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trend trading stock, trade stock
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7/16/03 Investment House Alerts Report
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IH Alert Subscribers:
We are happy to report that Jon Johnson is doing fine. After a series of tests that were as exhausting and painful as what brought him to the hospital in the first place Mr. Johnson was released in fine shape. Seems a new diet combined with too little sleep and too much exercise emptied the gas tank. Some rest has him refueled.
MARKET ALERTS: Quiet session
Targets hit alerts issued Wednesday: ALT
Buy alerts issued: None issued
Trailing stops issued: None issued
Stop alerts issued: None issued
MARKET SUMMARY
Early pop on earnings news once again quickly fails.
For three sessions some solid individual earnings news has proved unable to provide any support for tepid rally attempts. Each session stocks try for higher ground only to give the gains back and then chalk up some losses. Wednesday was no exception with some solid INTC earnings shrugged off by most stocks as the indexes reversed early gains and closed lower. Small caps were the notable downside leader though losses across the board were limited and well under 1%.
Breadth was weak again with NYSE breadth -2.4:1 and Nasdaq -1.5:1. That is a trend that has emerged during this struggle below resistance. Volume was up slightly with NYSE and Nasdaq volume edging higher. That is also a similar trend: the leading Nasdaq is faring much better internally than the rest of the indexes. That makes the action look more like a consolidation as Nasdaq pulls back off the highs. Indeed, the SP500 action is not really distributive. The index thus far is has held its near support, giving up very little ground even as it pulls back and volume rises. That shows that the buyers and sellers are still closely matched and that buyers are buying almost as fast as sellers are selling. Thus though the indexes have not been able to extend their gains, they have not turned to selling but are working laterally and consolidating the extra supply that has come onto the market as some investors take profits.
That is subject to change, however, after the raft of earnings reports Wednesday evening. IBM met estimates and beat on revenues but that has not been good enough. It was knocked around after hours. QLGC beat on both earnings and revenues and was slammed $1.50 for the effort. Same story with AMD. Techs have been treading water even with some strong earnings, but now with in line reports and some disappointments, there was stronger selling after hours that looks ready to bleed over into Thursday. The quieter consolidation looks to become a stronger pullback.
THE MARKET
The intraday bearish activity continued as stocks started higher only to finish lower. Once again the indexes were unable to punch through near resistance even with some very solid and recovery oriented Intel earnings. Indeed, good earnings results are not really being rewarded. Stocks have mostly run up into the numbers and when speculation becomes fact they are finding no further buyers. Good earnings reports such as Intel's are being viewed as company specific very much the way bad results in Q1 were treated as company specific. In any event, stocks are more likely to get sold on their earnings right now as opposed to boosted.
In short, earnings are not inspiring more buying but are continuing the spate of increased supply after Nasdaq ran up 150 points in 5 sessions, something that has taken it 3 to 4 weeks to do on the previous runs. Without a really strong reason to continue to move higher, e.g., blowout earnings across the board, sellers have decided to take gains and stocks are jogging up and down in place as they are worked through the system. Up to this point it has been a more or less healthy round of consolidation with SP500 working laterally below recent resistance and Nasdaq and the smaller cap indexes pulling back on lighter volume.
After hours Wednesday made a continued orderly pullback seem less likely as Nasdaq futures tanked 12.50 on the heels of the IBM, QLGC, AMD and other earnings that were very solid but just not blowout. Looking at the big picture, what at this point could drive the market higher? Earnings were anticipated to be better and they are meeting expectations. The market shot up ahead of the start of earnings season. Economic reports continue to come in showing no further declines but very little upside momentum. The market has factored in growth and better earnings on this last run, and now it is groping to find a reason to move higher.
There are not many items to make it move higher given that there have been solid earnings reports that failed to move the market. After the strong run higher the market has been making a very good consolidation of the move as earnings were warmly but not enthusiastically welcomed. We will see if that consolidation holds up or turns to stronger selling Thursday. This looks like a case where the market went up too fast right before earnings, not taking a rest as needed. After a series of short corrections followed by strong runs the likelihood of a stronger pullback is here given the worsening market action.
Market Sentiment
VIX: 22.29; +0.45
VXN: 33.99; +0.04
Put/Call Ratio (CBOE): 0.7; +0.16
Nasdaq
Gapped higher again and closed lower again. No heavy selling, no distribution, but some fatigue after the last strong run.
Stats: -5.24 points (-0.3%) to close at 1747.97
Volume: 1.934B (+0.05%). Trade edged up every so slightly as Nasdaq again reversed intraday. Not really distribution, just sellers catching up with buyers and started a slide lower.
Up Volume: 725M (-54M)
Down Volume: 1.185B (+51M). Fairly evenly matched.
A/D and Hi/Lo: Decliners led 1.33 to 1. Unlike NYSE, negative breadth is well contained.
Previous Session: Decliners led 1.23 to 1
New Highs: 235 (-63)
New Lows: 3 (0)
The Chart: http://www.investmenthouse.com/cd/$compq.html
A rather half-hearted gap higher gave up quickly. Intel held its own but it had no coattails. Nasdaq tried to rally after the first pullback but there were no real takers. It closed the session lower but off the lows (1734), managing to hold what has turned up as some modest support at 1750. That will be easily popped on the Thursday open as Nasdaq moves to test the 10 day MVA (1723) and the 18 day MVA (1697). Nasdaq has shown it is ready to pull back some to consolidate its strong move of two weeks back and now we get to see how far. DJ30 and SP500 have already been working laterally and starting to digest the gains. If Nasdaq can hold 1685ish (June intraday highs) and work laterally, that would be an excellent consolidation point. At this point that remains to be seen.
S&P 500/NYSE
Rising volume, but the large caps managed a late push higher to close back above near support at the 18 day MVA.
Stats: +0.03 points (0%) to close at 994.09
NYSE Volume: 1.655B (+9.89%). Second straight session of rising volume on a pullback, and technically some distribution. If it keeps up it is similar to eroding a foundation away and then there is a big drop lower. At this juncture it is not necessarily bad: small point losses at support on rising volume indicate the sellers are not able to overwhelm the buyers, i.e., the buyers are buying enough to sop up the extra supply that is causing the move higher to stall.
Up Volume: 483M (-31M)
Down Volume: 1.149B (+157M)
A/D and Hi/Lo: Decliners led 2.2 to 1. This is a negative internal development as it shows the small caps losing their steam as well, even more so than Nasdaq.
Previous Session: Decliners led 2.01 to 1
New Highs: 102 (-133)
New Lows: 18 (+4)
The Chart: http://www.investmenthouse.com/cd/$spx.html
Volume moved further above average as the large caps could continue to move laterally over near support. Wednesday it was the 18 day MVA (992.80) that managed to hold on the close but the range runs down to 975 where the index held on the close in late June. The rising volume the past two down sessions, while not clear distribution, is working on the index and a test to 975 is not far, particularly with the big financials and IBM selling back. That level is backed up by the 50 day MVA at 970.
DJ30:
Stats: -34.38 points (-0.38%) to close at 9094.59
Volume: 1.655B (+9.89%)
Reached down toward support at 9000 (9042 on the low) and rebounded to hold right at the 18 day MVA. Volume for the 30 stocks rose again as they continue to work laterally the past month, holding hear support. The price/volume action is very similar to SP500, i.e., it is not total distribution. In addition, the intraday action on DJ30 was some of the best of the session. Still, we do not expect DJ30 to lead the market higher by itself, particularly with IBM being hit after hours. At best it holds near support (9000, 50 day MVA at 8935) and continues the lateral move. That would be very nice action.
THURSDAY
Earnings definitely have investors' attention and they are not too wild about what they see judging from the after hours trading. There are some economic reports before the open (initial jobless claims, housing starts), but more than likely they will be washed over by the market sentiment regarding the earnings results from Wednesday and Thursday morning. The Philly Fed report is out at 12:00ET and that could actually impact trade if it is positive and stocks have not turned totally south.
At this stage the index patterns as well as individual stock patterns do not suggest calamity at hand. Thus it is most likely not the best plan of attack to go flying after downside positions. The patterns are still quite solid though somewhat extended. A continued more or less lateral and lower move by the large cap indexes maintains the current posture. Nasdaq was already well ahead of those indexes and has been coming back to test its breakout. Thursday it will gap lower as opposed to gapping higher; it has room to test back so we will watch where it finds footing.
The Sox is not to be forgotten. AMD reported good if not stellar results after hours and SOX held up very well Wednesday, testing the 10 day MVA on the low and rebounding. It will act as a barometer for Nasdaq when Nasdaq starts the session lower. If the SOX holds up relative well (10 day MVA is at 393; 18 day at 385) it could act as a governor on the Nasdaq selling.
In sum, the market has rallied, tried to break higher but failed, and is now trying to consolidate its gains made in anticipation of an economic recovery. We noted two weeks back that when earnings started there could be an initial positive reaction and then some letdown when anticipation became fact. We also noted that the rally higher was not built on the Q2 earnings that were expected to be rather dull given the Iraq war and SARS. Thus we view the earnings selling we are seeing and will see as more temporary before the bigger trend takes shape. What the market needs is some orderly consolidation for a few more weeks with another bounce before some September and October selling. The market has avoided consolidation, however, rallying with each minor dip.
This gap down on earnings Thursday will be a test of that 'buy on dips' resolve. We are going to look for some opportunity if it arises (it has been there all during the uptrend), but we won't push it. We will tend to positions, taking gains and cutting deadwood as needed while we look for more opportunity.
Support and Resistance
Nasdaq: Closed at 1747.97
Resistance: 1760 (May 2002). 1800.
Support: The 10 day MVA (1723). 1700 (Feb 2002 low). The 18 day MVA (1696). 1685 (June intraday high). 1646, the early June high. The exponential 50 day MVA (1618). 1600 to 1595 (June 2002 closing high). The mid-May high (1554).
S&P 500: Closed at 994.09
Resistance: 1003, the early June closing high. June closing high at 1011. The June intraday high at 1015. Then 1050.
Support: The 18 day MVA (993). 975 (December 1997 peak). The 50 day MVA (970) and 965 (August 2002 peak). The mid-May high (948) and 935 (November and January peaks).
Dow: Closed at 9094.59
Resistance: 9236, the early June intraday high to 9250. 9352, the June high. 9500 (June 2002 lows).
Support: The 18 day MVA (9105) is not totally broken. 9000 is some psychological and price support. 8980 is the neckline in the short head and shoulders pattern. The 50 day MVA (8934). January high (8870). The mid-May high at 8743
Economic Calendar
7-15-03
NY Empire State PMI, July (8:00): 22.6 actual, 20.0 expected, 27.6 June (revosed from 26.8).
Retail sales, June (8:30): 0.5% actual, 0.4% expected, 0.0% May (revised from 0.1%).
Ex autos (8:30): 0.7% actual, 0.3% expected, 0.1% May.
7-16-03
CPI, June (8:30): 0.2% actual, 0.2% expected, 0.0% May.
Core CPI (8:30): 0.0% actual, 0.1% expected, 0.3% May.
Business inventories, May (8:30): -0.2% actual, 0.0% expected, 0.0% April
Industrial production, June (9:15): 0.1% actual, 0.1% expected, 0.1% May.
Capacity utilization, June (9:15): 74.3% actual, 74.3% expected, 74.3% May.
7-17-03
Housing starts, June (8:30): 1.750M expected, 1.732M May.
Building permits, June (8:30): 1.790M expected, 1.803M May.
Initial jobless claims (8:30): 425K expected, 439K prior.
Philly Fed, July, (12:00): 7.0 expected, 4.0 June.
7-18-03
Preliminary Michigan sentiment, July (9:45): 91.0 expected, 89.7 prior.
SUBSCRIBER QUESTIONS
Q: My question is when a stock comes out of the gate first thing when the market opens, like some of them have done lately, and its already past the buy point but volume is not there should I just let it pass by? Like today ASPM opened up over $1.00 but the volume was not there; should one take partial position on pull back even if the volume not there still late in the day? Keep up the good work, love the information in your newsletter, its the best I have found and the price of it is good for people like me that's just beginning.
A: Great question. We have stated more than once we do not like gaps higher as they are more of a crapshoot. Early enthusiasm tends to wear off, and a gap higher can come right back on you. Unless the market is still in good position to rally further and the stock is in a strong pattern as well, we typically do not like to move in on a gap higher. Too many times stocks gap and then turn over. This is particularly the case when we see action as we have this week, i.e., stocks opening strong but then turning back and giving the gains away later in the session. If we see that action we will tend to stay away from gaps higher and wait to see how the stock closed on the session. ASPM managed to hold the gap higher, but it was selling back all session. That is not one you want to venture into.
If the market is not extended and a stock makes a break from a good pattern, gapping higher on some news or just a lot of buyside interest (that happens when the sellers are shaken out and insitutions want into stock) we sometimes jump in, but if it is a big gap a stock will usually come back to test the prior session high, the close, or the gap up point. If any of those hold and volume is tracking well, we will start a position. Not a full position, but a partial. Then we will see if it performs. If it does we will look for the next buying opportunity, e.g., a test of the breakout move, to complete the position.
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: ALT; CSTL; DVA; STX
New Plays:
Play Date: 07/16/2003
BDY (Bradley Pharmaceuticals--$18.07; -0.61; optionable): Drugs
http://biz.yahoo.com/p/b/bdy.html
STATUS: Testing the breakout. Monday BDY exploded out of a long, 16 month base, shooting higher on strong volume. In the market pullback Tuesday and Wednesday BDY fell back on lower volume. It is holding the breakout right at 18, the Wednesday volume coming in well below average. While you don't like to see a breakout turn back so quickly, the action given the market is not too bad. The base is a long one with very good 18 to 5 accumulation (18 up weeks on rising volume to 5 down weeks on rising volume). Relative strength broke out on the move, a good sign of strength. Now we wait and see if BDY can hold the breakout over 18 and then rally back on stronger volume.
Volume: 203.3K Avg Volume: 250.409K
BUY POINT: $19.06 Volume=376K Target=$22.88 Stop=$17.73
POSITION: BDY JW - Oct. $17.50c (60 delta) &/or Stock
http://www.investmenthouse.com/ci/bdy.html
Play Date: 07/16/2003
IMAN (Imanage--$5.23; +0.33; no options): Internet software and services
http://biz.yahoo.com/p/i/iman.html
STATUS: Cup w/handle. IMAN is working in its own cup with handle, a 15 month base with solid 15 to 10 accumulation. It has spent the past three weeks forming a handle, the lateral and slightly lower move that shakes out the last sellers as they get frustrated the stock has stopped its forward progress. On the pullback it tapped the 18 day MVA (4.83) and held that level on the low. It announced earnings after the close and was moving up on solid volume ahead of that announcement. The move started to break the stock out of the pattern, relative strength breaking out as well, following some strong money flow. After hours IMAN was trading higher, and we are looking to get in on a further breakout.
Volume: 219.42K Avg Volume: 163K
BUY POINT: $5.38 Volume=244K Target=$6.88 Stop=$5
POSITION: - Stock (no option chain)
http://www.investmenthouse.com/ci/iman.html
Play Date: 07/16/2003
MDP (Meredith Corp.--$46.3; +0.14; optionable): Newspaper publishing
http://biz.yahoo.com/p/m/mdp.html
STATUS: Cup w/handle. May not be all that sexy, but a very nice 8.5 month base showing excellent 8 to 3 accumulation. MDP has spent the past two weeks moving laterally over 46 in a very tight, flat range. The 10 day MVA (45.73) is rising up to meet the stock, and after a move higher such as MDP gave from June to early July to complete the base, this nice flat lateral move uses the 10 day MVA to launch a new run. Excellent money flow is leading the way and now we wait for a breakout.
Volume: 182K Avg Volume: 226.961K
BUY POINT: $47.12 Volume=340K Target=$56.55 Stop=$45
POSITION: MDP II - Sept. $45c (71 delta) &/or stock
http://www.investmenthouse.com/ci/mdp.html
Play Date: 07/16/2003
XMSR (XM Satellite Radio--$13.1; -0.04; optionable): Satellite radio
http://biz.yahoo.com/p/x/xmsr.html
STATUS: Cup w/handle. Moving in a 16 month base showing solid 17 to 11 accumulation. XMSR tested the 50 day MVA (11.06) in late June and rallied to 14. It is now moving back to test 13 on lower, below average volume. Strong money flow and relative strength in the base. XMSR just inked a deal with Infiniti to put its radio as standard equipment in new vehicles, and our surveys of auto dealers indicate that those getting the option are renewing at a high percentage after the 90-day trial period ends. Looking for a strong volume breakout.
Volume: 2.766M Avg Volume: 7.247M
BUY POINT: $14.25 Volume=11M Target=$17.25 Stop=$13.12
POSITION: QSY JC - Oct. $15c (47 delta) &/or Stock
http://www.investmenthouse.com/ci/xmsr.html
End part 1 of 2
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