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10/16/03 Stock Split Report
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Stock Split Report Subscribers:
MARKET ALERTS
Targets hit alerts issued Thursday: None issued
Buy alerts issued: NANO; NXG; TSYS
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:
- Market overcomes IBM, struggles for a lower volume gain.
- Economy continues its advance at a better than expected pace.
- Indexes continue to struggle for gains but refuse to sell off.
Stocks struggle on, post a gain as positive earnings slightly outweigh IBM, CAT results.
IBM and CAT were hammered on revenue worries, and they had their impact on the Dow and the market in general. DJ30 finished down, but only because of CAT and IBM. Overall the very positive earnings results keep stocks moving higher even with expectations very high. You are probably as tired as we are of the phrase 'priced to perfection.' While expectations are high, the responses to earnings have been more positive than negative. If it were the other way around the market would be selling like a sack of bricks falling from the second story.
Instead the market doggedly refuses to give up. It is not necessarily comforting action if you are looking for the rally to continue as stocks struggle through intraday volatility to scratch out overall gains on lower volume. The action certainly did not wipe away the Wednesday reversal after the strong gap higher. It appears to be a matter of money and fund managers putting significant new money to work before the end of the year to try and capture as much gain as possible for those year end reports. It is not a mad rush higher, however, and that makes the action look especially perilous as if there is just enough money coming in to keep the indexes drifting higher. Certainly there is not ongoing, massive accumulation.
Earnings have been overwhelmingly solid, and that has kept money coming in, pushing those with outstanding earnings sharply higher with the rest of the market tagging along on their coattails. It is not a market that makes you just want to jump in full force when looking at the indexes and their struggle to push forward with any power, but there are a lot of stocks making just excellent volume breakouts from solid patterns. The medical appliance and internet stocks were at it Thursday despite the concern about EBAY's results. With big names such as IBM, CAT, and EBAY disappointing, the question is how long can the smaller issues continue to rally if the big names do not. For now they are not showing much wear and tear, and the big money moving into these stocks appears to have a purpose in seeking out stocks in these sectors.
THE ECONOMY
Jobs are starting the creation process while the deficit already starts to shrink with just a bit of economic recovery.
The economic data continued its steady improvement. It was not on all fronts and that of course gives those unwilling to recognize economic recovery the ability to continue to downplay all of the contrary data. Thursday we continued to hear how the jobs already lost would drag down the recovery, how the current recovery was not going to produce jobs (but of course, raising taxes on corporations and those that start the businesses that create most of the jobs somehow would cause those two classes to hire). We also again heard the lament as to how the deficit would bring the economy down as well by raising interest rates and choking off investment funds.
Before we get into the specific reports, however, consider the following. As the Q3 earnings reports roll out, more and more companies are indicating they are going to be hiring. IBM is set to hire 10K to fill high skill positions. WMT and TGT also announced plans to hire. So what, some say; 10K jobs is a drop in the bucket and who wants to work at WMT or TGT? That, of course, misses the point. The fact that companies are being so bold to even state they are going to hire is huge given this post-scandal, heavily regulated and scrutinized era. Those wanting 250K net jobs created per month right now will not be satisfied. They are never satisfied, however, because they are unrealistic and have no grasp of timelines. It is clear that the trend is turning, that job creation is starting, and it is starting ahead of our prediction for December. It is still timid at this juncture, but the economy is starting to turn out new jobs.
Second, the deficit is a moving target, a chameleon that continually changes its colors. Predicting surpluses or deficits is about as exact as predicting how many named storms will head into the Gulf of Mexico each year; you have a pretty good idea there will be more than one but less than 50. Between those parameters it is wide open. Remember during the surplus years how the surplus bounded higher monthly, providing better and better projections (projections many called illusory, and rightly so as it was clear that Greenspan and the Fed were set on reducing our economic prosperity)? This past month again shows how mercurial these predictions are. Despite dire predictions of a runaway deficit, in one month it fell $84B based on the short economic pickup thus far. If this economic rebound is as thin as many candidates claim, just think how much will be sliced off when the economy is really producing on all cylinders. This deficit could shrink as fast as Seinfeld's George when swimming in cold water.
Philly Fed roars.
October is starting out as a lion for Q4 with Mid-Atlantic manufacturing posting a 28.0 reading versus just 16 expected. New orders hit 29.0, the highest in 8 years. The employment index turned positive and hit a 3 year high at 5.5 (-4.7 in September). This is on the heels of a huge Empire State Report. The tax incentives are working. Ignore them and the recovery at your own peril.
Jobless claims at 384K.
Last week was revised to 388K (from 382K), and thus the 384K was considered a drop. Still it is in the 380K range that we said would start to produce net jobs if it can hold the level. It is getting there as the 4 week average fell to 390.75K. The individual company reports regarding hiring and the regional manufacturing reports showing positive jobs sub-indexes is telling the story of job creation beginning just as the politicians continue to swear the recovery will produce no jobs. Fighting the last war as usual when they should be looking ahead to what we can do to further the expansion.
Industrial production rises, inventories fall.
This is the squeeze play we have talked about: companies waiting to rebuild inventories until the last minute, trying to make do with the current staffing and production capacity versus demand that is eroding the inventories at a faster and faster rate. Indeed, inventories dropped the most in 20 months, falling 0.4% (no change expected). General merchandise was down 0.8%. Retail stocks fell 0.8% as sales grew 1.1%. That put the stock to sales ratio at 1.36 to 1, matching the July reading, a record low.
The squeeze comes when production has to increase to make the goods consumers are demanding. Industrial production rose 0.4% as expected, and capacity edged higher by 0.1%. Still showing some slack, but the inventories will have to be replaced. Indeed, the production levels are creeping up, and we may see a sudden jump in October or November. For example, computer production was up 29%. That is a strong, strong number.
THE MARKET
The back and forth action would drive you insane if you just looked at the indexes and the big names. Seesaw action gives way to modest gains. Wednesday it was a gap higher and rally that gave way to losses on the close. What has been rather constant is the performance of those stocks that have set up good foundations with solid bases and are attracting a lot of trade when they make their moves. That shows continued serious interest in these stocks, and it is showing up as the smaller cap issues again start to outperform the rest of the market. It is not translating into a clear and convincing move higher in the market or the indexes, however, making it very much a stock picking period for the market.
This market gives enough on the upside to make most feel comfortable it is continuing the rally. It is, but the gains are not strong, not showing great accumulation but showing that there is still overhead supply as Nasdaq and SP500 approach the double top levels from back in late 2001, early 2002. Individual stocks are still showing good entry points as they breakout from solid patterns, but the indexes struggle for each gain with volatile intraday moves. It keeps you on your toes as it is struggling to maintain the upside at a point where it would naturally take a breather. As we have noted, the indexes are still in good shape. Nasdaq is right at the top of its channel, a point where it would typically come back and take a breather. Thus we fully expect a pullback in the overall market to occur. So far each test back has been thwarted with a bunch of new money being put to work at the start of Q4.
Market Sentiment
Volatility indexes are tanking, undercutting all of the recent lows. As noted earlier in the week the VXN has set up that inverse relationship where this level signals a pullback in the Nasdaq. Of course, those relationships can breakdown as fast as they form, and Nasdaq has not tanked even at these low levels.
VIX: 17.19; -0.5
VXN: 25.47; -1.3
Put/Call Ratio (CBOE): 0.65; -0.02
NASDAQ
Still at the top of the range, rallying higher after the Wednesday reversal, but on lower volume.
Stats: +11.04 points (+0.57%) to close at 1950.14
Volume: 1.778B (-12.26%). Above average, but still lower than the Wednesday reversal volume. It shows it is not going down quietly as new money chases techs, but it is also not breaking out.
Up Volume: 1.099B (+152M)
Down Volume: 651M (-395M)
A/D and Hi/Lo: Advancers led 1.37 to 1. Modest upside breadth.
Previous Session: Decliners led 1.42 to 1
New Highs: 267 (-148). A gain but new highs collapsed. Further indication of the weak move.
New Lows: 5 (0)
The Chart: http://www.investmenthouse.com/cd/^ixq.html
Showed its resilience, coming right back from the reversal session to post a gain on above average volume. It is still at the top of the channel though below the higher of the two channels (high channel at 1970ish). Wednesday it showed there was overhead supply as it approached 2000, the start of the double top from late 2001, early 2002. Given the new money chasing performance, it could try that 2000 level further before coming back down in the correction.
S&P 500/NYSE
Again struggling at 1050, though it did come back right after the Wednesday reversal.
Stats: +3.31 points (+0.32%) to close at 1050.07
NYSE Volume: 1.366B (-6.48%). Still above average and not much lower, but lower nonetheless as it tried the resistance again.
Up Volume: 833M (+318M)
Down Volume: 507M (-418M)
A/D and Hi/Lo: Advancers led 1.44 to 1. Decent breadth as the smaller caps helped out the NYSE overall.
Previous Session: Decliners led 1.59 to 1
New Highs: 297 (-98). As with Nasdaq, new highs dropped off even as NYSE stocks rallied back toward the recent highs. A lack of strength in the move.
New Lows: 9 (+2)
The Chart: http://www.investmenthouse.com/cd/^spx.html
Running into something of a wall at the 1050 to 1055 level where there are two up trendlines, one recent from August, one from the start of the move running from the November 2002 to June 2003 tops. The index backed off of that level again after testing it once more Thursday. Volume was still above average, but without breaking that resistance that can be viewed as some churning at the top of the range and below some resistance. The double top runs from 1100 to 1150, but SP500 is already struggling at this lower resistance.
DJ30:
Stats: -11.33 points (-0.12%) to close at 9791.72
Would have been positive but for IBM and CAT. Volume was still above average but faded even with IBM and CAT volume surging. No distribution, but showing a second doji at some resistance at 9800. Not in bad shape if it can make a higher low at the near support (18 day MVA at 9632). Much of its movement will key off of Nasdaq and SP500.
FRIDAY
AMD reported solid earnings improvement after hours and was racing ahead while EBAY was taking some lumps for just being in line with expectations, the first time in years. That was met with cold selling after hours. Friday housing is out and then Michigan sentiment 15 minutes into the session. Despite the economy bashing and the supposed groundswell of anger some refer to, we expect sentiment to be up. Of course, consumers have said one thing (falling confidence the past few months) and done the opposite (surging retail sales). There has been a lot of reporting about economic improvement the past few weeks, and one poll early this week already shows Americans already feeling better about how things are shaping up. Thus we would not be surprised if sentiment topped expectations for a slight increase.
Friday is October option expiration, and that is one of the reasons for the intraday volatility this week, and we may see more Friday given the indexes are at the top of their range, struggling to hold on. There are large October option positions at SP 1050. Given that, though we may see volatility intraday, you can almost bet the SP500 ends the week right at 1050. After expiration, then the market can move again. If it finishes near 1050 Friday, we would expect it to start back down the following week given the indexes are at the top of the range. Of course we have anticipated a test lower and the market has defied gravity. New money could blast it higher after expiration, but that would keep the market skating on thinner and thinner ice.
We will continue to look at those stocks that are still in position to breakout and move higher from good patterns. If the market does turn, they have near support and we don't lose much at all. We have also pulled up our stops closer just as a precaution, particularly on plays with options. Overall we repeat that the market is still in good shape, still in a solid uptrend. Near term it is primed to pullback if new money does not try to chase stocks higher. Longer term there is still low inflation, still a lot of monetary stimulus, still great fiscal stimulus, and an economy that is being unleashed and is going to grow a lot stronger and faster than almost everyone believes.
That is bullish for stocks, but stocks also have to deal with the overhead supply from the early 2002 double top. A further run to that level from here will most likely be all of the upside for the year. If the market pulls back to the 18 day MVA or even a little further to the 50 day MVA after this options expiration on Friday, that gives it a good starting point to rally into that level and close out the year with a nice upside.
Support and Resistance
Nasdaq: Closed at 1950.14
Resistance: The top of the channel is just below the close (1945) and the index is still toying with it. The second, higher channel hit in September is at 1975ish. Then 2000 to 2050, the early January 2002 double top.
Support: 1915ish, the September high. The 10 day MVA (1915) and the 18 day MVA (1895). 1860 to 1865. The 50 day MVA (1833). The March/August up trendline (1822).
S&P 500: Closed at 1050.07
Resistance: 1055 (the August/September up trendline). 1050 and 1080 from February 2002 lows. 1100 to 1150, the early 2002 double top.
Support: 1040, the September highs acted as support Wednesday. The 18 day MVA (1033). 1030 to 1032 (early September highs). The top of the summer range at 1015. The exponential 50 day MVA (1017). 975 (December 1997 peak).
Dow: Closed at 9791.72
Resistance: 9800 (April and May 2002 lows) pushed it back again. 10,000 is the candle that attracts the moth.
Support: The 10 day MVA (9700). 9686 (September high) may act as some support. The 18 day MVA (9632). 9500 (June 2002 lows) is the top of the recent summer range. The exponential 50 day MVA (9475). 9353 (top of summer range). 9250 to 9236, the early June intraday high.
Economic Calendar
10-15-03
Retail sales, September (8:30): -0.2% actual, -0.1% expected, 1.2% August (revised from 0.6%).
Retail sales, ex Auto (8:30): 0.3% actual, 0.4% expected, 1.2% August (revised from 0.7%).
NY Empire idex, October (8:30): 33.7 actual, 16.0 expected, 18.4 September.
Beige Book (2:00): Shows improvement in consumer and business activity in all 12 districts.
10-16-03
Initial jobless claims (8:30): 384K actual, 385K expected, 388K prior (revised from 382K).
CPI, September (8:30): 0.3% actual, 0.2% expected, 0.3% August.
Core CPI (8:30): 0.1% actual, 0.1% expected, 0.1% prior.
Industrial production, September (9:15): 0.4% actual, 0.4% expected, -0.1% August (revised from 0.1%).
Capacity utilization, September (9:15): 74.7% actual, 74.8% expected, 74.5% August.
Philly Fed, October (12:00): 28.0 actual, 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.
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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