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us stock market, trend trading stock
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7/09/01 Investment House Daily
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TONIGHT:
- Selling subsides with an oversold bounce.
- Almost no one seems to think the economy has a chance
- Telecoms keep warning and getting all the press while others affirm and raise targets and get ignored.
- Patience and a cool head go a long way.
- Team Trades
Light volume Monday bounce gives little guidance.
The selling could not hold over the weekend and really drive investors crazy as we wanted. Instead it gave them a reprieve, a chance to catch their breath. When things are selling and are just starting to make investors squeamish, we like to see it go ahead and really put the fear into them with a strong drop. We did not get that today. It was a light volume, oversold bounce that really did not do much of anything except ease up on the fear that was building. In that sense, today was not really good for the market overall; if investors are in a selling mode, lets get it out of the system fast.
Today is exactly what we were talking about over the weekend, and something that did not give us much comfort. We saw a lot of stocks that were roughed up last week move higher, but the moves were mostly on tepid volume and did nothing to break them out of trouble. On the other hand, the stocks that were continuing to hold in good patterns did what they do on days when the market rises after selling off: they moved higher in their patterns, some breaking out, some getting ready to do so.
We will discuss the moves on each index in the 'Market' section, but today's moves higher did not tell much of a story other than the markets were short term sold out and needed to bounce higher. The reflex move was rather timid, unless volume pours in on the buy side, there is not a lot of hope in a sustained move just yet.
Sold out on the bad news and gloom?
Last week the selling was increasing in intensity, but it never came close to the volume hit on the moves up the prior week. Thus, even though it appeared bad from what all the commentators were saying, the volume indicated no heavy institutional dumping of the stocks they just bought a week prior. The indexes continued to get roughed up, but the broader market of stocks tended to hold up decently.
One of the theories we have been arguing back and forth here is whether the market was getting sold out ahead of earnings, i.e., pricing in all of the potential bad news ahead of the event. That would allow for a move higher into the actual earnings when those earnings come in a bit better than the anticipation based on the AMD and EMC warnings. Indeed that could lead to a nice pop upside when the worst fears were not realized. How long it lasts? Remains to be seen if there is some good guidance going forward. If some companies can corroborate what the recent economic numbers are showing us, that could start the next phase of the rally.
Problem with today: it did not tell us a thing other than the action was a weak bounce. As we note later, patience is the key for now.
Economy bad-mouthed again.
About the only one talking up the economy at all is the Secretary of the Treasury, Paul O'Neil. He believes the U.S. will escape a technical definition of a recession and show good growth in the second half; not great growth, but 3% to 4% in Q4. But for Mr. O'Neil, that about does it for those with good things to say. On the tube it was more negative views from the 'reporters' and the analysts. Seems that all of the recent improving and actually good economic news is being discounted as an aberration as the focus is on telecoms and networkers and tech. It is as if those are the only aspects of the economy and that anything outside those areas is doomed by a slowing Europe.
This is not surprising. In 1992 all the media could report was how that recession was the worst one since the Great Depression. That was absolute nonsense; it was not even close. Even as the Secretary of the Treasury at that point was saying that there were 'robins on the lawn,' no one was listening: business leaders, the media, those running for office, and even the kids selling lemonade on the street were moaning about how bad things were and how the U.S. was going down even harder. Of course, in the fourth quarter of 1992 the U.S. enjoyed 4% economic growth, i.e., it was growing even as the major newspapers, magazines, and analysts were saying things were only going to get worse.
As we have pointed out over the last three weeks, the parallels are amazing between then and now. All we needed was the economic downturn to have occurred last spring and summer and we would have had the national elections coincide with the script once again. That is about the only difference. The entire country seems negative on the economy even as there are solid, tangible signs that it is turning back up.
The trick: don't get sucked in by the negative news so much so that you discount solid patterns in solid stocks in solid sectors when they are in front of you. Sure the negative sentiment can drive things down as we saw with the irrational selling ahead of actual earnings just after investors got the good economic news and started pricing in better times ahead. That is why we cannot just buy into the old names and think we are going to be okay. Those stocks get jerked back down when the sentiment turns.
We MUST realize that the negative climate leads to short term ups and downs in the beaten up stocks as they are jerked back and forth by news and sentiment. We HAVE to look at the good patterns further out. We HAVE to employ loss cutting rules if a play does not work out. We HAVE to keep our investment capital intact so we can take advantage of those stocks breaking out of good patterns and giving us good news; that way we can take advantage of the opportunities to maximize our gains WHEN they arise. We have to be able to buy when the time comes. That is why it is critical to stick with good stocks in good patterns and keep realistic stop rules in place. Know the real story so we can be ready, and also know what stocks to buy and what to avoid. That is our goal right now. That takes patience, but the rewards even in a choppy market are there.
THE MARKET
Nothing really positive today from a technical stance. A low volume bounce does not change the outlook either way as we wait for the first earnings to come in later this week.
Overall market stats:
VIX: 24.55; -0.42. Volatility edged back on a mild gain. It is still in the 'middle' range, but it definitely is not showing fear.
VXN: 51.14; -0.85. Also edged back on a gain in the Nasdaq. Not high, not low, just in a holding pattern.
Put/Call ratio (CBOE): 0.78; -0.15. Dropped off significantly from Friday, but still high. This is what we thought would happen: a weak bounce takes the edge of the fear off and does not finish the job of really scaring investors. Now we still have a high put/call ratio, but that alone has not turned things of late. Better, irrefutable economic news is how this one ends.
NASDAQ: A weak bounce, but it did continue to hold above the gap up point. Still there was very little volume and not a lot of strong action in individual stocks.
Stats: Up 22.55 points (+1.1%) to close at 2026.71.
Volume: 1.4 billion shares (-2.8%). Up volume led 861 million to 510 million downside shares. Positive, but volume was lower than Friday's selling volume. Putting it in perspective, however, the gains a week before were on much higher, above average volume. The recent selling was not. The question is, are those buyers going to come back into the market here, or will they let it slide down further?
A/D and Hi/Lo: Advancing issues took back over, thank goodness, but just 1.18 to 1. No powerful move today. New highs rose to 71 (+16) as new lows fell to 91 (-17).
The Chart: http://www.investmenthouse.com/cd/$compq.html
Not a powerful move, but it kept the index above its gap up point (1995 or so), something that is important in the big scheme. But, it was on light volume again, so there was no real interest in what was going on today just as there was no real interest in the selling last week. It is just hard to get institutions interested. It is good to note that when they have been interested of late, it has been on the buy side, and they have really bought in. So, what are they doing now? Well, they are waiting; waiting for a bit more positive news to start buying again overall as they continue to get into specific sectors that tend to do better when the economy starts to turn. We are doing just what they are doing, following them on the stocks that continue to be in accumulative patterns and making strong moves out of them. The important points here are 1997 on the downside. If it cracks below that level it is problematical where it falls to test the prior low. Again, however, we feel the prior low was the low and the indexes are just now testing that low as the economic news improves. We are being patient and picking up the stocks that lead the way in economic recoveries. The reports are filled with those.
Dow/NYSE: The Dow made a token move at 10,250, a level that has some support behind it. Volume, while still below average, did slightly edge out Friday's selling volume. Again, at least the selling volume was no worse than a weak buying day.
Stats: Up 46.72 points (+0.5%) to close at 10,299.40.
NYSE Volume: 1.045 billion shares (+0.19%). Now that is a move. Up volume was 537 million shares to 482 million to the downside. It was not a powerful move higher, but again, the selling was no more powerful from a volume standpoint. Net, there are no more sellers than buyers, just no buyers right now.
A/D and Hi/Lo: NYSE advancers moved back in front at 1.08 to 1. Friday decliners only led 1.23 to 1. Again, nothing powerful either way. New highs held at 67 while new lows fell to 52 (-26).
The Chart: http://www.investmenthouse.com/cd/$dja.html
The Dow did bounce up from 10,250, but it was for today, and the index is nowhere near out of the woods. It has to resume its pattern of rising on stronger volume here. Unfortunately, even with the stronger volume on the gains, the selling has outstripped buying as far as points. Thus the index has slid below key levels without major selling in the form of volume. Light summer volume can be deceiving in that regard. Thus we look at where it does in fact hold support. For now it did what it had to do for today, but the rest of the week needs to see better volume.
S&P 500: As soon as it dropped below the gap up point and filled the gap, the big cap index moved back up to test that level. 1200 held it up for quite some time, now we will see if that support becomes resistance. The index has now filled its gap; sometimes that means it is ready to move back up. Looking at the pattern, that may be premature. It broke important support and has made a weak move back up to test it. The path of least resistance right now is down to the 1182 level where it made the middle 'hump' in its previous small double bottom pattern. The index just may have to test down further to complete another larger double bottom pattern to start back up once again.
Stats: Up 8.19 points (+0.7%) to close at 1198.78.
Volume: NYSE volume rose to 1.045 billion shares (+0.19%). Not a great move, but at least the move higher was on similar volume.
The Chart: http://www.investmenthouse.com/cd/$spx.html
Summary: We have to be wary of today's move on such low volume. We cannot get too excited about a day of gains off of some potential support in the Dow and Nasdaq (not that anyone was). The market may be sold out for a bit, giving us some upside potential here that will help the solid stocks that we are following. Without further solid economic news and some positive company outlook sprinkled in as well, however, it has a short life expectancy. That is about right; the key here is the economy, something we have been saying all year. It is improving, and the market is off of its lows. It has to show some more now or it will want to test those lows before it moves higher. We still think it has found the bottom, however.
TOMORROW
A quiet summer Monday today as no real bad news hit during or before the market. Tonight GLW (Corning) warned on the second half while NEWP affirmed its guidance for the year. The Corning news was the highlight as it is big and it is a former love flame for many investors. It is in telecom, however, and we know that telecom is going to be hurting for a long time to come. Investors cannot get over that for now, so we need to take note. At the same time, we need to just continue to look for those stocks that are doing well as the former leaders struggle.
The earnings start this week. MOT, JNPR, and YHOO are the traditional calendar quarter companies that get things started. The lion's share of earnings comes out later in the week. That could be interesting. YHOO starts it off on Wednesday, and is expected to actually beat its number. That could coincide with some more good economic news later in the week with the retail sales figure (we hope). The consumer is on the bubble right now even as things improve economically. It has held up when the other economic sectors folded, and the consumer is vital to the recovery.
Right now, however, the market is not showing its full hand. As noted, the path of least resistance is down, but after the recent selling it is set up for a move higher if it gets a catalyst. Problem is, there are not many catalysts out there. We are going to see the overall trend of improving economic data, and that will ultimately be what the move higher is based on. Right now the big names are getting yanked around by news: up on good news, down on bad news. There is not that overall mindset to 'invest' right now. That will be changing again soon. We have seen it start with the big volume moves higher on mutual fund accumulation. We have yet to see the selling outstrip that buying on stronger selling volume. That means to us that institutions are still accumulating stocks in anticipation of better economic times. It is sporadic accumulation right now, but it has started. It just goes in spurts and is working with respect to sectors such as drugs, health care, building, some retail, education. If we stick with the sectors where accumulation is ongoing, we are winners longer term when the economy continues to improve.
Support and Resistance Levels
Nasdaq: Closed at 2026.71.
Resistance: 2160 to 2200. Then 2250.
Support: 1990 to 2000 is still trying to hold. If it cannot that puts looking at 1961, but there is not clear level of support after 1990 breaks.
S&P 500: Closed at 1198.78.
Resistance: 1240 to 1250.
Support: 1200 may now act as resistance. If it bounces the index back down, we look to the head and shoulders bottom and the breakout support from the double bottom pattern at 1182.
Dow: Closed at 10,299.40.
Resistance: 10,400. 10,600 (the 200 day MVA is at 10,589.23). Still resistance at 10,700 and again it is not really clear up to 10,800. 11,000 is possible resistance after that.
Support: 10,200 trying to hold. After that, 9950 to 10,000.
Weekly Economic Calendar (All times Eastern). The figures are the consensus expectations, not ours.
7-9-01
Consumer Credit, May (15:00): $9.4B versus $13.9B prior.
7-10-01
Wholesale Inventories, May (10:00): 0.0% versus 0.3% prior.
7-12-01
Initial Claims, 7/7 (8:30): 391K versus 399K prior.
Export Prices ex-ag., June (8:30): -0.3% versus -0.3% prior.
Import Prices ex-oil, June (8:30): -0.2% versus -0.2% prior.
7-13-01
PPI, June (8:30): -0.1% versus 0.1% prior.
Core PPI, June (8:30): 0.1% versus 0.2% prior.
Retail Sales, June (8:30): 0.2% versus 0.1% prior.
Retail Sales ex-auto, June (8:30): 0.2% versus 0.3% prior.
Michigan Sentiment-Prel., July (9:45): 93.0 versus 92.6 prior.
TEAM TRADES
APOG: A case in point of the right sectors that lead the economy, APOG is in the contracting (construction) business. It is a stock on the TTR we saw breakout over a month ago, and then moved sideways the past few weeks. We saw a really flat, tight range on low volume the past three sessions, and then it roared to life today on huge volume. It took about a half hour to hit the buy point, and we got our Market Alert right after 9:00 am when the stock hit the buy point. Volume was already solid. The stock was trading at 12.17 by 12.20, still well within range, so we stepped in with a limit order at the ask. That was no problem, and then we set back to watch the action. The stock powered up to 12.50, leveled off, and then roared ahead to 13.30 in the afternoon. It sold back in the last hour and closed at 12.85. Volume was huge at 716,000 shares. That is exactly what we wanted on this play, and now we are looking for that nice 20% plus move (choppy market), but will let it run because it is a stock that should outperform even more in a recovering economy.
HRB: A pre-split play that we are really interested in on the SSR, we received a Market Alert on HRB at 11:40 as it crossed 67.50. That is the buy point we were looking for, but it was also at the high of the session and was in the middle of the run over the buy point when we called the broker. We decided to catch this one on the pullback to test the move. It pulled right back below 67.50, so we were going to wait. Told our broker to put a buy order in at 67.50 to catch it on a move back over that level. We waited, and waited and never got the confirmation call. The broker called later and said the stock had pulled back and was about 67. We left the order in, but it was not filled. The stock appears to be moving sideways as it likes to do before it jumps higher. We will reset the alert and get ready for the move again. Patience.
End Part 1 of 2
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us stock market
trend trading stock
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