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us stock market, trading system
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4/25/01 Investment House Daily
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Investment House Daily Subscribers:
TONIGHT:
- A bounce up off support, but not a lot of power.
- Economics look better than they are.
- Team Trades.
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THE SUMMARY
Started soft and then rallied late. Good action, but the volume was not inspirational.
The market did not get any early help with a downgrade of the networking sector with some big names specifically targeted (e.g., CSCO, CIEN). The market tried to move higher, but sold into negative territory on the big indexes, and it was looking very sluggish. 2000 was in serious jeopardy on the Nasdaq. The housing numbers pulled the Nasdaq back to positive, but it did not last long. It dipped back down, but hit its low right after lunch. Then all indexes just started to march higher. No news hit the markets, just a steady climb higher all afternoon. There was the obligatory selling in the last half hour, but it was light.
We always like a softer start followed by steady gains that hold through the close. That is very bullish activity. Unfortunately, volume was not stepping up to the plate across the board. Nasdaq volume just missed Tuesday's mark when it sold back. NYSE volume was even softer. Bullish price action, but it was not backed up by convincing volume. There were exceptions such as AMAT, VSEA, VAR, but it was not widespread. That means that stocks are going to have some real challenges to top the recent highs they just sold back from. Short term plays should be carefully followed with stop losses on this move back up. If the stocks cannot break over the recent highs on some big volume, we can expect them to pullback more than this last little test.
Now we don't want to sound alarmist. This market has been behaving well. There were actually some good earnings reports after hours (EDS, PeopleSoft, Symantec) and those stocks were moving well. Indeed, EDS said new contracts were up 67%; impressive. For short term trades, however, we have to be ready to pull the trigger and take some profit off the table if these stocks cannot break above their recent highs. QCOM warned for next quarter and the rest of the year after hours. It was blasted after hours, and that is not helping things though there was not widespread carnage.
The lack of volume on the move up today is the concern. Buyers did not storm back in when stocks were perceived as 'values' after selling back for three sessions. We are open for a follow up gain on higher volume, and that is what we need to watch for. We want to see stocks blowing back through the recent highs on higher volume. We will watch and have our brokers watch how volume pans out through the session on another move higher. The market has been good at shaking off bad news over the past few weeks, and that is bullish action. Buyers have to step back up to the plate, however, to back up any continued moves higher. If we get that, great. If not, we need to mind the short term plays.
THE ECONOMY
The news before the open: higher durable goods orders. Thirty minutes later: record new home sales. Sounds great, and it was good news. But, looking under the rocks, the numbers could be viewed as pretty hollow.
Durable goods, e.g., airplanes, clothes washers, cars and the like, rose 3% when they were expected to rise just 0.5%. Now that looks impressive. Problem is, much of it was government defense spending. Take out that element and the number was up just 0.9%. Hey, that is still better than an expected 0.5% increase, so good news, huh? Well, plug that government spending back in and then take out transportation (airplane orders) and the number plunges to minus 1.8%. The gain in the number is narrow and deep, not spread out over a number of sectors. The private sector, the most important sector, was down. So, we still see the impact of the flagging consumer confidence, and it is showing up in big ticket items.
Housing soared. New home sales jumped 4.2% to a record level, topping December's record. Existing home sales posted their second largest gain ever, rising 4.8% in March. Those are big numbers and it is evident that the faucet has not turned off yet. The power of low interest rates has kept the market hot for now. But, refinancing was down, and builders are still glum about the future due to higher interest rates (flat this year) and the dive in permits. It cannot hold out at these levels, so it will start to fall. Question is, will it plummet as we anticipated it would when the great relocation was over? These numbers are encouraging in that there may not be a steep plunge. We need to realize, however, that the housing market will cool off; even if the economy was hot it would have to slow at some point from these levels. For now it is hanging in there, but the lower permits will lead to a decline ahead. By that point perhaps the rest of the economy will be showing an uptick so this number will not be the lightening point for all investor hopes and dreams.
Tomorrow we have jobless claims and the Employment Cost Index. The key here is the jobless claims: 400,000 this week? That is considered a sign of recession. Friday is first quarter GDP and Michigan sentiment. Sentiment is forecast to rise to 89; that may be optimistic given what we saw in the conference board's numbers earlier this week. If not flat line, the economy was close to it in the first quarter.
THE MARKET
Overall market stats:
VIX: 31.27; -1.19. Volatility faded with the gain, continuing to hold over 30, traditionally considered a higher level of volatility. The index has spent more time over 30 than under it the past few months.
VXN: 79.75; -0.20. Again, the Nasdaq rises 2.1% but the volatility drops just 0.3%. There continues to be a lot of apprehension about this rally. This is a newer indicator, but it is showing moves that are not in proportion with the Nasdaq. It is remaining at seriously high levels. That could mean it is not worth a flip as even a secondary indicator, or it could mean the fear level and skepticism remains high. From what we hear in the news media the latter seems to be the case.
Put/Call ratio (CBOE): 0.58; -0.12. Back down on the gain in stocks as not many are ready to turn their doubts into positions. 1.18 million options on the CBOE (1.173 million Tuesday).
NASDAQ: A bounce up after feeling down to 2000 on the low, but volume did not budge higher. Still and important stand is being attempted.
Stats: Up 43.19 points (+2.1%), taking back Tuesday's loss to close at 2059.80.
Volume: 1.979 billion shares (-0.10%). A virtual dead heat with Tuesday. With the price loss and gain equal, can we just toss the last two days out? Up volume was 1.303 billion to 652 million downside shares.
A/D and Hi/Lo: Advancing issues pulled into the lead 1.56 to 1. New highs rose to 100 (+22) as new lows fell to 45 (-13).
The Chart: http://www.investmenthouse.com/cd/$compq.html
Started with an early test of 2000, tested again but made a lower low on that move, and then climbed all session to the close. Steady bullish action but for the fact that volume did not surge. It was a stalemate with Tuesday, and does not answer many questions. Buyers came in at 2000, but not with enthusiasm. The index is now sandwiched between its 10 day MVA on the low and the 50 day MVA on the high (2016.61 and 2079.91, respectively). The 18 day MVA is now at 1978.10, just below where the index bounced today at 2000.83.
Dow/NYSE: A match of the Nasdaq today. An afternoon climb, but on lower NYSE volume.
Stats: Up 170.86 points (+1.6%) to close at 10,625.20.
Volume: NYSE volume was unable to match the price gain, coming in at 1.177 billion shares (-3.2%). Up volume was 816 million shares versus 349 million to the downside.
A/D and Hi/Lo: Advancing issues remained in the lead 2.08 to 1, a solid increase over Tuesday's 1.02 to 1 advantage on that down session. New highs rose to 121 (+20) versus a decline in new lows to 24 (-6).
The Chart: http://www.investmenthouse.com/cd/$dja.html
Not a powerful move, but a necessary one. The index held above the 18 day MVA at 10,402.86 (10,444.06 on the low) and moved back up solidly to the close. It is still in the midst of some major congestion from 10,500 to 11,000. First step: take out the recent high at 10,700 on some strong volume to set up a run at 11,028. Today's volume was not what we wanted, and as with the Nasdaq, buyers will have to step in (institutions) to propel the index over 10,700. If it cannot do it, we remain on put watch for some DJX puts if it fails on the move. It has not damaged itself the past four sessions; it has just not re-established the upside power it had. That is what we are looking for. If it cannot and starts to fail after rising on lower volume up to 10,700, we will attempt to play the fall back toward 10,300.
S&P 500: The big caps traded again below the 50 day MVA (1212.53) and even the 18 day MVA (1196.84) before it found support three times at 1214 and started the afternoon climb. This is what we would expect after a test of the breakout from the double bottom pattern that spans March to date, but as with the other indexes, we wanted the move back up on higher volume. The lack of volume is so important; it shows today that institutions were not jumping back on the buy side after some selling. The index faces some serious resistance at the 1260 level. As with the Dow, if it hits that level on continued lighter volume, we will expect the move to fail, and will be looking at OEX puts on the way back down from the 1260 level. Again, we are not being pessimists, we are just preparing in the event the volume action we are seeing is foretelling some more nefarious market declines.
Stats: Up 19.28 points (+1.6%) to close at 1228.75.
Volume: NYSE volume limped in at 1.177 billion shares (-3.2%). Not what we wanted to see on a resumption in the move back up.
The Chart: http://www.investmenthouse.com/cd/$spx.html
TOMORROW
More economic news out tomorrow that could be weaker than expected (e.g., initial jobless claims at 385,000 might be an underestimate). Thus far the market has been shaking it off and moving forward. A bull market that is truly looking out at least six months will do that. We will know this is the case when we see stocks start to move higher on stronger volume. There were some today such as AMAT and EXTR, but they were few.
Many times we have to just suck up and get involved when the stocks bounce off support if that is the move we are looking for: the selling should be on light volume, and the bounce should be on stronger volume. Many times we are not at the computer to look at volume bars and the like, and we have to rely on the broker. We may not know volume is going to surge, but we like the action it has been showing us. We must then use stop losses, mental or pre-set in the system to protect our positions. On breakouts we can just put the buy stop in just over the pivot point when we are not around and let nature take its course. We also use stop losses in that situation, however, as this market is still not showing stocks breaking out and running away from the pack. Several are getting close, but that does not count.
We are not a Japan. We are having a slowdown but we are taking steps: 200 basis points in rate cuts in 105 days and a tax cut (not as strong or as front loaded as it could or should be) that is going to be a reality. That finally seems to be soaking in as the big institutions are looking down the road and putting money to work. They did not come back today and that is another sign of weakness after the rising selling volume on Tuesday. Neither are fatal, but they keep us alert, especially on our shorter term option trades and even stock trades that are playing bounces up or where we have closer targets.
Tomorrow we will see how QCOM is treated. Futures are showing a modest downside, but it is a long time until the open. If the market can shake off QCOM and move higher, another positive, and we will be willing to venture further with other stocks that are making solid moves. In this market our preference are breakouts or stocks moving on high volume today as these have cleared the resistance already (breakouts) or will handle it better because of the higher buying volume.
Support and Resistance Levels
Nasdaq: Closed at 2059.80.
Resistance: 2250, then 2290 to 2300. It is very congested in this range (thicker ice).
Support: 10 day MVA at 2016.61. Then 2000.
S&P 500: Closed at 1209.47.
Resistance: 1265 to 1270.
Support: The 10 day MVA is at 1210.32. 1200 is a possibility after that. The 18 day MVA is at 1196.84.
Dow: Closed at 10,625.20.
Resistance: Real congestion from 10,750 to 10,900.
Support: 10 day MVA is at 10,402.86. 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): 109.2 actual versus 113.0 expected and 116.9 (revised lower from 117.0).
4-25-01
Durable Orders, March (8:30): +3.0% versus 0.5% expected.
Existing Home Sales, March (10:00): +4.8%.
New Home Sales, March (10:00): +4.2% (a record).
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.
TEAM TRADES
NVDA closed Tuesday at 76.54 on stronger selling volume (7.6 million). Looked like it might break support of the 10 day MVA at the closing price, but this leading stock did not, instead bouncing from the support. The stock opened just higher at 76.74 and immediately shot up to 79. That got our attention, especially with the good volume right off the bat. The stock then dropped back clear to 74.45, but headed back up; just after 9:00 it broke back over the 5 and 15 minute MVAs. At that point we looked at the bid and ask on the stock since we were interested in picking up some shares in this leader. It looked like support was going to hold, and with the Nasdaq on the move up (not strongly, but it wasn't selling, either), this was the time to pick up some shares.
Those were trading at 78.30 by 78.31, just about the most narrow spread you will see, so we put in a limit order at 78.31. The stock moved back down again, but this time held above 76.50 before bouncing back up again (just above the previous day's low of 75.25). It followed that pattern again, and we breathed easier when it held just above the second, higher low, and moved back up from 77, the 10 day moving average. Ran to a high near 79 then drifted back from there as volume pulled back (but still was moving up pretty well). We really wanted to see volume pick back up and get up to average at least to give some solid backing to this move.
That happened with the stock exploded up just after 1:00, soaring to a new high of 82.79 by 2pm, on strong volume, which by the end of the day was well over average (5.69 million at 2:54 pm). Pulled back off that high but the buying volume remained pretty strong to the end of the day. We got a decent move, and are looking for this one to run to at least 90 from here, and that is just for starters. Still, volume was lower on the move, so we are sliding in a stop limit at 76.
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