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us stock market, trade stock
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5/15/03 Investment House Daily
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Investment House Daily Subscribers:
NOTE: Jon Johnson's mother has been admitted on an emergency basis this evening. Mr. Johnson is attending to his mother and as such the reports will be shorter and focus on best plays with limited discussion in the summary tables. We apologize for this and hope you bear with us during this time.
MARKET ALERTS:
Target hit alerts issued Thursday: None issued. Market was rallying so let stocks run higher.
Buy alerts issued: None issued. There was a rally, but not many great breakouts.
Trailing stop alerts: EFII; IGLD. Freed up some money on some struggling stocks.
Stop alerts: None issued.
To subscribe to the Daily alert service you can sign up at the following link:
http://www.investmenthouse.com/alertdly.htm
SUMMARY:
- Market overcomes more weak economic data, rallies on volume.
- Economic data stokes deflation fears.
- Market resumes its bullish stance, but no big breakout higher.
- Subscriber Questions
Market had reasons to sell but rallied to the close.
The early economic data from the NY Fed was promising, but the PPI and Philly Fed did not corroborate the data. Further, Intel said while it was confident longer term, it still was cautious near term. That led to some more selling after an early attempt to rally, but in this market, a dip has become a buy, and the market rallied all afternoon to close respectably higher on rising volume. It was a good return to more bullish price/volume action as well as more bullish intraday action (weak early, rallying to the close).
Breadth was so-so and leaders that were shooting ahead Wednesday were sluggish today. It was a day of large cap moves as opposed to the smaller and mid-caps that have been the best performers in this rally. The market is still moving higher, but it is exerting a lot of energy to move higher. In other words while it is drifting higher, it is running in place as it fights with near term resistance.
The overall action is still good but volatility is edging higher. We are not talking about volatility as measured by the VIX, but the choppier trade seen the past two weeks where there has been some churning and some slight distribution. We are firm believers in the change of seasons or in this case maybe just a cold front: the weather gets volatile with wind and swings in temperature before things smooth out again. Overall the market is still acting healthy, so we are not looking for a season change but more of a short term cold front. There are a few indications that the market is overbought that go along with the low VIX and continued rising bullishness. The market has not said it is ready to roll over, but the action has us watching closely. We saw few positions worth entering Thursday, cut some dead wood, and we are raising our trailing stops on many of our plays that have run hard. This is all precautionary as the market action is still solid and we want to let our winners continue to run even if they have a shorter term pullback. With stock positions we are more forgiving; with option plays we would rather take the gains and enter again after a pullback than ride them down and wait for the next rally.
THE ECONOMY
Data overload, so the market just went up anyway.
The New York manufacturing index showed a gain of 10.6 versus an expected 7.8 loss. That was a 30 point swing from the March -20 reading. Jobless claims were also better, coming in at 417K versus the 430K expected and 420K prior. That was fairly positive. PPI rocked the treasury market with a -1.9% reading; take out the energy price drops and it was down 0.9%, a whole point better. Still weaker than the -0.1% drop expected, and with March overall and core revised down to 0.0 (from 1.5% and 0.7% respectively), that had the deflation word tossed around yet again.
There was piling on as well with April Industrial production at -0.5% (-0.4% expected) and capacity utilization remaining low at 74.4 (74.5 expected). Then the Philly Fed hit with a -4.8 reading when -4 was expected; the miss was not that great, but it was the heightened expectations after the NY Fed report that resulted in disappointment. With 83% of those surveyed saying that they saw no increase in post-war order patterns, the market was truly disappointed and the selling picked up speed.
Then the selling abated as investors used the dip to buy. Are they ignoring the 'D' word (deflation as opposed to depression, but one leads to another), the fact that Germany, Italy, and the Netherlands reported negative GDP growth rates? Well, yes. Just as in 1991 when the economy was in the toilet the market bottomed and rallied. They are looking at growth down the road and the market is acting much better than it has in 3 years. Does that mean the economy is going to run higher and there won't be any deflation? No. They could ultimately be wrong about the Fed's abilities and the power of the weakened fiscal stimulus being decided in the Senate this very evening.
Are we worried about deflation? Yes we are. We have written about deflation over the past 6 months and the terrible price to pay if we do follow Japan. That is why we champion economic stimulus as opposed to a wait and see attitude that wrecked Japan. Greenspan was supposedly bold in cutting rates but he was always behind the curve and his 'wait and see' attitude the past 9 months has been most Japan-like. The Senate's quibbling over $300B in deficits over 10 years when the government takes in $27 trillion in taxes during the same period is equally foolish. Better to fight inflation than to suffer through years of deflation where everyone loses.
That is why we push for fiscal stimulus even with the market acting better. Contrary to what some in DC are saying, there was never a round of fiscal stimulus that caused something bad to happen. Further, even if things get too hot (if that can really even happen in a free market) it is so much easier to fight the battle with a nice lead as opposed to the few weapons you have when your economy has already slipped into deflation. As Japan has discovered, there is damn little you can do other than just ride it out when the big D hits. Some day things will get better, but who knows when. That is why the attitude in DC that someday the economy will recover on its own is asinine. A huge boom and a huge bust is not the same as every other recession. There are deep and powerful currents fighting right now to drag us toward Japan-like malaise; there need to be deep and powerful economic stimuli to fight that attempt, but we are not going to get all that we need to make a clear and convincing defeat over deflation.
Right now the market sees the economy beating deflation. We are not smarter than the market, so we are investing in the rally. If it starts to distribute and fails once again, however, we will be playing the downside yet again.
THE MARKET
The comeback and the higher volume looked impressive. They were. All that effort, however, still did not break the near term resistance that has held Nasdaq in check the past three sessions. It did not break the large caps out either, though it was a large cap session as the smaller issues and many leaders took the day off (GRMN, SOHU, SSYS, etc.). Breadth was decent but still relatively narrow. It was a very good comeback that showed the market's resilience, but it was not a huge day.
Maybe we are being too picky, but after a 200 point move on Nasdaq from mid-April to Thursday and seeing some small signs of increased volatility in the uptrend, you need to be picky. Nasdaq has reached a level over its 200 day MVA where it starts to struggle. Now is when those sentiment readings that are getting to the fringe areas (e.g., lower VIX, rising bulls, falling bears) come more into play: the primary indicators of price/volume and leadership are still solid, but they are showing a big more choppiness overlaying what has and still is strong and healthy action.
At these times we demand a lot of perfection from stocks, and there was not a lot of that today. It was more of a day where the loud cousins (the large caps) rallied in a loud and boorish manner while the finesse issues, the small and mid-caps, stood by and watched with mute embarrassment. We don't see major cracks in the market (such as failing leadership and more than a hint or whiff of distribution), and when a healthy market pulls back, that is normal action. You don't want to get too impatient with an otherwise healthy market if it is in a lower volume pullback, but if your risk tolerance makes it hard to sleep or if you have some options, it is good to be ready to take some nice gains if a bit of volatility turns into some failing at resistance. Not there yet, but being cautious.
Market Sentiment
Bullish investment advisors have cracked over 55, and that is a historical milepost that has been an indication of toppishness in the past.
VIX: 21.67; -1.09
VXN: 32.18; -0.96
Put/Call Ratio (CBOE): 0.64; -0.1
Nasdaq
Overcame an early attempt to sell on the economic news and then rallied hard to the close on rising volume, though it is still at resistance.
Stats: +16.48 points (+1.07%) to close at 1551.38
Volume: 1.983B (+9.25%). Excellent surge in volume on the gains. It was strong early on the rally, then backed off on the selling, and picked up the tempo again as the market rallied in the afternoon. That is very good intraday price/volume action to match the daily price/volume action.
Up Volume: 1.289B (+404M)
Down Volume: 664M (-203M)
A/D and Hi/Lo: Advancers led 1.44 to 1. Decent but hardly powerful.
Previous Session: Advancers led 1.04 to 1
New Highs: 200 (-5)
New Lows: 10 (+3)
The Chart: http://www.investmenthouse.com/cd/$compq.html
Right back up to that 1550 level that marks the bottom of near term resistance running from 1550 to 1560, and then 1570 to 1578 (the June 2002 closing low, May 2002 high). Nasdaq has run 200 points from the April test of the 50 day MVA, a 14.8% move. 1350 also marks the 200 day MVA, and thus it is 15% above its 200 day. Historically Nasdaq starts to struggle when it is 15% over its 200 day MVA. Voila. It is starting to show signs of struggling now that it has reached that level. At 20% is usually starts to correct. That would put it at 1600 or so. There is a down trendline from May 2001/January 2002 intraday highs around 1585 as well. If Nasdaq gives another spurt higher to those levels and starts to stall, it will be a clear sign to remove more money from the table.
S&P 500/NYSE
Nice move on volume that again moved above average. That still puts it right back at its recent highs at 950.
Stats: +7.39 points (+0.79%) to close at 946.67
NYSE Volume: 1.434B (+5.17%). Above average but not blowout volume as it came in well below the levels of the prior rally sessions in late April and early May. Still a nice resumption of the solid price/volume action, however.
Up Volume: 988M (+284M)
Down Volume: 446M (-207M)
A/D and Hi/Lo: Advancers led 1.65 to 1. As with Nasdaq, decent but not powerful breadth as the smaller cap issues took the day off.
Previous Session: Decliners led 1.04 to 1
New Highs: 254 (+39)
New Lows: 4 (-1)
The Chart: http://www.investmenthouse.com/cd/$spx.html
The large caps did not test lower to the 10 day MVA (934) but instead started right back up on volume. The stalled out again near 950, right below the December intraday high at 954.28 and not far from the August high at 965. The latter would put SP500 almost 10% over its 200 day MVA, a point where historically the large cap index starts to struggle. As with Nasdaq, if it gives a quick spurt up to that level on this renewed upside volume, that would be a point of caution. With Nasdaq leading the way higher, however, we need to focus on its resistance as well as it will influence what the large cap index does. As of yet, SP500 has not been able to clear out over 950.
DJ30:
Up off the Wednesday test of the 10 day MVA (8615), moving higher on rising volume. It too continues to struggle with the near term resistance at 8800 to 8870, but it is well below even 10% over its 200 day MVA (8325; 10% is 9150), the point where it starts to struggle. The interim resistance from January and then December (9043) and August 2002 (9077), however stands in the way as the blue chips have lagged behind the rest of the market on this rally, taking quite some time to make the break from the ascending triangle.
Stats: +65.32 points (+0.76%) to close at 8713.14
Volume: 1.434B (+5.17%)
The Chart: http://www.investmenthouse.com/cd/$indu.html
FRIDAY
We have emphasized the market's indications of some struggle here, but we don't want to make it sound as if a top is imminent. The indexes can still push higher as indicated on this renewed surge in upside volume. Another strong push would be one to be wary off at the next resistance point, particularly on Nasdaq.
The key for us moving forward is whether the market presents opportunity in the stocks we like to invest in, i.e., those in sound patterns with solid accumulation. Those tend move quite well and rapidly when they breakout, and if there is some selling they tend to hold up well, using the selling to finish off the base or test the breakout move on lighter volume.
There were a few stocks we could have moved in on Thursday, but the volume was not there in most cases. As we said, after this strong move higher we need to be picky. Things get kind of loose when the market is starting to struggle a bit, and you can get lulled into positions that are not the best just because we are looking for somewhere to put some more money. If you try to limit your choices to honestly solid patterns and make them show the breakout moves, that helps keep you out of stocks that may give you some trouble if the rally suddenly runs into trouble.
Friday is expiration Friday, and that may fuel even a bit more volatility as we saw this week. No doubt some of the earlier volatility in the week was some early position shuffling ahead of expiration as the market continued to rally. Some of the problem at 1550 on Nasdaq and 950 on SP500 has to do with option open interests on those indexes. Once Friday is over the market could fall a bit as those betting against the market will have lost out on their downside bets. At the same time, however, there are also some heavy upside bets, and once they have expired the upside door opens up a bit as well.
The key will be continuing to watch the price/volume action and how the leaders perform. Right now we have no deep concerns about an imminent sell off, but we also don't see a lot of great entry points, and that can be another indication that stocks have run quite a bit. Thus we may not do much Friday as the market will take some more direction after expiration. We will be watching for quality entry points in solid stocks as always, however, as we don't back off from that when it is presented.
Support and Resistance
Nasdaq: Closed at 1551.38
Resistance: Some resistance at 1550 to 1560. 1570 to 1578 (June 2002 closing low, May 2002 high). Down trendline from the May 2001/January 2002 intraday highs around 1585
Support: The December intraday high (1522). The 10 day MVA at 1519. The 18 day MVA (1495). The August 2001/January 2002 down trendline (1488). The January high (1467). The exponential 50 day MVA (1435). The March and August highs (1426 and 1427).
S&P 500: Closed at 946.67
Resistance: 954 (December intraday high). 965 (August 2002 peak).
Support: 935 (November and January peaks). The 10 day MVA (934). The 18 day MVA (924) and price tops at 911 (July). September 2000/March 2002 down trendline (903). March and April highs (896 and 905). The 50 day MVA (898) and the 200 day MVA (883).
Dow: Closed at 8713.14
Resistance: November and January highs (8800, 8870). December high (9044).
Support: The 10 day MVA (8614). The 18 day MVA (8544). 8522 and 8520, the March and April twin peaks. 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): 10.6 actual, -7.8 expected, -20.2 April
Initial jobless claims (8:30): 417K actual, 430K expected, 430K prior.
PPI, April (8:30): -1.9% actual, -0.7% expected, 0.0 March (revised from 1.5%).
Core PPI (8:30): -0.9% actual, -0.1% expected, 0.0 prior (revised from 0.7%).
Business inventories, March (8:30): 0.4% actual, 0.2% expected, 0.7% February
Industrial production, April (9:15): -0.5% actual, -0.4% expected, -0.5% March
Capacity utilization, April (9:15): 74.4% actual, 74.5% expected, 74.8% March.
Philly Fed, May (12:00): -4.8 actual, -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.
End part 1 of 2
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