back toward near support. Solid move last week by Nasdaq and SP500 could use a bit of testing and consolidation, but it needs to be on continued light volume and hold near support. Given the low volume Monday, as long as any further pullback remains in that ballpark, selling volume could rise some and still be acceptable. What we want to see regardless of volume is a contained, orderly pullback. Sometimes we get light volume selling but very large percentage losses. In this market that is struggling to continue its current rally, those large point losses on low volume can be equally devastating. Orderly, relatively light volume testing of near support Tuesday and Wednesday would be good action.
Even with that action we need to be ready for further moves from leadership stocks. Those tend to run ahead of the market as many were doing Monday. While those will not be in position to enter as they have run higher, there is always the next wave that has been consolidating as the first group moves out ahead. Those can provide excellent buy points even before the rest of the market starts moving; leaders by definition lead.
While the index patterns are slightly improving, we also remain quite cautious at this stage as the indexes are at the top of their range, a point they have not been able to break and hold. It is a slow process of taking out resistance levels, moving ahead to conquer old lost ground, hold that level on consolidations, and then moving forward again. All of this is being done in the face of no real economic improvement; this is certainly a move based on future expectations of better economic times that have yet to appear. That is nothing new for the market, but it does place a premium on keeping a rational view of the market and listening to what it is saying as opposed to what our gut is feeling.
Support and Resistance
Nasdaq: Closed at 1424.37
Resistance: The March and August highs (1426 and 1427). The January high (1467). The December high (1521).
Support: 1400 is some support (10 day MVA is at 1395). The 18 day MVA (1385). The exponential 50 day MVA (1366). 1357, the 1998 bear market low. The simple 50 day MVA (1349). The 200 day MVA (1337). The January 2002/January 2003 down trendline at 1305.
S&P 500: Closed at 892.01
Resistance: Recent highs at 896 and 905 (March and April). Price tops at 911 (July) and 925 to 935 (November and January peaks).
Support: 200 day MVA (880). The bottom of the October consolidation range at 875 down to 868, the top of the January trading range. The 18 day MVA (876) and the exponential 50 day MVA (866). 850, the bottom of the January trading range. The simple 50 day MVA (852). Price support at 825.
Dow: Closed at 8328.90
Resistance: 200 day MVA (8325) is not totally broken. 8522 and 8520, the March and April twin peaks. November and January highs (8800, 8870). December high (9044).
Support: 8250, the bottom of the October consolidation range and other index lows is some resistance. The 18 day MVA (8244). The top of the January range at 8160. The exponential 50 day MVA (8166). The simple 50 day MVA (8033). Price support at 8000 (bottom of January trading range) and then again at 7750.
Economic Calendar
4-21-03
Leading economic indicators, March (10:00): -0.2% actual, -0.1% expected, -0.5% February (revised from -0.4%).
4-24-03
Durable goods orders, March (8:30): -1.0% expected, -1.6% February.
Initial jobless claims (8:30): 425K expected, 442K prior.
4-25-03
Advance Q1 GDP (8:30): 1.9% expected, 1.4% Q4
Michigan sentiment, revised (9:45): 84.0 expected, 83.2 prior.
Existing home sales, March (10:00): 5.70M expected (annualized), 5.84M February.
New home sales, March (10:00): 900K expected, 854K February.
End part 1 of 2
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world stock market
us stock market
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