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us stock market, trade stock
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6/19/01 Stock Split Report
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Stock Split Report Subscribers:
TONIGHT:
- ORCL was nice, but investors need more convincing.
- More positive news from other companies, but investors cannot yet look past the telecoms that continue to deflate the market.
- Market struggling to gain its feet as analysts continue to try and knock it down.
- Economic news not bad, and the FFF contract drops below 50% on 50 points.
- Team Trades
THE SUMMARY
ORCL has techs racing out of the blocks, but the bears take over.
Tech stocks were revving their engines on the open, but as soon as the Nasdaq hit the 2050 level, it topped out and spent the rest of the day heading south. There was not much gas in the tank from the ORCL positive comments, and despite the rising gasoline stores in the country, the rally attempt ran out of fuel early. The rest of the session was a wheezing, sad attempt to hang on, but it was pretty clear that was not going to happen. All indexes finished well off of their session highs, continuing the bearish market action of late.
As we indicated last night, the ORCL news was very welcome and needed, but it was not going to be enough without more heavy hitters coming to the plate. We had more good news from Best Buy (BBY) the electronics chain (it beat the street by 3 cents and raised its estimates for the full year) and QWEST (Q) expects revenue to increase 12% to 13% above last quarter's revenues. Even Tellabs (TLB) warned, but it was not a horrid outlook for the future. Still, that was not enough. Investors are so negative on telecoms right now almost no news could help. There needs to be a big, heavy hitter come out in another sector to buttress what ORCL said. As we said, MU's earnings Thursday after the close and its guidance will be huge. Will it follow through on its previous guidance and say it has hit bottom? Huge, huge report.
Moreover, as if the recent earnings fear is not enough, ORCL and the market received no help from analysts. After a 70% drop in the Nasdaq it seems they have discovered that they can actually downgrade stocks. Nice thing to figure out now that most of the tech stocks trade at $20 or lower. At least their 'hard-nosed' attitude it took a bear market to develop cannot cause too much mischief. Or can it? They were smoked by the bear market with strong buys as stocks plunged lower and lower. Now they are so gun-shy they just cannot believe things could get better. We view it as the reverse effect of the unrelenting bullishness a year ago. Joe Osha, who has been one busy negative analyst of late, was out again today railing on INTC, claiming it was stuffing the channel. Of course, his evidence was all anecdotal, but that never stopped an analyst.
The thing that bothers us the most? Not the calls. While we think they are very short sighted, if it is based on his research and his real beliefs, he certainly has the right to do it. The problem: he is continually jumping in front of the camera saying 'un uh' every time some company comes out and says something positive. At some point it will be slapped back in his face just as it was when the stocks were failing and the strong buy ratings kept coming. Right now it is very difficult for the market to overcome these analysts that are jumping in front of the camera almost as much as the Fed members were doing back in the rate hiking heyday when all they could talk about was a tight labor pool and white hot economy. It is a publicity game to them, and it hurts more than it helps because it is so short sighted and for the moment. To this day I cannot eat baloney sandwiches without gagging because I had too many as a child, and I feel the same way if I ever hear the phrase 'white hot economy' again or 'stuffing the channel.' There is no such thing as a 'white hot economy' we have found out.
THE ECONOMY
Housing starts are down but up.
In yet the latest revision to government economic numbers, housing starts came in at 1.622 million annualized units versus the 1.60 million units expected. That was great, and it was also above the 1.609 million units previously reported. But, the previous numbers were revised upward to 1.629 million, so May's number was actually a decline of 0.4%. Defeat snatched from the jaws of victory. Hold on, however; April was lower then higher, and we can bet now that May will be even higher than originally thought.
Why? Because housing permits staged a surprising rebound to 1.621 million annualized (+2.1%) in May. That is a welcome change because permits had been running lower the past two months, and the uptick is what is needed to keep this remaining positive segment of the economy strong.
Next up tomorrow at 10:00 is the LEI. We think they will show an increase of at least the 0.2% the consensus expects. That has had an impact on the FFF contract as it fell below 50% probability of a 50 basis point rate cut at next week's FOMC meeting. It is close, and it will be nip and tuck as the economic news hits this week.
THE MARKET
Positive days on the Nasdaq and S&P 500, but the action was anything but positive. We are already seeing signs of what we have been talking about, however: certain tech sectors will recovery first while telecom and networking languish in the tar pit of overcapacity. We have been saying forget about those for now, but investors cannot get past the 'technology is technology' attitude. Well, that is WRONG. ORCL started to show it, SEBL will continue to show it, and we will see PSFT and BEAS say what they said last time: things are good and we are hiring. We will also see the chips come around along with IBM, MSFT and some storage names. Computers will be there eventually. We just have to get over this notion that THQI is in the same boat as TLAB.
Until that happens the Nasdaq is in technical trouble as it ran headlong into resistance at 2050 again. We had a number of stocks on the reports popping once again even as the indexes continued their bearish ways: WM, FISV, LOW, EFX, AW, BBY, GDW, KG, BAX, and JNJ all had nice moves on the session. We cannot say it enough: the strong stocks with the strong patterns tend to win out in the market. We have combed the market for these stocks because they have the attributes that market winners have.
No one believes in the market right now, and we think that a lot of people are leaving just as it is about to get better; it ALWAYS happens that way. People bailed out in April just as it turned back up for a 30% move. They are doing it now, and that tells us to get ready for another move up in the near future. We will get MU or someone come out in another sector and say 'yea, we hit bottom last quarter,' and that will ignite a move higher because the early sellers are gone and the market can move up. The sad thing is, there are plays moving higher and higher even as the big indexes move lower. If it is not CSCO, DELL, or one of the old standbys, however, some won't invest. Those people won't get into the next winners because they are living in the past, and they will only get back in after the big runs have been made. That is the cycle that repeats over and over. Even with all of the information available in the information age, human nature never changes.
Overall market stats:
VIX: 24.92; -0.91. Volatility continued to fall as the S&P mounted somewhat of a rally today, though it spent most of the session giving up what it gained early on. Gains usually drop volatility, and it did so today.
VXN: 55.24; -1.16. The Nasdaq managed a gain and that was enough to drop the volatility index, but it did hit a high of 57.38 with a half hour to go before the late 'rally' pushed it down almost to the session lows. Even volatility is volatile right now as weak move in the Nasdaq sent the volatility index down 2.20 points.
Put/Call ratio (CBOE): 0.73; +0.09. Put action was on the rise even with 'gains' on the Nasdaq and S&P 500. It remains at a level considered high, but it has yet to turn the market higher even as this indicator of fear remains at higher levels. May take a move over 1.0 on the close. With the Nasdaq looking shaky right now, it is a possibility.
NASDAQ:
Stats: Up 4.03 points (+0.2%) to close at 1992.66.
Volume: 1.984 billion shares (+27%). Big jump in volume, but even with the gain, it is hard to call this an accumulation day. The selling started after the gap higher and it took a late recovery to bring it back up positive. Down volume won 985 million to 970 million shares, showing the day was not a 'win.'
A/D and Hi/Lo: Decliners held the lead at 1.35 to 1 (2.22 to 1 Monday). New highs fell to 63 (-8) as new lows rose to 138 (+18).
The Chart: http://www.investmenthouse.com/cd/$compq.html
No picture of health here. When the Nasdaq broke down from its trading range, it made life hard for it. Today it gapped up to 2046 on the open and ran up to 2057.19 on the high. It did that in the first 15 minutes and then rolled over and sold off the rest of the session. The turning point was key as it was roughly the bottom of the trading range the Nasdaq fell out of earlier. That will act as resistance on any attempted recovery just as it did today. The Nasdaq's failure to hold onto hardly any of its gains on the good ORCL news pushes the door open wider for further weakness down to the 1961 to 1852 levels that we have discussed previously. It is trying to hold at the 2000 level, but until there is more than just one positive tech story, the downside risks are much higher in our opinion. Still, we don't think it will head to a new low. We will play the downside but this looks more like a test of the lows before another move higher. It may scare the socks off of everyone on the way down again, but we feel this will be a successful test as in past bear markets.
Dow/NYSE: Out of step again with the other indexes, the Dow sold off on solidly higher NYSE volume, notching another distribution day and making 10,400 (the bottom of its head and shoulders pattern) look like a pretty easy level to hit on the downside.
Stats: Down 48.71 points (-0.5%) to close at 10,596.67.
Volume: 1.178 billion shares (+6%). Another distribution day on the Dow, meaning that investors, and particularly the big institutions, were dumping Dow stocks. Down volume led 615 million to 543 million shares. No rout, but the sellers are in control.
A/D and Hi/Lo: Decliners continued to lead at 1.02 to 1 (1.35 to 1 Monday). New highs rose to 100 (+6) as new lows fell to 64 (-2). Note that this again indicates that the small to mid-cap stocks are performing better on the NYSE than the big names, something reflected in our reports.
The Chart: http://www.investmenthouse.com/cd/$dja.html
The Dow's less than bullish intraday action Monday led the way for today's selloff as the index too moved higher early only to roll over and spend the session selling off. High opens and low closed are classic signs of weakness, and when coupled with rising selling volume, it usually means more to come. The Dow broke below its 200 day MVA on the close, and we are looking for at least a fall to 10,400 before a bounce is made. That level is the completion of the head and shoulders patter as well as a level of a previous consolidation. 10,300 is not out of the question before the index tries again to tackle 10,750 on the upside.
S&P 500: The big caps started slow but raced ahead in the early going. They too topped out, however, hitting 1226.11 on the high and rolling over. A mid-day rally attempt failed, and the index had to rally in the last hour to close positive. Volume was higher on the NYSE, making this technically a good price/volume day, but the overall action of trading lower throughout the session is not bullish. The index is trying to hold above 1200 where it gapped up to back in April, but that is in jeopardy. Still a lot of resistance at 1232 to 1250 on the upside. It may test 1182 on the downside before it moves higher. Again, a lot depends upon what MU says Thursday, but that is two whole sessions away.
Stats: Up 4.15 points (+0.3%) to close at 1212.58.
Volume: NYSE volume was up on the session at 1.178 billion shares (+6%). A positive price/volume day, but the intraday action was again bearish.
The Chart: http://www.investmenthouse.com/cd/$spx.html
TOMORROW
An attempted bounce did not have enough juice at this point to overcome the gloom about Q2 earnings and the belief that economic recovery is not a quarter or two off, but a year off. Looking at the telecom and networking sector, that could be right. But we have to parse techs; it is not a homogeneous group as much as those on the tube like to make it out to be. Some will rise while others idle. Software and chips have been our choices for gains first, and the ORCL news helps.
Until we start seeing better moves and patterns from those stocks, we are sticking with the good patterns on those stocks that are trying to lead now. We saw good news from the brokerage houses today, and that had a spillover effect on the regional banks. We also saw good action on the retail stocks we were looking at (e.g., LOW, ANF, BBBY) as well. These are both areas that typically do well in economic recoveries, and we have seen them running up the past few days. Maybe some are thinking the economic recovery is a year off, but stocks typically look 6 to 9 months down the road, and those stocks that are economically sensitive are moving up again. They are first, and they have started working for us. The others will follow when ready. Don't let the headlines bother you; look at what is working: good patterns, good numbers, and then good sectors.
Tomorrow we expect a softer open with the TLAB news and the futures heading sharply lower on the news. But, we don't see widespread carnage tonight, so it remains to be seen how harsh the selling will be. There has still been a tremendous amount of selling of late, and the market is still oversold overall. That can always lead to a bounce higher off of potential support. We are looking at some puts on the Nasdaq and Dow, but we also know we are going to close them out on any bounce off of the support levels described below.
Support and Resistance Levels
Nasdaq: Closed at 1992.66.
Resistance: 2052 to 2077 is the bottom of the trading range. 2145 is the 50 day MVA.
Support: Now it is 1961 to 1852.
S&P 500: Closed at 1212.58.
Resistance: 1232 to 1240 are the bottoms of the trading range. Then 1250.
Support: 1200 is the next level. Head and shoulders bottom and the breakout support from the double bottom pattern is right at 1182.
Dow: Closed at 10,596.67.
Resistance: 10,750 to 10,800 where the down trendline between the January 2000 all-time high and the September high is currently (and the 50 day MVA is at 10,784.78 as well). 11,000 is possible resistance after that. Then 11,196.53 (the last top). After that, 11,350.
Support: Broke below the 200 day MVA today (10,627.02). Now 10,400 is the point of consummation for the head and shoulders pattern and some previous lows.
Weekly Economic Calendar (All times Eastern). The figures are the consensus expectations, not ours.
6-19-01
Housing starts for May (8:30): 1.622M actual versus 1.60M expected and 1.629 prior (revised upward from 1.609M).
Building permits for May (8:30): 1.621M (+2.1%) versus 1.630M expected and 1.587M prior.
6-20-01
Leading Economic Indicators for May (10:00): 0.2% expected versus 0.1% prior.
Treasury Budget for May (2:00): -$17.5B expected versus -$3.6B prior.
6-21-01
Initial jobless claims (8:30): 430,000 expected versus 428,000 prior.
Trade balance for April (8:30): -$30.9B expected versus -$31.2B prior
Current Account for Q1 (10:00): -$106.0B expected versus -$115.3B prior.
Philly Fed for June (12:00): -10.0 expected versus -8.8 prior.
TEAM TRADES
FISV alert went off at 8:33. Hit a high of 59 then pulled back to 58.90 (volume at 29,600; previous day's volume was 857,000 and the average daily volume is 1.5 million). Tested 58.70 then surged back up to 59 on volume of 38,600. Still low but the stock was ready to continue breaking out of the ascending wedge. Moved over the high to 59.12 with September $55 options 7.50 by 7.20, and those increased to 7.80 by 7.40 in next few seconds. The stock absolutely vaulted to a high of 59.60 then pulled back to 59.40 with volume continuing to rise (74,000). We decided to let it pull back and it did to about 59.10 and started back up. Based on that pullback and start back up we put in a bid on the options at 7.50 and then a stop loss on the options at 6.00. It was aggressive at that point since it was so early, but we liked the breakout and felt pretty confident (especially with a stop loss in place). Then the stock fell to 59.20 and on down to 58.90. But, that was above the previous close, and it held there after about 45 minutes until it started to move higher. We let it ride at that point.
Looked again at the stock at 3:00pm CT and reviewed the play. The drop back to test 58.65 (a dime above Monday's closing price: support) on the low would have given a better entry point on the options if a little patience had been exercised. However, the stock ran up the rest of the day anyway, from that support, increasing the breakout nicely, on above average volume of 1.9 million, just about minimum breakout volume. The stock broke resistance at 60 (December high) to hit a high of 60.22, closing at 60.09. We'll likely keep the position as long as the FISV holds up in this upper right side of the base. We will see if it forms a handle to the larger 8.5-month base.
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End Part 1 of 4
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