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understanding the stock market, trend trading stock
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12/30/03 Stock Split Report
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Stock Split Report Subscribers:
Market closed Thursday. Summary reports issued Wednesday, New Year's Eve.
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MARKET ALERTS
Targets hit alerts issued Tuesday: None issued
Buy alerts issued: CKSW; MALL
Trailing stops issued: None issued
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. You can sign up for Stock Split Report alerts at the following link:
http://www.investmenthouse.com/alertssr.htm
SUMMARY:
- Market hung over after Monday run, but sellers never take hold, rallies late.
- Economic data softens in December.
- NASDAQ, SP500 work toward proving up some support after smaller caps hold the fort early.
Sluggish all session but never giving in.
The holiday rally continued, but it was a shadow of Monday's big run. Monday NASDAQ broke over 2000; Tuesday it tested that level and held after some weaker economic data added to the early malaise. Another attempt to sell the market in the afternoon failed again, however, as buyers jumped back in late. That late move closed NASDAQ, SP500, SP400 and SP600 positive on the close. Indeed, the latter two helped prop up the market even as the bigger indexes were trading underwater. The tell tale sign was a positive NYSE A/D line even as those large caps languished. You can always tell that the small caps are active without even looking at them individually when the A/D line is positive as the large caps struggle. Once again a leadership index stepped up when the market struggled and propped stocks up. Money is not leaving the market, just finding those stocks ready to move higher. For now that is the story though we keep that wary eye out for the twin mountain peaks looking just ahead on NASDAQ and the thick layer of clouds over DJ30 10,600.
THE ECONOMY
New York PMI solid but Chicago misses mark.
Before the open the New York region business conditions index jumped to 242.6 versus 227.3 in November. The biggest monthly increase in a decade. Strong stuff. The Chicago PMI was not as hot. After 64.1 in November it fell to 59.2, less then the 62.0 expected. Still showing a solid expansion, just slowing down some. Production fell to 63.4 from 69, while new orders dropped to 65.5 from a blistering 73.3 in November. The employment index, however, increased again, rising to 49.6 from 48.5. That is still showing a slight contraction, but it is on the verge of turning that around. In sum manufacturing may be slowing a bit as suggested by the factory orders last week, but it is still in a solid expansion. The national number on Friday will likely slip as well, but it will still be solid.
Retail sales surge last week.
Various tracking services reported strong sales in a late Christmas surge. Retail sales look to rise 6% in December, and on top of a 5% rise in November, this holiday season is easily the strongest since 1999. Redbook reported chain store sales jumped 3.9% for the week year over year. That is up 2.9% pace the prior week. For the month, sales were down 1% compared to November. Overall it was a solid Christmas week but not enough for the blowout year retailers wanted.
Consumer confidence slips in December but no major crash.
Confidence fell to 91.3 from 92.5, just below the 91.5 expected. The future expectations rose to 102.9 from 100.1, the highest since June 2002. As to the current situation, it fell to 73.9 from 81. The problem is jobs. Those finding it hard to find a job rose to 32.6% from 29.6%. To put the overall number into perspective, it peaked at 144.7 in January 2000 at the very top of the stock market. All in all consumers feel good about the economic improvement, but the jobs will have to come as expected or else the consumer will fade further. The consumer is in good shape still, and with the business recovery that is what has helped the economy recover. Now they are both taking a breather after some heavy lifting. We expect that December will show a pickup in business spending to take advantage of those 2003 tax breaks, and then the consumer rallies in Q1 with the big tax refunds coming due to reduced marginal tax rates that caused excess withholding. That will help keep things rolling along through Q1.
THE MARKET
A sluggish start was really what the market needed. After the solid Monday surge that cleared near resistance, NASDAQ and SP500 came back to test that resistance. They held and the stocks even managed to launch a late run that at a minimum cut the losses. No great surge, but a first test of some potential new support. It is proving that level up, giving it a firmer footing to make the next leg up to the serious resistance ahead for all three large cap indexes.
It was good to see the small and mid-caps positive mid-session as the market struggled. Regardless of what some of the backers of large cap stocks are saying on the air, the smaller caps have provided much of the backbone of the rally, and after years of lagging, they have plenty of upside room to continue doing so. Indeed, it is from the smaller caps that will produce the new leaders again and again as those are the stocks with the new ideas and the best growth potential. GE, MSFT, DELL, IBM, etc. just don't have the ability to grow sales and earnings enough to make then attractive to growth money. Those smaller stocks with surging earnings will command the higher P/E ratios and thus attract the most dollars. They contribute heavily to the rising advance/decline line, and that in itself shows that stocks on the whole remain undervalued in terms of the economic growth potential. That is why we really like what we see when the small and mid-caps step up when the large caps languish.
Market Sentiment
Not much to take from this. These indicators are still dormant.
VIX: 17.68; +0.59
VXN: 23.36; -0.37
VXO: 16.97; +0.93
Put/Call Ratio (CBOE): 0.59; +0.06
NASDAQ
Tapped 2000 down to 1997, held over that prior resistance, and the rallied to the close on some rising trade.
Stats: +3.4 points (+0.17%) to close at 2009.88
Volume: 1.555B (+9.53%). A nice bump in volume as the late surge in price was accompanied by a volume surge as well. Still closed well below average, but not a bad showing in a typically low volume week. The heart was in the right place, but after this week, it takes more than good feelings to hold gains.
Up Volume: 898M (-201M)
Down Volume: 604M (+330M)
A/D and Hi/Lo: Advancers led 1.2 to 1. Came back from negative readings late, but it was never out of control to the downside.
Previous Session: Advancers led 2.34 to 1
New Highs: 301 (-11)
New Lows: 3 (-1)
The Chart: http://www.investmenthouse.com/cd/^ixq.html
As much as there was to say about Monday, there is about equally less to say about Tuesday. NASDAQ fought off a small dip, tapped 1997 on the low and rallied back to close over former resistance at 1992 and a psychological barrier at 2000. This is the first step in proving up those levels as support: a break through resistance can turn that resistance into support if it is able to successfully test that level. Tuesday was a start; typically a further rally followed by a test that holds is what sets a level as support. So far it looks decent as it tries to set a floor for the move up toward 2048 to 2100 where it double topped in early 2002.
S&P 500/NYSE
'Stormed' back for a 0.16 point gain on the close. Weaker trade. Just taking a breather.
Stats: +0.16 points (+0.01%) to close at 1109.64
NYSE Volume: 969.717M (-7.15%). Ran in place on very low volume, pausing after the Monday run. The lower volume indicates no churning, i.e., no high volume turnover that can signal a top being put into place.
Up Volume: 513M (-434M)
Down Volume: 413M (+309M)
A/D and Hi/Lo: Advancers led 1.42 to 1. Was 1.2:1 most of the session with the smaller caps holding things up. The late rally brought some of the large caps in and helped the breadth improve.
Previous Session: Advancers led 3.28 to 1
New Highs: 588 (-54). Still a very solid showing of new highs, an indication of the strength of this move.
New Lows: 8 (-5)
The Chart: http://www.investmenthouse.com/cd/^spx.html
Basically held its own after early modest attempts of selling the index. Two tries failed as the large caps rallied last as well to close positive. No churning, no dumping, just a breather after a strong Monday move. It tapped 1106, a point of resistance it broke Monday, holding that level and rallying. As with NASDAQ, that is part of the process of proving up this level as support; most likely it is not through with it, just working on setting this as the floor for its move toward the 1150 to 1175 peaks of the early 2002 double top. As noted Monday, that resistance level is nowhere near as long or thick as that facing DJ30, but it represents a top from back in 1998 as well. For now SP500 may do some more testing of the resistance it just broke before it is ready to proceed higher.
DJ30
Stats: -24.96 points (-0.24%) to close at 10425.04
Volume: 132 million versus 156 million Monday
The blue chips were unable to close positive, but they did managed to rally off the low (10,405) in a modest bounce toward the close. Volume was very light, indicating no dumping, no churning, just a breather after a strong move through some resistance. DJ30 is now at the upper channel line the uptrend that started as it moved higher out of the June to August consolidation. After 820 points in the rally off the 50 day MVA (now at 9942), a bit of a breather is warranted. The road ahead is pretty clear up to 10,600 where it runs into the lower part of a range of resistance from that point to 11,000. Does not mean it stops at 10,600, just that it may get choppier as some of that overhead supply starts to unload.
WEDNESDAY
The day before the New Year's holiday, a full session but typically light volume. Weekly jobless claims are out before the open, but there is little else in the form of scheduled news. There is always the terror threat, mad cow, retail sales, but that is a potential problem each market day.
As we have seen, lighter volume can create volatility, but we have also seen the trend win out as over that volatility. The uptrend along with an overall inclination for healthy markets to rise during this holiday period has proved a strong one-two punch. While DJ30 appears extended, the small and mid-cap indexes are still in the mid range of their uptrend channels and NASDAQ just broke from a three month consolidation. That consolidation has allowed many stocks to form patterns. As noted Monday they are in various levels of completion. Some broke higher today, and more will be ready over the next week.
Again we look for the good moves on solid trade, but we are keeping an eye out for any headwinds that start to blow from that resistance ahead in the form of churning or actual distribution sessions, i.e., selling on rising volume. Friday is the start of the new year. Given its position on a Friday, it may not show much. The first of January will be very interesting as to whether the money stays in the market and moves around more or it if leaves. Remember, as January goes the market goes for the year, and it is a reliable indicator.
Support and Resistance
NASDAQ: Closed at 2009.88
Resistance: The January 2002 double top (2044 to 2099).
Support: The March/August up trendline (2005). November high (1992), December high (2000). The 10 day MVA and the 18 day MVA (1973, 1961). The 50 day MVA (1933). 1875 to 1880 is the bottom of the November range.
S&P 500: Closed at 1109.64
Resistance: Minor resistance at 1115. 1150 to 1175, the early 2002 double top.
Support: 1100 represents some early 2001 lows and 1106 from a May 2002 top. The 10 day MVA and the 18 day MVA (1094, 1084). 1080 from February 2002 lows. November high (1061.40-1064).
Dow: Closed at 10,425.04
Resistance: 10,600 (March 2002 peak).
Support: 10,353 from May 2002 high. 10,259 (January 2002 high). The 10 and 18 day MVA (10,292 and 10,183). The exponential 50 day MVA (9942). The November high (9903).
Economic Calendar
12-30-03
Chicago PMI, December (10:00): 59.2 actual, 62.0 expected, 64.1 November.
Consumer confidence, December (10:00): 91.3 actual, 91.8 expected, 92.5 November (revised from 91.7).
Existing home sales, November (10:00): 6.06M actual (-4.6%), 6.33M expected, 6.35M October.
12-31-03
Initial jobless claims (8:30): 350K expected, 353K prior.
End part 1 of 3
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understanding the stock market
trend trading stock
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