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us stock market, trade stock
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6/03/03 Investment House Alerts Report
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IH Alert Subscribers:
MARKET ALERTS:
Targets hit alerts issued Tuesday: WPI; AGEN
Buy alerts issued: TSCO
Trailing stops issued: None issued
Stop alerts issued: ALT; CNQR
Lower volume rebound as market fights off Monday tech distribution.
There were some good reasons to sell with the Monday higher volume reversal and the SEC's focus on IBM, but the market shook them off. It was not a solid, higher volume recovery, just a rebound, but it was the way the market responded that was encouraging. It ignored some bad news by isolating the stock involved, and it worked through choppy action in the morning session to rally to close near session highs. In the current market, when there is doubt about direction the market tends to rise. During the downtrend, when there was doubt it was best to sell.
Again it was not a stellar rebound that relegated Monday to a one-day event. Volume fell and the A/D line was flat as small and mid-cap stocks lagged. The market still exhibited its upward bias, however, with that late push higher to the close and leadership that moved back up. A day after selling on volume many internet stocks rallied right back on volume as leaders again found their footing (e.g., SOHU, SINA, NTES). The indexes, however, continue to struggle at resistance, in particular SP500 resistance at 965 to 970. It seems apparent that the indexes need a pullback to at least test the mid-May highs. Monday it looked as if it might be a violent test. Tuesday blunted that drop with a lower volume bounce, indicating the pullback could be more orderly. As the new bride told her husband, just be gentle. That is what we want to pullback to be.
THE MARKET
Market wants to consolidate the gains but buyers still keep coming back.
The Dow has run to 9000, the Nasdaq is within a few percentage points of being 20% over its 200 day MVA, and the SP500 is struggling to break clear from the August 2002 high that marks the end of the lower highs for that index. Monday the market was hit with a jolt of Nasdaq distribution. Tuesday the buyers stepped back into the fray and rallied stocks higher on the close though volume backed off. The market is trending higher and does not want to give up the upside moves, but it also is extended and showing the start of choppy trade that signals a pullback, namely that high volume break lower Monday and a lower volume rebound Tuesday.
At this juncture we are not saying the market is going into a hard sell off. As Tuesday showed, there are still buyers ready to step in on the dips. They were just fewer in number and that indicates that the market needs a pullback for the rest of the buyers that are now waiting for a pullback to step back into the action. What that does is tend to mitigate the harshness of the selling just as we have seen this week.
The market has been resistant to a pullback, and it may try to surge up one more time and get Nasdaq up to 1635ish before it does turn back for a deeper test. At these levels it gets harder and harder for more and more investors to step in and keep the action moving higher simply because they are waiting for that pullback. Thus after another spurt higher, if volume does not swell on the move, we can expect the market to start working back over the next week to test the mid-May tops.
Market Sentiment
VIX: 22.45; +0.22
VXN: 33.51; -0.12
Put/Call Ratio (CBOE): 0.93; +0.16. Still people betting against the market as put activity has increased again.
Nasdaq
After lagging Monday techs were leading Tuesday, though not with the fervor of the Monday selling.
Stats: +12.81 points (+0.81%) to close at 1603.56
Volume: 2.076B (-17.87%). Volume was significantly lower, but it did rally well into the close as the market recovered, indicating there was some real strength behind the late surge. Still, there were fewer buyers Tuesday than sellers on Monday, a situation where an extended market will find it harder to continue the upside move.
Up Volume: 1.358B (-29M). Up volume doubled up downside volume, helped by the late surge to the close.
Down Volume: 688M (-427M)
A/D and Hi/Lo: Advancers led 1.07 to 1. Very modest breadth as the large cap, household names carried the load.
Previous Session: Advancers led 1.12 to 1
New Highs: 156 (-205)
New Lows: 7 (-1)
The Chart: http://www.investmenthouse.com/cd/$compq.html
Back up to 1600, 17% over its 200 day MVA. Nasdaq is a bit top heavy here having pulled back in mid-May in a quick test lower but not enough for it to catch its breath. Another spurt higher to 1640ish would probably be all it has in it without a dramatic volume surge to push it further. The distribution Monday and the lighter volume bounce Tuesday indicate that an interim top is forming, but it is hardly certainty at this stage as it is more of a function of how far it has run, some choppy action in leadership, and slight price/volume action deterioration.
S&P 500/NYSE
Despite IBM's $3.51 loss and 3 times normal volume (21+ million shares) the large caps were able to post a gain though on lower volume.
Stats: +4.56 points (+0.47%) to close at 971.56
NYSE Volume: 1.417B (-15.17%). Much lower, average volume as the large caps managed a modest bound higher to extend the rally.
Up Volume: 679M (-417M). Unlike Nasdaq, the up/down volume was almost a dead heat.
Down Volume: 732M (+190M)
A/D and Hi/Lo: Advancers led 1.21 to 1. Very modest breadth as the small and mid-cap stocks did not participate.
Previous Session: Advancers led 1.82 to 1
New Highs: 343 (-203)
New Lows: 2 (-1)
The Chart: http://www.investmenthouse.com/cd/$spx.html
The large caps rallied late to post the eighth gain in nine sessions. Monday SP500 tested 975 resistance, rallying to 979. Tuesday it rallied again to 973, but volume backed off to average. The Monday reversal off resistance and the lower volume bounce higher Tuesday indicates some choppy action, though no real distribution took place. It is experiencing a very slight disruption in the price/volume action as it challenges resistance at the August 2002 high (965) up to 975 (December 1997 peak). If Nasdaq decides to take a needed rest, we expect SP500 to do the same and test the mid-May tops at 948.
DJ30:
Rallied higher but on lower DJ30 volume even though IBM traded three times normal volume as it shed 3.50 points. The blue chips cleared the January high (8870) but could not get close to 9000 again (the December high is at 9043) even though they finished with a rally that put them near the session high. Monday they shot up to 9003 on rising volume but reversed, and then Tuesday they struggled for a 25 point gain on lower volume. The same lack of buying enthusiasm at this market juncture that is impacting Nasdaq is having a spillover effect on DJ30. It is significant, however, that the index finished positive with IBM's hard thud lower.
Stats: +25.14 points (+0.28%) to close at 8922.95
Volume: 1.417B (-15.17%)
The Chart: http://www.investmenthouse.com/cd/$indu.html
WEDNESDAY
Wednesday will see the ISM services report, not Tuesday as first stated. Expectations have edged up to 52. A good number will put more minds at ease, but we bet it won't give the market much headway, at least any that lasts. The market handled IBM without a problem, a sign that it is still able to overlook bad news on specific issues and focus on overall economic recovery. That will continue to serve it well as it continues to surge and then test, surge and test.
If there is some good news on the ISM, we anticipate a run back up to resistance or slightly overshooting it, but we don't expect it to hold. What we are seeing is some hesitancy to enter a lot of new positions at this point. We see it not only in the price/volume action but also in the number of volume breakouts. Stocks are generally extended right now. They are moving higher but in many cases volume is not rallying with them (though several leaders in internet sectors saw higher volume pushes). The combination of distribution, light upside volume, and few volume breakouts shows the market is taking a breather right now. The Tuesday action was a good response to the Monday Nasdaq distribution, but it does not clear the slate for a needed consolidation.
This action is going to keep us more subdued with respect to new positions at this juncture. One reason is the action we see in the market. The other is the lack of a lot of high volume breakouts. Talk about the market telling you it needs a breather. There will of course continue to be individual stocks and sectors that defy the overall market and make their own wake, and we will focus on those for new positions. At the same time we will tend to existing positions and not let any laggards get ugly or let winners break down and take away our profit margins.
Support and Resistance
Nasdaq: Closed at 1603.56
Resistance: 1640 (20% over the 200 day MVA). 1700 (Feb 2002 low).
Support: 1595 (June 2002 closing high). 1573 (May 2002 closing low). Down trendline from the May 2001/January 2002 intraday highs around 1565. 1567, the mid-June intraday high. The 10 day MVA at 1563. The May high (1554) is a good place to hold on a test. The 18 day MVA (1540). The December intraday high (1522). The exponential 50 day MVA (1478). The January high (1467).
S&P 500: Closed at 971.56
Resistance: 965 (August 2002 peak) is still not completely broken. 975 (December 1997 peak). 990 to 1000.
Support: 954 (December intraday high). The 10 day MVA (952). The mid-May high (948). 935 (November and January peaks). The 18 day MVA (943). Price tops at 911 (July) and the 50 day MVA (916). March and April highs (896 and 905). The 200 day MVA (886).
Dow: Closed at 8922.95
Resistance: January high (8870) is not totally cleared. December high (9044). The August high (9077).
Support: November high (8800). The 10 day MVA (8766). May high at 8743. The 18 day MVA (8691). 8522 and 8520, the March and April twin peaks. The 50 day MVA (8500). The 200 day MVA (8335).
Economic Calendar
6-02-03
Auto sales, May: 5.4M expected, 5.4M April
ISM Index, May (10:00): 49.4 actual, 48.5 expected, 45.4 April
Construction spending, April (10:00): -0.3% actual, 0.2% expected, -1.0% March
6-04-03
Productivity, revised Q1 (8:30): 2.0% expected, 1.6% prior.
ISM services, May (10:00): 52.0 expected, 50.7 April
6-05-03
Initial jobless claims (8:30): 421K expected, 424K prior.
Factory orders, April (10:00): -1.8% expected, 2.2% March.
6-06-03
Non-farm payrolls, May (8:30): -30K expected, -48K April
Unemployment, May (8:30): 6.1% expected, 6.0% April
Hourly earnings, May (8:30): 0.2% expected, 0.1% April
Average workweek, May (8:30): 34.2 expected, 34.0 April
Consumer credit, April (2:00): $2.2B expected, $0.9B March
SUBSCRIBERS QUESTION
Q: A question about accumulation days versus distribution days. I know that you consider day where an index closes higher as an accumulation day, and when it closes lower a distribution day. I also know you factor volume into whether the A or D is significant.
My question is that when a market gaps higher as all of the indices did Monday, and when they close below the open, is that not distribution, even if they close higher than the prior trading session? Thanks for your response.
A: You have to look at the volume in conjunction with the price to determine if there is accumulation or distribution. A price gain on rising volume is accumulation. A price gain on lower volume is not technically accumulation, just a continued gain. Now if volume is high already and remains high, it can be a bit lower on a day but the market is still in an accumulation phase. If prices close lower but volume moves higher, that is distribution. If prices are lower but volume is lower as well, that is not distribution, just profit taking.
The difference is important because higher volume selling indicates that big money is moving out of stocks faster than it is coming in. Several sessions of distribution indicate the big money is leaving and there won't be anything left to hold stocks at their present levels much more push them back up.
Applying that to your specfici question, if indexes gap higher but close blow the opening price that is an intraday reversal, but it is not necessarily distribution. If volume is lower than prior buying sessions or consolidation sessions, then the pullback can be classified as further consolidation, profit taking, or a low volume failure to break higher. If volume jumps up on the session and you have a rising volume reversal that closes below the opening price, that can be trouble whether or not the index closes positive or negative. A negative close would be the technical definition of distribution. A positive close would not be technical distribution, but it would show that investors were dumping stocks harder when the market reached a certain point (could be resistance). Neither are good signs as one represents out and out distribution plus a reversal and the other shows churning.
Churning is high volume turnover after a move higher. Stocks make a run on rising volume. That shows the buyers outnumber the sellers. When they go nowhere but volume continues to move higher, it shows the sellers have caught up with the buyers. Stocks are running in place. If you run in place hard enough or long enough, you have to take a rest. That menas a pullback could be the next event as the buyers have exhausted themselves for now.
This is something of what we are seeing in the indexes right now, particularly Nasdaq with its high volume reversal Monday and weak volume bounce Tuesday. The market maintains its bullish bias, and thus we anticipate a further pullback to be more or less orderly. Choppy, but overall orderly.
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.
THE PLAYS:
Good movers Tuesday: HTCH; NCN; NTES; PWN; SINA; TSCO; WPI
New Plays:
Play Date: 06/03/2003
BIO (Bio-rad Labs--$58.5; +0.25; optionable): Scientific & technical instruments
http://biz.yahoo.com/p/b/bio.html
STATUS: Flying plateau. BIO is testing the breakout from a cup with handle in May. In the process of forming the right side of the base it threw what is called a flagpole. It then formed the handle and blasted higher in mid-May forming another flagpole. It has spent the last 8 sessions moving laterally over the 10 day MVA (56.93), working on lower and lower volume. When the 10 day MVA meets up with price we expect another price spike. This is a bit more volatile than our usual plays, but it can run like the wind and it looks to be setting up for the next move.
Volume: 83.4K Avg Volume: 150.454K
BUY POINT: $60.12 Volume=226K Target=$70 Stop=$57
POSITION: BIO IL - Sept. $60c (48 delta) &/or Stock
http://www.investmenthouse.com/ci/bio.html
Play Date: 06/03/2003
DCTM (Documentum--$21; -0.14; optionable): Application software
http://biz.yahoo.com/p/d/dctm.html
STATUS: Testing the breakout. Looking at DCTM again. It got a bit volatile in May, but that formed the right shoulder to its 6-month reverse head and shoulders pattern. Accumulation in the base was outstanding at 8 up weeks on rising volume to 3 down weeks on rising volume. It broke out in late May on strong volume and has moved laterally the past three sessions. It was ready to run Monday, but the market pullback late brought it back to flat. It is holding 21, being stingy with the gain. We are looking for another blast higher on stronger volume to enter positions after this test proves successful.
Volume: 908.31K Avg Volume: 1.212M
BUY POINT: $21.78 Volume=1.5M Target=$26 Stop=$20.26
POSITION: QDC JD - Oct. $20c (63 delta) &/or Stock
http://www.investmenthouse.com/ci/dctm.html
Play Date: 06/03/2003
TALK (Talk America--$9.62; +0.17; no options): Internet services
http://biz.yahoo.com/p/t/talk.html
STATUS: Reverse head and shoulders. Seeing many of these patterns in the market, and they are quite similar to the cup with handle and both are accumulation patterns. Accumulation in the 7-month base is solid at 9 to 4. Monday it broke out on strong volume, and it continued the move somewhat Tuesday though the action was quite volatile. It may test back to 9 again before making the next move. We can catch it off that test or when it clears the recent highs on another strong volume session.
Volume: 440.6K Avg Volume: 269.772K
BUY POINT: $9.98 Volume=405K Target=$12 Stop=$9.28
POSITION: - Stock (no option chain)
http://www.investmenthouse.com/ci/talk.html
End part 1 of 2
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