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us stock market, trade stock
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8/07/03 Stock Split Report
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Stock Split Report Subscribers:
MARKET ALERTS
Targets hit alerts issued Thursday: None issued
Buy alerts issued: IMAN. Getting bought by IWOV & we are trying to play the premium.
Trailing stops issued: Took some more gain off the table as stocks fall into bases. CHINA; WWCA; PIXR
Stop alerts issued: ZBRA
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 stage a modest rebound on some buoyant retail sales data.
- Same store sales stronger, guidance better, wholesale sales jump, jobless claims fall and productivity surges. The picture is clearer.
- No real buying to offset the earlier Nasdaq distribution.
Rebounding from the selling.
The economic data continued to come in better than expected, and that helped stocks recover some lost ground. It was not a huge move, there was not much volume, and breadth was weak. In short, this was no solid rebound where buyers were jumping in on lower stock prices. SP500 and Nasdaq both took a look at the 50 day MVA, but neither could break back over that level. They showed a spark of life with Nasdaq holding a tight range and showing a doji, but it has the look of an oversold move.
There was a lot of talk about how the economic reports had this time helped the market a bit as it managed to rally after the prior selling in the face of earlier good economic data. In reality the move was hardly spectacular and was not proportionate to the good news, but was just more of the same ho-hum attitude toward improving economic reports.
It is really no mystery as we discussed before. The market was anticipating this improvement back in October when it started the move and again in March when it broke out again. It was looking ahead to improvement and stocks rallied while the economy was still a big question mark. For all of those analysts that said the market would have to see actual economic improvement 'this time' before it rallied, you were wrong. The market moves while the end game is very much in doubt. Those same analysts are now perplexed as to why the market is not rallying on this good news. It makes for interesting listening but it has little relevance. The market moved in anticipation and now it is resting ahead of the next move. Questions swirl about how it is factoring in higher interest rates now, but looking at the market, it is not showing a major meltdown to this point, just a more orderly consolidation where buyers have backed off and sellers have entered, but neither have exerted much force. It anticipated the better economic news, and if this consolidation remains a good one on into September, it is telling us that it is not seeing a major problem.
THE ECONOMY
Productivity surges 5.7% (4.0% expected).
Q2 productivity grew at an annual rate of 3.8%, again showing that companies are starting to use that technology they bought in the late nineties and 2000, and continue to put the squeeze on existing workers. They can get away with the latter because of the job market and employee fear that if they complain they will be replaced. Kind of a reverse of the squeaky wheel gets the oil; in this case it gets the boot.
The productivity surge has led more than one commentator to guess it would take much more than the typical 3% GDP growth rate to create jobs, instead postulating 5% GDP growth would be necessary. If we get 5% GDP growth there will jobs everywhere. There will be jobs at 4% and at 3% growth.
Why? Because what happens when the economy grows at such healthy clips for an extended period? New companies form, more ventures are entered, new projects are born. In short, a growing economy creates new opportunities everywhere that businesses want to take advantage of. Regardless of computers and other productivity aides, those require more man hours. If you are already pushing your employees to the limit, they can only give so much more.
If the economy is growing that fast and there are now companies and new projects, there will be other companies looking at top employees from other companies longingly. They will start cherry picking. Employees that were afraid of losing their jobs if they said anything are now getting offers to leave or see other opportunity. Now the squeaky wheel starts getting grease, and that means more money and more help in the form of new hires. It may be great for the bottom line (and in reality, necessary) for a company to squeeze employees as much as possible in bad times, but when things improve they lose that ability. It was a boon to the bottom line while it lasted, but they will have to placate the current employees when times get better or risk losing them. That is costly in both lost expertise and in searching for, hiring, and training replacements. No jobs until the economy grows at a 5% clip? Nonsense.
Retail sales enjoy a great July.
Warmer weather and great sales brought out the consumer. WMT, ANN and others reported sales ahead of plan and increased guidance for the entire year. BBY surged almost 6 sticks on the same type of boom. Some were saying that the sales were helped by discounting summer clothing. Maybe that was part of it, but you cannot say that Best Buy was helped by sales on summer clothing; there are consumers out there buying. Kohls' (KSS) sold a ton of merchandise and cleared out the excess inventories.
Consumers are consuming. Despite the Conference Board's gloomy July sentiment report, particularly in present conditions, consumers bought the hell out of durable and nondurable goods in July. They say one thing, they do the other. What do you believe, what the consumer says or what the credit card bill says at the end of the month? One is fuzzy sentiment, the other is fact.
Wholesale inventories flat, sales surge.
Inventories were flat but sales jumped 1.5% versus 0.2% expected. Thus while you could argue that companies are not building inventories, it is clearer that they are selling down inventories rapidly and sales are jumping. That means more production. That gives more credence to the ISM numbers we have seen showing expanding production. The pieces of the puzzle continue to fall into place despite the naysayers. We hope that the doubters keep on doubting. We need them.
Jobless claims below 400K for the third week.
390K versus 395K expected and 393K (revised from 388K) the prior week. The 4 week average fell below 400K for the first time in 23 weeks (397,250). This is somewhat like determining if there is a bear market or bull market by a 20% gauge. It is too close to really make a difference in what you label it. The trend has been and still is, however, a stabilizing in the layoffs, and that is the first stage of a job market improvement. The economy is improving, layoffs are slowing, and then jobs are created. The economy is not there yet; it will take closer to the end of the year to see job creation. The economy is, however, on track to start creating jobs.
THE MARKET
The market rebounded some, but it was tepid. Techs suffered a selloff in the afternoon that hurt their run at the 50 day MVA. They had already failed two prior attempts, however, as techs remain in a struggle. The other large cap indexes managed to continue the drift higher into the close. The move, however, did not break resistance and it was no very low volume. Breadth was noncommittal.
That describes the action: noncommittal. There were no real buyers Monday, although there were more buyers than sellers as the market rose. It was not a surge of buyers coming back to the market after the pullback, however. On the flip side there were no sellers either. Outside of the large cap techs there has not been a lot of distribution. When the leading index in the rally distributes, however, that is not good for the market.
It would not be so bad if there was the rotation seen a few weeks back, and while DJ30 continues to hold up, it is not getting a surge in buyers. In addition, many leading stocks have really taken it on the chin. While retailers have formed some good patterns and are trying to make a break higher, internets, business equipment stocks, pharmaceuticals and HMO's are getting hammered. Many leaders have sliced through their 50 day MVA. That is a key level of support as institutions use that to step in and support a stock or buy cheaper shares if they are going to do it. If they don't and step in and sell their shares instead, that is obviously not a good sign.
With many strong leaders breaking down and the indexes failing to retake the 50 day MVA, the market is settling a bit more into a deeper consolidation. No major change in condition, just indicating that the rebound Thursday was not a lot to get excited about as leaders continued to suffer even as the market tried to rebound.
Market Sentiment
Bulls/Bears: Bulls fell to 51.5% while bears rose to 20.8%. That puts them back below and above, respectively, levels that indicate excessive levels. That is not to say the smoking light is on, just that there has been some improvement. We still say there is a whole nation of investors out there that were in the market during the last spurt to the peak and then the meltdown who have sworn off stocks. Wherever we go we are asked by many former investors 'how is the market doing?' They left the market, and despite a 40% run up in Nasdaq they have yet to feel the slightest compulsion to get back in. Those that are in the market may be bullish, but that was the case even as the market rallied in the early 1990's. It was not until the market exploded higher did they feel they were missing out and had to get in. That was the sign of a top. These masses are still out there that have a lot of money in money markets just sitting there.
VIX: 21.89; -1.41
VXN: 34.02; -0.4
Put/Call Ratio (CBOE): 1.02; +0.14. Back over 1.0, but that has not held the same rally potential as the market has settled back into the consolidation and is no longer running up in the March breakout.
Nasdaq
Tapped the 50 day MVA but could not get back over it. Held steady right in the middle of the June closing range.
Stats: -0.5 points (-0.03%) to close at 1652.18
Volume: 1.653B (-11.73%). Volume backed off on a no gain session.
Up Volume: 606M (+240M)
Down Volume: 1.021B (-469M)
A/D and Hi/Lo: Decliners led 1.12 to 1. No real selling as breadth matched the price action.
Previous Session: Decliners led 1.63 to 1
New Highs: 77 (+2)
New Lows: 9 (-4)
The Chart: http://www.investmenthouse.com/cd/$compq.html
Showing a tight doji just below the 50 day MVA (1658). After a pretty steep round of selling that can indicate a bounce back up is in the works, but at this stage the index has a very poor price pattern, and any bounce would be more reflex or oversold than a real surge in accumulation. It could always do it, but many leading tech stocks have broken support and need to base again to set up the next move; a rebound from here would be precarious heading into September. Moreover, Nasdaq tried three times intraday to take out the level and failed. Thus we will be wary of any rebound as there is resistance at 1700 from prior prices and the short term MVA.
S&P 500/NYSE
Rebounded up to the 50 day MVA but on lower volume. Still a nice consolidation in progress.
Stats: +7.04 points (+0.73%) to close at 974.12
NYSE Volume: 1.362B (-6.44%). Volume fell as the large caps tried to rebound. That is not accumulation, but just a nice price recovery.
Up Volume: 841M (+23M)
Down Volume: 511M (-131M)
A/D and Hi/Lo: Advancers led 1.66 to 1. Improving breadth but hardly a landslide of buying.
Previous Session: Advancers led 1.03 to 1
New Highs: 42 (+10)
New Lows: 20 (-27)
The Chart: http://www.investmenthouse.com/cd/$spx.html
Rallied from the July low area (962) back to challenge the 50 day MVA (976) but could not overtake that level. Just not enough volume for a serious attempt to break over that level. The large caps are still in a good consolidation but will most likely move down to test 950 now that they have broken through the 50 day and support at 975. This does not condemn the index to a steep selloff, but it does deepen and will work to prolong the consolidation.
DJ30:
Stats: +64.71 points (+0.71%) to close at 9126.45
Volume: 1.362B (-6.44%)
DJ30 tapped the 50 day MVA on the low (9031) and then managed, after several attempts, to hold a gain into the close. The move continues the blue chips in their 7 week range between 9000 and 9353. Volume backed off on the Thursday rise, so there was no surge of buying in the Dow either. It is showing the relative strength at this time with its cyclical stocks, but if SP500 falls further into its consolidation and Nasdaq continues to show its relative underperformance we doubt DJ30 could support the rest of the market.
FRIDAY
No economic reports scheduled to hit though there will be additional retail sales trickling in. We doubt that will make much difference, however, as good retail results took their shot Thursday and only modestly helped the market.
The market continues in its mostly consolidation/correction phase, having anticipated the better economic news and rallied well ahead of it. Now that the news is fact, it is consolidating the run to prepare for the next move. As the entire week has been a consolidation with some early Nasdaq distribution and then some quieter trade as the week comes closer its end, we doubt that Friday will provide a surge of buying that will break the indexes meaningfully higher.
Thus we anticipate a quiet session ahead of next weeks FOMC meeting and option expiration the next Friday. We saw many downside plays setting up as they managed low volume bounces Thursday back toward resistance (the former support they recently snapped). Those could start providing some better downside action, but as with all plays upside or downside right now, we want to see the goods. In other words, the market is not rallying obviously, but it is also not turning over and falling hard. It continues to work in more of a consolidation than a selloff.
As always, however, there are individual stocks that significantly outperform or significantly underperform the overall market. Those will continue to be our focus, but we have been more willing to pass up a play that we could not get a good entry point on or did not see good volume and then wait for the next opportunity. A trend will let you move into positions without pinpoint accuracy. When the market is choppier there is no forgiving trend to help you out. That is why we look more for the perfect entry conditions and are willing to wait if they do not arise.
Support and Resistance
Nasdaq: Closed at 1652.18
Resistance: The exponential 50 day MVA (1658). 1685 (June intraday high) is some possible resistance. 1700 (Feb 2002 low). The 18 day MVA (1698). 1740 is first resistance. 1760 (May 2002). 1800.
Support: The lower end of the June closing highs (1677 to 1645) are trying to hold on. 1600 to 1595 (June 2002 closing high). The mid-May high (1554).
S&P 500: Closed at 974.12
Resistance: 975 (December 1997 peak). The 50 day MVA (976). The 18 day MVA (983). 1003, the early June closing high. June closing high at 1011. The June intraday high at 1015. Then 1050.
Support: 965 (August 2002 peak). 951 (late May high) to the mid-May high (948). 935 (November and January peaks).
Dow: Closed at 9126.45
Resistance: The 18 day MVA (9144). 9236, the early June intraday high to 9250. 9353, the June high. 9500 (June 2002 lows).
Support: The 50 day MVA (9040). 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
8-04-03
Factory Orders, June (10:00): 1.7% actual, 1.5% expected, 0.3% May (revised from 0.4%).
8-05-03
ISM Services, July (10:00): 65.1 actual, 58.0 expected, 60.6 June.
8-07-03
Productivity, Q2 (8:30): 5.7% actual, 4.0% expected, 2.1% Q1 (revsied from 1.9%).
Initial jobless claims (8:30): 390K actual, 395K expected, 393K prior (revised from 388K).
Wholesale inventories, June (10:00): 0.0% actual, 0.0% expected, -0.4% May (revised from -0.3%).
Consumer credit, June (2:00): -$4.0B actual, $6.0B expected, $8.1B May.
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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