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us stock market, trade stock
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5/17/03 Investment House Alerts Report
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IH Alert Subscribers:
NOTE: Thank you for all of the kind notes regarding Jon Johnson's mother. She is still in the hospital, apparently out of danger, but the extent of the problem is not yet fully known.
MARKET ALERTS:
Targets hit alerts issued Friday: None issued. No problems so let winners continue to work for us.
Buy alerts issued: AETH (bonus); ADIC (bonus)
Trailing stops issued: BBA; REDF; KLAC
Stop alerts issued: None issued
Market stalls again at resistance on lack of buyers.
There was no momentum holdover from Thursday. Downgrades of Dell and GM set the tone and then a weak CPI (consumer price index), slower housing starts, and falling semiconductor book to bill ratio put buyers on the sideline. Vastly improved Michigan sentiment provided a brief pop, but there was no strength in the buy side just as there was no strength in the sell side. The market drifted down, drifted higher, and then finished with a slide lower. Typical expiration volatility without the volume. Seems most of the expiration action took place earlier in the week, and the poor economic data kept buyers rather disinterested.
Overall the action remained positive with volume sliding back on Nasdaq and the NYSE A/D line positive even with the indexes down. That continued the solid market action but the small cap index dove lower in the last hour, breaking the 10 day MVA and closing just over the 18 day. NYSE volume edged Thursday trade as volume surged in the last half hour. That may have been option expiration related, but it also coincided with the small cap sell off. Where and how the indexes close the week is important. Last week the market was flat to down but closed strong, setting up a good move early in the week. This Friday the indexes finished lower, giving up a rally attempt in the last hour. While the market often trades the opposite direction the Monday after an expiration Friday, the action was not the best set up for the coming week. Given the failures at the next resistance and the slightly more volatile action the past two weeks, it did not leave us as comfortable as last Friday.
THE MARKET
It was not much of a finish to the week but on the face of it, the action was not bad either: lower volume decline, NYSE A/D line positive, no major breakdowns. Still, the Nasdaq continued to struggle at resistance and 15% over its 200 day MVA and the indexes were unable to hold the rally attempt, fading in the last two hours as opposed to the more bullish rallying into close.
Then there was the small cap index, diving in the last hour to eclipse even the lagging SOX as the worst performer. The 2.2% drop pushed it through its 10 day MVA, not exactly a nice, easy pullback as we usually see. The small caps are an important component to a sustained recovery. If they fail it undercuts the breadth of the rally as well as the prospects of economic recovery. Small caps are the canaries of economic recovery. Their late plunge was not a sure indication of failure, but their fall was another warning of some headwinds at this level, a point where Nasdaq historically starts to struggle (15% over its 200 day MVA). With the SOX and some of its components breaking down on volume there is some more concern. Again it is not a 'sell while you still can' problem, just something that could develop into poorer action.
The market overall is still acting healthy as noted, but we are seeing more that is making us cautious near term. Not the fear of a major collapse, just a needed pullback to consolidate the move higher. There were not many breakdowns among leaders, but some such as TTI, UCBH, ARTI, UTIW, and BBA started to break down, and APOL along with other education stocks are starting to get volatile again. When the latter get volatile that is usually a harbinger of the overall market getting a bit more volatile. Then there are big names that control the large indexes (e.g., WMT, GE) that are not performing well, and without them the large cap indexes tend to struggle. Several chips are struggling though not many are breaking down.
Again, the market is not showing a breakdown, but it is showing signs of some starting struggle. That had us moving up stop loss points Thursday, particularly on option positions. The market can easily correct back, hold some near support, and then rally on again. That is fine for stock positions where time is not a problem, but with options that can wreck a great gain. It is a fine line between banking gain and letting stocks run higher for longer term gains. That is why we often take part of a gain when things look a bit dicey, let the remaining stock positions ride, and then add to them when the bottom holds and stocks start back up on the next leg higher. That way we have taken some gain and when stocks have finished their selling we can get in at a better price and start averaging up again.
Market Sentiment
Money is starting to flow into the market again, a sign that more investors a looking to again to stocks, bit by bit. $6.8 billion flowed into US equity funds last month, the most since April 2002. Interestingly, last week $67 million left US stock funds even as the market moved higher once again. There is still hesitancy among investors though it is abating. $67 million is not a large amount, but it is interesting that there is still a quick trigger to get money out of the market at a sign of trouble.
Money also continues to flow out of money market funds as investors continue to seek bonds ($9B in April, down from $10.8B in March) and stocks over 0.7% yields in money markets. $5.6B flowed out of money market accounts the past month, part of a $109B outflow year to date. That is part of that $2 trillion that has been sitting on the sidelines. It is moving into other forms of investment, and with the housing market cooling off, that means money moving into bonds and stocks. $5.6B is a small fraction of that money, but that is what keeps rallies going: that disbelief in a rally and the grudging moves into it more as a necessity than a desire.
All the while the VIX, VXN and put/call ratio head lower. The put/call ratio is now moving into range with the volatility indicators; a move down to 0.4 and below on the put/call ratio at a bearish level.
VIX: 21.01; -0.66
VXN: 31.02; -1.16
Put/Call Ratio (CBOE): 0.54; -0.1
Nasdaq
Tried 1550 again on the high and slid back on lighter trade as it still struggles to get through that resistance.
Stats: -12.85 points (-0.83%) to close at 1538.53
Volume: 1.782B (-10.13%). Volume backed off on the selling even on an expiration Friday, still above average but exactly the type of action you like to see on some selling.
Up Volume: 758M (-531M)
Down Volume: 986M (+322M). It was not vigorous selling.
A/D and Hi/Lo: Decliners led 1.42 to 1. Mild declining breadth on the selling as upside breadth remains overall much stronger.
Previous Session: Advancers led 1.44 to 1
New Highs: 169 (-31)
New Lows: 11 (+1)
The Chart: http://www.investmenthouse.com/cd/$compq.html
Nasdaq continues to struggle at 1550, 15% over its 200 day MVA (1352), hampered by semiconductors down 1.4%. When semiconductors are under pressure, techs overall have problems, particularly at resistance and after a long run higher such as this one (15%). It is still moving up its 10 day MVA (1523). Another test would be the fourth touch down to that level. In the seminars we also discuss how a stock or index after making a breakout typically has 4 to 5 bounces up off the short term MVA before it tests lower. Thursday we discussed how a move up to 1585 to 1600 would put Nasdaq roughly 20% over its 200 day MVA, a point where it historically starts to correct. Another bounce up off the 10 day MVA would be a late-stage bounce in this 45 degree run up from the April low, and if it occurs, there would be several events lining up on the side of a correction. As stated earlier, there is no top in place yet, and Nasdaq can still make another run from here up to that higher level.
S&P 500/NYSE
Still moving laterally below 950 on lower volume as the large cap index rides up the 10 day MVA. It is building pressure from below and above, and it going to make a break this week.
Stats: -2.37 points (-0.25%) to close at 944.3
NYSE Volume: 1.486B (+3.63%). A late surge pushed volume over Thursday, technically a distribution session. Given it was options expiration and it surged late, it was mostly due to position squaring. There was that small cap selling, however, that makes this not so innocuous.
Up Volume: 808M (-180M). Up volume did top down volume on a down session, a positive.
Down Volume: 682M (+236M)
A/D and Hi/Lo: Advancers led 1.05 to 1. Again advancing issues led on a down day and this even with the small cap index falling hard to close down 2.2%.
Previous Session: Advancers led 1.65 to 1
New Highs: 244 (-10)
New Lows: 3 (-1)
The Chart: http://www.investmenthouse.com/cd/$spx.html
The large cap index again made a run at 950 resistance and could not take it out. It also tested near the 10 day MVA (936) on the low and rebounded well to post the best close among the major averages. It is pinching between the 10 day MVA on the low and 954 resistance on the high. SP500 has now suffered two mild distribution sessions the past week. Some big names are struggling. The action does not indicate a major breakdown ahead but it makes us ever more cautious.
DJ30:
More of the same story, struggling at resistance at 8800 to 8870, the blue chips hit 8742 on the high and then faded to the close. The Dow managed to close off the low that tested the 10 day MVA (8625) as it too pinches between the 10 day MVA on the low and resistance at 8800 on the upside.
Stats: -34.17 points (-0.39%) to close at 8678.97
Volume: 1.486B (+3.63%)
The Chart: http://www.investmenthouse.com/cd/$indu.html
THIS WEEK
A good surge early in the week left the indexes at the next resistance. There they remained as the action turned a bit more volatile, breakouts were fewer and less explosive, and some mild distribution cropped up. Not a failure but some indications the upside move is a bit winded. This wee we will see if the late sell off in small caps was just position shuffling on options expiration Friday or more serious selling.
The indexes can still make another surge from here, and if it comes we will use it to take some gains on some great movers, particularly option positions. We still have our eye on some upside plays that are showing good action and are not extended, but we also realize that stocks just now making a breakout may not be the best leadership material. Stocks tend to breakout in waves, but after 4 weeks or strong rallying, to just now be making a breakout indicates a little lagging the crowd. Still there are some that can make us good money on another run higher without us having to take a really long term view of the play. That would include new breakouts as well as established breakouts that are making solid tests and will give us another good run up in any short term bounce higher in the market.
We are also looking at some downside plays that are starting to pop up with this choppiness. There are some good downside breaks already, and there are others in the making. On upside plays we are pulling up stops on plays showing some volatility as we get ready for some downside action as well if it develops.
Support and Resistance
Nasdaq: Closed at 1538.53
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 1584.
Support: The December intraday high (1522). The 10 day MVA at 1523. The 18 day MVA (1499). The August 2001/January 2002 down trendline (1486). The January high (1467). The exponential 50 day MVA (1439). The March and August highs (1426 and 1427).
S&P 500: Closed at 944.30
Resistance: 954 (December intraday high). 965 (August 2002 peak).
Support: The 10 day MVA (936). 935 (November and January peaks). The 18 day MVA (926) and price tops at 911 (July). September 2000/March 2002 down trendline (902). March and April highs (896 and 905). The 50 day MVA (899) and the 200 day MVA (883).
Dow: Closed at 8678.97
Resistance: November and January highs (8800, 8870). December high (9044).
Support: The 10 day MVA (8625). The 18 day MVA (8558). The 200 day MVA (8327). 8522 and 8520, the March and April twin peaks.
Economic Calendar
5-19-03
Leading Economic Indicators, April (10:00): 0.0% expected, -0.2% prior.
5-20-03
Treasury Budget, April (2:00): $52.0B expected, $67.2B March.
5-22-03
Initial jobless claims (8:30): 435K expected, 417K prior.
SUBSCRIBERS QUESTION
Q: You mention quite often in your reports that you watch the leaders and how they perform during rallies. How do you filter out the leaders to watch them? Is there a special screen that you use?
A: Looking for leaders depends upon what stage of a rally you are in, but the plan of action is still similar. During the downtrend we would keep an eye on stocks that were in 'building patterns.' That is our name for stocks that are coming off their downtrend and are working laterally, attempting to build the first base off of that trend. Those are not necessarily easy to find other than watching the various sectors and observing which stocks are building. Now before we do that, we also look at what sotcks are growing their earnings and sales at 20% plus clips per quarter. That helps narrow the search. We watch for those that form up and start moving ahead of the the pack. Those that form up those bases and breakout first and have strong earnings and sales growth are typically the leaders in any rally.
After the rally starts we continue to watch those that breakout first and how they perform. EBAY, GRMN, SOHU, SINA, NTES, YHOO, ERES, HITK, OVIT were early leaders and have continued to perform through the rally. There are many others on the reports. Those are stocks that we got into early and have ridden up the rally. We know what these stocks are, so we can keep tabs on them because we are in many of them and it is easy to find them by looking for stocks that are within 10% of their 52-week highs.
Indeed, that is how we narrow the search during the start of rallies or when the market looks as if it is trying to put together a run. We search for stocks that are within 10% to 15% of their 52-week highs. That shows they are leading the market, and as the big gains of the leaders during this rally have shown, it is the leaders that can make you some impressive money as they barely hiccuped during the early part of the year when most of the market was struggling to hang on. From that group we look at those that are growing those sales and earnings at 20%+ per quarter, year over year. Those are the stocks that will typically give the best runs.
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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