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us stock market, trade stock
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9/02/03 Investment House Alerts Report
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IH Alert Subscribers:
MARKET ALERTS
Targets hit alerts issued Monday: Still letting the winners run on the good break higher.
Buy alerts issued: ASKJ; MOBE; MOVI
Trailing stops issued: RIMM
Stop alerts issued: PMTI; LAVA
MARKET SUMMARY
Late charge continues market's bullish action along with some higher volume.
We were wary of the futures run higher pre-market as it showed familiar trends: running up but then peaking and treading water. We expected the early gap to be tested, and it was. As with the recent action, however, it did not stay down. After SP500 stalled at 1015 early, the market pulled back, found support, and rallied again. A two hour lateral move at the top of the range finally gave way at 2ET and the indexes broke free. At that point the shorts that had sold the market early were forced to cover again.
That led to a strong volume surge as shorts bought to close and buyers bought to open. Volume that was stronger but still relatively modest started to show some life, and in the last half hour Nasdaq and DJ30 volume easily ran past average. SP500 volume was less exciting, managing an average close. The volume surge was necessary, but it was also spotty. Most stocks moved up on stronger volume with even the financials starting to show life once again. The majority of the upside moves, however, continued on modest trade. Most stocks enjoyed more upside volume, but the big volume moves we want to see were somewhat limited. Indeed SOX was down most of the session before sneaking positive late. Thus it was not a buying bonanza though there were some excellent moves on new buys as well as existing plays.
In sum, the sellers tried to take the market down after the below average volume gains last week. They failed again and helped fuel the upside reversal as stocks doggedly working higher were boosted by the late short covering. It was not a blowout upside, but when most expected the market to start selling, it was quite a good day on the street.
THE ECONOMY
National ISM beats expectations.
For the second month the national production index topped 50, showing expansion in one of the sectors dogged the most by the recession. August manufacturing rose to 54.7 from 51.8, greater than the 53.5 expected and showing continuing increasing momentum. The production index rose 8 points to 61.6. New orders climbed 3 points to 59.6, making 3 straight months of increases. Back orders were also up, indicating a need to increase activity even further will be required.
Factory layoffs increased, and that was the damper on the Street from what we heard from floor traders. There continues to be this expectation that jobs should immediately return when the economy starts back. As we discussed two weeks ago, there are many jobs that won't return, and for those that will return it is too early to be counting on them to show up. The key for now is that the leading economic data shows the pace of recovery accelerating. The 54.7 reading translates to a 4.3% Q3 GDP growth rate on its own, and that does not count the lower inventories and higher orders seen in manufacturing and other areas of the economy that are pushing GPD even higher.
Layoffs trending lower.
Challenger releases its August figures and reported a 6% drop from July to 79,926 (32% less than August 2002). The Challenger people indicated that this was the fourth consecutive month below 100K and was a very good indication that the layoff cycle was ending. This is part of the process alluded to above: the economy has to improve enough to get companies to stop firing workers, then it has to continue to improve and hold the gains so they have a need to start hiring again. In the hallowed halls of economics buildings this would be called troughing, that point where things bottom and are turning back. Again, that does not mean hiring is here, just that conditions are getting to the point where there will be hiring if the economic improvement continues.
Chip sales rise.
August chips sales rose 10% in August, much better than last August. The SIA further predicts that chip sales will grow 16.8%. That is solid though not blowout growth.
Back to school sales strong.
We are getting reports from around the country that Labor Day weekend sales were very strong. Malls were full, mall parking lots were full, and sales were strong. Some retail analysts even came out Tuesday and indicated that Q3 would be even stronger than expected as retailers were going to command stronger margins, i.e., there will be fewer necessary markdowns in order to move merchandise, for the quarter. Some of the reports we received likened the weekend activity to the holiday season; that seems a stretch, but the point being that stores were busy, more so than anticipated.
THE MARKET
It took two tries but SP500 finally broke over the highs in its trading range, joining the other indexes that broke out in the preceding weeks. While this was not keeping anyone up at night, the SP500 did help hold the market steady when it was testing back last week, managing to find support at the 50 day MVA and help turn the market back up. Now that it has carried past the range that acts as some confirmation of the other moves.
Nasdaq, DJ30, SP400 and SP600 all posted new 52-week plus closing highs and they did so on rising volume. During the session the large cap gains were modest, but breadth was exceptional, indicating the smaller cap issues were outperforming. Indeed they were and it took a late and hard Nasdaq and SP500 charge to challenge the smaller cap issues for leadership.
Volume was higher and above average on Nasdaq and DJ30. It was also above average on SP500 (NYSE), but just barely. Nasdaq and DJ30 turned in solid though unspectacular trade. The positive price/volume action is an extension of that seen last week, just on a better scales. The overall trade, however, was still not what you would consider a tremendous surge of returning fund managers ready to buy the market. It was continued solid price/volume action on a greater scale.
Basically we have the scenario where the market anticipated good economic news and rallied from October and then again in March. That improved economic data started to show up in June and July as the market slipped into a sideways consolidation. It has spent 2.5 months working laterally during the summer months, started to edge higher, and then broke higher Tuesday on stronger trade. In short, it had its run, its rest, and now it wants more upside. If it were not for the time of year most everyone would be all over this market. That in itself may provide just the wall of worry the market needs. The action Tuesday was positive but not blowout across the board. That too keeps the worries higher and that helps those stocks making the moves continue to perform.
SOX sat out the Tuesday action. Many chips started to turn it around late Tuesday and some enjoyed a nice session. The index looks ready to take a rest back to 440 or 425 after an 80 point move, and Nasdaq will need its help in order to substantially extend this move. Many chips are at a point where they could turn higher to add onto some moves, but we will keep an eye on SOX as it is a bit extended on little rest. With the employment report Friday, that could be the point the market starts a pullback.
Market Sentiment
VIX: 19.95; +0.46
VXN: 30.06; +0.54
Put/Call Ratio (CBOE): 0.72; -0.57
NASDAQ
Broke to a new 17 month closing high on above average volume, just the kind of action you look for on a gain.
Stats: +31.03 points (+1.71%) to close at 1841.48
Volume: 1.796B (+47.62%). Highest volume since some early August selling pressure.
Up Volume: 1.399B (+558M)
Down Volume: 383M (+54M)
A/D and Hi/Lo: Advancers led 2.25 to 1. From 1.2:1 breadth spread nicely in the last hour as shorts covered and buyers started to buy. Quality breadth.
Previous Session: Advancers led 1.35 to 1
New Highs: 413 (+132)
New Lows: 7 (+1)
The Chart: http://www.investmenthouse.com/cd/^ixq.html
1825 was the key point to beat Tuesday as Nasdaq tried four times to crack that level before making the breakthrough with two hours left in the session. It is definitely on its next leg with next resistance at 1865, followed by an interim top at 1930 - 1935.
S&P 500/NYSE
Finally a nice volume breakout from the trading range.
Stats: +13.98 points (+1.39%) to close at 1021.99
NYSE Volume: 1.447B (+53.57%). Volume moved above average though it was not blowout trade. The large caps were lagging once again, but then managed to clear resistance and trade expanded as it did, a very good sign.
Up Volume: 1.189B (+511M)
Down Volume: 233M (-10M)
A/D and Hi/Lo: Advancers led 2.62 to 1. Excellent breadth that really spread out in the afternoon.
Previous Session: Advancers led 2.02 to 1
New Highs: 425 (+168)
New Lows: 5 (+1)
The Chart: http://www.investmenthouse.com/cd/^spx.html
A very nice lateral consolidation gave way to the breakout Tuesday with large caps clearing 1015 on rising, above average volume. When the smoke cleared they were in third place on the session, a nice comeback and an indication that the breakout has a bit of strength to it as once the resistance was cleared buyers and short covering pushed it higher. Now it has a bit of maneuvering room up to 1050.
DJ30:
Stats: +107.45 points (+1.14%) to close at 9523.27
Volume: 1.447B (+53.57%)
After the aborted breakout attempt two weeks back the blue chips posted a solid drive higher, closing above the recent intraday highs (9499.47) on a solid volume increase. A good one-two punch with SP500, the DJ30 broke from a nice lateral pattern resembling a cup with handle. Led by IBM post a $3.75 gain, the blue chips found strength where it had been lacking, i.e., outside the cyclical stocks. Next resistance is 9625, then 9700ish.
WEDNESDAY
After the consolidation all indexes were finally clear of resistance with SP500 the last to join in. SOX has already run and looks in need of a breather soon, and DJ30 and SP500 will also need a test of their moves as well as the week progresses. The indexes will have to prove the move was not a one-day event, and they will either do that with another strong charge higher on strong trade or a test back toward the breakout points and a rebound on a resurgence of volume.
Even with September, the solid Tuesday move indicates buyers are still moving into the market, and we will continue to buy into stocks making solid volume moves out of nice patterns or after nice tests of the breakouts. A follow through session of either type will confirm the move, and will keep us moving into stocks when they present the opportunity. One of the reasons we like to see confirmation is that it shows continued buying and limits the chance of an immediate reversal session. While all of the action looks solid with no breakdowns, solid trade, continuing leadership advances, there is always the possibility of a quick reversal of the breakout attempt, that rally higher in continuation of the move that is met with strong volume selling.
Again, given it is September we will be cautious of that, but the action Tuesday was solid. Thus we are looking for more upside breaks Wednesday and as the week progresses. One thing to keep in mind is the employment report coming Friday. Expectations are for positive job creation. If that happens, that will be a big plus for the market. We would be surprised, however, if the report shows job creation. Thus on a further rally in the market Wednesday and Thursday, we need to be aware of some potential disappointment that could start the test of this move higher. Thus we need to move on the breakouts and rebounds and not chase stocks too far on the moves.
Support and Resistance
Nasdaq: Closed at 1841.48
Resistance: 1860 to 1865.
Support: The August high 1812 and 1814. 1776 and 1783 (10 day MVA). 1760 (May 2002) is some support down to 1740. The 18 day MVA (1759). 1700 (Feb 2002 low). The exponential 50 day MVA (1706).
S&P 500: Closed at 1021.99
Resistance: 1050.
Support: The June intraday high at 1015. June closing high at 1011. The 18 day MVA (998). The exponential 50 day MVA (986) and 975 (December 1997 peak). 965 (August 2002 peak). 951 (late May high) to the mid-May high (948).
Dow: Closed at 9523.27
Resistance: 9735.
Support: 9500 (June 2002 lows). 9361 the July intraday high down to 9353. The 10 day MVA (9386). The 18 day MVA (9342). 9250 to 9236, the early June intraday high. The exponential 50 day MVA (9198).
Economic Calendar
9-2-03
ISM, August (10:00): 54.7 actual, 53.5 expected, 51.8 July.
9-3-03
Construction spending, July (10:00): 0.5% expected, 0.3% June.
Federal Reserve Beige Booke (2:00)
9-4-03
Q2 Productivity (8:30): 6.4% expected, 5.7% Q1.
Initial jobless claims (8:30): 393K expected, 394K prior.
ISM Services, August (10:00): 62.0 expected, 65.1 July.
Factory Orders, July (10:00): 0.8% expected, 1.5% June.
9-5-03
Non-farm payrolls, August (8:30): 18K expected, -44K July.
Unemployment rate, August (8:30): 6.2% expected, 6.2% July.
Hourly earnings (8:30): 0.3% expected, 0.3% July.
Average workweek (8:30): 33.7 expected, 33.6 July.
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.
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.
THE PLAYS:
Good movers Tuesday: ANSR; ASKJ; ASPT; BKST; COLT; CSC; FFIV; MERX; MOE; MOVI; NENG; PTEK; QRSI; SINA; ZMH
New Plays:
Upside:
Play Date: 09/02/2003
CMVT (Comverse Technology--$17.19; +0.79; optionable): Telecom processing systems
http://biz.yahoo.com/p/c/cmvt.html
STATUS: Reverse head and shoulders. CMVT is starting the breakout from a 2.5 month base. This is the second base following the October low. Strong money flow is leading higher and relative strength is breaking out as well, a signal of the breakout strength. Want to see more volume on the breakout, but looks good here.
Volume: 3.161M Avg Volume: 2.979M
BUY POINT: $17.32 Volume=4M Target=$20.85 Stop=$16.11
POSITION: CQV AW - Jan. $17.50c (52 delta) &/or Stock
http://www.investmenthouse.com/ci/cmvt.html
Play Date: 09/02/2003
COGN (Cognos--$31.8; +1.14; optionable): Application software
http://biz.yahoo.com/p/c/cogn.html
STATUS: Cup w/handle. COGN is working on the breakout from its 3 month base showing solid 3 to 1 accumulaiton (3 up weeks on rising volume to 1 down week on rising volume). After a nice handle formed last week to shake out the last sellers COGN was up on rising, above average volume Tuesday. Relative strength broke out on the move. Looking for more volume on the continuing move.
Volume: 1.049M Avg Volume: 1.022M
BUY POINT: $32.02 Volume=1.2M Target=$38 Stop=$29.92
POSITION: CRQ BZ - Feb. $32.50c (52 delta) &/or Stock
http://www.investmenthouse.com/ci/cogn.html
Play Date: 09/02/2003
ONT (On2.com--$2.77; +0.52; no options): Internet services
http://biz.yahoo.com/p/o/ont.html
STATUS: Test 50 day MVA. This is the test of the breakout and explosion higher in July, that move following a 2.5 month flat base. It rallied to 4.50 intraday on its high and then fell back to the 50 day MVA (2.09) over the past 7 weeks on lower, below average volume. This is basically the formation of a new base. ONT started up sharply on a big volume increase Tuesday. It is not a breakout play, but with solid 3 to 0 accumulation and money flow starting to surge back up, we are looking for an entry piont here and then later after it forms a handle and makes the next breakout.
Volume: 2.478M Avg Volume: 1.039M
BUY POINT: $2.92 Volume=1.6M Target=$4 Stop=$2.72
POSITION: - Stock (no option chain)
http://www.investmenthouse.com/ci/ont.html
Play Date: 09/02/2003
SOHU (Sohu.com--$34.47; +4.55; optionable): Chinese internet
http://biz.yahoo.com/p/s/sohu.html
STATUS: Test 50 day MVA. SOHU was a huge winner for us on its run, but then topped in June and July and sold back to 30 where it held fast and moved laterally for the past 4 weeks. Tuesday money came pouring back into SOHU as it jumpe off 30 and through the 50 day MVA (32.07) and up to the simple 50 day MVA (34.40). We want to see SOHU break through some resistance at 35ish on strong volume and move in at that point.
Volume: 5.805M Avg Volume: 4.011M
BUY POINT: $35.12 Volume=5M Target=$41.88 Stop=$33.92
POSITION: UZK LG - Dec. $35c (55 delta) &/or Stock
http://www.investmenthouse.com/ci/sohu.html
End part 1 of 2
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