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us stock market, trend trading stock
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9/25/03 Investment House Daily
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Investment House Daily Subscribers:
MARKET ALERTS:
Target hit alerts issued Thursday: None issued
Buy alerts issued: ISIL
Trailing stop alerts: TQNT
Stop alerts: Continued to trim positions if broke near support. NTOP; AVAN; STEL
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:
- Strong selling continues as weak test of support rolls over.
- Durable goods orders fall, jobless claims mean little, housing soars.
- Volume backs off but is still stronger than recent upside trade.
- Subscriber Questions
Early rebound attempt is sold into.
A classic sign of a market that has run out of gas for now: trying to rebound after closing on the low the prior session but failing and again closing at the session low. The market was game for awhile, rallying off an early test of near support to try resistance again, but it failed again. Much as with a relapse from an illness, when the second selling wave takes hold after a failure to breakout, it can be a lot worse. The afternoon selling pushed the indexes to their lows, pushed Nasdaq below near support, and pushed SP500 and DJ30 to the edge of their 50 day MVA support.
The selling was not as strong as Wednesday as volume backed off and the A/D line improving though still negative. Chips were trying to bounce much of the session as opposed to the nasty 4.7% drop Wednesday. They too, however, could not hold onto the session highs, rolling over at the 18 day MVA and giving up positive territory. The early failure at resistance and the nasty sprint lower to the close is the hallmark of a market that, after a long run, hit critical mass and needed to take a rest. Everyone started to head for the door at the same time, however, and that ahs caused volume to spike up. The key test is when Nasdaq gets close to the 50 day MVA (1785), just another 32 points away.
THE ECONOMY
The economic news could not offer much help as it was either worse than expected or had a row of asterisks behind it. It was not good enough to have helped a selling market, but as we said last night, even good results would not have turned the tide Thursday. Might have mitigated it some, but in the end the selling most likely would have won out still.
Durable goods orders unexpectedly fall.
A very volatile report month to month, and it was quite volatile for August, falling 0.9% from 1.5% in July. Transportation (both autos and civilian aircraft) took huge hits and dragged the number lower. Taking out the transportation element and sales fell just 0.3%. Non-defense capital goods orders fell 0.8% excluding aircraft. Those are what economists view as a reflection of business investment. After some strong months this area backed off.
The July number was very interesting, however, as again there were upward revisions to a prior month. July initially reported 1.0% but was pushed 50% higher by the revision. Huge upside changes. We are seeing more and more upward revisions to reports across the board and that is one of the strongest indicators of not only an improving economy, but one that is picking up steam. Durable goods orders fluctuate between negative and positive even in very strong economies. The key here is that the trend is definitely rising even with occasional setbacks.
Jobless claims fall to 381K from 400K (revised from 399K), but it is illusory.
Claims were blown lower by hurricane Isabel as many state employment offices were closed as a result of hurricane Isabel. Thus there is not a darn thing you can take from that number and there is not much point in discussing it.
Home sales surge.
Existing home sales hit a record (+5.5%) and new home sales just missed (+3.4%) as August proved a hot month for housing yet again. Interest rates had run higher but were backing off. Even at the higher levels, rates are still historically low and home buyers can still afford quite a bit of house. The only area suffering of late has been refinancing. As far as geographic regions, Texas and Colorado show the most slowing, but even that is rather modest. The housing market remains surprisingly resilient, providing good future support to a recovering economy.
Tax rollback talk, democratic polls versus Bush roiling market.
It is subtle but it is there. Two head to head polls between Bush and two democratic candidates showed the democrats ahead. Most all democrats want to eliminate all or the top bracket tax cuts, one even saying raising capital gains taxes on those that have the gains. The elimination of the tax cuts on the top brackets is based on the theory that those people have nothing to worry about and need to sacrifice. They point to corporate executives making big pay checks and having nothing to do with job creation. The facts demonstrate this is a horribly misguided and potentially economically devastating view. Two out of three of those in the top tax brackets own small businesses. Small businesses generate 75% of the jobs in the US. Most small businesses in this category are subchapter S corporations or partnerships, and the profits of the business flow directly to the individual tax returns of the owners. Thus the tax cuts directly benefited the job producers in the country at all levels. They have more money to use for their businesses to invest in new equipment and employees as a result of the cuts. Take away the cuts and you take away the method by which this recovery lives or dies: investment in the US economy.
What does this have to do with the market? Already the talk shows are discussing what would happen if the tax cuts were rolled back as the candidates are suggesting. Further, they are musing whether Bush might be forced into some kind of rollback in order to maintain the presidency. Those possibilities are not lost on the market, and while the impact may be marginal right now, the market is a discounting mechanism. Combined with the other issues facing the market, it is another drag, another reason to be cautious. There is a reason risk takers make a lot of money: they take the risks that others do not want to or cannot take. They put everything on the line and can lose it all if the business goes under. They are signing the loan papers to launch a business knowing that 80% of all new businesses fail in the first year. We need to encourage those people to take the risk, to dare to be successful and live the American dream and thus be able to help others by creating new products, services and jobs. The facts show the tax cuts have spurred business investment and that in itself has been the missing economic ingredient. As such the economy is improving much faster than expected. These facts are being baldly denied every day. The market knows this, but the market also does not vote for our leaders, just by share prices. Those prices are discounting some of the purposeful misrepresentation of the economic conditions in the US.
THE MARKET
When introducing people to investing for the first time we talk about how the market is driven by human emotion. You can put all of the rational thought into it that you want, but in the end when the rubber meets the road much of the trade is based on emotion. The two emotions that do the driving? Greed and fear. Greed can drive prices impressively higher when it gets cranked up. Greed, however, is a piker next to fear. Fear is the dark master of the market. An investor might chase a stock higher, but if things go south and he or she gets a whiff of fear, that investor will trample anything to get out of the door.
That is why in two days you saw almost two weeks of upside moves on Nasdaq wiped off the slate as volume spiked higher. We are not saying there is a bunch of fear in the market, but we are saying that once the selling starts in earnest, there is a quick move to the sell button. Fear of losing gains, being left holding the bag, or another market crash are still very much on investors' minds. Institutions may be a bit more immune as they may simply be locking in gains in order to show them in their Q3 and year-end reports, but when it starts they all want to lock them in lest they are too late and miss out. That is the institutional form of fear, i.e., fear of not being able to show the gains on the year-end report.
DJ30 and SP500 are back in the summer range, and they are precariously teetering on the 50 day MVA in relatively short order. The volume indicates the big money is selling. Now we see if the big money steps in when strong stocks they hold reach the 50 day MVA. With Nasdaq over its 50 day MVA they could undercut them and test lower toward the middle or bottoms of their summer trading ranges. They have fallen hard this week and as we know stocks and indexes don't just move in one direction continuously. They take a lot of breathers and test the move along the way. Thus even though we feel a more extended selling session is underway, we don't see it dropping as it did the last two sessions until the indexes reach the bottom of their trading ranges. Instead they will slow the pace and start to base build on into October and thus set up the next move from there after the institutional adjustments are made and they are ready to buy stocks again in anticipation of a further economic recovery.
Market Sentiment
Volatility is moving higher, but it is still a far cry from levels that would suggest a reversal. Volatility day to day has again crept higher as the market rallied, but the market is still high in its range. Unless volatility was surging even as the market rallied, it is not showing anything major.
VIX: 22.26; +1.04
VXN: 30.65; +1.29
Put/Call Ratio (CBOE): 0.84; -0.04. Put buying is a bit higher as some speculate to the downside and others buy protection for upside holdings. Either way those are indications that there is growing concern about downside. As a contrary indicator we like to see this rise as the market sells.
NASDAQ
Second day of strong selling on lower though still solid trade. Looking for 1800 or the 50 day MVA.
Stats: -26.46 points (-1.44%) to close at 1817.24
Volume: 2.05B (-7.5%). Lower but another 2 billion session on Nasdaq indicates continued selling by the big money.
Up Volume: 379M (-11M)
Down Volume: 1.66B (-151M)
A/D and Hi/Lo: Decliners led 2.79 to 1. Another pretty ugly session for the entire index.
Previous Session: Decliners led 2.3 to 1
New Highs: 102 (-178)
New Lows: 6 (+5)
The Chart: http://www.investmenthouse.com/cd/^ixq.html
After breaking the 18 day MVA Wednesday, Nasdaq had a vacuum below it, and it rushed to fill it Thursday. It managed to close over 1812 to 1814, the next level of support from (modest at best), but it looks ready to head for a test of the 50 day MVA (1785) that is just over the July highs at 1776. Then there is that up trendline from March that basically needs to hold to keep the market from slipping into an even deeper correction. The key early on is the 50 day MVA and that up trendline. Until the market makes a test of that level we doubt it is going to attempt a serious move back to the upside.
S&P 500/NYSE
Completed the quick drop to the 50 day MVA on again strong volume.
Stats: -6.11 points (-0.61%) to close at 1003.27
NYSE Volume: 1.524B (-1.22%). Volume backed off but barely, again coming in again well above average. More distribution.
Up Volume: 393M (+120M)
Down Volume: 1.094B (-189M)
A/D and Hi/Lo: Decliners led 1.9 to 1. Another day of broad selling.
Previous Session: Decliners led 1.96 to 1
New Highs: 76 (-88)
New Lows: 16 (+8)
The Chart: http://www.investmenthouse.com/cd/^spx.html
A quick 37 point drop to the 50 day MVA (1004) puts SP500 right in the middle of the summer consolidation range (976 to 1015). It is still on the high side, but it is back in the range after being unable to stretch its breakout. Thus it is back in the range, but more importantly at the 50 day MVA. It mostly held the 50 day in the prior range and moved up from that support level. It has had a quick week of selling. We doubt that is enough to clean out the pipes and start a solid upside rally, and we look for more lower and lateral movement toward the bottom of the range on into October. At that point it will need to hold the line and deliver another upside breakout.
DJ30:
Stats: -81.55 points (-0.87%) to close at 9343.96
The Dow broke through the top of its range (9353) as well, a point coincident with the 50 day MVA (9355). It did close on the simple 50 day MVA (9347) but with Nasdaq still above its 50 day, DJ30 could easily undercut this and test 9285 (July closing highs) to 9250. The bottom of its summer range is all the way down at 9000. Three solid sessions of selling puts it at that level, but we will see the selling start to abate some. Nothing drops or rises furiously for long periods without taking a breather. Thus a fall to 9000 could take a few weeks and then set up for a late October move.
FRIDAY
Q2 final GDP is out before the open followed by Michigan sentiment at 9:45. Again we are not expecting these to help the market much though after the hard selling the past two sessions there is going to be a rebound at some point either Friday or early next week. This is especially true given the SP500 and DJ30 are right at the 50 day MVA and there will be an attempt by some institutions to buy in at that point. We don't think they will be successful in pushing it higher in a sustained manor yet, but we need to understand what is going on.
If volume spikes up tremendously and good stocks break up higher off their 50 day MVA or other support, then we will venture some positions, but we are going to continue to be defensive as the market heads into October and sets up the next move. Leaders always start to lead early (hence the name), so we keep an eye on those for good entry points and as harbingers that the market may be ready to start moving back up after the pullback.
Support and Resistance
Nasdaq: Closed at 1817.24
Resistance: The 18 day MVA (1850). 1860 to 1865. 1889 (early September highs). 1930 - 1935. Then 2000 to 2050.
Support: The August high 1812 and 1814. The 50 day MVA (1785). The July high (1776). The March/August up trendline (1750).
S&P 500: Closed at 1003.27
Resistance: The top of the summer range at 1015. The 18 day MVA (1019). 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 exponential 50 day MVA (1004) is trying to hold along with the simple 50 day MVA (1001). 975 (December 1997 peak). 965 (August 2002 peak).
Dow: Closed at 9343.96
Resistance: 9500 (June 2002 lows) is the top of the recent summer range). The 18 day MVA (9501). 9609 (early September highs) make act as some resistance. 9735. 9800 (April and May 2002 lows).
Support: The exponential 50 day MVA (9355) is trying to hold (simple 50 day MVA at 9346). 9353 (top of summer range). 9250 to 9236, the early June intraday high. 9000, the bottom of the summer range.
Economic Calendar
9-25-03
Durable goods orders, August (8:30): -0.9% actual, 0.5% expected, 1.5% July (revised from 1.0%).
Initial jobless claims (8:30): 381K actual, 400K expected, 400K prior (revised from 399K).
Existing home sales, August (10:00): +5.5%
New home sales, August (10:00): +3.4%
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: I have learned much from the nightly reports but have more to go. I was wondering why you sometimes have 2, 3 or more plays listed for one stock?
A: We like to focus on stocks that are winners. Many stocks form nice bases and breakout and we buy into them for nice gains. Some prove to be stronger than the rest of the pack and continue to rally farther and faster than their brethren. Those are stocks we want to focus on because averaging up into winning stocks is a good way to really build wealth. Thus when these stocks from new bases or test the breakout or make a periodic pullbacks to support we like to move into them and build into strength. In an uptrending market this is a powerful wealth building method as you focus on winners. Thus you will see multiple positions on stocks in the reports, and we will continue to do that, most likely after this correction here runs its course.
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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