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us stock market, trend trading stock
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6/04/03 Investment House Alerts Report
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IH Alert Subscribers:
MARKET ALERTS:
Targets hit alerts issued Wednesday: NVLS. There are 20 stocks on the report trading over their target and we are letting them run.
Buy alerts issued: RHAT; IDC; SRNA; TALK; DVA; HYSL (bonus)
Trailing stops issued: None issued
Stop alerts issued: None issued
Confluence of good news helps market surge.
The good news was apparently not priced in as a solid ISM services report, good weekly mortgage numbers, increased Q2 guidance from ALTR, and rumor of an airline comeback converged to energized buyers and power the market higher. The strength of the recovery from the Monday intraday reversal was impressive. It is almost too good. We have talked in the past about rallies burning themselves out and how this market has made periodic corrections to keep things from overheating. The action seen these past three weeks gives the hint of getting a bit overdone at least from the perspective of how the rally has developed to this point. As we keep saying, however, it is very hard to fight the tape. You don't want to be in the position of those bears that cursed the darkness in 1995 to 2000; they not only missed the rally, they got ripped trying to actively invest against it.
Breadth was huge yet again (3:1 on NYSE) and volume shot higher as the indexes ran right up to the next potential resistance levels. DJ30, pulled along by another impressive rally in the Dow Transports, is nearing its own August high, ready to follow Nasdaq, SP500, SML, MID, RUTX and others that have already taken out that high and have broken the string of lower highs that plagued stocks in the downtrend.
Things might appear extended, but there are lessons from history to observe. Number one is don't try to outguess the market. That is why we continue to take positions when stocks and the market show us the kind of moves that indicate no real tiring. If we start trying to guess the top based on a feeling the market has gone too far, we are committing the same type of error as if we ignored the signs of the market bottom last October and did not start buying upside simply because we were too sick of failed rally attempts. We just have to do what we always do: watch carefully what the market is showing. It is not perfect action right now as volatility is increasing in the indexes and in individual stocks. That is an important point that can sneak up on the market as it did in early 2000.
THE MARKET
Bullish intraday action and bullish overall action appeared again as the market surged early on good news, held the gains, and then rallied to the close as volume and breadth surged. At first breakouts were somewhat hard to find, a potential sign of an extended market, but as the afternoon session rallied on, breakouts started to pop up. When the bell rang there were more breakouts, a strong move, and the market indexes challenging resistance yet again.
What is driving the move? What always drives the move: expectations for a better future. Tax cuts, rate cuts, falling dollar, signs of confidence and business increases help fuel the belief. Indeed the latest leg of the rally coincides almost exactly with passage of the tax cut package. The question is always whether the future will be as strong as prices are suggesting, and that is where most of the debate is centered right now. Up to this point short sellers have conceded the market as they look to the future for a chance to step back in. That has left the market to the bulls and they have been there in force with the kind of volume that only the big institutions can muster. This is no retail investor rally; the issue on the financial stations is still whether the individual should get in at this point.
As noted, it is hard and often unwise to fight the tape, particularly when it is backed by the strong volume and wide breadth demonstrated in the rally. Markets can run beyond what are considered normal parameters; they tend to overreact both ways. As Nasdaq approaches 20% over its 200 day MVA with very little rest since April, things appear to be getting extended. Nasdaq can trade 25% and 30% over its 200 day before it really corrects, but that was out of the norm historically. After such a pernicious downtrend perhaps Nasdaq is ready to trade a bit out of the norm to the upside. In any event, it is enough to make you nervous about entering a lot of new positions, but at the same time, if the action is solid you need to act in accordance to what the market is showing you.
Volatility is something to watch.
While the trend is definitely upward, there has been a bit more volatility over the past three weeks. It is not anything that is screaming trouble, just some more up and down action. Nasdaq has shown periodic churning sessions on this move, but in the past three weeks it has shown several sessions where it has rallied and then reversed intraday. It then jumps higher the next session. Then it gaps higher and sells off on volume only to be followed by a sharp rally higher on strong volume. This back and forth action or increase in volatility can signal a change of some type ahead. As stocks run further up their short term MVA after a breakout, they tend to get more volatile than in the first 2 to 3 bounces. That often precedes a deeper pullback to consolidate the gains and set up another move higher. The same idea applies to indexes.
Now the current action is nowhere near the early 2000 levels and even without that comparison it is quite tame. Nasdaq has led the market and the price/volume action has been almost spotless in the uptrend and even with the increased volleying back and forth, it is still very solid as the market continues higher. This is something we are watching, however, as the index continues its move higher.
Market Sentiment
Volatility has pretty much stopped falling the past 5 weeks as the market has rallied. The VXN has even bounced the past week as the market rallies further. Of course it bounced on the Monday selling, but the stalled decline as the market continues higher dovetails with our observation as to the more pronounced up and down action exhibited in the recent action.
VIX: 22.48; +0.03
VXN: 33.01; -0.5
Put/Call Ratio (CBOE): 0.76; -0.17
Nasdaq
Did not blink an eye as it rallied back from the Monday distribution session as volume and breadth surged.
Stats: +31.09 points (+1.94%) to close at 1634.65
Volume: 2.543B (+22.47%). Huge volume surge as volume almost equaled the Monday selling volume.
Up Volume: 1.871B (+513M)
Down Volume: 636M (-52M)
A/D and Hi/Lo: Advancers led 2.21 to 1. Very strong upside breadth. Note that upside breadth continues to dominate breadth on down sessions. Monday breadth was still positive at 1.12:1 even as Nasdaq sold hard. A continued indication of the upside strength.
Previous Session: Advancers led 1.07 to 1
New Highs: 311 (+155)
New Lows: 3 (-4)
The Chart: http://www.investmenthouse.com/cd/$compq.html
Nasdaq ran to 1638.57 on the high and backed off some in the last few minutes. Once again that put Nasdaq right at 20% over its 200 day MVA, a point where Nasdaq has started to struggle and correct in the past. This level did shift to 25% to 30% starting in 1997, the waning years of the bull run. It could run to those levels again but that is less likely. This spurt has brought it to the level we were looking at originally, and we are thus even warier than normal in watching for problems. Still, this is a rule of thumb level. Nasdaq showed great volume and breadth in the move to recover from the Monday distribution. Other than a bit more volatility, it is still exhibiting strong bullish action.
S&P 500/NYSE
The large caps surged on renewed volume, challenging the next resistance range from 990 to 1000.
Stats: +14.68 points (+1.51%) to close at 986.24
NYSE Volume: 1.588B (+12.07%). Again strong, above average volume on an up session.
Up Volume: 1.365B (+686M). Lop-sided up to down volume ratio.
Down Volume: 221M (-511M)
A/D and Hi/Lo: Advancers led 3.32 to 1. Outstanding breadth as the small and mid-caps joined in on the action after taking Tuesday off.
Previous Session: Advancers led 1.21 to 1
New Highs: 528 (+185)
New Lows: 4 (+2)
The Chart: http://www.investmenthouse.com/cd/$spx.html
The large cap index continued its run and closed just below some resistance from tops in December 1997. That runs up to 1000, but the large caps are showing broad strength having broken the string of lower highs, and there appears little to stand in its way in the form of real resistance other than its own success (i.e., gravity) until 1050. When things look good, however, that is the time to be even more vigilant. The large caps still could use some rest along with Nasdaq, and a test of 950 on lower volume would be excellent.
DJ30:
The blue chips are also flexing their muscle, closing over 9000 and just missing the December high (9043) as it approaches the August high at 9077 (intraday). Taking out that high breaks the string of lower highs and puts DJ30 in with the rest of the indexes already making that break. It also clears the way to 9500. The blue chips were helped again by the Dow Transports (+44) and a new 10-month high.
Stats: +116.03 points (+1.3%) to close at 9038.98
Volume: 1.588B (+12.07%)
The Chart: http://www.investmenthouse.com/cd/$indu.html
THURSDAY
Jobless claims out before the open and then factory orders at 10ET. Could more surprises lead to further gains? We don't expect much of a surprise from jobless claims: it would take a dramatic move to put them to levels the market would find significant. Factory orders could surprise, and the impact would be more substantial given the business implications of a better than expected number.
After hours XLNX upset some semiconductor investors by merely guiding in line with expectations. That was on the heels of the ALTR increased Q2 guidance, so it was viewed as a disappointment. That had Nasdaq futures trading lower by about 3 points after hours. With Intel giving its mid-quarter update, XLNX' 'disappointment' may weigh on the action.
A softer open would be what the market needs after such a strong run. Slightly lower opens allow the sellers to move out of positions in an orderly manner, and after a they are done the buyers tend to move in and start the market higher. We will have to see how the start actually unfolds but regardless, we will continue to be discriminating with our positions. We passed up a few today that did not have the same strong action or volume that was being exhibited by the market overall. In other words, they may have hit the target but their action or volume made it look as if they were just tagging along for the ride. Those kind of moves are the first to go if things turn down. With the market having made a strong run, we want to be as certain as possible that the new positions are solid and have some staying power.
We continue to watch for signals that we may need to take some of the strong movers (and other plays for that matter) off the table in anticipation of a deeper pullback. There has been a slight uptick in volatility and some Nasdaq distribution to focus in on, but for now they have not signaled a serious problem. If Intel provides a poor outlook that could poke some holes in the almost giddy market action. When things start to look really good it is time to be really vigilant about potential problems.
Support and Resistance
Nasdaq: Closed at 1634.65
Resistance: 1640 (20% over the 200 day MVA). 1700 (Feb 2002 low).
Support: 1595 (June 2002 closing high). The 10 day MVA at 1576. 1573 (May 2002 closing low). 1567, the mid-June intraday high. The May high (1554) is a good place to hold on a test. The 18 day MVA (1550). The December intraday high (1522). The exponential 50 day MVA (1484). The January high (1467).
S&P 500: Closed at 986.24
Resistance: 990 to 1000. Then 1050.
Support: 975 (December 1997 peak). 965 (August 2002 peak). The 10 day MVA (959). 954 (December intraday high). The mid-May high (948). 935 (November and January peaks). The 18 day MVA (947). The 50 day MVA (919). Price tops at 911 (July). March and April highs (896 and 905). The 200 day MVA (886).
Dow: Closed at 9038.98
Resistance: December high (9044). The August high (9077). 9500 (June 2002 lows).
Support: January high (8870). The 10 day MVA (8816). November high (8800). May high at 8743. The 18 day MVA (8728). 8522 and 8520, the March and April twin peaks. The 50 day MVA (8521). The 200 day MVA (8336).
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): 1.9% actual, 2.0% expected, 1.6% prior.
ISM services, May (10:00): 54.5 actual, 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: Great letter. Pays off ten times. Already made 3,5k this months with your
letter. Just a quick question but I guess no quick answer: Can you give us an insight
about your general setup @ the Investmenthouse in order to understand you
better:
How many people are there watching how many stocks on how many screens. I currently for example trade 8-12 and watch 25 which is a lot as one needs to watch other indicators too like all sectors(for sector rotation), comp, trinq, futures,...
How does your trade-station-setup look like? (i work with 5 monitors for example)
Can we get a feeling what you see on your monitors ie vix, quotes, 2daycharts, 10 day charts, daily charts, sector charts
A: Glad you are having success with the report. Here is a general overview of what we have running to watch the market, our stocks, other stocks, and news during a trading day.
I have three computers running during each session that are devoted to the above. There are at least three other computers running for the analysts. They are devoted to the same. I use the different computers for different tasks though I could get by with using less. One is devoted to mundane things such as email, play databases, etc., i.e., more static data. Two are fed real time data, e.g., news, market information, etc. I divide those up with four different screens so I can separate the data and am thus able to look from screen to screen without having to toggle. It saves time and gives me a better feel for what is happening. In addition I have two financial stations running to see what everyone else is being 'fed.' A good speakerphone and a wireless headset are also used for broker calls, interviews, etc. At the same time I have a big, big window space looking out over the woods and the creek; you need a taste of reality every once in awhile.
With this setup we can watch hundreds of stocks that we are interested in as well as receive volume, price movement, and other alerts for other stocks that we may want to chase down. On my monitors I am primarily focused on intraday stock charts. I have all of the major indexes charted simultaneously. I have a quote monitor set up alphabetically. From there I can jump to option chains with a click. I also keep key sector indexes a toggle away so I can see what is looking solid, what is not. I also have a charting program on another screen to quickly look at longer term charts to put intraday moves into better perspective. I like to use real time readouts of moving average levels as well. As for sentiment indicators, I don't get too bogged down in intraday moves on those.
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 Wednesday: ADIC; ADPT; APOL; BGEN; BRCM; CHIR; HTCH; LGTO; MED; MER; NENG; NVLS; RHAT; UCOMA; ZMH
New Plays:
Play Date: 06/04/2003
CLRS (Clarus--$6.13; +0.09; optionable): Application software
http://biz.yahoo.com/p/c/clrs.html
STATUS: Testing the breakout. CLRS is in the process of testing the breakout from a 4-month cup w/handle base showing excellent 7 to 1 accumulation. It blasted off on the breakout 9 sessions back and then pulled back on mostly lower volume to test the 18 day MVA (5.95) Tuesday and Wednesday. It started back up Wednesday on rising, above average volume. Money flow is excellent and is already moving up ahead of the stock.
Volume: 99.881K Avg Volume: 61.181K
BUY POINT: $6.28 Volume=92K Target=$7.55 Stop=$5.84
POSITION: - Stock
http://www.investmenthouse.com/ci/clrs.html
Play Date: 06/04/2003
FLR (Fluor Corp.--$36.48; +1.7; optionable): Technical services
http://biz.yahoo.com/p/f/flr.html
STATUS: Cup. This is FLR's second small cup since coming off the bottom in October. It has moved laterally the past 9 weeks over the 50 day MVA (34), putting in solid 3 to 1 accumulation during that time. Wednesday FLR was up sharply on a strong, above average volume jump in trade. Looking for the stock to clear the April high to move into positions.
Volume: 800.1K Avg Volume: 695.954K
BUY POINT: $36.96 Volume=1M Target=$44 Stop=$34.45
POSITION: FLR JG - Oct. $35c (63 delta) &/or Stock
http://www.investmenthouse.com/ci/flr.html
Play Date: 06/04/2003
HPOL (Harris Interactive--$5.48; +0.48; no options): Internet software and services
http://biz.yahoo.com/p/h/hpol.html
STATUS: Cup w/handle. Nice 3-month pattern, its first longer term consolidation after the move off of the October low. The base sports excellent 5 to 1 accumulation (5 up weeks on rising volume to 1 down week on rising volume) and excellent money flow. Wednesday HPOL was jumping up to the breakout on outstanding volume. Looking to move in when it clears the late-March high.
Volume: 1.694M Avg Volume: 280.045K
BUY POINT: $5.62 Volume=541K Target=$6.75 Stop=$5.23
POSITION: - Stock (no option chain)
http://www.investmenthouse.com/ci/hpol.html
End part 1 of 2
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us stock market
trend trading stock
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