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world stock market, us stock market
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4/23/01 Investment House Daily
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Investment House Daily Subscribers:
TONIGHT:
- Selling continues on lighter volume, but we have to tread lightly now.
- Earnings up, earnings down, JDSU has 'news,' and important economic news before the open. Another key day ahead.
- Will investors continue to look ahead?
- Economy: Commodities trying to stabilize.
- Subscriber Questions.
- Team Trades.
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THE SUMMARY
Lighter volume selling, but we have to be careful.
After big volume moves higher last week, today continued Friday's pullback with volume falling off to below average levels. That is always a positive in any selling. Problem is, this market is not on a raging bull run, and in this bear market we have seen some major selling start off on light volume. Today's Nasdaq action somewhat exemplifies this (though it was not a Nasdaq slaughter) as the Nasdaq dropped 4.8% while the Dow fell just 0.5% and the S&P 500 dropped 1.5%. The techs have run hard and the sellers were in the majority today. Fortunately, on an overall basis, their total numbers were much less than the buyers that led the market higher last week.
The Nasdaq and several stocks we are tracking were unable to hold above their 50 day MVA's. That does not mean it is the end of the road for them as there are support levels below the 50 day MVA, e.g., JNPR the stocks are still holding above. Even the Nasdaq is holding above its down trendline (not much consolation as it is moving down each day) and what looks to be support at 2000 in the form of some recent price tops and the 10 day MVA. So, not is all lost by any means, but the price losses were more than just modest. We would have preferred to see selling stop at about 50 points. It did not, so we are watching to see what tomorrow's economic news in the form of the consumer confidence numbers brings.
More or less the same earnings news and other market stories.
Monday means analyst day. Merrill fired the first shot for the week when it called a 40% downside risk to the SOX from current levels. That did not help that index or sector as it plunged right through 650 that had the potential to act as some support. The Smith Barney fellow came out and 'defended' the sector and his call last week, but that did not help.
Exxon crushed numbers (no surprise given energy prices), NVLS beat the street by 1 cent and guided higher for next quarter but lower after that, CPQ missed by a penny, and DGX beat by 11 cents. Same old story: some hit the ball, others swing and miss. So far in this earnings season investors have been heartened by tentative comments about the future, but will the hit and miss earnings finally get to them? Will they keep looking past the next quarter? That is how it works when the Fed cuts rates, but it is not always a straight shot higher; they have been pretty exuberant of late.
Then there is JDSU, announcing it is going to announce something of significance in the morning. That was read as a warning after hours as JDSU sold off, but would JDSU warn if it reports earnings two days later? And why announce it is going to warn? Most likely it has something to do with the LU optical unit that LU is trying to unload. That could give everyone a 'whew!' sigh of relief.
THE ECONOMY
Important news tomorrow with the consumer confidence report. If it beats expectations, the will be a good signal for the markets that their optimism may not be misplaced. If it is below expectations we have to watch carefully. This market is not a bull market yet. It is susceptible to upset if the reasons it started to rise are proved incorrect. Crashing consumer confidence will not help; with all of the job losses of late, it is hard to see it rising. It always lags the economy, but that is the point: it was holding up but now is weakening. Tuesday is housing sales, another key component of just how good the consumer feels. Remember that permits have fallen two months in a row.
On top of the Wal-Mart and Sears warnings, after the close tonight Costco joined in with its own earnings warnings. Basically it says the current quarter and the next quarter will be lower pointing at gas prices. Those are shooting higher and they are finally starting to be a very real tax on the consumer. At over $2 per gallon, it takes over $80 to tank up that big SUV. That will bring tears to your eyes. It will also keep you from buying that extra outfit or tool set. That also points out the fallacy of a $300 rebate: it will partly offset gas costs that are already high; it won't be used for any real significant consumption. If the Feds really wanted to help, let's talk about eliminating the large chunk of taxes on each gallon (over 30% now).
Still, signs continue to be mixed. Commodities were tanking, falling well out of any fear of inflation; that was good for awhile, but they were getting lower and lower and that can turn into deflation. Why? Because they are so sensitive to economic activity. If they were still tanking that would be another sign the economy was in trouble. Also, long term bond yields have risen, straightening out the yield curve. That is another sign that future economic activity is brewing. The dollar is just going nuts. It has risen in the face of rate cuts, and that is unusual action. Part of the problem: the rest of the world is starting to feel the economic slowdown, and investors prefer dollars still.
So, there is the good and the bad. If any of this new attitude about the future is based on the consumer, it is most likely going to get an unpleasant surprise. Sentiment lags the economy, and it is showing signs of doing that now. That may dampen the spirits of the new rally; but, if the companies are being honest about their economics, they are showing increased corporate demand. It will be nip and tuck. Without the oil shock it would be easier to pull out. But it always seems to be the thing the Fed does not anticipates that causes the trouble.
THE MARKET
Overall market stats:
VIX: 31.50; +2.49. Volatility rocked right back over 30 today after one of its few sojourns below that level in recent history. Still nothing to really move the market here. Emphasis right now is on price and volume.
VXN: 78.37; +4.03. Nasdaq volatility continues its strong climb, outpacing the overall Nasdaq's decline. It rose 5.4% while the Nasdaq declined 4.8%. It is right at the 78 to 80 level that has led to turns higher in the index. Very interesting, and it lends credence to the idea that this is just a pullback on profit taking.
Put/Call ratio (CBOE): 0.60; +0.12. Rising marginally on the selling. 1.36 million options on the CBOE (2.57 million Friday).
NASDAQ: The Nasdaq looked lower, gapped lower, and never tried to turn positive. It was a selling day all around, so we were mostly watching where it closed and on what volume. Not too bad, but more than we wanted as far as the price declines.
Stats: Down 104.09 points (-4.8%) to close at 2059.32.
Volume: 1.846 billion shares (-27.4%). That is a significant drop and moved volume back below average. That is what we like to see if there is selling. Down volume was way out in front 1.567 billion to 259 million shares to the upside.
A/D and Hi/Lo: Declining issues increased their lead to 1.65 to 1 (1.1 to 1 Friday). Still not too bad. New highs fell to 57 (-14) as new lows rose to 40 (+7).
The Chart: http://www.investmenthouse.com/cd/$compq.html
A 4.8% loss in one day is not what we like to see on profit taking, but the sellers were still in the minority considering the past week of trading where big gains were made on massive volume. That shows net buyers, but it cannot rest on its past success. If sellers decide to start riding it down again, light volume today does not matter. We need to see support levels hold as buyers step back in when stocks are sold back down to 'bargain' levels. The 50 day MVA (2083.35) did not offer much support. The next level would be the 2000 level (the 10 day MVA is at 2004.40). We don't want to see it backslide on the close beyond that, and that level is only 59 points away. If the bulls are going to come out on this run still, to us that will be the level they will do it at. There were many tech stocks that have raced ahead pulling back on lower volume today. That is the action we want to see after big runs; now they have to turn back up and put the pedal down with some solid advancing, above average volume.
Dow/NYSE: The Dow is looking good with a mild pullback on lower volume.
Stats: Down 47.62 points (-0.5%) to close at 10,532.23.
Volume: NYSE volume eased back again to 1.016 billion shares (-24%), falling back below average. This is very good price/volume action.
A/D and Hi/Lo: Declining issues continued to lead, 1.46 to 1 (1.56 to 1 Friday). No new high/low information tonight.
The Chart: http://www.investmenthouse.com/cd/$dja.html
The Dow's selling was very mild and very much what we prefer to see. Indeed it traded below some potential support at 10,500 on its low (10,483.23) and moved back up over that level by the close. It is in the midst of some serious congestion from 10,300 to 11,000. What it needs to do here is just what it is doing: mild selling as profits are taken and buyers catch a breather after the last two weeks. Then it needs to break back over its recent high (10,693) on stronger, above average volume. If it breaks down here, it will most likely test 10,300 to 10,250. volume will be the key if it ramps up on any selling.
S&P 500: The big caps more or less mirrored the Dow as its pattern is more or less mirroring the Dow's. It did a very good job of tapping support at the down trendline it broke last Wednesday at its low (1217.47) and the 50 day MVA at 1211.97 and then moving back up. This is where we want to see it catch support for the move back up. After that, the 10 day MVA is at 1205.50. The pullback looks orderly and healthy at this point.
Stats: Down 18.62 points (-1.5%) to close at 1224.36.
Volume: NYSE volume fell back below average at 1.016 billion shares (-24%).
The Chart: http://www.investmenthouse.com/cd/$spx.html
TOMORROW
Big news before the open will be the JDSU conference and the consumer confidence. We don't think JDSU will be a warning. That leaves consumer confidence expected to come in at 113, down from 117 previously. This is a hard read, but confidence has been flagging steadily as jobless claims have risen. Last week the claims were lower but overall they have been rising. Any number better than expected will be a surprise.
We will get a glimpse of how the market is thinking before the open after these numbers hit. Today we were watching more than anything else, seeing where the market was going to settle and on how much volume. Not terrible action as we noted, but it was not just a small pullback on the Nasdaq, at least not as mild as we wanted on the price.
What we are watching for tomorrow is some of the key stocks to find support and then start back up. Stocks such as NVDA, GENZ, FDC, BRKS. That is the aggressive play, catching them off of support. We can open some positions then, but won't shoot the wad on any one of them unless it is a breakout. The safer move is to let them power higher on a strong volume day, and even safer is to let them clear the old high. But, these pullbacks to support followed by high volume bounces are excellent points to take positions on strong stocks. We want to catch them when they rebound; we just have to be ready with stop losses or other methods of cutting losses (i.e., watching them) if they reverse and start breaking below support. As always, we will look for the breakouts as well and catch them on their surges past the pivot point.
Support and Resistance Levels
Nasdaq: Closed at 2059.32.
Resistance: 2250, then 2290 to 2300. It is very congested in this range (thicker ice).
Support: 10 day MVA at 2004.40. Then 2000.
S&P 500: Closed at 1224.36.
Resistance: 1265 to 1270.
Support: 1215 represents price lows from February and March. The 50 day MVA at 1211.97.
Dow: Closed at 10,532.23.
Resistance: Right under some real congestion from 10,750 to 10,900.
Support: 10,500 remains possible support. 10,300 to 10,250 after that, but it did not hold on the way up.
Weekly Economic Calendar (All times Eastern). The figures are the consensus expectations, not ours.
4-24-01
Consumer Confidence, April (10:00): 113.0 versus 117.0 prior.
4-25-01
Durable Orders, March (8:30): 0.5% versus -0.4% prior.
Existing Home Sales, March (10:00): 5.1M versus 5.18M prior.
New Home Sales, March (10:00): 910K versus 911K prior.
4-26-01
Initial Claims, 4/21 (8:30): 385K versus 385K prior.
Employment Cost Index, Q1 (8:30): 1.1% versus 0.8% prior.
Help-Wanted Index, March (10:00): 71 versus 71 prior.
4-27-01
GDP-Adv., Q1 (8:30): 0.9% versus 1.0% prior.
Chain Deflator-Adv., Q1 (8:30): 3.0% versus 1.9% prior.
Mich Sentiment Rev., April (10:00): 89.0 versus 87.8 prior.
SUBSCRIBER QUESTIONS
Q: How do you determine during the trading day whether volume is high or low, both in the markets as a whole and as to individual stocks?
A: One of the easiest ways if you are an Investor's Business Daily subscriber is to visit its website and get a quote on a stock. It will tell you what the volume is that session, what the average volume is, and whether volume is on track to top the previous session's volume. It gives you that percentage above or below. Volume is fluid; it can be up early and then dry up. Most volume occurs in the first hour and last hour. That is why we like stocks that breakout later in the session as we can get a much better read on the volume. If a stock is breaking out early, however, and we see volume surging higher (eSignal or your broker can give you that) and some block trades, that is an indication there is serious buying going on. As for the indexes we know what average volume is, and by midday we can pretty much get a fix on whether it is going to surpass that level or the previous session's volume. when you are taking positions you have to go on what you see at that point in time; if volume is climbing rapidly on the move higher or breakout, we often go with that move.
TEAM TRADES
Due to technical problems today and travel days by several staff members, we do not have team trades to report tonight.
For a review of frequently asked questions, please use the link below:
http://www.investmenthouse.com/1questions.htm
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End Part 1 of 2
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world stock market
us stock market
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