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world stock market, us stock market
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7/23/03 Stock Split Report Update
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Stock Split Report Subscribers:
MARKET ALERTS
Targets hit alerts issued Wednesday: TSCO and CECO exploded higher but we decided to let them run given the powerful advances.
Buy alerts issued: MXO; WWCA; FLSH; ETN
Trailing stops issued: None issued
Stop alerts issued: SSTI; RCNC (after gain took the rest off the table as it fell)
The market alert service is a premium level service where we issue intraday alerts relating to the general market conditions, when stocks hit action points (buy, stop, target, etc.), and when we see other information impacting the market or our stocks. You can sign up for Stock Split Report alerts at the following link:
http://www.investmenthouse.com/alertssr.htm
SUMMARY:
- Market bounces of support in afternoon session to continue the consolidation.
- Fed repeats it stands ready to cut rates to 0% if necessary.
- Price/volume action continues to improve as indexes prepare for the next move.
- Subscriber Questions
Market finds some buyers on its own.
There was no real economic news, and the strong AMZN, CECO and other earnings were again not enough to spur the overall market to gains. Indeed, after another small pop at the open the indexes were back in the red within an hour. A Fed governor came out and said that the Fed stood ready to beat back any deflation and that helped rally bonds some, but stocks took no comfort from talk of cutting rates to zero. AMZN lit a fire under some internet stocks and the chips were trying to rally again, but the market was drifting.
In a return to its prior form, the market found bottom just over near support and then started to rally right after lunch. There was no real catalyst, just buyers coming in and buying stocks. By the close all indexes had turned positive, Nasdaq posting a 0.8% gain on rising volume. It was no blowout, it was no clear return to buying. Indeed it was simply a move up in the trading range with some positive attributes, mainly the rising volume as investors looked at chips, retail, gold and other cyclicals.
The fact that investors are moving toward retail, paper, MMM as the leading sectors pullback and the market works laterally is a clear signal of rotation. This is where some money is taken out of leaders and moved into other areas that are promising; cyclicals are promising because they represent economic growth vehicles and when they perform that is another signal of economic recovery to come. Even as money moves into other areas, however, we note that the leaders are not all rolling over and dying. They are pulling back to test support at prior price tops or the 50 day MVA, or are otherwise forming new bases as the sellers are weeded out and the foundation is built for the next move higher.
This rotation coupled with the lateral market move and new base forming by leaders is the most positive development we have seen in the market since the April breakout from the January to March base. Off of the October low the market would rally and then go into a more prolonged resting period where the sharp gains were digested and more bases were built. Starting with the April breakout, Nasdaq in particular took off and rallied 350 points (25%) with just very short term rests in between. It got extended and needed to rest. It could have slipped off the bar and fallen hard, but instead it and the rest of the market is moving more or less laterally and holding onto those gains.
A market that is stingy with its gains when it consolidates is a market that typically has more rallying to do once the consolidation is over. This move has developed well with DJ30 and SP500 starting it back in June. Now Nasdaq has pulled back and is holding near the June highs, a natural support level. Price/volume action has improved the past week as the action settles into a routine. It looks boring and frustrating. In the bigger picture it is really what the market needs and just what we have wanted for the past month or so to get this market back in a pattern where it does not get so extended that it rolls over head first when it does take that inevitable pullback. Earnings thus far may not have been good enough to drive the market higher given the strong run thus far, but the earnings are showing investors they need not fear an earnings collapse.
THE ECONOMY
Fed governor says Fed 'not done yet.'
Further signs the Fed is sticking to its script regarding disinflation emerged again Wednesday as a Fed governor stated the Fed would cut to zero if it had to and that it would also use other methods (e.g., buying longer term treasuries) if cutting to 0% did not produce the desired results. It was reiterated that the Fed had a priority in preventing disinflation or deflation though he echoed Greenspan in saying the possibilities of such are remote.
It is comforting to know the Fed is so intent on the job. It reminds us of someone who screwed up on the job and cost the company a bundle and is now slobbering all over the boss with newfound attentiveness and concern about getting the job done right. The Fed screwed up, pure and simple. It purposefully set about to stall an economy that had nothing wrong with it. As it has every time in the past, and with frightening parallels to the 1929 Fed as we noted back in 1999, it overshot its mark and did severe damage. Now it is trying to impress anyone who will listen with a lot of polysyllabic words about the economy and how it will do whatever it can within its power to get the economy back on track. Of course, there would be no need to rebuild the house but for the Fed burning it down in the first place. Of course, no admission from the Fed that it was horribly wrong in its assessment of the economic conditions and where the US was in the lifespan of its economic boom. It was much more fragile than the Fed thought (does the phrase 'white hot economy' ring a bell or make you want to puke?), and the crash could not have come at a worse time for an aging US population.
Mortgage demand hits a 3 year low.
Down 5.4% last week to early May levels. Refinancing, the key to the housing market, was down 7.2%. With rates rising higher and higher, you can expect the refinancing market to dry up after the last surge on fears rates are rising, run out. Thus the housing market will cool off though not collapse. It will be, as it has been all along, up to the business sector and the consumer to pull the economy out of trouble. As we have said before, the success of the tax cuts remains to be seen.
THE MARKET
As the market moves into a more full blown consolidation move some of the more bullish features are returning. Wednesday stocks took an early dip in the morning session, but stabilized and then rallied nicely to the close. Coupled with that the price/volume action the past few days has improved as well, i.e., volume falling as stocks fall, rising as stocks rise. Indeed, Nasdaq volume moved back above average as that index managed to recover from a 1% loss to a 0.8% gain.
As noted, rotation is occurring, and that is one of the signs of a healthy market. No one has a crystal ball of the future, and guessing the Dow will be at X and the Nasdaq at Y six months from now is in our view just that. The worst thing you can do is think you are smarter than the market and can predict what will happen. You have to read the signposts the market leaves and let them guide you and put your emotions and thoughts about the emotions of others aside. After all, the market shows that emotion in its actions; there is no need to guess about it. Sometimes even though you move ahead you still have to slow down when the conditions warrant. There are not maps where we are going, just where we have been. That means we have to be observant every day to what the market tells us. With the current lateral moves, leaders holding up and forming new bases, others trying to breakout and become leaders, rotation, and price/volume action, the signs are pretty good in the bigger picture. During the consolidation, however, this is one of the times that, while we still move ahead, we have to slow down in our investing and choose those stocks that are exerting leadership credentials. When the next breakout comes there will be a rush to the upside as quality stocks start the next leg. At that point things will get feverish once again.
Market Sentiment
Weekly bulls/bears investment advisor stats were released Wednesday. Bulls fell to 55.2% while bulls climbed to 19.8%. Still too high and too low by historical standards, but as we wrote Tuesday, there are many 'investors' from 1998 to 2002 that have not even considered coming back to the market at all. Eventually they will, and that is where the fuel to drive the market higher comes from.
VIX: 20.44; -0.54
VXN: 30.79; -1.66
Put/Call Ratio (CBOE): 0.85; +0.06. Like to see the ratio rising higher even as the market reversed and rallied off the session lows.
Nasdaq
After tapping the June highs to start the week, techs have bounced on the back of semiconductors and internets.
Stats: +13.08 points (+0.77%) to close at 1719.18
Volume: 1.839B (+4.68%). Volume turned back up above average as stocks rose on rising volume, a nice return to positive day to day action.
Up Volume: 1.044B (-219M)
Down Volume: 784M (+306M)
A/D and Hi/Lo: Advancers led 1.23 to 1. Very modest as the smaller issues did not participate much.
Previous Session: Advancers led 1.92 to 1
New Highs: 172 (+49)
New Lows: 11 (+4)
The Chart: http://www.investmenthouse.com/cd/$compq.html
Nasdaq is turning back to more positive action with rising volume on up sessions and holding the first real support level at the June highs (1677 on the close, 1685 intraday). This indexes is nowhere near as far along as the large caps and blue chips in consolidating, but the question has to be asked, will it need as long? It has been the leader, and even when those indexes were topping in early June and starting their lateral moves Nasdaq was still moving higher, plowing new ground. It could come back, spend a week or so over support, and then run back up. That is not what we want to happen; it would be best for a nice lateral move to continue into August to work through some of the strong 25% move off the April breakout. Then when September and October come around and stocks are typically under more pressure, there won't be the sharp drop. Most importantly, stocks will already have been working on their bases, and any further pressure would just work to complete the moves and prepare for the next leg higher to end the year.
S&P 500/NYSE
Trading on the flat line on lower, below average volume as large caps continue a very nice lateral consolidation over support.
Stats: +0.5 points (+0.05%) to close at 988.61
NYSE Volume: 1.329B (-7.11%). Price/volume action continues to show the more positive tone with trade backing off as the index traded to a standstill. Sellers are not dumping shares as turnover slows while the large caps move sideways.
Up Volume: 648M (-408M)
Down Volume: 669M (+310M). A dead heat.
A/D and Hi/Lo: Advancers led 1.13 to 1. Reflects the action as well.
Previous Session: Advancers led 1.36 to 1
New Highs: 79 (+6)
New Lows: 11 (-19)
The Chart: http://www.investmenthouse.com/cd/$spx.html
Another test of support (975) on the intraday low (979.79) as SP500 continues on in the 6-week lateral move between 975 and 1015. Even the range is contracting, just what you want to see as a stock or index makes its consolidation. Again, that shows very little turnover; the market is not advancing but it is not selling either. Buyers are buying up what the sellers are selling, and it is not a lot of shares. A nice quiet consolidation lays the foundation for the next move.
DJ30:
Stats: +35.79 points (+0.39%) to close at 9194.24
Volume: 1.329B (-7.11%)
DJ30 and SP500 are twins, both moving laterally over near support (9000) and the 50 day MVA (8972) in a narrow range on declining volume. This is classic consolidation action that is quiet, takes its time, and clears out those not wanting to wait for the next move. Volume was lower as DJ30 recovered from negative to turn positive, but the session was not a breakout attempt, just a further move in the confines of the trading range (9000 to 9352). Thus we are not too concerned that volume slacked off on the bounce, and we are pleased with the way the move is progressing.
THURSDAY
Streams of earnings reports after the bell Wednesday and before the open Thursday. So many that you can hardly keep track of them. Again some are beating the street (SINA) while others are not. Those beating by wide margins are scoring gains while the others are holding more or less steady. That is the action the market is mimicking. It is clear that the market anticipated the earnings to be in line and maybe slightly better. Thus when those numbers hit the stocks are pretty much ignored. When they are missed, the stocks are hammered because they failed to meet expectations. To us we see the market having run well and now absorbing the news rather well, working in a solid consolidation just as we wanted a month back.
Even in the consolidation there are leaders. Makes sense as the market is still in an overall uptrend and the consolidation is a very nice lateral move. There will continue to be stocks that complete bases and then breakout as the market moves laterally. We saw chips, internets, some retail, some gold, some manufacturing making moves Wednesday. From each of these sectors as well as the rest of the market there are strong plays breaking higher. As noted above, we are not rushing into a lot of positions as the market moves laterally, but if we see the moves we will take some positions to take advantage of these stocks trying to assert early leadership.
Economic news makes a comeback Thursday with the weekly jobless claims as the primary focus. After a 412K reading last week economy watchers will be hot for another low number. Anything is possible, but the economy has not grown enough to substantially change the figures yet. The best we can realistically expect is no real change, and given the historical moves of jobs versus economic recovery, that would be right on track if this market and the regional PMI and ISM service numbers are indicative of the economic recovery. We don't expect this to be a market mover yet. The market has to get the consolidation through its system, and as we have seen, until it does individual news has some influence but it is not breaking it out before it is ready.
Support and Resistance
Nasdaq: Closed at 1719.18
Resistance: 1760 (May 2002). 1800.
Support: 1700 (Feb 2002 low). The 18 day MVA (1699). 1685 (June intraday high) and June closing highs (1677 to 1645). The exponential 50 day MVA (1634). 1600 to 1595 (June 2002 closing high). The mid-May high (1554).
S&P 500: Closed at 988.61
Resistance: The 18 day MVA (990). 1003, the early June closing high. June closing high at 1011. The June intraday high at 1015. Then 1050.
Support: 975 (December 1997 peak). The 50 day MVA (973) and 965 (August 2002 peak). The mid-May high (948) and 935 (November and January peaks).
Dow: Closed at 9194.24
Resistance: 9236, the early June intraday high to 9250. 9352, the June high. 9500 (June 2002 lows).
Support: The 18 day MVA (9122). 9000 is some psychological and price support that has held previously. 8980 is the neckline in the short head and shoulders pattern. The 50 day MVA (8971). January high (8870). The mid-May high at 8743
Economic Calendar
7-21-03
Leading economic indicators, June (10:00): 0.1% actual, 0.2% expected, 1.1% May.
7-24-03
Intial jobless claims (8:30): 415K expected, 412K prior.
7-25-03
Durable goods orders, June (8:30): 1.2% expected, -0.4% May.
Existing home sales, June (10:00): 6.00M expected, 5.92M May.
New home sales, June (10:00): 1.111M expected, 1.157M May.
SUBSCRIBER QUESTIONS
Q: I have heard that insiders are selling shares in record numbers and that this has bad implications for the market down the road. Is there any truth to this?
A: Insider trading is one of the most discussed 'insider' market indicators there is. First Call tracks insider sales and we recall First Call stating early this year that insider selling was increasing and thus they were, once again according to Maria B, turing bearish on the market. Of course the market ran right up through that selling and has continued to do so.
The theory is rather simple: corporate insiders know more regarding the company prospects than any 'outsider', and thus there sales are a harbinger of things to come. If they are selling they know something we don't and we had better heed the sales. There is some historical backing for this as some studies show the market struggles a year or so after widespread insider selling.
There are a world of caveats. First, sales by individual execs or execs from just a few companies do not tell much of a story. You are assuming they are selling because business is bad. You are also assuming they know. Ken Lay of Enron hung onto his shares even as things collapsed; while this is the reverse case, assuming a selling exec knows for certain what is going to happen is risky. Second there are often other reasons for hefty sales. Many sell regularly to diversify (Gates, Dell), others to pay for college tuition, etc.
Some are pointing to the high sales and lack of buying by insiders at specific companies such as EBAY. 2 million shares sold since April 30 versus no buys. The stock hit 90 in April on good earnings and has since run to 115. That is coming off a low of 50 in October. Could it be that insiders who rode the stock lower during the correction were taking in some of the 100% gain since then? Indeed, after a long bear market, after insiders bought stock like crazy after 9-11 with the relaxed rules, they are selling for some big gains at the first real chance they have had. It has been a long drought and with all of the negative commentary about how the market is in a bear market rally, that sentiment is too high, etc., they are taking some big gains, the first opportunity in years. Indeed, the selling has not slowed the stock short term. Could it be that the EBAY insiders are taking advantage of the market rise and selling high after learning opportunities may be fleeting as after the bust?
It is not a great idea, therefore, to base our decisions on the decisions of management. On some of the reports EBAY has made us another 25% during that time. If there is an effect, history suggests it is 10 to 12 months down the road. That is assuming insiders sold because of slowing business or a knowledge that a price increase in stocks was unsustainable based on business. The most reliable is widespread insider selling with no buying. Even if we see that, it is hard to base investment decisions on that other than to sit it out. Keep it in mind but look to the market signposts that are much clearer as to when the market and stocks are in trouble. They are ma much easier read than trying to understand why insiders sold a stock that advanced 130% 9 months. Put that way, it does not seem that hard to figure out; buy low, sell high after a great run seems to answer the question near term.
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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