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7/31/03 Investment House Daily
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Investment House Daily Subscribers:
MARKET ALERTS:
Target hit alerts issued Thursday: None issued
Buy alerts issued: GMR; BEAS; MERX; VVTV
Trailing stop alerts: C
Stop alerts: None issued
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. To subscribe to the Daily alert service you can sign up at the following link:
http://www.investmenthouse.com/alertdly.htm
SUMMARY:
- Economic data spurs rally, but fear of economic data fuels reversal.
- Jobless claims, GDP, Chicago PMI continue improving economic data.
- Indexes unable to breakout from ranges.
Slumbering market awakens but then falls back into bed.
Another wave of improving economic data had stocks ready to run out of the gate. They did run, but as we noted in the early alerts, the action was not runaway to the upside. The first wave sold back rather quickly, and though the following run held up better, breadth was lackluster. Volume was also not shooting higher. The market was set up to rally, but the move made did not have a lot of power behind it.
Though gains were up in the 2% range for the indexes, they could not punch through resistance at the top of the range. They held the second attempt at resistance much of the session, but without the strong buyside breadth and volume they balked at a breakout. Then there was an afternoon round of nervousness about the Friday jobs report. Floor traders mentioned that to us a few times in the afternoon as investors were concerned the jobs report would not be strong enough. They are right as it probably won't be because it should be too early to see any significant improvement.
With the bond market selling off again and OPEC keeping production level, sellers tried to take the gains back. They did a good job of it as volume, running a bit higher all session, picked up the pace as the afternoon selling progressed. Many stocks gave back some good moves, but many also held onto their breakouts. It looks as if Friday is going to be another piece of the puzzle as to whether the market is ready to make a breakout or not. It should look ahead of the jobs report and focus instead on the weekly jobless numbers, ISM, etc., but the Thursday action indicated it was not yet ready to do that again as it did on the earlier rallies.
THE ECONOMY
Jobless claims sub-400K for second straight week.
Three weeks of better than expected jobless claims, the last two less than 400K, continue the slow improvement in the layoff arena. When jobless claims get below the 400K level, that indicates that the jobs market is no longer contracting. Indeed, at least one very smart economist (Westbury) claims that with the current population demographics, 480K should be the demarcation point for a recession. If that is the case things are getting much better. We are not ready to join that chorus but will say that the bleeding in the jobs market appears to have stopped for now, and that is the first step to a turn in jobs. The 4-week average is still above 400K (408,750), but is edging in the right direction.
Q2 GDP indicates economy on track for 4% second half growth as businesses start to spend.
2.4% in Q2, well ahead of the 1.5% expected and 1.4% in Q1, and the strongest since a 4% reading in Q3 of 2002. The overall number was not the 3% level needed to spur job growth, but the details in the report were very encouraging and at the same time showed the overall number was somewhat inflated.
Consumers continued to spend with consumption growth up 3.3%. That is good. It is also good (indeed, excellent) that business spending showed its strongest increase in over 3 years. Nonresidential fixed investment (used as a business spending proxy) jumped 6.6%, the strongest since Q2 of 2000. What was going on then? The 'white hot' economy was still in place. Equipment and software investment surged 7.5%, and that too was the strongest growth rate since Q4 2002. Business investment in structures rose 4.8%, the first gain since a 3.6% bump in Q4 of 2002. What was really neat was that inventories were quite low and did not contribute much to the rise. That indicates that there will be the need for more production in Q3 and Q4, and that will further fuel a recovery.
The flip side is the huge surge in government defense spending, up 25.1% annualized due to the Iraq war. That pushed the number up but we also remember how the war nearly shut down consumption for both consumers and businesses. To see these strong increases in the same quarter even with the war malaise is quite promising. With the tax incentives still coming to consumers and with businesses still just waking up to the slew of tax incentives to buy, there is still more consumer and business consumption to come regardless of what the consumer sentiment numbers show.
Chicago PMI cruises past July expectations.
The Midwest industry measure rose to 55.9 from 52.5, better than the 53.8 expected. That marks the third month in a row above 50 after a 2-month dip below that level during the hype heading into the war. The employment sub-index rose to 46.0 from 43.8, still showing contraction, but at a slower pace. Production rose to 58.4 from 56.5 in June, indicating that manufacturing is slowly recovering from its 3 year+ recession.
Most important will be the national ISM out at 10ET Friday. The national number tends to lag the regional indexes, and it has now had two months of improving regional numbers to pave the way. Expectations are for 52.0 reading, up from 49.8. That would mean the national manufacturing picture is expanding once again to go along with the surging service sector that has already hit 60.
THE MARKET
The indexes were set up to try the breakout and they did. They simply did not have enough push behind them. Nasdaq ran to near resistance as did SP500 while DJ30 made a run at the June high. None of them punched through. Indeed, the afternoon collapse lower was rather spectacular as indexes gave back nearly 2% gains to close marginally higher.
Never good action to see indexes rally to resistance and then reverse on rising volume. The result does not suggest a complete washout, however, as the indexes remain in their ranges and show nice dojis in the range. They can still rise off of these patterns but will need some improving jobs to give them a push.
Market Sentiment
VIX: 21.24; +0.52
VXN: 31.22; +0.36
Put/Call Ratio (CBOE): 0.68; -0.12
Nasdaq
Surged past near resistance, tapped at the next level, and then retreated as volume moved up to average.
Stats: +14.11 points (+0.82%) to close at 1735.02
Volume: 1.859B (+21.59%). Significant surge in volume. It was running higher on the early gains, but it held in there in the afternoon selling.
Up Volume: 1.333B (+822M). Up volume still maintained a strong lead even in the afternoon selling.
Down Volume: 508M (-490M)
A/D and Hi/Lo: Advancers led 1.43 to 1. Even on the session highs breadth never crossed the 2:1 level. Not the broad strength you want to see on a surge that clears out resistance. And, of course, it did not clear resistance.
Previous Session: Decliners led 1.25 to 1
New Highs: 263 (+68)
New Lows: 8 (0)
The Chart: http://www.investmenthouse.com/cd/$compq.html
Ran past 1740 resistance and tapped 1760 resistance on the high (1757) and then fell back for what would have been a decent enough gain but for the fact it gave back 22 points in the afternoon. Volume was up as Nasdaq held in mid-range, the candlestick pattern a tight doji. As the index continues to move laterally and holds its positions we don't view this as a major tragedy. These trial runs that leave this candlestick pattern often are just that. Nasdaq remains in its 1700 to 1776 range and we will see if the buyers can step back in and drive stock prices back up from here if the economic data continues to please.
S&P 500/NYSE
Same story, rallying to near resistance and giving it all back on a big volume surge.
Stats: +2.82 points (+0.29%) to close at 990.31
NYSE Volume: 1.603B (+18.29%). Volume surged above average on the session as large caps rallied but then rolled over.
Up Volume: 944M (+407M)
Down Volume: 652M (-147M)
A/D and Hi/Lo: Decliners led 1.09 to 1. Weak and never moved much past 1.61 even at the session's best levels. Without that broad participation on a renewed rally attempt, the odds of success drop off.
Previous Session: Decliners led 1.07 to 1
New Highs: 195 (+56)
New Lows: 54 (+21)
The Chart: http://www.investmenthouse.com/cd/$spx.html
Tapped near resistance on the high (1004) and retreated to hold right at the 18 day MVA on the close. Still well entrenched in the 975 to 1015 range, showing a very tight hammer doji of its own.
DJ30:
Stats: +33.75 points (+0.37%) to close at 9233.8
Volume: 1.603B (+18.29%)
Blue chips rallied to breakout levels on the high (9361), clearing 9353, the June intraday high. It could not hold the move and gave basically all of the gain back as volume for blue chips jumped to just above average. It is still holding the short term MVA on the close. It is still poised for a breakout, and now we will see if the news is strong enough to send it to a break higher that holds.
FRIDAY
All eyes are on the July jobs report, but the ISM is more relevant at this stage. The market is set up to move but it needs more of a push. Thursday it showed it was not ready, and we are not expecting a favorable surprise in the jobs report. If it comes in as expected and the ISM at 10ET is strong, then perhaps the buyers will start pricing in the recovery again.
We have been moving into positions as they showed the buy signals and we continued that Thursday. Friday morning could be a bit wild with the jobs report before the open, Michigan sentiment right after, and the ISM 15 minutes later. We are going to let that action move through the chute and see how the indexes emerge. Friday should tell us more about the market's near term direction, most particularly whether it is ready for the breakout or it is going to slumber some more inside its trading range.
Support and Resistance
Nasdaq: Closed at 1735.02
Resistance: 1740 is first resistance. 1760 (May 2002). 1800.
Support: The 18 day MVA (1713). 1700 (Feb 2002 low). 1685 (June intraday high) and June closing highs (1677 to 1645). The exponential 50 day MVA (1653). 1600 to 1595 (June 2002 closing high). The mid-May high (1554).
S&P 500: Closed at 990.31
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 (976) and 965 (August 2002 peak). The mid-May high (948) and 935 (November and January peaks).
Dow: Closed at 9233.80
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 (9169). The 50 day MVA (9024). 9000 is some psychological and price support that has held previously. 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): Showing improvement but business capital investment still weak.
7-31-03
Initial jobless claims (8:30): 388K actual, 400K expected, 391K prior (revised from 386K).
Q2 advance GDP (8:30): 2.4% actual, 1.5% expected, 1.4% Q1.
Chicago PMI, July (10:00): 55.9 actual, 53.8 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): 10K 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): 90.5 expected, 90.3 preliminary.
ISM Index, July (10:00): 51.9 expected, 49.8 June.
Construction spending, June (10:00): 0.4% expected, -1.7% May.
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