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trend trading stock, stock trading site
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9/18/03 Investment House Alerts Report
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IH Alert Subscribers:
MARKET ALERTS
Targets hit alerts issued Thursday: SINA (higher position)
Buy alerts issued: KOMG; LIFC; GRIC
Trailing stops issued: None issued
Stop alerts issued: AMSC
MARKET SUMMARY
SUMMARY:
- Market tacks on another accumulation day as worries of speculation, valuation, and slowing momentum continue.
- Jobless claims improve, LEI still showing a solid advance ahead, Philly manufacturing slows.
- Volume posts nice advance as indexes resume the breakout advance.
A pause that refreshed.
Wednesday the market ran in place following the nice Tuesday advance. Nasdaq churned a bit, showing some high volume turnover right at resistance. The issue was whether the market was just taking a breather in its rebound from the breakout test or if it was going to try a double top at the early September highs. Thursday it plowed through those highs with relative ease and increasing volume as leaders (e.g., GPRO, SINA, SOHU, YHOO, UNTD) and many other solid stocks rallied on solid volume increases. Financial stocks, having sat out much of the move, were market leaders Thursday as BSC blew out earnings and prompted buying.
The price/volume action was very nice. The breadth was solid on NYSE (2:1) but just so-so on Nasdaq (1.6:1) as semiconductors, weighed down by a lower book to bill report, lagged. The SOX came on late, and that no doubt helped boost the overall market, particularly Nasdaq. The new high list was still mediocre; not in names, just numbers (under 400, less than 100 additional on the advance versus 450 to 500+ and 150+ in early September). Thus it is not all candy and roses, but leadership stocks and growth stocks that are leader wannabes were up solidly Thursday. Good overall accumulation and good growth stock leadership are key underpinnings of an advance.
All in all it was a solid session as the market extended the breakout from the summer range. There continues to be a lot of talk, however, about the market now being overvalued, speculative, or losing momentum. As we noted with the new highs figure, there is indeed some indication that the recent move is less powerful as fewer stocks hit new highs. There is also talk of speculation in the market with stocks under $5 trading in high volume. That is also something to be cautious of but it can also be indicative of improving economic conditions as more money works its way into stocks that are growing earnings, have new ideas, and generally have a lot of potential. After the bear market, the entire playing field has shifted down to a certain extent. When they all start rallying that is a sign of a problem, but that has not hit yet. Finally there is talk about how volume indicates momentum has peaked. One commentator suggested that volume now is lower than it has been for months. After trading below average during the spring pullback to test the break off the low volume did dry up to below average. When the breakout came volume rallied sharply. The last half of June and then July and August, however, saw very low trade. This month volume has screamed back up. Volume slows in summer and the returns at summer's end. The action seems to track the norms as opposed to indicating a volume slowdown.
The summer consolidation range and the solid foundation it laid is one feature that is blatantly overlooked by many commentators: the indexes, particularly SP500 and DJ30, moved through a summer consolidation from June to July with little overall gain or loss on low volume. Even Nasdaq hitched sideways and came back to test the 50 day MVA though it made continual higher lows during that time and has now rallied impressively off the 50 day. Nasdaq is about the only index that appears extended. True, it is the market leader and the market will take much of its cue from Nasdaq, but there is a solid foundation of support from a summer that built strong bases that are now yielding new breakouts. Indeed, Nasdaq's test of the 50 day MVA followed a run up the short term MVA after its April breakout. As we have discussed, stocks and indexes make that breakout, run, and then test the 50 day MVA. If they are strong, the repeat the process. Nasdaq looks to be doing it again. Nasdaq is moving again up the short term MVA on solid volume advances.
It won't last forever; it never does. The commentators are very correct in pointing these shortcomings out and we need to be cognizant of them because when they pile up high enough the rally will have to correct. The problem is they are terrible as to timing. Speculation can last for years. We don't want it to because that leads to serious problems as we have seen. If money continues to come into the market and the big institutions keep putting it to work, stocks will rise. Until they decide to take some gains and sell the market for more than a session or two, however, it doesn't do a lot of good to sit on the sidelines and say someday a correction will come. Sure it will, but the signs of slowing or a change of momentum can drag on for quite some time before the big money starts selling stocks off and leaders start breaking down.
As always, keep your eyes open, read the signs, and be ready if there is something that does not look good with respect to the trend you are playing. Some trends are shorter (e.g., option plays on bounces) while we are holding others for as long as possible (e.g., SINA, SOHU, UNTD; GPRO; YHOO; AMZN; TSCO; NTES, etc.), taking some interim gains to capture some profits while we let them run higher and look for new entry points. Averaging up in a rising market is a great way to take advantage of the trend and build wealth.
THE ECONOMY
Leading Economic Indicators post another solid gain.
August LEI, looking six months down the road, rose a solid 0.4% last month, following a solid 0.6% gain in July, revised from 0.4%. Revisions are the strongest indication of increasing momentum. We have been seeing upside revisions in many economic reports, indicating that the recovery is proceeding with more strength than originally thought or gauged by the economic watchdogs (who are not that great of watchdogs so it seems). This puts the LEI with a 2.5% gain since the low in March 2003. It hit its low in March yet economic activity jumped sharply in Q2. The LEI has been building momentum month to month, and that only reinforces the economic outlook heading into the end of the year and Q1 of 2004.
Philly Fed dips but still showing expansion.
September saw a slowdown to 14.6 (17.3 expected, 22.1 in August), but it marked the fourth consecutive month of expansion (i.e., a reading above 0). You also have to balance the reading against the fact that the August reading was a 5 year high. Further, new orders increased to 19.3 from 14.6. Rising new orders means higher demand and thus more production down the road to fill those orders. Employment still lags, rising to -4.7 from -8.7, but still showing contraction though at a slower rate. That does not, however, equal job creation.
Jobless claims fall below 400K.
By the skin of their teeth jobless claims edged under 400K, sliding in better than expectations at 399K. The prior week, however, was revised upward to 428K from 422K. The 4-week average, having moved over 400K last week, remained over 400K at 410K. The 399K marked the first close below 400K in 4 weeks, but give the margin of error it really is just mental exercise. The key is the number is still too close to 400K to make a real difference. When we see that 4 week average at 380K that will mean something.
THE MARKET
Stocks rallied again, stretching the breakout after the test that came right on the heels of SP500 and DJ30 making the move out of their summer consolidation ranges. The indexes held at the top of their ranges on the test and then started higher on volume the past week. It shook off some churning on Nasdaq and rallied past the early September highs as volume made a solid advance.
This is the exact action you want to see on a resumption of a breakout. The breakout was on strong volume and good breadth in early September. That was the key to the move as it showed the buying interest was strong. The test came back on lower volume, held near support and made a higher low, and then buyers came back in and pushed stocks higher on stronger volume with leaders advancing sharply. It does not have as strong of readings as the early September moves, but those were the breakout moves that shook off the trading ranges; those were the caliber needed to show the underlying strength. This action on the test and rebound is a solid follow up.
Market Sentiment
VIX: 19.3; -0.32
VXN: 29.75; -2
Put/Call Ratio (CBOE): 0.51; -0.23
NASDAQ
Led the advance by a hair with a 2B share session. A very good resumption of the breakout.
Stats: +26.45 points (+1.4%) to close at 1909.55
Volume: 2.02B (+5.93%). Solid advance and the first 2B session since the test of the early September breakout.
Up Volume: 1.44B (+426M)
Down Volume: 513M (-355M)
A/D and Hi/Lo: Advancers led 1.61 to 1. Mediocre volume as chips lagged much of the session.
Previous Session: Decliners led 1.05 to 1
New Highs: 373 (+43)
New Lows: 5 (+1)
The Chart: http://www.investmenthouse.com/cd/^ixq.html
Nasdaq cleared the early September high (1888.65) with relative ease in a slow, steady uptrend all session. No big burst higher early and then a lateral move, but a dip lower to undercut the Wednesday close and then buyers moving in and driving stocks higher. Solid, steady action that shows continued buying at each dip as buyers used the pullbacks to enter, a sign that there is money that remains to be put to work. Now Nasdaq has to deal with 1930 to 1935, some prior highs from March 2002 in the downtrend. The big, big point of resistance and the point where the Nasdaq will most likely finally run out of gas on this move and need to correct is at 2050ish. That is the double top point (roughly) in December 2001 and January 2002 that killed off a rally attempt from the September 2001 low and set up the last nasty downthrust in the long downtrend. It is a nasty level.
S&P 500/NYSE
A strong continuation of the breakout, coming on sharply higher volume off of the breakout test.
Stats: +13.61 points (+1.33%) to close at 1039.58
NYSE Volume: 1.493B (+13.33%). Excellent volume surge, equaling early September levels. The solid price/volume action of late makes it hard to buy into the argument that volume has been slacking off. Volume has been solid on the gains.
Up Volume: 1.144B (+532M)
Down Volume: 333M (-335M)
A/D and Hi/Lo: Advancers led 2 to 1. Solid breadth even though the smaller caps lagged.
Previous Session: Decliners led 1.05 to 1
New Highs: 285 (+93). A better advance, but not super. As noted, however, the breakout of the range was in early September, and that is where the strong internals, etc. were needed. In short, everything has to come together to breakout of ranges, and that is what happened. Now the indexes are moving up with accumulation sessions.
New Lows: 9 (-4)
The Chart: http://www.investmenthouse.com/cd/^spx.html
The large caps cleared the early September highs (1032) and powered ahead on volume. They moved up to the resistance in the morning, moved laterally for an hour, and then broke higher. In good fashion it tested, held, and then rallied sharply off of that level. That is textbook intraday action on the break over a resistance point. Next resistance is 1050 from some prior lows October 2001 and May 2002, but the heavy artillery is at 1100 to 1150 where SP500 double topped December 2001 through March 2002.
DJ30:
Stats: +113.48 points (+1.19%) to close at 9659.13
Volume: 1.493B (+13.33%)
As with the other indexes, DJ30 cleared the early September highs (9609) and did so on rising volume. It was able to overcome its somewhat toppy pattern, pulled along by the other indexes. Volume for the Dow 30 rose above average, but it was hardly a rambunctious session. Perhaps those looking at volume are looking at the Dow 30 only. It, however, is a laggard.
FRIDAY
The market seems to be moving in an on and off pattern, i.e., rising one day and then falling the next, all the while rising after the breakout test. Friday there is no scheduled economic release, no more swirling furor over the NYSE, just the market looking ahead and seeing earnings warnings season really getting active next week and earnings season not much farther down the road.
There is a lot of fear of Nasdaq. It has rallied sharply and there is talk of overvaluation, earnings disappointments, etc. Today the book to bill ratio on the chip industry was a disappointment and many heralded that as a clear indication stocks were overvalued. The market mostly ignored that data. Doesn't mean the market was wrong, but you lost money betting against it on the basis of that report. Nasdaq is getting stretched and it will need a correction. Until then it appears to want to run toward the double top area at 2000 to 2050. It may not make that level, and there will certainly be the typical rally and then test the short term MVA, then rally some more.
Nearer term we can see a further move higher Friday as the momentum from the breakout continues. If Nasdaq reaches near 1930 it will most likely stall there and some sellers will move in to take gains ahead of the weekend after a nice run higher. Thus, after some nice sessions this week it will be important not to chase positions that have rallied well. The bus typically makes another stop, and we can get on there.
Support and Resistance
Nasdaq: Closed at 1909.55
Resistance: 1930 - 1935.
Support: 1889 (early September highs) may provide some support now. 1860 to 1865. The 10 day MVA (1865). The 18 day MVA (1841). The August high 1812 and 1814 held Thursday.
S&P 500: Closed at 1039.58
Resistance: 1050.
Support: 1030 to 1032 (early September highs) may act as some support now. The 18 day MVA (1017) and the top of the range at 1015. The exponential 50 day MVA (1001) and 975 (December 1997 peak). 965 (August 2002 peak).
Dow: Closed at 9659.13
Resistance: 9735. 9800 (April and May 2002 lows).
Support: 9609 (early September highs) make act as some support. 9500 (June 2002 lows) is the top of the recent range. The 18 day MVA (9482). 9353 (top of summer range). The exponential 50 day MVA (9323). 9250 to 9236, the early June intraday high.
Economic Calendar
9-15-03
Business inventories, July (8:30): -0.1% actual, 0.0% expected, 0.0% June (revised from 0.1%).
Current account, Q2 (8:30): -$138.7B actual, -$138.2B expected, -$138.7B Q1 (revised from -$136.1B).
Industrial production, Aug. (9:15): 0.1% actual, 0.3% expected, 0.7% July (revised from 0.5%).
Capacity utilization, Aug. (9:15): 74.6% actual, 74.6% expected, 74.6% July (revised from 74.5%).
9-16-03
CPI, August (8:30): 0.3% actual, 0.4% expected, 0.2% July.
Core CPI: 0.1% actual, 0.2% expected, 0.2% July.
FOMC meeting results (2:15): Fed Funds rate held steady at 1%. Risks of upside/downside in the economy roughly equal. Main focus is potential for rate of inflation dipping too low for the foreseeable future and thus Fed will remain accomodative.
9-17-03
Housing starts, August (8:30): 1.820M actual, 1.830M expected, 1.892M July (revised from 1.872M).
Permits, August (8:30): 1.886 actual, 1.800M expected, 1.800M July.
9-18-03
Initial jobless claims (8:30): 399K actual, 410K expected, 428K prior (revised from 422K).
Leading economic indicators, August (10:00): 0.4% actual, 0.4% expected, 0.6% July (revised from 0.4%).
Philly Fed, September (12:00): 14.6 actual, 18.0 expected (revised from 15.1 after the NY report), 22.1 August.
FOMC minutes (2:00)
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 Thursday: CDIC; CYTO; DRIV; GPRO; GRIC; HDTV; KOMG; LIFC; PTEK; PTN; QCOM; SCON; SONS; SRA; TSCO
New Plays:
Upside:
Play Date: 09/18/2003
CHU (China Unicom--$7.95; +0.34; optionable): Full service China telecom
http://biz.yahoo.com/p/c/chu.html
STATUS: Reverse head & shoulders. CHU is ready to make the breakout from its 9.5 month base sporting excellent 11 to 3 accumulation (11 up weeks on rising volume to 3 down weeks on rising volume). This is an accumulative pattern, and the accumulation count shows just how strong it has been. We will see if this is the next China stock to catch fire.
Volume: 2.945M Avg Volume: 390.863K
BUY POINT: $8.16 Volume=600K Target=$10 Stop=$7.48
POSITION: CHU AU - Jan. $7.50c (71 delta) &/or Stock
http://www.investmenthouse.com/ci/chu.html
Play Date: 09/18/2003
FMTI (Forbes Medi-Tech--$2.45; +0.15; no options): Biotech (cardiovascular diseases)
http://biz.yahoo.com/p/f/fmti.html
STATUS: Testing the breakout. We had our eye on FMTI and that eye watched it break out of a nice little 9 week cup with handle base. Good accumulation at 3 to 1 set the foundation for the big, high volume breakout 4 sessions back. It has come back to test that move on Tuesday and Wednesday as volume backed off. Thursday FMTI was moving higher again. We want to see more volume on the rebound, but it looks very solid with excellent money flow and a relative strength breakout as well.
Volume: 197.399K Avg Volume: 200.181K
BUY POINT: $2.54 Volume=225K Target=$3.18 Stop=$2.24
POSITION: - Stock (no option chain)
http://www.investmenthouse.com/ci/fmti.html
Play Date: 09/18/2003
IMCO (Impco Technologies--$7.63; -0.22; optionable): Auto: just about anythign to do with fuel systems.
http://biz.yahoo.com/p/i/imco.html
STATUS: Testing the breakout. And yet another stock testing the recent breakout. That is what happens in a rising market, and we love a good breakout test that 'proves up' the breakout. IMCO exploded out of an 8 week cup w/handle base 5 sessions back and has spent this week coming back to test the breakout on lower and lower trade. That indicates there is not dumping, just some mild profit taking. Accumulatio in the base is an oustanding 4 to 0. That is combined with surging money flow and a relative strength breakout indicating a solid breakout move. It may come back to fully test the 10 day MVA (7.41) before turning back up. Very solid. Auto dollar sales may be lower, but unit sales are huge.
Volume: 218.44K Avg Volume: 142.545K
BUY POINT: $7.88 Volume=225K Target=$9.85 Stop=$7.33
POSITION: IQZ KU - Nov. $7.50c (59 delta) &/or Stock
http://www.investmenthouse.com/ci/imco.html
End part 1 of 2
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