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world stock market, us stock market
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8/28/03 Stock Split Report
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Stock Split Report Subscribers:
MARKET ALERTS
Targets hit alerts issued Thursday: CHS
Buy alerts issued: COCO; ZMH
Trailing stops issued: None issued
Stop alerts issued: 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. You can sign up for Stock Split Report alerts at the following link:
http://www.investmenthouse.com/alertssr.htm
SUMMARY:
- Market continues rebound as institutions make their last buys for the week.
- GDP revised higher, jobless claims below 400K, IMF still doesn't get it.
- Market moves higher on volume, but the slate will be cleared when trades starts Tuesday.
Indexes reverse and rise into the close as overall sentiment continues to push stocks higher.
The market was modestly upbeat pre-market with a solid Q2 GDP revision and again solid weekly jobless claims. That lasted about 5 minutes before the indexes sold off. They held support and moved laterally for about an hour. At that time we heard the CNBC Nasdaq reporter parroting some alarmist comments short sellers had phoned in to her so she could predictably spout them out on the airwaves. Basically she said 'many' were saying the Nasdaq action was topping action and that a 3% to %5 sell off was imminent. When we heard that we issued an alert stating that this type of commentary typically meant it was time for a rally. On cue, the market turned within 5 minutes and started its rally. A mid-day 3 hour lateral move at the opening high allowed the market to catch its wind, and then it ran to the close. It was poetic justice given the likely source of the 'information.'
Early the action was led by large cap techs as evident by a rather weak A/D line. That swelled in the afternoon as small and mid-caps took the lead in the rally. While some speculated that the action in the smaller cap issues indicated day or swing traders were controlling the action, several floor traders told us their orders and others they were seeing were for institutions buying these stocks, making some of their last buys for the week. Indeed, the overall volume was up, really swelling in the afternoon. That speaks to institutional action; you, me and the local day trader's union don't have that much clout. The institutions were not making major commitments, but they were steadily putting extra cash to work in the afternoon.
Even with overall rising volume (though still well below average) there were not as many volume breakouts Thursday. There were a lot of stocks making the price moves, but without the volume behind them to show the big money was buying into them, we were holding off. In the forefront on our list of considerations today was the fact that a lot of fund managers and staff will be back Tuesday and stocks that moved up on low volume could be targets. That is why we were very selective even as the market ran higher. We have some great plays that are working very well, and we were content to let them continue to work for us.
THE ECONOMY
Q2 GDP revised to 3.11%, topping expectations.
There were many good points to the revised report and some not so good. On the downside, defense spending continues to be a large chunk of the pie, rising 45.9%, stronger than the 44.1% previously reported. That is the downside because government spending won't be that strong forever, and it should not be. We are not in the USSR, Sweden, Cuba, etc.
As for the good points, they were more plentiful. This was the fastest growth since Q3 of 2002. Non-defense capital investment, i.e., business investment, rose 8%, surging even higher than the 6.9% previously reported. That blows away the -4.4% in Q1 and shows just how positive the tax incentives passed in May have been. The other big positive is the inventory picture. You may remember how we always said GDP was perverse in certain ways one being how inventories were counted as boosting GDP. In slack times when inventories build because of poor sales GPD is way overstated (as it was during the recession that was longer and deeper than most admit). In Q2, however, inventories were way down even as final sales were way up. That means there is no inventory to draw upon as the economy continues to recover (retail sales jumping, business spending rising), and that means even more production will be necessary. Moreover, there is no GDP inflation caused by excess inventories that are just sitting around. Indeed, the falling inventories LOWERED GDP by 0.9%. The speed is picking up in the economy still.
Jobless claims under 400K 5 out of 6 weeks.
Jobless claims rose to 394K, higher than the 390K expected and the prior week was revised to 391K from 396K. This is really splitting hairs as they are within the margin of error. The 4-week average remained sub 400K (396,250) and continuing claims edged higher by 26K. The blackout was said to have added 2K to 3K on the number. What this means is that the job market continues to slightly improve, on par with a recovery that first ahs to see consumers and businesses start to consume and then creates jobs later. Indeed, the employment report is out next Friday, and we are somewhat concerned that once again there will be too much optimism a to how many jobs were lost or created.
Tax cuts are working though IMF does not see it.
The rise in the capital investment portrayed in the GDP data as well as company reports of increased business activity shows that after a very slow Q1 where war worries and deflation concerns dominated, companies have started a very rapid spending campaign. The tax incentives to smaller businesses combined with improved optimism about the future have led to that surge. Many said it would not work and others said it would not be fast enough (e.g., the Fed), but it appears they were somewhat in error. Once it became a certainty that the incentives would be there, businesses started to spend in the Q2 (the tax cuts were passed in May). There was apparently more pent-up demand than estimated from the war. Jobs have not risen yet, but jobs would not rise at this stage in the recovery. Thus while there is merit to concerns about jobs going offshore, it is somewhat disingenuous to show outrage when jobs would not be created yet in the economic cycle.
Then there is the brain trust of economic strife, the IMF. In one breath Thursday it warned of slower world economic activity given the problems in Europe and Africa. It still does not have much hope for Japan either, apparently (and from its past history, obviously) ignoring what the financial markets are telling us about Japan, Korea and company. Even as it laments the declining growth it blasts the US for creating deficits as the US tries to get out of its own recession.
Apparently the IMF is correctly seeing the US economy as the one that will hold up the rest of the world economy as it did in the mid to late 1990's. If the US slides back to recession, the rest of the world is in a heap of trouble. The US, however, is taking steps that Japan and others did not, e.g., lowering interest rates and passing three rounds of tax cuts to stimulate the economy. It is these very actions that have started the current recovery and were designed to avoid a Japan-like scenario, i.e., a 12 year depression. As discussed, they appear to be working.
The IMF, however, does not grasp the need to create deficits now to generate economic growth now and in the future, growth that will, as it did in the 1990's to 1990's boom, turn those deficits into a more balanced economy. Instead it sees the deficits as a threat and 'demands' the US take immediate steps to remedy them, meaning raise taxes back up to where they were or higher. In other words, go ahead and remove what has helped foster the new economic recovery and send us right back into recession with everyone else and thus effectuating what the IMF fears the most.
The IMF demonstrated the same lack of economic understanding in 1998 through 2000 as it continually challenged the Fed to raise interest rates to slow the US economy for fear it would spark inflation or collapse quickly. Well golly gee, the Fed raised rates as the IMF wanted and the economy collapsed quickly. You can conclude that the IMF has little clue as to economic relationships or that it understands them but fears the US. In 1998 it feared the US was becoming too economically powerful to go along with its super power military status. As Europe slips into recession and the US is showing clear signs it is emerging from its own recession because it had the guts to do what was necessary to turn the tide, the IMF again fears the US will get too far in the lead. Thus the same old drumbeat that worked on the Fed in the late 1990's is now starting again, trying to pressure us to undo what is from all economic reports, working. It would be a colossal blunder for us to listen to this entity that does not have our best interest as its goal.
THE MARKET
We are enjoying the upside action, but Thursday we toned down the buys. For one, the good moves were just not as plentiful. Second, the indexes have risen but volume has been overall low; there are not a lot of buyers with conviction. There are buyers with conviction, just not a lot of them. That will change next week. The issue then is whether they will be buyers or sellers.
We have talked with many institutional buyers and floor brokers and they are saying that the big money still feels there is upside and that they are continuing to put money to work day in and day out, and they think that will continue. The reason is the improving economic data and the fact that many big institutions are ruing not putting more money to work earlier, not believing what the market was telling them. They want to play some 'catch up' when the opportunity is right.
And that is the issue. Many still are looking for the traditional September dips. We thought it might start this week but the market rallied as opposed to the typical last week in August dip. Does that foreshadow a better September this time? It very well could if what the institutional traders and floor brokers are telling us is true. Still, many are looking for a fall in September to use as a buying opportunity. That can mean two things. One, it becomes a self-fulfilling prophecy. Everyone looks for it, and at the first sign of trouble they start selling and it snowballs. Second, it is a contrary indication and the market breaks out again and runs higher. It may dip, but before it falls much at all, those feeling as if they missed the move jump in and start a breakout move.
At this stage no one knows which scenario plays out. The market has shown good price/volume action, up on up days, down on down days, and that indicates that there continues to be ongoing accumulation. That is always a good sign as institutions are not showing nervousness about holding and adding to the stocks they have been purchasing all along. Moreover the indexes have held their ranges even after a Friday reversal that was more bark than bite, continuing to consolidate the March to June move. That is very good action. But for the history behind September we would be quite excited. As it is we remain cautious, but we also do not ignore good moves when they are made.
Market Sentiment
VIX: 19.93; -0.41
VXN: 30.31; +0.26
Put/Call Ratio (CBOE): 0.61; -0.47. After throwing off two 1+ showings on the close that coincided with the turn back up, the ratio plummeted.
NASDAQ
Techs are back up to the recent highs, putting together a rally on some rising though below average volume.
Stats: +18.05 points (+1.01%) to close at 1800.18
Volume: 1.471B (+8.32%). Volume was up, moving up very well as the indexes started to rally later in the session. Still below average, but there were institutions at work
Up Volume: 1.076B (+85M)
Down Volume: 377M (+62M)
A/D and Hi/Lo: Advancers led 1.54 to 1
Previous Session: Advancers led 1.66 to 1
New Highs: 259 (+90)
New Lows: 14 (+8)
The Chart: http://www.investmenthouse.com/cd/^ixq.html
Another 52-week closing high on Nasdaq though it still is below the recent intraday high at 1812.49. This will be the jumping off point for the index moving into the long weekend; in other words, it may rise to test it, but we don't think it will break it. If it does move up to that level on the close, that sets it up to move lower when the market re-opens Tuesday. On the downside the 18 day MVA (1742) is the near support.
S&P 500/NYSE
The large caps rallied late to post a modest gain on rising volume, continuing the nice consolidation.
Stats: +6.05 points (+0.61%) to close at 1002.84
NYSE Volume: 1.15B (+9.8%). As with Nasdaq, rising but still below average volume. The action of late has been nice, positive price/volume action, up on up days, lower on down days.
Up Volume: 840M (+194M)
Down Volume: 295M (-81M)
A/D and Hi/Lo: Advancers led 2.32 to 1. After being down 3:2 all morning, the smaller cap stocks took over and breadth blossomed in the afternoon rally.
Previous Session: Advancers led 1.58 to 1
New Highs: 192 (+74)
New Lows: 4 (-13)
The Chart: http://www.investmenthouse.com/cd/^spx.html
SP500 has made a higher low with a tap at the 50 day MVA (984) Tuesday and an 18 day MVA (993) the past two sessions, rebounding each time. Volume has expanded on the up sessions, good action showing accumulation, but not powerful as noted. A very nice 3 month consolidation continues, and if it remains in the range Friday, it will be ready for a breakout in the coming week as it has not rallied sharply. As noted, Nasdaq and the smaller cap indexes are more vulnerable as they have made runs back up toward their highs on the breakouts.
DJ30:
Stats: +40.42 points (+0.43%) to close at 9374.21
Volume: 1.15B (+9.8%)
The blue chips edged over the top of the range (9361) on the close on some slightly rising volume. It did not announce its presence with authority, however, as volume was still quite low and it is well off the recent highs at 9500 where the index turned over after it broke out but could not advance in mid-August. Very volatile session for the blue chips, falling below the 18 day MVA (9309) down to some support at 9250 before rebounding for a modest gain. As with SP500, we don't expect it to make a break over those levels Friday, and its positioning in its 2.5 month lateral move is solid for a breakout if the big money is so inclined when it returns from holiday.
FRIDAY
There is definitely enough economic activity to make a difference Friday with personal income and spending, Michigan sentiment, and the August Chicago PMI. While the response may not show the volume you would want given it is the Friday before Labor Day (most floor traders told us they would have less than half staffs), it will certainly still be with the market next week.
Thus we are not expecting many strong volume moves Friday as with Thursday, but we will be watching for good patterns that make strong moves as usual. For now the concern about a September dip is just that; the market is showing no signs of distribution or other trouble that would indicate a problem other than the date on the calendar. We don't wan to be like the Federal Reserve back in 1998 through 2000, fearing something that never shows up so much that we sabotage what would and should otherwise be a very fine thing. The SP500 and DJ30 have put in a great consolidation of the March to June move and have made a couple of higher lows within their range, putting them at a good breakout point. Many small and mid-cap issues continue to form nice patterns and then breakout on solid trade.
We are not going to fear our own shadow, but we are also not going to dive into marginal positions on the Friday before a long weekend that leads into September. We have a lot of fine plays that are moving well and we can and should be picky at this point and not feel the pressure to have to get in. We can let our current plays run, take some gains if they get close to lock in some profit before next week and let the rest work for us. We have kept a level head to this point, no reason to stop that now.
Support and Resistance
Nasdaq: Closed at 1800.18
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 (1742). 1700 (Feb 2002 low). The exponential 50 day MVA (1695).
S&P 500: Closed at 1002.84
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 (993). The exponential 50 day MVA (984) and 975 (December 1997 peak). 965 (August 2002 peak). 951 (late May high) to the mid-May high (948).
Dow: Closed at 9374.21
Resistance: 9353, the June intraday high up to 9361 the July intraday high are cracked but not totally broken. 9500 (June 2002 lows).
Support: The 10 day MVA (9342) is trying to hold. The 18 day MVA (9309). 9250 to 9236, the early June intraday high. The exponential 50 day MVA (9175).
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): 3.1% actual, 2.9% expected, 2.4% previously reported.
Initial jobless claims (8:30): 394K actual, 390K expected, 391K prior (revised from 386K).
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 1 of 3
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