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us stock market, trade stock
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8/11/03 Investment House Daily
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Investment House Daily Subscribers:
MARKET ALERTS:
Target hit alerts issued Monday: None issued
Buy alerts issued: None issued. Some moves in the right direction, but not enough conviction.
Trailing stop alerts: None issued
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:
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SUMMARY:
- Reflex bounce follows Friday selling, moving stocks back up to resistance.
- More jobs coming or going, and what does it mean for the economy?
- Stocks bounce but no change of character.
- Subscriber Questions
Stocks rebound across the board but again no real buyside strength.
Friday saw key indexes languishing below the 50 day MVA with the SOX making its first foray below that key support level since April. The saving grace was that the drops were mostly on lower volume. Monday stocks rebounded across the market with Nasdaq, SOX and SP500 all closed at or above that level. Once again, however, volume was low, even lower than Friday. Friday and Monday are slow volume sessions in the summer, and throw in a FOMC meeting on Tuesday and there was really not a lot of reason for investors to get too deep into buying.
They did not open the wallet much as the low volume shows. Sure there were more buyers than sellers out there as the market gained ground. In the bigger picture, however, the overall number of buyers was not enough to change the character. The market made a reflex bounce Monday to test the key levels it fell through last week. Neither the breakdown nor the rebound were on volume, so the market basically is just maintaining its consolidation, mild correction or whatever you want to call it. Regardless of the name, it is very similar to watching snails box. There is just not a lot of action, and nothing happens too quickly.
THE ECONOMY
More insight on the job market: more cuts coming but it is a precaution.
This weekend we were host to several silicon valley and ex-silicon valley employees. The 'ex-silicon valley' employees had moved from that area to other technology corridors in the country, e.g., Austin. We also heard from some subscribers from these areas as well. The news is interesting it is not out of line with what we are seeing in the economy.
First some noted that there have been job losses that will not come back to the US in all likelihood. That was echoed by many. We have all seen this happen the last two or more years, that is, companies shipping production and related facilities offshore. It is a matter of economics with respect to the vastly divergent wage scales being the primary driving reason. US companies are at a disadvantage from a wage basis and a tax basis when competing with foreign companies. Many companies have tried to incorporate offshore to at least get some tax relief on their overseas operations and thus level the playing field some and retain some US workers. Of course they have been call unpatriotic and worse with Congress vowing to close the 'loopholes' that keep some extra tax dollars out of Congress' hands. Instead of making the tax laws fairer and thus allow competition, these 'patriotic' congressmen are killing US jobs. If Stanley Works could save a few billion in taxes by incorporating offshore it could keep some US plants open and save US jobs. It has been politically browbeaten into dropping this plan and now US jobs will be lost. In short, US companies are fighting to be competitive, and call it unpatriotic or just good business sense, they are having to look offshore for labor help in order to compete. Thus there are jobs that have gone overseas that are not coming back in our lifetimes.
Second, there are other layoffs to come. The axe is going to fall on several tech companies again. Now this will receive a lot of negative coverage in the media; it will be viewed by many as another failure in the recovery. These layoffs, however, are in most cases the last in a series of pre-planned job cuts that are part of an overall austerity program to cut the fat and get companies profitable. We have already seen the results in the Q2 earnings: some top line growth but still most of the gains in the cost cutting and increasing productivity. The companies are seeing improvement in their businesses in the form of new orders. These cuts are still viewed as necessary to get the companies in good fiscal shape. What we distilled from all we heard was that companies are purposefully going extra lean rather than risk running too many employees. They want to be in the situation of having to hire in the near future as opposed to having to lay off.
This is very typical with respect to companies in a long slump. They overshoot to the downside just as they overshot to the upside when times were great and were never going to end. The oil and gas business is famous for this with its continual boom and bust cycles. Management does not want to hire until it sees the whites of the eyes of a recovery just as the Fed keeps raising rates until it sees prosperity is failing. By then, however, the next leg is already in motion and companies are behind the curve just as the Fed was/is behind the curve.
What does this mean for US jobs?
Several studies of late have concluded that there will be fewer unskilled and low to medium skilled jobs in the US over the next decade. The manufacturing jobs are and will be shipped offshore because companies simply cannot compete given the US wage scale. That means the US job market will create mostly high skill level positions, placing a premium on college educated workers. There will be a large part of the US society that won't have the skills to do the jobs required.
That is a risk for several reasons. First, there will be a large segment of the population that won't be able to find jobs that pay at the same rate the factory jobs did. That creates the problem of having to raise them to the levels needed to do the jobs the economy creates. That very shortage puts the US economy at further risk down the road. If we cannot get the workers to do the jobs, we risk eroding economic power.
This is why we needed to keep the technology edge. We cannot compete with wages on the international scene, but need to lead technologically in the new world. Other countries will have the worker bees (Asia, South America) as they wage scales are so vastly different and the populations there are burgeoning. We need to be the technology leader so we can still have the luxury of shipping those jobs and processes offshore. As long as we can generate the technologies that require that manufacturing and have the market from those countries, we can maintain our standard of living even as the huge baby boom consumption demographic fades. That is why the purposeful slowing of our economy and the damage it did to Silicon Valley and other technology strongholds is unforgivable. Greenspan has potentially devastated the US' future economic superiority at a critical time as the US' consumption engine of the past 30 years ages and retires.
We have to be smart moving forward. This is a problem that hits 10 to 15 years down the road, but we have to be looking down the road. We need to make sure that individuals are responsible with respect to obtaining their education. In other words, we must make sure they are being educated in the schools that use our tax dollars. We must also realize that immigrants with the skills we need are good for the country. We want to produce and attract the best and the brightest. The way to do that is re-emphasize that the US is a land where if you work hard and are smart, you will better yourself. We have to have incentives that make you want to succeed. If that entrepreneurial spirit is revived in the US, we will continue to lead in the creation of new ideas and technologies. We have to recognize the problem and do something, however, before we have a graying baby boom generation wanting services but no big class of workers to churn out the technology, goods and services they want.
THE MARKET
Monday saw some rotation back into technology and smaller cap issues, the leaders in the run up to the July highs. It was not a watershed turn of events, however. The market is moving on lower overall volume as it drifts lower in its consolidation. Lower volume can allow the market to move dramatically, but that is usually on an intraday basis. When there is overall low volume day to day, the market tends to drift as it has been doing. One session it breaks lower, the next it rebounds, but it continues to drift on a macro basis. That is precisely what the indexes are doing now with a downward bias on those indexes that gained the most, e.g., Nasdaq and the smaller caps. Big picture, however, they are all still in quite good shape though Nasdaq has a toppy look to it.
The Monday action was slow and it did little to change market character. Stocks rebounded from some fairly stout selling last week as those sold the most rebounded. Typical action within a pullback that has slipped to lower levels and is still looking for a reason to continue the move. There is hesitation related to the interest rate rise, the job market, energy prices, and the time of the year. This is the slow season, and late August through September are often weak.
With everyone anticipating this, perhaps the market will make a quicker end to the 'typical' action found this time of year and give a surprise bounce in September. The market is set for a reflex bounce still, but it has the problem with the 50 day MVA that it slipped through last week. It could still make that bounce and then roll back over for a deeper fall that sets up the low for the next move higher. That would take us into September and would make the timing just about right.
Market Sentiment
VIX: 21.42; +0.13
VXN: 32.12; +0.09
Put/Call Ratio (CBOE): 0.65; -0.16. After spiking higher last week the ratio dropped off sharply on the Monday gains. Quick to rise, quick to fall, not providing much solid indication.
Nasdaq
Bounced up over the simple 50 day MVA on the close on very low volume. Nothing really changed Monday.
Stats: +17.48 points (+1.06%) to close at 1661.51
Volume: 1.209B (-9.85%). Very low volume bounce. Reflex bounce from the Friday selling with even fewer investors taking part of the upside day than the downside on Friday. Both session showed very weak volume.
Up Volume: 951M (+426M)
Down Volume: 242M (-548M)
A/D and Hi/Lo: Advancers led 1.67 to 1
Previous Session: Decliners led 1.06 to 1
New Highs: 107 (+28)
New Lows: 10 (+2)
The Chart: http://www.investmenthouse.com/cd/$compq.html
Nasdaq rebounded to clear the exponential 50 day MVA (1658) on the close though it is still below the simple 50 day MVA (1675) and the 18 day MVA (1689). Low volume and no power on the move. The pattern the past two months is rather anemic with a lower high and 2 back to back distribution sessions last week. If the bounce fails near the simple 50 day MVA it will have set up a head and shoulders pattern. That does not mean a whole lot unless it breaks down, but it does show the index is in a drift that needs further work to clear out the overhead that build up in July when it peaked. It can give that remaining bounce up to near 1700, and then if it cannot break up the pattern and move higher it will be ready to move back down and finish the moderate correction. We don't expect any rebound to succeed to a new breakout, but this market has surprised all the way up. Again we expect a modest bounce sometime in the next week or so, then a failure that leads into the low that will set the stage for the next move back up.
S&P 500/NYSE
Nice steady action as the large caps continued the rebound on low volume. A nice easy move up on the trading range, but that is all it looks to be.
Stats: +3 points (+0.31%) to close at 980.59
NYSE Volume: 1.013B (-6.45%). Very low, below average volume on the rebound as the summer doldrums are very much in place.
Up Volume: 635M (-58M)
Down Volume: 354M (-14M)
A/D and Hi/Lo: Advancers led 1.51 to 1. Breadth is matching the moves, i.e., just so-so.
Previous Session: Advancers led 1.72 to 1
New Highs: 98 (+28)
New Lows: 14 (-8)
The Chart: http://www.investmenthouse.com/cd/$spx.html
The fourth gain in a row, carrying the large caps back over the 50 day MVA (976). The move has been on very low volume and thus has little strong support. It is right at resistance from the simple 50 day MVA (988) and the 18 day MVA (982). Basically, it has recovered back up into the trading range, but it has also cracked the bottom and the move up had no power. Thus the move represents no character change and the index shows it is still ready for more lateral movement.
DJ30:
Stats: +26.26 points (+0.29%) to close at 9217.35
Volume: 1.013B (-6.45%)
Just another low volume move up in the trading range running from 9000 to 9353. The blue chips have gone about their business in the trading range, putting together the best looking consolidation of the big three. DJ30 tapped right at 9250 on the high and fell back, showing it is held by its range as well. There is simply not enough trade to drive it higher. It is, however, still showing excellent action in its trading range, recovering very nicely after the failed breakout attempt two Thursdays back. The market is going nowhere fast, but DJ30 is looking good as it does. If the others can get it together, hold on, and complete their consolidations with DJ30, they could all be ready to make the break higher in a few weeks.
TUESDAY
The Fed speaks again Tuesday, and while many sat on the sidelines ahead of the news, the decision will likely not drive many back into the market either. The late summer vacation action has many fund managers away from their desks or simply refusing to get involved at this time of the year. There will be interest, however, in what the Fed says about the plans for rates. Does it see a need to take some additional action or not? With the improving economic data the Fed will feel pretty good about itself and won't do anything. It also walks the thin line, however, of being too cocky on the economy and thus sending rates higher. It is in another predicament of its own making: it tried to keep rates lower than they wanted to be, it lost control, and they rallied higher than they would have done otherwise. It wants to knock them back down but can't cut rates or buy treasuries to do so without people drawing the conclusion the Fed is worried about high rates or that the recovery is not strong enough.
Thus we will be watching at 2:15ET to see how the bond market reacts as stocks will key to a certain extent off of that reaction. Frankly we don't see much upside coming from this meeting simply because the Fed has put itself in yet another one of those positions where it cannot please everyone it needs to please. Given the Fed's recent actions, we expect it to be least pleasant to the bond market, but it can hardly afford yields to spike higher again.
That leaves us still looking at many stocks that have set up for downside action with tests of the support they just broke. We are not looking for major breakdowns, just traveling down to next support. If the market manages to rally into the Fed meeting that will have put a week of small, low volume gains ahead of a decision and statement that most likely won't please many even though we all basically know what it will say. A bounce up to resistance on Nasdaq et al ahead of the announcement will have us looking for rollovers at support. As noted, many on the report are set up nicely after this low volume rally higher.
Again we are not going to get too aggressive either way at this juncture unless there is some watershed break one way or the other. The market is still in a consolidation that explored some new lows on Nasdaq and SP500 last week and has made a low volume rebound. There is room for more upside before the selling starts, but a run up to the FOMC meeting could trigger the next move back down after this bounce. We will be patient, let the plays develop, and pick our shots carefully. If they don't come we won't worry about it but just keep watching for when they do make the moves we want. Trying to push the action typically never works. Let it set up and let the plays come to you, then move in.
Support and Resistance
Nasdaq: Closed at 1661.51
Resistance: The exponential 50 day MVA (1658) is not totally broken. 1675 (simple 50 day MVA). 1685 (June intraday high) is some possible resistance. 1700 (Feb 2002 low). The 18 day MVA (1689). 1740 is first resistance. 1760 (May 2002). 1800.
Support: The lower end of the June closing highs (1677 to 1645) held, but it was dicey. 1600 to 1595 (June 2002 closing high). The mid-May high (1554).
S&P 500: Closed at 980.59
Resistance: The 18 day MVA (982). The simple 50 day MVA (988). 1003, the early June closing high. June closing high at 1011. The June intraday high at 1015. Then 1050.
Support: 975 (December 1997 peak) and the 50 day MVA (976). 965 (August 2002 peak). 951 (late May high) to the mid-May high (948). 935 (November and January peaks).
Dow: Closed at 9217.35
Resistance: 9236, the early June intraday high to 9250. 9353, the June high. 9500 (June 2002 lows).
Support: The 50 day MVA (9052). 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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