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world stock market, us stock market
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10/28/03 Investment House Alerts Report
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IH Alert Subscribers:
MARKET ALERTS
Targets hit alerts issued Tuesday: None issued
Buy alerts issued: NVLS (bonus); ONNN
Trailing stops issued: TTP
Stop alerts issued: IRM; SIRI; TLCV
MARKET SUMMARY
Stocks get what they want from the Fed.
As is typical in an uptrend, stocks drifted higher ahead of the FOMC meeting. There were some good individual moves prior to the announcement and overall the market was showing good action as the chips led the way on some bullish news (Japan orders sharply higher, TSM ready to invest in equipment, worldwide sales revised higher). At 2:15ET the Fed announced rates were unchanged, that spending was firming, and the labor market stabilizing, but there was still a lack of pricing power and consumer prices were still muted. Thus it felt that the risk of inflation remaining low continued as the primary threat and that the Fed would be maintaining its accommodative stance for 'a considerable period of time.'
Talk about getting what you want for Christmas. The market hesitated for about a half hour as it digested the message and turned it over a few times to see if there were any 'buts' or hidden surprises. Finding none, buyers swarmed all over stocks. Breadth had waned heading into the meeting, but it reversed and closed easily over 2:1. Volume shot over 2B on Nasdaq. Buyers jumped on and rode stocks hard into the close. There was a veritable perfect storm of good news that hit the market. It was poised for the bounce we have been writing about the past few reports, and when it got what it wanted the upside move almost left wind burns.
THE ECONOMY
Durable goods solid, business spending surges.
September orders rose 0.8% versus 1.0% expected. Take out transportation and they rose 1.2% versus 0.7% in August. Not bad numbers, but because this is such a volatile number month to month, the proof is in the revisions. August was revised sharply higher. A 1.1% initial report was almost erased with a revision to -0.1%. Ex-transportation, 0.7% versus the -0.3% originally reported. Again, strong positive revisions show the trend is rising and still gaining strength despite taking a breather.
The real meat of the report was not the headlines, however, but the business side of the equation. That was the missing link from March 2000 until the recovery started, and the September report was more verification that the business recovery is continuing despite the cautious outlooks by CEO's. As we have noted, they are hemmed in by Regulation FD, shareholder lawsuits, Sarbanes-Oxley. Thus they are more inclined to wait until the last minute to say things are good (e.g., INTC) and to let the numbers do the talking when they report results.
The non-defense capital goods portion of the durables report, however, does a lot of talking itself. It rose 3.9% in September after a -0.1% August showing. Orders for computers and electronic equipment jumped 2.6% over Augusts 2% gain. After the August lull, businesses continued to grow their spending. It is not incredible surge that some seem to think would be the only herald of recovery, but a solid, steady gain almost every month. Moreover, contrary to popular thought, we believe the gains will increase as we head to year end as businesses buy to take advantage of all available tax incentives before the year is over.
This stronger business spending and potential year end rush combined with what is starting out as an early strong consumer holiday season indicates to use that the Q4 GDP projections of just 3% growth is much too modest.
Consumer confidence firms up, starting to match actions.
October confidence rallied to 81.1 from a revised 77.0 (from 76.8) in September, much better than the 79.3 anticipated. We have noted all along that consumer actions were much stronger than what they were saying in the polls. Think of it along the lines of the CEOS; they are typically cautious but that does not stop them from going about business. Expectations (6 months ahead) rose to 90.7 from 88.5. Present conditions leaped to 66.8 from 59. Big jumps indeed and still below the levels they should be based on the consumer activity we see in the economy.
Chain store sales slow year over year, but stronger to start October.
Redbook reported a 3.3% year over year gain (3.5% the prior week), but October sales are up 1.1% over a strong September where back to school sales were the best in years. The BTM survey showed a weekly drop of 0.9% and BTM dropped its October projections to a 2.5% gain year over year from 3%. It cites warmer weather as the problem. That warmer weather, however, is spurring sales of lots of outdoors goods. We think BTM is underestimating the buying, but it has done that before as well.
The California fires are going to be more of an impact as CA is a big part of the US economy and the fires are around heavy population centers. Fighting fires and fleeing for your life makes you put things into perspective, and going to the mall is not the priority for those poor folks. Our sources in CA say there is quite a bit of discussion regarding terrorism causing the fires as one of Al Qaida's plans was to set fires in the US. The number and location of each does raise questions.
Japanese chip orders surge 29%.
In addition, TSM, one of the big chip makers, said it was going to make significant capital investments in 2004. The semiconductor association raised its estimate for worldwide chip sales. With this bounty of good news, SOX shot higher Tuesday. These reports are the logical conclusion from the action of the various world stock markets that have picked up steam across the globe. They forecast this news, but it is very good to see the data come in to back up what stocks have told us.
THE MARKET
When stocks got the trigger, the pullback to the 50 day MVA was over. Stocks surged, breaking near support and then moving through the September highs with ease. Volume jumped, breadth expanded, leaders were surging and breakouts were widespread among small, mid-cap, and large caps. The market was poised to make the move, the leaders were out in front, and the catalyst came from the FOMC as investors did not wait for the Thursday GDP report.
Market Sentiment
Typically the talk regarding sentiment focuses on the individual investor, but it also looks at market analysts and advisors. It was interesting to note that practically every analyst on CNBC and Bloomberg has been 'bullish longer term but cautious near term because stocks have gone too far too fast.' As we stated the past several reports, however, the market was showing signs of another move higher. Maybe it is extended, maybe it does need a longer rest, but after testing the 50 day MVA it was showing signs it was ready to move. Another contrary indicator we suppose, but the market was showing it wanted to make the move even as many ignored those signs and relied on their gut feelings about valuation.
VIX: 16.82; -1.23
VXN: 25; -1.12
Put/Call Ratio (CBOE): 0.75; +0.11
NASDAQ
Up all day, Nasdaq gapped higher, ran through the 18 day MVA, and then surged past the September highs on very strong trade. Very solid action.
Stats: +49.35 points (+2.62%) to close at 1932.26. Outstanding session.
Volume: 2.092B (+37.23%). One of the top volume sessions of the month.
Up Volume: 1.495B (+398M)
Down Volume: 572M (+179M)
A/D and Hi/Lo: Advancers led 2.43 to 1. The kind of breadth you like to see.
Previous Session: Advancers led 1.91 to 1
New Highs: 294 (+101). Keeping an eye on this. Not a bad reading even though Nasdaq is well off of its highs.
New Lows: 6 (-4)
The Chart: http://www.investmenthouse.com/cd/^ixq.html
Nasdaq gapped up to the Monday intraday high, ran through the 10 and 18 day MVA and then the September high (1914). It hesitated after the FOMC announcement, but surged to the close, racing like a thoroughbred under the whip. Suddenly Nasdaq is looking at the first upper channel line (1960), the October high (1967), and the upper channel line (1978) as points it will rally to. From there it will either launch into a surge to year end that could leave it extremely vulnerable to a major correction, or it will again bounce down from one of those resistance points as it continues to work in its uptrend.
S&P 500/NYSE
Took out the September high on the best volume in two months. It held over the summer consolidation range, made a higher low, and blasted off.
Stats: +15.66 points (+1.52%) to close at 1046.79
NYSE Volume: 1.625B (+19.79%). Huge volume surge as large and small caps rallied well.
Up Volume: 1.227B (+365M)
Down Volume: 390M (-92M)
A/D and Hi/Lo: Advancers led 2.16 to 1. Solid back to back breadth.
Previous Session: Advancers led 2.07 to 1
New Highs: 307 (+112). Solid as well even before new highs are hit.
New Lows: 9 (-1)
The Chart: http://www.investmenthouse.com/cd/^spx.html
SP500 has kept its accumulation pattern intact, holding over the summer consolidation range, making a higher low over the 50 day MVA, then blasting higher through the short term MVA and the September high (1040). As with Nasdaq, SP500 is suddenly looking again at the next potential resistance points. October high at 1054 and an upper channel at 1065ish. There are some early 2001 lows at 1100. Then the real resistance, however, comes at 1150 to 1175, the early 2002 double top. On any rally through the end of the year, that is going to be the real point where the index has to take a sustained consolidation. For the short term, the Tuesday session clearly telegraphed that the move that started Friday is for real.
DJ30:
Stats: +140.15 points (+1.46%) to close at 9748.31
Almost a carbon of the SP500, surging on volume after the Friday test of the 50 day MVA following the MSFT earnings. That the market shook off the MSFT earnings so quickly and broke near resistance with such force is a good indication that it has its feet under it after 4 months of basically lateral movement. It has more upside room, as does SP500, than Nasdaq that has led the market up to this point. The October highs are some resistance (9850), but if there is any sustained buying at all, 10,000 is the level that will act as a beacon for the Dow.
WEDNESDAY
Encore anyone? After the solid economic news and FOMC gift that helped spur the Tuesday action, Wednesday appears to be rather quiet. Some disturbing action after hours in the leading foreign internet stocks, however, shows this is never an easy ride. NTES reported softer mobile messaging hurt its overall earnings and the stock was getting stomped after hours. SINA and SOHU just reported strong mobile messaging in their earnings and thus it may be a NTES specific problem. The conference call was not held as of this writing, so no explanations or mitigation from the company as yet. We always keep an eye on the leaders, and this triumvirate were early leaders in this recent bounce. Most likely they will not sway the overall market, but it takes some of the polish off of what would have been a remarkable day.
Again, the indexes have gone from trying to put together a bounce to confronting the next resistance levels once again. There is strong backing based on the volume, breadth, and leadership Tuesday. We will watch how the internets react as well as other items such as new highs as the indexes approach the October highs. We want to see them jump back up; with the solid breadth demonstrated this week that should be the case.
We were moving into positions Friday and Monday, taking advantage of moves that were showing up during the uncertainty and analyst comments about coming 'too far too fast.' Those positions along with existing positions had us well positioned for this move. We entered more plays Tuesday as well as stocks broke out. Now the question is whether we continue to buy after this move or back off and let positions run.
We see many stocks we have been following in patterns making solid breakout moves Tuesday and are still in good position having just cleared the buy point. We will be looking at those on Wednesday. After that we will be looking for breakout tests over the next week as this move loses some steam and the early breakouts come back for their tests.
Support and Resistance
Nasdaq: Closed at 1932.26
Resistance: The near top of the channel (1960). October high (1967). The second, higher channel hit in September is at 1978. Then 2000 to 2050, the early January 2002 double top.
Support: The September high (1913). The 18 day MVA (1900). 1860 to 1865. The 50 day MVA (1852). The March/August up trendline (1850).
S&P 500: Closed at 1046.79
Resistance: 1054 (October highs) and 1061 (the August/September up trendline). 1050 and 1080 from February 2002 lows. 1100 represents some early 2001 lows. 1150 to 1175, the early 2002 double top.
Support: 1040, the September highs. The 18 day MVA (1035) and 10 day MVA (1037). 1030 to 1032 (early September highs) is still not totally broken. The exponential 50 day MVA (1022). The top of the summer range at 1015. 1010 the early September highs. 975 (December 1997 peak).
Dow: Closed at 9748.31
Resistance: 9800 (April and May 2002 lows) pushed it back again. 10,000 is the candle that attracts the moth.
Support: 9686 (September high) may act as some support. The 18 day MVA (9653). 9588 the early September highs. The exponential 50 day MVA (9529). 9500 (June 2002 lows) is the top of the summer range.
Economic Calendar
10-27-03
Existing Home sales, September (10:00): +3.6% (6.69M actual), 6.30M expected, 6.47M August.
New home sales, September (10:00): -0.2% (1.145M actual), 1.125M expected, 1.150M August.
10-28-03
Durable goods orders, September (8:30): 0.8% actual, 1.0% expected, -0.1% August (revised from -1.1%).
FOMC meeting (2:15): No change (1% Fed funds rate), risk weighted toward lack of inflation, rates to be kept accomodative for a considerable time.
10-30-03
Initial jobless claims (8:30): 385K expected, 386K prior.
Employment Cost Index, Q3 (8:30): 0.9% expected, 0.9% prior.
GDP, Advanced, Q3 (8:30): 6.0% expected, 3.3% Q2.
Help wanted index, September (10:00): 38 expected, 37 August.
FOMC minutes (2:00)
10-31-03
Personal income, September (8:30): 0.2% expected, 0.2% August.
Personal spending, September (8:30): -0.1% expected, 0.8% August.
Michigan sentiment, revised for October (9:45): 89.5 expected, 89.4 in September.
Chicago PMI, October (10:00): 55.4 expected, 51.2 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.
THE PLAYS:
New Plays:
Play Date: 10/28/2003
VAR (Varian Medical Systems--$61.52; +0.78; optionable): Wholesale medical equipment
http://biz.yahoo.com/p/v/var.html
STATUS: Cup w/handle. VAR is forming the handle to a 14 week base sporting solid 4 to 2 accumulation (4 up weeks on rising volume to 2 down weeks on rising volume). Nice accumulation and the handle is where the last sellers are shaken out as the stock approaches the old high and then fades back on low volume. They get concerned it is going to crash back down and bail out. When they are gone there are no more sellers and the stock then makes the breakout on the next catalyst. That catalyst may be earnings that were reported after the close; VAR beat by 2 cents and guided higher for next quarter. This stock made us some great money after breaking out in mid-2002 and surging into July 2003. It then broke down and formed the current base that has acted to consolidate that strong upside run to this point. Now we just be patient and wait for it to blast higher on a strong volume breakout.
Volume: 531.3K Avg Volume: 719.818K
BUY POINT: $62.35 Volume=1.1M Target=$72 Stop=$59.94
POSITION: VAR BL - Feb. $60c (62 delta) &/or Stock
http://www.investmenthouse.com/ci/var.html
Play Date: 10/28/2003
ILXO (Ilex Oncology--$20.85; +0.58; optionable): Medical labs
http://biz.yahoo.com/p/i/ilxo.html
STATUS: Double bottom. IXLO is trying to make the breakout from a 17 week double bottom pattern with strong 7 to 3 accumulation. It made one low in August, rallied up to 20, and then made the second low in late September before rallying back up. That makes the signature 'w' pattern where the sellers are shaken out by the violent up and down moves in the pattern. Now that it is back up at the 'hump' in the middle of the pattern it will either breakout from here on strong trade or it will slide laterally for several sessions and then make the strong breakout. Either way it is a solid pattern and we are going to wait patiently and let it develop.
Volume: 384.624K Avg Volume: 461.863K
BUY POINT: $21.42 Volume=692K Target=$25.75 Stop=$19.72
POSITION: IUE BD - Feb. $20c (62 delta) &/or Stock
http://www.investmenthouse.com/ci/ilxo.html
Play Date: 10/28/2003
OPSW (Opsware--$8.55; +0.21; optionable): Internet software
http://biz.yahoo.com/p/o/opsw.html
STATUS: Ascending triangle. Working on the breakout from a 6 week pattern showing solid 2 to 0 accumulation. It is making a series of higher lows along the 18 day MVA (8.07) with a constant top at 9. Volume has shown some good spikes on upside sessions the past two weeks, something we call 'get ready' spikes because they tell us to 'get ready' for a move. One of those showed up Tuesday. Good money flow leading higher, and we are looking for the stock price to follow.
Volume: 1.547M Avg Volume: 862K
BUY POINT: $8.88 Volume=1M Target=$10.72 Stop=$8.17
POSITION: UWA DU - Apr. $7.50c (70 delta) &/or Stock
http://www.investmenthouse.com/ci/opsw.html
End part 1 of 2
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world stock market
us stock market
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