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world stock market, us stock market
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10/23/03 Investment House Alerts Report
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IH Alert Subscribers:
MARKET ALERTS
Targets hit alerts issued Thursday: None issued
Buy alerts issued: GEMS
Trailing stops issued: PTEK; NTPA; FLSH
Stop alerts issued: ADIC; NANO; DCEL
MARKET SUMMARY
It could have been worse.
KLAC set a negative tone for semiconductors and techs in general as its earnings report and guidance were both less than expected. The chip equipment stocks were under significant pressure, but the selling did not bleed over to many other areas. It was enough to push Nasdaq lower on rising volume, but it held the line well above the 50 day MVA and managed to move higher off its lows by the close. It looked ugly Wednesday night, but the bleeding was somewhat localized. Still, Nasdaq added its own distribution session on the heels of SP500 and DJ30, its second in seven sessions. That is not fatal by any means.
The other indexes actually looked decent. They tested lower early, holding just over the 50 day MVA, and then edged up to close near session highs and managing a positive close. Good intraday action as buyers again tested the water after a quick pullback, but the lower volume indicates it was no serious buying, just a few bargain hunters after the selling. It was not the kind of volume that shows the big money was involved, but it did show there is still nibbling on pullbacks.
Whether this has been enough downside to reset the bigger buyers' appetite remains to be seen. We would like to see more lateral and slightly lower movement over the 50 day MVA to shakeout more sellers before resuming the buying as that would set a more lasting foundation to move off of. This is still October and the seasonal patterns still exist, particularly with an earnings season holding such high expectations. Thus there could be some more downside before the year end rise starts to take hold.
THE ECONOMY
Jobless claims 386K from a revised 390K. Stabilizing near 380K.
385K were expected, so it was right on track and the third week below 400K. The 380K level is more important than 400K, because if claims are able to hold near 380K for a significant period, then we start to see more job creation. This is what we were predicting back in August and September, and as we saw, job creation started faster than we thought (we were looking for December). The 4 week average was flat at 392,250. When that cracks into the 380K to 385K, then we know jobs are being created.
Continuing claims fell again, dropping to 3.5 million from a revised 3.6 million. Many argue that this is only indicating that those without jobs are falling off the rolls and are no longer counted. That is of course true to an extent. It happens each month in an extended jobs recession. We noted that back in 2002 when there was talk of an economic turnaround. Too many indicators were not confirming any improvement even though we would see some fluctuations in the jobless claims and the continuing claims. The problem is they were just fluctuations. At this stage of the game there are trends taking shape, and the trend is the unmistakable indication of change. They need to get stronger as we have indicated, but they are shaping up nicely, and by year end they will be in good shape. Of course until we get there you will hear daily how the economy is still heading into the toilet.
Factory job loss.
It will be an extremely contested political contest in 2004 as evidenced by the intense and already volatile accusations and statements being thrown around. One that we have discussed before and one that continues to be bandied back and forth is the loss of factory jobs. The common theme is that the US is losing manufacturing jobs overseas to China and other nations with cheaper labor. We argued that was not necessarily the case, and we received a lot of email about simplistic and misguided logic. A new report, however, indicates that it is not a US factory job drain as many try to state as fact on a daily basis, but a worldwide factory job loss, China included.
As reported in IBD, a Alliance Bernstein study shows the US lost 1.95M factory jobs from 1996 to 2002. That is 11.2% of the total factory jobs in the US. China, Mexico and other nations lost 22 million jobs, equaling 11% of worldwide factory jobs. Thus while some countries may benefit a bit more than others, overall the world lost roughly 11% of all factory jobs while global output jumped 30% in the same period. As we noted before, old jobs are lost as new technology is put to work. New jobs are created as new technologies arise and require development and implementations as seen during the PC base established in the 1980's and 1990's. It happened at the turn of the century in the industrial revolution and was noted by the economists of the day as 'creative destruction.' Jobs are replaced by new technologies that ultimately lead to cheaper goods, higher standards of living, and yes, more jobs.
THE MARKET
The damage could have been worse but buyers stepped in again to pick up some lower priced stocks. Not many, but just a day after the sharp Wednesday drop they were ready to test the waters even as the semiconductors were hammered. DJ30 showed a doji over the 50 day MVA as did the SP400, SP500, Russell 2000 - - after a pullback that is an indication of possible momentum shift, particularly if it occurs over a significant level such as the 50 day MVA.
Is the market ready to move up again? With new money continually moving into funds, there is the pressure to buy. That has rallied the market back after each modest dip. In September it tested the 50 day MVA and jumped right back up ahead of earnings. Earnings have not been able to generate the push higher through resistance, so now another 50 day MVA test is in progress. Overall the earnings are good and indicate expansion. That will keep buyers in, the only question is at what price do they start piling back in. Bigger picture, we have the market rallying into earnings in anticipation of good results and now giving some of that back when rumor becomes fact. Even with a full 50 day MVA test it will still hold on to a good portion of the gain.
We would like a bit more testing at the 50 day MVA and then see stocks start to move back higher. With another week of October left that could very well happen. That still won't be a very long rest, but at least it will set up a better foundation for the next bounce higher. Technically the indexes are making higher highs and higher lows. Given the seasonal pressures and the reaction to earnings, the action is very solid. There has been distribution again as there was in August and September, but not a series of distributive sessions that leads to a bigger market drop. Thus we could see a further test of the 50 day MVA as October winds down, but it is already showing signs of preparing for the next bounces higher.
The issue that continues to bother most commentators is the 'too far, too fast' fear, and again we are seeing valuation downgrades as stocks and the market banged their heads at recent highs. After a 50 day MVA test, however, without further distribution, the market looks as if it will be ready to move back up. In a market recovery you go with what the market is showing. If investors want yellow dresses and are willing to pay two, three, or more times than what you would pay, go buy the yellow dresses and sell them to them. Setting arbitrary values at times of growth can leave you out of the action.
Market Sentiment
VIX: 17.68; +0.01
VXN: 26.09; +0.41
Put/Call Ratio (CBOE): 0.85; -0.13
NASDAQ
Gapped lower on weak chip equipment results, but held well above the 50 day MVA and recovered some of the losses though on rising volume.
Stats: -12.56 points (-0.66%) to close at 1885.51
Volume: 1.938B (+12.27%). Rising, above average volume as techs gapped lower on concerns about the future as guidance was not as strong as anticipated.
Up Volume: 617M (+238M)
Down Volume: 1.293B (-13M)
A/D and Hi/Lo: Decliners led 1.37 to 1. The downside was rather localized in chips and software.
Previous Session: Decliners led 3 to 1
New Highs: 119 (-11)
New Lows: 11 (-5)
The Chart: http://www.investmenthouse.com/cd/^ixq.html
Gapped lower but held well above the 50 day MVA (1847) on the low (1874) and rebounded some to the close. A distribution session, but not a gap lower and tank. A gap down and attempted recovery, just not a lot of power on the move back up. Thus far it looks like a typical pullback to test the uptrend after a run to the top of the channel though volume was higher. It could still fall to test the 50 day MVA and the uptrend more fully and still be in good shape. With MSFT disappointing after hours, it looks as if it will have the chance to do that.
S&P 500/NYSE
Gapped lower and then turned and finished positive on lower though still solid volume. Didn't wipe away the Wednesday action, but a good attempted recovery.
Stats: +3.41 points (+0.33%) to close at 1033.77
NYSE Volume: 1.595B (-1.83%). Volume was still above average though slightly lower as it tried to rally back from 1025.
Up Volume: 804M (+441M)
Down Volume: 781M (-462M). Very evenly matched volume.
A/D and Hi/Lo: Decliners led 1.09 to 1. Basically a dead heat.
Previous Session: Decliners led 2.24 to 1
New Highs: 115 (-11)
New Lows: 11 (0)
The Chart: http://www.investmenthouse.com/cd/^spx.html
Gapped lower to test toward the 50 day MVA (1020) but held well above that level on the low (1025.87) and rebounded back to the 18 day MVA (1035). In doing so it held over the key 50 day as well as support at 1030. Solid trade on the heels of the Wednesday distribution was a good sign; buyers were moving back in and doing so with some force on the heels of the turn lower. Still looks as if it could make a full test of the 50 day could occur given the MSFT earnings, but as we have seen, even though there has been disappointment about the future earnings, there has been no major selloff, just a reversal of some of the gains heading into earnings season. If that had happened this time last year the carnage would have been immense.
DJ30:
Stats: +14.89 points (+0.16%) to close at 9613.13
Also showing a doji that tapped toward the 50 day MVA (9514) on the low and rebounded to for a modest gain. Dow volume was lower and slightly below average (198M); no distribution, no accumulation. The move keeps it over that key support as well as 9500 and the top of the summer range. A good place to rally from as the DJ30 is still in decent shape even after the Wednesday dump lower.
FRIDAY
No economic reports tomorrow, just more earnings and the aftermath of the MSFT Q3 results. MSFT was down after hours, but as we have seen, even when some big names miss the overall market selling has not been huge. As noted, the indexes are still in what can be classified as a normal pullback after a run up to resistance. The length of the move and the time of year, however, is adding some mystique and anxiety.
We could see a further test of the 50 day MVA on the indexes before another move up is attempted. That would be the preferred course, but Thursday saw SP500, DJ30, and the smaller cap indexes all starting to edge back up after a week or so of weakness. While there was some distribution on Nasdaq and the NYSE stocks rallied on lower volume, this does not look overly pernicious to us. Some leading stocks continue to get hurt while others go about their own business. Longer term we are not too wild about the market running right back up from here as that makes the period where it ultimately does have to correct more substantially more painful to the downside. But, that will also make the downside easier to play.
That has been one of the problems of late. We have not been taking as many positions simply because not as many stocks are making moves that can hold up for the session. The indexes were banging into resistance and unable to breakout. Many stocks were doing the same thing and we wanted to see how they were closing up. In many instances we just backed off as the better part of valor. When the market gets choppy and starts to buck, it is harder to make money upside or downside. There are a lot of hedge funds the past week trying to scrape some nickels off the market, and that adds to the choppy action as the market stalls and prepares for a pullback. Instead of jumping in with both feet on each pullback or rally, we have backed off and are waiting to let the plays make the moves. If they do and they stick, we will start taking some positions. As we used to say in baseball, it has to be our pitch before we take a swing at it. The market is working off some of the froth from the run up to earnings; when it is done it will resume the trend and the frustration level will decline.
As you guessed, it remains a market of individual plays while it works off the run into earnings. Thus we will continue to look at plays that have gone about their business while the market thrashes around, and if they make the moves we want to see and can hold onto them, we will make the move as well. As for existing plays, if a stock is hold support we will let it ride as the market looks to be setting up for a bounce back. If it breaks key support and cannot recover within a session or two, we will close it down because an individual stock can always outpace the market up or down.
Support and Resistance
Nasdaq: Closed at 1885.51
Resistance: The 18 day MVA (1901). The near top of the channel (1955). The second, higher channel hit in September is at 1975ish. Then 2000 to 2050, the early January 2002 double top.
Support: 1860 to 1865. The 50 day MVA (1847). The March/August up trendline (1844).
S&P 500: Closed at 1033.77
Resistance: The 18 day MVA (1035). 1040, the September highs. 1054 (October highs) and 1058 (the August/September up trendline). 1050 and 1080 from February 2002 lows. 1100 to 1150, the early 2002 double top.
Support: 1030 to 1032 (early September highs). The exponential 50 day MVA (1020). The top of the summer range at 1015. 1010 the early September highs. 975 (December 1997 peak).
Dow: Closed at 9613.13
Resistance: The 18 day MVA (9653). 9686 (September high) may act as some resistance. 9800 (April and May 2002 lows) pushed it back again. 10,000 is the candle that attracts the moth.
Support: 9588 the early September highs. The exponential 50 day MVA (9514). 9500 (June 2002 lows) is the top of the recent summer range. 9353 (top of summer range). 9250 to 9236, the early June intraday high.
Economic Calendar
10-20-03
Leading Economic Indicators, September (10:00): -0.2% actual, -0.1% expected, 0.4% August.
Treasury Budget, September (2:00): $26.4B actual, $25.0B expected, $42.5B August.
10-23-03
Initial Jobless Claims (8:30): 386K actual, 385K expected, 390K prior (revised from 384K).
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:
New Plays:
Upside:
Play Date: 10/23/2003
AMSWA (American Software--$5.95; -0.06; no options): Application software
http://biz.yahoo.com/p/a/amswa.html
STATUS: Testing the breakout. Coming back on very low volume the past two sessions, testing the breakout from a 12 week cup base. Accumulation is a strong 5 to 2 (5 up price weeks on rising volume to 2 down weeks on rising volume) and a relative strength breakout on the move. Nice, orderly pullback. May come back further to test the 10 day MVA (5.64) before resuming the move, but AMSWA is right over the August high and at a good point to rally.
Volume: 110.268K Avg Volume: 119.909K
BUY POINT: $6.12 Volume=150K Target=$7.45 Stop=$5.62
POSITION: - Stock (no option chain)
http://www.investmenthouse.com/ci/amswa.html
Play Date: 10/23/2003
ESPR (Esperion Therapeutics--$22.44; +1.28; optionable): Generic drugs
http://biz.yahoo.com/p/e/espr.html
STATUS: Breakout. After forming a nice three week handle that tested the 50 day MVA (18.95) last week, ESPR shot higher on a nice volume surge. A quick gap down to the 10 day MVA (20.54) Wednesday in the market selling set the stage for a resumption of the breakout move. Excellent 4 to 1 accumulation in the 14 week cup with handle base. Nice action and a relative strength breakout gives the move a great foundation.
Volume: 798.8K Avg Volume: 390K
BUY POINT: $22.66 Volume=600K Target=$27.25 Stop=$21.07
POSITION: SPU DX - April $22.50c (57 delta) &/or Stock
http://www.investmenthouse.com/ci/espr.html
Play Date: 10/23/2003
LOUD (Loudeye--$2.46; +0.15; no options): Internet software and services
http://biz.yahoo.com/p/l/loud.html
STATUS: Flat base. LOUD is getting ready to make the breakout from its 14 week base sporting excellent 4 to 1 accumulation. Tuesday volume spiked up as LOUD started the move but got sidetracked in the Wednesday selling. A quick test of the 18 day MVA (2.25) and it was ready again, rallying Thursday on lower though still above average volume. Looking for the breakout move to continue and follow that strong money flow higher.
Volume: 2.995M Avg Volume: 2.431M
BUY POINT: $2.64 Volume=3.6M Target=$3.45 Stop=$2.46
POSITION: - Stock (no option chain)
http://www.investmenthouse.com/ci/loud.html
Play Date: 10/23/2003
TXN (Texas Instruments--$27.31; +0.3; optionable): Semiconductors
http://biz.yahoo.com/p/t/txn.html
STATUS: Test breakout. TXN announced excellent earnings and guidance Monday and gapped higher. This market pullback the rest of the week was perfect for a test, and TXN came back to fill the gap and then started higher Thursday on strong trade. The fact that it ignored the tech sector and the troubles in the chip equipment sector shows its underlying strength. Ready to move in on a further rally on volume.
Volume: 21.897M Avg Volume: 11.934M
BUY POINT: $27.62 Volume=18M Target=$33.15 Stop=$25.96
POSITION: TXN AY - Jan. $27.50c (52 delta) &/or Stock
http://www.investmenthouse.com/ci/txn.html
End part 1 of 3
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world stock market
us stock market
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