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us stock market, understanding the stock market
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12/22/03 Investment House Daily
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Investment House Daily Subscribers:
Holiday Schedule:
Monday: Reports will issue as usual.
Tuesday: Market summary and continuing play tables given shortened Wednesday session.
Wednesday: Half day session. No reports.
Thursday: Christmas
Friday: Half day session. Market summary, note best plays, stock summary tables
Alerts will issue as usual.
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MARKET ALERTS:
Target hit alerts issued Monday: None issued.
Buy alerts issued: GNLB
Trailing stop alerts: None issued
Stop alerts: 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/alertdly.htm
SUMMARY:
- Stocks rise on low volume with the trend ahead of holidays.
- Good retail weekend but retailers glum.
- Market will need a pullback, but just going with the flow for now.
Market moves with the trend on afternoon rally.
The market shrugged off the raised terror alert status, rallying in the afternoon session to post modest but steady gains. Though the weekend reports addressed a potential terror attack as a market influence, we did not have any inside knowledge as to the alert status being raised. The severity of potential attacks being discussed is much greater than we believe are the type that would occur; even with the threat of potentially extreme attacks, however, the market took it in stride. It seems the US markets are starting to respond to threats much as the Israeli market, i.e., somewhat acclimatized to the reality of continuing threats against us. That does not mean they would hold up without a hiccup in the event of an actual attack, but they will be quick to assess the impact and get back to business much faster.
Monday they were back to business after a morning slump. The afternoon saw large cap cyclical as well as any size commodity stocks continuing their move higher. The trend of rotating money to the large cap indexes continued. Indeed all of the indexes were on board for the session with the small and mid-caps right up there with the large cap indexes. Techs and chips, though they managed a gain, lagged again. That too, however, is a continuation of the trend. The indexes are going to need a breather at some point, but the holidays tend to let the trend control the action, and that is the way it was on Monday.
THE ECONOMY
Strong weekend but retailers complain it is not enough.
The weekend saw full parking lots and a lot of shoppers. Not just lookers, but buyers. Retailers were upbeat about the weekend action, but those from the Midwest and the northeast hit with the early month snowstorms still said the weather related deficit was too much to make up.
The reports make it sound as if this is going to be a crappy holiday season. It is not. We are talking upper range here, not mid-range or lower. This is going to be a good year, maybe not a great year based on the reports from those stores in the 'snowstorm belt'. The reports we are getting from the rest of the country are very encouraging as far as parking lot surveys, mall traffic, and of course, sales.
What does that mean? For one, the griping about not having a blowout season may be premature. Recall how 2002 was going to be a horror story, but a late surge, online shopping, and gift carding all added up to a nice, much better than anticipated season. In other words, the results are not in and they could change quite a bit. Gift cards are again one of the favorites for the 'who the hell knows what Uncle Bill wants' crowd. They beat the heck out of bobble heads. We are hearing online sales are very big, and not just from AMZN. Many shoppers we have surveyed from various socioeconomic levels indicate a heavy reliance on internet and catalog sales, especially those that could not get out due to the blizzards. In 'Jurassic Park' the chaos theory scientist (Jeff Goldblum) kept saying 'nature finds a way.' It is in the nature of consumers to consume. Thus consumers, like nature, seem to find a way to consume.
It may not be a blowout season. Like a championship run with a sports team, a lot of factors have to fall into place, and some of it involves luck. Bad weather was bad luck. It does not mean that the consumer has gone soft, however, as some are trying to make the case. Indeed, there is strength in the consumer in areas not seen for two holiday seasons. 2001 and 2002 were dominated by Wal-Mart during a nasty plunge in economic activity. Now you see NMG, TIF, SKS (all high end retailers), and HZO (high end boat sales) logging nice sales. You can see it in their stock charts as well. While this has been noted in many reports (including ours), there is no discussion of the significance. Boat sellers have known for a long time how to judge the economic cycles. High end boat sales are the last to fall off in an economic slowdown and the first to snap back in anticipation of an upswing. In early 2001 we noted that small boat sales were weak while the big boats were still selling. February 2002 saw everything flat. 2003 saw big boats selling again, with $250K and over boats dominating show sales. That indicated the economy was coming back even before the Iraq war, another indication that the market was again already pricing in economic gain. The retailers are showing the same indication.
THE MARKET
DJ30 and SP500 may need a breather soon, but they were not taking it Monday. After a faltering morning they reversed and rallied to new 52 week highs once again. Breadth was poor, volumes were light, but the trend in place remained, and the majority of stocks benefited to the upside. The holiday rally is simply a continuation of the action seen the past 5 weeks ever since DJ30 bounced off its 50 day MVA: money has been leaving techs in general to lock in those gains, but staying in the market and moving to cyclical stocks as the money funds decide if they want to stay in or get out.
Tech stocks and chips lagged again. It was good to see the small and mid-caps right up there with the leading SP500 and blue chips. None of the gains were huge, just a continuation of the entrenched uptrend. NASDAQ went along for the ride; SOX, well, hung on. The nice thing about the market action with respect to these two sectors is that money is staying in the action while these stocks base and otherwise consolidate their gains. That means when the time is right, the money is there to move back into the market growth stocks that really propel the market higher. Thus, when the cyclicals peak out, the market wont' collapse. The tech stocks will be 'recycled' and ready to go at that point, ready to pick up the torch and post some real gains, at least until they hit the 2002 double top levels. Then we see what the growth stocks are made of.
Volume was very interesting again, and it is an indication that NASDAQ could be ready to start leading again after the cyclicals peak on this run. NASDAQ, and even more so SOX, have had plenty of opportunity to fold up and really fall, but have not. They have been, as we have noted, consolidating and building bases. They may have more downside, but NASDAQ is showing a lateral consolidation. What does volume have to do with this? As we saw at each rally attempt in the downtrend and again heading into the October 2002 bottom, NYSE volume rises proportionately to NASDAQ volume. NASDAQ is the speculative index; thus it generally has higher volume. When the speculation dries up as indicated by the relative lack of trade in speculative stocks, when you see cyclical stocks with little growth potential rallying sharply into an established economic recovery on volume that is relatively stronger, the speculative hat has been switched. At some point in the future, perhaps after the first of the year, the hammer will fall and the cyclicals will sell and the growth stocks will be bought again.
Market Sentiment
VIX: 16.94; +0.52
VXN: 24.75; -0.14
VXO: 16.2; +0.15
Put/Call Ratio (CBOE): 0.98; +0.18. Another sharp rise in put activity even as the indexes rallied. We saw this on Friday and attributed it to the expiration period. Are speculators buying puts in anticipation of the cyclical stocks peaking? Are fund managers buying puts to protect the upside? Most likely it is more of the latter as money funds are keeping their gains in the market. It is a very interesting development, and we are watching it with respect to the idea that NASDAQ has been under consolidation. We think it still has more consolidating to go and that would make this put/call indication premature.
NASDAQ
Held the short term MVA as it continues to work off of the 50 day MVA. The volume indicates the action was more consolidation action.
Stats: +4.78 points (+0.25%) to close at 1955.8
Volume: 1.293B (-31.52%). Volume plunged as most big money traders are taking the week off. No trading in tech stocks even as the large cap defensive and cyclical stocks catch up in volume.
Up Volume: 723M (-122M)
Down Volume: 556M (-437M)
A/D and Hi/Lo: Advancers led 1.07 to 1. Decliners led all session until the last push higher jumped the advancers into the lead.
Previous Session: Decliners led 1.13 to 1
New Highs: 154 (-17)
New Lows: 5 (-6)
The Chart: http://www.investmenthouse.com/cd/^ixq.html
NASDAQ continues its more or less lateral move, holding over the 18 day MVA (1940) and right in the middle of the range in its 11 week sideways pattern. It is still in the uptrend, though the rate of ascent is slowing. Volume has dropped off the past two weeks overall as it holds over 1900 and near the 50 day MVA (1921). Just letting it work in this consolidation. As stated over the weekend, we would love to see it work the consolidation/correction right now. That would prepare it for the move when the cyclicals peak.
S&P 500/NYSE
Continued the run higher, ramping up the rate of ascent. Have to be careful of that if the index continues a more ballistic rise. That leads to blow offs that roll over and give back much if not all of the last leg higher that started with the increased rise.
Stats: +4.28 points (+0.39%) to close at 1092.94
NYSE Volume: 1.237B (-22.22%). Volume fell, but as noted, relative to NASDAQ volume it was stronger. It fell less than NASDAQ trade and was much closer to average. You can hardly say the cyclicals are getting frothy, but they are very active for their crowd.
Up Volume: 824M (+26M)
Down Volume: 405M (-351M)
A/D and Hi/Lo: Advancers led 1.67 to 1. Very modest A/D line. The smaller and mid-cap stocks rose, but they were not leading the way.
Previous Session: Advancers led 1.07 to 1
New Highs: 399 (+30). New highs are hardly where they should be given the move being made.
New Lows: 6 (-3)
The Chart: http://www.investmenthouse.com/cd/^spx.html
Posted a solid gain, moving closer to resistance near 1100 to 1106. That pretty much starts the move into a range of resistance that culminates in 1150 to 1175 early 2002 double tops. This is a solid move, breaking higher last week on very nice volume. It still has room to the upside and is in a nice holiday trend higher. We are watching for when its cyclical components start to sell on volume, indicating that the move from those stocks is on.
DJ30
Stats: +59.78 points (+0.58%) to close at 10338
Volume: 165 million versus 279 million
Continued its solid surge off the 50 day MVA (9847), increasing the tempo the past week as it moves up higher off of the 10 day MVA. The May 2002 high is at 10,353, but it is showing no signs of slowing for that speed bump. It is in rally mode now, and the increased plane of attack (steeper rise; wanted to change the lingo some) is indicative of some form of peak coming. It may run on to 10,500 or 10,600 at this rate, the serious, multi-year range of resistance for the index. That will most likely slam the door on the move, and it will probably start exerting some influence well before it reaches that level. For now it rallies and we don't get in its way.
TUESDAY
Some big reports out Tuesday, including final GDP, final Michigan sentiment, and personal spending and income. Sentiment polls across the country have shown surging optimism about the economy and the war. As you recall, the preliminary Michigan survey was way down, out of step with polls that have shown themselves to be more accurate. Michigan needs to keep its subscribers from releasing the preliminary data, or just stop issuing it. All the report is doing is lose credibility as the preliminary releases become less and less accurate. The most important will be the income and spending as these are not revisions and are key to the market right now what with the talk of a weakened consumer and slower holiday season.
All else equal, the market, particularly the recent leaders (metals, industrial equipment, etc.), are trending higher and will typically continue the trend given the seasonal holiday rally in place. At the same time we expect NASDAQ and SOX to lag as they are still working on bases that are consolidating the moves up to October. They could decide to try a jailbreak into Christmas and the New Year, but there is not yet a lot of buying, and the cyclical stocks are still moving higher. We expect a transition between the two, and it does not look as if the cyclical stocks are ready to roll over just yet.
We continue to find stocks that are not over bought or in the throes of a base that are making strong breakout or rebound moves. Cyclical stocks are extended for the most part, so we are not too wild about chasing that bus. Instead we are focusing on the quality patterns that are still out there; medical appliances and other medical and healthcare stocks have formed up well as we have seen. There are also some telecoms and techs that are solid and ready to move. In this low volume rally we are being patient; typically a stock that is going to make a meaningful move will do so even in the overall lower volume.
Support and Resistance
NASDAQ: Closed at 1955.80
Resistance: Price resistance in the 1950 range is still not totally broken. The March/August up trendline (1982). November high (1992), December high (2000). The January 2002 double top (2044 to 2099).
Support: The 18 day MVA (1940). The 50 day MVA (1921). 1875 to 1880 is the bottom of the November range.
S&P 500: Closed at 1092.94
Resistance: 1100 represents some early 2001 lows and 1106 from a May 2002 top. Minor resistance at 1115. 1150 to 1175, the early 2002 double top.
Support: The December to June upper channel line at 1084. 1080 from February 2002 lows. The 10 day MVA and the 18 day MVA (1078, 1071). November high (1061.40-1064).
Dow: Closed at 10,338.00
Resistance: 10,353 from May 2002 high. 10,600 (March 2002 peak).
Support: 10,259 (January 2002 high). The 10 and 18 day MVA (10,137 and 10,040). The November high (9903). The October high (9850). The exponential 50 day MVA (9847).
Economic Calendar
12-23-03
Personal Income, November (8:30): 0.4% expected, 0.4% October
Personal Spending, November (8:30): 0.7% expected, 0.0% October
Q3 GDP, final revision (8:30): 8.2% expected, 8.2% prior.
Michigan sentiment revised, December (9:45): 91.0 expected, 89.6 prior.
12-24-03
Durable goods orders, November (8:30): 0.6% expected, 3.3% October.
Intial jobless claims (8:30): 355K expected, 353K prior.
New home sales, November (10:00): 1.11M expected, 1.105M October.
End part 1 of 3
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us stock market
understanding the stock market
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