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us stock market, trend trading stock
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9/11/03 Stock Split Report
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Stock Split Report Subscribers:
MARKET ALERTS
Targets hit alerts issued Thursday: None issued
Buy alerts issued: PTN; AQNT
Trailing stops issued: SNWL; ETN
Stop alerts issued: CSC; ATML; KOOL; GDW
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 bounces in relief and optimism on 9-11.
- Jobless claims again over 400K but market ignores it for the day.
- Indexes hold the 18 day MVA & rebound on good breadth, but volume lags.
- Subscriber Questions
Weaker economic data does not stall buyers.
Jobless claims were over 400K for the second consecutive week, but after the two sessions of selling the market ignored this development. Futures rallied, the market opened higher, and after a volatile morning stocks closed higher, picking up steam as the day wore on as no new terror events occurred though warnings of some attack were on the rise.
Breadth was impressive as the indexes came off of near support with Nasdaq and SOX leading the way once again. Outside of some individual movers, however, volume was much lower, indicating the move was more relief than driven by a resurgence in buyers. There were some outstanding individual movers on the report and in the market, and it may have simply been a subdued volume day in response to 9-11.
Without volume confirmation, however, you have to view it as an overall relief move. Relief nothing bad happened, relief from two days of selling. Still, the market did what a stronger market would do, i.e., holding at the 18 day MVA and rebounding. It made for an up and down session and we sold some stocks we had gains in that we later wished we had kept. Fortunately the market usually gives you more chances.
THE ECONOMY
Jobless claims at 422K, second straight week over 400K.
422K beat the 400K expected, and the prior week was revised up to 419K. The 4 week average rose to 407K from 403K. Continuing claims also continued to rise, something that has not changed at all. A two-week uptick does not change the trend, but that trend of declining weekly numbers was not some long established path.
The news is disheartening to many reporters, but remember that we said a month back that there would be an increase as companies were going to implement additional job cuts that were already planned and announced. Thus the rise is not some new weakness, just a continuation of the layoff plan. As noted, many are saying this is the last round of cuts they plan to make. If they make more down the road, that is a serious problem. On the flip side, the economy is obviously not creating enough jobs to absorb any new unemployed as well as those coming back into the market to try their luck at landing a position.
The debate over a structural change in the job market continues. In the weekend report we will discuss additional facts that are overlooked as many trumpet what a horrid thing this is and contemplate some form of legislation to 'level the field'. As is typical when change is taking place, knee-jerk protectionism is just about the worst thing you can do.
THE MARKET
The market refuses to give in, bouncing at the 18 day MVA Tuesday, the near support that provided the first level to test the selling. Could it be that easy, a two day pullback to the 18 day MVA and then another run higher? With many expecting a further pullback (us included), that is always a consideration. Problem is, the market has been selling on rising volume, and the bounce Thursday was on significantly lower volume. Not low volume, but lower than the selling trade.
That tends to indicate just a relief bounce after some harsh Wednesday selling and DJ30 and SP500's struggle with the top of the trading range they broke through and then fell back into. Despite the problems, the bounce from support is a positive. Also positive are the strong moves from stocks such as JCOM, CHIR, CELL, and TSCO making strong moves while others sold down and rebounded on volume. It is not prudent to ignore market leaders. Indeed, many chip stocks tested lower, caught support, and have positioned themselves to bounce.
Thus there is the distribution that erodes the upward move foundation, but there are also leaders performing very well and others looking ready to pounce. If they do we move with them as we have been doing all along. The one constant in this market has been its almost incredible resilience as money works its way back into the market and some funds play catch up. The short pullback combined with the 'internal' correcting as the market moved up (up one day, down the next, but still trending higher) may be enough to allow the market to move higher given the additional money coming to bear. At this point we are in a 'show me' state of mind, meaning we watch individual plays that are set up well, and if they show us strong moves, we move with them.
Market Sentiment
VIX: 20.5; -0.76
VXN: 32.97; -0.19
Put/Call Ratio (CBOE): 0.89; -0.11. The 1.0 reading gave a bit of a heads up as stocks bounced after that reading.
NASDAQ
After a pummeling on Wednesday as volume rose, Nasdaq rebounded on lower volume in relief. But there are some good signs in the chips, nets, and biotech.
Stats: +22.28 points (+1.22%) to close at 1846.09
Volume: 1.757B (-12.62%). Lower though still above average volume as stocks bounced off of near support. It does not wipe away the two prior distribution day, but volume could have been lower for 9-11.
Up Volume: 1.379B (+1.117B)
Down Volume: 352M (-1.385B)
A/D and Hi/Lo: Advancers led 1.91 to 1. Not like the Wednesday drubbing, but a solid rebound in breadth.
Previous Session: Decliners led 2.94 to 1
New Highs: 142 (+18)
New Lows: 6 (-3)
The Chart: http://www.investmenthouse.com/cd/^ixq.html
Nasdaq tapped at the 18 day MVA (1812) and managed a decent rebound. This was the next support level, and it produced a bounce. SOX undercut the 18 day MVA and then rallied to close above that support level as many chips did the same and now look poised to start anew after a month of basing. Good breadth, good intraday action, good leadership moves. The missing ingredient was volume overall. The leaders are moving up on stronger trade, and that could be a harbinger for the rest of the index. We need to see that, however, to overcome the distribution sessions. Indeed, even another strong session does not proved the sellers defeated. Nasdaq has been bouncing back and forth every couple of sessions lately, buffeted by sellers trying to overcome the buyers. If the leaders and chips don't show us more, if volume does not increase on a further upside move, then we believe the market is continuing its corrective phase. After that gap down Wednesday, the Thursday action on low volume did not alone herald a pullback was completed.
S&P 500/NYSE
Held the 18 day MVA and bounced higher back up to the top of the range though it too lacked stronger trade.
Stats: +5.5 points (+0.54%) to close at 1016.42
NYSE Volume: 1.296B (-13.52%). Volume backed off to average on the bounce from the 18 day, an indication that the buying was well below the vigor of the Wednesday selloff.
Up Volume: 911M (+633M)
Down Volume: 368M (-854M)
A/D and Hi/Lo: Advancers led 1.95 to 1. Solid upside breadth, matching the downside.
Previous Session: Decliners led 1.99 to 1
New Highs: 84 (-6)
New Lows: 15 (+5)
The Chart: http://www.investmenthouse.com/cd/^spx.html
Volume did back down, but it did it as SP500 attempted a bounce higher. Using the 18 day MVA (1010) as support, SP500 rallied Thursday, but it faltered at the top of the range at 1015 (the 10 day MVA is at 1016). Without the volume it will have trouble clearing this level and making any real headway. The large caps are not set up as well as some techs and chips, and they will need the help of Nasdaq to continue the bounce. It is set up well, but it has suffered some distribution and will need more buyers than were evident Thursday.
DJ30:
Stats: +39.3 points (+0.42%) to close at 9459.76
Volume: 1.296B (-13.52%)
A familiar look, holding roughly at the 18 day MVA (9432) and bouncing, but doing so on lower, below average volume. On the high (9502) it tapped at the top of the range and then fell back in the last half hour after a volatile session. Of the big indexes, the DJ30 looks the worst, making a second lower top here at 9500 after the early September high. That is a somewhat toppish pattern and the price/volume action backs that up (higher on down days, lower on up days). We doubt DJ30 will be a leader, but it does give an insight into some of the problems the market faces as it tries to work off the big gains without giving too much back.
FRIDAY
9-11 has passed and without incident for whatever that means as far as further terror attacks. The market bounced back after some hefty selling, showing a nice relief move on lower overall volume. Despite the moves by leaders and the bounce at the 18 day MVA, we remain very cautious about a further advance from here given the price/volume action seen the past week. The market is still showing distribution and volatile up and down action day to day. The Thursday move from a volume perspective was inadequate. It could develop, but it will have to do that to mean much.
Thus we are going to continue to look at solid patterns in good sectors for upside action, but we are going to continue to a conservative approach, buying those that not only have the good patterns but then show us the solid moves that indicate big money is buying as well, e.g., breaks through resistance on strong trade, rebounds on breakout tests where the stock bounces on rising volume, etc. That way we participate in the upside that occurs, and we do so not by chasing extended stocks but by moving in with big money as a stock starts its move. There have been several of those plays this week even as the established movers pull back from their runs that started earlier. This is that rotation we have discussed the past week.
In sum, if an individual stock shows us a solid breakout or rebound move, we will step up to the plate. If it is lacking in any respect, we will think about it hard and look at what the overall market is doing. If the stock and the market are equivocating, the risk rises. The market has show distribution and has bounced a session in relief. That does not shake off the volatile action of the previous two weeks.
Support and Resistance
Nasdaq: Closed at 1846.09
Resistance: 1860 to 1865 tried to hold a bit on the way down, but was not a major level. 1930 - 1935.
Support: The August high 1812 and 1814 held Thursday. The 18 day MVA (1812). 1776 the July high.
S&P 500: Closed at 1016.42
Resistance: The top of the range at 1015 held it back Thursday. Then 1050.
Support: June closing high at 1011. The 18 day MVA (1010). The exponential 50 day MVA (995) and 975 (December 1997 peak). 965 (August 2002 peak).
Dow: Closed at 9459.76
Resistance: 9500 (June 2002 lows) is the top of the recent range. 9735.
Support: The 18 day MVA (9432). 9361 the July intraday high down to 9353. The exponential 50 day MVA (9275). 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% actual, 0.0% expected, 0.0% June.
9-11-03
Initial jobless claims (8:30): 422K actual, 400K expected, 419K prior (revised from 413K).
Trade balance, July (8:30): -$40.3B actual, -$40.5B expected, -$40.0B June (revised from $39.5B).
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): 1.5% expected, 1.4% July.
Retail ex-Autos (8:30): 0.8% expected, 0.8% July.
Michigan sentiment, September (9:45): 90.4 expected, 89.3 August.
Q: What is a double bottom pattern?
A: The classic double bottom pattern is one that typically forms in choppy markets. It is a quickly-developed pattern at its best, and can result in explosive breakouts. It is an exciting pattern because of the extreme price swings and the speed at which it can sometimes form. The description of the pattern fits its name. The bottom shows a double dip as opposed to that of a cup with handle. In the latter pattern the cup shows a gradual descent and ascent from the bottom (hence "cup"). In the double bottom, however, the base is characterized by two price drops that form the appearance of the letter "w". This wild-looking action serves the purpose of weeding (or more appropriately, scaring) out uncommitted holders of the stock. A handle can form on this pattern just as with a cup with handle as things calm down and the price moves laterally, then the pattern can break out on strong volume as buyers suddenly want the stock and the only holders left demand more money for it. Breakout!
Some other characteristics are that we like to see the middle of the pattern (the "hump") peak at a price lower than the start of the base, i.e., when it starts to fall to form the first leg lower. Preferably, the second dip down just slightly undercuts the first, which is what tends to scare out most of the remaining buyers, and sometimes the stock will just roar out of the pattern at this point without even forming a handle. A double bottom should also develop over a relatively shorter length of time, showing a narrow and steep pattern rather than a wide and smooth pattern like a cup with handle, which we usually like to see develop over a couple of months or longer. Narrow and steep tends to fuel a more explosive breakout because the action spells more fear and capitulation. This, however, is not always the case as there are some lazy double bottoms that look like two cups stuck together (e.g., GLFD). Thus, don't discount a double bottom simply because it does not have sharp points that make the bottoms of the 'W.'
A double bottom breakout point will be plotted the same as with a cup with handle, if the double bottom shows a handle itself: just over the high in the handle, which is usually formed near the middle peak of the "w" (a.k.a., the 'hump'). It there isn't a handle, we like a buy point just over the middle "hump" in the "w".
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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