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us stock market, trade stock
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9/08/03 Investment House Alerts Report
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IH Alert Subscribers:
MARKET ALERTS
Targets hit alerts issued Monday: AVNX
Buy alerts issued: PFSW; CBST; STST
Trailing stops issued: TUES
Stop alerts issued: None issued
MARKET SUMMARY
Mondays have switched to analyst good news sessions.
Things have definitely turned bullish when major brokerages start upgrading entire sectors, economic forecasts, and life in general. After converting to bearishness once the market had shed 50% or more it has been hard for them to make the switch back. Now it seems many have done just that. That can be a contrary indicator, but as a timing mechanism it is less than useful. Moreover, on Monday it seemed to have no negative effect.
Indeed it seemed to give the market additional life after looking rather puny Friday with Nasdaq showing some topping signs and churning on higher volume. Once again, however, the leading index shook off any selling pressure and posted another solid gain on rising volume. The move from the August low has been tremendous, matching the April to mid-May move before Nasdaq took a few days off. Nasdaq has come back from the 4-week lateral move and 50 day MVA test with vengeance, spurred recently by a renewed vigor in semiconductors. Together with the small and mid-caps, they are dragging the large caps with them, and while showing some wear and tear, the buyers continue to turn slight dips into opportunity and thus continuing the climb each time Nasdaq starts to show its age. Monday was no exception, and enough buyers came in to turn Friday's mild distribution on its head with a stronger accumulation session.
THE ECONOMY
Analysts may be bullish, but the real meat is in the company statements.
More and more brokerages have turned bullish the past few weeks as the market continues its advance. While that grabs some headlines and does help in specific instances (e.g., the IBM upgrade Monday), a lot of positive ground was gained before the switch. Those moves were accomplished since October 2002 and were in anticipation of improving results from companies. After a lull in June, July and August when anticipation became fact as far as economic reports, stocks are once again advancing as the companies themselves start raising guidance and talking of improved business climates and momentum.
INTC helped get that ball rolling when it raised its Q3 guidance two weeks back. Since then there has been a fairly regular stream of raised guidance, earnings beating expectations, and raised guidance on top of raised guidance. The announcements were not industry specific but across the board as SPLS saw an increase in small business spending, chip stocks see more orders, retailers see more spending.
Monday saw RFMD, CYMI and RIMM all raising estimates smartly in yet the latest volley of improved outlooks. Remember, companies are gun-shy about announcing improvements given the shareholder lawsuit issues, so when they up their guidance and say business is better, you can pretty much take that to the bank (although there are always some you will ignore, just as you always do such as ORCL). They were very hesitant to say anything was better even as positive economic numbers started piling up around them. Only when it became clear that they may risk regulatory trouble for failing to disclose things were better did we start to get the statements regarding improving conditions. Even then Intel was so concerned that it may have overstated the increase that it posted two more releases trying to blunt the effect and then issued that strange warning that because revenues were going to be higher so would its taxes. Again, the concern about overstating given the regulatory prompted this. The bottom line is that businesses are now seeing improvement to the extent that they have to report it even though they would prefer just to keep quiet.
Consumer credit surges in July to $6.0B.
Credit was estimated to rise $5B after an anemic $0.2B in June. As we know, retail sales in July surged, and thus so did credit. We have to admit that many of the 0% financing deals on autos, electronic equipment, business equipment, etc. are hard deals to pass up, and apparently many other consumers felt likewise. This is just further support for the numbers already released regarding the strong July. We also know August was strong, and now we are working on September. Thus this report was pretty much dated before it hit the street Monday.
THE MARKET
Nasdaq continues to shake off its more frequent churning sessions and continue it strong uptrend. Tech buyers use the slightest bit of a dip to move in, and they sent the index higher Monday on a solid volume increase. Once again big money was adding to positions after a bit of weakness Friday, adding to the 215 point move already posted from the August low.
Nasdaq is a bit more than 25% above its 200 day MVA, a level that typically causes the index to start struggling. Indeed last week Nasdaq showed two dojis as it approached this 25% market, an indication that there was some churning or selling of shares by some big money. Thus far Nasdaq has been able to shake them off without a rest, but it will have to take a blow at some point. In any event, September has put no scare into Nasdaq regarding any potential selloff.
Nasdaq is getting a bit extended in terms of needing to take a rest at some point, but it is also supported by the other indexes that are just coming out of very nice lateral bases. SP500 and DJ30 have lagged Nasdaq, but they broke out of their lateral ranges, came back to test the move at the end of last week, and are rising again. They are in great position to make solid upside moves and provide support to the market when Nasdaq takes a needed break. That is the concept of rotation: one sector rallies ahead as money flows to it, then it steps back and consolidates as others step up when that money flows to those areas. That is the sign of a healthy market as money does not leave but simply moves around, letting the extended areas cool off and reload while other areas rally. Kind of recycling, market style.
The breadth Monday was superb at 2.4:1 on NYSE. Small and mid-caps were back in action after going dormant last week. Volume was mixed, however, with many price moves coming on low trade. Nasdaq surged on a nice volume increase, but NYSE volume, used to measure the SP500 advance, fell. DJ30 volume fell as well even with the IBM upgrade that sent many running toward that stock. Given that Nasdaq is still leading the market in gains at this juncture, the mixed volume is not bad. When Nasdaq starts to take a breather its volume should fall and volume on NYSE and DJ30 rise as those indexes pick up the slack and rally. That would show healthy rotation and something we expect to see. Indeed, biotech and medical stocks started moving again Monday, something we anticipated if Nasdaq softened further. As it turned out, techs still rallied even as these other sectors joined in.
Market Sentiment
VIX: 18.79; -0.58
VXN: 29.55; -1.15
Put/Call Ratio (CBOE): 0.67; -0.050
NASDAQ
Impressive move again though most of the action was over in the first hour. Nonetheless Nasdaq again shook off some topping signs and rallied on strong volume, but there are a few cracks as it moves higher as it needs a rest, but the cracks are not breaking down the foundation.
Stats: +30.38 points (+1.63%) to close at 1888.62
Volume: 2.049B (+4.61%). Another volume surge and a 2B share session as big money again moved into technology stocks.
Up Volume: 1.751B (+838M)
Down Volume: 277M (-750M)
A/D and Hi/Lo: Advancers led 2.06 to 1. It was more than just the big names Monday as the smaller cap techs joined that action once more. Very solid internals.
Previous Session: Decliners led 1.26 to 1
New Highs: 397 (+87). Solid, but not a huge expansion in new highs.
New Lows: 6 (-3)
The Chart: http://www.investmenthouse.com/cd/^ixq.html
Nasdaq has rallied roughly 244 points with really just one minor pullback in late August. No question it is extended and that always makes you pause when moving into positions. Again, focusing on stocks that are making breakouts or bouncing up from tests of support that have not surged too far. That support should hold the stock on a test; if you get too far above it, you find yourself feeling you need to sell according to your sell rules before it can test and perhaps hold that support and rebound. Thus while Nasdaq is extended, there are still buys on Nasdaq. Not as many of course, and we are more in a position of letting current plays run higher and make us money than opening a slew of new investments.
Nasdaq still has room to run up to 1930ish before it hits price resistance, but that puts it 28% or so above its 50 day MVA (1505); it can make that run, but unless there is a real aberration ongoing similar to late 1999, it would have to correct some at that point. For now it is showing some indication of wear with the two dojis last week, signals of some momentum shift. It has met those with a strong upside session Monday. The strong trend is still well in place, but the action is a hair more volatile, an indication it is going to take a breather. Thus far, however, it has ignored the calendar as big money moves in after Labor Day to play some 'catch-up.'
S&P 500/NYSE
Solid action as SP500 held above the breakout point and rallied. Just wish volume rallied with it.
Stats: +10.25 points (+1%) to close at 1031.64
NYSE Volume: 1.309B (-8.86%). Volume could not keep pace with Nasdaq, as big money did not flow into the overall market as readily as techs.
Up Volume: 1.018B (+425M)
Down Volume: 278M (-557M)
A/D and Hi/Lo: Advancers led 2.47 to 1. Excellent breadth as the smaller issues join in the upside move once again.
Previous Session: Decliners led 1.22 to 1
New Highs: 323 (+68)
New Lows: 5 (0)
The Chart: http://www.investmenthouse.com/cd/^spx.html
After the nice 2.5 month lateral move that was broken last week, SP500 made a quick test Friday on lower volume and then was up solidly Monday. Volume was disappointing, dropping to average on the rebound. While we would prefer to see rising trade on all indexes, this does not necessarily condemn the move as the leading index was up on stronger volume as it led higher. We like that SP500 held the breakout over 1015 and started adding points. It is at a new recent high and we want to see it continue the move and put some distance on that breakout point.
DJ30:
Stats: +82.95 points (+0.87%) to close at 9586.29
Volume: 1.309B (-8.86%)
Dow held 9500 and started higher. Again it was no strong surge for DJ30. Similar to SP500, volume fell, and it was far below average. Good to see it hold the breakout, but unlike SP500 it could not make a new recent high over 9609. For now it did what it had to do as it follows along with the other major indexes.
The Chart: http://www.investmenthouse.com/cd/^dji.html
TUESDAY
No real economic excitement scheduled Tuesday with wholesale inventories out at 10ET. The big play will be how the market responds to positive earnings revisions from RIMM, CYMI, MCD (selling burgers well once again) and any other company that announces. The market, particularly Nasdaq, has been riding a wave of good news that, after a lull from June to early August when the market rested after rallying in anticipation of good economic data, is helping spur stocks to the upside. The difference is the rest the market took and that the positive news is not just economic reports but actual rising guidance from companies.
SP500 and DJ30, the laggards in the move, are in the best position to post some solid gains as they are just emerging from a nice 2.5 month lateral consolidation. Nasdaq has been on a tear, and to a lesser extend so has SOX, SP600 and SP400. It is inevitable that Nasdaq will test the great move and it is showing hints it is getting a big leggy, but the upside moves continue to overwhelm the attempts to take it down a notch.
Our game plan remains more or less the same. We passed up a few possible plays today because we did not like the volume or the intraday action. Again, with Nasdaq, the leader in the market, up 244 points the past month, we are not too wild about chasing positions that have already left the station. We have many good current plays that are moving steadily higher toward their targets or just continuing to make us money after blow through their targets. That allows us the luxury to be picky about the new positions we take as we don't have that need to play 'catch-up.' We can then focus on those solid plays that are set up to make the moves; if they make them we can participate, and if not we don't sweat it.
One thing to also be considering as Nasdaq stretches out a bit further. While Nasdaq has been strong and shown very little downside on the pullbacks, the next rest could take a week or so. We are going to be watching each pullback to see if that would be a good point to sell some calls against long stock positions, then buying them back as the bottom out and prepare to rebound. That way we can make some solid money as our strong positions take a breather. Typically we like to sell at the money, near term expiration options as they give us the most premium and when the stock falls the option price falls rapidly. We get more bang for the buck and can buy them back quicker and be free and clear and ready for the next rally with some hard, cold cash in the pocket to go along with a winning position to ride further to the upside.
Support and Resistance
Nasdaq: Closed at 1888.62
Resistance: Then 1930 - 1935.
Support: 1860 to 1865. The August high 1812 and 1814. 1830 (10 day MVA) and the 18 day MVA (1798). 1776 the July high.
S&P 500: Closed at 1031.64
Resistance: 1050.
Support: The June intraday high at 1015. June closing high at 1011. The 10 day MVA (1016) and the 18 day MVA (1008). The exponential 50 day MVA (992) and 975 (December 1997 peak). 965 (August 2002 peak).
Dow: Closed at 9586.29
Resistance: 9735.
Support: 9500 (June 2002 lows) is the top of the recent range. The 10 day MVA (9482). The 18 day MVA (9420). 9361 the July intraday high down to 9353. The exponential 50 day MVA (9251). 9250 to 9236, the early June intraday high.
Economic Calendar
9-8-03
Consumer credit, July (3:00): $6.0B actual, $5.0B expected -$0.4B June.
9-9-03
Wholesale inventories, July (10:00): 0.0% expected, 0.0% June.
9-11-03
Initial jobless claims (8:30): 395K expected, 413K prior.
Trade balance, July (8:30): -$40.5B expected, -$39.5B June.
9-12-03
PPI, August (8:30): 0.3% expected, 0.1% July.
Core PPI: 0.1% expected, 0.2% July.
Retail sales, August (8:30): 1.2% expected, 1.4% July.
Retail ex-Autos (8:30): 0.7% expected, 0.8% July.
Michigan sentiment, September (9:45): 92.0 expected, 89.3 August.
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 Monday: AVNX; ANAD; BDY; CBST; CDIC; CHIR; FFIV; GPRO; HYC; MMSI; NVAX; QCOM; SPIL; STM; STST; TXN
New Plays:
Upside:
Play Date: 09/08/2003
ENCY (Encysive Pharma--$4.97; +0.57; no options): Biotechnology
http://biz.yahoo.com/p/e/ency.html
STATUS: Cup w/handle breakout. Biotechs continue to form up well, and Monday several were making the breakout moves. ENCY started to move out of a 9 week base on a solid volume surge. The base shows solid 4 to 2 accumulation (4 up price weeks on rising volume to 2 down price weeks on rising volume), setting up a good foundation of buying for the breakout. Relative strength broke out as well, a good confirmation of the move. We looking for ENCY to continue the breakout move, following the surging money flow higher. We will move in on a continued rally higher through the buy point on more solid volume.
Volume: 264.35K Avg Volume: 204.818K
BUY POINT: $5.04 Volume=300K Target=$6.32 Stop=$4.45
POSITION: - Stock (no option chain)
http://www.investmenthouse.com/ci/ency.html
Play Date: 09/08/2003
KOMG (Komag--$16; +1.2; no options): Thin film disks for data storage (drives, digital video recorders, etc.)
http://biz.yahoo.com/p/k/komg.html
STATUS: Testing the breakout. KOMG surged out of November and powered up to 15, running up the short term MVA (10 and 18 day MVA) all the way. It needed a breather, and it turned back to test the 50 day MVA (13.39) during a nice, short 6 week cup base where accumulaiton is a positive 2 to 1. Accumulation up to the base has been very strong along with solid money flow leadin gthe way. Relative strength is also ready for a breakout, indicative of KOMG's strength in the market. Huge volume Monday as it bounced up from the 10 day MVA (15.02), and we are looking for KOMG to continue the rebound from the test on strong volume.
Volume: 1.198M Avg Volume: 221.09K
BUY POINT: $16.25 Volume=332K Target=$19.55 Stop=$15
POSITION: - Stock (no option chain)
http://www.investmenthouse.com/ci/komg.html
Play Date: 09/08/2003
OPLK (Oplink Communications--$1.92; +0.08; no options): Fiber optic subsystems to increase bandwidth
http://biz.yahoo.com/p/o/oplk.html
STATUS: Cup w/handle. OPLK is making the breakout move from a 12 week base sporting excellent 4 to 1 accumulation. The past week volume has swelled to above average levels as it readied for the breakout, and Monday volume jumped as OPLK tapped the 10 day MVA (1.77) one more time and rallied sharply. A small stock but a solid pattern, and we are looking for another strong volume move through the buy point to enter.
Volume: 1.079M Avg Volume: 512.681K
BUY POINT: $1.98 Volume=769K Target=$2.58 Stop=$1.76
POSITION: - Stock (no option chain)
http://www.investmenthouse.com/ci/oplk.html
Play Date: 09/08/2003
PPHM (Peregrine Pharma--$1.87; +0.07; no options): Biotechnology
http://biz.yahoo.com/p/p/pphm.html
STATUS: Cup w/handle. A very nice 12 week base with excellent 3 to 0 accumulation and outstanding money flow. On August 13 it received approval for marketing its lung cancer drug in China, and that gapped the stock higher in the base. From there it continued to work and is now in a week long handle, shaking out the last sellers on some low, below average volume. We are going to be patient and let it complete the lateral move and then breakout on strong volume. That is when we move in.
Volume: 704.481K Avg Volume: 2.1M
BUY POINT: $2.08 Volume=3.2M Target=$2.88 Stop=$1.93
POSITION: - Stock (no option chain)
http://www.investmenthouse.com/ci/pphm.html
End part 1 of 2
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