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us stock market, trade stock
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8/21/03 Investment House Daily
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Investment House Daily Subscribers:
MARKET ALERTS:
Target hit alerts issued Thursday: ASTSF hit the target but decided to see if it will continue a bit more.
Buy alerts issued: NTOP; QRSI; ADI
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:
http://www.investmenthouse.com/alertdly.htm
SUMMARY:
- Mid & small caps solid, large caps give back gains but struggle to recover late.
- Philly Fed surges, jobless claims mixed, leading indicators score another gain.
- Large caps crack the top of the range on better volume, but they now need to make something of it.
- Subscriber Questions
Good news helps fuel a gain, sort of.
The market got plenty more good economic news with the Philly Fed, jobless claims and leading indicators posting solid gains again. That got the market off solidly with semiconductors again leading higher along with techs as Intel's CEO said he saw what appears to be an increase in computer and information technology purchases. Nasdaq broke over the July high at 1776, SP500 cleared 1003. Right before lunch stocks suddenly tumbled as word spread that a sell order that set off a program sell was erroneously placed. That was too late to stop the selling as several tag along fund managers sold as well. The indexes dipped into negative territory before recovering some after it was widely disseminated that the sell program was an error.
The market never regained its stride, however, with the major indexes wandering sideways the rest of the session. Nasdaq managed to edge back over the July high on the close, but did not put any distance on that move. SP500 closed right at 1003, the next resistance point. The small and mid-caps, however, continued their solid, steady advance, closing at the session highs. It is clear that the leadership has passed to smaller caps and semiconductors on the heels of economic data that continues to show the economic recovery picking up speed.
In the end we have DJ30 and Nasdaq sitting on top of their recent ranges with SP500 still struggling well below its July high. Fortunately there is real leadership from many areas: retail, chips, cyclical, gold/silver, internet. Energy is also shaping up very well with many stocks working in the last stages of bases. While the large caps will need to get their act together, they can fall back and test the breakout even while the smaller caps continue their moves.
THE ECONOMY
Philly Fed August survey surges.
This important regional manufacturing index hit a 5 year high, posting a 22.1 reading, well above the 10 expected and the 8.3 in July. This is a continuation of the solid improvement seen in the regional readings (third consecutive expansion) that finally spilled over into the national ISM in July. The further strengthening and the rate of the advance indicate to us that the speed of the manufacturing recovery is increasing. That jibes with a 4% to 5% growth rate in the third and fourth quarter.
New orders jumped to 14.6 from 10.4. Expectations of conditions 6 months in the future leaped to 62.0 from 56.9, the highest reading in 10 years. This is a sentiment survey as much as a measure of actual activity. If businesses are that optimistic about the future they are spending money on machines, etc. There is little doubt they have been spending as the Q2 GDP figures indicated, and from our surveys it is evident that more and more small businesses are waking up to the benefits of the recent tax cut such as expensing 100% of trucks and other equipment up to a $100K limit.
The employment index tanked from a weak 0.8% to -8.7 as there is still no rush to start hiring new workers. That is the continued lament of almost every economy watcher, but as we said many times before, we won't see any real job improvement until year end.
Jobless claims fall but were revised sharply higher for the prior week.
New jobless claims fell to 386K, well below the 395K expected. Hurrah. The prior week was revised to 403K, however, from 398K. The change was well within the margin of error. The 4 week average fell to 394,250 but continuing claims rose. The numbers continue to paint the same picture: layoffs stabilizing, but no increase in jobs at this stage of the recovery.
There is a problem with improving economic data, and that is impatience. Everyone sees the data improving and then immediately look for jobs to suddenly appear. Much like a watched pot, they don't show up and the grousing starts. It takes time for the water to boil after the pan is filled and the burner is turned on. After the economy starts to improve it takes time for jobs to be created. Excess capacity has to be worked off by new orders that the current personnel cannot handle. Then jobs start appearing.
More companies report improved top line growth, raise guidance.
This week is not a big earnings week compared to earlier in the month, but the retailers are pouring it on with their results right now. Over the past week many companies have not only beat the street but raised guidance for the year as well given the surge in their sales. While expectations have been for companies to meet or beat estimates based on additional efficiencies from within, earnings are showing some extra icing with better than anticipated gains AND improvement in the top line (that is, sales) in addition to the bottom line gains through increased efficiency.
After the Thursday close JWN slaughtered estimates, reporting 48 cents per share versus estimates of 35 to 40 cents. That was an 81% improvement over last year, and JWN raised its forecast for the entire year. GPS beat the street by a penny, also due to increased top line sales improvements and efficiency improvements to help the bottom line.
Leading Economic Indicators rally for the fourth month in a row.
This is a basket of indicators such as the stock market, consumer sales, confidence, etc. that is compiled and in theory provides a look at economic activity 6 months down the road. A four month rise shows good momentum building in the recovery. Nice steady improvement as the leading indicators have risen from the 0.1% - 0.2% rate to the 0.4% rate. The number of consecutive months of improvement as well as the improvement in the rate of advancement are both positives. Thus while a 0.4% increase may not seem much in itself, when they stack up month after month it shows that improving momentum.
THE MARKET
Nasdaq broke over the July high (1776), and did so on stronger volume, but it was no great surge. It was looking sharp but after it got the late morning dips it has a hard time recovering. The chips were still solid and they helped hold Nasdaq up. After giving up the 1776 level intraday it took a late surge to recover that mark on the close. After the Wednesday test of the breakout, DJ30 was ready to run as well, but it never recovered from the mid-day selloff, limping home with a 26 point gain. It was that kind of session: lots of promise and a gain, but it was unsatisfying.
Volume rose on NYSE, Nasdaq, and DJ30, back to above average levels. That along with the continued advance of small caps that ran to close at session highs was the best news. And of course, continued solid breakouts is always one of the best signals for market health. Thus even though the large cap indexes left the session lingering near resistance, there were many continuing positives. Indeed, the rising volume on the upside sessions is one of the better signs to join with the breakouts and smaller cap leadership as it shows renewed accumulation underway.
So we have the large caps in the position where they could test back once more and make a higher low before putting some distance between them and the July highs. They are being helped out by the smaller caps, chips, Nasdaq, DJ20 (the Dow Transports). Seems most of the market is rallying except for the larger caps.
Market Sentiment
VIX: 19.53; -0.18
VXN: 28.28; +0.64
Put/Call Ratio (CBOE): 0.69; +0.07
NASDAQ
Gapped higher, tapped the Wednesday close and then managed to hold on to close just over the July high.
Stats: +17.01 points (+0.97%) to close at 1777.55
Volume: 1.729B (+14.43%). Volume was back up, just topping Tuesday's solid volume surge and coming in above average. The return of rising volume on up sessions as Nasdaq moves up to and through the July high is a very good sign. There is continued carping about low volume, but above average trade is not low volume.
Up Volume: 1.284B (+635M)
Down Volume: 404M (-442M)
A/D and Hi/Lo: Advancers led 1.82 to 1. Much improved.
Previous Session: Advancers led 1.05 to 1
New Highs: 348 (+49)
New Lows: 9 (-3)
The Chart: http://www.investmenthouse.com/cd/^ixq.html
Gapped higher and ran to 1783 on the morning high before the sell off. It showed some strength, however, able to recover to close over the July high at 1776. The recovery was good to see, but when it rallied over that level late, it stalled out and could not advance further. There was decent accumulation, and price/volume action has returned to its solid ways with up sessions on rising trade. We would have liked to see a stronger move through the July high and provide a cleaner break. As noted, however, it was good action to recover and close over the July high after that pre-lunch fall.
S&P 500/NYSE
The large caps could not make the breakout from the range, giving up most of the move with a slight gain to near resistance.
Stats: +2.97 points (+0.3%) to close at 1003.27
NYSE Volume: 1.386B (+15.99%). Only the second above average volume session of the month as SP500 tried to make a stronger move but gave most of it back. As with Nasdaq, however, price/volume action is improving.
Up Volume: 930M (+328M)
Down Volume: 441M (-136M)
A/D and Hi/Lo: Advancers led 1.79 to 1. The A/D line was 2+:1, but the mid-session selling took the wind out of its sales. The smaller issues were performing, so it was the large caps that were the laggards on the NYSE.
Previous Session: Advancers led 1.21 to 1
New Highs: 328 (+95)
New Lows: 15 (-2)
The Chart: http://www.investmenthouse.com/cd/^spx.html
The large caps ran to 1009.53 on the high but gave most of the move back to close right at near resistance at 1003. The candlestick pattern was a doji, and after a run up to the top of the range, that pattern can indicate a pullback ahead. The cold feet at the breakout is an indication it is not ready though it could be dragged along by the other indexes. Again, a test of the 10 day MVA (994) or the 18 day MVA (990), making a higher low, would be good action before another breakout attempt.
DJ30:
Stats: +26.17 points (+0.28%) to close at 9423.68
Volume: 1.386B (+15.99%)
DJ30 was off and running, hitting 9481 on the high, just below the next resistance at 9500. From there it gave the gain back, turned negative, but managed to recoup some gain by the close. Volume was again higher, rising easily above average. This attempt to move higher that was pushed back on rising volume is not the best indication. It is not the worst either. After this run up from 9000 we could be looking again at a test of the breakout move once more, i.e., toward the 10 or 18 day MVA (9337, 9283 respectively), before it continues the breakout move. You never like to see reversals on rising volume as a stock or index breaks higher, but this one also fought back to finish positive and thus was not a complete reversal.
The Chart: http://www.investmenthouse.com/cd/^dji.html
FRIDAY
No scheduled economic reports, but after hours the retailers were reporting more solid gains and increasing guidance for the year. The positives continue to pile up and the market is starting to make a move higher once again, but it has yet to really make a breakaway move on the news.
That is not totally true; smaller cap issues and semiconductors have broken definitively higher as they start once again to price in economic recovery. These stocks are leading higher, looking as if they have started the next leg higher as the leaders. We are not going to debate the issue too much. If the stocks are making the moves, that is the best indicator of market direction. Throw in once again accumulative volume and things start to look pretty decent. The action keeps dragging more and more bears into the market, as one on CNBC admitted Thursday. They can curse the night or light a candle, and more are grudgingly lighting candles. Grudgingly is the key; they are not converting in droves, and that is just what you want. You want a steady source of new capital in the market, and these converts provide that money. In addition to them there are millions of individuals who were former investors in the boom. They are still out of the market, but there comes a time when they have to start planning for the future again.
With small caps, mid-caps, chips, transports, etc. leading higher, we are going to stick with the same gameplan, i.e., looking for stocks rallying off tests of support otherwise making moves through entry points. The improving accumulation volume, continued breakouts and solid leadership, and the smaller caps surging to new highs mean we are not going to get too conservative just as we won't chase stocks that have moved too far. We are going to take advantage of the solid moves and improving conditions now that they are here after that consolidation.
Support and Resistance
Nasdaq: Closed at 1777.55
Resistance: The July intraday high (1776) is being tested. 1800.
Support: 1760 (May 2002) is some support down to 1740. The 18 day MVA (1716). 1700 (Feb 2002 low). The exponential 50 day MVA (1677). The lower end of the June closing highs (1677 to 1645) held on the last test.
S&P 500: Closed at 1003.27
Resistance: 1003, the early June closing high, is being tested now. June closing high at 1011. The June intraday high at 1015. Then 1050.
Support: The 18 day MVA (990). The exponential 50 day MVA (981) and 975 (December 1997 peak). 965 (August 2002 peak). 951 (late May high) to the mid-May high (948).
Dow: Closed at 9423.68
Resistance: 9500 (June 2002 lows).
Support: 9361 the July intraday high to 9353, the June intraday high. The 10 day MVA (9337). The 18 day MVA (9283). 9250 to 9236, the early June intraday high. The exponential 50 day MVA (9138).
Economic Calendar
8-19-03
Housing starts, July (8:30): 1.872M actual, 1.790 expected, 1.845 June (revised from 1.803M).
Building permits, July (8:30): 1.780 actual, 1.800M expected, 1.823M June (revised from 1.817M).
Michigan sentiment preliminary, August (9:45): 90.2 actual, 91.5 expected, 90.9 July
8-21-03
Initial jobless claims (8:30): 386K actual, 395K expected, 403K prior (revised from 398K).
Leading economic indicators, July (8:30): 0.4% actual, 0.4% expected, 0.1% June
Philly Fed, August (12:00): 22.1 actual, 10.0 expected, 8.3 July.
SUBSCRIBER QUESTIONS
Q: Occasionally you suggest making a 'partial' buy which I assume is about half a position. When do you make the rest of it? What does it depend on?
A: You are correct; typically partial positions comprise anywhere from one-third to one-half of what we plan to put into a position. The rest is taken at the next good buy point, e.g., on a move up after a lower-volume test of the breakout (if the initial buy was taken was on a breakout), or on a break over the next level of resistance on strong volume. Another event in which we might make partial buys is on a bounce off a short term moving average if it is a breakout and the stock starts to run up the 10 day or 18 day moving average.
Therefore, initial, partial positions can be taken on a good-looking move that may not be entirely bulletproof such as early in the session or with volume that is not quite there or after a fast strong surge that looks as if it will go higher. We can add to those positions depending upon the action the stock takes in the aftermath. Decisions also include considerations of price/volume action, of course, which help us interpret if any move is healthy or not for taking the remaining positions.
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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