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us stock market, trade stock
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11/06/03 Investment House Daily
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Investment House Daily Subscribers:
MARKET ALERTS:
Target hit alerts issued Thursday: None issued
Buy alerts issued: ALGN; OEX (alert bonus)
Trailing stop alerts: None issued
Stop alerts: WFII
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. To subscribe to the Daily alert service you can sign up at the following link:
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SUMMARY:
- Another afternoon surge rescues a lackluster session.
- Weekly jobless claims tank, 4-week average hits 380K, retailers post solid October sales.
- Bullish session, but indexes need good jobs report to continue move to top of range.
Volume rallies in afternoon as do stock prices.
The good news platter was full with Cisco's and QCOM's earnings, weekly jobless claims plunging, productivity rising, and October retail sales strong. The market, however, was reluctant to take the bait ahead of the Friday jobs report. It traded nervously all morning and through early afternoon, but never broke support. After lunch that resilience turned into a rally as some shorts covered up early positions and some buyers moved in ahead of the jobs report. The spread on the jobs report is huge. Estimates are from the 65K consensus to over 200K; that has the bond traders as a long-tailed cat in a room full of rocking chairs. That is why there were as many shorts covering Thursday afternoon as buyers looking to get in before a potentially big number.
Volume was up on Nasdaq and NYSE, again part covering and part buying. Breadth was only modestly positive, another indication it was some covering up of big names driving a lot of the action. No major breakout, just an affirmation of the market resilience due to new cash continually moving into equities. That keeps the market buoyant on each dip. It cannot last forever, but there is nothing yet to bring stocks lower as the economic data comes in stronger than expected, prompting more money to chase gains into the year end.
THE ECONOMY
Weekly jobless claims fall to 348K.
Expectations were low at 380K, but the bottom is starting to fall out on the claims, and it can no longer be blamed solely on unemployed workers falling off the rolls. Importantly, the 4-week average hit 380K; that is the level we earmarked as the point where job creation would start in earnest. It already started in September before it hit that level, indicating there could be that strong upside surprise in the non-farm payrolls. 200K? That is a stretch. Solidly over 100K is not.
Many scoff at the idea, but for four months temporary worker hiring has been surging. We noted 5 months back that temporary hiring was running in excess of 100% ahead of where it was back in the 1991 'jobless' recovery. We want to emphasize again, the recovery did not start when the textbook thumping, Phillip's Curve worshipping economists said the recession was over back in 2001. A recovery does not start until the stock market bottoms because stock prices are the ultimate compilation of all economic data. In addition, they look forward at least 6 months.
Thus not until the market bottomed in October 2002 did the economy have a chance of doing the same, and then not until about six months later. Low and behold that was about the time we went into Iraq. The market again started to surge in April, and that was when the economy turned as well. At the time we detailed the similarities with the 1991 Gulf War and how this market rally and economic recovery were falling into place with remarkable similarity. The economy is making the turn at an even faster pace this time given the tax cuts providing additional stimulus. It is happening a bit faster in the election cycle than in 1991-1992, and the economy will be taken from a negative to a positive campaign issue in 2004 if not sooner. Indeed, the claimed 2 million plus job losses could have been cut by over one-third or more before the fall election.
Productivity surges.
8.1% in Q3, below expectations of 8.5%, but sharply higher than even the 7.0 (revised from 6.8%) in Q2. Incredible gains in productivity ultimately result in a better standard of living. Despite all we have heard about how productivity is preventing job creation, we are going to see job creation nonetheless as jobs arise from new industries or new applications that arise as a result of the strong productivity and technology gains.
Retail sales overall strong even in a typically slow month, dragged down by the same areas that have lagged the pack for three years.
October sales scored a strong 3.3% gain, much better than expected and indicating that the consumer continues in a very enthusiastic mindset heading into Q4. This is what our surveys showed even though somehow the retail analysts with all the resources and whose job it is to track this were much too low. Their problem is they look at department stores, again laggards, and draw conclusions that the consumer is just not that strong because they have not flocked back to department stores. That is not the case. JCP has enjoyed overall strong sales because it has changed its MO. More importantly, consumers have made the switch to discounters that have sprung up in just about every retail sector. It is a change in the mindset. Not 100%, but there is a definite, quantifiable bias just looking at the sales. TGT was below plan because drag from its department stores, not its Target brands.
In the bigger picture, sales were solid. WMT, the leading retailer and discounter, posted 4.5% sales growth. Solid. Leading the way: its Sam's Club stores. Those cater to small businesses, and as in the previous three months they are showing the strongest gains. Same at Costco and BJ 's Wholesale Club. In sum, retail sales are off to a strong start in a traditionally SLOWER period between back to school buying and holiday shopping. A lot of the analyst whining we heard today will be gone when they see the holiday results.
Greenspan gives the economy, market, and even President Bush a boost.
We were puzzled to hear some of the spin regarding Greenspan's address to the securities conference Thursday morning. Some were saying Bush would not like what he heard. What Greenspan said was things looked pretty damn good, the economy was rallying, employment was recovering, and there was no hint of inflation. He indicated that the Fed could let things run for quite some time without starting to raise rates. Clearly he wants to continue the message to the market and the economy that the Fed wants to keep things growing, not slowing.
We all know the Fed will start to raise rates next year, but it is saying that it is going to follow the natural rise of rates and not lead them. It is saying it likes what it sees in the recovery and that it does not need to be pre-empted as it has felt necessary in other economic expansions. Hopefully the Fed will stick to its word and not waffle as it did in 1998 and 1999 when it changed from a market respecting Fed to a Barney Fife Fed, scared of its own shadow.
That was a key element of the address. Another was the clear, 100% affirmation of the tax cuts and their benefit to the economy. Greenspan said:
"Tax rate increases of sufficient dimension to deal with our looming fiscal problems arguably pose significant risks to economic growth and the revenue base. The exact magnitude of such risks are very difficult to estimate, but they are of enough concern, in my judgment, to warrant aiming to close the fiscal gap primarily, if not wholly, from outlay restraint. At the same time, the dimension of the challenge, especially in later years, cannot be underestimated. The one certainty is that the resolution of this situation will require difficult choices, and the future performance of the economy will depend on those choices."
Even for Greenspeak that was clear: raise taxes and you put the economy and the recovery at grave risk. Even talking about it puts strain on the recovery that depends so much upon businesses being confident in the tax incentives in coming years to go ahead and make those investments so necessary to continue the recovery. Congress and the US public need to hear this message. Bush needs to hear the message and stop promoting so much spending and new entitlement creation that will dog the economy for the next 50 to 75 years. It is time to take all new spending off the table and then conduct reviews of all current programs. A mandatory 25% reduction in funding for each program should be the starting point. We have finally found something we can agree with Greenspan on. Has anyone checked to see if hell froze over?
THE MARKET
Bullish action in a narrow range as the market set up for the Friday jobs report. It tipped its hand as expecting a better than expected payroll number as shorts were covering 'just in case' and buyers were buying to take a flyer on a possible quick windfall on a big number. It combined to put together a very respectable session though still in the top end of the range.
That is the real concern heading into the jobs number. If it is a blowout to the upside the markets will rally, but will the rally hold this time? Or, more appropriately, will the rally run up to the top of the channel before faltering instead of the intraday reversals we have seen so often that undercut the move before it starts. That is the major risk we see in the market: its own success to this point, driven by more new money chasing results.
Market Sentiment
VIX: 16.74; -0.12
VXN: 25.35; +0.15
VXO: 17.58; +0.02
Put/Call Ratio (CBOE): 0.77; +0.08. Put activity rose on an up session, an indication that some of the shorts were clearing out positions ahead of the jobs report. Even the shorts are getting convinced the economic numbers are going to continue to be stronger than expected.
NASDAQ
Nasdaq cleared the October high on the close and nears the first upper channel line, moving on a very solid volume surge.
Stats: +17 points (+0.87%) to close at 1976.37
Volume: 2.154B (+5.95%). Very solid volume on the late rally higher. Not all buying as shorts were covering ahead of the jobs report.
Up Volume: 1.49B (+441M)
Down Volume: 642M (-271M)
A/D and Hi/Lo: Advancers led 1.39 to 1. Very modest volume on the move, indicating there was significant short covering helping drive the index higher.
Previous Session: Advancers led 1.02 to 1
New Highs: 368 (+56). Very weak new highs as the index hit a new 52-week high. This indicates less strength on the move than the price and volume suggest.
New Lows: 9 (0)
The Chart: http://www.investmenthouse.com/cd/^ixq.html
After another test lower early that held well above near support at the 10 and 18 day MVA (1944, 1929) reversed and turned into a respectable gain on solid volume. Nasdaq easily pushed past the October high (1966.87) and moved in toward the first upper channel line (1985) and the second upper channel line (2015) that acted as resistance the prior three bounces. Clearly Nasdaq is closer to the top end of this move than the start, and that limits the upside if current trend is going to hold. The Nasdaq could start a more rapid assent from here and break through the upper channel. That type of move would provide great short term gains, but longer term would set up a hard fall. Nasdaq will need a correction even at the current pace of ascent; if it picks up the pace that will make the correction more imperative and ultimately more unsettling.
That, of course, is putting the cart before the horse for lack of a better clich . The jobs report is not out yet, and even if it is good news, each big jump on economic news has reversed. Good jobs news is the type of data that should push the market higher if it is going higher as it is the last remnant of concern before the other concerns about higher interest rates kick in. In any event, given where Nasdaq is now in its channel, this is the type of analysis we have to apply to the subsequent moves.
S&P 500/NYSE
Another tap of the 18 day MVA and a nice gain on rising, above average volume.
Stats: +6.24 points (+0.59%) to close at 1058.05
NYSE Volume: 1.406B (+3.97%). Back to above average trade as the large caps put together another accumulation session as they held the October high breakout.
Up Volume: 909M (+227M)
Down Volume: 496M (-159M)
A/D and Hi/Lo: Advancers led 1.4 to 1. Not a banner day for all stocks with many rallying, many falling, and many just holding on.
Previous Session: Advancers led 1.03 to 1
New Highs: 353 (+77). Not the new bumper crop of new highs seen on Monday when the index plowed some new ground.
New Lows: 11 (+2)
The Chart: http://www.investmenthouse.com/cd/^spx.html
The large caps are in better shape as far as where they are in terms of their chart. After a summer consolidation they have worked higher, using the 50 day MVA (1030) as support to make higher lows and move toward a breakout. It has a sound foundation and has taken its time making the move higher. It showed solid accumulation sessions on the way up to the Monday break over the October high (1053.79), it eased back on lighter volume, and then started back up Thursday on stronger trade. The summer base set a good foundation for a further move. This would require, of course, for SP500 to exert some leadership, something it has left up to Nasdaq and the smaller cap indexes. If those turn down, money could easily rotate into the large caps that have lagged. They certainly have the foundation to make such a move.
DJ30:
Stats: +36.14 points (+0.37%) to close at 9856.97
Once again the Dow sits pretty, holding over the October high (9850 intraday, 9812 closing), tapping support intraday and bouncing back for a modest gain. Again there was no volume (183 million, well below average), but it was not a day of big advances for DJ30. it was on hold, setting up for a move higher on a positive jobs number. As with SP500, DJ30 has a solid summer consolidation and a modest though steady move up the 50 day MVA (9600). After struggling higher, it is poised to make a more dramatic move on the jobs data. As with SP500, however, that would require it taking a leadership role as Nasdaq does not, at least within the current trend, have a lot of room ahead of it. DJ30 looks like a good shot toward 10,000 on solid jobs news.
FRIDAY
It is safe to say the market will key off of the jobs report released 1 hour before the open. It is not all that safe to say where it goes from there even if the news is better than expected job creation. If it is solid creation, the market will in all likelihood rally, but it has shown a bad habit of reversing early rallies based on economic data. If there is big job creation, however, you could view this as the mother of all economic reports to date as the last impediment to a lasting recovery would be at a minimum undermined. If that is correct the market should be able to rally and hold onto the gains.
Then the issue is how far it can go. We have outlined the resistance points on Nasdaq as very likely limits to a run unless it takes off on a new, more ballistic rise. Then we have to deal with the early 2002 highs from 2050 to 2075, a real roadblock to technology gains. That index is getting extended, and a rally up to that resistance from this level sets up a much hard correction. We cannot, however, fear to take what the market gives and make money on that run even if we feel it is going to end a bit harder than otherwise. We just have to be ready and take what the market gives us, getting out if it rolls over on distributes after such a run.
In the event of a strong jobs number we are not banking on the same type of reversal we have seen on the other reports leading up to this one. Thursday we saw stocks heading both directions with equal vigor, something attributable to the uncertainty heading into the jobs report, but something to watch as well. Looking at the stocks hit hardest, mostly it had to do with earnings, but there were several smaller cap stocks and that could suggest some of the rotation we discussed above. That is not bad for the market, but it can be hard on those stocks rotated from. Thus we have to say alert to the volume on those stocks, and we have raised many stop points behind the rise in prices this week.
We will continue to invest in stocks making breakout moves and rebounds from pullbacks and adding to winners, but if there is a huge updraft in the morning we won't necessarily be chasing stocks higher so far into this move. We will see if they test back, hold, and then start back up. Some will make the test, some won't. We will move into those that give us the good entry point and otherwise enjoy any rally with our existing positions. If there is a rally and selloff, we will enforce the raised stop points we have set to preserve gains and capital.
Support and Resistance
Nasdaq: Closed at 1976.37
Resistance: The near top of the channel (1985ish). The second, higher channel hit in September is at 2015ish. Then 2050 to 2075, the early January 2002 double top.
Support: October high (1967). The 10 day MVA (1944) held Wednesday. The 18 day MVA (1929). The September high (1913). The 50 day MVA (1877). 1860 to 1865. The March/August up trendline (1868).
S&P 500: Closed at 1058.05
Resistance: The December to June upper channel line at 1068ish. 1050 and 1080 from February 2002 lows. 1100 represents some early 2001 lows. 1150 to 1175, the early 2002 double top.
Support: 1054 (October highs). The 10 day MVA (1049) and the 18 day MVA (1045). 1040, the September highs. 1030 to 1032 (early September highs). The exponential 50 day MVA (1030). The top of the summer range at 1015. 1010 the early September highs. 975 (December 1997 peak).
Dow: Closed at 9856.97
Resistance: The October high (9850) is not totally broken. 10,000 is the candle that attracts the moth.
Support: 9800 (April and May 2002 lows). The 10 day MVA (9790). The 18 day MVA (9746). 9686 (September high). The exponential 50 day MVA (9600). 9588 the early September highs. 9500 (June 2002 lows) is the top of the summer range.
Economic Calendar
11-03-03
ISM Index, October (10:00): 57.0 actual, 55.9 expected, 53.7 September.
Construction spending, September (10:00): 1.3% actual, 0.4% expected, 0.7% August (revised from 0.2%).
11-05-03
ISM Services, October (10:00): 64.7 actual, 63.4 expected, 63.3 September.
Factory Orders, September (10:00): 0.5% actual, 0.6% expected -0.3% August (revised from -0.8%).
11-06-03
Productivity, Q3 (8:30): 8.1% actual, 8.5% expected, 7.0% Q2 (revised from 6.8%).
Initial jobless claims (8:30): 348K actual, 380K expected, 391K prior (revised from 386K).
11-07-03
Non-farm payrolls, October (8:30): 65K expected, 57K September.
Unemployment rate, October (8:30): 6.1% expected, 6.1% September.
Hourly earnings, October: 0.2% expected, -0.1% September.
Average workweek: 33.8 expected, 33.7 September
Wholesale inventories, September (10:00): 0.2% expected, -0.2% August.
Consumer credit, September (3:00): $5.3B expected, $8.2B August.
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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