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us stock market, trade stock
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9/04/03 Investment House Daily
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Investment House Daily Subscribers:
Heavy storms in our area knocked is offline for a couple of hours tonight so things are running a bit slower but will be there!
MARKET ALERTS:
Target hit alerts issued Thursday: None issued
Buy alerts issued: NSM; MRVC; PLL; YHOO (bonus)
Trailing stop alerts: UTSI
Stop alerts: WTW
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:
- Chips come back early and propel an otherwise lackluster session.
- ISM Services show upside surprise, factory orders surge, Fed on hold.
- Market shakes of doji, continues move on lower volume.
- Intel ups estimates but 'warns' of greater tax liabilities.
- Subscriber Questions
Market was not ready to pullback just yet.
Again there was a bevy of solid economic data with more good retail results, earnings results, surging service sector, and strong factory orders. It was enough to jumpstart the semiconductors after a very short pullback to the 10 day MVA, and the techs went along for the ride. Nasdaq broke near resistance at 1865 and managed to hold that on the close though volume backed off.
The techs and chips looked solid but the rest of the market was lukewarm. Retailers were at best mixed and small caps finished well down in the pack with just a 0.4% gain. Volume was lower across the board, not necessarily a weak showing, however, as trade remained well above average in a continuation of the nice rally. All week volume has run above average and much stronger than the prior 2.5 months. It may be September, but the market is not giving that any relevance to this point.
THE ECONOMY
There is so much good economic news coming out, one almost wonders if the Friday employment report is hiding a surprise for us. Let's see. Hope rhymes with dope we like to say, and at this point in the recovery any gain in jobs is a hope. If it happens the market might just pop a gut. In reality we just 'hope' the disappointment is not too severe. Maybe we will be grossly wrong in our assessment of the recovery's timetable, but what we see so far does not suggest the kind of overtime or longer workweek that occurs before any hiring.
Jobless claims move back above 400K.
413K last week versus the 393K expected, breaking the string of 5 consecutive weeks below 400K. The prior week was revised lower to 394K from 398K. The 4-week rose to 402K. Not a huge swing, but it reminds us that the jobs market, as discussed above, is not making a roaring comeback and the economists are setting everyone up for disappointment in forecasting a net gain in jobs. Even if jobs rise 20K or so, while nice to see a change in trend, it takes 100K or more jobs per month to put a dent in unemployment. Thus there continues to be slight improvement in the jobs arena, but real creation will not occur until November or December.
ISM Services hits 65.1, third month over 60.
Services continued to see solid gains in August, matching the July 65.1 reading when 62.0 was expected. New orders moved to 67.1 from 66.9 and employment rose to 51 from 50.7. Some say this report does not receive much market attention given it is just 6 years old, but you can bet that if it was lower than expected the market would have burped as services make up 85% of the GDP, employment as well. The expansion continues in this important part of the economy with readings holding at record highs for this indicator.
Factory orders double expectations.
July showed a 1.6% gain (0.8% expected), the strongest since May 2001 and on the heels of a 1.9% June gain that was revised higher from 1.5%. Remember, upward revisions of past reports are one of the strongest indicators of a change in trend and momentum. Factory orders are humming. Nondurable orders rose 2.4%, durable goods up 1.0%. Factory orders, the ISM, Q2 GDP non-defense capital investment, and comments from various business equipment providers all point to an ongoing recovery in business spending, the key to the recovery.
Though some will try to do so, the evidence is undeniable, and the stock market forecast it at the end of 2002 and early 2003. Many still say the tax cuts are inappropriate, but without them we doubt we would see the increase in business spending we see now. Many small businesses we talk with have said that but for the tax incentives they would not have purchased the equipment they have. There was not the perceived need yet, but the tax incentives and rising interest rates are pushing small businesses to take advantage of the situation while they can.
Companies continue to report solid increases, Intel complains of taxes.
Retailers were reporting strong sales with WMT having its best results in over one year and Sears turning in its first rise in same store sales in at least that long. ANN (+8.2%), BEBE (7.9%). The list goes on. PG raised its expectations, forecasting double digit earnings. NSM blew away the street with its earnings.
After hours INTC gave its mid-quarter report and upped the mid-point of its revenue range. $7.3B to $7.8B was the previous raised guidance, and now it is $7.6B to $7.8B. It shot higher after hours another point or so. Then it 'warned' the EPS would be impacted by taxes. Intel said that because business was so good its taxes would be higher. Man, talk about trying to find a problem and soften expectations. Last time we checked the top corporate rate was not 100%. Thus any incremental dollar will still add to the bottom line and Intel is 'complaining' about a problem all successful companies have, i.e., too high a tax bite.
Fed still at ready on the gas pedal.
Two Fed officials were out Thursday with the message that the Fed was going to keep rates low for a long time. Bernacke said there was 'no reason' to raise interest rates. A couple of hours later he added to that stating that another easing was possible. Then Parry came out and said deflation was not a dead issue.
These statements indicate a Fed that is keeping its foot on the gas and is willing to stomp down on it more if there is any weakness. Beyond that it indicates the Fed is not going to do anything regarding tightening until it sees more than the whites of the eyes of a recovery. That is a continued plus for the market. Of course, one also has to wonder if the Fed is preparing another 'surprise' as it dealt the bond market with the 'unusual measures' that might be taken to stave off deflation. It tossed the bond market a bone and then it exploded when the bone was taken. We doubt the Fed would do that to a just recovering stock market, but no one thought the Fed would purposefully wipe out our prosperity either. It really sucks having your financial life at times in the hands of unelected officials that make snide comments about the need for more unemployment and then proceed to wreck the economy to get just that.
THE MARKET
Nasdaq looked as if it was going to follow SOX in a pullback, but when SOX held at the 10 day MVA and rebounded, it took Nasdaq with it. That was about the extent of the action. Yes DJ30, SP500 and friends were up on the session, but the moves were small an on lighter volume. Breadth was quite modest as everything outside Nasdaq and SOX was very quiet. New highs dropped significantly on an up session.
In short the market continues its run as DJ30 and SP500 continue their breakouts and Nasdaq, SP600 et al continue their longer runs. The action is simply slowing some as it does as a move progresses. There continues to be news that gooses certain sectors such as the semiconductors Thursday. The market will need to take a breather, but the current breakout and trend higher remains in tact. We just continue to pick our spots carefully, knowing that a pullback will come as a normal part of the trend. There is such a bounty of good news that something such as the employment report could shoot some holes in the move. As of yet that has not happened, and we stick with the trend, moving into the solid stocks that show good moves.
Market Sentiment
VIX: 19.89; -0.54
VXN: 30.91; -0.28
Put/Call Ratio (CBOE): 0.68; +0.04
NASDAQ
Shook off the doji and rallied higher on strong semiconductor news, breaking resistance at 1865.
Stats: +16.07 points (+0.87%) to close at 1868.97
Volume: 1.908B (-18.6%). Volume was lower but still quite respectable, coming in above average and giving the index plenty of strength to break through and then hold over resistance.
Up Volume: 1.401B (-191M)
Down Volume: 494M (-233M)
A/D and Hi/Lo: Advancers led 1.34 to 1. Pretty paltry breadth once again as the big names and semiconductors posted the gains.
Previous Session: Advancers led 1.38 to 1
New Highs: 355 (-151). The index rose but new highs backed way off. Another signal the move is not as strong as it may have seemed and indicative of some slowing.
New Lows: 6 (0)
The Chart: http://www.investmenthouse.com/cd/^ixq.html
The doji indicated a potential change, but Nasdaq managed to open flat to higher, and when NSM reported its results that got the index running as semiconductors, already feeling good from several upgrades, started to break sharply higher. Nasdaq tried resistance at 1865 three times and then broke through. For good measure it came back to test the break and rebounded from there on some expanding trade in the last hour. That is textbook action as buyers came in to break resistance and then bought back in on the test of that move. That leaves Nasdaq over near resistance up until near 1930. It is moving well and is right at 24% over its 200 day MVA. That is getting it to the point where it will struggle some and then make a pullback for a breather, but at this point it continues to plow higher on vastly improved trade. With SOX back in the game Nasdaq found its second wind. If it continues to rally, 1865 becomes the first support point though a more serious pullback puts it at 1821 to 1800. At this juncture the move is still well in tact after shrugging off the doji, but we need to keep our wits and realize that it will have to take a breather in the next week.
S&P 500/NYSE
Added a modicum to the breakout on continued strong volume, but it was hardly a smashing continuation.
Stats: +1.7 points (+0.17%) to close at 1027.97
NYSE Volume: 1.447B (-11.67%). Still solid, above average volume though lower than Wednesday. A solid volume session but not a lot of upside to take advantage of the strong trade.
Up Volume: 777M (-249M). Volume was very evenly matched, another indication that this was not a blow out session, just a continuation of the trend higher.
Down Volume: 655M (+57M)
A/D and Hi/Lo: Advancers led 1.29 to 1. Very modest breadth as smaller cap issues did not participate.
Previous Session: Advancers led 1.69 to 1
New Highs: 318 (-189). As with Nasdaq, new highs peeled back even as the large cap and small cap indexes moved higher, a sign that the gain was limited to fewer stocks.
New Lows: 12 (+6)
The Chart: http://www.investmenthouse.com/cd/^spx.html
SP500 edged higher, a modest continuation of the Tuesday breakout from its 2.5 month range. After that first strong session the action has been rather muted with no big breakaway move to put some distance on the breakout. The break higher was on solid volume and thus we like the move, but it will need to hold on any test of 1015ish to keep it in tact. Without the big move up to put distance on the breakout, the test is always a bit more ticklish. Thus far, however, the underpinnings of the move are solid.
DJ30:
Stats: +19.44 points (+0.2%) to close at 9587.9
Volume: 1.447B (-11.67%)
Very similar action to SP500, as the blue chips added modestly to their Tuesday breakout. It was a struggle just to hold positive and DJ30 volume backed way off to average at best. As with SP500 the Dow has yet to put a great deal of distance on the breakout over 9500, and the strength of the move is waning somewhat. It is still in the breakout and the trend higher, but it may have to test without a lot of room to work with.
FRIDAY
The market was not a picture of strength Thursday though there were sectors that ran well, e.g. semiconductors. The rest of the action was rather subdued ahead of the Intel mid-quarter update and the Friday employment report.
Intel was rallying on its report after hours and futures were up, but the employment report before the open could upset the good feelings Intel generated. We may be reading too much into this; the market is a pretty good handicapper of economic data, but it also can get ahead of itself. One thing we really don't want to see is a gap higher in the event of good employment data. That would put many stocks in something of an overbought condition on the open and put the market at risk of reversing and making that pullback.
The gist is the market has made a good move, is slowing a bit, and it will have to take a breather. That does not mean it is going to turn right back down from here. This market has been one of surprising resilience and can continue from here. What we have to fight is the urge to move into stocks that have already put in a few good days of moves but instead focus on stocks that are ready to start their next move as the other stocks take a breather in a type of mini rotation. For example, biotechs are forming up for their moves even as the techs and other stocks were rallying. We are watching for breakout moves from the stocks ready to start their next legs while we let positions we have run and wait for the next entry points to add to the winners
Support and Resistance
Nasdaq: Closed at 1868.97
Resistance: 1860 to 1865 has been cracked & now needs to hold. Then 1930 - 1935.
Support: The August high 1812 and 1814. 1809 (10 day MVA) and 1776. The 18 day MVA (1779). 1760 (May 2002) is some support down to 1740. The exponential 50 day MVA (1717). 1700 (Feb 2002 low).
S&P 500: Closed at 1027.97
Resistance: 1050.
Support: The June intraday high at 1015. June closing high at 1011. The 10 day MVA (1010) and the 18 day MVA (1003). The exponential 50 day MVA (989) and 975 (December 1997 peak). 965 (August 2002 peak). 951 (late May high) to the mid-May high (948).
Dow: Closed at 9587.90
Resistance: 9735.
Support: 9500 (June 2002 lows). 9361 the July intraday high down to 9353. The 10 day MVA (9450). The 18 day MVA (9389). 9250 to 9236, the early June intraday high. The exponential 50 day MVA (9227).
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): 6.8% actual, 6.4% expected, 5.7% Q1.
Initial jobless claims (8:30): 413K actual, 393K expected, 394K prior (revised from 398K).
ISM Services, August (10:00): 65.1 actual, 62.0 expected, 65.1 July.
Factory Orders, July (10:00): 1.6% actual, 0.8% expected, 1.9% June (revised from 1.5%).
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.
SUBSCRIBER QUESTIONS
Q: I have been a member for 3 months now and love everything about The Daily. I find myself waiting for it every night hoping it will appear in my inbox any moment. Anyway I have a question. I'm wondering how you pick your stocks? Do you search through a big list of stocks looking for ones set up for a move, then only take the companies that have solid fundamentals? Or do you just pick stocks that have a healthy looking chart, and don't really care about the fundamentals? Your help would be great! An Investmenthouse reader for life!
A: We do both, actually. Our initial preparation in picking stocks is to be aware of the best-performing sectors and companies as that is where the strongest fundamentals will be. We run proprietary scans on those to find those that jump right out at you. We also flip through the stock charts in those sectors (that is covering a lot of ground every night!) and look for those that are in good technical patterns that may not have turned up in the scans. We usually do not focus just on recent performance, though any analysis would be incomplete without looking at how a stock has recently performed. We look at stocks weeks, months, even a year in the past to determine what type of pattern, if any, it is forming, the trend it is in, the accumulation or distribution it is undergoing. Again, we look at the overall strength of the company; the vast majority of the stocks we cover have strong earnings. The stocks with good earnings and margins that are in good patterns (and at a technically good buy point) are the leaders we prefer; they will likely continue to lead the pack. The majority of the stocks we cover have these qualities.
There are, however, stocks that are showing good accumulation that may not have super fundamentals but have what we consider a good technical pattern. This is when we might pick a stock to play just for the sake of the pattern that is showing solid techincal indicators (e.g., pattern, money flow, accumulation/distribution, relative strength). These are good stocks to hold for the shorter term; they can make us money even though we likely won't end up holding them for life though if they continue to perform, who is to argue. Sometimes these kinds of stocks will develop into leaders after breaking out of these initial solid patterns.
In sum, we are long on technical analysis, choosing stocks that always have good patterns. Our preference is those patterns that are backed up by solid fundamentals. We might be looking for a short term gain in some instances, but usually we are looking to ride positions for as long as the market allows. If it turns out to be a few years, no complaints.
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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