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us stock market, stock option
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10/18/03 Investment House Alerts Report
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IH Alert Subscribers:
MARKET ALERTS
Targets hit alerts issued Friday: NUAN; IFLO; EMBT; QRSI
Buy alerts issued: None issued
Trailing stops issued: ENCY; NBIO
Stop alerts issued: Cleaned out some deadwood as we said we would. TWAV; PPHM; ENDP; GENR; HILL; GRIC; PPDI; IMCO
MARKET SUMMARY
Earnings are still positive overall, but market is starting to take them for granted.
The market ran up to earnings season and continued to work higher as the earnings came out. That does not seem to be big deal given that earnings were coming in typically better than expected, but given the prior move it was a struggle for the market to continue its overall rise. Individual surges following results have been common, but the buying has not been contagious. Again, it was a struggle for stocks to continue the advance.
Toward the end of the week the market adopted a 'is that all?' attitude toward earnings, indicating it had reached the earnings saturation point for now. IBM, EBAY, BRCM, etc. produced solid results, but with the market run in anticipation of earnings, solid results were not enough. Very strong results and outlooks from INTC, AMD and other big names were not enough. They were, after all, old news and priced in. When the well of very strong earnings and outlooks slowed, the market lost its upside impetus. As we have been discussing, the move up was not all that powerful even with good earnings. When some adversity turned up the market turned down.
Friday the downgrades (e.g., BRCM cut to sell) and disappointment from EBAY helped turn some lackluster overall gains into a sharp price drop. Volume spiked early but backed off as the session wore on. The selling was broad, however, even if on lower volume (very low for an expiration Friday) and the trend of leaders turning down on sharply higher volume continued. The only silver lining was the lighter volume and holding close to near support. With the market just starting to turn over (peaked and rolled over Wednesday), however, it is too soon to draw conclusions about where it closed Friday. The uptrend is still in place, but it looks like that telegraphed test lower is coming. We were closing up some positions Friday, taking some gain and cutting dead wood.
THE ECONOMY
A better week for the economy than stocks.
Stocks have run out of some momentum after a strong move higher, but the economy has not. That is not unusual; the market anticipates economic moves and the economy catches up. The market takes periodic rest stops to regroup and rally again ahead of the economy. Indeed, the economy continues to show improvement in each report and is strengthening considerably rather than backing off as some are so want to suggest.
Housing continues to defy conventional wisdom.
Too strong for too long, was a store of value during the market downtrend but not now as stocks recover, consumer tapped out and cannot afford housing. The reasons why the housing market cannot continue is as long as the list of reasons the skeptics put forth regarding the lack of or demise of the economic expansion. We have been skeptics as well, but as with the stock market, we have our opinions but the market sets the tempo, not us.
Starts rose 3.4% to 1.88M annualized units. Permits fell 2.2% to 1.86M units. Both were better than expectations. You could argue the drop in permits is not good for the future housing starts, but permits have been down before and starts continue. It is an ebb and flow, and the trend continues on record pace even with defaults rising. Indeed, housing execs see the market strong for another 15 years as they sell to the baby boomer children. We have looked at the demographics of the boomer generation many times before, however, and there simply are not enough boomer kids to continue or create the same demand surge that the boomers did. It will be more than a ripple, just not the boomer tidal wave.
Preliminary October Michigan sentiment beats expectations, but the real issue is the business recovery, not consumer spending.
89.4 versus the 8.82 expected and 87.7 in September. Rising stock market, some initial improvement in jobs has helped bolster some flagging confidence. Of course, the backslide in confidence caused no real change in habits. That does not occur until confidence gets much lower than it is now.
It was lower since the recession and consumers did not stop consuming. 2.5 million jobs have reportedly been cut by the bigger employers (though those claiming to have jobs equals those claiming the same at the official end of the recession) and yet consumers have not stopped consuming. Yet it is now in vogue for those panning the recovery to say if job creation does not start soon the recovery will fail. This argument obviously focuses on the consumer being the key. Candidates for president are fixated on the demand side of the equation as seen in their common theme of increasing taxes on corporations and income streams $100K or greater, i.e., those areas that produce the jobs. Once again, the critics' tunnel vision blinds them to the roots of the problem.
This was never a consumer recession; the consumer was the one area that Greenspan continually marveled at as the lone bastion of support for the economy (buying consumer goods and houses). The terrific irony is that Greenspan's campaign against prosperity was purportedly focused at slowing the "runaway consumer." That never happened, but instead a business recession ensued when the Fed cut off the money supply to the expanding economy. The stock market bucked as usual at the lack of money in the economy, and when the equity market was no longer a source of capital either, investment in business completely died off. When the capital was gone projects were cancelled, new ventures shut down, and the ripple effect spread throughout the economy and started the cascade lower that resulted in all of those company jobs lost. Again, that never slowed the consumer at all. Now that job loss has slowed and appears to have ended, there is less reason to think this will be a further drag on consumption.
Given that the consumer has consumed throughout the downturn, the recession, and the seeds of recovery (other than the drop-off in the lead in to the Iraq war), to conclude the recovery will fail if jobs lag in creation is assuming that the recovery is solely based on a consumer recovery. In reality the recovery is starting because businesses are again spending on equipment and new ventures. The tax incentives are helping purchases of millions of dollars of new equipment. As the Thursday production report showed, technology production rose at a 28.9% annual rate in Q3. The individual consumer is not the cause of this surge, but a resurgence in the dormant business sector.
No one wants further job losses or those without jobs to continue unemployed, but if they do that does not necessarily spell the doom of the recovery. It won't be as good as wanted for certain, but it is not the automatic failure some are pushing. In any event, we feel job creation is just around the corner despite the drain of some US jobs to India, Pakistan, Ireland, and other foreign arenas. MSFT, IBM, DNA, and many others have already announced plans to start hiring later this year and early 2004, the Philly Fed and New York PMI reports showed positive employment components, temporary hiring is way up, and small business surveys indicate hiring plans are increasing.
THE MARKET
Volume was lower overall, but there were many volume breakdowns from leadership quality stocks, e.g.., EBAY, SPRT, ENDP in addition to those occurring earlier in the week. If larger numbers of leaders fail that is a precursor for market trouble. Despite the lower trade, it was also the second down session in three, including the Wednesday volume reversal where the leading Nasdaq reversed at the upper channel.
The ease of the downside moves is always somewhat amazing. The market scratched and clawed higher for two weeks, and as we discussed last week, when the downside started it easily swept away those gains in short order. The difficulty of the rise (very volatile, lacking solid accumulation) and the ease of the selling verify the market was extended without a good foundation this last move higher. The action suggests the test lower is on after a few false starts. There is sometimes a reversal of the expiration session action on the following Monday. That means the market may try to rally again, but the high volume reversal and ease of the Friday selling leads us to believe any bounce will be short lived.
Market Sentiment
VIX: 17.62; +0.43
VXN: 25.33; -0.14
Put/Call Ratio (CBOE): 0.64; -0.01
NASDAQ
Gapped lower and solid through the 10 day MVA. Lighter volume but a sharp price loss.
Stats: -37.78 points (-1.94%) to close at 1912.36
Volume: 1.76B (-1.02%). Above average and slightly lower from the Thursday gain. Volume was spiking sharply at the open but backed off as the session progressed. No distribution, but a sharp price loss.
Up Volume: 311M (-788M)
Down Volume: 1.43B (+779M)
A/D and Hi/Lo: Decliners led 2.26 to 1. The upside breadth never hit these levels.
Previous Session: Advancers led 1.37 to 1
New Highs: 219 (-48)
New Lows: 8 (+3)
The Chart: http://www.investmenthouse.com/cd/^ixq.html
After the Thursday test near the upper channel in the uptrend ended with a volume reversal, Nasdaq added to the losses Friday, posting a loss for the week. The drift higher toward 2000 and that double top resistance looks to have been the end of that attempt. It undercut the 10 day MVA (1915) on the close as it heads for a test of the 18 day MVA (1896). That would be the minimum pullback. The failure at the top of the channel of the trendline can mean a test to the lower channel, just below the 50 day MVA (1836).
S&P 500/NYSE
Continued the Wednesday reversal, managing to regain the 10 day MVA on the close.
Stats: -10.75 points (-1.02%) to close at 1039.32
NYSE Volume: 1.284B (-5.97%). Lower, average volume on the selling. No distribution, but again, a sharp price drop.
Up Volume: 271M (-562M)
Down Volume: 990M (+483M)
A/D and Hi/Lo: Decliners led 2.18 to 1. Large and small caps fell Friday as downside breadth easily topped that of the upside moves earlier in the week.
Previous Session: Advancers led 1.44 to 1
New Highs: 186 (-111)
New Lows: 3 (-6)
The Chart: http://www.investmenthouse.com/cd/^spx.html
Unable to crack 1050 on one last try (1051 on the Friday high), SP500 turned sharply lower. It managed to recover to the 10 day MVA (1039) on the close, but that was a small portion of the loss. 1040 is the September high and where it held Friday. A logical support point, but as SP500 made the move in one session, it would appear it has lower to test, either the 18 day MVA (1033) and price support at 1030, or down to 1020 and the 50 day MVA (1018). That lower level would put it right over the highs in the summer range.
DJ30:
Stats: -69.93 points (-0.71%) to close at 9721.79
DJ30 held up the best, selling to the 10 day MVA (9704) on lower, below average volume in a modest pullback. A test of the 18 day MVA (9641) looks in the cards, but beyond that depends upon the other indexes. It has not made the extended move of Nasdaq, and a modest pullback puts it ready to rally again if the rest of the market is.
THIS WEEK
Earnings hits its zenith this week while economic news dwindles. Last week the market indicated it was ready for the further pullback with the Wednesday volume reversal, the weak Thursday bounce, and the Friday sharp price loss. After struggling higher it gave back a week's gain in a single session. As noted, the market often moves the opposite direction the Monday following a Friday expiration, and thus we may see a bounce attempt yet again on Monday.
While money has continued to chase performance at each market dip, this one looks as if it is taking hold. Given the performance chase, it may not make the move to the bottom of the channel on Nasdaq but check up again without a more extensive rest.
That does not leave a lot of room for downside, though we continue to look for plays that are breaking support or failing near resistance in established downtrends. Stocks and the indexes are still solidly in uptrends, and As for upside, we just have to be patient and let them develop. There are not a lot of leaders in good position to enter after the end of the week, but there are still smaller cap stocks in good patterns, stocks overlooked by a lot of investors focusing on the big names. Some sectors were shaken up (e.g., internets), and we will just have to be patient and let the plays come to us and again not chase them. The market looks ready to take out some of the froth, and we need to be patient and let it finish. The urge is to move in a bit too quick. Keeping an eye on the stocks that have been the new leaders since the October 2002 low gives us a contemporaneous view of the market and where it has the most likelihood of resuming the move.
Support and Resistance
Nasdaq: Closed at 1912.36
Resistance: The top of the channel is just below the close (1945). 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 (1896). 1860 to 1865. The 50 day MVA (1836). The March/August up trendline (1825).
S&P 500: Closed at 1039.32
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 (1034). 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 9721.79
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 (9703). 9686 (September high) may act as some support. The 18 day MVA (9641). 9500 (June 2002 lows) is the top of the recent summer range. The exponential 50 day MVA (9485). 9353 (top of summer range). 9250 to 9236, the early June intraday high.
Economic Calendar
10-20-03
Leading Economic Indicators, September (10:00): 0.0% expected, 0.4% August.
Treasury Budget, September (2:00): $20.8B expected, $42.5B August.
10-23-03
Initial Jobless Claims (8:30): 385K expected, 384K prior.
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.
THE PLAYS:
Good movers Friday: CTCH; DCGN; ECIL; IFLO; IRM
New Plays:
Upside:
Play Date: 10/18/2003
IDT (IDT Corp.--$18.9; 0; no options): Telecom services
http://biz.yahoo.com/p/i/idt.html
STATUS: Testing the breakout. Blasted out of a 15 week base just over a week ago, surging on a wave of volume. It was a very tight, orderly base showing excellent 5 to 2 accumulation (5 up price weeks on rising volume to 2 down price weeks on rising volume). Very nice breakout from a solid base with good money flow. The base was orderly and so is the tight, quiet pullback on very low, below average volume. Tapped the 10 day MVA on the Friday low (18.76) and rebounded. Looking for it to hold this moving average and rally on rising volume.
Volume: 30.4K Avg Volume: 119.234K
BUY POINT: $19.22 Volume=175K Target=$23 Stop=$18.62
POSITION: - Stock (no option chain)
http://www.investmenthouse.com/ci/idt.html
Play Date: 10/18/2003
OLGC (Orthologic--$6.59; -0.19; no options): Medical instruments & supplies
http://biz.yahoo.com/p/o/olgc.html
STATUS: Flying plateau. OLGC made a good move up for us earlier and we booked a good gain. We always keep our eye on past plays, viewing them not as a past play but as a poetneial play that can make us money. OLGC is forming up again, being very stingy with its breakout gains. You can look at it as a move out of a short 2 month flat base or as the breakout from an 18 month cup w/handle base. Either way, the move up in early October was impressive on strong volume. The lateral move the past week has been on much lower, slightly below average trade. Outstanding money flow, accumulation, and a relative strength breakout set the stage. Now we just wait for the break higher over the recent highs.
Volume: 224.964K Avg Volume: 228.204K
BUY POINT: $6.95 Volume=342K Target=$8.38 Stop=$6.36
POSITION: - Stock (no option chain)
http://www.investmenthouse.com/ci/olgc.html
Play Date: 10/18/2003
SNCI (Sonic Innovations--$7.4; -0.37; no options): Medical appliances
http://biz.yahoo.com/p/s/snci.html
STATUS: Testing the breakout. SNIC broke higher Wednesday on a nice above average volume surge. The move took it out of a 7 week flat base sporting outstanding 4 to 0 accumulation. The modest selling Thursday and Friday was on much lower, below average volume. Looking for it to hold the 10 day MVA (7.12) and then rally back on rising volume. Strong money flow and relative strength made the breakout on the move, an indication of the move's strength.
Volume: 33.037K Avg Volume: 79.912K
BUY POINT: Test 7.12, then $7.28 on the way back up. Volume=120K Target=$9.12 Stop=$7.06
POSITION: - Stock (no option chain)
http://www.investmenthouse.com/ci/snci.html
Downside:
Play Date: 10/18/2003
ODSY (Odyssey Healthcare--$28.40; -0.92; optionable): Long-term care facilities
http://biz.yahoo.com/p/o/odsy.html
STATUS: Put. After peaking at 36 in early September after a strong 4 month run, ODSY rolled over. It fell to the 50 day MVA (29.69) and has struggled the past 4 weeks at that level. Two weeks back it tanked to 26 and then rebounded to the 50 day. It tried to make the move to retake that important point last week but failed, falling Friday on above average volume. It turned over right at the new downt trendline that has formed. Looking for further downside on rising volume.
Volume: 543.8K Avg Volume: 525K
BUY POINT: $28.18 Volume=511K Target=$25 Stop=$29.75
POSITION: UPE MF - Jan. $30p (-59 delta)
http://www.investmenthouse.com/ci/odsy.html
Continuing plays that still look good: CVM; DCEL; IFIN; NEXM; ONNN; SOFO
Play Date: 09/29/2003
CVM (Cel-Sci Corp.--$1.28; -0.03; no options): Biotechnology
http://biz.yahoo.com/p/c/cvm.html
STATUS: Testing the breakout. Call it a test or call it the handle to a 4.5 month cup with handle base. Either way it is a nice and orderly pullback to test and hold the 10 day MVA (1.26) on lower volume. Accumulation in the pattern is an outstanding 6 to 0. Super money flow and a relative strength breakout. Very nice.
Volume: 845.9K Avg Volume: 725.655K
BUY POINT: New: 1.35 (orig. $1.17) Volume=900K Target=New positions: $1.88 (orig. positions: $1.56) Stop=$1.22
POSITION: - Stock (no option chain)
http://www.investmenthouse.com/ci/cvm.html
Play Date: 09/25/2003
VSV (Vasogen--$6.19; +0.34; no options): Medical instruments
http://biz.yahoo.com/p/v/vsv.html
STATUS: Test breakout. After a two week lateral breakout test, VSV is starting the next leg higher, surging off the 18 day MVA (5.79) Friday on an excellent volume surge. Looks like VSV is ready to start the next move from its 3.5 month base breakout. Super money flow, accumulation, and solid relative strength.
Volume: 244K Avg Volume: 106.617K
BUY POINT: New: $6.22 (orig. $6.18) Volume=300K Target=$8.08 Stop=$5.75
POSITION: - Stock (no option chain)
http://www.investmenthouse.com/ci/vsv.html
End part 1 of 2
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us stock market
stock option
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