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us stock market, trend trading stock
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10/07/03 Investment House Daily
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Investment House Daily Subscribers:
MARKET ALERTS:
Target hit alerts issued Tuesday: None issued
Buy alerts issued: None issued
Trailing stop alerts: NERX (took rest of gain off table)
Stop alerts: None issued
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:
- Late push moves indexes to September highs.
- Back to school sales best in 3 years as consumer credit soars.
- No follow through as September highs still loom.
- Plays well poised to take advantage of good earnings numbers.
- Subscriber Questions
Investors wait, watch, then move in on the close.
The market made it 5 consecutive up sessions, but it took awhile. Starting softer after moving close to the September highs on Monday, stocks traded up and down in a narrow range and then sprinted higher in the last hour. Modestly higher volume turned into solid Nasdaq trade as volume jumped late. Seems investors, namely hedge funds, were waiting to see if the dollar situation (dollar hit a 3 year low versus yen) really tanked. When it did not they were emboldened and entered on the buyside late.
Earnings were good, but not really a direct driver as the market did not surge based on any particular report. Seems investors are looking for a few big names to report such as AA (Tuesday after the close; beat by 4 cents), YHOO (Thursday), and GE (Friday) before getting too excited. As for earnings results being already baked in the cake, APOL and UOPX, two market leaders, took some hits but rallied back; UOPX has already run $10 the past week into the numbers. AA was up after hours as was YUM as they both beat the street. RI reported a strong quarter and it too reaped the reward. The latter two were on the cusp of breakouts, and it looks as if the earnings are going to break them higher. Thus whether earnings are baked in or not looks to be on an individual basis early in the season. If there is room to run and the news is good it looks as if there is upside. It is also worthy to note that even stocks such as UOPX that took a modest hit, they recovered and held their trends. We won't be surprised to see them back up and running in a session or two just as COCO did when it reported earnings last month.
THE ECONOMY
BTM sees weekly chain store sales jump, Redbook sees them fall.
After three weeks of declines (though continued strong year over year gains), chain store sales jumped 1.3% versus a o.4% decline the week earlier. Year over year sales continued to gain strength, up 4.8%. Redbook was not as upbeat in its survey of 9000 stores. It showed a 3.1% year over year jump but saw sales fall 1.3% in September versus August. The data point to continued strong consumer demand that took something of a breather in the first part of the month and then accelerated again in the last week or so. The trend is still very clear: consumers are consuming well.
At the same time many economists and stores are commenting on the strong sales during the back to school season. They are saying it is the best in 3 years which puts it back in 2000 when the economy was still very strong though starting to falter. A nice comparison, but of course, 2001 and 2002 were pretty crappy. Still a very nice recovery.
Holidays better as well?
This sets up what was going to be a stealth holiday season boom. It might be out of the bag now as more and more are waking up to the fact that the economy is hitting on all cylinders and picking up speed. No doubt there will be continued carping about the worst economy since 1982 or something of that nature even as the economy rallies into 2004. That will keep many dependent thinkers from seeing the truth and it hurts the recovery because it keeps people guessing about what is really happening. Do you doubt that? Back in 1992 when President Clinton was just in office he wanted to pass the largest tax hike (in aggregate) in history. There was a lot of contention and it ultimately passed by one vote in the Senate. What most people do not know is that the democratic meetings regarding the tax plan became almost frantic to get any tax package and 'economic plan' passed. Why? The democrats has sold the economy as the worst since the Great Depression. But even as the Clinton administration walked through the White House door the economy was already picking up rapidly as the peace dividend kicked in and the economy started to surge again after a mild recession. As senator Moynihan put it in those democratic economic meetings, if the democrats wanted to take credit for the economic recovery that was in progress, they had to get something passed fast. That is exactly what happened, and the democrats have taken credit for it ever since.
So there will still be grousing about the poor economy and that will keep some hemming and hawing. Overall, however, it seems clear that the holiday season will be strong. In addition, businesses will be spending to get their $100K expense deduction fully utilized. That runs through 2005, so that will be there for at least two more years to keep businesses spending and should be a continuing source of stimulus and not the 'one time' or 'fading' stimulus as many try to make it out to be.
Consumer credit hits $8.2B in August versus $6.0B in July.
Consumers are definitely spending, and in August it was on cars, education and vacations. Remember we discussed pent up demand to travel after two years of 'nesting.' Seems consumers were out and enjoying America in a big way. That is another huge source of stimulus that has been missing (and overlooked by pessimists) for two years as Americans travel and spend money all over the land.
Now there are those who will say the consumer is overextended, and as is typical of any recession, there are many in that position. It is not, however, the economic cesspool catalyst that some make it out to be. We remember back in the real estate bust of the early 1980's when people were literally walking mortgages and doing it en masse. Entire industries were dead, their jobs gone 'for good'. Personal bankruptcies shot off the scale. The fastest growing segment in law in the 1980's was bankruptcy. There were the SAME calls as there are today of mass economic collapse because of the personal debt problems, the massive savings and loan failures, and huge deficits. The tax recovery package of 1981 kicked in, however, and the economy boomed. Deficits turned to surpluses as the USSR collapsed trying to keep up with the US spending on defense and investment in the economy. Deficits turned to surpluses as revenues shot higher as a result of the investment boom in business and the peace dividend. Fast forward to 2003. Another recession and more worries about personal finances. The cost of the terrorism fight is huge, but no greater than the savings and loan debacle. Deficits are again large. Tax cuts and stimulus are starting to work and the economy is taking off. The same 'sky is falling' commentary persists just as it did in the 1980's. You make the call.
THE MARKET
After a shaky start that looked like a good place to take a breather the market found buyers and rallied again. Volume was up and solid on Nasdaq, but it was not a follow through session as none of the big indexes posted a 2% gain and breadth was mediocre. It was positive action as the market rallied to the close with expanding volume, but it was not a powerful surge through resistance as the indexes are still just below the September highs, sitting atop 5 sessions of gains.
A rather precarious perch to break higher from, particularly with Nasdaq 23% above its 200 day MVA. On the other hand, this market continues to show amazing resilience. The SOX and chips led the pack Tuesday, and after lagging the last move, suddenly look much better. Each time the market gets beaten back a bit, more money comes in. There is more money moving into funds and they have to put the money to work. They use the dips to chase performance. In addition you have the hedge funds that are day trading the market, using the various indexes or baskets to capture the momentum. The market sputtered all morning, caught some traction, and when it did, the hedge funds moved in and played the momentum. They started buying and the upside pace quickened until it was almost a sprint to the close. You usually don't care what causes a rally whether it is short covering, buying, day trading, or some combination. The problem here is another momentum market that is going to get way ahead of itself and cause some serious pain the longer it continues without taking a breather.
Some subscribers are getting annoyed with us because we point out the deficiencies of the market, the weaknesses in the move. Through hard lessons in the form of lost money we have learned to always view the market with the utmost skepticism but at the same time take advantage of what the market is giving you. Maybe the market is not going to rally further (we are not saying it won't, this is just for example), but if there is a thousand dollar bill lying on the ground we are going to pick it up. That is why we keep looking for opportunity everywhere we can. We know we don't make the market but we do take advantage of the moves of those that do. You always want to have the mindset to take what the market is giving regardless of the direction. At the same time you keep your eyes wide open for the signposts that trouble or more prosperity may be ahead. That is what we do each day while at the same time stepping back and looking at the bigger picture. That keeps you alert, gives you confidence, and makes you money.
At this stage the indexes are at an inflection point. They have tested the 50 day MVA and recovered and are now at the last high before the fall. They either break on through and deliver a follow through session Wednesday or Thursday or they come back to test before trying again. Either way it is not a bad position, just a short term precarious one until they make their move. We do note two things. The small and mid-caps are ready to move to new highs as well, and they have been important components of any move higher. Second, this is the third try at this resistance point. It needs to make the break higher from here or after a quick dip lower to test the 18 day MVA. If it fails that it is back down to the bottom of the range.
Market Sentiment
VIX: 19.41; -0.1
VXN: 29.3; -0.12
Put/Call Ratio (CBOE): 0.83; +0.17. People betting on a fall, both speculators and institutional investors, rose in numbers.
NASDAQ
A fifth day of gains, this time once again on rising, above average trade. The move put Nasdaq just below the Sept high, a decision point for tech investors.
Stats: +14.39 points (+0.76%) to close at 1907.85. Not enough price strength for a follow through session.
Volume: 1.845B (+33.45%). Solid surge in volume, pushing it back to above average on the move. Accumulation has resumed.
Up Volume: 1.276B (+270M)
Down Volume: 501M (+155M)
A/D and Hi/Lo: Advancers led 1.62 to 1. Not follow through caliber breadth.
Previous Session: Advancers led 1.78 to 1
New Highs: 304 (+26). Solid, but not surging. That may come on a break through the September high and if the chips continue to rally.
New Lows: 7 (-3)
The Chart: http://www.investmenthouse.com/cd/^ixq.html
After some early hesitation techs surged to the September high (1913.74) on rising, above average volume. Bullish intraday action, starting lower and turning up to the close. Classic. As noted, however, the action is being driven in part by hedge fund day trading. The true test will be if Nasdaq breaks higher here and posts a follow through session (2% price gain, higher volume, 2:1 breadth), a very bullish signal, or if it moves back to test the 18 day MVA (1853) first. Either scenario is not a bad one.
S&P 500/NYSE
A similar story with the large caps as they moved up to the September highs on rising though less substantial volume.
Stats: +4.9 points (+0.47%) to close at 1039.25
NYSE Volume: 1.274B (+26.77%). Rising volume but below average and no huge surge. Buyers returned but not at the level that would be considered a convincing follow through to last Wednesday's rally start.
Up Volume: 823M (+154M)
Down Volume: 438M (+114M)
A/D and Hi/Lo: Advancers led 1.53 to 1. Middle of the road breadth, not the 2:1 surge you look for on a return of buyers.
Previous Session: Advancers led 1.86 to 1
New Highs: 349 (+22)
New Lows: 6 (+5)
The Chart: http://www.investmenthouse.com/cd/^spx.html
Right up to the September high (1040.29), rallying to the close after testing the 10 day MVA (1023.22) on the low and rebounding sharply. It has not only rallied back to that resistance but also the August to September up trendline. That can act as resistance along with the September high. As with Nasdaq, SP500 will either show some tremendous strength and break higher from here with a follow through or it will work back toward the 18 day MVA (1020) and try again from that point. Either scenario is not a bad one.
DJ30:
Stats: +59.63 points (+0.62%) to close at 9654.61
The blue chips tested lower to the 10 day MVA (9516) as well and then turned and followed the market higher, closing on the high and just off the September top (9686.08).
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.
WEDNESDAY
August wholesale inventories are out at 10ET, but the focus will be on earnings. AA and YUM trounced expectations after hours and were being rewarded handsomely. With YHOO out Thursday after hours and GE Friday morning, the market might wait to make its breakout move. We still think a pullback to the 18 day MVA on lower volume and then a surge through the September highs would be the best action, but the recovery today somewhat put a kink in that as far as timing on any follow through. A good pullback Tuesday and Wednesday followed by another broad and high volume surge would have been great.
We still think the possibility of a pullback to test the near support after a 5 session run is very real. We may be overly pessimistic, but we are going to be careful on another rally Wednesday that takes the indexes through the September highs and then tries to reverse. We will be looking at more upside positions as more stocks shape up and start to participate, but we want to see much stronger trade on the move both from stocks and indexes, and we want to see some staying power, the latter evidenced by a rally, test, and then a resumption of the move.
All in all the plays are well positioned for such a breakout, with many stocks ready to resume their moves or start new breakouts. If there is a pullback we have some gain built in to provide the cushion for a test of near support. Thus far it has paid to be patient with positions. When we get impatient of late is when we have had trouble. Thus we will let those plays still working within their trend work and look for new opportunity in those stocks that are not extended and ready break higher over resistance if the market does the same.
Support and Resistance
Nasdaq: Closed at 1907.85
Resistance: September high at 1913. 1930 - 1935. Then 2000 to 2050.
Support: 1889 (early September highs). 1860 to 1865. The 18 day MVA (1852). The 50 day MVA (1802). The March/August up trendline (1795). The July high (1776).
S&P 500: Closed at 1039.25
Resistance: 1040, the September highs. Then 1050 and 1080 from February 2002 lows. 1100 to 1150, the early 2002 double top.
Support: 1030 to 1032 (early September highs). The 18 day MVA (1020) and the top of the summer range at 1015. The exponential 50 day MVA (1008). 975 (December 1997 peak). 965 (August 2002 peak). 961, intraday lows in the summer range.
Dow: Closed at 9654.61
Resistance: 9735. 9800 (April and May 2002 lows).
Support: 9609 (early September highs). 9500 (June 2002 lows) is the top of the recent summer range. The 18 day MVA (9493). The exponential 50 day MVA (9389). 9353 (top of summer range). 9250 to 9236, the early June intraday high.
Economic Calendar
10-7-03
Consumer credit, August (3:00): $8.2B actual, $6.5B 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): 394K expected, 399K prior.
10-10-03
Trade balance, August (8:30): -$41.5B 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: I have a question regarding some buy alerts. Sometimes there is an alert issued where the stock does not have the volume on that particular session, but it did have strong trade in the session(s) before. Do you buy on a lower volume session using that prior strong volume and price?
A: Excellent question. It is easy to get too focused on volume for a particular session. As with everything you have to fight to avoid getting tunnel vision, to avoid getting too focused on any one aspect regardless of its rank in importance. The key to a stock moving higher is big money, i.e., institutional money, moving into it. Thus we look at weekly accumulation over the life of a base to see if there has been overall accumulation or distribution in the pattern. You want to see more up weeks on rising volume as that shows there are net buyers of the stock. Then if the volume dries up at the breakout point, you want to see volume surge into the stock to show that the big money is again at work bidding it higher.
Now there is also the situation where there has been strong volume leading up to a move and the move itself is not supported by the huge trade. Leading up to the move, however, volume has been strong, indicating a lot of action in the stock. If the accumulation is solid and the daily price/volume action is good (up on up days, down on down days fo rthe most part), that is enough as long as the day the stock moves is not completely without volume.
As we saw Monday, that can occur where there is a holiday or some other reason trade is not huge. If we still see solid trade for a lighter volume session on the heels of solid volume and solid price/volume action, we can move into a position even if the trade on that particular day is not blowout. We saw that on Monday with several stocks.
The key is to avoid a situation where there is no solid volume on good price/volume action either right before or at the actual break higher itself. That shows a lack of big money interest at a critical point, and those moves are more prone to failure.
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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