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us stock market, trade stock
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10/14/03 Stock Split Report
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Stock Split Report Subscribers:
MARKET ALERTS
Targets hit alerts issued Tuesday: SEAC
Buy alerts issued: KMI; IFIN; COH; SIGA
Trailing stops issued: None issued
Stop alerts issued: 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. You can sign up for Stock Split Report alerts at the following link:
http://www.investmenthouse.com/alertssr.htm
SUMMARY:
- Early test leads to another modest but steady rally.
- Market continues to rally, moving up on rising volume and ignoring seasonal factors.
- Intel up after hours on earnings, indicating not all expectations are built into prices.
- Subscriber Questions
Volume is better as market continues its push higher.
You can harbor misgivings about where the market is going and how it is doing it, but it has not paid to get in its way. More and more money is moving into the market with an obvious result: a two week rally up off the 50 day MVA. It has not been on terrific volume but there have been no sellers. In short the market has found little resistance on the way higher as sellers are not really entering to sell at resistance points. The market had some trouble with the September highs with a higher volume reversal session, but those sellers gave way and stocks have continued on their way.
The session started lower after the solid Monday gain, but as is often the case in an uptrend, a soft open brought in the buyers. After a volatile morning stocks moved positive for good after lunch as volume started to come in on the upside. The move was helped by new rumors that Hussein had been captured and an explanation by Bush and other G7 principles that they were not talking about the dollar versus the Euro but the Japanese and Chinese currencies. Whether catalysts or just tag along good news is open for debate, but the news certainly did not hurt and stocks continued to rally well after the rumor mill quieted.
In the end you have another gain, this time on rising volume. It has not been spectacular, just steady. We still have misgivings about this move as there has been no follow through to the rally's start two Wednesdays back and it has edged higher on overall low volume. We are all familiar with how stocks can scratch and claw their way up on lower trade, having to fight all the way up and then have those gains wiped out in two sessions. Considering the long term trend that is not as big a deal as seen in the early August and late September pullbacks to the 50 day MVA that then rebounded right back up, continuing the uptrend. It is the shorter term plays (e.g., option plays) that you have to think about as the market, particularly Nasdaq, trades at the top channel line of its uptrend. That is why we typically take at least partial gains when a target is hit, banking some profit and letting the rest run for us as we move up the stop loss to preserve the remaining gain. As long as it holds the trend we let it continue.
THE MARKET
Three weeks back we talked about the what it would mean if the market moved through September and October, ignoring the seasonal trends as it did. The ability to continue the rally in the two months where stocks are typically tagged with selling would be a solid indication this market run was much stronger than credited.
The two month stretch is not over and we still have some misgivings about the quality of the move, but it has done anything but sell off. Sure it got bumpy in August and more so in September, but stocks doggedly came back, driven by a steady stream of money pushed into stocks to chase the performance. We still are not comfortable with the move, but as we have said, that is more of a near term concern than a belief that the overall rally is spent. There have been a number of quality individual moves within the overall rally that we have been playing. Indeed, the breadth of the move is still impressive with smaller cap issues again taking a leadership roll.
Thus the market is showing unusual seasonal strength, and if it can last, that is one element that will turn a few high profile analysts positive on the possibility of this being a new, strong bull market as opposed to a big lateral move after emerging from the long downtrend. We need to bear in mind that Nasdaq is at the top of its channel and could come back to the 50 day MVA and still be in a solid uptrend, still showing unusual strength for the season as stocks continue to show a 1999-like uptrend where money continually moved in to chase stocks higher and higher. The question down the road that has to be answered is when the correction takes place, will it be a nice lateral base or a steeper selloff.
Market Sentiment
We noted over the weekend that VXN had set up what looks to be a correlation with Nasdaq the past few months where lows near 25 on VXN have corresponded with peaks on Nasdaq. The problem with the correlations is that they can break apart at any point. Monday VXN gapped down to 26ish and rallied back some, but it hit that level that had sparked pullbacks in Nasdaq. The Tuesday move in Nasdaq may have broken it out of this correlation, but it is worth keeping in mind given the move to this point.
VIX: 17.37; -0.18
VXN: 26.49; -0.28
Put/Call Ratio (CBOE): 0.7; +0.08. Put action ticked higher again as put buyers continued to fear the move, buying protective puts for long stock positions and speculating on the fall from here. This is a contrary indicator that hit back into the 90's last week. When more are expecting a drop as shown in the options market, there is less likelihood of that happening.
NASDAQ
Volume moved back above average as techs snuck past the top of the channel in a steady, unspectacular move.
Stats: +9.66 points (+0.5%) to close at 1943.19
Volume: 1.77B (+17.91%). Volume was back above average for the first time since last Thursday when the index shot higher on the jobs news. There was accumulation ongoing Tuesday though hardly runaway buying and not the level of a follow through to the rally.
Up Volume: 1.292B (+284M)
Down Volume: 449M (-5M)
A/D and Hi/Lo: Advancers led 1.69 to 1. It was negative so this reading is not all that bad.
Previous Session: Advancers led 2.26 to 1
New Highs: 403 (+28). Not the kind of new high production you want as the index clears some congestion and breaks to a new 52-week high.
New Lows: 6 (-1)
The Chart: http://www.investmenthouse.com/cd/^ixq.html
The uptrend continues both longer term and near turn after the bounce off the 50 day MVA two weeks back. Nasdaq has topped the upper channel to its uptrend, but as noted over the weekend, it has topped the channel line twice in August before dipping back to the 50 day. That higher channel is near 1975. Then there is some nasty overhead at 2000 to 2050 where Nasdaq double topped in December 2001/January 2002. This run that won't stop will most likely have to make a real assessment of itself at that point. While we have concerns that this lower volume move up could get washed away in a hurry if something turns sour, thus far nothing has soured the move. Indeed, Intel's earnings after hours were impressive and margins for Q4 are huge. The stock and other chips were moving higher after hours.
S&P 500/NYSE
Volume was up as the large caps continued their move as well, working up the lower side of the August to September up trendline.
Stats: +4.13 points (+0.4%) to close at 1049.48
NYSE Volume: 1.241B (+19.26%). Volume was up indicating more buyers were in the market following the Columbus Day holiday.
Up Volume: 702M (-77M)
Down Volume: 530M (+281M)
A/D and Hi/Lo: Advancers led 1.35 to 1. Not great breadth on a break to a new high, but it is on the heels of excellent breadth Monday.
Previous Session: Advancers led 2.52 to 1
New Highs: 416 (-68). New highs fell as the index made a new high. That is definitely not a great sign of continuing strength as the index rallies further. In early September new highs were popping over 500 is the index broke to a new high, and it has been unable to match that proficiency since.
New Lows: 8 (+6)
The Chart: http://www.investmenthouse.com/cd/^spx.html
Put some distance on the September high at 1040, coming off a slow start that tested that level and found traction for the recovery. Volume was up as the large claps closed at the session high. Good intraday action as the index continued the 2 week rally as well. It is under some potential resistance at 1050 on up to 1080, but as with Nasdaq, it does not get to the really ugly stuff until 1100 to 1150, the early 2002 double top.
DJ30:
Stats: +48.6 points (+0.5%) to close at 9812.98
Volume was up but still below average as DJ30 moved through near resistance at 9800, further stretching a 560 point move off the September low. It has some foundation for this move, however, given the nice 3 month lateral base June through August. The next real barrier is the psychological 10,000 level that acts as a magnet but then a barrier.
WEDNESDAY
Fresh economic data hits the pre-market with retail sales and the NY Empire State manufacturing index. This is one of those situations where investors are looking at both earnings and economic data. Earnings to confirm the data that has already hit, and more economic data to give some clue as to the future as well. Earnings have been expected to show an 18% increase, and early indications are a 20% increase. Intel beat the street on earnings and revenues, and then upped Q4 margins and revenues. The stock, already having made a strong run into the number, was up another 60 cents or so after hours. Not a huge move but after a run into the numbers, investors were still trying to buy it after they came out. The action shows that expectations were not fully priced into the stock. Of course we have to see how it trades in the big session Wednesday, but the after hours action was promising.
After two weeks of steady gains, it is harder and harder to look at the market and lick your chops about getting into new positions. Still, even after good moves through last night we were still finding many plays that had set up nicely and were making or ready to make solid moves. That is what strong breadth, buying across the board will do for you as waves of stocks set up for the breakout after the first crop has already made the initial moves. The former group has to be our focus for now; after two weeks of rallying we don't want to step into extended stocks and get whipsawed in a pullback. This has been a long run, two weeks of small, steady gains. As noted, if the market hits the wall, the two weeks of moves can be gone in two days, or at least the most recent part of the runs. As we saw today, many stocks are still forming up and breaking out, and those will remain our focus. There will be opportunity to again buy into those stocks that made the earlier moves, but we have to be patient and let them set up another good entry point.
Support and Resistance
Nasdaq: Closed at 1943.19
Resistance: The top of the channel is just below the close (1940). The second, higher channel hit in September is at 1075. Then 2000 to 2050, the early January 2002 double top.
Support: 1915ish, the September high. The 10 day MVA (1901) and the 18 day MVA (1882). 1860 to 1865. The 50 day MVA (1824). The March/August up trendline (1815).
S&P 500: Closed at 1049.48
Resistance: 1050 and 1080 from February 2002 lows. 1100 to 1150, the early 2002 double top.
Support: 1040, the September highs may act as some support. 1030 to 1032 (early September highs). The 18 day MVA (1029) and the top of the summer range at 1015. The exponential 50 day MVA (1014). 975 (December 1997 peak).
Dow: Closed at 9812.98
Resistance: 9800 (April and May 2002 lows) has been cracked. 10,000 is the candle that attracts the moth.
Support: 9686 (September high) may act as some support. The 18 day MVA (9591). 9500 (June 2002 lows) is the top of the recent summer range. The exponential 50 day MVA (9449). 9353 (top of summer range). 9250 to 9236, the early June intraday high.
Economic Calendar
10-15-03
Retail sales, September (8:30): -0.1% expected, 0.6% August.
Retail sales, ex Auto (8:30): 0.4% expected, 0.7% prior.
NY Empire idex, October (8:30): 16.0 expected, 18.4 September.
Beige Book (2:00)
10-16-03
Initial jobless claims (8:30): 385K expected, 382K prior.
CPI, September (8:30): 0.2% expected, 0.3% August.
Core CPI (8:30): 0.1% expected, 0.1% prior.
Industrial production, September (9:15): 0.4% expected, 0.1% August.
Capacity utilization, September (9:15): 74.8% expected, 74.6% August.
Philly Fed, October (12:00): 15.6 expected, 14.6 September.
10-17-03
Housing starts, September (8:30): 1.827M expected, 1.820 August
Permits, September (8:30): 1.835M expected, 1.886M August.
Michigan sentiment, October (9:45): 88.2 expected, 87.7 September.
SUBSCRIBER QUESTION
Q: We have received a number of questions regarding the current debate over the NYSE specialist/open outcry market and whether it needs to be changed. Questions range from what is it to why worry about it. Here are some thoughts.
A: The NYSE system has specialists for each stock who are supposed to ensure an orderly market for a stock. If news hits it is up to the specialist to determine at what level to open the stock based on the number and size of buy and sell orders. The specialist buys and sells stock in his own acount. One of the complaints is the specialist can see all of the orders and can get out ahead of the stock, a.k.a., front running, buying into it and then selling at a higher price based on his or her view of all of the orders before they hit the market. It does not take much profit to make a lot of money given the number of transactions made. Front running has always been a potential problem with the system. It is nothing new, but it has received a lot more attention given the corporate scandals, the spinning accusations, and allegations of, well, front running on the floor of the NYSE. Everything is under a microscope today and everything is up for more regulation. That is the usual outcome any time there is scandal associated with economic upheavel. Many are advocating an electronic exchange along the lines of Nasdaq as a way of avoiding this problem as there are many market makers and you can see all of the orders on both sides of the ledger. Anyone with a market depth or level II can see those orders.
We advocate an electronic market but not necessarily for the possibility of front running and the like. We have all seen that the electronic system does not prevent market makers from taking advantage. It does get the information out there for all to see, but you can still see prices run up and down regardless of the bids and orders place, particularly if the trade is thin for a stock.
What we are more interested in is the vulnerability of the NYSE system where specialists and traders are all clustered in one area. There are warnings in the intelligence circles that Al Qaida is trying to set up another multifacited attack utilizing some type of radiological devices, e.g., 'dirty bombs' aimed at several different targets. A major target are our financial institutions, and the NYSE with all of the trades taking place only by the physical presence of traders could be put out of commission indefinitely with such an attack. Sure there is security and they have surely planned on this contingency, but as seen after 9-11, a centralized market can be totally disrupted. We cannot afford to have the NYSE down indefinitely again. That alone in our mind makes an electronic system that is 'spiderwebbed' across the nation preferable. That of course would include the Chicago exchanges as well. It is past time to be thinking along these lines.
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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