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yahoo stock, world stock market
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10/09/03 Investment House Daily
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Investment House Daily Subscribers:
MARKET ALERTS:
Target hit alerts issued Thursday: SOX (took gain off table as it had reversed).
Buy alerts issued: LCCI; CHS (bonus play)
Trailing stop alerts: None issued
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:
- Jobs, retail sales trigger surge, but market reverses and gives up September highs.
- Jobless claims hit 380K, retail sales surge, Manufacturers more confident.
- Reversal takes back follow through, luster of the move.
- Friday and a subscriber question
Feverish surge runs out of gas.
Wednesday the market started to sputter as the tank was a bit dry after a nice week of gains off the 50 day MVA test. The market ran to the prior resistance and needed and was set for a pullback. When September retail sales surprised sharply upside and jobless claims fell to near 380K, the excitement was too much. Buyers and short coverers moved in and shot the market higher.
That rush pushed the indexes easily past the September highs. A test of that level produced a nice bounce even higher. That stomp down on the gas pedal, however, tapped out the gas tank and the indexes reversed. Nasdaq and SP500 gave up their September highs and volume accelerated as stocks sold. Before a late bounce, Nasdaq peeled off 32 points of a 43 point gain. The indexes were close to completely giving up the rally. In the end they closed positive on rising volume, but great breadth turned into mediocre advances, and all showed dojis at the top of a week of advances. That is often an indication of a rally out of gas. The market was already in need of a breather, and this reversal on positive news is a further indication that is the case.
THE ECONOMY
The convergence of good economic news continues. Thursday jobs and retail sales (sales that also showed increased business purchasing as well) were again showing their new strength and were joined by more good earnings news as Yahoo revenues shot higher on improved ad sales and a willingness by consumers and businesses to pay for content. Those finding fault with the market and the economy continue to bay at the moon, but the arguments are getting thinner and thinner. It has become impossible to deny the recovery, but fault is found in job creation, the longevity (claims that the stimulus is fleeting are incorrect), rising bond yields, the moon phase, etc. The longevity of the stimulus is a flawed argument. Yes the child credits were sent out lump sum, but there is also a monthly lower tax bite because the brackets were lowered. That means more money in the pocket each month. Lower mortgage payments due to refinancing puts more money monthly into the pocket as well. Stimulus for small business is going through 2005 in addition to lower tax rates. That is not going to disappear in a month or two, and to argue that case is bogus and either agenda driven or stupidity.
The problem is that it took a long time to adopt a bearish outlook, and it is going to take a long time for them to give up that position. Overall they are a necessary, keeping many people confused and very cautious about entering the market. That helps build that wall of worry and prevents a 1999-like orgy of buying that exhausts all of the upside fuel. It is confounding, however, to hear the almost willful misrepresentations being made by those vying for political gain. At least that keeps things interesting.
September retail sales jump 5.8%.
Everyone knew they were strong, but they beat expectations. WMT came in at 6% versus the 'high end' of the 3% to 5% range. Specialty retailers were the biggest gainers with some sporting 30% increases. On top of the better September numbers, raised guidance was the rule. CLE, SHRP, PSUN, BEBE, BJ, etc., etc. all upped Q4 guidance. That bodes well for the holiday season with expectations by the national retail association at a 5.7% increase. Not bad given the solid season posted last year.
It was all consumer, consumer, consumer in the news. Critically overlooked, however, were the increases in business activity reflected in these sales. It was not just the individual. Indeed, a lot of the increase was caused by business spending. This was noted by the national retail association but was brushed off by the networks. Even if you don't believe the association, look at what areas did well. WMT credited a surge in its Sam's Club arm with delivering the big boost. Sam's targets small businesses. BJ Wholesale had languished, but surged higher Thursday on a dramatic increase in sales. As with WMT, BJ caters in large part to small businesses. ODP, SPLS and other retailers that cater to small businesses have already noted the pickup in sales back in August and September. Sam's was underperforming through the Gulf War, dragging WMT sales lower. It is now helping lead the charge, a behind the scenes though direct correlation to improved small business spending. That $100K expensing provision is spurring a lot of second half business investment, and it will do so in 2004. We already know many businesses that have spent or have planned to spend the full $100K for 2003 and are already planning on how to spend for the $100K expensing in 2004. Now who says the stimulus is limited to just a couple of months?
Jobless claims hit 380K.
Last week we noted that when weekly jobless claims hit the 380K level fairly consistently we would start seeing meaningful jobs creation. As we all know right after we wrote that article the jobs report showed a surprise 57K job increase. We were not expecting job creation until December, but it is not out of line then to see weekly jobless claims hit 380K, the lowest in 8 months and before the Iraq war. The 4 week average fell to 393.5K from 405K. The bottoming trend appears to be over and now the improvement trend is starting. Of course you can deny it all you want and many will. They will deny it even as 100K+ jobs are created 5 months in a row. Instead of being positive and realizing the corner has been turned, they will lament the jobs that were lost. Those are the same people who have missed on the huge runs in many stocks on the report, saying yes Nasdaq may be up 70% from the low and back at 2000, but it still is not at 5000. You cannot argue with ignorance.
Don't cry for me oh fearless Congressman.
Remember Stanley Works? It wanted to reincorporate offshore in order to save tens of millions in taxes on foreign sales and thus be better able to compete with its foreign competition. The US is horribly unfair to its own businesses that try to compete abroad, double taxing those earnings. Well, SWK announced shareholders had approved this and you would have thought they tried to spray paint Nazi graffiti on the Lincoln Memorial. After a few weeks of self-righteous abuse from lawmakers it abandoned the idea. Great job Congress! You saved us a lot of tax money and cost us a lot of US jobs, the very jobs the political hopefuls stomp their feet and wave their hands about.
The reality check, the inevitable result as we discussed at the time, has come true. SWK was making the move to help keep some US plants open and thousands of US workers employed. Without the ability to compete on an even playing field with foreign competitors it was forced to close several plants and lay off several thousand employees right here in the US. Instead of fixing the root of the problem, i.e., an unfair tax disadvantage to our own businesses, it shamed a company into laying off workers and closing plants here in the US. You did not hear one peep from Congress about this, however, when it came up with its 'amnesty plan' to get companies back to the US by offering tax amnesty. The pompous asses that so readily wrapped themselves in the flag when SWK announced its plans realized too late, as usual, the consequences of their sanctimonious ranting. Even the amnesty program is a band aide. The problem will still be there and until they wean themselves from excessive spending and grapple with the real issue there will be the economic reasons for incorporating overseas.
THE MARKET
Damn we hate these sessions. The market was not ready to break higher. It could have done so, but it would have had to be a very, very strong move. That would have been an incredible feat and shown that this market had guts not many bull runs have. It sucked it up, but could not kick it home. It pierced the September highs and then gave them back in a massive reversal of the early frantic buying. Now many stocks held their gains nicely through the close, a very good sign of strength as the rest of the market peeled back. Indeed, the small cap and mid-cap indexes again made new closing highs, a continued positive for the morning. Many leaders responded just as the market, however, fading off the highs after a strong open.
What was a nice follow through session on the seventh day since the new rally started turned into a reversal on rising volume. Volume was solid, but it picked up the pace in the afternoon as the selling started. Technically it was accumulation, but with the reversal at resistance showing a doji on rising volume, the luster up through lunch definitely faded. A doji is a signal of potentially changing momentum. After a run higher or lower, when the market opens and closed roughly in the same place it is a sign that the buyers and the sellers are at equilibrium after one was in charge (the buyers on a move higher, the sellers on a move lower). On this move up that can mean the buyers ran out of gas and/or the sellers asserted themselves. Given the rally, it was more like the buyers ran out of gas.
The market was ready for a nice pullback and started to do so Wednesday. The good news jerked it higher before it was ready. Now the fall may be a bit harsher than otherwise anticipated when we were looking for a pullback to the 18 day MVA and then a breakout attempt. This market always has surprises, and it may turn right back up and resume the move. Again, that would be an incredible feat of strength. Based on the action today we don't think it is going to do that but instead will make that test and try again. That is a far cry from saying the rally is dead or the move is washed up. It simply was not ready to make the breakout and appears to still need to take a breather and then make another try at it.
Market Sentiment
VIX: 18.82; -0.36
VXN: 28.84; -0.32
Put/Call Ratio (CBOE): 0.76; -0.05
NASDAQ
Gapped higher, surged past the September high, hit next resistance and almost gave it all back on the strongest volume in three weeks.
Stats: +18.12 points (+0.96%) to close at 1911.9. A respectable gain, but gave back 25 points from the high.
Volume: 2.09B (+15.43%). The strongest volume in three weeks on a reversal session and it picked up the pace in the afternoon selling. Not what you want to see on a reversal. It was looking good up to that point.
Up Volume: 1.374B (+510M)
Down Volume: 665M (-271M)
A/D and Hi/Lo: Advancers led 1.52 to 1. Advancers led 3:1 early on and were definitely follow through caliber but then trailed off and gave a very mediocre finish.
Previous Session: Decliners led 1.44 to 1
New Highs: 397 (+109). Still many new highs on breaks over the September peak. There were more intraday of course.
New Lows: 7 (+3)
The Chart: http://www.investmenthouse.com/cd/^ixq.html
A big spike up to 1936 on the high, right at the next resistance level. That was all it had in it as Nasdaq reversed and closed below the September high (1913.74). That is proving to be very stubborn resistance, exacerbated by the choppy trade and distribution in late September and the 100 point run off the 50 day MVA leading into the test of resistance. It was gassed and needed rest. It was going to take it but then the news hit. It tried to sprint but did not have the guts to finish it out. Now it looks as if it will make that test. The 18 day MVA (1863) is a good initial target for the pullback.
S&P 500/NYSE
Big doji reversal on strong volume, fading back to close below the September highs.
Stats: +4.95 points (+0.48%) to close at 1038.73. Gave up two-thirds of the move and barely managed a positive session after so much enthusiasm.
NYSE Volume: 1.559B (+26.35%). The strongest volume in over a month looked good as the index surged over the September high, but it became a problem as it accelerated to the downside in the afternoon as the index reversed.
Up Volume: 1.036B (+563M)
Down Volume: 501M (-255M)
A/D and Hi/Lo: Advancers led 1.66 to 1. 2.8:1 breadth faded like a morning glory in the afternoon heat.
Previous Session: Decliners led 1.18 to 1
New Highs: 514 (+196). Excellent showing from new highs, an indication that the smaller and mid-cap stocks enjoyed a good session regardless of the big caps. Indeed, many of our plays performed very well despite the reversal. That is still a solid positive for the broader market.
New Lows: 10 (+5)
The Chart: http://www.investmenthouse.com/cd/^spx.html
A big doji that hit close to next resistance (1050) on the high (1048) and then gave back 10 of the 15 point gain as well as the September high resistance. Volume was the strongest since early September. It was a good session that turned ugly. Not a reversal that ended lower, but a failure at near resistance after that resistance was smashed. After a 60 point run off the recent lows the reversal indicates it is a bit winded. In the normal situation we would be quite concerned, and we are concerned. This market trend does not know when to quit, however, so while we don't like the action, we are hardly proclaiming the index dead. It just needs some rest.
DJ30:
Stats: +49.11 points (+0.51%) to close at 9680.01
DJ30 reversed as well off of its high (9768), giving back 88 points on the close. It gave up the September intraday high (9686) on the close as did the other indexes. DJ30 volume spiked to its highest since the index peaked on September 19, showing a doji at that time as well that set off a fall to 9250. Definitely a reversal and a test of the 18 day MVA (9525) down to 9500 seems in order as the first pullback support.
FRIDAY (and a Subscriber Question)
If you like to worry the trade balance in the morning will probably give you a reason to do so. Given our appetite for foreign goods and the foreign economic dependence upon that consumption, the trade imbalance will continue to be out of whack. The dollar gained 50% in 6 years ending 2001. That is only a problem as long as foreign investors do not mind funding our deficits. The US basically needs $1.5B per day to fund our deficits. As the deficit and trade deficit grows, that need rises. The dollar falls because of the weight of the imbalance along with the notion that the US is not now going to prop up the dollar outside of disaster. As long as it is an orderly decline that is ultimately good for everyone as the dollar gets more in line, it weans foreign economies off of the US, and it gets US businesses more competitive. That ultimately as the effect of raising the dollar back up to a strong but stable level based on the relative competitive strength of each economy.
Now if the dollar falls too quickly or too far then they may find other investment markets more favorable and sell their dollar investments in favor of others. Given the size of the imbalance, that means billions of dollars coming back to the US. Excess supply means an even weaker dollar. It also means more dollars chasing the same amount of goods, the textbook definition of inflation. You also throw in deflation because of the selling of US investments and assets by foreigners that created excess supply of those. So you have inflationary forces of too many dollars with deflationary tendencies from the large scale sale of US assets. Those from the 1970's remember this stagflation scenario where inflation ran wild even as fixed assets languished for years.
As you can see, it is a delicate balance (no pun intended) that the US treads upon. The fiscal and monetary stimulus is a necessary and bold gambit to drive investment in the US by the US and create self-sustaining economic activity. As we said over six months ago, if it does not work the entire world is in trouble. As it stands right now, however, stock markets around the entire world are rallying, and much as the US market showed when it started to rally one year ago and was subsequently followed by Japan and others, economic conditions for the world are improving. Reports from Japan show there is definite improvement in that economy. The market foretold the US economic improvement, and foreign markets are foretelling the same around the world. That is a strong indication that the falling dollar is more of a normal and necessary correction after that huge appreciation up to 2001. If other economies improve internally as well as relying on the US that will allow the dollar to stabilize at a more reasonable level.
What the heck about Friday?
That was a long way to get where we are going here, but we have had more than a couple of subscriber questions on the dollar. This market trend has been amazingly strong, but we cannot ignore what has transpired to this point. The market underwent some distribution in September with volatility increasing up to that high and then higher volume selling on the 50 day MVA test. That was questionable action leading up to this last rally. The failure at the September high yet again (as of the Thursday close) indicates it still has not recovered from that distributive action.
Given the strength of the trend it could turn right back up and rally from here. No doubt some of the smaller stocks we see that held their gains on the Thursday reversal will continue to perform regardless of the large caps. Overall, however, it looks very much as if the market will take at least some rest that it tried to start Wednesday. We are going to look for an initial test toward the 18 day MVA on the indexes and see how they respond there. It is still very important for the market to make a higher low and break over the September resistance and hold the gain.
That test would leave most of our positions in good shape, positioned to rally from that near support. Thus we will let positions ride as long as they hold the near trends or their breakouts, but if the market starts to labor, selling on stronger volume again, we will cut quickly. After a high volume reversal at stubborn resistance, if volume selling begins that often precedes a deeper test.
Support and Resistance
Nasdaq: Closed at 1911.90
Resistance: September high at 1913. 1930 - 1935. Then 2000 to 2050.
Support: 1889 (early September highs). 1860 to 1865. The 18 day MVA (1863). The 50 day MVA (1810). The March/August up trendline (1805). The July high (1776).
S&P 500: Closed at 1038.73
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 (1023) 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 9680.01
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 (9525). The exponential 50 day MVA (9410). 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): -0.2% actual, 0.1% expected, 0.0% July.
10-9-03
Initial jobless claims (8:30): 382K actual, 394K expected, 405K prior (revised from 399K).
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.
End part 1 of 3
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