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world stock market, us stock market
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6/12/01 Investment House Daily
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Investment House Daily Subscribers:
TONIGHT:
- A big name warns, but the market overcomes the bad news.
- Bullish recovery after bad news is just what you like to see.
- Lots of worry about overseas economies, but they are behind the U.S. cycle.
- Subscriber Questions
- Team Trades
THE SUMMARY
The market gives us the reversal we were looking for last night.
Nokia was out before the open with a major warning for Q2 earnings. Futures were down about 5 points on the Nasdaq; within 10 minutes they were down 50. We were certainly going to get the additional selling we thought was coming, and it was going to happen in a hurry. NOK was the second big name in a row to warn. Last week it was Juniper. As we noted last night, it is a long road to recovery for telecom and networking, but unlike most of the doom mongers, we do not believe that the entire tech sector will be down for the foreseeable future. Indeed, we noted many tech stocks that are market leaders and hitting new highs just as the gloom and doom folks keep saying tech will continue to suffer. Sure it is not going to be a race back to a new Nasdaq high, but it is still the tech stocks, the leading tech stocks, that will provide the biggest gains in the market over the next year and beyond.
Even with the negative earnings warnings from big names, the market was able to catch itself after selling down to the bottom of its trading range, and either held on at that point or rose up off of that level. As we are seeing, news may act as a catalyst to get a move back up or down started, but right now the news is not overcoming the lateral movement in the indexes as they try to build a platform for another leg higher. JNPR sent the market back down. NOK gave it a reason to continue the move down to the bottom of the range. When it got there, however, the market started to move right back up. Despite all of the press and worry over the bad Q2 earnings that are to come, the market continues to resist selling off. The fact that it continues to build sideways and slightly higher despite all of the negative news and sentiment is a real positive in our book.
The ability to overcome bad news and rally is classic bullish action. No one believes what they are seeing even with the 150-point recovery on the Dow, the 65-point recovery on the Nasdaq, and the 20-point swing on the S&P 500. They see the indexes move up and then sell back, all the while on decent price/volume action and all the while building some higher lows. Yet, they continue to be negative on the market because they cannot just drop money on any stock and come out ahead. We all know the landscape has changed from 1999, but we also know that if you look at the right stocks you can do just that. The market overcame bad news to move higher, and the leading stocks used the session to test near-term support and then rebound higher. That gave us some entry points today that we were looking for as we take advantage of the next move higher in this range.
THE ECONOMY
Worries about Europe and worries about employment: justified?
Monday Japan reported a very weak GDP. Before that the EU reported anemic numbers as well. Many were worried that this was just another sign that weak overseas markets would make it harder for the U.S. to pull out of its slump. Well, Japan has been in the dumpster for 10 years, so continued economic problems there won't have a whole lot of new impact on anyone. Will Europe make a difference?
While it would be nice to have Europe hungry for U.S. goods, the U.S. went through its major economic expansion without any real help from anyone overseas. Asia was and is down, and European economies were simply not that strong. It was the U.S., and everyone more or less fed off of the U.S. strength. When the U.S. started to falter, there were smug faces from others at the economic summits. Those quickly turned to worry lines as their economies started immediately suffering because the U.S. was no longer the consumer for the world. It made me laugh when I was in Australia and was told repeatedly that the U.S. was just a big, wasteful country, gobbling up everything it could. Well, what has happened now that the U.S. economy is not so hungry for everyone else's goods? Their economies are suffering.
The point: foreign economies are lagging the U.S. economy as they have done for the past ten years. We cannot view our economy through the prism of how their economies are doing. If we were relying on them we would be in trouble. They rely on us, and thus the focus should be here. Certain sectors are telling us that things are starting to improve even though the economic numbers get worse. Again, we believe we are close to seeing new and stronger numbers coming out.
The dollar is another consideration. Many are saying the dollar is too high and the economy will suffer for it along the same lines as making trade hard for other countries who do not use the dollar. Well, what is clear is that the dollar has become the currency of choice in the world; its strength makes this self-evident as everyone wants to have dollars. That keeps money here in the U.S. chasing U.S. investments. This nonsense we heard 4 months or so ago that foreign economies are better places to put money than in the U.S. has turned out to be the bunk we said it was. We said a strong dollar was needed to keep those funds in the U.S. As it has turned out, our fears of a weakening dollar were unfounded. The fact that the rest of the world is suffering because the U.S. economic downturn only solidifies the dollar's top spot. If things are going to get better, it is going to start in the U.S. Moreover, the U.S. is in our opinion ready to start the upswing while the other economies are in the process of slowing. We would love to see the rest of the world strong as well, but that is just not going to happen until the U.S. recovers.
THE MARKET
Bad news looked ominous, but as we were expecting, the market found bottom after some more selling and turned things back up. It was a great opportunity for stocks such as NVDA, ACS, SEBL, PSFT, BRCD, and others as they tested support and started to move higher. It is a 2 steps forward, 1 step backward market, but we can and do use these days to take positions on the leaders and other stocks in strong patterns just as we did back in 1999 when you could pick up almost any stock on a pullback to near support. From here we are looking for a move back up in the range as we saw a reversal on higher volume in the indexes and in individual stocks.
Overall market stats:
VIX: 22.98; +0.24. The VIX hit 24.65 on its high before the indexes started to make a move off of the lows. Still at a low level, but it was showing good action on the selling early in the session.
VXN: 54.13; -0.35. At 55.98 on the high before the reversal in the Nasdaq. There was some anxiety, but not a lot. We find it hard to take much from these volatility indexes of late as they are not acting as decent forecasters at this time.
Put/Call ratio (CBOE): 0.87; +0.17. Massive jump in the put/call ratio on the close, and it was even higher earlier in the session. This has been a more reliable contrary indicator along with the NYSE short interest than the VIX. It has consistently showed fear or anxiety about the market's future in the options market (and the short sellers with respect to the short interest ratio). We know that emotion indicators mean the most at the extremes, and a steady reading of 0.70 or higher shows there is continued anxiety in the market. Spikes of over 1.0 on the close show a turning point, and after that occurs, continued readings in the upper end of the range are a positive as there are few believers. They have already sold their stock so there are not many sellers. If the buyers keep buying, the market keeps rising, and eventually the bears start joining the bull side and that drives the market higher.
NASDAQ:
Stats: Down 0.83 points (-0.04%) to close at 2169.95.
Volume: 1.715 billion (+22%). Down volume led 891 million to 801 million upside shares. Now it was technically a down day on rising volume, but we have to realize that the Nasdaq made a 65 point recovery off of the lows, and the higher volume on such a reversal day is excellent. As we noted earlier, this action was mirrored by many individual stocks. The price/volume action continues to look good on the Nasdaq.
A/D and Hi/Lo: Decliners still held the edge at 1.17 to 1 (1.58 to 1), but the margin narrowed as the index reversed. New highs fell to 86 (-17) as new lows rose to 66 (+20).
The Chart: http://www.investmenthouse.com/cd/$compq.html
The Nasdaq turned back up short of its recent lows at 2077.98 (low today was 2105.26) as the NOK news gapped the index lower and sent it down to test lower levels. As it turned out, the Nasdaq found support just above its simple 50 day MVA and started the long climb back. It traded in a range in the morning before the bulls really took over and drove the index sharply higher in the last three hours. This is very bullish action: bad news sends the index down and then buyers come back in and send it racing higher. Even though it did not finish in positive territory, the reversal on high volume and the 65-point move off of the low is just like an up day. This is a higher low, and the big question here is whether the index will turn back down at 2250 - 2264 (its last high) or go on up to challenge the May high of 2328.05. For now we have to assume it is range bound as we look to see if it can take out those levels. We jumped on some upside positions today when we saw the big moves in the afternoon, but we will be watching 2250 for resistance where we can exit those short term trades and then look for some more downside action at that point.
Dow/NYSE:
Stats: Up 26.29 points (+0.2%) to close at 10,948.38.
Volume: 1.140 billion shares (+31%) on the NYSE. Down volume led 662 million to 469 million upside shares, but again, we had a reversal day and that is not uncommon. What we are focusing on is the reversal off of the 50 day MVA and the down trendline that sent the index higher once again on stronger volume. Good price/volume action.
A/D and Hi/Lo: Advancers pulled out a narrow gain on the reversal, but that is not bad for a reversal day (1.03 to 1; decliners led Monday 1.45 to 1). New highs rose to 120 (+11) while new lows rose to 42 (+10).
The Chart: http://www.investmenthouse.com/cd/$dja.html
At its low (10,788.58) the Dow tested the 50 day MVA (10,807.80 as of the close today) and the down trendline connecting the all-time high to the September 2000 high and rebounded. The rally recovered 159.8 points and sent the index in the black for the session. Moreover, it did it on higher volume as the index continues its recent solid price/volume action. On the candlestick chart we saw that tap of the low with a long 'tail' and a doji (a 'hammer' doji). That is a bullish sign for another rise. The index is in a trading range, and as with the Nasdaq, the key will be whether it can take out the recent top at 11,196.53. If not, we play it down again as with the Nasdaq when it gets there. We can play the upside for then on the good looking patterns such as GE, IBM, and MSFT and even the DJX itself.
S&P 500: That was some action today on the big cap index as well. It too showed that doji on the candlestick chart on a 30% increase in NYSE volume. On its low (1235.75) it tapped the simple 50 day MVA and recovered to close above the exponential 50 day MVA (our key indicator level) and the down trendline connecting the September 2000 and January 2001 highs. Last night we said it did not have much room to maneuver, and it still does not have a lot. But it did what it had to do and held at this key support. The high volume and the 'hammer' doji on the candlestick pattern indicates this was a solid reversal as we saw on the other indexes. It took NOK's bad news and rallied back to turn slightly positive. We like it, but it has to deal with 1270 - 1286 (its recent high) and then the May high at 1315.93. Again we are not jumping with joy, but are looking for at least a move back up to the top of the trading range at either one of the above points. If it breaks it, great. We are looking at OEX call options to capture the move higher.
Stats: Up 1.46 points (+0.1%) to close at 1255.85.
Volume: NYSE volume jumped on the reversal to 1.140 billion shares (+31%). That continues the good price/volume action that we have seen of late, and that keeps us confident that at least the trading range will continue to hold. Maybe it will deliver more for us.
The Chart: http://www.investmenthouse.com/cd/$spx.html
TOMORROW
We really liked the reversal action we saw today on the indexes and on the individual stocks. We were picking stocks off as they moved up off of support (e.g., NVDA), and we are looking at more upside action tomorrow on the OEX, other bounces, and breakouts of the solid cup with handle and ascending wedge patterns. We believe we have a move back up in the trading range coming over the next two or more sessions, and we will play that with short term plays on the bounces and longer term plays on the breakouts as long as they give us good price and volume action. When in a range, play the range, but also be ready to go long term with those stocks breaking out of strong patterns.
Support and Resistance Levels
Nasdaq: Closed at 2169.95.
Resistance: 2250 - 2264.
Support: Simple 50 day MVA at 2084.80 held today. After that the recent low before the last move up was at 2077.98. Before that it was 2052.14.
S&P 500: Closed at 1255.85.
Resistance: 1270 and then 1286 (its last high). Some resistance at 1300, but 1315.93 is the recent high it needs to plow back through.
Support: The S&P found support as well at its simple 50 day MVA at 1237.56 before rallying to close above the exponential 50 day MVA at 1253.61. These two levels look like the support here at the bottom of the range.
Dow: Closed at 10,948.78.
Resistance: As noted, 11,000 could act as some resistance, but after its break above that level a month ago, it has traded on both sides without much hesitation. Then 11,196.53 (the last top). After that, 11,350.
Support: The down trendline and the 50 day MVA (10,807.80 at the close) have converged and acted as support today.
Weekly Economic Calendar (All times Eastern). The figures are the consensus expectations, not ours.
6-13-01
Export Prices ex-ag., May (8:30): 0% versus 0% prior.
Import Prices ex-oil, May (8:30): -0.5% versus -0.5% prior.
Retail Sales, May (8:30): 0.3% versus 1.1% prior.
Retail Sales ex-auto, May (8:30): 0.4% versus 0.8% prior.
6-14-01
Initial Claims, 6/9 (8:30): 425K versus 432K prior.
PPI, May (8:30): 0.3% versus 0.3% prior.
Core PPI, May (8:30): 0.2% versus 0.2% prior.
Business Inventories, April (8:30): -0.1% versus -0.3% prior.
6-15-01
CPI, May (8:30): 0.4% versus 0.3% prior.
Core CPI, May (8:30): 0.2% versus 0.2%.
Industrial Production, May (9:15): -0.3% versus -0.3% prior.
Capacity Utilization, May (9:15): 78.0% versus 78.5% prior.
Mich Sentiment-Prel., June (10:00): 91.0% versus 92.0% prior.
SUBSCRIBER QUESTIONS
Q: BRCD and FCEL [Monday] ran hard off the bottoms on huge volume. What does that mean? I've seen it so many times before where a stock will just drift lower on tiny volume Then, it'll slowly build up and explode on huge volume towards the end of the day Only to drift back down the next day Is there any play in these?
A: FCEL's pattern at Monday's close was a hard one to call. It opened lower, traded lower, then moved to its high only to pullback toward the close. The resulting candlestick pattern was a 'spinning top,' something covered in the Technical Analysis seminars. It is as the name implies: just spinning and not showing us much. The volume was good on the move up and that is a positive, but that close off of the high made it a harder read. The news after hours killed it.
BRCD on Monday showed a pattern that is easier to play to the upside. It opened slightly lower and then ran way down to just under its 50 day MVA. At that point buyers came back in an pushed the stock higher to close positive and near the high of the session. Volume surged back above average on the move. That shows us that even though there were sellers of the stock early, once it got down near its 50 day MVA, buyers came rushing in. That is what drove the stock back up and to a higher close. The higher volume shows us that the action was buying action. We like to see this type of action at support as it usually means a nice bounce up off the support that we can play.
Again, we cover this type of analysis in detail in our technical analysis seminars that will start again in July, and it is a real eye opener to understanding stock movements.
TEAM TRADES
Today we got what we were looking for, and even with the flood cleanup still ongoing, I had told one of my brokers there were just some plays I did not want to miss out on if the market started to reverse as I thought it would. One of those was a leader known as NVDA.
NVDA had just moved out of an ascending wedge pattern following its nice cup with handle breakout in April. When a wedge or flat base follows a breakout of this pattern, it can mean much bigger gains ahead. The NOK news sent it down to its 18 day MVA on the open, and it hung around there for over two hours. When it jumped off that level and over the morning high, I received a call from my broker. We did not get in on that first run as it happened so fast, but it sold back and traded in a really tight range for the next 1.5 hours. I told the broker that once the pullback after that first surge was over, I wanted in. He got me in as the stock moved up off of 94 at around 12:40 CT. About 15 minutes before the close I was checking the market, something I always do to see what positions I want to take for the next session. I saw NVDA pulling back on some profit taking after a nice bounce higher on stronger volume. I looked at the September $95 call options and they were asking 16.60. The stock was dropping toward the close, so I put in a limit order at $16.50. The order was filled as the stock moved down at the close. They finished at 16.30, but I was happy with the trade and look forward to NVDA bounding over $100 this time around.
For a review of frequently asked questions, please use the link below:
http://www.investmenthouse.com/1questions.htm
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End Part 1 of 2
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world stock market
us stock market
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