|
|
us stock market, trading system
* * * *
8/13/03 Investment House Alerts Report
* * *
IH Alert Subscribers:
MARKET ALERTS
Targets hit alerts issued Wednesday: None issued
Buy alerts issued: None issued
Trailing stops issued: None issued
Stop alerts issued: CMVT; INTU
MARKET SUMMARY
Market slogs through another day, unable to capitalize again on more good economic news.
Early gains were again given back as after one day of upside action the market reverted to some bearish overtones with the close near session lows. The indexes managed to hold above near support with relative ease even though DJ30 failed a lukewarm breakout try. Unlike the last time the failure was not a high volume reversal but more of a slide back into the muck. Volume was up but with the modest losses it was not a really significant distribution session (though SP500 was getting there). It was a signal, however, that the market is not in shape yet to make the move out of the consolidation range.
Retail sales surged in July and that reversed the pre-market trade to positive. In this market, however, good economic news is not greeted with a lot of sustained enthusiasm. There has been some very solid and even great news, but the market ho-hums it and continues its overall sideways move. The news is able to excite some of the crowd into buying, but the result is typically the same, i.e., an early rise fades into the sunset by the close.
We have already discussed the reason: the market rallied in anticipation of this news from October to July even when pundits were saying on the air that 'this time' the market would not rally until stronger economic numbers surfaced. As usual, however, the market rallied before the economic data started to turn positive. Now it is resting after that move and digesting what companies just said about the next quarter as it tries to determine what will happen at year end regarding earnings. That is the focus of the market, not the current round of economic news. That news is important as it shows there is improvement. Now the issue the market is working on is whether there is going to be further improvement.
THE ECONOMY
July retail sales jump 1.4%.
Sales were expected to rise 1%, so the magnitude of the actual gain was substantial as sales logged their largest gain in 4 months. In addition, the June number was revised to 0.9% from 0.5%. Upward revisions of prior numbers are a very good signal that things are making steady improvement as opposed to just single month variations. Retail sales, despite claimed lower current consumer sentiment, have been making solid gains since the end of the war. Indeed, they were not horrid during the war.
It is important to understand that the July numbers do not account for the tax receipts that many are receiving. There is a lot of erroneous reporting that is based on assumptions (there is way too much of that in all economic and market reporting) that the tax refunds are already in the system. That is starting to be true now, but all of the major retail sales compilers point out that the impact of the tax cuts will show up in August, not the July numbers.
WMT does well but so are the supposedly dead department stores.
WMT is an example of the improvement with quarterly sales up 20% year over year and revenues climbing 11.4%. Its earnings were in line, but that is quality sales growth; not what it was when the company was in its early growth years, but quality nonetheless. Federated (FD) also performed well, beating the street by 2 cents. Many of the traditional retailers (e.g., JWN) are, contrary to the conventional wisdom (which, like common sense, is a misnomer), are performing very well and showing solid earnings growth. At the same time there is incredible hand wringing over whether the recovery is going to last.
Wait a minute. Back in 2001 and 2002 these companies were pronounced dead and many retail commentators were lamenting how only the discounters were doing well, that the economy would not get better until the rest of retail was also sporting healthy sales growth. That premise in itself is incorrect as what is hot in retail, just as any sector, shifts depending upon social preferences. In 2001 and 2002 a lot of people were or were becoming very discount oriented. In any event, WMT and other discounters continue to do reasonably well, and they are being joined by the supposedly dead department stores. Not all of them, but JWN was one of those measured for a coffin but is doing quite well with a recent breakout. Those retail commentators, however, have found something new to worry about even when their version of a more sustainable recovery in retail is being met. Talk about not wanting to believe, of adopting a negative viewpoint and being unable to see the change because of that predisposition. It is like the stock analysts that were super bulls but then finally gave up and became bears. Now you can't blast them out of their bear caves as they have adopted the credo 'no rally can last forever.'
In sum, the retail data is defying the predictions of a consumer meltdown based on rising interest rates, supposedly lower sentiment, concerns over jobs, and a rather weak summer move box office. Indeed, the data is starting to fulfill the 'if only' laments of retail analysts over the past 2 years, yet with the current overriding skepticism of many writers, this change is going unnoticed. It is chic to be negative, but being chic and making money rarely go hand in hand.
Mortgage applications turn south.
Overall mortgage applications were down 16.1% last week, a year low. New mortgage applications fell 10.3% while refinancing applications plunged 20%. We said it 6 months ago that rates would rise as the economic numbers started to come in positive, and that would squelch the mortgage market as the biggest sector, refinancing, would lose its appeal. We said that when the 10 year topped 3.55% it would move up quickly because at that point the Fed would have lost near term control and rates that had been held artificially low would jump and overshoot the equilibrium level. That has come to pass and mortgage application rates are way down as a result.
It is not devastating as it is made out to be on news reports. Mortgage activity will fall off after the rush of fence sitters is over (that is what accounted for last week's jump in new mortgage applications), but mortgage rates are still historically low, still at levels where many Americans can afford to buy. That will keep the market plugging along. It won't be the economic dynamo that it was, but it could not last forever in any event. The housing market does not continually lead a strong recovery. It is usually a by product of a strong recovery. This time it was engineered to be an economic mainstay by the Fed pushing rates lower and lower as it tried to catch up to real rates that were dropping after the Fed managed to implode the economy. Now that the economy has responded to tax cuts and is starting to rally, rates are rising as they should. Not devastating. The speed scared a lot of economists, but they ignore that the Fed held rates artificially low when they wanted to rise, and when the Fed lost control (its 'we will buy treasuries' then 'no we changed our mind' fiasco) they got out of hand near term. This will work its way through the system shortly.
THE MARKET
Up early, down late. After a one-day respite, stocks reverted to the more bearish action shown of late in the consolidation range. Volume was up though the losses were so modest that the action could hardly be called distributive. Indeed, volume still remained well below average across the board, a sign of a continued bout of summer doldrums more than anything else.
DJ30 was again near a breakout from its range, but it again slid back from the brink. Volume was up as stocks sold back, breadth was basically flat, and stocks held near support. We don't want to make things out worse than they are or make them seem better than they are. With the Tuesday and Wednesday sessions coming in as a basic draw, it is hard to do either.
Overall the action still has a downside bias to it even as the market works in its consolidation range. Volume was up Tuesday on the gains but then was up even more on the Wednesday fade. A modicum of buying met with a pinch more volume selling the very next session. It is clear that buyers and sellers are still slugging it out, though it is more like playing patty cake given the slow summer trading. All in all there is more downside pressure right now, but it is not overwhelming as the market is holding its range still after a decent recovery to salvage that trading range.
Nowhere is that recovery more apparent than in the chip sector. After the SOX and many chips sold below their 50 day MVA on rising volume four sessions back, they have staged a comeback, fueled Wednesday by the AMAT comments that orders were increasing. It did not matter that AMAT would miss Q3 numbers, but the order increase was the key that sent buyers back into the sector. Once again chips will play an important role in the market's ability to make the breakout from the range.
Market Sentiment
VIX: 20.62; +0.41
VXN: 30.27; +0.06
Put/Call Ratio (CBOE): 0.78; +0.01
NASDAQ
A modest rally attempt faded with techs falling back to the 18 day MVA to close on rising but still sleepy volume. Chips helped save the session.
Stats: -0.4 points (-0.02%) to close at 1686.61
Volume: 1.458B (+8.91%). Volume was up but still well below average, and the price drop was fractional. Rising volume on low point losses is actually a good signal.
Up Volume: 759M (-357M)
Down Volume: 683M (+477M). Dead heat.
A/D and Hi/Lo: Advancers led 1.08 to 1
Previous Session: Advancers led 2.14 to 1
New Highs: 144 (+25). New highs put in a decent session even as the index waffled.
New Lows: 11 (-2)
The Chart: http://www.investmenthouse.com/cd/$compq.html
Nasdaq hit 1696 on the high, just below resistance at 1700. Nasdaq is at a key point in its three month pattern, right at the June highs (1685) where it peaked and then recovered for the run to the July high. It is now trying to fight off the formation of a head and shoulders pattern, a bearish pattern than sets up a further drop. If Nasdaq fails at this level and breached support at 1650ish, it will most likely fall to 1600. That is the key point. If it fails there it breaks the 'neckline' in the pattern that has yet to form and could fall toward 1500. That is all way in the future, and with head and shoulders patterns, they can form right up to the breakdown point and then dissipate. Thus, we are not fretting over it, but just recognize that this level is important resistance to top, and if it doesn't do it there is another trip lower in the range ahead. Nasdaq certainly has not worked out its issues, but it does not have to break below 1650 to do so. SOX is stirring again, and that is providing support. If chips finally make the breakout (if, buts, candy and nuts), Nasdaq would most likely be in solid shape. For now it has work to do before it starts screaming 'buy' (or even raises its voice).
S&P 500/NYSE
Had the toughest session, arguably showing some distribution as it turned back from the simple 50 day MVA but held easily within its range.
Stats: +0.2 points (0%) to close at 984.03
NYSE Volume: 1.195B (+6.43%). Volume advanced as large caps sold, giving the hint of distribution. Still very low, below average summertime volume.
Up Volume: 522M (-335M)
Down Volume: 671M (+409M)
A/D and Hi/Lo: Decliners led 1.29 to 1. Small caps were holding up well, and that helped the NYSE A/D line as the large caps lost some of their recent luster.
Previous Session: Advancers led 2.36 to 1
New Highs: 159 (+31)
New Lows: 28 (+13)
The Chart: http://www.investmenthouse.com/cd/$spx.html
The large caps could not hold the simple 50 day MVA (989) Wednesday, fading back to the 18 day MVA (983) on the close. Still very much in the range that has expanded recently on the downside to 962 on up to 1015. Rising volume Tuesday on the gain was immediately trumped by some stronger volume selling Wednesday. No major rollover, just an erosion as SP500 made a lower high in the trading range. It too needs to continues to hold over 975 and work through its now 8 week consolidation.
DJ30:
Stats: -38.3 points (-0.41%) to close at 9271.76
Volume: 1.195B (+6.43%)
The blue chips were on the verge again of a breakout, but we were not really expecting the move as volume has consistently trickled lower this month as it moved up to the top of the range at 9353-9361. Indeed, the Wednesday volume was quite low, indicating no distribution and keeping the blue chips in their place as the leading index during this consolidation move. A higher low at the simple 50 day MVA (9144) on this pullback would set the stage for a breakout, but that also depends upon how the other major indexes are able to shape up during that time.
THURSDAY
Producer prices are released before the open, and that will give another reading of the deflationary status of the economy. My how quickly things have changed from just a couple of months back when deflation was still a real concern for the economy. Since then rates have moved higher, in part because they were straining to do so and in part because the Fed tried to hold them too low, and several economic reports across the spectrum have improved. Thus the PPI most likely won't have much impact on the market unless it is way out of line with the 0.1% gain expected.
Thus the focus, at least form an academic view, will be the initial jobless claims. They have been lower for a month and below 400K for three straight weeks. Expectations are for a fourth sub-400K week, and that would further drive the 4-week average below 400K. 4 weeks in a row would start to show that the job market is firming even with the current round of planned layoffs that are still to hit. Lower initial claims do not equal new jobs, just a necessary part of the process of ultimately creating jobs. The economy is already improving, and as it continues there will be demand for more workers. As many have pointed out, demand won't be what it has been in the past as many jobs have been exported due to cheaper labor scales overseas. Still, there will be service jobs that require workers in addition to manufacturing jobs that will emerge as the economy recovers.
The interesting thing about jobs is how they are a dynamic much like stocks. Each boom and bust cycle in the market brings new leaders to the forefront as they meet the needs of a changing economy and populace. The same occurs with jobs. As a bust cycle hits certain jobs are eliminated as duplication is eliminated and inefficient operations shut down and do not reopen. The survivors and those in new industries create the new jobs. Services are what the baby boomers seek, and that is where most of the job creation will be.
As for Thursday, the indexes just tried a move and are pushing back down on some rising volume. They did not show the inclination to make the break higher. If anything they showed the need for further work on the new bases forming. This action is somewhat choppy but choppy within a range. The key here is to continue focusing on those stocks that set up and make the solid moves. Sounds like a broken record, but in this consolidation there are stocks that are trying to emerge as leaders already, and those tend to make the earlier moves. When things break higher, they are out running in front. That is why we harp on them and keep a close watch on them. That way we can get a head start when this consolidation runs its course and the general market starts its next move.
Support and Resistance
Nasdaq: Closed at 1686.41
Resistance: The 18 day MVA (1689). 1700 (Feb 2002 low). 1740 is next resistance. 1760 (May 2002). 1800.
Support: The exponential 50 day MVA (1660). 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 984.03
Resistance: The simple 50 day MVA (989). 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 9271.76
Resistance: 9353, the June intraday high, 9361 the July intraday high. 9500 (June 2002 lows).
Support: 9250 to 9236, the early June intraday high. The simple 50 day MVA (9144). The exponential 50 day MVA (9071). 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% actual, -0.1% expected, -0.3% May (revised from -0.2%).
Retail sales, July (8:30): 1.4% actual, 1.0% expected, 0.9% June (revised from 0.5%).
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
THE PLAYS:
Wednesday good movers: AMEV; COLT; DRL; FLSH; GPRO; IMAN; MKSI; TSCO
New Plays:
Upside:
Play Date: 08/13/2003
CCMP (Cabot Microelectronics--$61.84; -0.3; optionable): Chip making chemical slurries
http://biz.yahoo.com/p/c/ccmp.html
STATUS: Cup w/handle. We are taking another shot at this stock as it has formed back up again, coming off the 18 day MVA (57.85) Monday on a solid shot of volume. We were too impatient on this one last time, but it is giving us another opportunity. It is working on a breakout from a 3 month base sporting outstanding 12 to 6 accumulation (12 up weeks on rising volume to 6 down weeks on rising volume). Money flow remains strong and relative strenght is ready for the breakout as well, an indication of the stock's strength even as the rest of the mrarket struggles to hang on.
Volume: 505.336K Avg Volume: 874.318K
BUY POINT: $63.25 Volume=1.2M Target=$72.55 Stop=$59.95
POSITION: UKR JL - Oct. $60c (61 delta) or UKR JM - Oct. $65c (40 delta) &/or Stock
http://www.investmenthouse.com/ci/ccmp.html
Play Date: 08/13/2003
MIPS (Mips Technologies--$3.54; +0.15; no options): Memory chips
http://biz.yahoo.com/p/m/mips.html
STATUS: Cup w/handle. MIPS is moving higher on some solid volume this week, heading back up after a breakout in mid-July and a test the past three weeks. Accumulation in the 8.5 month base is an excellent 11 to 3. Outstanding money flow as well adds some icing to the picture.
Volume: 194.486K Avg Volume: 235.772K
BUY POINT: $3.69 Volume=275K Target=$4.65 Stop=$3.28
POSITION: - Stock (no option chain)
http://www.investmenthouse.com/ci/mips.html
Downside:
Play Date: 08/13/2003
LFG (Landamerica Financial--$45.75; -0.81; optionable): Asset management
http://biz.yahoo.com/p/l/lfg.html
STATUS: Double top. PFG double topped in June and July and then broke through the 50 day MVA (32.26) 7 sessions back. It has made a low volume rally back up to that level. It started to tank Monday on high volume but then made a low volume test higher again on Tuesday as the overall market moved higher. Wednesday it tapped the 50 day on the high and rolled back down as volume started to rise. The price/volume action is poor and money flow is tanking ahead of price. Looking for price to follow it lower.
Volume: 225.8K Avg Volume: 141.318K
BUY POINT: $45.48 Volume=200K Target=$42 Stop=$46.74
POSITION: LFG XI - Dec. $45p (-40 delta)
http://www.investmenthouse.com/ci/lfg.html
End part 1 of 2
|
us stock market
trading system
|
