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us stock market, trade stock
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12/03/03 Investment House Alerts Report
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IH Alert Subscribers:
MARKET ALERTS
Targets hit alerts issued Wednesday: GBN; NANO
Buy alerts issued: FLDR; SLXP
Trailing stops issued: MDS; PDYN
Stop alerts issued: Took no chances on tech stocks as Nasdaq turned and dove lower. GGNS; IMOS; PLXS; MRVC; NVLS
MARKET SUMMARY
Who knew Santa was a practical joker?
The market was on the way to a good gain, up early on solid volume with Nasdaq clearing the November high. It even showed its mettle by undercutting that level in the first hour only to regroup and surge through that level again on continued solid trade. It was looking great until the lunch hour when it sold lightly but again held that important level. As the next to last hour started, however, the bottom fell out. Nasdaq gave up over 40 points from high to low as the solid volume buying turned to solid volume selling as Nasdaq logged its highest volume session in over 2 months. That is not the action you want to see accompanied by a volume spike.
That took a lot of cheer out of the holiday rally. 'Ho, ho, no' was more like it. Not all of the market suffered Nasdaq's fate. DJ30 managed a positive close and SP500 was basically flat, still holding onto its breakout. Both, however, gave up some nice gain by the close. The small and mid-cap indexes fell back from their upper channel lines as they logged losses in step or worse than the large cap indexes.
Overall, however, other than Nasdaq and its high volume reversal, the moves were not that bad. We noted last week that if the small and mid-caps maintained their trends that would mean a test back from these channel lines. Same with SOX. Thus, with SP500 holding its breakout and the other indexes keeping within their uptrend channels, the action was not that bad. Factor in Nasdaq, a major market leader, showing a high volume reversal at a prior high, then the normal pullback within the range turns a bit more serious. A test of near term support in the form of the 18 day MVA seems in order, and in the big picture that is not a major blow.
THE ECONOMY
Huge Q3 productivity revision allows economy plenty of room to grow.
9.4% beat the 9.2% revision expected and 8.1% originally reported. Huge numbers, the best in, all at once now, 20 years. It was Q3 1983 when productivity last saw such growth. That was over a year into the Reagan tax cuts. Once again we see a 20 year high in growth rates, not coincidentally right after some significant supply side tax cuts. The proof is in the results: these tax cuts work. Many carp that we cannot 'pay for' tax cuts. Tax cuts pay for themselves. The economists, government agencies and our fearless leaders have all underestimated the almost amazing strength of the rebound. That means tax revenues will be much stronger than expected. Already we saw a 'surprise' drop in the deficit by almost $100B in September as the jump in economic activity put money back in the coffers even as consumers were out spending their child tax credit refunds. That is a clear demonstration of the power of supply side tax cuts. Amazing, but we barely heard a peep about this at the time or at any time since as the critics continue to argue for the repeal of the 'tax cuts for the rich.' Those very cuts are turning the economy around and will be creating jobs for those that lost them as a result of the errant policies that sent us into the worst bear market since the Great Depression. All it would take to get the budget back on balance is for those very politicians harping about the deficit to take a serious look cutting out unnecessary programs and eliminating fraud and duplication in others. No, that is too hard as that requires work and tough decisions. Much easier to blame the 'rich' (anyone making $100K or more) for the problems our congressmen and women get us into.
High productivity means the Fed has the luxury of holding off on rate hikes even longer, and that is comforting to a market that knows rate hikes will come some day but does not want to see that inevitability come about. It also means that companies are passing through more revenues to the bottom line, thus increasing earnings. Moreover, every time we have enjoyed a strong gain in productivity the economy has leaped ahead in terms of innovation, new technologies, new jobs, and a higher standard of living. As in the early 1980's, these gains are laying the groundwork for a great future. Again, however, the growing federal government is the counter to these gains. Government needs to shrink not grow if we are going to realize the full potential of these magnificent economic gains. Neither Bush nor the 8 (or 9?) hopefuls have said or done anything to lead anyone to believe that reducing government spending is important other than vague, loose comments about the deficit caused by the tax cuts. The irony is, without the tax cuts the deficit would still be here and would probably be getting worse because the economy would be in a quagmire still. Go ahead and kill the golden goose by eliminating the cuts.
ISM Services still solid, disappointing to some extent and a positive as well.
60.1 versus 64.0 expected (64.7 in October). That had the tongues wagging. But wait. The employment sub-index rose to 54.9 from 52.9, another expansion. More jobs ahead, just what many said would not happen, but given the dramatic growth, something that was inevitable despite all of the 'its different this time' hyperbole flying around at cocktail parties and the 'Good Morning America' financial stations. The economy is not there yet, and we doubt Friday will be a 300K job creation month (though 200K is definitely a possibility). Still, job creation started early (not late as many state) based on when the market bottomed last October. Thus we have not really hit the sweet spot for job creation in this recovery based on the historically accurate measure of when jobs start, i.e., at least a year after the stock market bottoms.
Thus, the employment sub-index for the ISM services is the key take away from the report. The overall report was still strong; month to month variations in a strong uptrend don't mean a whole lot and we are not going to lose sleep over the blanket number. With the ISM (manufacturing) showing an employment expansion as well in November, the Friday jobs picture could look quite a bit better than expected.
Dollar is the silent killer.
The dollar was big news along with trade two weeks back, but it has been flying under the radar of the financial stations of late. The reason is that it is no longer 'news' for them. They have moved on to other stories to pump before they are dumped. The dollar, however, is still there, still falling against the euro. It has hit new lows each of the last four sessions as it continues its correction from its overly high levels of the past 5 years.
Now this is supposed to be good for US exports, but the data is less than convincing in this respect. Multinational companies are seeing bottom line improvements due to the exchange benefits, but US exports have not jumped appreciably as the Bush administration had hoped.
That is one worry, but the bigger worry is at what point do foreign investors throw up their hands and sell out of dollar based investments. There has already been a rise in some divestitures over the past month, but not at a frightening pace. With the Bush administration still unclear as to what level it would say 'enough,' however, the market remains nervous as the dollar trends lower. Bush has said market forces should set the dollar's level though it also says it wants a strong dollar. His administration's view of strength is thus relative to other currencies, so it is impossible in advance to draw a line in the sand. That uncertainty keeps the currency traders, bond traders, and stock traders (investors as well) on edge.
Thus the dollar remains the silent governor on the market action. It is not the actual cause of weakness, but it is a factor, a dark cloud that will have to be dealt with if it does not self correct at some point. That makes it one of the reasons the market finds it harder to get up in the morning and hold onto a rally for more than a session or two.
THE MARKET
Nasdaq's rollover put things in a negative light: a double top at the November high that reversed and sold on the strongest volume of the quarter. That action indicates a near term test lower, but it did not end the uptrend, cause milk cows to run dry, or change the BCS standings (though one wonders why it would not given the fugacious nature of those ratings). Indeed, with the small and mid-cap indexes, the other leaders in the rally, at their upper channel lines, a pullback is, as we noted last week, not surprising. It was the vigor of the selling once it started that raised some eyebrows and makes you look closer to see if, after a long run and several bounces higher in the uptrend, it is ready for a deeper test.
While we would expect the small and mid-cap indexes to test near support at the 18 day MVA for the most modest pullback within the uptrend, Nasdaq will have to put the brakes on to hold at those levels. It will need to, however, as the up trendline is running just below the 18 day MVA. It helps that SP500 again held onto its breakout over the November high. SP500 has not been spectacular, but it has provided the market some backbone with support when it needed it.
In sum, the Wednesday action was a disappointment as Nasdaq again gave up a break over the November highs. The overhead supply from the late 2001/early 2002 double top ranging from 2050 to 2100 is already exerting influence on the index. The action did not upset the uptrend, particularly for the smaller caps and the SP500, but it does give us reason for increased vigilance as we watch for signs the index may be ready for a deeper correction after this holiday rally ends. We still think the market will scratch and struggle in a continued uptrend for the holiday rally, but as Wednesday evidenced, it will be ebb and flow as that overhead supply exerts its influence when Nasdaq makes new highs.
Market Sentiment
VIX: 16.63; +0.36
VXN: 27.34; +0.62
VXO: 16.3; -0.12
Put/Call Ratio (CBOE): 0.86; +0.15. Another sharp jump as the indexes reversed but did not show a big tank lower. When it reaches 0.95 or better on the close that has tended to foreshadow rallies in this uptrend. Thus we will be watching this closely on any further test of near support.
NASDAQ
Again Nasdaq failed at a breakout attempt over the November high, reversing on very strong trade. Not the kind of action you want to see.
Stats: -19.82 points (-1%) to close at 1960.25. A 40 point swing as Nasdaq broke higher, held the breakout, but then careened lower.
Volume: 2.257B (+23.77%). The strongest volume in over 2 months. This is not the circumstance you want to see such strong trade. Volume was running higher before the reversal, but the up to down volume ratio shifted negative as the sellers took over, so it was a downside, distribution session.
Up Volume: 947M (+244M)
Down Volume: 1.244B (+135M)
A/D and Hi/Lo: Decliners led 1.82 to 1. Modest advances to a pretty ugly though not hideous downside breadth day.
Previous Session: Decliners led 1.11 to 1
New Highs: 299 (-112)
New Lows: 10 (0)
The Chart: http://www.investmenthouse.com/cd/^ixq.html
Tried 2000, did not like it, and reversed to close lower than the Tuesday close. That is known as a 'key reversal', something that can indicate a more substantial selloff in the works. The action also had double top implications as Nasdaq cleared the November high (1992) and tested the psychological 2000 level before reversing on high volume. That is definitely something to keep an eye on as Nasdaq continues to test back in its uptrend. We will be watching the 18 day MVA (1944) and the March/August up trendline (1941) to see if Nasdaq is going to hold the uptrend. We note that in double topping it failed to make a higher high in the uptrend. That is not fatal as it did this back in July, but it is a much older uptrend at this point. We will see how it handles the up trendline.
S&P 500/NYSE
Rallied close to the upper channel and faded, but managed to hold the breakout.
Stats: -1.89 points (-0.2%) to close at 1064.73
NYSE Volume: 1.418B (+3.1%). Strongest volume in a month though still just above average.
Up Volume: 609M (+24M)
Down Volume: 783M (+4M). Pretty evenly matched, indicative of the session.
A/D and Hi/Lo: Decliners led 1.15 to 1. Positive by 3:2 up until the last hour when the index gave up the gains.
Previous Session: Decliners led 1.01 to 1
New Highs: 472 (-56)
New Lows: 8 (+4)
The Chart: http://www.investmenthouse.com/cd/^spx.html
SP500 rallied to 1074 on the high, close to the upper channel line at 1082. When Nasdaq rolled over it could not hold the gain but did for the second consecutive session manage to hold the breakout over the November high (1064-1062). Though it gave up 10 points and an 8 point gain, holding the breakout shows that aside from Nasdaq there is still some strength. Indeed, SP500 has added the backbone to the market of late.
DJ30
Stats: +19.78 points (+0.2%) to close at 9873.42
Volume: 222M versus 218M
The blue chips were close to 10,000 (9942) and then gave back 70 points to cling to a slender gain at the close. That kept it below the March/September up trendline and below the November high (9903). Though it failed to take out the November high it is still in the pattern, the ascending triangle that is making higher lows over the 50 day MVA (9686). A test back to the 18 day MVA (9776) and a rebound from that point would not be a bad thing at all, giving the blue chips a better springboard to make a breakout.
THURSDAY
The economic reports continue Thursday, but the weekly jobless numbers are all that is on tap. Ahead of the Friday employment report, those will be important but will hardly be a market mover.
The market has blown back and forth with the wind, but it has maintained its uptrend and is trying to piece together a holiday rally. It is being buffeted by overhead supply on Nasdaq much like a hurricane affecting the weather several hundred miles away. Thus the going has been choppy and somewhat frustrating, but still higher.
Then there is the Wednesday reversal on Nasdaq that will have to work through the market. SP500 held its breakout but Nasdaq looks like a sure bet to test the 18 day MVA and the smaller cap indexes could test their 18 day MVA as well as they come off a test of their upper channel lines. We want to see the indexes hold the 18 day as that sets them up for a continued rally into Christmas. The solid early action put us into some positions that turned on us in the afternoon reversal, but others held up well into the close.
Thus we will be watching the 18 day MVA closely as the action unfolds Thursday. With the jobs report Friday, we could see a test of those levels in a continued follow through to the Wednesday selling and then a rebound ahead of the report. The market has been volatile day to day, and it has shown a propensity to rally right ahead of an important economic report even if it sold the prior session. Indeed, after a move up for a week (though not at all an easy upside ride), two to three sessions of lateral movement is not surprising before an important economic report. We will be watching for a test of near support and then a rally attempt in anticipation of a strong jobs report.
Support and Resistance
Nasdaq: Closed at 1960.25
Resistance: November high (1992). The January 2002 double top (2044 to 2099).
Support: The 10 and 18 day MVA (1952, 1944). The March/August up trendline (1941). The September high (1913). The 50 day MVA (1910). 1875 to 1880 is the bottom of the week's range.
S&P 500: Closed at 1064.73
Resistance: The December to June upper channel line at 1082. 1080 from February 2002 lows. 1100 represents some early 2001 lows. 1150 to 1175, the early 2002 double top.
Support: November high (1062-1064). The 10 and 18 day MVA (1057 and 1053). The exponential 50 day MVA (1041). 1030 to 1032 (early September highs).
Dow: Closed at 9873.42
Resistance: The November high (9903). The March/September up trendline (9915). 10,000.
Support: The October high (9850). The 10 and 18 day MVA (9800 and 9776). The exponential 50 day MVA (9686). 9686 (September high; 9659 intraday). 9588 the early September highs. 9500 (June 2002 lows) is the top of the summer range.
Economic Calendar
12-01-03
ISM, November (10:00): 62.8 actual, 58.1 expected, 57.0 October.
Construction spending, October (10:00): 0.9% actual, 0.5% expected, 0.6% September (revised from 1.3%).
12-03-03
Productivity, Q3 revised (8:30): 9.4% actual, 9.2% expected, 8.1% prior.
ISM Services, November (10:00): 60.1 actual, 64.0 expected, 64.7 October.
12-04-03
Initial jobless claims (8:30): 354K expected, 351K prior.
12-05-03
Non-farm payrolls, November (8:30): 150K expected, 126K October.
Unemployment rate, November (8:30): 6.0% expected, 6.0% October.
Hourly earnings, November (8:30): 0.2% expected, 0.1% October.
Average workweek: 33.8 expected, 33.8 October.
Factory orders, October (10:00): 2.2% expected, 0.5% September.
Consumer credit, October (2:00): $5.0B expected, $15.1B September.
PLAYS:
New plays:
Upside:
Play Date: 12/03/2003
EDMC (Education Management--$67.2; -2.53; optionable): Education and training. Splits 2:1 on 12-3-03
http://biz.yahoo.com/p/e/edmc.html
STATUS: Test 18 day MVA. EDMC was caught up in the CECO allegations regarding falsifying enrollment records in a 'one bad apple spoils the whole bunch' mentality brought on by investors looking for an excuse to sell Wednesday. EDMC sold below the 18 day MVA (66.16), falling to 65.14 before turning and rallying hard back up to close at the 10 day MVA. We view the selloff as one done in sympathy and expect it to rebound right back up ahead of the split.
Volume: 860.198K Avg Volume: 313.272K
BUY POINT: $68.12 Volume=375K Target=$81.75 Stop=$66.02
POSITION: UKN CM - Mar. $65c (46 delta) &/or Stock
http://www.investmenthouse.com/ci/edmc.html
Play Date: 12/03/2003
EONC (Eon Communications--$3.55; +0.3; no options): Internet telephony
http://biz.yahoo.com/p/e/eonc.html
STATUS: Reverse head and shoulders. EONC is in the process of a breakout move from its 10 week base sporting strong 3 to 1 accumulation (3 up price weeks on rising volume to 1 down price week on rising volume). That accumulation sets the foundation for a stronger move as it shows steady buying as the stock worked through the pattern and shook out the sellers. Wednesday EONC was surging on a big shot of volume. It backed off and gave back half of its gain, but relative strength broke out on the move and the stock is following surging money flow. Looking for EONC to continue the breakout move.
Volume: 712.788K Avg Volume: 147.59K
BUY POINT: $3.68 Volume=225K Target=$4.78 Stop=$3.38
POSITION: - Stock (no option chain)
http://www.investmenthouse.com/ci/eonc.html
Play Date: 12/03/2003
HDTV (Spatialight--$6.11; +0.55; no options): High resolution microdisplays
http://biz.yahoo.com/p/h/hdtv.html
STATUS: Double bottom w/handle. HDTV is making the breakout move from its 9 week base, surging Wednesday on tremendous volume as it moved out of the handle. Excellent 4 to 1 accumulation, a relative strength breakout, and surging money flow. It has made us money before and it is set to do it again.
Volume: 2.454M Avg Volume: 286.818K
BUY POINT: $6.22 Volume=430K Target=$7.88 Stop=$5.78
POSITION: - Stock (no option chain)
http://www.investmenthouse.com/ci/hdtv.html
Play Date: 12/03/2003
MTMD (Microteck Medical--$4.41; -0.02; no options): Medical appliances and equipment
http://biz.yahoo.com/p/m/mtmd.html
STATUS: Cup. Another stock making a breakout move, MTMD has been trying to make the big move out of its 13 week base as volume surges well above average. Accumulation is is an outstanding 6 to 0 and money flow is strong. Relative strength is breaking out as well. The accumulation sets a great foundation for a move higher as the sellers are all gone and nothing but buyers hold the stock. Looking for it to continue the move.
Volume: 448.083K Avg Volume: 207.909K
BUY POINT: $4.52 Volume=312K Target=$5.88 Stop=$4.15
POSITION: - Stock (no option chain)
http://www.investmenthouse.com/ci/mtmd.html
End part 1 of 2
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