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us stock market, trade stock
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10/01/03 Investment House Daily
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Investment House Daily Subscribers:
MARKET ALERTS:
Target hit alerts issued Wednesday: None issued
Buy alerts issued: None issued
Trailing stop alerts: UNTD
Stop alerts: NEOF
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:
- New quarter, new money put to work as indexes post 2%+ gains.
- ISM solid, economists and investors breathe a sigh of relief.
- Chips and volume sit out the rally. Reluctant followers or leaders in a turn back down?
- Subscriber Questions
Market springs back with broad rally, still lower trade.
The new quarter brought new money to the market. It was enough to turn a second breach of the 50 day MVA by SP500 and DJ30 back, enough to send the SP600 small cap index back over its 50 day MVA as well. To turn the tide in such a manner is impressive. The way you do it is with broad buying across the market. That occurred as money poured into most, but not all, sectors.
Things started positive, and when the ISM was not a disappointment the market had a chance to exhale. A quick test lower found support and then a steady rise the remainder of session. Lots of superlatives were used to describe the action and many heralded it as the start of the next leg. We never want to fight the market, but we remain concerned because volume, though only slightly, was lower than the prior selling session. Further, even though SOX rallied, it was the laggard with many chips selling hard. Moreover, many stocks simply moved higher toward that support they just broke, many moving on below average volume as they bounced. With the strong breadth and solid percentage gains you would have expected much stronger trade and more breakouts. In short, money went to work, but there was not as much money going back into the market as was taken out in the recent higher volume selling sessions.
THE ECONOMY
ISM lower but still shows solid indications.
September manufacturing activity grew at a slower pace (53.7 versus 54.7 in August), but it was a relief to a market concerned about the Chicago report released Tuesday. The reading above 50 indicates a third month of expansion for an economic that continues to improve month by month. The sub-indexes were the most encouraging with the new orders moving over 60 for the first time since the recession, coming in at 60.4 versus 59.6 in August. Back orders also rose (52.5 versus 51.5), an indication of future expansion as new orders and back orders have to be filled. Further, back orders indicate that businesses are getting a bit behind and will need help if the expansion continues. Inventories were also encouraging, rising to 47.7 from 42.5 but still below 50. Manufacturers are running lean still, and with back orders rising and low inventories, they are going to have to somehow ramp up production. Employment was down, falling to 45.7 from 45.9, but as one commentator noted, there was no worsening.
Challenger jobs survey shows fewer planned layoffs.
Planned layoffs fell 10% year over year and down from August, coming in at 76.5K. That basically shows the job market is not worsening, and with the Challenger reports for the past three months there is the indication that jobs have bottomed. As we have often said regarding the stock market, however, a bottom does not mean a rally immediately ensues. No doubt there is hope regarding the Friday jobs report. Even though it goes against reason, there is the hope that jobs will surprise to the upside. As we have said, it is still too early for that kind of surprise. December would be the earliest point we can really look for job creation. We hope we are wrong and they show up earlier, but hope in the market, unlike in Shawshank Redemption, is not a good thing. If you are hoping for something to happen you are typically in deep trouble.
THE MARKET
That remains our biggest concern with this rally that is still trying to emerge from the recent selling. The market has been showing distribution, not accumulation, and lower volume rebounds show a lack of conviction to support the rally if some negative news hits. The jobs report is expected to show job loss, but there is always that pesky hope that drives the market just as there was hope around each FOMC meeting in 2000 to 2001 that the Fed would do more but it never did. Hope gets sold when reality hits. If this market continues to rally on lower volume, it sets itself up for disappointment when those jobs fail to show up and that can trigger the next round of selling in an already volatile market.
No question stocks were once again popular Wednesday as the indexes soared and most stocks posted gains. This was the latest volley in the back and forth action the past four sessions following the selloff last week. The market was definitely in rally mode, but it did not reverse the weak price/volume action for the past week, i.e., selling on rising volume, rallying on lower volume. No doubt some of the action was short covering from the recent selling, covering that intensified as the indexes moved back over their 50 day MVA.
We might be a bit too skeptical of the action and this may be a good entry point as Nasdaq tests the 50 day MVA and other indexes recover their own 50 day and move higher again. That price/volume action has been poor, the intraday volatility rising, many stocks simply rebounded toward resistance on lower volume, and the chips not only sat out the session, but many fell hard even though the SOX posted a gain. After such a sharp drop and on such volume, stocks typically need to rebuild some; they were dumped hard and need to find new buyers to believe in them. A quick rebound on lower volume does not fill the bill. It may develop into something more and we will continue to troll for stocks in solid patterns and rebounding leaders to move into. There are, however, fewer solid patterns showing good entry points after the jerky up and down action the past two weeks.
Market Sentiment
The put/call spike over 1.0 proved more accurate than we gave it credit. The puts outnumbered the calls, and that indicated the shorts were ready to cover if a catalyst came about. When the SP500 broke back over its 50 day MVA, that was enough to start shorts closing some positions.
VIX: 21.07; -1.65
VXN: 31.33; -1.5
Put/Call Ratio (CBOE): 0.79; -0.27
NASDAQ
The price/volume action remains weak, but Nasdaq gapped higher and rallied off the 50 day MVA. Only thing lacking was volume.
Stats: +45.31 points (+2.54%) to close at 1832.25
Volume: 1.838B (-2.72%). Solid volume, but it was again lower on an up session. More money was being taken out of the market on the selling sessions than has been put into the market on the up sessions. Thus despite the strong point gains we remain skeptical as many stocks simply moved back up toward resistance as opposed to having completed new bases and are at a breakout point.
Up Volume: 1.272B (+905M)
Down Volume: 542M (-969M)
A/D and Hi/Lo: Advancers led 2.36 to 1. No complaints about the participation, just the level of participation (i.e., volume).
Previous Session: Decliners led 1.51 to 1
New Highs: 137 (+54). Not an impressive bunch of new highs yet just as there were not many new lows on the selling. Not a lot of change here.
New Lows: 4 (-8)
The Chart: http://www.investmenthouse.com/cd/^ixq.html
Nasdaq rebounded sharply with an impressive point gain and solid breadth. Volume did not match the magnitude of the gain and breadth as techs closed at the 18 day MVA (1836.13). Techs held where they needed to at the 50 day MVA (1799) and the July highs (1776). Everything looked solid but the volume (overall level and up to down ratio), the leadership, and chips. The tendency is to gloss over them and bask in the great price move, but there is still distribution on going, and that can erode the foundation right out from under a rising market. Resistance from the 18 day for now.
S&P 500/NYSE
Impressive blast back through the 50 day MVA and over the top of the summer range.
Stats: +22.25 points (+2.23%) to close at 1018.22
NYSE Volume: 1.494B (-0.15%). Volume was much closer than on Nasdaq, and arguably enough to argue against distribution. At best up volume matched one of the down volume sessions. It could be a change in the distributive action.
Up Volume: 1.283B (+810M)
Down Volume: 209M (-802M)
A/D and Hi/Lo: Advancers led 4.69 to 1. Incredible breadth as money found its way into all segments of the market.
Previous Session: Decliners led 1.04 to 1
New Highs: 178 (+83)
New Lows: 7 (-5)
The Chart: http://www.investmenthouse.com/cd/^spx.html
The large caps resolved the recent fight at the 50 day MVA (1004) to the upside with a strong price move. Volume was not far behind, indicating there was some accumulation ongoing. The move pushed it back over the top of the summer consolidation (1015) as it found strength you usually don't see after an index makes a second break below the 50 day MVA. Unlike Nasdaq, SP500 never really got extended on its move, having consolidated for three months before making the September breakout try. Thus it still has reserves so to speak that have never been used.
DJ30:
Stats: +194.14 points (+2.09%) to close at 9469.2
Blue chips were popping as cyclical stocks were snapped up. DJ30 rose on stronger volume as they too pulled off the difficult feat of rallying back through the 50 day MVA after twice breaching that level. Still resistance at 9500, but as with SP500, DJ30 had a nice summer range where it consolidated, and it still has that to back it up as it attempts to breakout once more. It has to clear the early September highs (9609) to avoid a potential head and shoulders.
THURSDAY
You cannot count out the power of a few trillion dollars that are looking for a place to go to work. After some late September portfolio shuffling, money was flowing back to the market Wednesday. It was not an unmistakable blast higher on huge volume, but there is no doubt money was being put back to work after being taken out of the market to book some gains and dress up the portfolios for report time. The issue is whether it was a change showing more accumulation beginning or just a reallocation of what was taken out of the market to end September. The volume certainly indicated there was no more buying than selling.
As we noted earlier, it does no good to stand and rail at what the market should be doing. We are cautious of the rally on lower volume yet again, but we are also looking for good upside plays along with the downside plays. A lot of important names in semiconductors did not only fail to participate, but sold off as the market rallied. That is a problem for the market. It may correct itself tomorrow, but with the lower volume gains and failure of such a key sector to participate, there is reason for caution.
One thing we are not going to do is get in some rush to move into positions just to do so for fear of missing out. There was enough of that Wednesday without the level of trade you want to see to feel good about the return of the big money to accumulation. As always we will be choosey in the upside plays, looking more at those that give us a good entry point and thus an advantage. There are also downside plays setting up, both those on the report now and other stocks that are rebounding to resistance on lower volume. The market action and the time of the year warrant a bit of additional caution, but if we see a move in a good pattern we will take advantage of it.
Support and Resistance
Nasdaq: Closed at 1832.25
Resistance: The 18 day MVA (1836). 1860 to 1865. 1889 (early September highs). 1930 - 1935. Then 2000 to 2050.
Support: The 50 day MVA (1789). The July high (1776). The March/August up trendline (1778).
S&P 500: Closed at 1018.22
Resistance: The top of the summer range at 1015 has not been totally cleared. 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). 975 (December 1997 peak). 965 (August 2002 peak). 961, intraday lows in the summer range.
Dow: Closed at 9469.20
Resistance: 9500 (June 2002 lows) is the top of the recent summer range). 9609 (early September highs) make act as some resistance. 9735. 9800 (April and May 2002 lows).
Support: The exponential 50 day MVA (9356) and 9353 (top of summer range). 9250 to 9236, the early June intraday high. 9077, the August 2002 interim top. 9000, the bottom of the summer range.
Economic Calendar
9-29-03
Personal income, August (8:30): 0.2% actual, 0.3% expected, 0.3% July (revised from 0.2%.
Personal spending: 0.8% actual, 0.8% expected, 0.9% August (revised from 0.8%).
9-30-03
Consumer confidence, September (10:00): 76.8 actual, 80.5 expected, 81.7 August (revised from 81.3).
Chicago PMI, September (10:00): 51.2 actual, 57.0 expected, 58.9 August.
10-1-03
ISM Index, September (10:00): 53.7 actual, 55.0 expected, 54.7 August.
Construction spending, August (10:00): 0.2% actual, 0.4% expected, 0.2% July.
10-2-03
Initial jobless claims (8:30): 395K expected, 381K prior.
Factory orders, August (10:00): -0.5% expected, 1.6% July.
10-3-03
Non-farm payrolls, September (8:30): -25K expected, -93K August.
Unemployment rate, September: 6.2% expected, 6.1% August.
Hourly earnings, September: 0.2% expected, 0.1% August.
Average workweek, September: 33.7 expected, 33.6 August.
ISM Services, September (10:00): 63.0 expected, 65.1 August.
SUBSCRIBER QUESTIONS
Q: I appreciate your letter. TELM is a stock that rallied in September and has now pulled back to the 18 day MVA. Were you looking at it during the last week of August? The huge rise in volume, I would have thought, would have brought it up, at that time. Of course, I'm looking back now at a chart and the history is easy to observe. Thanks for your comments...
A: Very good question. There is no doubt that TELM had formed a nice pattern (double bottom w/handle) and broke out on strong trade on 9-16. From there it rallied nicely as a breakout should. As with most breakouts, it then underwent some profit taking, i.e., low volume selling. That pushed it back to the breakout level. A strong stock with good institutional support will find support at that level when the big money uses the test of the breakout as another entry point. While the run on the breakout can be excellent (20%, 30%), really strong stocks log their best gains after the breakout test. At that point all short time holders are shaken out and the longer term buyers are in control and buying it on the pullback. If a stock rallies on rising volume from a test, that is an indication the big money is back at the trough and it is an excellent time to move in.
Thus, there are at least two points to take advantage of the breakout. Why take TELM at the test as opposed to the original breakout? Because we cannot play every potential breakout, we rank all of the stocks we look at and then pursue those that look the best and look ready to move soon. We always keep tabs on all of the strong plays, and if we miss the breakout we can always move in on the test.
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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us stock market
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