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world stock market, us stock market
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11/13/03 Stock Split Report
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Stock Split Report Subscribers:
MARKET ALERTS
Targets hit alerts issued Thursday: None issued
Buy alerts issued: GPRO
Trailing stops issued: None issued
Stop alerts issued: None issued
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. You can sign up for Stock Split Report alerts at the following link:
http://www.investmenthouse.com/alertssr.htm
SUMMARY:
- Unable to extend the gains yet again even with Dell earnings out before the close.
- Jobless claims continue lower trend, retail earnings start hitting.
- Market stalls again on brink of a new high as volume edges higher.
- Subscriber Questions
Churning on the brink of a new high.
In a familiar theme over the past two months the market rallied toward a new high and then ran in place on some stronger volume. A good accumulation session that took the indexes close to the October highs was immediately met with higher volume churning, indicating that again sellers stepped in at these higher levels. Thus far the sellers have stepped in but have not turned back the trend. They have at times stalled the move higher and sent the indexes on a pullback within the trend, but they have come right back.
Thus there is nothing unfamiliar with this action, but it does wear on the market. this churning is selling. There are still a lot of buyers as the index does not fall, but it does not rise because there are an equal number of sellers exiting. If it happens often enough it erodes the foundation of the uptrend. The rally up to Thursday showed good price/volume action, i.e., up on upside days, down on downside sessions. Thus it has to be viewed relative to the prior action. It is a worrisome problem arising at each new high, but for now the trend remains in place and the action outside of the churning sessions is good. Thus it does not mean a coming implosion, but it keeps us looking for signs of further trouble given the run up the March trendline has been quite strong.
It had some reason to stall other than sitting near the high. Futures were solid pre-market until WMT missed analyst earnings estimates. Though it did tell analysts beforehand they should not raise estimates, the fact was that WMT missed the street. That immediately had many second guessing the recovery. The trade deficit was worse than expected, and that was cited as well for the lethargy. Stocks sold but did manage a recovery to positive territory mid-afternoon. They even got a boost when Dell released its earnings before the close. While only the small and mid-caps managed to hold positive, the indexes did rally well off their lows in the last hour. A small silver lining, but we do note that volume rallied with them and that does take the sting off the apparent churning.
THE ECONOMY
Jobless claims continue the solid trend lower, but it is no longer news because it is a trend.
Weekly jobless claims rose to 366K, a bit over the 364K expected. The prior week was revised to 353K from 348K. Very small and well within the margin of error. The 4 week average is showing the trend. It fell to 375,250 from 381,250. This is the level where you start to see job creation, and lo and behold that is what the economy has shown for the past three months. The trend is positive, but as noted, it is not really news as ever hungry analysts and the recovery's critics cast their nets farther abroad to find some other indication that the recovery may not be what it is. Reminds us a lot of the Fed inventing new inflation 'pre-indicators' back in 1998 and 1999 as it tried to convince everyone that nonexistent inflation was just around the corner. You remember how it finally came down to a blatant and incredibly ridiculous conclusion that prosperity caused inflation. After all, if you worry there are too many people working, too many consumers consuming, too many business investing in their businesses, too many people making too high of salaries, you get the idea that they are targeting prosperity.
WMT misses earnings.
WMT was what many were looking at as it came in lower bottom line though its revenues were higher. As one sane observer noted, if revenues were down that would indicate more trouble nationally. As it is the bottom line shows WMT had a few internal hiccups that kept it from getting that revenue to the bottom line. What also hurt the stock was a more conservative outlook than analysts predicted. That is in keeping with WMT as it has soft peddled its weekly results for the past six months. When WMT misses, however, regardless of the reason, it hurts the market. That places a premium on the Friday retail sales report for October.
Corporate credit rates showing economic improvement.
Recall discussions of credit spreads back when the economy was softening but not many believed the 'red hot' economy had any storm clouds on the horizon. At the time we noted that spreads on various credit instruments were widening, indicating the market was pricing in greater risk. That is a classic sign of trouble ahead. When spreads narrow significantly, that is an indication of more certainty regarding improving economic conditions.
The latest indication of economic improvement is the narrowing of corporate credit spreads. That keeps the cost of borrowing cheap, and we are seeing spreads narrow to levels during the boom times of the 1990's. That is saying the recovery is certainly underway, and the level of the spread indicates the economy is expected to perform well for at least another 1 to 2 years.
THE MARKET
The Thursday churn took the shine off of the Wednesday accumulation rally. It was not just a pause after a big gain to catch its breath, but churning on rising volume as an equal number of sellers met the buyers head on. When investors pass stocks around like hot potatoes that can indicate a move is running out of gas. Problem is, the market has shown this action several times during the past two to three months and continued to rally after modest pullbacks. Over time it degrades a move. It has yet to stall this one out but it is something to keep in mind as the action continues to unfold.
One thing is clear: sellers keep coming in when the market nears or hits a new 52-week high. There are sellers still taking gains at this point even at new highs. That shows there is still overhead supply, either from buyers that bought in way back in early 2002 and before and/or from those that bought in on this current rally who are afraid to continue to ride their stocks higher. Either one can be trouble, but after more than a year that resistance from the early 2002 double tops on Nasdaq and SP-500 it is clear and somewhat disheartening to see sellers ready to dump shares as the indexes near those tops.
That is not a total surprise as we have been anticipating with some high probability that those levels would stall the current March 2003 up trendline. Just as a hurricane can affect weather hundreds of miles away from the storm's center, that resistance is exerting influence as stocks rally toward it. The repeated hesitation as the indexes rally to new 52 week highs is symptomatic of that resistance.
It was not a complete move out of stocks, however. Small and mid-caps rallied. Investors also moved to other locations, finding refuge in pharmaceuticals, medical equipment and medical appliances. Oil sector stocks also performed well. These are more defensive sectors that investors will move to as they become more uncertain. That is not bad. That shows there was some rotation to other sectors as opposed to money leaving the market. While many are cautious about buying into stocks after this run, they also look around and see money market rates in the toilet even as interest rates rise and bonds in a bear market because of those rising rates. They ask themselves where they can put their money. As some pundits are projecting as much as 10% further upside, those people would rather try to catch a piece of that 10% over the next 2 to 3 months than catch a piece of 0.5% at best using other means. Thus money rotates to other areas when there is a bit of uncertainty as to whether the market can proceed further.
Market Sentiment
VIX: 16.47; -0.28
VXN: 25.45; -0.1
VXO: 16.84; -0.15
Put/Call Ratio (CBOE): 0.78; -0.02
NASDAQ
Looked good pre-market but the WMT news made investors rethink AMAT's earnings and Nasdaq ended the session lower on slightly higher volume though it did post a good recovery.
Stats: -5.76 points (-0.29%) to close at 1967.35
Volume: 1.88B (+0.27%). Volume edged higher, remaining near average, as Nasdaq posted a modest loss. The rising volume indicates more sellers stepping in just below the October high as the index showed some modest distribution. We do note that volume did rally as stocks recovered in the last hour.
Up Volume: 876M (-788M)
Down Volume: 990M (+796M). Pretty much a dead heat, matching the market.
A/D and Hi/Lo: Decliners led 1.01 to 1
Previous Session: Advancers led 2.96 to 1
New Highs: 282 (+32)
New Lows: 16 (0)
The Chart: http://www.investmenthouse.com/cd/^ixq.html
Edged off the Wednesday gain, tapping the 10 day MVA on the low (1953) and rebounded in the last hour. Volume was higher, rallying as the index recovered. That is not bad action, but it puts Nasdaq in the position of having to rally here or suffer a lower high below the 1975 level that is proving to be some resistance. Good price/volume action leading up to this point, so looking for a break higher after perhaps another test of the 10 day MVA or the 18 day MVA (1941). It if cannot make the breakthrough it is heading back toward the 50 day MVA (1891) and a test of the up trendline.
S&P 500/NYSE
Rallied back for just the slightest loss, volume moving up sharply late with the index. It is at the prior high and set to breakout.
Stats: -0.12 points (-0.01%) to close at 1058.41
NYSE Volume: 1.353B (+2.59%). Volume was not all that powerful on the move up Wednesday, and then it received further insult when the index churned on stronger volume, losing ground. Thus the decent price/volume action on the pullback and Wednesday rally was weakened by an immediate higher volume churn that shows sellers moved in when the index neared the prior high.
Up Volume: 690M (-413M)
Down Volume: 657M (+452M). A standoff here as well.
A/D and Hi/Lo: Advancers led 1.34 to 1
Previous Session: Advancers led 3.31 to 1
New Highs: 316 (+70)
New Lows: 8 (-2)
The Chart: http://www.investmenthouse.com/cd/^spx.html
Weaker on the WMT earnings, but a good recovery off the 10 day MVA (1052) where it tapped on the low and then rallied on rising volume, volume that jumped considerably in the last hour. That is better action than Nasdaq showed, and SP500 is actually in position to make an important move if it can take out those November highs 1062 on a stronger volume shot.
DJ30:
Volume: 1.353B (+2.59%)
WMT jumped volume up on DJ30 (205M versus 188M). DJ30 has made a clear higher low at the March/September up trendline and has formed up a 6 week ascending triangle where it builds higher and higher lows below a constant top (here at 9850 closing, 9900 intraday). Again DJ-30 is in position to make a nice breakout. It has left us at the alter a few times, but it keeps forming up again. If we get that breakout we will look to play it as it has a nice consolidation behind it and can give a nice run up to 10,000ish.
FRIDAY
Economic data will be the dominant theme, at least for the morning session as retail sales and producer prices are out before the open and Michigan sentiment follows at 9:45ET. After WMT October sales will be closely observed for signs of weakness. We need to remember, however, that Q3 included July, and we know sales accelerated in September and were surprisingly strong in October. Thus, after the WMT gloom the market may bet more of a pleasant surprise. Sentiment will show better as well given the rising market and improved news on jobs.
Producer prices will also be watched closely, not because any big jump is expected, but because any increases that can be labeled as inflation (whether it is or not) will be cited by some as an indication that deficits are causing prices to rise. That is the theory some forward, though they are unable to find any period in history where that actually occurred. Supposedly deficits take money away from private investment and thus make rates rise because money is more scarce. Since the economic critics cannot reasonably deny recovery is underway with the strong GDP and the 3 months of job creation, they will shift to arguing the recovery will fail because deficits will raise interest rates. Rates will rise; they already are. Not because of any deficit, however, but because there is ongoing recovery. The Fed can raise rates 2 or 3 times and still have the Fed Funds rate below the real rate. All that does is take the foot off the gas; it does not restrict growth. That will be taken out of context, however, by those pushing against deficits.
We don't necessarily like deficits at all. While the interest rate argument is bogus, there is good reason to limit government spending because it burdens us all horribly when we go through the down times. This downturn would not have bankrupted so many companies and small businesses if they did not have to waste so much manpower and time on compliance with reams and reams of paperwork and excess taxes to fund inefficient government programs. We would much prefer government spend hundreds of billions less than they do and let the private sector use the money to advance economic growth and our standard of living. The republicans spend too much (they are the majority, after all) or at least allow too much spending, and they are trying to reach a compromise so they can launch another few hundred billion in spending on a government run drug plan. Why not give everyone tax credits to establish savings accounts instead of creating a new benefit? At least do this for those working. It would be more efficient and much less costly than establishing another federal bureaucracy.
After that big swing off track, Friday will be just like other sessions after these churns: watching to see if near support holds if the indexes edge back. The indexes did recover off of their lows late in the session as volume rallies, so, as it has in the past, the market can meet this distribution with a nice continuation move. We have several positions in outstanding that continue to perform, but we will also selectively add positions as we have done the past few sessions. A solid rally from here after the session of churning would be a good signal the indexes were going to try a bigger run just ahead of the holidays.
Support and Resistance
Nasdaq: Closed at 1967.35
Resistance: November high (1992). The near top of the channel (2004). The second, higher channel hit in September is at 2030. Then 2050 to 2075, the early January 2002 double top.
Support: October high (1967). The 18 day MVA (1941). The September high (1913). The 50 day MVA (1891). 1860 to 1865. The March/August up trendline (1889).
S&P 500: Closed at 1058.41
Resistance: November high (1062). The December to June upper channel line at 1070. 1080 from February 2002 lows. 1100 represents some early 2001 lows. 1150 to 1175, the early 2002 double top.
Support: October highs at 1054. 18 day MVA (1048). 1040, the September highs. 1030 to 1032 (early September highs). The exponential 50 day MVA (1034). The top of the summer range at 1015. 1010 the early September highs. 975 (December 1997 peak).
Dow: Closed at 9837.94
Resistance: The October high (9850). The November high (9903). 10,000 is the candle that attracts the moth.
Support: 9800 (April and May 2002 lows). The 18 day MVA (9770). 9686 (September high; 9659 intraday). The exponential 50 day MVA (9636). 9588 the early September highs. 9500 (June 2002 lows) is the top of the summer range.
Economic Calendar
11-13-03
Trade balance, September (8:30): -$40.2B expected, -39.2B August.
Initial jobless claims (8:30): 364K expected, 348K prior.
11-14-03
PPI, October (8:30): 0.2% expected, 0.3% September.
Core PPI: 0.1% expected, 0.0% September.
Retail sales, October (8:30): -0.2% expected. -0.2% September.
Retail sales ex-auto (8:30): 0.2% expected, 0.3% September.
Industrial production, October (9:15): 0.4% expected, 0.4% September.
Capacity utilization, October (9:15): 75.0% expected, 74.7% September.
Michigan preliminary sentiment, November (9:45): 91.3 expected, 89.6 October.
SUBSCRIBER QUESTIONS
Q: Why is money moving into gold and not rotating to other sectors?
A: There is some ongoing rotation as noted in the summary, but gold, the metal itself, has been performing well all its own. There are two main reasons working together as we see it. First is the recovering world economy. While uncertainty can lead to gold spikes, a stronger world economy where there is a threat of inflation pushes money into gold as a hedge. From what we see the cycle is much too early in recovery for this to be a significant part of the price rise.
More important we think is the falling dollar. If strong economies were the problem, then why did gold prices fallin the 1990's boom years? That period saw a very strong dollar. That kept gold expensive in terms of foreign currencies. With the dollar in a relatively long decline compared to the lofty heights in the late 1990's and early 2000's, gold has become less expensive in terms of foreign currencies. If there is some concern about the dollar, gold becomes all that more attractive. Thus the rising price in gold. It has spiked recently and will need to test that move. It will be interesting to see how it performs if the dollar continues to regain lost ground, but with the Bush administration letting the dollar slide, it will most likely resume that move. At some point the price rise in gold offsets the strengthening of foregin currencies via the weakening dollar, but then you have that other component, i.e., the haven for wealth given a falling dollar, that drives the price.
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End part 1 of 3
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