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world stock market, us stock market
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8/09/03 Investment House Alerts Report
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IH Alert Subscribers:
MARKET ALERTS
Targets hit alerts issued Friday: None issued
Buy alerts issued: MIL
Trailing stops issued: SWIR
Stop alerts issued: Removed some deadwood that broke support. CCMP; KLAC; VSEA; KLIC
MARKET SUMMARY
If Friday was a rally, the market needs some real rest.
McDonalds is once again your kind of place (or at least somebody's kind of place), and it is an example of the stocks that have moved into the lead. DJ30 stocks such as MCD, MMM, IP, and CAT are keeping the market from getting rather ugly as techs struggle below the 50 day MVA and chips are breaking down. Indeed Friday was dominated by the chip action as the SOX lost 3% as semiconductors undercut support across the board.
Most of the indexes scored gains, but it was a very weak bounce as stocks rallied on lower volume both overall and individually. Late summer doldrums have set in and the moves are laborious. The buyers have gone on vacation and no one is interested in putting money to work in the early leaders right now, preferring some of the laggards on the move higher. Even as reflex bounces go the Friday action was a sleeper.
Many of the leaders in the move to the July high have lost their punch. Smaller caps are struggling but holding the 50 day MVA overall. Nasdaq is trying to recapture the 50 day but is slipping in its attempt. Large caps are having their own fight with the 50 day MVA as well. The action is slipping from a consolidation where the indexes were building patterns to one where the indexes (other than DJ30) are simply trying to hold on.
That action is mirrored in many individual stock patterns. Many stocks have not broken down, but instead of nice, quiet consolidation above support where they are building strength, they appear to be trying to hang onto their patterns by their fingernails. As we discussed with one subscriber today via email, that is why we wait for a stock in a good pattern to breakout. As long as it holds the pattern we will be keep watching it as the pattern itself is indicative of the something positive ongoing. Still, the pattern has to prove itself with the strong breakout (or on downside plays, a breakdown). If it starts to breakdown even before the breakout attempt, that is a problem.
Many stocks are hanging on in their patterns, but as many are slipping out of them. That does not make them automatic shorts. A stock can slide out of a pattern but not start a trend lower. They find the next support and bounce or never really break down. The market action for now is keeping stocks in a rather tight range, bouncing around in that range. We prefer to play the longer trends, up or down, as opposed to playing a lot of short bounces up and down that can whipsaw you badly. That is one reason we have slowed down our buys at this point, looking for those stocks that are continuing their trends either up or down. With many still in the undecided category, we are being patient.
THE ECONOMY
Friday was notable for its lack of data. After retailers delivered a shot in the arm Thursday with reports of strong July sales and increased guidance, Friday was a non-event. With the Fed meeting on Tuesday there could be a continued malaise before its decision to leave rates unchanged, but we also doubt whether the decision will change the market's current lethargic action.
The Fed's statement will be the most interesting portion of the meeting as it now has a nice string of positive economic data. That will of course keep it from moving on rates, but it will be curious to see how the Fed characterizes the economic state. We are quite pleased with the progress as it mirrors past recoveries and is even showing signs of stronger jobs growth than in the 1992 recovery. Despite all of the talk about the worst job market since World War II, the perspective is off just as it is/was with the stock market. As the downtrend was ending in October and November, many commentators were talking about how the market would take years to decades to regain the losses. That perspective is pointless. The market did not have to recover to the old highs for investors to recoup their losses. As we have seen, the run up from the bottom has produced huge winners already that have surged 100%, 200%, 500% and more. You could have lost 50% of your portfolio or more, but if you got back in and invested in the stocks breaking higher you are ahead in the game.
The job losses have a similar genesis with the stock market meltdown. Many of the former jobs were part of the great technology industry meltdown caused by too much money pumped into the economy by the Fed and then too much money withdrawn by the Fed too quickly. The stock market couldn't survive that and neither could the economy. It was inevitable as we discussed back in 1999 with the analogy of the Fed rate hikes being like a fully laden supertanker racing toward the dock at full speed. The momentum was too great to avoid the crash even if the Fed threw the engines into full reverse. As with the stock market, the lost jobs are economic history. The focus should now be on how the leading economic indicators are showing economic recovery is occurring. The focus should be on how weekly jobless claims are falling, how temporary worker hires are at a 3 month pace well in excess of what they were during the 1992 recovery. Those show that the economy is on the verge of creating new jobs. They show where the economy is going and how the savvy businesses are already investing again in anticipation of the recovery that is picking up even more steam. Let the politicians talk about jobs that are lost. We need to focus on the jobs that going to be created along with the other attributes of recovery. That is what is going to drive the economy and thus the stock market. Just as they went hand in hand in the meltdown, they go hand in hand in the recovery. It is just that jobs follow while the rest of the economy leads.
THE MARKET
The market seems to be moving in opposite directions, but it really is not. Nasdaq broke the 50 day MVA, losing almost 5% last week. SP500 managed to retake its 50 day, but it was hardly convincing. The small caps and mid-caps are holding their 50 day MVA for now. DJ30 finished the week with three upside moves. Heading higher? Not really. It is holding onto its range, a nice hat trick given the trouble right after the failed breakout attempt a week back. Given the action with the rest of the indexes, however, it does have the appearance of moving higher. Relative to Nasdaq, it looks quite solid right now.
One subscriber asked a good question about how long this is going to last before the next leg begins. We believe the economy is recovering and we believe the interest rate move higher is not the death knell to that recovery but is part of a natural rate move higher that has been exacerbated once again by the Fed trying to exert too much control over natural markets. A continued recovery will keep stocks moving higher, but they have to finish consolidating the prior move made in anticipation of the improving economic data we are seeing now.
Given that it is now August and a nice, quiet consolidation has turned uglier for Nasdaq and SOX with the SP500 not looking all that chipper, the timetable has lengthened. While August can be a good month for stocks, the action exhibited by Nasdaq indicates some exhaustion from the run to the July high. It has stumbled along with SP500 below near support, and when that happened it pushed the consolidation game to another chapter. Other than the DJ30 steadily holding its range and perhaps the small and mid-caps holding their 50 day MVA, we don't see an immediate recovery that has staying power without more consolidation. Thus there could be a reflex or oversold bounce in sometime in the next two weeks, but the recent action indicates the market needs more time to rest. A bounce higher sets it up for a correction and consolidation into September and October. If there is no bounce the best scenario is for it to continue to consolidate with Nasdaq getting a grip and not going too deep.
Thus we expect stocks to struggle on through September with another run attempt before that month. Then they continue to work on the foundation before the next run resumes in earnest in anticipation of further economic gains to come. Either way there will be plenty of action in both directions as the market works through its consolidation and the leaders work their way higher and start the early lead and laggards break down in need of further consolidation.
Market Sentiment
VIX: 21.29; -0.6
VXN: 32.03; -1.99
Put/Call Ratio (CBOE): 0.81; -0.21. Lingering at the high end of the range, but as noted last week, it has been unable to produce a bounce during the consolidation as it did during the upside move.
Nasdaq
Made a token move up to the 50 day MVA but faded as Nasdaq took it on the chin all week.
Stats: -8.15 points (-0.49%) to close at 1644.03
Volume: 1.341B (-18.87%). Low summer Friday volume. No distribution Friday, but had two back to back sessions during the week. Two days do not necessarily indicate a further mean selloff, but the combined price action for the week was not positive.
Up Volume: 525M (-81M)
Down Volume: 790M (-231M)
A/D and Hi/Lo: Decliners led 1.06 to 1. Breadth was rather poor all week on the selling. No real surprise there.
Previous Session: Decliners led 1.12 to 1
New Highs: 79 (+2)
New Lows: 8 (-1)
The Chart: http://www.investmenthouse.com/cd/$compq.html
Nasdaq made a lower high to finish July and then broke the 50 day MVA this past week on a volume move lower. It could not recapture the level to close the week with a low volume attempt. The 50 day MVA is important support as this is where big money steps in to support or buy stocks or they step aside or sell stocks. Nasdaq fell hard to that level, it broke it, but it did not collapse. The pattern is toppish, but they always are when indexes come off of a strong run to consolidate. The breach of the 50 day MVA sets up a longer consolidation period. Nasdaq will, however, attempt an oversold bounce this week. It has some support here and more at 1600. It has resistance at the 18 day MVA (1692) and at 1700. A bounce will find trouble at that resistance, but for now it looks as if it will hold near the 1600 level on a further consolidation laterally and lower.
S&P 500/NYSE
Rebounded further Friday to recover the 50 day MVA, but without volume it did not tell us much.
Stats: +3.47 points (+0.36%) to close at 977.59
NYSE Volume: 1.082B (-20.52%). Volume fell off the table as the large caps worked back up to the 50 day MVA.
Up Volume: 693M (-148M)
Down Volume: 368M (-143M)
A/D and Hi/Lo: Advancers led 1.72 to 1. Decent breadth on the rebound. Breadth was not good or bad during the selling or the rebound, an indication that the action is still a consolidation despite the 50 day MVA breach during the week.
Previous Session: Advancers led 1.66 to 1
New Highs: 70 (+28)
New Lows: 22 (+2)
The Chart: http://www.investmenthouse.com/cd/$spx.html
The large caps continue their 7 week consolidation of the nice run higher. Despite the 50 day MVA (976) breach, the move was on low volume. It held the July intraday low (962.10), and it held over the August high (962.70) as well, a key support point as that represents the high point off the July bounce. SP500 can trade down to the May highs from 945 to 950 without harm, but it will need to hold this range in the further consolidation. The 50 day MVA breach was a red flag, but it was not as serious as Nasdaq as the volume was quite low and it did make a quick comeback though the bounce was inauspicious. The lower volume bounce up off the recent low indicates it is not ready to surge higher with resistance at 982 (18 day MVA) and the 988 (simple 50 day MVA).
DJ30:
Stats: +64.64 points (+0.71%) to close at 9191.09
Volume: 1.082B (-20.52%)
The relative strength leader, up off the 50 day MVA (9045) after an early week test of that level as well as the bottom of the range at 9000. The move up off the 50 day was on lower volume, indicating it was not a change of character. That is not all that bad as it is a continuation of the 7 week consolidation between 9000 and 9353 and it is doing it with a style and ease that the other indexes are not. As we stated last week, while the DJ stocks are performing well, there is not a lot of long term leadership there. They could hold things up for awhile, however, while the rest of the market makes its deeper consolidation.
THIS WEEK
The early focus will be the FOMC meeting, but that will fade as the Fed will do nothing and say that it sees positive economic signs but wants to see a better job market and is still being vigilant. Wednesday things get down to business with retail sales. The rest of the week is rounded out with PPI, CPI, Michigan sentiment, and the NY manufacturing report. The important one is the NY PMI though retail sales will capture a lot of attention as will the weekly jobless claims to see if they can keep the streak alive.
With the action last week the economic news still does not appear ready to move the market higher. It needs further work to rebuild the bases of leaders that fell hard last week. Not all fell hard, but a growing number did. There may not be a lot of breakdowns, but the action indicates the market is settling into the consolidation it needed, and a quick bounce does not look to be in the cards.
This week will bring more stocks working on their bases, particularly those techs and internets that led the market higher. There are still many stocks that are continuing solid uptrends, taking time off for a short consolidation (e.g., some telecoms). There also are stocks that continue to form their bases, oblivious to the rest of the market. Overall the market is not selling off but consolidating, so it makes sense that many stocks are continuing their trends or their bases. The late week bounce in non-tech stocks also worked to set up more downside plays, and they will be ready at various times this week as they come up to test resistance and then roll back over. There will be plenty of plays to keep an eye on. It would be nice to have the market makes some moves so we can take advantage of them.
Support and Resistance
Nasdaq: Closed at 1644.03
Resistance: The exponential 50 day MVA (1658). 1685 (June intraday high) is some possible resistance. 1700 (Feb 2002 low). The 18 day MVA (1692). 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 977.59
Resistance: 975 (December 1997 peak) and the 50 day MVA (976) are not taken yet. The 18 day MVA (982). 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 9191.09
Resistance: 9236, the early June intraday high to 9250. 9353, the June high. 9500 (June 2002 lows).
Support: The 50 day MVA (9046). 9000 is some psychological and price support that has held previously. January high (8870). The mid-May high at 8743
Economic Calendar
8-12-03
FOMC meeting results (2:15)
8-13-03
Business inventories, June (8:30): -0.1% expected, -0.2% May.
Retail sales, July (8:30): 0.8% expected, 0.5% June.
8-14-03
PPI, July (8:30): 0.2% expected, 0.5% June
Core PPI: 0.0% expected, -0.1% June
Initial jobless claims (8:30): 395K expected, 390K prior.
FOMC minutes (2:00)
8-15-03
NY Empire State PMI, August (8:00): 20.5 expected, 22.6 July
CPI, July (8:30): 0.2% expected, 0.2% June
Core CPI: 0.1% expected, 0.1% June
Industrial production, July (9:15): 0.2% expected, 0.1% June
Capacity utilization, July (9:15): 74.4% expected, 74.3% June
Michigan sentiment, August (9:45): 91.0 expected, 90.9 July
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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world stock market
us stock market
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