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9/03/03 Stock Split Report Update
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Stock Split Report Subscribers:
On Monday and Wednesday the market summary and choice plays for the next session are issued. Full reports issue Tuesday, Thursday and Saturday.
MARKET ALERTS
Targets hit alerts issued Wednesday: CBK; FRNT; JBLU
Buy alerts issued: CMVT; HYC; SOHU; AVP; MROI
Trailing stops issued: None issued
Stop alerts issued: WONE
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:
- Strong volume but the close was disappointing.
- Chain store sales still rising, auto sales strong, construction is a wash, and the Fed sees improvement.
- SOX is making its pullback, Nasdaq looks ready for a test, but stocks still rallying.
- More positive news after hours from retailer, chip maker.
Another advance with more volume leaves us a bit uninspired.
Stocks gapped higher and continued their run, but Nasdaq could not move through next resistance at 1865. After four shots at it the sellers gained some confidence and almost pushed Nasdaq to negative. Sharply rising volume and the reversal toward negative roused the specter of a high volume reversal. With SOX selling versus participating in the rally, a reversal was a concern. Buyers once again entered, however, and managed to recover some lost ground. In the end Nasdaq still gave back half of its gains and showed a tight doji on the candlestick chart. That is the same action SOX showed Tuesday before it started to sell except Nasdaq gapped higher and showed the doji; the latter is often an even stronger indication of a test lower to come.
Thus we were not all fired up about entering a lot of new positions. There were several strong moves that we started accumulating positions on, but we also let several go that jumped up early and did not give a great entry point. We have a feeling we will get another shot at those soon. In short, the economic news was still good, the buying volume was much better, and the market put together another win, allowing us to take some gain on earlier positions. After a strong run while DJ30 and SP500 were still resting, however, Nasdaq looks ready to provide a test lower with SOX in order to catch its breath.
THE ECONOMY
August chain store sales post further gains, auto sales surge.
BTM and Redbook were out with their August sales reports, both showing solid year over year gains. BTM reported a 0.1% rise week over week and a 4% year over year gain (4.5% in July). Redbook reported a 4.1% week over week gain and a 4.6% year over year rise. It also showed a 1.3% gain over July. These are solid results. The variance in the reports is based on who and how they do the polling. Suffice it to say that consumers were again consuming in August.
Not only chain stores but auto dealers were moving the goods as well. August annualized unit sales were 1.9M, easily eclipsing the prior four months. Daimler said it was going to continue incentives into 2004 and GM announced a slew of new incentives for customers. It is clear that the auto makers are not going to end incentives as soon as they said as they try to capture the buying interest spurred by the tax cuts as individuals and small businesses use the tax cuts and tax incentives to acquire vehicles.
July construction misses expectations, but June is revised sharply higher.
Upward revisions in past reports are in many ways more important than the current report. The revisions are made after the data comes in; the initial report is issued while the information is still coming. Thus when July was reported at 0.2% versus the 0.5% expected but June was revised to 0.7% from 0.3%, no one was too worried about July. The revision shows increasing momentum, and most likely July will be revised higher as well, continuing the renewed construction gains after a slowdown during the war and the wet weather in the east.
More businesses affirming their earnings, increasing guidance, and beating the street.
Before the open COH raised its guidance for the current quarter and the stock enjoyed a nice session. AVP, WEN, PEP and others all affirmed their guidance. AVP said its sales were the best they have been in months. CSCO reported that August sales were coming in greater than expected. AMD stated that July and August sales were 'encouraging.' After hours Cypress Semiconductor guided higher and Costco reported August sales rose a solid 9%.
The story is one we have seen many times the past two weeks. Intel said sales were brisk but then panicked that it may be providing too much information and tried to take some of it back. That in itself, the unwillingness to sound too optimistic, makes the statements even more credible and adds even more weight to them. After the long decline and shareholder and criminal lawsuits against companies and their officers, caution has replaced optimism when it comes to public (and even private) statements. Thus when companies actually publicly acknowledge stronger sales and improving business environments we should take that as an accurate representation.
It is true that Michael Dell stated just this week that he saw no real improvement, but given our experience with Dell as well as other small businesses we know, it is not surprising that Dell does not know who is buying what. The vaunted customer service is a bit better than a joke with random disconnects of customers on hold, the inability to promise an exact delivery date for items such as monitors, batteries, etc. (the only web-based business we know of that cannot provide such information), recorded messages on the scheduled delivery date saying the package won't ship until a week later (and then it arrives that afternoon). The list of problems is very long, and the point is DELL may know how much it is selling, but we doubt it can tell who is buying. We have 4 different accounts at Dell because they continue to lose our information and have to open new ones. Thus they have no idea what our buying habits are.
In any event, Intel gives its mid-quarter update after the close Thursday, and it will most likely narrow its range. It may even narrow them further than people are expecting on the top end, and that would upset the market and make Friday with the employment data not a lot of fun. We expect Intel to narrow, bringing up the lower end while maintaining the high end of the range.
THE MARKET
DJ30 and SP500 just broke out of their nice flat trading ranges on Tuesday and Wednesday added to the gains. They are still pretty fresh have just started the breakout move. On the other hand, Nasdaq, SP600, SP400, RUTX and SOX have already put in strong runs from the early August low. Their daily gains are shrinking some, a signal the move is losing some steam. SOX showed a doji Tuesday after an 80 point run and started to sell Wednesday, falling to the first support point at 440 (10 day MVA) and looking to test toward 425. Nasdaq gapped higher to a tight doji after its own 200+ point run (13%). Nasdaq is now 23% above its 200 day MVA. As with the SOX it could use a breather along with the other indexes that did the heavy lifting while the large cap indexes completed their lateral bases.
No complaints about the volume as all indexes except the SOX scored decent gains on the strongest trade since early June. That is a good sign when indexes break free from a range or resistance as they have done here. We were concerned about Nasdaq reversing on rising volume, but as had been the case all day, buyers entered when the market sold back. That shows continued buyside interest and indicates that any pullback will be more of a rest as opposed to a rollover and sell off despite the fact that it is September.
The last point is important. Though it is September and though every hour the CNBC Nasdaq reporter talks of how Nasdaq is 'rich' and 'technically' in a position to fall and sell into September, Nasdaq and the rest of the market is showing very solid buying. Volume was low leading up to this week, but even though low, it was positive in that it was up on gains and lower on losses. Even when the market was working mostly laterally, price/volume action showed mild accumulation, not distribution (selling). With good technical underpinnings in the market we can look at pullbacks as opportunities instead of threats.
Thus we are expecting a pullback to test this move higher, particularly with the Nasdaq candlestick pattern, the SOX pullback leading the way, Intel after hours Thursday with its mid-quarter update, and the employment report Friday that we feel will disappoint with respect to job creation at this stage of the recovery. We don't expect this to be a big pullback at this juncture. Keep in mind that earnings are coming up in October, and we will start hearing from more companies as they prepare investors for the numbers. We already are hearing from many as noted above, and in most cases it is good news. Expectations are high, and if another run higher comes around ahead of earnings after any dip next week, stocks will be set to give back some once the rumor becomes fact unless earnings are much better than expected.
Market Sentiment
VIX: 20.43; +0.48
VXN: 31.19; +1.13
Put/Call Ratio (CBOE): 0.64; -0.08
NASDAQ
Gapped, rallied, sold, and recovered to show a very tight doji on the candlestick chart. After a long run that can signal a turn back for a breather.
Stats: +11.42 points (+0.62%) to close at 1852.9
Volume: 2.345B (+30.59%). Surging volume as the market gapped and ran. It got a bit dicey when the index threatened to turn negative late in the session, but buyers entered and it recovered. Definitely accumulation ongoing Wednesday.
Up Volume: 1.592B (+193M)
Down Volume: 727M (+344M)
A/D and Hi/Lo: Advancers led 1.38 to 1. Very modest breadth as stocks large caps such as MSFT, CSCO and INTC led the way.
Previous Session: Advancers led 2.25 to 1
New Highs: 506 (+93). Impressive levels of new highs.
New Lows: 6 (-1)
The Chart: http://www.investmenthouse.com/cd/^ixq.html
After gapping higher Nasdaq rallied but ran into trouble at 1865, the next resistance level. Four times it tried that level and it failed each time. The last attempted led to stronger selling in the last hour and threatened to take the index negative. Buyers came in late to recover lost ground and close the index out at the middle of the range. That translates into a gap and doji. A gap down Thursday indicates a pullback. Indeed, after a strong move higher through August, Nasdaq is in need of a rest and the candlestick pattern is giving us a signal the time is approaching.
S&P 500/NYSE
The large caps added to their breakout on a strong volume surge.
Stats: +4.28 points (+0.42%) to close at 1026.27
NYSE Volume: 1.638B (+13.14%). The best volume since the large caps stalled out at the top of the range in mid-July and sold to the bottom of the range. Good upside accumulation volume as trade has jumped up as the large caps have broken out of their range.
Up Volume: 1.026B (-163M)
Down Volume: 598M (+365M)
A/D and Hi/Lo: Advancers led 1.69 to 1. Modest breadth again as the small caps were not the force they have been.
Previous Session: Advancers led 2.62 to 1
New Highs: 507 (+82)
New Lows: 6 (+1)
The Chart: http://www.investmenthouse.com/cd/^spx.html
The large caps extended their gains though it was hardly impressive. Volume was solid, indicating further accumulation on the breakout from the 2.5 month range. Indeed during the range the price/volume action had improved the last month, setting up this move. Good range, good accumulation, good breakout. As noted, SP500 is well rested though if Nasdaq tests back it could come back and test the breakout.
DJ30:
Stats: +45.19 points (+0.47%) to close at 9568.46
Volume: 1.638B (+13.14%)
The blue chips had a few big movers again with MSFT and MMM charging higher on strong volume. That helped offset lackluster trade from stocks such as INTC and kept the index positive on a strong volume gain. Not a very auspicious session after the Tuesday breakout, but as with SP500 it is well rested after the long lateral move. It may come back to test the move on a Nasdaq pullback, but it is in a good position to hold and rally further.
THURSDAY
Another look at weekly jobless claims Thursday morning along with ISM Services and factory orders at 10ET. Expectations are lower than the prior month but still showing gains. It is interesting that the SIA forecast good chip sales in 2004 yet the chips sold Wednesday. It is another example of stocks building in moves before the news comes out. SOX rallied 80 points, most of the move coming ahead of any improved guidance though INTC was in early on the move.
Thus good reports Thursday may not impact the market much ahead of the Intel mid-quarter update and the employment data released Friday morning. As noted, there is more potential for upset on the employment report than upside given the stage of the recovery and what the data show. Overtime and the workweek have yet to really expand across the board, and those typically rise before any jobs are created. We do know that temp hires are up, but companies have yet to report more overtime. Thus even though weekly jobless claims are falling, it is early to say jobs are being created.
While the action has been to the upside we are going to be cautious still heading into the employment data. SOX is pulling back and Nasdaq is giving indications it wants to follow. It may not be a big pullback; indeed, the action does not indicate any share dumping but accumulation instead. A pullback would thus be an opportunity as stocks come back to test their breakouts and finish bases.
The key then is not to chase stocks that have run far here. We took some partial positions on big breakouts and know they may come back to test the move to an extent. Again, that is what we will use as an opportunity to add to positions or to take new positions as they turn up off of support and start to rally back up. We will be looking hard at chip stocks on the pullback as well; many were testing back toward the 10 and 18 day MVA Wednesday, and in a few sessions could be ready to rebound and continue their moves. The market ebbs and flows, breaking away in a strong move and then testing that move with a slower pullback. Then it starts anew. We have seen some strong moves and now look for a test of those moves to reload for another upside move.
Support and Resistance
Nasdaq: Closed at 1852.90
Resistance: 1860 to 1865. Then 1930 - 1935.
Support: The August high 1812 and 1814. 1795 (10 day MVA) and 1776. The 18 day MVA (1769). 1760 (May 2002) is some support down to 1740. The exponential 50 day MVA (1711). 1700 (Feb 2002 low).
S&P 500: Closed at 1026.27
Resistance: 1050.
Support: The June intraday high at 1015. June closing high at 1011. The 10 day MVA (1007) and the 18 day MVA (1000). The exponential 50 day MVA (988) and 975 (December 1997 peak). 965 (August 2002 peak). 951 (late May high) to the mid-May high (948).
Dow: Closed at 9568.46
Resistance: 9735.
Support: 9500 (June 2002 lows). 9361 the July intraday high down to 9353. The 10 day MVA (9419). The 18 day MVA (9365). 9250 to 9236, the early June intraday high. The exponential 50 day MVA (9212).
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): 0.2% actual, 0.5% expected, 0.7% June (revised from 0.3%).
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.
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