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us stock market, understanding the stock market
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12/23/03 Investment House Daily
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Investment House Daily Subscribers:
Since it is supposedly politically incorrect to mention any religious holiday by its name, we are going to do just that. Merry Christmas, Happy Hanukah, Happy Holidays! Whatever you believe may you find peace and happiness at all times of the year.
Christmas Week 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 Tuesday: None issued.
Buy alerts issued: IVIL (bonus alert)
Trailing stop alerts: SWC (took rest of position off table).
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:
- Holiday rise continues, but NASDAQ and SOX take over the lead.
- Blistering Q3 GPD finalized, inventories cut even more than expected.
- NASDAQ leads, another round of new 52 week highs on large cap indices.
- MU beats street, breaks even; chips mixed after close as a mad cow rounded up in Washington.
NASDAQ takes over lead of the holiday rise.
The trend is up and in light volume holiday sessions stocks tend to follow the existing trend. Stocks followed the trend, but not in the same order as the past month. NASDAQ and the chips took over the lead while DJ30 took a breather. As noted Monday, the techs and chips are in consolidations with NASDAQ moving laterally in a 3 month consolidation. It is moving toward the top of its range near 2000, and the Tuesday action continued that move. We do not think this is going to turn into the breakout point for those stocks but more of an oversold bounce as it moves through the consolidation. Many NASDAQ stocks are still in weak positions to rally from and need more basing to set up the next strong move. We still think that the cyclical stocks have more upside on this move before they are shunned once again in favor of growth stocks. The Tuesday action was something of a mid-move adjustment where some froth was bled off the cyclicals and some bargain hunting on techs after three months of lateral movement.
Stocks were pushed around some. After an early rally the indexes slumped into a mid-session fade. NASDAQ held up relatively well, showing that newfound strength. It started back up in the last hour and dragged the other large cap indexes with it. Basically, when the action started to get shaky, the trend took over and stocks rose to the close. Light volume, middle of the road breadth, few breakouts; all characteristic of a holiday rise.
THE ECONOMY
GDP final for Q3 holds at 8.2%.
GDP did not change from the prior revision, still showing that incredible surge that more than doubled the 3.1% Q2 growth. The consumer spending has analysts worried about Q4, but as discussed below, there are many other factors long dormant that are helping the economy. One that really has yet to kick in is the inventory scarcity. Inventories dropped $9.1B in Q3, double the $4.5B in Q2. That was even more than reported in the last revision. Heading into this holiday season they were low, and they are being rebuilt even now. That will add quite a bit to the Q4 GDP. No 8%, but it will be solid.
Personal income in November surpasses expectations, spending misses expectations as does Target (TGT).
Incomes rose 0.5% (0.4% expected), the third straight month of solid gains. Spending was up as well, but at 0.4% was below the 0.7% anticipated. The latter was a disappointment for the retail sector still hoping for that big holiday. The sentiment was not helped when TGT announced that it was missing its December target. For those feeling glum about the still tremendous spending this holiday season, take heart: a sustained rise in incomes inevitably leads to rising spending increases. The income rise was the fastest since May's 0.6% gain. Wages and salaries increased 0.3%, driving a large part of the gain. That too was the strongest since May. Rising wages eventually lead to rising spending. Combined with the tax refunds that are going to come in the first quarter from overpaid withholding, those disappointed with this holiday season will be pleased with the sustained spending through Q1 and even beyond in 2004. Indeed, the November and December spending will easily make this the best holiday season since 1999.
Additionally, even though the consumer may be showing less strength than hoped during the holidays (though this is far from being confirmed other than the squeakier geographical regions getting all the attention), business spending continues to surge. This was the first missing link in the economic recovery, holding back spending and employment. As the GDP report shows, business continue to expand their spending based on tax incentives and improving business. Business still has to rebuild inventories that are at record lows in a stock to sales measure. Those focused only on the consumer (a consumer that has not gone away) are once again missing the entire picture.
Michigan sentiment rises past preliminary, still lower than November.
The Michigan survey continues to be out of step with other surveys that have over the past two years proved to be more accurate gauges of consumer sentiment. Its December reading bumped up to 92.6 from 89.6 in the preliminary report. That was still down from the 93.7 November reading. It did not include the increase in the terror warning, so its reading is simply lower. We are considering ignoring this report in the future as it has been inaccurate, lagging the other sentiment surveys. It is still, however, a decent reading.
THE MARKET
Monday night we mused about an anticipated pullback in DJ30 and SP500. It started Tuesday with a very mild pullback. In the late rally, however, they pulled back positive. The gains were negligible, however, so it really was a day of rest as they turned the reigns over the techs and chips. While we don't think this is the baton pass from cyclicals back to the growth areas, it does show the continued reluctance for money to leave the market: as the recently leading cyclical indexes rested, the laggards rallied. Classic action as some beleaguered techs rebounded (though not all are in need of rest, e.g., EBAY, QCOM) from the selling.
Small caps sat out much of the move, still lagging the other indices as they have done the past month. This was a very noticeable hole in the move. A tremendous surge in the last hour, however, an almost ballistic leap higher, closed them up 1%, pulling them even with the NASDAQ gain. That late recovery by the small caps and the SP500 and DJ30 pushed all of those indices to new 52-week closing highs. Continued solid upside bias, keeping with the market's uptrend. As with NASDAQ, we don't think this is the handoff back to the techs and small caps for the next major rally, just a small round of rotation from an overbought sector to an oversold sector. NASDAQ volume moved out ahead of NYSE trade as NASDAQ started to lead again, but it was not big surge; the volumes are still pretty tight, and that is another indication that the cyclical move is not over yet.
Market Sentiment
VIX: 16.49; -0.45
VXN: 23.49; -1.26
VXO: 15.57; -0.63
Put/Call Ratio (CBOE): 0.76; -0.22. Fell back after reaching over 0.90 on the Monday close. It is notable that NASDAQ took the lead when the put/call ratio climbed to 0.98 on the close
NASDAQ
Took the reigns and led the market higher, moving the index toward the top of the 2-month range as volume edged up.
Stats: +18.98 points (+0.97%) to close at 1974.78
Volume: 1.329B (+2.76%). Still well below average and no 'surge', but it did rise as NASDAQ took the pole position again.
Up Volume: 923M (+200M)
Down Volume: 382M (-174M)
A/D and Hi/Lo: Advancers led 1.84 to 1. Breadth was flat all session and then climbed to quite respectable levels by the close given the late surge.
Previous Session: Advancers led 1.07 to 1
New Highs: 190 (+36)
New Lows: 8 (+3)
The Chart: http://www.investmenthouse.com/cd/^ixq.html
Continues the 2.5 month lateral move, using the 50 day MVA (1923) as the rising floor below a constant top near 2000. that is the classic and distinctive ascending triangle pattern that can yield big breakouts. Many of the large cap techs, however, are not in the same pattern but are instead still working on lower lows as they form the first half of their bases (e.g., AMAT, DELL, QLGC). There are others, however, that are flat out trending higher (e.g., QCOM, EBAY) and still others ready to do the same (e.g., INTC, YHOO). While we do not think it is time for NASDAQ to make the move, NASDAQ often acts like an undisciplined teenager, doing what it wants as opposed to what we think is best for it. Thus if we see the breakout manifested in key stocks we will be buyers. Unfortunately volumes will be muted, and getting an accurate read on any such move will be difficult. The breakout for NASDAQ is over 2000. That gives it a bit of room to run up to the early 2002 double tops at 2048 to 2100.
S&P 500/NYSE
Opened lower but rallied back late, following NASDAQ for a change, but still making yet another 52 week high.
Stats: +3.08 points (+0.28%) to close at 1096.02
NYSE Volume: 1.141B (-7.76%). Volume continues to wane. SP500 was going to take a snooze Tuesday until NASDAQ made it get up and rally to the close.
Up Volume: 706M (-118M)
Down Volume: 423M (+18M)
A/D and Hi/Lo: Advancers led 1.71 to 1. Improved late as well as the index rallied to the close.
Previous Session: Advancers led 1.67 to 1
New Highs: 461 (+62). These are not very impressive numbers.
New Lows: 4 (-2)
The Chart: http://www.investmenthouse.com/cd/^spx.html
What can you say? The large caps continue to post successive new 52-week highs in an impressive run off of the 50 day MVA (1056), the longest such rally off this level since it started the April breakout. Is it starting a new such run along the same angle of attack from March to June before it leveled off in the summer consolidation? You cannot say at this point. What we can say is that it made a high volume break higher last Thursday and is trying to embark on such a move. Though volume fell off this week, that is as expected given the holidays. Suffice it to say SP500 was making a solid volume move before everyone went home. It will need to take a breather, but it could very well be starting another steeper leg higher as other large cap stocks outside of the recent leading cyclicals join in the move. If they continue to run together, that is what powerful moves are made of.
As it is SP500 still has resistance at 1100 to 1106 and it gets pretty congested from there on up to the 1150 to 1175 early 2002 double tops. Again, the move started well, it still has some upside room, and the holiday trend is helping. It is going to have to take a breather as it tried Tuesday, but that won't be a disaster, just something needed. We continue to keep an eye out for the time when its cyclical components start to sell on volume. That may or may not happen, but typically when the growth stocks return to favor the cyclicals return to general lethargy.
DJ30
Stats: +3.26 points (+0.03%) to close at 10341.26
Volume: 151 million versus 165 million
The blue chips were set for a siesta, kicked back in the shade and had the hat propped over the eyes. It was lagging, just slightly negative almost the entire session. When NASDAQ kicked it into gear the last hour, it gave the Dow a shake to wake it up, and DJ30 shuffled positive and then sat back down. Low volume, doji on the candlestick chart, long 720 point run to this point. It wanted to rest and is resting. Christmas may not let it do so. May take until the following week or even after January 1 to really pull back to take a bit of froth out. It is slowing some here at 10,353 resistance (May 2002 highs), and that may be enough to just stall it out for that rest. It is not one to bet against, and if INTC, IBM, and HPQ continue to shape up and then break higher, DJ-30 is going to continue higher as well, on toward the 10,500 to 10,600 levels where a multiyear level of overhead supply resides. DJ30 will have a tremendous struggle to make it through that level, and it may take quite some time to pull it off.
WEDNESDAY and FRIDAY
Jobless claims, durable goods before the open, new home sales at 10ET. Short session, closing at 1:00ET. Thus there won't be a lot of time for stocks to put together moves that will be clearly strong or not. There will always be solid moves and we will be looking for those.
Certainly MU will influence the action. It reported breakeven results versus expectations of -0.06 per share. Chip stocks were higher and lower after hours. Overall the bias was up, but it was hardly a blowout (of course most all traders ran as soon as the bell rang). Then there is the first case of mad cow disease in the US, showing up at a Holstein in Washington state. MCD and other burger joints and meat packers were off after hours; MCD can trace all of its beef to certain feedlots, so it will be able to say yes or no with respect to whether there is any chance that meat got into its supply chain. Questions after the announcement included whether just one cow can have mad cow disease or if it necessarily requires other infected cattle. I don't know that answer, but then again, I ate a steak for lunch and may be suffering from mad cow disease as I type.
DJ30 looks ready to try and take another breather. It is extended, but if IBM, INTC and the tech components make the moves they are set up to make, DJ30 will try to continue the move. If the market wants to sell some, the mad cow news will give it an excuse. Even then we do not anticipate major selling. That leaves terror attacks with the latest being that terrorists may have infiltrated foreign airlines as trained, licensed pilots with plans to fly them into US targets. Christmas and New Years have been cited as possible times, but there is nothing definite. It was enough for the installation of interceptor missile batteries at the White House and Capitol.
With DJ30 looking a bit winded and NASDAQ and small caps perking up, the half session both Wednesday and Friday could see the continued leadership by NASDAQ. Again, while we do not expect a NASDAQ breakout, we are not going to discount that move. With the light volume, however, whether such a move holds up after January first is problematical. We will look for good movers, but we are not sure we are going to find many that we want to buy into. We saw a few moves Tuesday that were tempting, but there was just no volume. You have to weigh opening a position that is moving on holiday cheer but no volume versus what will happen when reality comes back. You have a couple of days of rallying that gets tossed back in your face. That is why we want to see the good moves on our plays on the reports.
Support and Resistance
NASDAQ: Closed at 1974.78
Resistance: The March/August up trendline (1985). November high (1992), December high (2000). The January 2002 double top (2044 to 2099).
Support: The 18 day MVA (1943). The 50 day MVA (1923). 1875 to 1880 is the bottom of the November range.
S&P 500: Closed at 1096.02
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 1085. 1080 from February 2002 lows. The 10 day MVA and the 18 day MVA (1081, 1074). November high (1061.40-1064).
Dow: Closed at 10,341.26
Resistance: 10,353 from May 2002 high. 10,600 (March 2002 peak).
Support: 10,259 (January 2002 high). The 10 and 18 day MVA (10,174 and 10,071). The November high (9903). The exponential 50 day MVA (9867). The October high (9850).
Economic Calendar
12-23-03
Personal Income, November (8:30): 0.5% actual, 0.4% expected, 0.2% October (revised from 0.4%).
Personal Spending, November (8:30): 0.4% actual, 0.7% expected, 0.1% October (revised from 0.0%).
Q3 GDP, final revision (8:30): 8.2% expected, 8.2% prior.
Michigan sentiment revised, December (9:45): 92.6 actual, 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 2
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us stock market
understanding the stock market
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