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world stock market, us stock market
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12/08/03 Investment House Daily
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MARKET ALERTS:
Target hit alerts issued Monday: None issued
Buy alerts issued: EAR; SWC (next entry point); OHI (bonus)
Trailing stop alerts: None issued
Stop alerts: SMDI; TMWD
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SUMMARY:
- Rotation continues as Dow leads, techs rally late on dollar buying.
- Headwinds still blowing from old highs, but stocks making a game of it.
Blue chips lead out of the blocks, techs and small caps eventually come around.
The rotation from techs and small caps to cyclical large caps (e.g., IP, AA) continued from the bell with DJ30 rallying. Nasdaq was rallying as well, but while DJ30 surged to a new 52 week high, Nasdaq turned early back to the red. There they languished, threatening a further breakdown, until the last hour and one-half. At that point word hit the wire that Bank of Japan was stepping in and buying dollars. The dollar, after hitting another record low versus the euro, firmed and the Nasdaq did as well. Nasdaq joined the rally into the close along with the small and mid-caps that have also suffered the past week in the rotation to the larger cap cyclicals.
A positive end from a price perspective, but volume was amazingly light. Perhaps investors are sitting on their hands ahead of the FOMC results out at 2:15ET Tuesday. The market is no doubt nervous about when the Fed will hint that it will start raising rates sometime in the future. Everyone knows it will happen, but they hate to face the reality because they know that the Fed goes overboard whether it is tightening or loosening. We have seen both extremes during the last market and economic cycle. One thing to remember: the Fed jawboned about rate hikes for over a year during the boom before it finally decided it 'had' to step in and quell potential inflation. While it is hard to compare those as apples to apples given the reasons the Fed tightened (to protect the ultra wealthy from the new rich, to prevent the US from far outpacing every other industrial country in the world), this time around the Fed has no real outside influences given the reduction in wealth (though the rest of the world is still scared of the US running away). Still, it is in the legacy saving mode with respect to Greenspan, and it is going to err on the side of being too loose as opposed to running the risk of again taking away the golden goose twice within in less than a decade.
In any event, volume was strikingly light and breadth modest, though NYSE breadth was almost solid on the close given the recovery in the small and mid-cap issues. Again many stocks traded around support, but in the late rally managed to hold and rebound slightly. Some moved on strong trade in their rebounds, but most simply held support again and rebounded with the rest of the market. As with the Nasdaq, they managed to hold on again, but still no definitive move given the low volume. Again, the key is whether money will flow back into the formerly leading Nasdaq as well as the small and mid-caps that are in a nice, short test of their 18 day MVA.
THE MARKET
A BOJ dollar buy and a little pre-FOMC buying/covering helped stocks close with a solid late rally. Nothing definitive with very low volume, modest breadth, and limited breakouts led by cyclical stocks. Nasdaq held key support, moving ahead of the 18 day MVA and keeping on pace with the March/August up trendline.
This is the most important test for the market as Nasdaq has been the leader off the lows. Some say the other indexes will step in and take over, something similar to what they have done the past week. That, however, is a short term fix, particularly with the cyclicals. Money tends to rotate into those areas for relatively short periods, and they are typically not growth stocks. They are more mature industries that can provide returns when money rotates, but the move is typically not long. Indeed, if the market is relying on them to lead and cannot get help from growth stocks, the upside move is limited and ultimately in trouble. Growth stocks thrive in expanding markets. Thus it is important that Nasdaq and its growth-heavy stocks recovery from this test.
There is nothing wrong with testing back in the range and regrouping for another move. That is a sign of health. The question is whether the long run to this point, the marginally higher high on the last bounce, and the slight fall through the uptrend signal the end of this move. Thus far it is hanging on, but that is about all it is doing. The headwinds from the early January 2002 high (2098 at the highest point) where Nasdaq double topped are already blowing, and some are exiting Nasdaq just in case. The index is still hanging on, however, showing that buyers are still entering and many holders are still holding. It is a miniature version of early 2000, with the difference that money is not leaving the market wholesale, just shifting around. That is another form of consolidation that is ultimately good for the market. Nasdaq still must complete the test, hold the line, and then continue the move on resumed strong trade.
Market Sentiment
VIX: 16.54; -0.55
VXN: 27.55; +0.5
VXO: 16.31; -1.03
Put/Call Ratio (CBOE): 0.93; +0.09. Even with the late rally, options players were still buying puts. This is very close to, and basically at, the point where rallies during this uptrend have started.
NASDAQ
Tested close to the simple 50 day MVA and then rebounded to retake the 18 day MVA and the up trendline. No volume so it is still very much in question.
Stats: +11.03 points (+0.57%) to close at 1948.85
Volume: 1.594B (-4.91%). Not a huge contraction, but it was already quite low heading into the session. The lack of volume surge still leaves the hold of support an open question.
Up Volume: 836M (+499M)
Down Volume: 722M (-593M)
A/D and Hi/Lo: Advancers led 1.13 to 1. Decent comeback from -1.8:1.
Previous Session: Decliners led 1.91 to 1
New Highs: 149 (+47)
New Lows: 16 (+6)
The Chart: http://www.investmenthouse.com/cd/^ixq.html
Nasdaq tested close to the simple 50 day MVA (1922.50) on the low (1926.94) and then managed to reverse and post a modest gain. The move reclaimed the 18 day MVA (1946) and the March/August up trendline, at least for the day. We say that because volume was pitiful. It was more of a relief bounce after following through further on the Friday selling, and perhaps some short covering ahead of the FOMC meeting. As noted, this is a critical point for Nasdaq to hold as it is testing the up trendline. A one-day recovery is what you want to see, but you also want to see volume moving in as well. That has yet to appear as nervous trade continues. Important juncture for the market as the leading index undergoes a serious test and has yet to find buyers to rush back into its stocks. SP600 and SP400 (small and mid-cap indexes, respectively) are making nice tests of their 18 day MVA, but Nasdaq is too important for the rest of the market. Remember, however, that we are looking at roughly 2100 to be the cap on this move before a more serious correction/consolidation. Thus there is not a ton of upside from here and that overhead supply is already buffeting tech stocks. That is why we have been looking for a continued though gradual holiday rally up toward that point to close out the year.
S&P 500/NYSE
Nice hold of the 10 day MVA and bounce, but it too lagged some volume.
Stats: +7.8 points (+0.73%) to close at 1069.3
NYSE Volume: 1.186B (-2.53%). Would have been nice to see trade pick up on a resumption of the breakout move following the market test, but ahead of the FOMC that was not the case. That is also why we did not enter any more OEX option positions.
Up Volume: 738M (+368M)
Down Volume: 438M (-392M)
A/D and Hi/Lo: Advancers led 1.98 to 1. Very nice recovery, improving substantially late when the small and mid-caps turned and rallied as well.
Previous Session: Decliners led 1.24 to 1
New Highs: 339 (+127)
New Lows: 5 (+3)
The Chart: http://www.investmenthouse.com/cd/^spx.html
Held the 10 day MVA (1061) and posted a nice gain as money again rotated into some of the larger caps. Volume did not follow, however, as SP500 held the test of the breakout from the 8 week triangle. The volume would have been the confirmation, but it was not there. In good shape, and we will see if volume returns after the FOMC decision and it continues the move.
DJ30
Stats: +102.59 points (+1.04%) to close at 9965.27
Volume: 193M versus 201M
The most impressive of the group, breaking to a new 52-week high and just a small move from 10,000. Many are looking at 10,000 at the point of resistance, and while it may take a breather there, it has a solid summer consolidation behind it and can push to some highs in the 10,200 - 10,300 range before it peaks out with the rest of the indexes when they make it to their early 2000 double top points.
TUESDAY
Monday saw a bit of a pre-Fed rally, and there is typically a further move up into the last hour before the Fed release. After that the market has to digest the news. Last time it rallied higher after the news because the Fed continued its 'considerable time' language regarding how long it will keep rates low. The lower non-farm payrolls number Friday gives the Fed leeway to keep the language in there, though at some point it will have to remove it. After the softer than expected non-farm payrolls, however, we doubt the Fed will take that language out, instead reserving that for the next report when jobs jump up sharply.
Thus the market may get that extra incentive to rally late after a dip before the FOMC announcement. It has been worried about the dollar and what the Fed will do. Continued easy money policies tend to go hand in hand with a weaker currency, but at the same time stocks don't like tightening rounds. The Fed has plenty of room to raise rates and still be following them, not leading, but the perception when the Fed first hints at hikes to come, even if they are 6 months down the road, will un-nerve some because everyone remembers how the Fed overshoots the mark every time it either starts raising or lower rates. That is why so many fear the fateful day when the Fed indicates its mindset has changed and it is now defending against inflation once again. Kind of like having the grim reaper making the close calls on death.
The SP500 started what could be an important move, and if the SP600 and SP400 follow the market buys some time. Indeed, that may pull Nasdaq along with it whether or not it is ready. Nasdaq still holds the key to the continued advance and for now it is hanging on, holding the line. With the put/call ratio closing at 0.93 even on a reversal that saw the indexes close positive, there is some upside impetus to a continued bounce toward that important resistance.
We expect stocks to try and continue the move higher, then soften ahead of the Fed. If the Fed leaves in the 'considerable time' language we expect a rally late into the close. If it removes those words it could put another bullet into Nasdaq, sending it lower for a 50 day MVA test. We think the Fed will leave the language in given the Friday jobless claims.
Support and Resistance
Nasdaq: Closed at 1948.85
Resistance: The 10 day MVA (1951). The March/August up trendline (1951). November high (1992), December high (2000). The January 2002 double top (2044 to 2099).
Support: The 18 day MVA (1946). The September high (1913). The 50 day MVA (1914). 1875 to 1880 is the bottom of the November range.
S&P 500: Closed at 1069.30
Resistance: 1080 from February 2002 lows. 1074.30, the December intraday high. The December to June upper channel line at 1085. 1100 represents some early 2001 lows. 1150 to 1175, the early 2002 double top.
Support: November high (1061.40-1064) is still holding. The 10 and 18 day MVA (1061 and 1057). The exponential 50 day MVA (1044). 1030 to 1032 (early September highs).
Dow: Closed at 9966.27
Resistance: 10,000. 10,259 (January 2002 high).
Support: The March/September up trendline (9955). The November high (9903). The 10 and 18 day MVA (9855 and 9817). The October high (9850). The exponential 50 day MVA (9713). 9686 (September high; 9659 intraday). 9588 the early September highs. 9500 (June 2002 lows) is the top of the summer range.
Economic Calendar
12-09-03
Wholesale inventories, October (10:00): 0.3% expected, 0.4% September.
FOMC meeting results (2:15): Expecting no change.
12-11-03
Business inventories, October (8:30): 0.2% expected, 0.3% September.
Retail sales, November (8:30): 0.7% expected, -0.3% October.
Retail sales ex-autos (8:30): 0.3% expected, 0.2% October.
Initial jobless claims (8:30): 359K expected, 365K prior.
FOMC minutes (2:00)
12-12-03
PPI, November (8:30): 0.1% expected, 0.8% October.
Core PPI (8:30): 0.0% expected, 0.5% October.
Trade balance, October (8:30): -$41.8B expected, -$41.3B September.
Preliminary Michigan Sentiment, December (9:45): 96.0 expected, 93.7 November.
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End part 1 of 3
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world stock market
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