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us stock market, trade stock
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5/14/03 Stock Split Report Update
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Stock Split Report Subscribers:
MARKET ALERTS
Targets hit alerts issued Wednesday: FDRY; DSPG
Buy alerts issued: AGEN
Trailing stops issued: WFR (30% gain); PSUN
Stop alerts issued: PFCB
You can sign up for Stock Split Report alerts at the following link:
http://www.investmenthouse.com/alertssr.htm
SUMMARY:
- Another modest selling session as volume backs off.
- April retails sales surprise to the downside.
- Orderly consolidation underway even with downgrades, some earnings disappointments, and 'conflicting' economic signals.
- Subscriber Questions
Indexes take a breather on lighter volume in the face of negative news.
April retail sales were poor, AMAT gave a mixed picture for the chip industry, and valuation downgrades continued, but the market, though lower, did not collapse. It sold off the first hour and then held support before a modest bounce in the last hour. Volume faded, support held, and leaders posted solid moves (e.g., DSPG; ELAB; FDRY; GPRO; SEPR; SOHU) or held up well.
The Wednesday action again underscored the lack of real selling. Tuesday was technically a distribution session, but it was mild and leaders, just as Wednesday, showed continued gains. Volume was lower overall. The up to down volume ratio on Nasdaq and NYSE was positive on down sessions. Nasdaq advance/decline ratio was positive on the down session as well.
Right now, even with a lot of talk about the market being overvalued vis- -vis the economic recovery, not many are willing to sell the market. Very few hedge funds, even those that are bearish, are willing to step in and sell stocks hard even as Nasdaq and the SP500 trade more or less around resistance. It is a buyers' pause or breather after a nice breakout and successful test rather than sellers taking control. Tuesday was a warning that the sellers might try to assert more control, but that was not borne out Wednesday. One session of churn does not end a rally though it does get our attention and requires care and patience to let it work through the market.
THE ECONOMY
April retail sales fall 0.1%, and -0.9% without autos.
A gain, though lower, was expected. It was not coming. Retail sales were up over 2% in March, but as we noted at the time, much of that was energy price increases resulting from the Iraq war uncertainty. In April fuel import prices fell 16%, and that took a lot of wind out of the retail sales. Remember, retail sales tracks sales prices, not units. Rising energy prices pumps up retail sales even if drivers cut back on driving. Lower energy prices, particularly substantial drops as seen, push retail sales figures lower. Take out gas prices and they fell 0.5% versus the core -0.1%. That shows the impact of falling energy costs on retail sales: lower energy costs are a good thing as it gives consumers more disposable income and businesses lower costs, yet it shows up as a negative in retail sales. Another indication of the way records are kept and reported that shows the inverse of the true result.
It was not all gloom and doom outside of energy prices either. Auto sales were up 2.5%. Without autos, retail sales were down 0.9% versus the overall -0.1%. That shows how strong autos were in April. Now consumers may not have been buying as many clothes and other such items, but they were willing to commit to major purchases such as autos. This is a theme the past year: auto sales rotate with other goods month to month, one month auto sales lead, the next other goods lead. The consumer may not be as strong as it has been, but it is still willing to put up the money if it sees a perceived deal. That is keeping the economy moving, but not very fast. That is the same story as seen for the past year and longer.
THE MARKET
Again the market was able to limit losses even in the face of poor news. The indexes held over near support on the initial selloff, and then moved laterally before a modest late bounce. While Tuesday shows some hints of distribution, the Wednesday action was in line with the market action this year: rising volume gains, lower volume rests.
Further, there is the large cap/small cap interplay. Small caps tend to lead the start of each bounce, then the large caps join in. When the large caps start to cool, the small caps start back up or at least show better action. The small cap leadership role is seen in many of the market leaders that were up ahead of this bounce and that were up Wednesday as the larger caps faded back. That is shown in the positive A/D line on Nasdaq and the positive up/down volume ratio on NYSE and Nasdaq. Small caps are an important part of a market recovery ahead of economic recovery as they tend to start to outperform ahead of an economic upturn. They can show false starts as seen in 2001, but you cannot ignore what the market is telling you based on fear of the past.
Trapped in a bear market mindset.
That is a provocative subtitle, and we are not going to proclaim the bear market is over. As we have said several times the past few weeks, you never know if you are out of a bear market or in a new bull market until you look back with the perspective of hindsight. Thus it is imperative that you look at what the market is telling you in as rational and unemotional mindset as possible. Your gut may still be hurting from the downtrend and the continual body blows it delivered if you fought the trend, and you may not want to look at stocks or may be too jaded to do so rationally. You have to fight it and look at what is really happening and act accordingly.
Today we heard a few more comments about how this rally cannot last or about how the economic indicators were so jumped they were not indicating anything that a rational mind could figure out. One reporter described it as 'raising the neck hairs' of fund managers or something like that as he pointed out how both bonds and stocks were up, growth stocks were rallying with no sign of economic improvement, the dollar was falling, and gold and oil were rising once again. All of this was supposedly nonsensical and impossible to fathom.
If you are fighting the last war and continue to think one-dimensional, anything can get confusing. While the market may not be out of the bear market, there is no way of knowing that at this juncture. We cannot, however, look at things only from a bear market perspective. You have to look at other possibilities, look at what has happened historically, and be willing to accept what is happening.
Bonds and stocks are in fact rising, but as we have discussed, there are reasons for this as the Fed is helping keep the bond market up by monetizing the treasury market. Thus it is not such an incongruity. Beyond that, however, back in 1991 stocks and bonds started to move in tandem and did so through 1997/1998. That is an important date because it was the time when the market bottomed even as the economy slid into recession. There is precedence in the record for this, not only in the 1990's, but 11 other times in 'modern' times, and it almost always meant better economic times were coming.
Growth stocks are rallying even as the economic numbers continue to look crappy. As we have also discussed before, this is not unusual. The market typically bottoms well before the economy stops heading south. Unlike what some are saying, it is never different this time and stocks don't wait to see economic improvement before they rally. If they don't rally, odds are very high there is no economic improvement coming. We have discussed how great economic minds have predicted worse economic times even as the market bottomed. They were right: worse economic times were ahead, but it was the darkest before the light. As just mentioned, it did this last in 1991, but it was in 1974 as well.
The dollar is falling, some say from an abnormally high level. As discussed earlier this week, a falling dollar is a risky proposition, but it does have a positive impact in that it reduces the cost of US goods and that can help end the very concern of deflation that it raises. The key is, relative to other currencies and economies, is the dollar a better investment than other currencies and economies? Even though the US economy is not performing well, it is showing nominal growth while many economies outside the US and China are declining. As long as the US is seen as a longer term investment draw, a correcting dollar is not a death kiss. We have to keep the proper amount of stimulus, rule of law, and freedom in the markets to keep the US attractive.
Oil rises if the market senses economic upturn ahead. All commodities rise if there is a perceived economic recovery in the future. That does not mean what is bandied about on the airwaves but what the markets themselves show. Commodities are on a rebound from holding the longer term up trendline in April. This is consistent with an economic recovery in the future as well.
As you can see, these 'hair raising' indications are only hair raising if you are trying to fit them into a pattern that may no longer apply. Look at what the market is doing vis- -vis what the economic indicators are showing. What result is the logical and historical conclusion from what they are showing? There is so much intraday noise as to what is happening that it is easy to lose sight of history.
We don't think we are smart enough to call whether the housing market is going to burst, the bear market is over, the economy is going to spurt higher in 4 months, etc. What we can do is look at what the market is showing us and then compare that with historical events. The market has been saying 'buy' to us since October. The economic data is not out of line with past events of economic improvement. Things may crap out and the rally may die. Stranger things have happened. But for now looking at the primary market indicators and historical economic events, things look decent. Moreover, looking at the results from taking this approach since this rally started, things look outstanding. It may end tomorrow, but would it not have been terrible to have missed out on this great rally just because we harbored some belief that the rally was not for real and would eventually fail? All rallies eventually fail, but that does not mean we avoid them accordingly.
Market Sentiment
VIX: 22.76; +0.73
VXN: 33.14; +0.3
Put/Call Ratio (CBOE): 0.74; +0.07
Nasdaq
Modest pullback, managing to bounce from support as volume edged back from the Tuesday level.
Stats: -4.78 points (-0.31%) to close at 1534.9
Volume: 1.815B (-2.21%). Still solid volume though it did fade as Nasdaq posted a very small loss.
Up Volume: 885M (-233M). Up volume outpaced down volume on a down session. A good internal indication of continued market strength.
Down Volume: 867M (+146M)
A/D and Hi/Lo: Advancers led 1.04 to 1. Once again more advancing issues in a down market. Two sessions of this action indicates internal strength.
Previous Session: Advancers led 1.09 to 1
New Highs: 205 (+16)
New Lows: 7 (+1)
The Chart: http://www.investmenthouse.com/cd/$compq.html
Nasdaq once again tested some resistance at 1550 on the Wednesday high (1549.94) and then fell back. It held well above near support at the 10 day MVA (1512), touching down to 1526.14 on the session low and rebounding to recover some of the losses. Nasdaq is definitely running into some headwinds at 1550. Thus far there has been some increased selling as evidenced Tuesday, but that could have been an isolated event given the Wednesday lower volume selling and continued leadership. For now it looks as if Nasdaq needs some more time to consolidate the move and perhaps test back to 1515 or the 10 day MVA more and then try the next move. One thing has been certain, however, and that is the lack of outright selling pressure and the willingness of investors to buy into dips. Another test to the 10 day MVA or higher may just set off the next round of stronger buying activity.
S&P 500/NYSE
Edging slightly lower on lower, below average volume, holding above the 10 day MVA on the low and recouping some losses.
Stats: -3.02 points (-0.32%) to close at 939.28
NYSE Volume: 1.364B (-1.52%). Volume edged off Tuesday levels, moving back below average on some additional softness. Tuesday represented some mild distribution, but the Wednesday action was back in character. An occasional distribution session is not unusual in a rally.
Up Volume: 704M (+40M). As with Nasdaq, up volume led down volume on a down day. Positive internal action.
Down Volume: 653M (-64M)
A/D and Hi/Lo: Decliners led 1.04 to 1. Decliners managed to edge gainers, but it was a very modest win, another indication of the internal market strength.
Previous Session: Decliners led 1.02 to 1
New Highs: 215 (+9)
New Lows: 5 (-2)
The Chart: http://www.investmenthouse.com/cd/$spx.html
A very nice and orderly pullback is in progress as the large caps tested near the 10 day MVA (931) on the session low (935.24) and the rebounded to recover some losses. The intraday test found 935, the recent resistance that was broken, and it proved to be enough to rebound. This is the level we would like to see hold though a 10 day MVA test at 931 would not be a great breach of the breakout. It does look as if the large caps need some more time to consolidate, and it might be sometime Friday when they are again ready to rally.
DJ30:
The blue chips ran into resistance again at roughly 8730 and then fell back. On the low (8608) the Dow tested the 10 day MVA (8590) and was able to cut some of its losses. The low held the breakout from the ascending triangle, and it looks very orderly. Another session to test the 10 day MVA and it could be ready for another advance.
Stats: -31.43 points (-0.36%) to close at 8647.82
Volume: 1.364B (-1.52%)
The Chart: http://www.investmenthouse.com/cd/$indu.html
THURSDAY
Economic reports really pelt the market Thursday with the New York and Philly Fed, jobless claims, industrial production, PPI. The focus will be on the regional Fed reports on manufacturing as that is a proxy for business activity and business investment. We are not expecting much from the reports, but is you don't expect much you are not usually disappointed. In short, we don't expect the economy to show a recovery yet.
The indexes looks as if they need another session and one half to two in order to consolidate the last move. This market has had buyers at the ready on pullbacks, and after another 10 day MVA test the buyers may just be right back in. Some stocks have continued to move higher as others have tested back. As we have seen that sets up the continued waves of leaders moving higher as some take a breather while others run, and then they switch roles.
One constant in this rally has been the continued breakouts session after session. There were some more Wednesday even as the market overall continued its test back. As the market finishes this pullback we will be looking for a few more of those stocks as well as some of our plays and new plays that have rallied and are now testing the breakout and ready to make a move back up. We say it often, there is more than one perfect time to buy a stock, and if we miss the first one we can enter later. We can also use these subsequent entry points as opportunities to average up into winners, using money we have taken off the table from some laggards or some gains we have taken on other stocks. That way we focus on winners and get out of laggards.
Support and Resistance
Nasdaq: Closed at 1534.90
Resistance: Some resistance at 1550 to 1560. 1570 to 1578 (June 2002 closing low, May 2002 high).
Support: The December intraday high (1522). The 10 day MVA at 1512. The August 2001/January 2002 down trendline (1493). The 18 day MVA (1488). The January high (1467). The March and August highs (1426 and 1427). The exponential 50 day MVA (1431).
S&P 500: Closed at 939.28
Resistance: 954 (December intraday high). 965 (August 2002 peak).
Support: 935 (November and January peaks). The 10 day MVA (931). The 18 day MVA (921) and price tops at 911 (July). September 2000/March 2002 down trendline (904). March and April highs (896 and 905). The 50 day MVA (896) and the 200 day MVA (882).
Dow: Closed at 8647.82
Resistance: November and January highs (8800, 8870). December high (9044).
Support: 8522 and 8520, the March and April twin peaks. The 10 day MVA (8590). The 18 day MVA (8523). The 200 day MVA (8327).
Economic Calendar
5-13-03
Trade Balance, May (8:30): -$43.5 actual, -$41.0B expected, -$40.4B April.
5-14-03
Retail sales, April (8:30): -0.1% actual, 0.4% expected, 2.3% March (revised from 2.1%).
Retail ex Autos (8:30): -0.9% actual, 0.2% expected, 1.5% March (revised from 1.2%).
5-15-03
New York PMI, May (8:00): -7.8 expected, -20.4 April
Initial jobless claims (8:30): 430K expected, 425K prior.
PPI, April (8:30): -0.7% expected, 1.5% March.
Core PPI (8:30): -0.1% exected, 0.7% prior.
Business inventories, March (8:30): 0.2% expected, 0.6% February
Industrial production, April (9:15): -0.4% expected, -0.5% March
Capacity utilization, April (9:15): 74.6% expected, 74.8% March.
Philly Fed, May (12:00): -4.0 expected, -8.8 prior.
5-16-03
Housing starts, April (8:30): 1.750M expected, 1.780M March
Building permits, April (8:30): 1.700M expected, 1.692M March
CPI, April (8:30): -0.1% expected, 0.3% March
Core CPI (8:30): 0.1% expected, 0.0% March
Michigan sentiment preliminary, May (9:45): 87.5 expected, 86.0 April.
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.
SUBSCRIBER QUESTIONS
Q: Seems to me that back in the late 80's and early 90's we had these "slow" growth days (periods) and that helped build a little more solid foundation to grow from and thus provided a better base for longer term improvement versus explosive but "short" growth. Not being an expert but thinking about this, we could be in for a longer term growth pattern
that could last 8 - 10 years, not fantastic but solid gain with minimal periods of give back. Can you address this concept?
A: I definitely believe that slow growth in the market and economy that sets a solid foundation is the best course. Just as a good base sets up the foundation for a sustained move higher, a solid period of investment in the economy sets up eocnomic growth as that capital investment is put to work. This is particularly true in a post-boom bust where the economy and market have been gutted and there is no foundation. That is why in the post boom period there are years of selling and disinvestment punctuated by strong rallies that fail. There is no base to build from, no sustained investment or accumulation to suppor the moves. In the market, a solid, sustained period of accumulation with periods of lateral to lower conoslidations is the best way to build further gains. That way the market does not use up all of its fuel in one frenzy but establishes that pattern of growth you mention.
End Part 1 of 2
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