|
|
world stock market, us stock market
* * * *
10/04/03 Investment House Daily
* * *
Investment House Daily Subscribers:
MARKET ALERTS:
Target hit alerts issued Friday: None issued
Buy alerts issued: HILL; CYPB; SOX (flipped it to an upside play); NXTL; SOFO
Trailing stop alerts: CYTO
Stop alerts: LRCX
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:
- Jobs surprise comes 3 months early, spikes the market.
- Can we put any faith in the jobs report given all of the other indicators?
- Market accumulates again but the finish was disappointing.
- Looking for another follow through session this week.
- Subscriber Questions
Economy beats the odds, starts growing jobs ahead of schedule.
We were concerned how the market would react if its hope for a positive jobs number went unfulfilled again. We were also expecting the jobs surprise to come later in the year. December came early and hopes were answered, however, as jobs were created in September and the August job loss was more than halved. Needless to say investors were pleasantly surprised by the result and lower volume buying morphed into a burst of investor buying and short covering.
Volume jumped, breadth was solid, and the indexes posted solid gains with SOX and Nasdaq, the two usual suspects, leading the charge (+4.5%, +2.4%, respectively). It was not all chips and dip, however. The indexes pulled off of their highs in the last hour, managing just a small comeback to the close. We were looking for the pullback as noted in an afternoon alert, but also wanted a sharper snapback as buyers stepped back in to take advantage of the short term profit taking. That rebound was not very powerful and left SP500 and DJ30 well off of their session highs with SP500 failing at the September high; buyers came back in, but it was not a strong rush to take advantage of the dip. Perhaps just some caution ahead of a weekend, but it was a disappointing finish for those indexes.
Looking at the leaders, however, e.g., Nasdaq, SOX, SP400 and SP600, all closed near their session highs. The leading indexes were leading, as usual. The key will be whether they can provide another follow through in the coming week to show the big money is still interested in buying. Patterns are not as good as you would like to see, and it will take some serious conviction to drive the indexes to new, sustained highs.
THE ECONOMY
Job creation starting ahead of schedule.
Last week we said the economy was stronger than the gloomsayers' apocalyptic views. We suggested that the slightly weaker economic reports of late were just showing a pause in a continued strengthening economy, and as the gloomsayers' rhetoric rose the economy would come back and surprise them with a sudden jump in jobs. It appears it is a bit stronger than even we anticipated. 57K jobs were created and August was revised from -93K to -41K. Service jobs added 74K and professionals jumped 66K. Manufacturing shrank again, but at a slower rate. Not all roses, but getting there.
While many are saying this is a jobless recovery and that job creation is well behind schedule, that is simply incorrect. Job creation always lags economic recovery. We have been saying all along that jobs would start to show up around December. We did not pull that date out of a hat. Looking at past recoveries from recessions, jobs start showing up anywhere from 10 to 18 months after the stock market, the leading economic indicator, bottoms and rallies ahead of a recovery. December is just about smack dab in the middle of that range, 15 months after the market bottomed in October 2002. The jobs started showing up in September, 12 months into the rebound; not ahead of schedule, but ahead of the mean. All the talk about jobs being late is patently incorrect.
Are these numbers 'real' and can they continue?
The increase is a surprise in more ways than one. The weekly jobless claims have stabilized but have not been consistently low enough to indicate real job creation. The hourly workweek has not hit levels that typically indicate an increase in jobs is necessary. If the workweek has not increased, then overtime is not there either. How can these numbers be legit and not just an aberration?
At this stage you don't know for sure; one month doesn't change the trend, but with the revision in August it starts to show change is underway. We reported two months ago that temp jobs were running 133% of where they were in the other jobless recovery back in 1992. The Friday report showed a 33K jump in temp jobs, indicating a continued increase in temp hiring. That is a surefire barometer that there is a need for more bodies, and employers would rather hire temps and not have to take on the obligation of paying benefits and incurring related legal ramifications. If it turns out they are not needed next month they let them go with no obligations. The fast pace of temp worker hiring, faster than in 1992, is a change in the market that traditional analysis regarding job creation has failed to take into account. Unlike 1992, temps can be hired for any field from legal, to biotech, to engineering.
This increase in temp workers is masking the rate of job creation and thus the numbers can be in fact 'real.' Whether it continues depends upon the continued economic expansion; until there are 100K or more jobs created per month there won't be a drop in unemployment rate. We do note, however, that hiring temps is the last step before permanent hires. Moreover, temp workers often become permanent workers if the 'fit' is right. It has become a kind of try it before you buy it method of hiring.
Service sector continues its strong expansion.
The manufacturing sector continued to expand, and the services sector also continued its strong expansion though at a slower pace (63.3 versus the record-tying 65.1 in August). Employment slid just below 50 but new orders continued to expand. The service sector that makes up 80% of the business side of the economy continues a strong recovery.
Summary: The good news re jobs is coming faster than anticipated, but still in line with past recoveries. Each recovery is different and the 57K jobs could be revised away (though the August revision is a big positive) as it is statistically close to flat line. There are many who will continue to rag on the economy because it is politically beneficial to try to argue around the fact of recovery. Others just like to believe that this time things are different in the world, that this time the US economy is going to crash to levels not seen since the Great Depression.
Again, all recoveries are different, and if one deviates by appearing slower there are inevitable calls that the tax cutting stimulus that is obviously working won't last. That ignores how the business cycle works, how tax cuts aimed at stimulating business actually stimulates business and leads to investment that leads to increased business activity, and leads to jobs. The economy is changing just as it did in the early 1980s and again in the 1990's. Old businesses and technologies give way to new businesses and technologies. The jobs in the old businesses dry up because they are no longer growth businesses. New jobs are created in new fields in the new growth areas such as wireless, information technology just as they were created in software, computers, etc. in the 1980's and 1990's. Yes jobs in some industries are disappearing, just as they disappeared in the late 1970's and early 1980's never to return. But just as millions of new jobs were created in the new industries that arose as a result of that investment boom, new jobs are being and will be created as the economy recovers and grows into new technologies and industries. We did the right thing by once again encouraging investment in the US. That is how we have always led the world economy and how we can again lead in this recovery.
THE MARKET
The market surged on volume and solid breadth, but at the end it felt as if there was unfinished business, as if the market did not deliver a knockout punch. It didn't. It will need to show a similar move next week to show that the big money is still buying.
After a rather mild overall correction (-6% on Nasdaq) that was pretty much straight down, the market is trying to rebound. Friday the SP500 and DJ30 demonstrated they are going to have trouble at the September highs after a short pullback. Nasdaq is back to 21% over its 200 day MVA, and it has consistently started to struggle on this move when it hits the 25% level. It needs a bit of lateral movement to let the 200 day MVA rise to catch up with the move. That would also let some of the leaders that have tanked do more than just try a rebound. They could work on new bases as they move laterally and set up the foundation for a more sustained move.
That would be the perfect world, and as we have noted on many occasions, the market does not deliver the perfect scenario. Back in February and March we noted that the action was very constructive while many panned the market by saying the rebound off the lows was over, that another bear market rally had run its course. Good patterns were building and the indexes were showing solid price/volume action.
That was a more perfect scenario. Since that breakout Nasdaq has led and it has managed to rally off of each 3 to 4 week pullback as more money chased the performance. That appears to be what is happening this time as well, but there is more volatility associated with this pullback as Nasdaq has distributed and dropped harder and faster. That is a typical indication of a run getting a bit worn. Individual stocks run up the 10 and 18 day MVA after a breakout for 4 to 5 bounces, getting more volatile on the later moves, and then fall to test lower. Nasdaq can continue this move and is doing so, and we will participate in stocks that make good moves in solid buy positions, but we just have to recognize that it is not the beginning of a run out of a good consolidation but is later in the move and still has to deal with some recent highs after a steep drop. That move back up to those highs alone is quite a run itself, and it will take a solid follow through session this week to break through.
The smaller cap issues enjoyed a solid session, rallying and closing at session highs. NYSE new highs were impressive, indicating that even though SP500 backed well off of its highs, the smaller issues were charging again. It is good to see the market leadership holding its gains even if the large cap and blue chip indexes could not.
Market Sentiment
VIX: 19.5; -1.3
VXN: 29.2; -2.05
Put/Call Ratio (CBOE): 0.75; -0.02
NASDAQ
Outside of SOX, Nasdaq scored the best gain, gapping and running on strong trade, but backing off the early September highs at the close.
Stats: +44.35 points (+2.42%) to close at 1880.57
Volume: 2.019B (+24.66%). Strongest volume since the distribution sessions two weeks back. It does not reverse the poor price/volume action the past two weeks.
Up Volume: 1.612B (+760M)
Down Volume: 386M (-347M)
A/D and Hi/Lo: Advancers led 2.2 to 1. Solid breadth on a solid move higher.
Previous Session: Advancers led 1.24 to 1
New Highs: 267 (+94). A solid though not outstanding surge in new highs. Looks a lot better than the new lows.
New Lows: 1 (-9)
The Chart: http://www.investmenthouse.com/cd/^ixq.html
After the 50 day MVA (1794) test that started the prior Friday, Nasdaq exploded higher Friday with a strong gap higher and rallied over the early September high (1889). Unfortunately, it could not hold that move as the late profit taking trimmed over 20 points from the move before a late bounce took back some ground. The move was accumulation though there was also short covering; nothing like strong economic numbers to pull in the shorts. The index still needs another similar session this week that pushes it through the September high (1914) on strong volume and breadth. That subsequent follow through is important because it show the big money that moves the market is back in the action and still buying stocks. In other words, it still has to show that the Wednesday and Friday action were not just a short term event. We would not be surprised to see it test the 1900 level and then fill the gap, making a higher low before a breakout move.
S&P 500/NYSE
The large caps were all over the map, gapping higher, filling the gap, running higher, then closing well off the high.
Stats: +9.61 points (+0.94%) to close at 1029.85
NYSE Volume: 1.534B (+21.88%). Strong trade, equaling the strongest trade of the past month.
Up Volume: 1.17B (+348M)
Down Volume: 371M (-48M)
A/D and Hi/Lo: Advancers led 1.99 to 1. Solid breadth though not blowout. It needs to get better on any follow through next week.
Previous Session: Advancers led 1.53 to 1
New Highs: 411 (+166). Very solid new highs, an indication that even though the SP500 did not break resistance, smaller cap stocks were moving very well.
New Lows: 5 (0)
The Chart: http://www.investmenthouse.com/cd/^spx.html
The large caps rallied impressively up to the September high (1040) but could not hold the move, giving back 10 points (half) of the nice run. This took a lot of luster off the move pure and simple. When the buyers cannot push through resistance or hold the gains, that demonstrates overhead supply, i.e., ready sellers, at that level. SP500 has already made the move Nasdaq is going to try, i.e., testing the high. SP500 failed Friday but it was not a complete failure. It could come back and test the 18 day MVA (1015), make a higher low, and then move through the resistance. All in all it was not as impressive a session as everyone wants to make it out to be but realizes they cannot.
DJ30:
Stats: +84.51 points (+0.89%) to close at 9572.31
Similar action to the large caps, rallying to the September high (9686, 9666 on the Friday high) but then caving late in the session and giving back over half the gain for the session. A little profit taking maybe, but it got a bit out of hand, showing the overhead supply near 9600. A second accumulation session in three, the blue chips are riding the back of cyclical stocks that have again come to life as the perception that the economy appears to be recovering once again emerges. It is interesting to note that cyclical stocks started this recent recovery as the economic activity slowed. DJ30 needs to work off the overhead supply by making a higher low at the 18 or 50 day MVA (9459 and 9369, respectively) and then make the break over the September high.
THIS WEEK
The economic data blitz slows this week, but it is replaced by the earnings blitz. As usual Alcoa (AA) and YHOO will get things started, and then the following week the results will really start to roll in. Pre-announcements have been 7:1 favorable and we expect more upside surprises than not. It would have been great to see the market move sideways along the 50 day MVA into earnings as that would give it room to run upside when the news hit. If the market provides a follow through session this week and breaks the September highs, it sets itself up for the mid-earnings cycle pullback when the excitement about the first round of better than expected earnings wears off.
What we will look for this week is another strong volume and breadth session that confirms the big money is continuing to buy on this new rally attempt that started Wednesday. That sets the stage for a further advance as it shows the institutional buyers are back buying shares. If the market somehow skates through September and October without a 10% or better correction, i.e., ignoring the seasonal tendency to give a full-blown correction, the macro trend of this market has the underpinnings of a strong bull market even though the move of the October 2002 lows started with P/E ratios at levels that do not historically give rise to new bull markets. Avoiding such a move would show the market has strength not typically seen. With all of the money still on the sidelines, there is plenty of fuel to drive the market higher. With an economy that is improving faster than most expect, there is growth to drive stock prices higher as well. All of the cost cutting and trimming will yield big earnings growth with even modest improvement in demand. We believe demand overall is improving much better than expected.
Stocks continue to show two faces. Many stocks were able to retake broken support levels Friday, but many only managed to rally back to the new resistance. At the same time some stocks are rebounding from sharp sell offs while others just go about completing their bases, setting up for a breakout on their own timetable. There was big downside breadth and then big upside breadth. The picture painted is a market that is more volatile, but has strength behind it. It needs to make the break through the September highs, but it may come back to make a higher low before it does. Still a lot of opportunity, but it is a market of individual stocks right now because they are heading in different directions, working on getting the next trend going. That is why we still expect, despite the strong gains Friday, that this market has some testing to do before it can make the break through the September highs.
Support and Resistance
Nasdaq: Closed at 1880.57
Resistance: 1889 (early September highs). 1930 - 1935. Then 2000 to 2050.
Support: 1860 to 1865. The 18 day MVA (1840). The 50 day MVA (1794). The July high (1776). The March/August up trendline (1784).
S&P 500: Closed at 1029.85
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 top of the summer range at 1015 and the 18 day MVA (1015) offer some modest support. The exponential 50 day MVA (1006). 975 (December 1997 peak). 965 (August 2002 peak). 961, intraday lows in the summer range.
Dow: Closed at 9572.31
Resistance: 9500 (June 2002 lows) is the top of the recent summer range and has not been completely broken. 9609 (early September highs) make act as some resistance and 8686 the September highs (stopped the move Friday). 9735. 9800 (April and May 2002 lows).
Support: The 18 day MVA (9459). The exponential 50 day MVA (9369). 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
10-7-03
Consumer credit, August (3:00): $6.0B expected, $6.0B July.
10-8-03
Wholesale inventories, August (10:00): 0.1% expected, 0.0% July.
10-9-03
Initial jobless claims (8:30): 390K expected, 399K prior.
10-10-03
Trade balance, August (8:30): -$41.0B expected, -$40.3B July.
PPI, September (8:30): 0.1% expected, 0.4% August.
Core PPI (8:30): 0.2% expected, 0.1% August.
End part 1 of 2
|
world stock market
us stock market
|
