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world stock market, us stock market
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4/29/03 Investment House Daily
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Investment House Daily Subscribers:
MARKET ALERTS:
Target hit alerts issued Tuesday: DKS; AFCO; CTXS; SOHU; XMSR
Buy alerts issued: VSTA; BCE; SCSS
Trailing stop alerts: SCLN; AMT
Stop alerts: None issued
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SUMMARY:
- Market continues to rally on rising volume, but no clean break higher.
- Consumer confidence surges after war. D j vu all over again.
- Leaders surge higher as broader market indecisive.
- Subscriber Questions
Market recovers to post modest gains on rising volume.
Stocks continued adding to Monday gains at the open, and when confidence came in much better than expected, the market shot higher. We said we did not expect any real reaction unless it was over 75. Well it was well over 75 (81), and the market liked it. The love affair, however, was over in about 10 minutes. Stocks immediately reversed very nice gains and turned negative. It was a long, drawn out fight for them to recover to positive, and even then they were unable to return anywhere near to the early session highs.
Volume was much stronger than Monday, topping the Thursday and Friday selling volume. Stronger but not a flash of powerful bullish action. The ability to recover the was good but while Nasdaq was able to close over the January high, DJ30 once again gave back the 8522 level that marks the recent highs in its current consolidation. Nasdaq is the market leader so you could argue that its close over 1467 on rising volume was a milestone. If it had closed near the high, perhaps. As it is, Tuesday left the indexes right at the top of their ranges with no clear continuation of the breakout. The doji's on all of the indexes simply underscores the inability to make a clean break over near term resistance.
THE ECONOMY
Confidence surges to Desert Storm levels.
81.0 crushed expectations of 70.0, blowing past March (61.4) and February (64.8). Present conditions scored 75.3 (+15) and expectations 84.8 (+25). These are similar to the 1991 war surge, but back then only the present conditions posted the big 20 point move. Not sure how significant it is, but both components this time around posted the big gains. To put the move into a more sober perspective, last year at this time confidence was coming in around 108.
Of course all of this begs the question as to just how important consumer sentiment. It is always good to have consumers happy (though the current level is more like getting over a bad stomach ache: you still feel like hell but knowing the worst is over lifts your spirits), but it is the old chicken or the egg question: does improved confidence result in further buying and thus actually drive an economic recovery or is improved confidence the result of an already better economy? No doubt they feed off of each other, but consumer confidence remained solid (by historical levels) throughout the recession, only dipping severely as war became rather inevitable. As we have discussed before, the consumer did not keep us out of the recession and has not been able to provide a big lift in recovery even with all-time record housing and auto purchases.
There is no doubt that improved confidence and improving economic conditions feed off one another, but consumer confidence is not sufficient by itself to provide economic recovery and expansion. Recent history is proof of that. Somehow that seems to escape Congress, however, when we repeatedly hear the phrase 'but stimulating the consumer has always worked in the past.' When the consumer has gone turtle and stopped spending in a recession, the big surge in consumption as a result of consumer incentives has driven past recoveries as the consumption binge was strong enough to prompt businesses to invest and expand.
That is not the case here where businesses still languish in overcapacity. Without some incentive to spend money on more equipment and workers, there is no business reason to do so given the slack earnings and adequate current capacity levels. That is where capital investment credits come in to spur the investment on the business side. The idea is to induce businesses to spend money on something they may not otherwise need given the slack economy. Give them a tax credit to buy a piece of equipment and they will do it because the choice is pay the government and get nothing or spend the money and get something you could use. It is much simpler to implement than dividend tax elimination, and it is a very precise and targeted tonic for what ails the economy versus another round of consumer rebate checks (60% or more of which will be saved or used to retire debt) that attack the wrong side of the equation.
The political climate in DC, however, is an all or nothing, zero sum gain. It is one side wins and the other loses climate. In that environment there is little chance of a truly productive outcome, as they argue over $200B over 10 years when the government is going to take in $27T (trillion) in taxes over that same 10 years. It is absolutely insane when you put it into real life perspective. Unfortunately, what is going to come out of DC will be something directed away from the real problem or nothing at all. Seems some view a weak recovery and millions with lost retirement accounts and a bankrupt social security system (the result of a weak economy) as no big deal even as they cry over social security and think that $200B saved over 10 years will save it. Hardly. They are going to spend that $200B faster than a hound dog wolfs down its Gravy Train.
THE MARKET
The market was ready to run higher, but it reverted to an old habit of selling on good news. It surged on the confidence number, but that was over quickly. Talking with several floor traders, that sudden reversal on good news appeared to be a prearranged sell program that was going to sell into the news and take advantage of the indexes fight with near term resistance. There is no clear consensus, but some felt there were some hedge funds trying to push the market lower. It is very, very difficult for just a few funds to move the market when it is trending in the opposite direction. Time and again in the long downtrend a few institutions would try to buy, driving the market higher on volume. Then the rest would use that one or two day run to sell, and the selling waves washed away all buyers. It is a tough battle to fight.
Indeed, the market showed how tough that is to do and also showed it still had some guts as stocks rallied back from that selling attempt. Moreover, volume was strong as it rallied early, fell as the market sold off, then recovered as the market rallied back. The gains, however, were in the shadow of the earlier move and it was a hard fought recovery, breadth was relatively narrow to recent gains, and the indexes showed doji's as they tried to test higher.
All in all they scored gains on rising volume, but they could not make a strong, clean break or surge over that near resistance. Nasdaq rallied closer to its December high, but all indexes showed doji's, unable to recapture the early highs as they closed well off those levels. Overall the market again hesitated at an important level, but the leaders managed to put together yet another session of gains on rising volume, indicating that the market still has buyers at the ready.
Market Sentiment
VIX: 23.53; +0.48
VXN: 32.58; -0.1
Put/Call Ratio (CBOE): 0.89; +0.13
Nasdaq
Raced toward the December high on the early surge but then sold off and had to fight to close over the January high.
Stats: +9.06 points (+0.62%) to close at 1471.3
Volume: 1.67B (+14.16%). Volume surged substantially, easily surpassing the Thursday and Friday selling volume. That indicates further accumulation, but the intraday price action indicated not all was buyside volume.
Up Volume: 1.184B (+23M)
Down Volume: 408M (+126M)
A/D and Hi/Lo: Advancers led 1.15 to 1. Very modest breadth as many stocks did not participate in the move.
Previous Session: Advancers led 2.07 to 1
New Highs: 148 (+2)
New Lows: 22 (-7)
The Chart: http://www.investmenthouse.com/cd/$compq.html
On the opening salvo fueled by the confidence numbers Nasdaq reached 1482.49, not far from the 1521.44 intraday high hit at the apex of the October to December rally. Nasdaq did take out the January high (1467.35) on the close, but it was not a convincing breakaway move as it gave back over half of the gains and clawed its way back just to hold that move. Significant in that Nasdaq has now again topped the August 2002 high (the first former high it beat in the long downtrend) as well as the January high, but also significant is the wobbly action as it cleared January's peak. After a strong run off the March low it is going to need some rest when it approaches 1522. You could argue that today may have started that and even signaled some downside ahead with a doji on rising volume just below resistance. The fact that stocks were able to fight off that early sell program and come back to turn in a gain on volume, however, blunts that position. In any event, Nasdaq is approaching that December high and the May 2001/January 2002 down trendline (1511) with some caution even as it continues to show very solid price/volume action. The action still shows accumulation, and that suggests a higher test of the December high before further consolidation.
S&P 500/NYSE
Rallied to the start of next resistance at 925 and then beat a retreat, closing again below that January high.
Stats: +3 points (+0.33%) to close at 917.84
NYSE Volume: 1.49B (+17.04%). Volume returned back to above average and beat the selling volume late last week.
Up Volume: 969M (-119M)
Down Volume: 512M (+352M)
A/D and Hi/Lo: Advancers led 1.35 to 1. After the strong upside breadth seen of late this was almost a no-show.
Previous Session: Advancers led 3.09 to 1
New Highs: 155 (-1)
New Lows: 15 (-6)
The Chart: http://www.investmenthouse.com/cd/$spx.html
The large caps surge on the consumer news as well, hitting 924.24, right at the range of resistance from 925 to 935 (January high). Gave back well over half the session gain, showing a doji right at that critical breakout level, unable to generate enough upside interest even with the stronger volume. It was undermined by that early sell program and managed to return to positive territory. It closed over the September 2000/March 2002 down trendline (913), but as we have discussed, it was not a clean break over that level. The December high (954) is still ahead, but as noted Monday, Nasdaq is already trying the December high, and if it is unable to make above that level the large caps will have a difficult time making it near the December levels before needing some rest.
DJ30:
Very similar to the SP500, DJ30 raced ahead (8559.77 on the high) but then fell back, unable to close over March and April highs (8522, 8520) that mark the current pattern. Volume was up but below average for the blue chips. The doji (closed 57 points off the high) right at the top of the pattern indicates DJ30 continues to struggle, unable to attract enough investors to push it past this resistance.
Stats: +31.38 points (+0.37%) to close at 8502.99
Volume: 1.49B (+17.04%)
The Chart: http://www.investmenthouse.com/cd/$indu.html
WEDNESDAY
The Chicago manufacturing number is out at 10ET and Greenspan addresses some congressional members. The manufacturing report precedes the national number Thursday, and it will receive a lot of attention after the stronger than expected consumer confidence side of the economic equation. Further, Greenspan will be questioned about a tax cut, and while he will say that reductions in marginal rates and the elimination of dividend double taxation are god ideas, they won't provide immediate economic stimulus, and that everyone should just trust him and his men in tights to deliver a healthy, vibrant economy. The Chicago report may disappoint as there is not much to suggest business improvement (that lack of a reason to spend in this economy), but Greenspan will not as he speaks in tongues and stupefied congressmen give that clueless 'yes, I see' nod as he does.
That is all sidebar to the action of the indexes as they continue to approach key resistance from January and December. Nasdaq helped change the market's character when it broke over its August high in November and January. It broke a long string of lower and lower highs, the first step in fighting out of a 3-year hole. It consolidated that move and is now leading the market back to test the highs of that first rally from the bottom of the bear market. Looking at its pattern we see a reverse head and shoulders of sorts forming with SP500 showing a similar pattern. These are accumulation patterns, and the Nasdaq pattern shows 6 up weeks on rising volume to 1 down week on rising volume; solid upside buying.
The accumulation in a base sets the foundation for further moves. As Nasdaq approaches that December high it will be tested by sellers getting out at that point to 'get even' as well as those wanting to short that market at that point after a solid move up from the March low. It will be buffeted and thus we are not expecting a quick, clean break over that level. We may be wrong as the accumulation is solid, easily overwhelming sellers thus far. The accumulation sets the stage for an ultimate breakout over that level. The market leaders continue to rally on volume, but they will all need a rest after such a good move up to that critical resistance to set the stage for the next move. Thus the December high on Nasdaq is our near target, and if stocks start to turn choppy at that point we will start taking some more gains. If the market continues on up, we will hang on and ride a quick breakout. If it stalls and we take some gains and then the market breaks higher, we will get back in. Overall the market is still showing positive accumulation and that is the horse we are riding for now.
Support and Resistance
Nasdaq: Closed at 1471.30
Resistance: The January high (1467) has not been totally broken. The December high (1521).
Support: The 10 day MVA at 1439. The March and August highs (1426 and 1427). The 18 day MVA (1420). 1400 is some price support. The exponential 50 day MVA (1386).
S&P 500: Closed at 917.84
Resistance: 925 to 935 (November and January peaks). 954 (December intraday high).
Support: September 2000/March 2002 down trendline (913) has not been totally cleared. Price tops at 911 (July). The 10 day MVA (903). March and April highs (896 and 905). The 200 day MVA (879). The bottom of the October consolidation range at 875 down to 868, the top of the January trading range. The exponential 50 day MVA (876).
Dow: Closed at 8502.99
Resistance: 8522 and 8520, the March and April twin peaks. November and January highs (8800, 8870). December high (9044).
Support: The 18 day MVA (8346). The 200 day MVA (8309). 8250, the bottom of the October consolidation range and other index lows is some support.
Economic Calendar
4-28-03
Personal income, March (8:30): 0.4% actual, 0.4% expected, 0.2% February (revised from 0.3%).
Personal spending, March (8:30): 0.4% actual, 0.6% expected, 0.1% February (revised from 0.0%).
4-29-03
Employment cost index, Q1 (8:30): 1.3% actual, 0.8% expected, 0.7% Q4.
Consumer confidence, April (10:00): 81.0 actual, 70.0 expected, 62.5 March.
4-30-03
Chicago PMI, April (10:00): 48.5 expected, 48.4 March.
5-1-03
Auto sales, April: 6.0M expected, 5.5M March
Initial jobless claims (8:30): 432K expected, 455K prior.
Productivity, prelim. Q1 (8:30): 2.0% expected, 0.8% Q4.
ISM index, April (10:00): 47.0 expected, 46.2 March.
Construction spending, March (10:00): 0.2% expected, -0.2% February.
5-2-03
Non-farm payrolls, April (8:30): -58K expected, -108K March.
Unempolyment rate, April (8:30): 5.9% expected, 5.8% March.
Hourly earnings, April (8:30): 0.2% expected, 0.1% March.
Average workweek, April (8:30): 34.2 expected, 34.3 March.
Factory orders, March (10:00): 1.2% expected, -1.5% February.
SUBSCRIBER QUESTIONS
Some questions about upside rallies to resistance that ties into where the indexes are at this point in time as discussed in the Market Summary.
Q: You expect the Nasdaq to make another upside attempt toward the December high (1521) before yielding to a more sustained consolidation. And, you are anticipating the S&P 500 to try the January high (935) before a more sustained consolidation.
Why?
The market can only run so far before it needs rest. It takes a lot of buyside power to break resistance. When it breaks resistance and then runs to the next important resistance point it often needs to consolidate the gains and get rid of the short term buyers that take quick profits. Hedge funds fall into that category as do some mutual funds that are more into trading during the bear market. Then it is the fight between bulls and bears until one side dominates and the market either resumes its trend and breaks resistance or rolls over and sells on higher volume.
Of what approximate duration might you expect this more sustained consolidation to be?
A consolidation's length often depends on how far an index has run and how strong the resistance is. The rally up off of the October low is still being consolidated as Nasdaq rallies up to test that point. It most likely will need some more rest to breakout. Even during that consolidation there have been smaller rest periods. After moving off the March low the indexes moved laterally in a range for a month before Nasdaq made the recent breakout over that resistance. Thus the consolidation can be a week, a couple of weeks, a month, but an exact figure is hard to pinpoint based on the size of the move, strength of resistance, accumulation in the market, etc.
Care to venture a guess as to what might follow such a consolidation?
As long as the market continues to act in a healthy manner, i.e., showing accumulation, good price/volume action, and strong leadership, the resolution points to the upside. Right now the market is showing very good action. When it gets to the next resistance it will give us cues as to whether the sellers are taking control or not in the form of that price/volume action and how the leaders react and whether new leaders continue to emerge from solid patterns. Remember, we ultimately let the market tell us where it is going despite our intuitive feelings about direction as we have to defer to what the mass of other investors think, want and feel versus what our perspectives in our little part of the world tell us.
SEMINARS ON CD
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
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