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us stock market, trend trading stock
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7/29/03 Stock Split Report
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Stock Split Report Subscribers:
MARKET ALERTS
Targets hit alerts issued Tuesday: CELL (announced a split and surged!)
Buy alerts issued: TYL
Trailing stops issued: None issued
Stop alerts issued: GGNS; ACS
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:
- Stocks rebound from early jolt to hold range as rumor mill churns again
- Consumer confidence rattled by jobless rate.
- Volume edges higher as stocks survive a volatile session.
- Subscriber Questions
Confidence down and stocks follow.
An early test higher was thrown back when July consumer confidence numbers came in well below expectations. While a jolt to the indexes, all managed to hold well above near support and bounced back. Some recovered better than others (e.g., Nasdaq, SP600), but all settled lower less than 1% (as usual, SOX led to the downside at -1.9%). Volume edged higher on both Nasdaq and NYSE but remained below average.
It was a volatile session from minute to minute with unusual swings over short periods. Instead of a steady move up for an hour then a move back for an hour there were 3 to 5 point jumps back and forth on Nasdaq over 5 minute and less intervals. That is classic consolidation action and signals buyers and sellers locking horns and really getting after it. In the end there was no real winner. The indexes finished lower, but if someone had yelled 'buy' in the last 5 minutes they would have finished positive.
Indeed, the rumor mongers were out again, another sign of a consolidating market. After the early plunge on the confidence numbers yet another rumor circulated suggesting that Hussein had been captured. There was the faintest color of truth to the rumor as it turned out Hussein's body guard was taken but no Hussein. The rumor caused a wave of short covering as no one wants to be short on that news. That drove stocks off their lows but it was not enough to reach a new session high, and once the rumor was exposed by fact stocks started to fade again. Never made it back to the lows, however, as the sellers saw what could happen if Hussein is captured over the next few days, something that many people with knowledge feel is a real possibility. In sum, the sellers made a run at the market on the confidence numbers, but they were not strong enough to break support or even finish at the lows. Thus the consolidation continues.
THE ECONOMY
Confidence shows lowest reading in 4 months.
July confidence fell to 76.6 versus 85.0 expected and 83.5 in June. Talking to sources that helped compile the numbers, they indicated that the problem was the jobs report for June that showed the rising unemployment figures. That was the primary driver behind the reduced current and expectations readings. They also pointed out that the numbers were compiled prior to the recent two weeks of lower weekly jobless claims and that some of the polling over the last two weeks shows improvement. Still, it is the problem of those entering the job market and not finding jobs that is having a negative impact on sentiment faster than we anticipated. We felt that those figures would be reflected in the next report, but the disappointment is already in the current report.
This report flies in the face of several other polls that have shown confidence holding up despite the rising unemployment figures. In fairness, however, those reports measured a wider range of economic conditions as opposed to the rather straightforward Conference Board survey of 5000 households that focuses on jobs. As we know, jobs are one of the last areas to recover in an economic upturn. There was a lot of hope that things were getting better on the jobs front, but in reality, even if the current reports of an improving economy are correct (stronger regional manufacturing, indications of business investment, services sector expanding), jobs won't start coming back until year end.
Thus a further worsening of the unemployment report as the labor secretary pointed out as well as an accompanying worsening of confidence are consistently normal in the early stages of a recovery. The consumer does not see improvement on the jobs front. It takes a real recovery in the business side to start creating new jobs and getting companies confident enough about the future to rehire. That takes time in a recovery, and unfortunately we are still in the early stages.
All in all, while disappointing to see consumers less confident, we don't take this as any setback to the recovery. Consumers say one thing and then do the other; that is one other item that history shows. Moreover, a recent survey by the National Federation of Independent Business showed the percentage of small business owners expecting the economy to improve over the next six months is matching its highest ever reading. These are the businesses that supply most of the US jobs. If they are feeling better about the economy, then the spending and other investment necessary to create jobs is already starting.
You won't hear that in the shrill comments made for political advantage after these numbers, but that is what happens. Back in 1991 that recession was labeled by some as the worst recession since the Great Depression (it was the mildest) even as the economy was showing the same clear signs of recovery we are seeing in the current economy. No doubt the current report will be distorted, but as we saw from the market's reaction, it was not something that exploded the market down through the bottom of its range.
THE MARKET
The market received some bad news but the news did not wreck the consolidation. Volume was higher but did not soar. Indeed, much of the volume came in as shorts covered their positions on the Hussein capture rumor as opposed to the early and late selling. Given the news and the hullabaloo it was received with, the reaction was quite mild.
Over the past few days we have started to see Nasdaq and the smaller cap issues start to outperform once again. They led the move higher, then after peaking in early July started to lag as money moved from those issues and rotated toward cyclical stocks that populate the DJ30 and mainly large cap indexes. Now we see them coming back and performing better relative to the other indexes. They are not blowing things out of the water during this week but they are holding their ground after selling back. That does not mean go out and load up on small caps and techs stocks, but it does suggest that the money has started to rotate in a complete circle, and that often means a consolidation is running its course.
Market Sentiment
VIX: 20.23; +0.3
VXN: 30.16; -0.24
Put/Call Ratio (CBOE): 1.01; +0.33. This has been a pretty reliable indicator for bounces in Nasdaq and the market in general when it closed well over 0.90.
Nasdaq
Sold rapidly on the confidence news, gapping lower and then running down further. It still held support and rebounded, however, and on just marginally higher volume.
Stats: -3.99 points (-0.23%) to close at 1731.37
Volume: 1.716B (+11.27%). Volume was up on the modest drop, but still below average. With the nice intraday recovery off of a 10 day MVA test, the rising volume was not bad at all. Further, as noted, a lot of volume came on the short covering after the initial selloff.
Up Volume: 757M (-142M)
Down Volume: 938M (+378M)
A/D and Hi/Lo: Decliners led 1 to 1 (5 more issues to the downside). This was a nice recovery, and Nasdaq breadth was never really bad.
Previous Session: Advancers led 1.55 to 1
New Highs: 227 (-23)
New Lows: 13 (+2)
The Chart: http://www.investmenthouse.com/cd/$compq.html
Gapped slightly higher on some improved futures, sold off just below the 10 day MVA on the low (1713.21), and then made a nice rebound to close almost flat for the session. That kept techs in the heart of their range from 1677 - 1687 to 1776. It also showed investors willing once again to enter techs on a pullback and perceived better entry point. While Nasdaq has just recently started to move laterally to consolidate its gains after moving off its highs, the intraday action and the put/call ratio puts us on alert that the index may try a run at the top of the range.
S&P 500/NYSE
After edging back up to 1000 Friday, large caps are sliding back to test toward the bottom of the range again as the trading range tightens up.
Stats: -7.24 points (-0.73%) to close at 989.28
NYSE Volume: 1.412B (+9.72%). Rising but still below average as large caps tested toward the bottom of the range and then rebounded to recoup some of the losses.
Up Volume: 447M (-203M)
Down Volume: 955M (+330M)
A/D and Hi/Lo: Decliners led 1.6 to 1. Hit -2:1 on the worst levels of the session but recovered nicely.
Previous Session: Decliners led 1.16 to 1
New Highs: 139 (-45)
New Lows: 56 (+20)
The Chart: http://www.investmenthouse.com/cd/$spx.html
The large caps continue their lateral move between 975 and 1015. Friday the index tapped at 1000 and is again testing lower in the range. On the Tuesday low it tapped 984, well above the bottom of the range, and rebounded to recoup some losses. The ranged appears to be narrowing on the move as the highs are a bit lower and the lows a bit higher. That does not guarantee anything, but it is just one of the indications during a trading range that shows the range is doing its job, i.e., stocks are weeding out the sellers and setting the foundation for the next move higher. It most likely is not there yet, but it is getting closer and looking solid as it does.
DJ30:
Stats: -62.05 points (-0.67%) to close at 9204.46
Volume: 1.412B (+9.72%)
The blue chips continue to look really good in their consolidation, better than the large cap SP500 and Nasdaq. It ran right up to the breakout point from the range (9353) last Friday and has edged back. Tuesday it tested the 18 day MVA on the low (9168) and then managed to regain some losses. Not all of the losses, but a nice recovery form a test of the mid-range. If it makes a higher low here it stands ready for a breakout from the range as it has made a series of slightly higher lows over the past three weeks to match some slightly higher highs. It is ready for the move, but it still has to make the breakout.
WEDNESDAY
We have to wait another day for the next interesting piece of economic data (Chicago PMI), so Wednesday will be driven by the remaining earnings and the market itself. Despite all that is being said about what the market is doing, the market continues to work at its own pace. As noted, smaller caps are starting to show relative outperformance again, and that indicates money is starting to flow their way after the cyclical stocks enjoyed some gains. Techs as well are starting to show some money flow back into them again.
As said before, we like the lateral move as it was necessary to consolidate the gains to this point and set the foundation for the next move higher. When the breakout comes remains to be seen. Generally better than expected earnings could not do it nor could improving economic data. With the jobs report, personal income and spending, and the ISM coming out on Friday, we may very well see continued lateral moves ahead of the numbers. Once expectations are replaced by fact then the market will most likely show its hand.
Despite faint signals, we see the economy making the type of improvements that historically show a recovery is underway. The market sees this as well as it has rallied, is consolidating, and has not sold off on some harsher consumer sentiment news. That is why we continue to open positions as stocks in good patterns make solid breaks higher. They are trying to lead even as the market consolidates and can become solid leaders when the market breaks higher. We are moving slowly, starting some positions here and there as the moves are made. Then when the market breaks higher we add more positions. If it does not then we close the partial positions taken. Given what we are seeing in the market we take positions in anticipation of a breakout to the upside.
Support and Resistance
Nasdaq: Closed at 1731.37
Resistance: 1740 is first resistance. 1760 (May 2002). 1800.
Support: The 18 day MVA (1709). 1700 (Feb 2002 low). 1685 (June intraday high) and June closing highs (1677 to 1645). The exponential 50 day MVA (1647). 1600 to 1595 (June 2002 closing high). The mid-May high (1554).
S&P 500: Closed at 989.28
Resistance: 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 (975) and 965 (August 2002 peak). The mid-May high (948) and 935 (November and January peaks).
Dow: Closed at 9204.46
Resistance: 9236, the early June intraday high to 9250 is cracked but is being tested. 9353, the June high. 9500 (June 2002 lows).
Support: The 18 day MVA (9157). 9000 is some psychological and price support that has held previously. The 50 day MVA (9008). 8980 is the neckline in the short head and shoulders pattern. January high (8870). The mid-May high at 8743
Economic Calendar
7-29-03
Consumer confidence, July (10:00): 76.6 acutal, 85.0 expected, 83.5 June.
7-30-03
Fed Beige Book (2:00)
7-31-03
Initial jobless claims (8:30): 400K expected, 386K prior.
Q2 advance GDP (8:30): 1.7% expected, 1.4% Q1.
Chicago PMI, July (10:00): 53.7 expected, 52.5 June.
8-01-03
Personal income, June (8:30): 0.3% expected, 0.3% May.
Personal spending, June (8:30): 0.4% expected, 0.1% May.
Non-farm payrolls, July (8:30): 5K expected, -30K June.
Unemployment rate, July (8:30): 6.3% expected, 6.4% June
Hourly earnings (8:30): 0.2% expected, 0.2% June
Average workweek (8:30): 33.8 expected, 33.7 June
Michigan sentiment revised, July (9:45): 90.7 expected, 90.3 preliminary.
ISM Index, July (10:00): 51.5 expected, 49.8 June.
Construction spending, June (10:00): 0.4% expected, -1.7% May.
SUBSCRIBER QUESTIONS
Q: I have one technical question for you if you have the time. On several stocks, the candlesticks on the chart will have a small candlestick with a large extended wick. These are red in color. They are a gap up and then the price recedes. What is up with this candlestick and what does it mean and what action is usually required when this happens, buy, hold or sell?
A: The candlestick symbol to which you refer may mean a reversal if it is at the top of a run. The gap up, then recession from the high and lower close (long wick), means sellers pushed the stock back down but then buyers rallied it back up to the close and hence the smaller candlestick body and the long wick. This creates something called a doji, and as noted, it can mean a stock is ready to pullback after a run higher. This situation at the top of a rally up can mean the sellers might win out--at least temporarily--for a price drop. The buyers gapped it up, but they lost control and the sellers pushed it back down. The buyers then came back in and drove it up though they did not recover the open price. After a strong move up this shows the sellers starting to flex some muscle as now they are catching up to the buyers.
As to what action should be taken, it is very important to understand that candlesticks are momentum indicators and dojis are the swing candlestick symbol that indicates the momentum may have shifted from the existing trend either higher or lower. It is not an automatic indicator; it is a warning flag telling us to look at the volume and price action and just how far the stock has run. A stock can still move up or down in the current run even if a doji appears. Many times, however, particularly after a steady move, a doji is telling us to get ready for a shift in direction. In a strong trend that usually means a test back to near support or resistance (the former in an uptrend, the latter in a downtrend). In short term plays and option plays this is a very important indication if we our play has run to our target or a support or resistance level.
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 3
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