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us stock market, trend trading stock
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8/27/03 Investment House Alerts Report
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IH Alert Subscribers:
MARKET ALERTS
Targets hit alerts issued Wednesday: PFG (took the gain we had given its bounce off the 200 day Tuesday)
Buy alerts issued: QCOM; WEBX; ASF; NFLX; IMA; EMBT; ATML
Trailing stops issued: None issued
Stop alerts issued: None issued
MARKET SUMMARY
Market drifts higher ahead of long weekend.
Breakout the ginger ale, Nasdaq and SOX closed at new 52-week highs. There was little to stir the market with no economic data and few brokerage calls. A sluggish start, a test of support, however, and the market was ready to 'rally.' After SP500 held the 50 day MVA Tuesday and bounced the leaders in Nasdaq, SOX and the smaller cap indexes were ready to get back in the game. The market started higher, and for the most part continued the move on to the close. Not surging, not pretty, but a steady move up in the leading indexes.
Overall the market does not seem ready to commit before the Labor Day holiday. Volume was very low, breadth was poor until a late surge turned it mediocre. DJ30 finished the session in the red and SP500 posted a monster 0.06 point gain. Why was there any reason for ginger ale?
There were dozens of smaller issues, techs and semiconductors that made outstanding moves on outstanding volume. The report is flush with current and new plays that took off. If the major indexes had scored the new closing highs on strong volume it would be a champagne day regardless of late August, Labor Day or the dreaded September. The moves were impressive in many smaller issues, and if you were focused in on them as we have been, the day looked very good.
So what is the story? Most stocks tend to follow the overall market. The blue chips and large caps were asleep, but they were the minority. With September just around the corner you do not want to get too optimistic with a 'this time it will be different' view. On the other hand stocks in the leading indexes are blasting off again. It may go against your gut to move in at this time of the year, but your gut and the market usually head in opposite directions. When leading stocks and up and comers in good patterns with good accumulation and other positive technical indicators are zooming higher on volume surges, you need to take note. The action is dull as reflected by the large indexes, but it is getting pretty furious with those stocks that fly below the financial stations' radar.
THE ECONOMY
Weekly mortgage applications fall 13.3%.
Applications continue to slide overall as rates rise, primarily due to the disincentive higher rates give to those looking at refinancing. Refinancing applications fell 21.3%. New purchase applications fell 3.6%. Rates are still historically very low and that allows home buyers to not only buy a home but to buy more house as well. There was a surge of purchasing when rates started to rise as the fence sitters took action. Now there is a small decline, but with consumer confidence regarding future expectations still very strong and rising, housing will still be there. Those companies focusing on refinancing will be hurt. Those dealing with new purchases will continue on though not at the breakneck pace.
More retail results show solid increases even as sentiment polls show flagging confidence in current conditions.
Chico's, Michaels, Sears. Those are just some retailers that beat the street with earnings or otherwise stated that sales were growing nicely. For the past two weeks at least we have been hearing these upbeat reports of sales ahead of plan, raised guidance for the year, top line earnings growth.
At the same time the Conference Board and Michigan report their results, and while not step-for-step in line they show basically good feelings regarding the future but iffy attitudes toward the present state of affairs. There are scores of analysts and economists to discuss this on television, but the lack of meaningful analysis is interesting, even ridiculous. The polls say consumers are worried about the present and economists fret that could mean a problem for the recovery. If retail sales are rising sharply in the same period that these sentiment surveys cover, what are you to believe? If I want to know if it is raining outside I don't ask a weatherman; I look out the window. What consumers are saying is not translating in their actions. Maybe a minor point, but given all the hand wringing over the confidence results it deserves comment that it is not getting.
THE MARKET
New 52-week closing highs on Nasdaq and SOX as these indexes continue to show relative strength even if it is meager. The move was not powerful, but it was a continuation of the bounce off the 18 day MVA Tuesday that is the recovery from last Friday's reversal. SOX surged again as it and its stocks bounced off the near support. The leaders are leading, the large caps are resting. There is just not a lot of trade taking place in the market as a whole to indicate that the institutions are buying stocks across the board.
There is accumulation in many stocks, however, as smaller issues continue to surge on strong volume. Even some larger caps are making strong moves as well. We have been participating in those moves as they indicate those in the market are focusing on the areas that have provided leadership. The key will be next week and whether the fund managers on vacation come back ready to join the managers that are buying this week. The indexes are trying to breakout but they are not there yet.
Market Sentiment
VIX: 20.34; +0.01
VXN: 30.05; +0.3
Put/Call Ratio (CBOE): 1.08; +0.18. As the large cap indexes slumbered downside speculation continued ahead of the Labor Day holiday. There is the continued belief, and it is in line with past patterns, that September will be a problem for the market. It is showing up in the option trade.
NASDAQ
Techs continued higher, posting a new 52-week closing high though volume did not push them higher. SOX played a big role in the move.
Stats: +11.48 points (+0.65%) to close at 1782.13
Volume: 1.358B (-2.12%). Lower volume as Nasdaq continued the move up off of the 18 day MVA test.
Up Volume: 991M (+110M)
Down Volume: 315M (-147M)
A/D and Hi/Lo: Advancers led 1.66 to 1. Recovered well from negative early in the session, but the lackluster levels show the move was not powerful, matching the modest volume.
Previous Session: Advancers led 1.11 to 1
New Highs: 169 (+58)
New Lows: 6 (-5)
The Chart: http://www.investmenthouse.com/cd/^ixq.html
A new 52-week closing high (intraday high is 18.12.49) as the index refuses to give in. the higher volume reversal last Friday was ominous, but the market continues to find buyers (and a lack of serious sellers), and thus is able to recover. The move set no strength records as far as volume or breadth. It is more an indication of the continuing upward bias in the market. With no volume resistance is definitely at the recent high at 1812.
S&P 500/NYSE
Flat lining on lower volume, but not bad action given it is holding well in the trading range.
Stats: +0.06 points (+0.01%) to close at 996.79
NYSE Volume: 1.048B (-10.77%). Continued below average volume, drying up as the large caps hold right in the middle of the range.
Up Volume: 646M (-88M)
Down Volume: 376M (-43M)
A/D and Hi/Lo: Advancers led 1.58 to 1
Previous Session: Advancers led 1.28 to 1
New Highs: 118 (+58)
New Lows: 17 (-8)
The Chart: http://www.investmenthouse.com/cd/^spx.html
Tapped the 18 day MVA (992) on the low and 'rebounded' to close basically flat. The index was unable to follow through on the Tuesday rebound from the 50 day MVA (983.66). In the face of the Friday reversal it is good action as the large caps continue to work laterally in a nice, quiet move that is still working on consolidating the March to June run. Very good action as it makes a higher low at the 18 day MVA. As noted last week, a higher low at this level provides a good launch point for a breakout. We will see.
DJ30:
Stats: -6.66 points (-0.07%) to close at 9333.79
Volume: 1.048B (-10.77%)
The blue chips and large caps are almost mirror images, the Dow tapping the 18 day MVA (9301.84) on the low and rebounding to recoup some of the losses. It did not manage to turn a gain, but with the very low volume that was not the issue. It held in the top part of the trading range and is trying to make a higher low. Again, this is the scenario we discussed last week and over the weekend with respect to action that sets up another breakout attempt. The indexes reversed last week when trying to make a breakout move, but instead of tanking, they have caught their balance and are making a higher low. While there has been no rush to buy, the selling dried up quickly. It may not make a breakout move this week, but when everyone is back at the grindstone next week the buyside volume may be enough to turn a higher low set up into a strong volume breakout.
THURSDAY
Revised Q2 GDP and weekly initial jobless claims are out before the open. That is about all of the scheduled information to hit the market Thursday. GDP is expected to be revised higher, but jobless claims will get the focus as that is the primary concern in the economy according to sentiment polls. Below 300K is supposed to indicate an improving job market. At this stage there is improvement, but it is in reduced job losses as opposed to gains. As far as quality jobs, those are still months away if the economy continues to expand at roughly the rates we are seeing.
The Wednesday action broke several stocks out we have been watching and it also boosted many existing plays higher while others tested near support and rebounded. There are not a lot of breakdowns littering the market highways. Stocks are testing near support and holding. Some just hold and consolidate, others are shooting back up on volume. In addition to these, we see many more that are setting up for the next move. The number of stocks that are breaking higher and the number that are lining up right behind them to do the same does not indicate a market that is ready to break down. The lighter volume does not give you a complete picture of course, but these stocks are forming up and then breaking out on strong volume, indicating there is bigger money at work.
We will continue to focus on these patterns as we did Wednesday. With the large cap indexes making higher lows, that makes these solid patterns even more enticing. Again much will depend upon what happens when more fund managers return next week, but in talking with many trading desks, we have been told that there are funds that have not been invested in this move and there is concern they may not get to the level of investment they want. With the indexes courting new 52 week highs, the large cap indexes making higher lows, leadership stocks breaking out, and other stocks showing good continuing consolidations, there may be a push to get into stocks when everyone is back at work.
That is all speculation, but we do not see signs of distribution outside a very small number of stocks. With stocks making good moves we are participating as we will follow that action.
Support and Resistance
Nasdaq: Closed at 1782.13
Resistance: 1800 and the recent high at 1812. Then 1860 to 1865.
Support: 1760 (May 2002) is some support down to 1740. The 18 day MVA (1736). 1700 (Feb 2002 low). The exponential 50 day MVA (1691). The lower end of the June closing highs (1677 to 1645) held on the last test.
S&P 500: Closed at 996.79
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 9337.79
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 (9302). 9250 to 9236, the early June intraday high. The exponential 50 day MVA (9167).
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.
SUBSCRIBER QUESTIONS
Q: Please "re" explain your comments on "dojis." You are using them increasingly in your technical comments & I forgot what they mean exactly? i.e., doji up, doji down on lower volume or higher volume. Do you look at volume on a doji, or are you just commenting on the actual stock movement? thanx!
A: We use candlestick charting to analyze stock movement; a doji is a one-day pattern on a candlestick chart. The primary thing to remember about dojis above all else is that they are indications of potential change. They show possible changes in momentum that can give us a foreshadowing or a warning that a change in momentum or direction may be coming. They are not absolute, but are a yellow flag to alert us to a potential change forming up.
(A doji) occurs when the open and closing price are the same or very close to one another. What it signifies is that the buyers and sellers were more or less evenly matched: the stock ended where it started, so no one won the day. These symbols are the most important after a run either to the upside or to the downside has occurred. In other words, dojis occurring as a stock moves laterally may not indicate much other than the stock is trading in a narrow range. That can be good for a breakout, but the doji itself does not tell us much in this situation. What we typically see in a stock that is moving higher is the open at a lower price and a close at a higher price. As the run continues, the gains become less and less; there are fewer and fewer new buyers on that run. Eventually there are equal numbers of buyers and sellers and you get the doji pattern. The same in reverse happens on selling bouts. When you get the doji, that means the side that was in control, either buyers or sellers, is now evenly matched with the other side. In other words, on a rally, the sellers have caught up with the buyers, and usually the doji signals some near term selling as the sellers then move into the majority. In a strong stock that can simply mean a routine test of the near support, typically the short term MVA, is coming in an otherwise trend higher.
What does high or low volume accompanying a doji mean? Well, let's look at some scenarios. If a stock is running higher and shows the pattern of slowing down on the move and then shows us a doji on very high volume and where the stock closes the session well off of its high, that is a sign of reversal (called a tombstone doji). The stock tried to continue its run, but sellers jumped in big time and drove it back to where it started the day on high volume. That is usually a sign that some stronger selling is coming the next few sessions. If the same occurs but the doji is on light volume, it still can mean that move may be over. If a stock hits a high on low volume, that means not many buyers are supporting the move to the high; selling is most likely. However, it may not be as severe as if there is that high volume reversal where the sellers just jump onto the stock. You have to be careful, and doji's are not automatic signals; they are flags saying 'take note of me.' Wait for confirmation, but be ready; the doji was your warning flare. Low volume doji's may mean less virulent selling. Indeed, we like to see those low volume pullbacks to near term support as that means no share dumping and most likely a good buy point or 'add to' point is coming at near term support.
On the downside the results are similar. A high-volume doji that occurs after a stock sells way down and then recovers is good. We call that a hammer doji. What that means is that the stock sold down, but then buyers jumped in to push it back up to where it opened. Perhaps we are being told a reversal just occurred and buyers now outnumber sellers. If this occurs at support, we get really excited. As for the low volume variety, it is not as strong a signal as that doji with a long tail on high volume, but if the sell off down to the support or the doji has been on low volume, the low volume doji is just fine; it can indicate that the move to the upside is just around the corner (the next day or two). Again, the pattern is just a warning and not a 'buy' signal. Let there be confirmation of the move the next day (it actually starts up), and then make the move.
We cover doji's, candlesticks, and all of the technical analysis methods and techniques we use in the online seminars.
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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