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us stock market, stock watch
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9/23/03 Stock Split Report
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Stock Split Report Subscribers:
MARKET ALERTS
Targets hit alerts issued Tuesday: FMTI. Let others continue to run.
Buy alerts issued: ELAB; ORLY; SBUX; NUVO; ENMD
Trailing stops issued: GS
Stop alerts issued: IMCL
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 again shows signs of underlying strength.
- Hotels surge, following airline rally. While everyone focuses on tech prospects, market forecasting growth in many industry sectors.
- Another test of near support brings in the buyers again.
- Subscriber Questions
Monday dollar drop prompts buyers to act.
Monday's confusion regarding currency valuations acted as a catalyst to book some gains. The selling volume was lower though the point losses rather steep, indicating that there was not much dumping of stocks. As soon as the opportunity arose, the buyers did step back in. After a test of the 18 day MVA on SP500 and DJ30 and the 10 day on Nasdaq, buyers stepped in. It was rather anemic at first as early gains were relinquished, but the buyers came back in yet again and started a steady rise into the close. Volume was up on both Nasdaq and NYSE as buyers again showed more strength than sellers. It was not overpowering, not a blast off from near support, but more of the solid price/volume action that has delivered steady gains in this rally.
While the market gains may have not been eye popping, there were many stellar individual moves as leaders such as CELL, AMZN, DRIV, SBUX, TSCO and SWIR surged yet again as newcomers (e.g., GRIC, EGOV, ENMD) broke out of nice bases to start their advances. Up and down the market there were solid moves that erupted after a sluggish start in the big indexes. This continues the positive overall action: buyers stepping in at support, rallying on rising volume, rallying to the close, leading stocks continuing to rally off support, new stocks breaking out of solid patterns. While earnings warnings are most certainly still to come, the market has shown remarkable resilience in shrugging off news such as the currency spat on Monday as it looks through any short term issues and sees continuing improvement in the already improving economic data.
THE ECONOMY
No scheduled economic reports did not stop economic news. Not all of the news comes in headlines under the 'economy' session in the newspaper. The market handicapped the recovery starting in October and again on the breakout in April. If you watch certain sectors of the market, you can see further affirmations of that strengthening outside areas such as technology.
Airlines started to improve over the summer, breaking out in July and August. Their move is in anticipation of further travel. Thus far that is being downplayed by some analysts. They agree that load rates were up 8% to end the summer and consumers were traveling again after deciding it was better to see the country than sit around in the house as they did for over a year after 9-11. They dismiss the increases, however, as business travel has not returned with force yet. Again, those miss the point: the market handicaps the future, not the present or past. If airline stocks were not anticipating even better times ahead than what the late summer showed they would not be rising and their patterns would not continue to show accumulation as that news is already priced in.
Tuesday hotels were active. MAR shot up $2.62, FSN +3.39. These moves come even after solid appreciation that started in the spring. Again, they are rising in anticipation of even better returns in the future. That translates into vastly improved economic conditions because travel is one of the litmus tests for economic activity as it touches consumers and businesses. Consumers feel safe enough and financially secure enough to start traveling again; some of that pent up demand to move around that we discussed a month back. Businesses are seeing a better business climate emerging that justifies more travel. Sure it is not a hard number saying X number of jobs were created (though as we have discussed, even that can be very misleading depending upon who you survey), but it is just as much an indication of improvement occurring and to come.
THE MARKET
It did not take long though the start was sluggish. When the indexes and stocks sold back to near support buyers moved in. Some stocks leaped higher while others along with the indexes began a steady move higher. The air had yet to clear regarding the currency issued (the dollar was down again early) when the buyers decided any issues regarding the dollar were overblown and could indeed turn out to favor the US economy in the short run just as they did in 2002 when the dollar started to weaken and multinationals saw the bottom line improve immediately.
The quick test of near support in the form of the short term moving averages bounced the indexes right up to challenge the early September highs and even the recent high hit right before the Monday dump lower. Breadth was so-so (1.6:1), but volume surged well above average on Nasdaq. NYSE was not as strong, but it did post a volume increase on the gain. It was not a powerful resurgence but it was a good recovery from the sudden thud lower Monday on the currency issue.
Market Sentiment
No doubt much of those in the market are bullish. A look at the bull/bear investment advisor survey says as much as well as the investment pundits appearing on the financial stations. This past week has been very amusing. Notice nearly all, when asked whether the rally can continue and whether they are bullish, start by saying 'well, Jim, as you know I was bullish back when no one else was'? Are they talking about 1998? 1999? Back in February and March we were saying the market was making a very good and historically very normal test of the move off the October low. We felt good about the market prospects. There were very few echoing this sentiment, and they certainly were not trumpeting it on CNBC or Bloomberg. We were moving into stocks such as TSCO, GPRO, SINA, SOHU, etc. even as some analysts came out and said the rally off the October low was over.
This chronicles the interplay between sentiment and market indications. Sure it was nerve wracking watching the market slide back down after just coming off a major drop into October. The last thing you wanted to do was go out and buy long, but the market was showing another consolidation and accumulation phase as opposed to a distribution phase. By focusing on that and ignoring the stomach flip-flops we were able to get an accurate read on a market that was building toward a move higher as opposed to another tank lower. There were not many voicing the same opinion. Now that the market has run hard and far everyone is converted, and that makes it a bit dangerous. That makes us look at the market indicators harder to make sure they are still positive or are eroding.
VIX: 19.47; -0.18
VXN: 26.98; -0.96
Put/Call Ratio (CBOE): 0.86; +0.11
NASDAQ
Held the 10 day MVA and rallied on a nice surge of above average volume, moving back toward the recent September highs.
Stats: +27.1 points (+1.45%) to close at 1901.72
Volume: 1.878B (+8.55%). A nice volume jump as Nasdaq moved up off near support, again displaying just the right price/volume action as volume falls on down sessions and rises on up sessions.
Up Volume: 1.468B (+1.103B)
Down Volume: 375M (-949M)
A/D and Hi/Lo: Advancers led 1.68 to 1. Not impressive breadth on the rebound, far below the 2+:1 seen in early September on that breakout. It does not have to be as broad as them but after the precipitous drop Monday you would like a bit more reassurance that the buyers are really moving in.
Previous Session: Decliners led 1.93 to 1
New Highs: 314 (+68). Still rather weak new high production, but we will see how it plays as Nasdaq surpasses the recent high.
New Lows: 4 (+3)
The Chart: http://www.investmenthouse.com/cd/^ixq.html
It only took one session for Nasdaq to resume the move higher, coming off the 10 day MVA (1878) test Monday on a nice shot of rising volume. The action was positive intraday as well, starting slightly higher and never giving up the green as it then stretched the gain all afternoon to close at the high. It ahs the recent September highs in the way (1913), and after that some resistance at 1930 to 1935. This was its second test of the short term MVA following the early August 50 day MVA test. It still has upside room on this move as stocks and indexes typically move 4 to maybe 5 times up off the short term MVA (10 and 18 day MVA) after 50 day MVA tests.
S&P 500/NYSE
Tapped the 18 day MVA on the low and posted a nice gain. Volume was up, but it was not a surge of buyside trade.
Stats: +6.21 points (+0.61%) to close at 1029.03
NYSE Volume: 1.295B (+4.56%). Volume was up but still slightly below average as the large caps started a rebound, making a higher low. On a test you want to see higher volume as SP500 showed today. It does not have to be a huge surge though it would have been better if it were above average.
Up Volume: 866M (+629M)
Down Volume: 431M (-570M)
A/D and Hi/Lo: Advancers led 1.7 to 1
Previous Session: Decliners led 2.64 to 1
New Highs: 189 (+80). Rather anemic new highs, but we will see how it fares as it approaches the September highs.
New Lows: 2 (-6)
The Chart: http://www.investmenthouse.com/cd/^spx.html
Another 18 day MVA test leads to another higher volume rebound, the second in as many weeks. If SP500 can continue the move higher from here it will have made a higher low, holding over the summer trading range (1015). Making higher lows is a more bullish stance, but it will also have to take out the early September top (1032) and last week's high (1040). That all is a lead up to the next real resistance level at 1050.
DJ30:
Stats: +40.63 points (+0.43%) to close at 9576.04
The blue chips also managed to hold at the 18 day MVA (9510), tapping that level on the intraday low and then rebounding to post a modest gain. Unlike the other indexes, Dow 30 volume did not expand. It is not really an anchor to the rest of the market, just more of a laggard as it has been on most of the move.
WEDNESDAY
Again no scheduled economic news so the market will be free to move on its own with just the usual buffeting from earnings results, any warnings, analyst upgrades/downgrades - - the usual noise associated with any session.
With the decent recovery from the Monday drop on currency worries the market is basically back where it was, i.e., in a continuing move up from the breakout test. Before Monday Nasdaq looked to have a couple more good upside sessions in it before needing a further rest. The Monday drop was abrupt and may not have given it enough of a breather for a more sustained move. Thus we continue to look for some more upside toward 1935 at the low end to 1965 to 1975 on the high end before it needs to come back again for the next breather.
The action was jumbled some by the Monday currency issue, but the Tuesday action showed the continued underlying strength in the market. We will continue to look for strong breakout moves but avoid those stocks that have already made strong moves as we could get a pullback after another couple of upside sessions that could leave those positions vulnerable.
Support and Resistance
Nasdaq: Closed at 1901.72
Resistance: Cleared1889 (early September highs). 1930 - 1935. 1975 is roughly 150 points on this 18 day MVA bounce. Then 2000 to 2050.
Support: The 10 day MVA (1878). 1860 to 1865. The 18 day MVA (1856). The August high 1812 and 1814 held Thursday.
S&P 500: Closed at 1029.03
Resistance: 1030 to 1032 (early September highs) may act as some resistance. After that 1050. Then 1080 from February 2002 lows. 1100 to 1150, the early 2002 double top.
Support: The 18 day MVA (1020) and the top of the range at 1015. The exponential 50 day MVA (1004) and 975 (December 1997 peak). 965 (August 2002 peak).
Dow: Closed at 9576.04
Resistance: 9609 (early September highs) make act as some resistance. 9735. 9800 (April and May 2002 lows).
Support: 9500 (June 2002 lows) is the top of the recent range along with the 18 day MVA (9510). 9353 (top of summer range). The exponential 50 day MVA (9353). 9250 to 9236, the early June intraday high.
Economic Calendar
9-25-03
Durable goods orders, August (8:30): 0.5% expected, 1.0% July.
Initial jobless claims (8:30): 400K expected, 399K prior.
Existing home sales, August (10:00): 6.05M expected, 6.12M July.
New home sales, August (10:00): 1.12M expected, 1.165M July.
9-26-03
Q2 GDP, final (8:30): 3.1% expected.
Michigan sentiment, final for September (9:45): 88.5 expected, 88.2 prior.
SUBSCRIBER QUESTIONS
Q: What exactly is a trailing stop and how do you use it?
A: A trailing stop loss is a stop order (stop limit or stop loss) that is moved up behind a stock or option as the price increases, hence the 'trailing' label. It can be an actual order set or it can be a mental stop, i.e., 'if it breaks this level and does not recover, I will sell it.' A stock might make a good move and really run and the original stop loss is too far down to preserve any of the nice gain in the event the stock or market reverses. So, to preserve our gain as the stock rises we use the trailing stop. It follows the stock as it climbs, which brings us to the next issue.
Where do you put the stop loss? This is definitely art, not science. Typically we try to use existing support levels (resistance on downside plays) with an emphasis on letting a good play work for us. We don't want to put it too close and choke off a strong move just through some more or less normal volatility.
At the start of the play we don't put it too close, particularly on options. Again, we want to give the play a chance to work. Once it starts moving well, then we make the first move of the stop, usually below a point where we think the stock might come back and test. As we often demonstrate, stocks come back to test their first big moves in a pattern and even intraday, and we don't want to get taken out on that move if the stock and the market still look good. Thus the first place we look is below the point of resistance the stock broke to start the move. That is a natural support point as resistance typically becomes support. It should hold if the play has the best chance of rebounding well and giving us a good gain.
After that test, we will start moving up the stop loss to literally trail the stock or option as it goes up. Again we use whatever existing support is there. Stocks that breakout like to run up the 10 and 18 day MVA. We start by putting a trailer below the 18 day MVA. The stock may show us by its action that it uses the 10 day MVA, and if we are really concerned about saving a gain we can then move it up to a point just below the 10 day MVA. The stock's volatility is also a guide. If a stock is trading in $2 increments up and down as it trends up, we will drop the stop back a little over $2. Many times after a stock or option logs a good gain that we are happy with and don't want to lose we will throw calculations out the window and set a stop where we are comfortable with the profit we will make if stopped out. At that point we always struggle with the choice to just sell the stock option outright or put in a stop and chance less profit. If the market is running, we will put in the stop and see if the stock or option rises more, giving us a chance to capture more gain. Moreover, the further in a run a stock moves, the more volatile it becomes. After 4 or 5 bounces up the 10 or 18 day MVA, the stock will be more volatile and need to test the 50 day MVA. If we are playing the run up the short term MVA we will either move the stop up tight on that fourth or fifth bounce and again will consider just taking the gain on the big jump higher as the volatility increases. If we are holding it longer term and are willing to let it test the 50 day MVA, we will maybe take part of the gain and then let it make the test. If it holds the 50 day MVA and starts to rebound we can add to positions at a lower price and get in on the next move.
It is a subjective methodology, and stocks will sometimes test lower intraday and then recover. That is why, unless a stock is showing high volume distribution early, we will often let a stock try and rebound, particularly when the market has been showing the propensity to recover late in the session.
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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