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us stock market, trend trading stock
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8/26/03 Investment House Daily
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Investment House Daily Subscribers:
MARKET ALERTS:
Target hit alerts issued Tuesday: None issued
Buy alerts issued: DRIV
Trailing stop alerts: PWER; FLSH. Most stocks recovered well from tests of support.
Stop alerts: GMR
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:
- Market goes down, market goes up in a light volume reversal
- Consumer confidence rises, durable goods orders solid, and retail sales remain quite strong despite rising gas costs.
- Even with the afternoon recovery the market is still trading inside the range.
Late summer whipsaw as low volume lets a few push stocks lower, then push them back up.
The news was across the board before the open with solid durable goods orders and weekly retail sales, but Intel was again backtracking on its statement last Friday that things were picking up. In what has become a daily event much like Wal-Mart's weekly sales update, the Intel CEO was out again mitigating his prior statements, saying that the Q3 pickup may just be temporary. Whether the statements are ultimately true or not, it is clear from the mass of quivering of indecision that the folks at Intel are still scared of their shadow. Whether it is fear of guessing wrong as it did last year banking on a chip recovery in Q4 of 2002, fear of potential shareholder suits if things don't continue to improve, or just fear in general, no one knows. We surmise it is a combination of fears. The end result is that Intel is being careful to cover its tracks in the event things don't come out just rosy.
The Intel indecision was countered by a solid durable goods report, weekly retail sales, and rising consumer confidence. That trio was still unable to offset an early round of selling pressure that took the SP500 down to the 50 day MVA. In light trade and rumors re Greenspan being dead, one sell program can move the market and that is what happened. When the SP500 hit near the 50 day MVA and held, however, the sellers lost what little momentum they had. When they could not punch through support the shorts started to cover and voila, a market rebound that took the indexes positive on the close. Easy down, easy up, all made possible by a lack of trading volume.
At the bell the indexes had recovered to positive. Not great rally, just a recovery from support, making a higher low and moving back up to the top of the trading range. SOX, SP600 and SP400 all tapped at the top of the old range on the lows and rebounded. Again they are all in remarkably good position again even with the reversal last week and a couple of attempts to take them lower thus far this week.
THE ECONOMY
Durable goods orders rise 1.0%, the second consecutive month.
This is a volatile number month to month, and the key to it is how it is trending. While 1.0% (0.9% expected) is less than the prior month, it looks as if it is starting to trend higher (June was revised from 2.5% to 2.8%). Consecutive growth and upward revisions to past reports are signs of a strengthening trend.
A breakdown of the key components shows some promise as well. Computers and equipment were up 2.4%, also a second consecutive monthly gain. Communications equipment, a lagging sector for months, jumped 12%. Non-defense capital goods, the proxy for business spending, rose 0.4%; lower but the third consecutive gain. We saw the Q2 GDP showing solid increases in this area, and that continued into Q3 with the July number. This has been the missing component in the recovery, and it continues its gains. You won't see increasing gains every month, but consecutive advances is a sign of recovery.
August consumer confidence beats expectations, and the carping about present conditions ignores fact that consumers are buying more and more.
Confidence rose to 81.3 over the 79.6 expected. July was revised to 77.0 from 76.5. Not huge numbers, but a nice increase, much better than expected along with another upside revision to a prior result as well. Expectations rose to 94.4 from 86.3. Solid. Present conditions dropped from 63 to 61.6. That was the focus of all the criticism. That was why some were saying the market sold early.
We will certainly get blamed by some for not looking at this as a problem, but as usual, consumers say one thing and do the other. The present conditions, i.e., what people are thinking and doing right now, has been in the sixties for a few months. What has consumer spending done? It has surged. We are not talking about increases due to higher gasoline prices taking up more of the disposable income, but retail sales from chain stores and the like. Big gains in WMT both before and after the tax money started to hit consumer pockets. Tuesday Target and Sears announced they were ahead of plan for August. Bank of Tokyo/Mitsubishi reported a 0.2% rise in retails sales week over week and a whopping 4.5% year over year for the same period. That is on top of 4% year over year gain reported the prior week. If there is a link between current conditions sentiment and buying habits, we cannot wait to see what the spending is like when they get confident. Indeed, BTM reported that sales were hampered by the increased gas prices or they would have been significantly better. All the more reason for Rumsfeld and friends to get the manpower necessary to do the job in Iraq. It is one thing to say you have the troops to do the job. It is another to do the job. If there are enough, prove it by getting the oil flowing. If you can't, then get the manpower to get the job done.
Summary. There are still many reasons to doubt any economic recovery will last, including large consumer debt, a housing market that is losing steam (new home sales were down 2.9%), a loss of jobs to overseas labor markets, rising interest rates, Europe heading down and not up, deficits, etc. You can take your pick. Those are all possibilities, and events could merge and bring about problems for a recovery. At the same time, the economic data continues to improve across the board and also in areas it has been painfully lacking such as business investment. Clearly the tax cuts are helping, and some say that once they are over the same problems will engulf us. That remains to be seen. The stimulus is stimulating economic activity. The key to any plan is whether it is enough to light the fire and then for the fire to burn on its own. Some smart economists are indicating the Q3 growth pace has risen from 4% to 5%, and as we noted, the growth is pretty much across the board. It is hard to complain about that, but we do have to make sure government spending is curtailed to allow a rising economy and thus tax base to pay down those deficits. In short, you can have some big deficits short term but you have to also let the economy grow so it can pay them down and then have the money for new programs that invariably will pass. It is a balancing act, and at this stage we are just trying to get growth initiated so we can worry about the latter stages.
THE MARKET
It's a selloff, it's a rally, it's still in the trading range.
That is only partly true. DJ30, Nasdaq, and SP500 are still in the trading range. SOX, SP400, SP600 have tested their breakouts and held. Thus the market continues to hold in very good shape heading into the labor day weekend. It looked ready to reverse and rollover, and many stocks are still in trouble, but it has managed to fight off what selling there has been and hold up.
Of course with the low volume there has not been strong selling pressure or strong buying interest. The stronger selling and buying has been scattered among individual stocks while the overall market has bounced up and down in action that is getting close to whipsaw action. In this environment we have protected some gains, let some stocks test support and bounce, and moved into new positions that are making strong moves. It is a market that has not decided on its direction but is definitely not giving in to the pre-Labor Day attempts to sell it.
Market Sentiment
VIX: 20.33; +0.01
VXN: 29.75; +0.41
Put/Call Ratio (CBOE): 0.9; -0.31. Remained on the high side.
NASDAQ
Tested the 18 day MVA on the low and rebounded on some rising volume. Still in the trading range.
Stats: +6.34 points (+0.36%) to close at 1770.65
Volume: 1.387B (+23.42%). Rising though still below average volume. Technically accumulation but nothing powerful given the overall low trade.
Up Volume: 881M (+442M)
Down Volume: 462M (-193M)
A/D and Hi/Lo: Advancers led 1.11 to 1. Reversed from -3:1 early.
Previous Session: Decliners led 1.34 to 1
New Highs: 111 (-8)
New Lows: 11 (-1)
The Chart: http://www.investmenthouse.com/cd/^ixq.html
As with the rest of the market, Nasdaq was under pressure early, testing below near support at 1750 to tap near the 18 day MVA (1730) on the low (1737). From there it held, turned, and posted a modest gain. Not a bad 33 point turn, much like the 47 point Friday reversal. Volume, though stronger, was not the level that shows strong accumulation even though it did rise as the tech stocks staged their recovery. That indicates more buying interest than selling, but no major swing to the upside. Nasdaq continues to hold on to its consolidation range, and there are many stocks including chips that have pulled back to test support. They look ready to try a move, but if Nasdaq tries another breakout it will have to be strong.
S&P 500/NYSE
SP500 set the table Tuesday as it sold to the 50 day MVA, but then rebounded for a gain on rising volume.
Stats: +3.02 points (+0.3%) to close at 996.73
NYSE Volume: 1.174B (+23.72%). Volume was up but you could hardly call it surging as it remained well below average. Light trade makes it difficult to get a bead on the action, but most stocks are holding their support and rebounding as well, and that combination of price and volume action is the best indicator. For now it is in decent shape.
Up Volume: 734M (+379M)
Down Volume: 419M (-157M)
A/D and Hi/Lo: Advancers led 1.28 to 1. Nice recovery from a very weak -2.8:1 early in the session.
Previous Session: Decliners led 1.44 to 1
New Highs: 60 (+5)
New Lows: 25 (+13)
The Chart: http://www.investmenthouse.com/cd/^spx.html
As noted the large cap index appeared to be the catalyst Tuesday. In the pre-market alert we noted the 50 day MVA (983) would be the key level, and when the sellers were unable to pierce that level a combination of short covering and buying helped usher along a recovery back over the 10 and 18 day MVA (994, 991). That keeps the index within its trading range (975 to 1015). For now that is about all the you can say about it: recovering from selling but unable to make the breakout. All in all not bad action.
DJ30:
Stats: +22.81 points (+0.24%) to close at 9340.45
Volume: 1.174B (+23.72%)
More range testing as well as the blue chips broke below the 18 day MVA (9298) and tested support at 9236 (9250 to 9236) on the low before rebounding to close at the 10 day. As with the other large cap indexes, this action kept it within the trading range thus far it has failed a breakout attempt but also fought off attempts, along with the other indexes, to sell them off. The time of the year still is a concern, but for now it is holding its own.
WEDNESDAY
No economic news Wednesday as the large cap indexes will face the top of the trading range again and the smaller caps and SOX will have a chance to bounce up off of the breakout est. That puts many stocks in position to move ahead, and if the timing was a bit different we would be quite excited about the patterns. We like what we see but the moves will have to be with some strength. We have limited our upside action to those stocks moving on strong trade. That is not a guarantee of success if the market starts to sell, but it shows that some big money was buying, and it will be less likely to turn and dump the stock immediately.
We have been fairly quick to protect some positions where we had gains that started to pullback. They may turn and rally again, and we will look at them for additional plays if they do. We may miss out on some gains being protective of positions, but given the time of the year that is fine with us. We can always find the next entry point to put them back to work for us if the market provides a strong breakout.
Ultimately the market will tell the direction regardless of the time of the year. Stocks continue to hold up well along with the indexes. Even if the timing is unlikely, if it makes the break higher we will selectively move into those stocks with the best patterns that are making the strongest moves. We continue to remain cautious about any breakout attempt and will protect existing positions, but if the stocks showing solid patterns provide strong breakouts, we will take advantage of what the market is giving us.
Support and Resistance
Nasdaq: Closed at 1770.65
Resistance: The July intraday high (1776). 1800.
Support: 1760 (May 2002) is some support down to 1740. The 18 day MVA (1730). 1700 (Feb 2002 low). The exponential 50 day MVA (1688). The lower end of the June closing highs (1677 to 1645) held on the last test.
S&P 500: Closed at 996.73
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 (992). The exponential 50 day MVA (983) and 975 (December 1997 peak). 965 (August 2002 peak). 951 (late May high) to the mid-May high (948).
Dow: Closed at 9340.45
Resistance: 9353, the June intraday high up to 9361 the July intraday high. 9500 (June 2002 lows).
Support: The 10 day MVA (9336) is trying to hold. The 18 day MVA (9298). 9250 to 9236, the early June intraday high. The exponential 50 day MVA (9160).
Economic Calendar
8-25-03
Existing home sales, July (10:00): 6.12M actual, 5.90M expected, 5.83M June.
8-26-03
Durable goods orders, July (8:30): 1.0% actual, 0.9% expected, 2.6% June (revised from 2.3%).
Consumer confidence, August (10:00): 81.3 actual, 79.6 expected, 77.0 prior (revised from 76.6).
New homes sales, July (10:00): 1.165M actual, 1.150M expected, 1.20M prior (revised from 1.16M).
8-28-03
Q2 GDP (8:30): 2.9% expected, 2.4% previously reported.
Initial jobless claims (8:30): 390K expected, 386K prior.
8-29-03
Personal income, July (8:30): 0.3% expected, 0.3% June.
Personal spending, July (8:30): 0.8% expected, 0.3% June.
Michigan sentiment revised, August (9:45): 90.4 expected, 90.2 first reported.
Chicago PMI, August (10:00): 56.0 expected, 55.9 prior.
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 2 of 3
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us stock market
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