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us stock market, trend trading stock
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5/28/03 Investment House Daily
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Investment House Daily Subscribers:
MARKET ALERTS:
Target hit alerts issued Wednesday: None issued
Buy alerts issued: C; JCOM; RMBS (bonus breakout of triangle)
Trailing stop alerts: None issued
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 hangs onto a gain after squandering strong early move.
- Durable goods fail to live up to Greenspan's hype.
- Financials leading the way but market was reluctant Wednesday.
- Subscriber Questions
After Tuesday cannon shot higher stocks struggle to hold Wednesday gains.
The early action looked pretty good and right in line with what we laid out in the pre-market alert: after shaking off a weak durable goods report pre-market, stocks rallied to test Nasdaq resistance at 1567, fell back to tap the May highs just broken Tuesday, and then started back up. That move pushed Nasdaq above 1567, but it ran into resistance yet again at the May 2001/January 2002 downtrend, and that put a lid on the action. It spent the rest of the session pulling back, and a late-session rally off the mid-day lows (still held positive) was undercut somewhat by a Fed governor commenting that the economy still had some 'soft spots' to deal with.
Nasdaq and NYSE volume shot higher in the early buying, outpacing early trading the prior week. When the market peaked, volume peaked as well. As it sold volume dried up, and that is what you want to see. Nasdaq had enough early volume to push the final volume figure to 2B, and the intraday price/volume action on Nasdaq was good as well. In the end the indexes struggled to hold the gains as a late rebound fell victim to Fed comments in the last half hour. Up to then it looked as if Nasdaq was going to rally to close near the high and above first resistance at 1467. Instead it fell back and the result was a lackluster session.
Small caps stepped into the lead once again, continuing the rotation between large and smaller issues: the smaller caps get the moves started and then the large caps join in. When the large caps are off then the small caps step back in. As we noted before, that not bad action as money is rotating within the market in something of an internal engine that keeps money in the market.
THE ECONOMY
April durable goods orders fall 2.4%.
That was the second straight decline and the largest in 7 months. Take out transportation and they fell 1.2%. This is a volatile number and revisions are often large (March revised to 1.4% from 2%), but with two down months Greenspan may be tugging at his collar in a Rodney Dangerfield manner. After all in his recent congressional testimony Greenspan pointed to durable goods orders as a bright spot for the economy. Particularly concerning has to be the 3% drop in non-defense and non-transportation capital goods which is considered a proxy for business spending and investment. That comes on the heels of a 4.7% gain in March. There may be some holdover from the war in the April report, and we suppose you can take some temporary comfort in that. We don't think, however, that the war was the end of all corporate worries, at least not enough to produce a surge in buying.
Redbook May chain store sales fall 2.4%.
Another sign the economy has not surged back after the war, retail sales in the form of consumer purchases at stores continue to languish. They are not falling off the table, but they have many concerned because many economists view the economy through the lens of the consumer and feel that the consumer is the solution. We have said it a dozen times: the consumer did not prevent the recession, it has not pulled us out of the recession, and it won't pull us out of the recession. Why? Because the consumer never really tanked. Even if it wanted to, with its high debt burdens the consumer cannot take on the kind of spending needed to pull the economy out. Businesses are the problem, and without their spending the economy is hard-pressed to make serious headway.
That is where the tax cuts hopefully come in. With accelerated 50% depreciation, $100K expensing, capital gains tax reductions, marginal rate reductions, and dividend taxation changes there will be business stimulus in the system. The question is whether they will feel compelled to take advantage of it. The reason is there is no inducement in the form of tax credits. Tax credits are just about as good as money as they come off the bottom line of the tax bill. If you don't take advantage of the credit, it is like giving the money away to the government and getting nothing. Thus credits induce businesses to spend money. This bill does not have that, and we will just have to see how businesses respond to it.
THE MARKET
Stocks started up with vigor again Wednesday as volume shot higher in the early buying. After a strong run Tuesday to break the recent May highs, however, the action stalled out. As stocks slid back, volume did the same, indicating yet again that it is not the sellers in control of the action. When Nasdaq hit its down trendline it was time for some short term players to take profits.
Breadth was narrower at 3:2 even as small caps paced the action. That fact that the indexes finished narrowly higher as smaller issues turned in a solid performance indicates the larger caps were struggling a bit to hold gains. The financial stocks were the real leaders with C, BSC, JPM and others continuing to lead the way. When financials rally and breakout along with small caps, that is a very good economic canary.
As for the charts themselves, Nasdaq hit the down trendline as noted, but they all showed dojis on the candlestick charts where they ran up early and then faded to close near the open. That is an indication that the buyers that lead the charge after the recent test lost the momentum. The higher volume indicates that there was some churning, i.e., high share turnover even though Nasdaq finished higher on rising volume (normally considered an accumulation session). When that occurs after a run higher it indicates that there are a lot of buyers and sellers and they are at equal strength. It can indicate that a move is losing some momentum (the same idea works in reverse after a pullback), but this is action we have seen crop up during this rally without really stalling the move. It is something to watch but not a red flag sell signal.
Market Sentiment
There are continuing signals that optimism is getting a bit high, but at the same time there are a lot of people working the worry beads pretty hard because optimism is getting high. The focus of the worry has shifted from the general worry the market would never go back up to worry that the market has gone too far. We won't say those are one-for-one substitutes for each other, but the market likes to climb a wall of worry, and there is worry of one kind or another out there.
Indeed, as we have addressed before, after a 3-year meltdown following the economic bust, gauging sentiment is difficult. Unlike price/volume, sales and earnings, and patterns, it is a moving target as it is difficult to put a yardstick to measure sentiment. It can remain at extreme levels for a long time before any corrective action is taken.
VIX: 22; +0.23
VXN: 30.22; +0.94
Put/Call Ratio (CBOE): 0.7; +0.07
Nasdaq
Nasdaq put on an interesting display, blasting up to take out near resistance, testing the breakout, tapping the next resistance, and then backing off to close. All that work and little to show.
Stats: +6.55 points (+0.42%) to close at 1563.24
Volume: 2.065B (+6.57%). Volume surged early, faded on the selling, but remained strong throughout the session.
Up Volume: 1.139B (-575M)
Down Volume: 805M (+607M)
A/D and Hi/Lo: Advancers led 1.41 to 1. Modest advancers reflected the lack of punch after the powerful Tuesday move.
Previous Session: Advancers led 2.6 to 1
New Highs: 285 (+1)
New Lows: 11 (+5)
The Chart: http://www.investmenthouse.com/cd/$compq.html
Nasdaq broke the June 2002 intraday high (1568) but did not have enough juice left to take out the May 2001/January 2002 (as measured by the intraday highs) at 1570. It ended up giving back almost 10 points of the gain (over half) as Nasdaq has to work to get past yet another resistance point. As we pointed out months back when the indexes were working to clear these resistance points, it is a long series of hurdles to cross when moving out of a downtrend as the overhead resistance is stacked up like cordwood. Thus far Nasdaq has been lining them up and shooting them down. This down trendline is a significant one as it is one of the last significant trendlines left to conquer. Nasdaq did a good job of testing the May high (1553) on the low Wednesday, and we would like to see that hold as closing support for any rest here before trying to take out that down trendline.
S&P 500/NYSE
Tried to clear the December intraday high but fell short as volume backed off slightly.
Stats: +1.74 points (+0.18%) to close at 953.22
NYSE Volume: 1.494B (-1.16%). Slight drop in volume as it remained above average on the attempt that tried to move over resistance but failing.
Up Volume: 794M (-483M)
Down Volume: 692M (+447M)
A/D and Hi/Lo: Advancers led 1.39 to 1. Very modest breadth.
Previous Session: Advancers led 2.4 to 1
New Highs: 320 (-97)
New Lows: 7 (-2)
The Chart: http://www.investmenthouse.com/cd/$spx.html
The large caps ran out of steam and fell back to flat on the session as volume backed off slightly. It was unable to take out the December high (954) though it hit 959 on the high. The large caps are still in good shape with just a whiff of churn below this resistance. As noted, Tuesday, the real move involves taking out the August 2002 high (965). For now the large caps are doing a passable job of working higher and toward that important step. It is a quiet and almost frowned upon move it seems as no one wants to believe the move is for real. It may not be, but as long as stocks such as C, AXP, BSC and other financials are moving well, the index is in decent shape.
DJ30:
The Dow is still mired below its January (8869), December (9043), and August (9077) highs as it was unable to stretch the Tuesday breakout over the May top (8743). The blue chips have some leaders amongst them (JPM, C), but they are not enough to carry the day and clear this resistance. Dow is relying on the other indexes to keep it moving. Thus far they have been content to move up, drag the Dow, move up, drag the Dow.
Stats: +11.77 points (+0.13%) to close at 8793.12
Volume: 1.494B (-1.16%)
The Chart: http://www.investmenthouse.com/cd/$indu.html
THURSDAY
Jobless claims and Q1 GDP are out before the open. The market is focusing more on economic data now that earnings are basically over for now. For now the market is looking past weakness through the war, preferring to look to the future and the stimulus in the pipeline (rate cuts, bond buying, tax cuts) that should boost economic output. The GDP numbers are from a slow first quarter, but they are still expected to show some growth though not enough to produce jobs (1.8% versus the 3% needed to produce a stream of jobs).
Thus we don't expect much mileage from the economic data. What we do expect is for the indexes to again test the break over the early May highs and try another run at Nasdaq's down trendline. After just pulling back the prior week, the indexes need to resume the breakout move and not slump into another pullback that would have a double toppish look. In short, they need to put some mileage on the move. Volume on the breakout was excellent; one thing you do not want to see is a break to a new high or an attempt at a new high on noncommittal volume because that means there are not enough buyers really interested in hold stocks at that level. They need a resumption of the breakout to reinforce the move.
As for stocks, many were moving well again today, some holding the moves, some giving a chunk back. You have to ask yourself if there is a further move, what stocks will take the lead? Many of the leaders have moved well the past several sessions already; they will need some backup support from other sectors. Those could be smaller financials, the chips that took the day off but still look good, and after a big more rest, the biotechs will be ready yet again.
Support and Resistance
Nasdaq: Closed at 1563.24
Resistance: 1567, the mid-June intraday high. 1573 (May 2002 closing low) and 1595 (June 2002 closing high,). Down trendline from the May 2001/January 2002 intraday highs around 1570.
Support: The May high (1554) needs to hold any other test. The December intraday high (1522). The 10 day MVA at 1525. The 18 day MVA (1511). The August 2001/January 2002 down trendline (1475). The January high (1467). The exponential 50 day MVA (1458). The March and August highs (1426 and 1427).
S&P 500: Closed at 953.22
Resistance: 954 (December intraday high). 965 (August 2002 peak).
Support: The May high (948). 939, the early May high. 935 (November and January peaks). The 10 day MVA (938). The 18 day MVA (932). Price tops at 911 (July). March and April highs (896 and 905). The 50 day MVA (908) and the 200 day MVA (885).
Dow: Closed at 8793.12
Resistance: November and January highs (8800, 8870). December high (9044). The August high (9077).
Support: May high at 8743. The 10 day MVA (8648). The 18 day MVA (8600). 8522 and 8520, the March and April twin peaks. The 50 day MVA (8439). The 200 day MVA (8331).
Economic Calendar
5-27-03
Consumer confidence, May (10:00): 83.8 actual, 83.0 expected, 81.0 April.
Existing home sales, April (10:00): +5.6% actual, 5.70M expected, 5.53M March.
New home sales, April (10:00): +1.7% actual, 980K expected, 1.01M March.
5-28-03
Durable goods orders, April (8:30): -2.4% actual, -1.0% expected, 1.0% March (revised from 2.0%).
5-29-03
Initial jobless claims (8:30): 420K expected, 428K prior.
Preliminary GDP, Q1 (8:30): 1.9% expected, 1.6% prior.
5-30-03
Personal income, April (8:30): 0.0% expected, 0.4% March.
Personal spending, April (8:30): 0.1% expected, 0.4% March.
Michigan sentiment revision, May (9:45): 93.0 expected, 93.2 April.
Chicago PMI, May (10:00): 49.0 expected, 47.6 April.
SUBSCRIBERS QUESTION
We are getting lots of great questions. We are getting to them as fast as we can so bear with us!
Q: We received several questions about Tuesday night's rather convoluted explanation of higher highs and higher lows regarding Nasdaq, SP500, and DJ30. In looking at what was written versus what was meant, we can see the confusion. Here is another stab at it.
During the downtrend there was a series of lower highs and lower lows. That is pretty much the definition of a downtrend. During a strong, entrenched decline, there are often sharp rallies, but they simply take the indexes up to the down trendline. As that trendline slopes down, when the index hits that down trendline and tops, the top will be lower.
On Nasdaq, the last lower high was in August. It broke that high in November. Its recent move put it not only over the August high but it made a new post-October high as well. The SP600 small cap index just cleared its August high Wednesday by a gnat's rear end. The Russell 2000 small cap index looks the best of all, having already beaten its August high and easily at a new post-October high. SP500 still has not been able to make a high greater than the August high. Technically that leaves it in the same downtrend. DJ30 is in the worst shape as it still struggles to get over the January nad December highs.
What the higher highs and lower lows show is an uptrend. When that occurs with solid price/volume action as we have seen in this rally, it is a solid uptrend. When the 10, 18, 50, and 200 day MVA are all stacked up on top of one another in that order and sloping higher together, that is a strong uptrend. The Nasdaq and Russell 2000 200 day MVA are just now trying to turn higher. It is a late confirmation as all longer term MVA's are, but it is an important confirmation as it is hard to disrupt that trend as the long downtrend showed us.
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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