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us stock market, trade stock
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12/11/03 Technical Traders Report Update
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Technical Traders Report Subscribers:
Tuesday and Thursday we issue a market summary and a few choice plays for the next session. Full reports issue Monday, Wednesday and Saturday.
MARKET ALERTS
Targets hit alerts issued Thursday: None issued
Buy alerts issued: TRPH; AOT; MOLX
Trailing stops issued: CKSW; EVCI
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. To subscribe to the Daily alert service you can sign up at the following link:
http://www.investmenthouse.com/alertttr.htm
SUMMARY:
- Broad rally led by small caps, chips, techs
- Surprise. Consumers consuming and businesses producing.
- Nasdaq tries to move back into trend on low volume while small caps surge on solid trade, cyclicals still strong.
Techs and small caps finally 'get right.'
The rotation into defensive and cyclical stocks managed to hold up long enough to keep money in the market while techs and small caps sold off. That was one of the scenarios we discussed the past week, and it seems that the small and mid-cap test of the 50 day MVA along with the Nasdaq undercut of that level was just enough to get the shorts to take some gain, and when that happened some more shorts covered and then the long side joined in. The result was a continuation of the Wednesday recovery and much more as stocks surged across the board (3:1 NYSE breadth) with the recent laggard techs, small caps, and semiconductors leading the upside move. It appears, for now, that these stocks finally 'got right' for the buying, at least enough for one more try at a holiday rally.
It is always good to see the leadership actually take the lead. It would have been better if volume had been better. NYSE volume rose and again topped average. Nasdaq volume was again slightly above average, but it did not rally sharply as the techs turned back above the 50 day MVA. Even the Nasdaq 100 volume was lower, indicating the big techs bounced, but on lower trade. Some stocks gained on strong trade, some did not. While breadth was outstanding, the conviction was questionable. But for it being close to Christmas, we would not think much of the action on Nasdaq, i.e., a late trend rally that is getting more volatile. This action still begs a correction in the future, but with the holiday at hand we can see some good trades arising. We have to remain wary, however, for the correction that is going to come. We don't want to be accused of being bears; a correction will be overall a healthy thing for the market. With the Thursday move, Nasdaq is trying to put that off once again. The volatility and volume swings in both directions probably won't end, but they may be put to rest for a session or two.
THE ECONOMY
A full ledger, most of it good news, helped keep spirits bright regarding the economy. Even the Fed joined in late in the session with a rosy outlook from the minutes of its prior meeting, and some traders credited that with the afternoon jump higher.
Retail sales 'surprisingly' strong.
November sales rose 0.9% versus 0.7% expected and 0.0% in October. That is the strongest gain in 8 months. Solid gains, and October was revised from -0.3%. Take out autos and sales rose 0.4%, still better than the 0.3% expected. Cars were strong again, up 2.6%, and furniture rose 1%, its ninth consecutive gain as homebuyers stuffed their acquisitions with new sofas, entertainment centers, etc. Energy sales rose as well because gasoline prices rose (+1.6% versus -1.9% in October). Remember, retail sales are measured in terms of dollars spent, not units. Thus higher prices give the impression of better sales. When worried about deflation you would not mind seeing higher prices. Now that it appears that worry has been dismissed, higher prices eventually become a concern. It is clear that retailers are offering fewer discounts this year, and that is a direct factor in retail sales results. Thus the sales gains are a combination of a continued solid consumer along with stronger pricing power.
October business inventories rise more than expected.
0.4% was double the 0.2% expected. That shows there is some inventory rebuild ongoing, but the sales that grew 0.7% clarifies the inventory picture even more as the stock to sales ratio fell to a record low at 1.35 months. That means at current levels it would take just 1.35 months to strip the shelves bare.
That is good news for producers, but it also highlights one of the problems that we have noted could pop up, one that we wrote about over a year ago. If demand is stimulated and increases but the supply side remains skeptical and does not ramp up production or make the investment in equipment and help to do so, then you can start growing inflation. Despite what the Fed and government says, there is inflation in the goods and services we buy on a day to day basis. Cars, computers, and electronics may be falling, but we don't buy those every week. The supply side tax cuts are helping, giving businesses the incentive to invest in new equipment when there was no incentive, but they were a bit late. The economy is jumping but production is still lagging well behind. Do not buy into the argument that inflation is not a worry. Overall it is still low, but some further inflation is being baked into the recovery.
Jobless claims rise to 378K; 359K expected.
For the second week jobless claims rose and did so more than expected. Still well below 400K as is the 4 week average (364,750). The 2-week rise is not troubling yet, but we don't want to fall into the trap experienced earlier in the year when they dipped only to climb back over 400K. That appears unlikely, and it is not on the top of the list of concerns yet.
October FOMC minutes point to long term lower rates.
The FOMC basically felt there were no inflation prospects for 2004, implying nothing would be done until 2005. The Fed sees the slack labor market and still sluggish production keeping some disinflation alive. In short, the Fed feels that it does not have to take 'the usual steps' (i.e., rate hikes) to head off inflation even with the strong GDP growth. As noted, there is some inflation, just not strong levels in the aggregate. That is disturbing to many consumers who see prices rising. It is also disturbing to some very good investors such as Jimmy Rogers who also look at the rise in prices for consumer staples and wonder about the 'lack' of inflation.
Summary: What does all this mean? That the recovery is still working, that the economy is starting to expand, but it still has a lot of hangover to work off. There is still a lot of doubt about the prospects for 2004, and that tells us that the recovery has not moved out of the second phase of some acknowledgement of improvement but still quite skeptical of the future. 'Sustainability' is still the new buzz word the analysts like to kick around. In the bigger picture that sentiment is as good as the economic news we have seen for the last several months.
THE MARKET
Small caps and mid were back in force, leading the market higher. SOX posted a slightly larger gain, but it tends to run up and down with much more volatility. It was an impressive small cap move, and their re-entry to the upside helped push breadth past 3:1. The small and mid-caps continues their solid uptrend after a test of the trendline, and the SP500 surged off of the 18 day MVA on rising volume. By the way, DJ30 hit and closed over 10,000.
Okay. Nasdaq moved back over the 50 day MVA and is going to try to re-enter the higher uptrend again. It made a higher low, so it is technically still in an uptrend. By rebounding it helped the rest of the market make their stellar moves. The rotation into cyclical and defensive stocks has taken place, a holding place for market dollars as techs sold off. Thursday traders were ready to move back into techs and small caps after they had been roughed up. Interestingly, the large caps and cyclical stocks did not sell off. The tide was lifting most all boats Thursday. That is what you want to see in an attempted resumption of an uptrend.
We still don't like the action on Nasdaq. It has been exhibiting the type of volatility and volume swings that alert you to some topping action. While we will look at playing some shorter term moves toward Christmas and the new year to take advantage of the move, we are not forgetting the increased volatility that is often associated with an index that is ready to top and form a deeper consolidation.
Market Sentiment
VIX: 16.73; -1.14
VXN: 26.15; -1.69
VXO: 15.86; -1.47
Put/Call Ratio (CBOE): 0.67; -0.14
NASDAQ
Easily reclaimed the 50 day MVA, but volume was still quite low, indicating no major accumulation.
Stats: +37.67 points (+1.98%) to close at 1942.32
Volume: 1.814B (-7.27%). Volume did not rise commensurate to the point gain, just hitting average on the session. Not the stamp of overall investor approval.
Up Volume: 1.57B (+719M)
Down Volume: 205M (-891M)
A/D and Hi/Lo: Advancers led 2.87 to 1. Excellent breadth as a trump to the rising decliners Wednesday.
Previous Session: Decliners led 1.96 to 1
New Highs: 135 (+39)
New Lows: 24 (+3)
The Chart: http://www.investmenthouse.com/cd/^ixq.html
Jumped over the 50 day MVA (1915) as well as the 18 day MVA (1938). Good start though still below the up trendline (1965). As noted Nasdaq made a higher low, maintaining an uptrend though now flatter. In addition the lack of volume it still has considerable headwinds at the December high (2000) and November high (1992). Nasdaq has lost some of its stamina over the past month and one half, becoming more volatile as it jumps higher on volume just to reverse on volume and vice versa. It is as if it needs some valium to calm the volatility and some Viagra to give it the stamina to push ahead. Problem is, with the lower volume Thursday you cannot be sure what it has in store the next session. We remain wary and on a continuation of the move watch for resistance at 2000.
S&P 500/NYSE
Nice jump off the 18 day MVA on rising volume, pushing it to a new 52-week closing high.
Stats: +12.17 points (+1.15%) to close at 1071.21
NYSE Volume: 1.429B (+1.94%). Volume improved, coming in well above average and trumping the prior two down sessions. Cannot complain about this move.
Up Volume: 1.236B (+720M)
Down Volume: 185M (-695M)
A/D and Hi/Lo: Advancers led 3.12 to 1. Outstanding upside breadth, easily trumping any of the downside breadth on the pullback.
Previous Session: Decliners led 1.59 to 1
New Highs: 263 (+116)
New Lows: 13 (+2)
The Chart: http://www.investmenthouse.com/cd/^spx.html
The nice reversal Wednesday to hold the 18 day MVA (1059) paid big benefits Thursday with a surge off that support level on solid trade. That put SP500 at a new 52-week closing high though still below the recent highs at 1074. That seems somewhat academic, but there is also some resistance at 1080 and the upper channel line at 1086. With this higher low and bounce on volume, however, SP500 is looking stronger, ready to run to 1100. Would like to see what it could do with some Viagra.
DJ30
Stats: +86.3 points (+0.87%) to close at 10008.16
Volume: 208M versus 220M
Jumped off the 10 day MVA (9901) to a new 52-week high as the blue chips continued to build on the Tuesday breakout. CAT, IP and company continued the cyclical/old economy move even with the tech and small cap recovery, retaking the up trendline. That was the really impressive part of the move, not the close over 10K. 10,000 finally looks to be giving way after attracting the index and then trying to repulse it. The ability to bounce right back and retake the level is another good sign of strength in the move.
FRIDAY
Not the same level of economic data Friday, but the trade balance out before the open will receive significant attention as it is cited as one of the problems with the economy and many will want to see what effect a weaker dollar is having. Michigan preliminary sentiment is also out, but again, we don't expect these reports to get the market all fired up either way.
Friday will be interesting in many ways, one being whether it can follow a good move with another good move or reverts to the selloff on rising volume pattern that cropped up the past two months. There were many rebounds Thursday, but a lot of stocks just made it up to or are still below the recent support levels they broke in the selling. While all boats were lifted Thursday, we don't expect that to remain the norm. It will still be a matter of looking for the individual good rebounds on volume from stocks that are not significantly extended. We will also continue to look for those stocks that are rebounding back up to test support just broken. As noted, many stocks bounced Thursday, but not all reclaimed support; those are candidates for downside plays following a lower volume relief bounce.
Thus we approach Friday carefully to the upside just as we did Thursday when we took some positions but were not jumping in with both feet. The volatility in the moves warrants continued caution as we play this bounce as a relief bounce with Nasdaq 2000 as a point where the rebound could fail.
Support and Resistance
Nasdaq: Closed at 1942.32
Resistance: The March/August up trendline (1965). November high (1992), December high (2000). The January 2002 double top (2044 to 2099).
Support: The 18 day MVA (1938). The 50 day MVA (1915). 1875 to 1880 is the bottom of the November range.
S&P 500: Closed at 1071.21
Resistance: 1080 from February 2002 lows. 1074.30, the December intraday high. The December to June upper channel line at 1086. 1100 represents some early 2001 lows. 1150 to 1175, the early 2002 double top.
Support: November high (1061.40-1064). The 18 day MVA (1059). The exponential 50 day MVA (1046). 1030 to 1032 (early September highs).
Dow: Closed at 10,008.16
Resistance: 10,259 (January 2002 high).
Support: The March/September up trendline (9996). The November high (9903). The 10 and 18 day MVA (9901 and 9856). The October high (9850). The exponential 50 day MVA (9740).
Economic Calendar
12-09-03
Wholesale inventories, October (10:00): 0.5% actual, 0.3% expected, 0.3% September (revised from 0.3%).
FOMC meeting results (2:15): No change in rates. Output expanding, employment improving. Risks between lack of inflation and inflation balanced. Maintaining accomodative policy for "considerable period" of time.
12-11-03
Business inventories, October (8:30): 0.4% actual, 0.2% expected, 0.4% September (revised from 0.3%).
Retail sales, November (8:30): 0.9% actual, 0.7% expected, 0.0% October (revised from -0.3%).
Retail sales ex-autos (8:30): 0.4% actual, 0.3% expected, 0.4% October (revised from 0.2%).
Initial jobless claims (8:30): 378K actual, 359K expected, 365K prior.
FOMC minutes (2:00): Hinted no need to raise rates for all of 2004, but it could if things changed enough.
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.
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.
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