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10/06/03 Investment House Daily
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Investment House Daily Subscribers:
MARKET ALERTS:
Target hit alerts issued Monday: None issued
Buy alerts issued: DCTM; JNPR; GENR
Trailing stop alerts: None issued
Stop alerts: ISIL
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:
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SUMMARY:
- Upward bias continues the rally as overall volume fades.
- Indexes clear next resistance but still have to deal with September highs.
- Subscriber Questions
Early September highs are cleared as bounce off 50 day MVA continues.
Stocks rose again as last week's momentum continues even in a low volume session (Yom Kippur). No doubt that is not the best action to see, but the volume was artificially low due to the religious holiday and stocks made good headway. There was some good leadership while Nasdaq and SP500 cleared the early September highs. Solid action that shows the continued buying. The market might have to test back again before it can break the September highs, but all in all a decent, if somewhat dull, session.
Pre-announcement season had its last hurrah with PSFT, NITE being notables that said things were still improving better than expected. PSFT gave its second such announcement, making it two quarters in a row and putting in question Oracle's (specifically Larry Ellison's) statement that PSFT's last quarter was a one-time wonder. NITE says trading is up and growing, so it is raising its outlook. The positives were countered by stocks such as ATMI warning on the quarter. After jumping back over the 50 day MVA Friday on volume, it gapped to the 200 day MVA but then rallied furiously to recover well over half the loss. That put the kibosh on the chip rebound off the 50 day MVA, but it was hardly a death blow to those stocks. We expect them to rebound after this momentary pause as there have been more positive pre-announcements that other.
THE MARKET
Not much to say about the Monday action. It was less than exciting Monday as volume kept a lid on the number of strong moves and kept the indexes from making any really breakout moves. As noted, there were a number of solid individual moves and Nasdaq and SP500 broke the early September top, but unless volume rolls back in after the lull Monday, the indexes will have a hard time clearing the September top. Indeed, as the indexes have run a long way from the 50 day MVA just to get to this point it is very likely they will need to take a breather down toward the 18 day MVA and then make the breakout attempt.
As noted in the weekend report, this would still not be the perfect scenario as a short move would put Nasdaq right back up to 25% over the 200 day MVA where it has consistently struggled and needed a pullback to start anew. A longer breather to allow the 200 day MVA to catch up and some better patterns to form would be preferred, but with the year starting to wind down and still a lot of money wanting to get into the market, it may be that stocks and the indexes only get catnaps, taking those pauses that refresh, and then making the next run. Thus after the 50 day MVA and run to resistance, we look for a test of the 18 day MVA and then another attempt higher if the market cannot continue over the September high from here.
Market Sentiment
VIX: 19.51; +0.01
VXN: 29.42; +0.22. Rose on an up session, not typical action, but not at any level to draw any conclusions from either.
Put/Call Ratio (CBOE): 0.66; -0.09
NASDAQ
Techs marched higher again on very low trade, doing so without help from the SOX. They will need a volume burst to clear the September highs, however, without testing back first.
Stats: +12.89 points (+0.69%) to close at 1893.46
Volume: 1.382B (-31.51%). Volume is a throw down as Yom Kippur kept the action quiet. Looking for another strong volume surge this week to confirm last week's rally start.
Up Volume: 1.006B (-606M)
Down Volume: 346M (-40M)
A/D and Hi/Lo: Advancers led 1.78 to 1. Decent breadth as the ratio improved late in the session as Nasdaq moved up to close near session highs.
Previous Session: Advancers led 2.2 to 1
New Highs: 278 (+11). No surge of new highs. If Nasdaq takes out or hits the September high you want to see new highs blast higher.
New Lows: 10 (+9)
The Chart: http://www.investmenthouse.com/cd/^ixq.html
A solid 0.7% move that cleared the early September high (1889), the first step in continuing the run higher. The move seemed slight compared to the sharp jump Friday, but the market takes it a step at a time. It may not hold 1889 and may need to fill some of that gap on the jobs news, falling toward the 18 day MVA (1846) or 1842 where it gapped higher. Making that higher low would be fine; it would provide a bit of rest after the run off the 50 day MVA (1798) and make a solid springboard to take out the September high (1914). It needs to do that because the pattern right now is not exactly one of beauty with the early and mid-September highs and the lower low to end the month. If it does not make the break here it will need more sideways movement in the range from 1800 to 1900 to set up the next move.
S&P 500/NYSE
Over the early September highs and moving toward the high at 1040.
Stats: +4.5 points (+0.44%) to close at 1034.35
NYSE Volume: 1.005B (-34.47%). Lower, below average volume as the large caps pushed at the top of the range. It is going to need some stronger volume later this week to give it the follow through and the strength it needs to make the breakout.
Up Volume: 669M (-501M)
Down Volume: 324M (-47M)
A/D and Hi/Lo: Advancers led 1.86 to 1. Volume improved markedly in the last hour after a 1.5:1 level most of the session.
Previous Session: Advancers led 1.99 to 1
New Highs: 327 (-84). Not a good sign as new highs fell as the indexes advanced. An indication that there is not a lot of power yet to this move and it may need to test the short term MVA and then make the breakout attempt.
New Lows: 1 (-4)
The Chart: http://www.investmenthouse.com/cd/^spx.html
Large caps rallied again, but could not make the September high (1040) as they did on the Friday intraday peak. Volume was much to low to mean anything, but it was good action to see the index continue back up without blinking an eye. While that may not be enough to push it through the high on this try, it shows the continued buyside bias. After a higher low at the 18 day MVA (1017), the SP500 will have filled the slight gap and be in better position to take out the September high. It needs to get some volume when it does, and it needs to smash right through. Otherwise it would have more consolidating to do as would Nasdaq.
DJ30:
Stats: +22.67 points (+0.24%) to close at 9594.98
Volume was way down as the Dow rallied toward the highs at 9609 (early September) and 9686 (September high), hitting 9624 intraday but giving it back. After the strong volume surge Friday, volume was the lowest in 1.5 months (130M), hardly the oomph needed to clear those highs. Finishing off the high again indicates that DJ30, as with the other indexes, may try a test of the 18 day MVA (9474) before another run at the September high.
TUESDAY
Pre-announcement season fades to earnings season. Two leaders related to one another, APOL and UOPX, start the ball Tuesday morning. Then there is Alcoa followed by YHOO on Thursday. If the earnings tide is strong enough it could trigger the follow through session that also clears the September high. A pullback Tuesday and Wednesday and a late week breakout attempt could very well be the script. If the early earnings come in stronger than anticipated we anticipate the breakout either from here or after that short test.
At this point the market continues to show upside bias, but it has to provide a follow through session to last Wednesday's new rally beginning (2% gain, strong above average volume, A/D 2:1 or better) that leads to a breakout over the September highs. Whether it starts from the Monday close or after a test lower does not matter that much though the latter gives it a better starting point. The key is the big money returning to buy that a strong volume upside session shows. Breadth is key as you want to see most stocks joining in. We wait for the move and look at the stocks moving ahead of the break higher as the leaders often start leading just before the overall market moves. Today we saw some of those leaders making solid moves.
Support and Resistance
Nasdaq: Closed at 1893.46
Resistance: 1889 (early September highs) was broken but not put to rest. 1930 - 1935. Then 2000 to 2050.
Support: 1860 to 1865. The 18 day MVA (1846). The 50 day MVA (1798). The July high (1776). The March/August up trendline (1784).
S&P 500: Closed at 1034.35
Resistance: 1030 to 1032 (early September highs) were broken but not out of the picture. 1040, the September highs. Then 1050 and 1080 from February 2002 lows. 1100 to 1150, the early 2002 double top.
Support: The 18 day MVA (1017) and the top of the summer range at 1015. The exponential 50 day MVA (1007). 975 (December 1997 peak). 965 (August 2002 peak). 961, intraday lows in the summer range.
Dow: Closed at 9594.98
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 summer range. The 18 day MVA (9474). The exponential 50 day MVA (9378). 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): 395K expected, 399K prior.
10-10-03
Trade balance, August (8:30): -$41.3B expected, -$40.3B July.
PPI, September (8:30): 0.1% expected, 0.4% August.
Core PPI (8:30): 0.1% expected, 0.1% August.
SUBSCRIBER QUESTIONS
Q: Do you buy into a stock all at once or do you enter a position at different times?
A: As with most things, it depends. When we first look at a position we look at the pattern that has formed and what our goals are for the play in buying in. In most cases we look at taking a full position on the move if everything is just as we want it across the board, i.e., price, volume, intraday action, solid market trend. If all are a 'go', we typically take a full position, meaning using our allocated funds for that play or the total position we want at that time.
Now that does not mean we won't take more positions at a later date when the stock is in another good buy point down the road. In other words, we have no problem averaging up into a winner that is at its next buy point. In that case we pretty much treat it as another buy point on a good leading stock and will again allocate some funds to it.
As to the type of play, if we are looking at a rebound off support or another potentially shorter term play, we will usually put all the money we have allocated for the play to work when it makes the move as long as it shows the credentials we set out. The reason is that we want the most bang for the move, and since it is one we have a shorter target horizon on and most likely will close it out when the target is hit we won't be adding to positions. On the other hand if we are looking at a breakout we might take just a partial position and anticipate completing it on the test of that move. We are more inclined to do this if perhaps it is early in the session and volume has not asserted itself but the stock is moving well. One of the caveats that bites you every once in awhile is a stock making a breakout that does not come back and test. A strong stock will test about 50% of the time. So half of the time it keeps on going and then you are looking at adding to a position at a higher price after the stock makes its first pause in the new uptrend that started with the breakout.
In sum, typically we will buy into a 'full' position when we see the move being made and it shows the criteria we want. If it is missing some volume we will look at a partial position with the intent to complete it later that session or over the next few sessions when it provides the next opportunity. In any event, we will always consider averaging up with new allocated money into a new position on a winner when it has made a good move and is providing a typical entry point, say the first or second test of the 10 or 18 day MVA as it starts running up in its uptrend
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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