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us stock market, trading system
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8/12/03 Investment House Alerts Report
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IH Alert Subscribers:
MARKET ALERTS
Targets hit alerts issued Tuesday: BDY
Buy alerts issued: DRL; CSC; MIL; ANSR; MMSI
Trailing stops issued: None issued
Stop alerts issued: None issued
MARKET SUMMARY
Rebound continues, kicks into gear after FOMC announcement.
We expected the drift higher ahead of the FOMC report as that is typical action. When the 'no change, things are better but we will keep rates low for a long time' statement hit the wire the market jumped back and forth. It did not then turn lower but held on and then rallied. The rally became stronger and stronger as the last hour continued. The market apparently got just what it wanted: the economy is better, we still have some concern about deflation, we are going to keep rates low as long as necessary just in case.
That was enough. Stocks had been vacillating on low volume near the flat line all session. While volume was no great shakes by the closing bell, volume surged after the FOMC announcement. The market is still in quiet late summer volume, but at least there were more buyers coming in. Moreover, small caps had been leading all session. While they gave up the crown to Nasdaq and SOX by the close, they still put in the best performance when you look bell to bell.
Seeing the small caps back in the lead was reassuring, but none of the Tuesday action changed much in the market. Nasdaq and SP500 moved over the simple 50 day MVA and thus helped mitigate some of the effects of the prior break below the 50 day and the bottom of the consolidation range. It was not a major character change. It is giving the bounce we expected would come this month before further weakness into September. There were enough good upside moves, however, to get us into individual upside positions. We may shorten our target range on these new buys, but when they are telling you to buy it is time to take what the market is going to give you.
THE ECONOMY
FOMC gives market what it wants.
The Fed pulled off the hat trick, pushing just the right buttons to satisfy the market. Yes it sees improvement in consumer spending, in business investment, and it liked the increasing GDP growth. It was still concerned about the 'risk of inflation becoming undesirably low' (meaning disinflation) even though it viewed the risk of deflation and inflation as equal. Thus it assured the market it is going to hold rates low for the foreseeable future. That was the ticket: improving economy and low rates. Bonds roared higher on the news. Stocks hesitated, but that combination of low rates and improving economics is boom time for stocks. After some volatile moments, program buyers came in and pushed the market higher.
Weekly retail sales measures surge.
BTM/UBS rated year over year sales for last week up 3.7%. Redbook saw sales rise 3.1%. Those numbers topped the prior week's 3% and 2.6% gains, respectively, and continued a nice string of rising month to month and year over year consumer sales. Note that this is occurring at the same time the Conference Board sentiment survey showed a substantial decline in present conditions, i.e., how consumers feel right now. Yet the retail data shows that consumers, despite their stated gloominess, are buying right now. As we said before, it is not what consumers say, it is what their credit card bills say.
Both Redbook and BTM noted that this continued rise in consumption, week over week and year over year, does not yet take into account the tax rebate checks and back to school shopping. In other words, there is still a consumption surge yet to come as a result of lowered W-2 withholding and increased child tax credits. That bodes very well for the consumption to come. It also bodes well for continued business investment as businesses start to see the benefits of lowered rates and tax incentives.
Japan showing signs of life . . . again.
GDP grew 0.6% April to June, making the annualized growth rate 2.3%. That makes six straight growth quarters and far exceeded the 0.2% forecast. It sounds promising as both consumers and businesses are spending more than expected. Of course Japan still has many of the same problems that caused the depression, namely a business and banking system that is controlled or directed by too much government intervention. They call it a partnership in Japan, but that is a euphemism for intervention.
THE MARKET
Stocks rallied after the FOMC announcement, something we were not looking for, but a move that did give the next bounce higher, and we are looking for another bounce up before the market slides further ahead of the September selling season. This action on rising though still lower volume could very well be that bounce. The indexes rode back up into their recent ranges, taking back the 50 day MVA, but nothing like a powerful surge with the attributes of a breakout.
Small caps were in the lead all session though they relinquished that position to Nasdaq and SOX as they roared back to life on the late program buying. The resurgence of smaller issues is an important step for the market. It had rotated to cyclical stocks, and the market cannot make consistent headway with these stocks as leaders. Thus the return of smaller caps was good to see, but as with the other moves by other indexes, it did not part the waters for a long rally. The small cap indexes still have something of a double top in July, and though the Tuesday move took them up decisively off the 50 day MVA, it did not do anything to break up that double top.
Thus the market made a nice bounce up to continue the overall consolidation. We used the move to take positions on stocks moving on volume, but we are also considering lowering our initial targets to snap up a gain on this bounce or at least take a partial profit at a lower percent gain. If they run further, great. The move saw great individual moves, but did not change the market character, so we just approach this with the same caution we use during the consolidation.
Market Sentiment
VIX: 20.21; -1.21
VXN: 30.21; -1.91
Put/Call Ratio (CBOE): 0.77; +0.12
NASDAQ
Stats: +25.5 points (+1.53%) to close at 1687.01
Volume: 1.339B (+10.74%). Rising volume but well below average. As noted, volume climbed in the last two hours following the FOMC decision, indicating that buyers were jumping into the market. Overall, however, it is hard to rely on that late buying and pronounce the buyers are back. They were certainly buying individual names that surged on volume, but overall it was a low volume continuation bounce.
Up Volume: 1.116B (+165M). The late surge really pushed up volume ahead of down volume.
Down Volume: 206M (-36M)
A/D and Hi/Lo: Advancers led 2.14 to 1. Best upside breadth in over two weeks.
Previous Session: Advancers led 1.67 to 1
New Highs: 119 (+12)
New Lows: 13 (+3)
The Chart: http://www.investmenthouse.com/cd/$compq.html
Techs reclaimed the simple 50 day MVA (1614) and closed right at the 18 day (1697). The bounce held some support at 1640 and now has the techs back up in the range but below resistance at 1700 that roughly marks the mid-range. Volume was up but way below average; it would be dangerous to say that the rising volume indicates a new buying leg. The pattern does not suggest that as the close puts the index just 2 points over the June intraday high, the possible left shoulder in a possible head and shoulders pattern if the Nasdaq stalls at 1700 and rolls over. The move kept Nasdaq above the June closing range and in the current 100 point consolidation range, but at this juncture that is about all it did. We don't want to belittle the move, but we do have to place it in perspective.
S&P 500/NYSE
Cleared the simple 50 day MVA on some rising though still below average volume. Nice recovery off the July intraday low, but still in middle of the range.
Stats: +9.76 points (+1%) to close at 990.35
NYSE Volume: 1.122B (+10.85%). Rising but still well below average volume.
Up Volume: 857M (+222M)
Down Volume: 262M (-92M)
A/D and Hi/Lo: Advancers led 2.36 to 1. Nice breadth as small caps reasserted themselves on the market.
Previous Session: Advancers led 1.51 to 1
New Highs: 128 (+30)
New Lows: 15 (+1)
The Chart: http://www.investmenthouse.com/cd/$spx.html
The large caps have rallied well after breaking the 50 day MVA (977) and tapping at the July intraday low (962) last week. Volume has not run through the roof on the way back up as the move was mostly on lower volume. The Tuesday move was on rising volume, indicating renewed buyer interest, but on the kind of buyside interest that is set to carry the index to a new recent high. It is right in the heart of the 962 to 1015 range, continuing the consolidation. We are not biting too deeply into this move as it is for now just a recovery off of the lows in the range on low summertime volume.
DJ30:
Stats: +92.71 points (+1.01%) to close at 9310.06
Volume: 1.122B (+10.85%)
Continues to perform the best, moving back up close to the June and July highs (9353, 9361). Volume was higher but still very low. DJ30 is ready to make another breakout attempt here, but this time no one is going to believe it has the strength to do it. It has run up from the bottom of the range at 9000 straight up to this point. It has run far and has used up a lot of gas on the move just to get to this point. A breakout attempt should thus fail and reverse as it did two weeks back, right? That is what everyone would reasonably expect, so that means be ready for anything. The blue chips have run well to this point, but for now are still in the trading range. As we saw two Thursdays back, they have to prove it if they are ready to breakout.
WEDNESDAY
Economic news continues to get interesting with July retail sales out before the open. We have seen results already from retailers, so the expectations are edging higher. In addition many other expectations for the rest of the week have been adjusted in light of the recent retail and other economic results. The market is starting to look back toward economic data now that earnings are winding down and as it consolidates the prior move, but a breakout here would be a surprise. This market has surprised several times on the move higher, so if it happens we will do what we always do, that is, take advantage of those stocks that set up and break higher on strong volume.
As noted earlier, we are also looking at shortening our targets on this bounce. Nasdaq still shows a questionable pattern as it tries to rebound from the recent selling. We are about half way through August and still have September, the worst month for stocks, to deal with. If we build in some decent gains the next few sessions and stocks start to stumble at the breakout point, we will look at taking some of those gains earlier. Better to lock in a gain given the time of year. If the market defies the traditional selling month, we will continue to move in when the buys present themselves. That is really the key to the market. Look at all the signals, set up a plan more or less consistent with those signals, and then take what the market gives, willing to accept what the market is telling you real time via price, volume, leadership, etc. even if it conflicts with your conclusions. After all the market represents the thoughts, beliefs, and fears of all investors, and that can be quite different from our own.
Support and Resistance
Nasdaq: Closed at 1687.01
Resistance: The 18 day MVA (1689). 1700 (Feb 2002 low). 1740 is next resistance. 1760 (May 2002). 1800.
Support: The exponential 50 day MVA (1659). The lower end of the June closing highs (1677 to 1645) held on the last test. 1600 to 1595 (June 2002 closing high). The mid-May high (1554).
S&P 500: Closed at 990.35
Resistance: The simple 50 day MVA (989) has not been totally broken. 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 exponential 50 day MVA (977). 965 (August 2002 peak). 951 (late May high) to the mid-May high (948). 935 (November and January peaks).
Dow: Closed at 9310.06
Resistance: 9353, the June intraday high, 9310 the July intraday high. 9500 (June 2002 lows).
Support: 9250 to 9236, the early June intraday high. The simple 50 day MVA (9136). The exponential 50 day MVA (9063). 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): No rate change, bias neutral but leaning toward the risk of disinflation.
8-13-03
Business inventories, June (8:30): -0.1% expected, -0.2% May.
Retail sales, July (8:30): 1.0% expected, 0.5% June.
8-14-03
PPI, July (8:30): 0.1% expected, 0.5% June
Core PPI: 0.1% expected, -0.1% June
Initial jobless claims (8:30): 393K expected, 390K prior.
FOMC minutes (2:00)
8-15-03
NY Empire State PMI, August (8:00): 19.7 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): 91.5 expected, 90.9 July
SUBSCRIBER QUESTIONS
Q: We have received more questions on insider selling of late given the discussions on the financial stations about the recent spike in insider selling and what that means for the market.
Basically there is a concern that when insiders sell there is something about business that the rest of us do not know and that this is a good indicator of where the market is going. One of the services that tracks this has going 'short term bearish' according to one of the financial stations, but this is not a short term indicator, that is, if you don't view short term as 12 months down the road. There is a historical correlation between insider selling and stocks falling. CNBC was pointing out times when insider selling hit the current levels in times past and how stocks had fallen. According to the one example CNBC used, the last time that insider selling hit the current levels was in July to September in 2000 and of course the market fell like a stone then. The implied conclusion that CNBC left hanging out there was that stocks would fall similar to 2000 6 months or so down the road.
The problem that so many market commentators have in applying various 'indicators' is that they pluck a reading from one point in time, look for other times that the reading was the same, and then conclude that the same result will follow as before given the parallel reading on the 'indicator.' There is a problem with that because there are many other variables at work other than this one indicator that could be the cause of or just a part of the cause of the following market actions. I do some amateur gardening. I have a plant that if I don't water enough the leaves turn yellow. If I don't water it, it would drop the leaves and die. Even if I water it just right, however, at certain times of the year the leaves still turn yellow and drop, but that is just before it puts out new green leaves that are new growth replacing the old growth. That is a healthy cycle. The yellow leaves look like the same indicator, but they can mean completely different things depending upon what cycle the plant is in or what the growing conditions are.
In July through September 2000 we had an economy that was peaking and staritng to roll over. Stocks had already tanked 40% on Nasdaq from the peak to May 2000 low. The market had already entered the bear and the economy was following it. Fast forward through the worst bear market since the Great Depression. Now stocks have bottomed in October and have put together a nice run in anticipation of improving economic conditions. Nasdaq stocks had fallen 70% as a group and more individually. They have put together a 40% run off the lows, but that takes them nowhere near where they were in 2000. Many employees that have restricted stock (stock they cannot sell) are just now able to sell that stock. The market has run up well. The employees have taken a beating in the bear market and need some cash. A market rally and the end of the restriction are a god send to them. They use the rally to take some nice profit.
The events leading to the selling are different. The circumstances of the economy are different. We don't agree that insider selling is a portent to economic activity. It has coincided with stock selling at times in the past, but as for an economic gauge it does not. With an improving economy stocks typically grow in value. As with the plant, the reasons for the indicator showing up are different. We could be wrong, but this indicator of insider selling is often cherry picked without looking at the underlying reasons why it occurred, and that is a faulty use of any supposed market indicator.
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.
THE PLAYS:
New Plays:
Play Date: 08/12/2003
ARTG (Art Technology--$2.12; +0.2; no options): Internet software services
http://biz.yahoo.com/p/a/artg.html
STATUS: 50 day MVA test. ARTG broke out of a 7.5 month base in mid-July and shot up to 2.60 on the high. That is when Nasdaq peaked, and since ARTG has tested all the way back to the 50 day MVA (1.85) in a full breakout test. Tuesday it started the move back, gapping higher and running on much stronger volume. Solid accumulation in the prior base and of course in the current run. Strong money flow held up during the pullback, and ARTG looks ready to follow it higher.
Volume: 769.343K Avg Volume: 939K
BUY POINT: $2.18 Volume=1M Target=$2.62 Stop=$1.98
POSITION: - Stock (no option chain)
http://www.investmenthouse.com/ci/artg.html
Play Date: 08/12/2003
BHE (Benchmark Electronics--$40.55; +0.99; optionable): Printed circuit boards
http://biz.yahoo.com/p/b/bhe.html
STATUS: Flying plateau. Moving laterally the past three weeks after breaking out of a 6 month cup with handle base sporting outstanding 8 to 3 accumulation (8 up weeks on rising volume to 3 down weeks on rising volume). BHE has held up very well, being stingy with its breakout gains. It held the 10 day MVA (39.30) on the test and is now moving higher. Looking for the next breakout to move in.
Volume: 238.8K Avg Volume: 458.863K
BUY POINT: $41.12 Volume=550K Target=$47.25 Stop=$38.24
POSITION: BHE JH - Oct. $40c (57 delta) &/or Stock
http://www.investmenthouse.com/ci/bhe.html
Play Date: 08/12/2003
MWD (Morgan Stanley--$48.66; +0.52; optionable): Investment brokerage
http://biz.yahoo.com/p/m/mwd.html
STATUS: Ascending triangle. MWD is moving in a 9 week triangle that follows the breakout from a 6 month reverse head and shoulders pattern. MWD is a leader in the financial services arena and we like these base on base patterns as they work together to shake out the last sellers. Financials are trying to improve as this pattern indicates, and we will see if MWD can deliver a breakout.
Volume: 4.352M Avg Volume: 5.413M
BUY POINT: $49.54 Volume=5.8M Target=$55 Stop=$47.28
POSITION: MWD JI - Oct. $45c (77 delta)
http://www.investmenthouse.com/ci/mwd.html
End part 1 of 2
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us stock market
trading system
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