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us stock market, trend trading stock
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11/19/03 Stock Split Report Update
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Stock Split Report Subscribers:
Monday and Wednesday we issue a market summary and choice plays for the following session. Full reports issued Tuesday, Thursday and Saturday.
The stock market will be closed Thursday November 27 and will close at 1:00ET Friday November 28. Reports will issue as usual Monday and Tuesday. Barring any major market event, the following is the report schedule for that week:
Monday and Tuesday: Normal reports issue
Wednesday: Market update, play tables
Saturday: Market update, highlight best plays for Monday, play tables
Alerts: Will issue as normal.
MARKET ALERTS
Targets hit alerts issued Wednesday: None issued
Buy alerts issued: KSWS; PSSI
Trailing stops issued: Took some nice gain off the table. CHS
Stop alerts issued: CEDC
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:
- Relief bounce back over the 50 day MVA on lower trade.
- Housing starts, permits, mortgages surge, dollar recovers modestly.
- Stocks recover, but not yet showing they are ready to use the 50 day MVA as the next rally point.
- Subscriber Questions
Four days of selling give way to a modest bounce.
We were looking for a rebound to test the 50 day MVA and the indexes managed to close back above that level. Volume backed off on Nasdaq, however, and just edged higher on NYSE. Breadth was modest and there were few breakouts. It was not a powerful move by any means, showing the characteristics of a relief bounce, mainly a low volume move after several down sessions.
Volume did start stronger and at mid-day looked as if it could overtake the Tuesday selling volume and provide an accumulation counter to that selloff. As the market made new highs late in the afternoon session, however, volume tapered off. Nasdaq reached the up trendline, but without strong trade it did not have the power to break that level. It waffled and faded back from the trendline as volume shriveled. That indicates that a good portion of the rebound was short covering on short term short positions after the market failed to sell off early. The covering (buying) moved the indices back up, but without investors buying for the upside potential, when the index hit resistance the shorts stopped covering and it ran out of steam.
Thus the bounce did not give us any real sense that a new leg off the 50 day MVA was beginning. Basically the market bounced where it had to in order to keep the prospect of a rebound off the 50 d alive. Alone it was not nearly enough to jumpstart that next move higher.
THE ECONOMY
Housing starts up 2.9%, permits jump 5.9%, and mortgage applications bounce back, up 5.9% as well.
They all swamped estimates. Mortgage rates fell the past week and that may have helped get some fence sitters to the dotted line, but the housing starts were already in the oven. Amazing strength. Projects that were shelved in some of the booming areas in and around Houston are again underdevelopment. Shifting demographics (aging boomers) and a new and somewhat unexpected surge both the low and middle class work force is driving the low to mid-range market, sectors that were thought to be vulnerable as the baby boomers left them high and dry. Demographics at the lower end are stronger than anticipated by some pretty smart minds (that precludes this writer). If those houses are sold (and most are already locked up) that means a continued need for furniture, draperies, and other durable goods. That is the 'trickle down' effect of the housing market.
Money becoming an issue.
We discussed the inflation potential earlier this week in terms of supply not meeting demand, i.e., business production still tepid even as consumers and businesses increase their consumption. On top of that we find that foreign investors sold a lot more US equities than anticipated (by a factor of 5). Selling US investments means more dollars coming home, dollars that are worth less as the greenback falls further on the selling. A falling dollar begets further dollar investments to be sold an continues what can be a very vicious cycle. And of course George Soros pops up every other day like a jack in the box and says he is selling dollars.
More dollars at home, consumers increasing consumption, businesses starting to produce more but are nowhere near breakneck production pace. That accelerates the potential inflation problem. We don't want to sound like the Fed back in the late 1990's, but there is a real concern here as various factors come together that can lead to trouble. Moreover, unlike the Fed back in the late 1990's, we are not making up these inflation indications. These are the tried and true indicators, not the new inflation indicators (e.g., prosperity) that the Fed came up with for the new economy of the 1990's.
Speaking of the Fed, that is where there is real trouble. The Fed is reverting to its old habits, specifically saying it is acting one way publicly but the numbers showing otherwise. In 2000 and 2001 Greenspan told Congress that the banks had to start loaning money at the low rates the Fed had provided. Behind the scenes, however, the Fed still had hundreds and hundreds of banks on restricted loan status because of their 'suspect' loans during the boom. That made it impossible for small businesses to tap into all of this supposedly cheap money the Fed made available.
A few weeks back we talked about the shrinking money supply. The market has not done very well since then. As one subscriber pointed out last night, money supply is even worse now than it was just a few weeks back. At the time money flow was in part contracting as a result of money funds and other savings accounts being converted into illiquid assets. That is not necessarily a bad thing because it means business and individuals are investing in the US, in its businesses. We noted at the time, however, that the Fed would have to keep equilibrium to avoid the same old problem: the economy running too short of cash to grow. That money supply is shrinking even as foreign investors sell dollar denominated investments is very telling. The Fed says it is being liberal with monetary policy, but it is not keeping liquidity in the economy. Its like saying you support the constitutional rights but then break them wantonly when it suits your needs. The problem is the same one: if businesses cannot get the money to expand, they won't. That means unsatisfied demand. That leads to inflation because there is no balance; the market is not allowed to reach equilibrium because there is not enough money to get there.
THE MARKET
Clawed back over the 50 day MVA but as noted, not a stellar move. The indexes made the moves they needed, but it was bare minimum. SP500, SP600 and SOX don't look that bad having held the 50 day MVA. Nasdaq looks pretty ugly, but by nature it tends to fall harder and rally better than the other indexes. Thus it may look ugly but it did recover the exponential 50 day MVA on the close.
Volume was disappointing, and as indicated, that shows the attributes of a relief bounce versus renewed accumulation in a new leg to the uptrend. Many stocks mimicked that action, rallying off of support. Some showed strong trade, most were noncommittal. Several chip stocks look ready to bounce as do other leaders that have pulled back to support. It is not the best looking pullback we have seen, but there is some potential there. Of course potential is often only that. Just ask any Texas Longhorn football fan.
Market Sentiment
VIX: 18.8; -0.31
VXN: 29.96; +0.31
VXO: 19.45; -0.45
Put/Call Ratio (CBOE): 0.87; +0.11. Rose on an up session. Not a lot of believers in this bounce, and they were using it to take downside positions
NASDAQ
Moved back over the 50 day MVA but not back in the uptrend yet.
Stats: +17.9 points (+0.95%) to close at 1899.65
Volume: 1.806B (-6.05%). Volume faded to below average as it bounced up through the 50 day MVA.
Up Volume: 1.133B (+639M)
Down Volume: 664M (-634M)
A/D and Hi/Lo: Advancers led 1.42 to 1. No sweeping surge higher. It was a fight to get what it got.
Previous Session: Decliners led 1.6 to 1
New Highs: 120 (-29)
New Lows: 29 (+11)
The Chart: http://www.investmenthouse.com/cd/^ixq.html
It was a modest gain and it was a fight to get it. Not that it was weak. Nasdaq rallied to the 50 day MVA (1894), stalled and fell back, then girded its loins, reformed the line and took out the 50 day MVA. It rallied up to the up trendline at 1904, but it could not hold that level. It waffled, moved laterally, and closed out the session just below that important point. Thursday is the licklog session, the rubber match. In the August and September 50 day MVA tests the fourth session at the 50 day was the session that made the difference. It is poised to do the same here, and we will see if there is any gas left in the tank after a seven month 45 degree climb. Nasdaq is now 16% over its 200 day MVA, so it does have some rope to move back up in another uptrend bounce.
S&P 500/NYSE
Nice bounce up off the 50 day MVA, but sure wish it could have shown even stronger volume.
Stats: +8.29 points (+0.8%) to close at 1042.44
NYSE Volume: 1.31B (+0.5%). Edged up just a hair on the bounce. If it is going to make a real go of a new leg volume will have to ramp up.
Up Volume: 845M (+452M)
Down Volume: 458M (-453M)
A/D and Hi/Lo: Advancers led 1.49 to 1. Breadth has been restrained on both the upside and downside the past few sessions.
Previous Session: Decliners led 1.41 to 1
New Highs: 139 (-2)
New Lows: 11 (-1)
The Chart: http://www.investmenthouse.com/cd/^spx.html
Bounced nicely off the 50 day MVA (1035) though there was no rush of buyers as the volume indicates. It does have several technical positives, in addition to the 50 day bounce. It made a higher low. It cleared the September high. It has plenty of rest behind it and room to run in front of it. As with Nasdaq, it is time to show its intentions. It certainly has been the anchor for the market; when SP500 has held near support, the rest of the market has turned and rallied. SP500 is not what you would call a leader of the rally, but it is providing a lot of its backbone. Now it needs to blow through the short term MVA (10 and 18 day MVA at 1046) on some above average trade (1.4B at least).
DJ30:
Stats: +66.3 points (+0.69%) to close at 9690.46
The blue chips regained the 50 day MVA (9645), mostly on the back of GE that affirmed its 2004 earnings. Other than that the move was pretty lackluster. Volume dipped back below average (192M versus 229M Tuesday). It has immediate resistance in the form of the 10 and 18 day MVA (9740, 9743) and the March/September up trendline (9775). It will need the help of a strong SP500 move.
THURSDAY
Lots of data including jobless claims, leading economic indicators, and the Philly Fed. All are important. LEI has been sliding back the past two months and it would be good to see a return to more robust indications. Jobless claims need to continue their trend lower, and the Philly Fed needs to corroborate the NY Empire report from Monday. Those are important, but they will also take a back seat to the currency action and money supply. The dollar was up Wednesday, but that is not going to be corrected in a session. As for money supply, that takes time as well, and the Fed will have to show it is willing to do more than talk about what a great job it is doing in providing liquidity. It needs to top off the pool again because some of the swimmers are scraping bottom.
Friday is the November expiration, and there are load of QQQ call options at 135 and a lot of put options at the 34 and 33 strikes. With the low volume on the index, the market makers will try to keep the range narrow through Friday, below 35 and above 34. The OEX has the most calls at 520 and puts at 510. Unless buyers or sellers get really rambunctious, that could be the range for that index through Friday as well. When approaching expiration it is always worth noting this, particularly if the market is trading on low volume and drifting a bit. It is in this environment that it can be nudged around and held in check. That is another reason there will need to be some stronger volume in the market to break it higher; this acts as another layer of resistance as market makers try to hold the line and stave off rally attempts.
We will be watching the chip stocks and small caps to see if they can rally the rest of the market. SP500 is well positioned to rally, but the other indexes will have to drag Nasdaq and DJ30 with them. It has a lot of drag on it, but this will be the session the market needs to make a move. Otherwise it could be labeled an enemy combatant for hanging out in a bad neighborhood.
Support and Resistance
Nasdaq: Closed at 1899.65
Resistance: The March/August up trendline (1905). The September high (1913). The 18 day MVA (1928). 1975 has turned into some resistance. November high (1992).
Support: The 50 day MVA (1893). 1860 to 1865. 1800.
S&P 500: Closed at 1042.44
Resistance: The 18 day MVA (1046) and the 10 day MVA (1046). November high (1062). The December to June upper channel line at 1079. 1080 from February 2002 lows. 1100 represents some early 2001 lows. 1150 to 1175, the early 2002 double top.
Support: The exponential 50 day MVA (1035). 1030 to 1032 (early September highs). The top of the summer range at 1015. 1010 the early September highs. 975 (December 1997 peak).
Dow: Closed at 9690.46
Resistance: The 18 day MVA (9743). The October high (9850). The November high (9903). 10,000.
Support: 9686 (September high; 9659 intraday). The exponential 50 day MVA (9645). 9588 the early September highs. 9500 (June 2002 lows) is the top of the summer range.
Economic Calendar
11-17-03
Business inventories, September (8:30): 0.3% actual, 0.0% expected, -0.4% August.
NY Empire Index, November (8:30): 41.0 actual, 27.0 expected, 34.10 October (revised from 33.7).
11-18-03
CPI, October (8:30): 0.0% actual, 0.1% expected, 0.3% September.
Core CPI: 0.2% actual, 0.2% expected, 0.1% September.
11-19-03
Housing starts, October, (8:30): +2.9% (1.96M) actual, 1.850M expected, 1.905M prior (revised from 1.888M).
Building permits, October (8:30): +5.9% (1.973M) actual, 1.855M expected, 1.86M September.
11-20-03
Initial jobless claims (8:30): 365K expected, 366K prior.
Leading Economic Indicators, October (10:00): 0.2% expected, -0.2% September
Philly Fed, November (12:00): 30.0 expected, 28.0 October.
11-21-03
Treasury Budget, October (2:00): -$72.5B expected, -$54.1B September.
SUBSCRIBER QUESTIONS
Q: When the NASDAQ pulls back from the top of its channel down to the 50 MVA, as it just finished doing, is that both a "pullback" AND a "correction"? What's the difference? Also, you've cautioned that a deeper correction is likely sometime in the next three months. Just how far below the 50 MVA would the index have to fall in order to qualify for a more "meaningful" correction?
A: The move within the channel of an uptrend is 'normal' in terms of that channel. Thus a move down to the up trendline that establishes the channel is not a correction. It is a pullback within the uptrend that holds the uptrend. If you are playing that trend, everything is more or less rosy. Of course you have to factor in how long the trend has run, how many times it has tapped the line, and how the leaders are performing (are they also behaving within their own trends?). That would make this pullback 'normal', but it is also growing longer hair.
It is at a critical point where it could turn into a deeper correction where the market or index breaks its current trend and makes a deeper correction. That typically involves forming another 'signature' pattern (e.g., cup w/handle, double bottom) at a lower level. If Nasdaq were to breakdown here the chart indicates a base forming with a bottom between 1700 and 1800. 1700 is another 10% or so from the Wednesday close. That is a 15% move off of the recent high. Corrections are said to occur with a 10% or better retreat. That fits the textbook description, but we are much more interested in where it holds with respect to prior highs and other support levels (e.g., the 200 day MVA).
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 2
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