world stock market, us stock market

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12/31/03 Technical Traders Report
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Technical Traders Report Subscribers:

Have a safe, fun, and happy New Year's Eve and New Year's Day! The New Year will be a great one!

Market closed Thursday. Summary reports issued Wednesday, New Year's Eve.

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MARKET ALERTS
Targets hit alerts issued Wednesday: None issued
Buy alerts issued: TELK
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. To subscribe to the Daily alert service you can sign up at the following link:
http://www.investmenthouse.com/alertttr.htm

SUMMARY:
- Volatile session, NASDAQ closing 2003 at 2003.
- What to expect in the coming year.
- NASDAQ distributes modestly as indexes continue to try to form support.
- Friday may be sleepy, but the first week or two of new year could be wide open.

Up and down session sees small caps hammered.

Stocks spent most of the session lower, unable to capitalize on the Monday surge. The more recent trend of cyclical leadership asserted itself again with DJ30 and SP500 posting modest gains, but the large techs were rising fractionally as well. Small caps were plastered (-1.6%) as NASDAQ volume surged back to average. Looks as if some of the smaller names were sold to book some gains. Whether this was in anticipation of further rotation into large cap cyclical stocks will show up in the first part of 2004. Small caps were leaders for most of 2003 but ran into a bit of trouble in December. It was not much trouble, however, as they resumed their uptrend with ease and indeed are still very comfortably within that trend.

NASDAQ sold on higher volume along with the small caps, indicating there was at least some profit taking in technology. With the dump lower in the small caps, there indeed was selling ahead of the New Year. Those cross currents kept the market volatile all session, and we are not going to draw any major conclusions, dire or positive, from that last minute shuffling. Basically there was little change derived from the last session of a very solid year from the market and economic standpoint.

The coming year.

Now is the time for many pundits to stand in line to get on the financial stations and talk radio shows to make predictions about where the market goes from here. They toss out specific numbers as targets, provide long range strategies. We recall one sage whose big idea for 2003 was shorting the QQQ. One well known CNBC regular said DJ30 would top out at 9300 for the year. This year there will be more predictions. Some will be right, some will be generally right, most will be wrong. For the average investor, determining who to follow is a crapshoot and it is completely unnecessary when the best prognosticator of all, the market, is there to guide the way.

That is why we don't make predictions, at least not with respect to certain price levels. Sure there are areas of support and resistance we watch, the latest being the double tops on NASDAQ from early 2002 and the long swath of overhead supply hanging over DJ30 from 10,600 to 11,000. Even those, however, are not guarantees to stop any advance or usher in a new decline. They are areas the market has to deal with. A strong economic recovery and continuing expansion in earnings will overcome those overhead supply levels; it just might take a few tries and frustrate a lot of investors in the process.

While the economy cooled in Q4 a bit more than we anticipated (we were looking at 6% GDP growth; see, those exact number predictions can bite you), it has not gone into decline. Indeed, it is going to get a boost in early Q1 with tax refund checks from excess withholding. If Bush can continue the US investment ball rolling with lifetime savings accounts and other tax and revenue reforms, the economy will continue to expand well beyond expectations. Some very, very smart people who have correctly called the general direction of the economy over the last 20 years are saying the economy is set up very well for continued solid expansion in 2004. Pro-growth policies are fueling the re-investment in America, something lacking for 3 years in the decline. After the washout of the last boom, the foundation is set for growth. The right policies have to be implemented to take advantage of the clean slate, and the tax policies are doing that. Bush needs to stop the spending, however, to really meet the potential. Repeal the tax cuts, increase government regulation, and establish national healthcare, and you will wipe out what could be another 20 years of economic expansion.

The dollar is weighing on most people, us included to a certain degree. The fall has been orderly for now. Soros and others think it is going sink the US. He said that about the pound a decade ago when he was shorting that currency as well. At last look the UK was not wallowing in depression. The dollar can still slide further. While a weaker dollar can ultimately lead to disinvestment in the US (some of that is occurring right now even at these levels), it also has a corrective effect with respect to the very concerns that cause a weaker dollar, e.g., a big current account deficit. The higher the deficit the more foreign dollars it takes to keep the country liquid. If no one wants to invest in the US, the vicious cycle of disinvestment begins and increases in speed. Hello Japan. At the same time, a lower dollar helps exports and decreases the appetite for now more expensive foreign goods. Ultimately the dollar starts to strengthen as the account evens out some. It will never balance; the US always consumes more than others. At some point, however, it reaches a comfort level and confidence is restored. Problem is, no one knows where that is, and the speculation is what drives the markets crazy. Our one wish? After some more downside the Treasury steps in with a quick dollar buy. That puts a governor on the shorts, ending their free lunch. They then have to work for their money as well, and the market forces start to work again. Overall, we don't see the dollar as yet causing the problems many see. The economy is solid and getting stronger. That does not historically lead to a weaker and weaker currency. Indeed, much of the problem with the current account is related to China floating its currency with the dollar, something that a serious world trader cannot do for long. It is good for getting started, but to be a serious trading partner it has to have an independent currency to participate in the world markets.

In the bigger picture we see an expanding economy that will continue to benefit from pro-growth policies heading into a national election. The economy generally performs well in election years if the stimulus is there; Bush, unlike his father, got the stimulus in place in time. If he can build on those pro-investment policies, all the better. The market will benefit from that continued expansion though after the first of the year it may need a retrenchment after reaching the near resistance from those double tops and overhead supply. That would frustrate investors as the market would tread water for a few months. That would clear out the froth and would give way, however, to a nice rally in the summer that again corrects into the fall followed by a late year rally. In other words, the year is setting up to be one that follows the seasonal patterns now that stimulus is in place and a year of recovery is under the belt.

That keeps us just watching the market trends and taking our cues from what the market tells us in light of that overall backdrop of where we believe the economy is going. The best way to invest is not set some arbitrary target, bronze it, and sit it on the mantle. Let the market give you the signals as to what the big money is doing and then follow along. The predictions from last year show you that 99% cannot forecast what the market will do over 12 months, 6 months, or even 3 months. As long as the economy shows its growth trend despite the inevitable slowdowns and bumps that get everyone worked up about the recovery fading, stocks will perform. Indeed, they will predict that economic action. Right now they are building in some of the recovering consumption in Q1 due to those increased tax refunds. That is why right after the first of the year we may see a pullback after the indexes test near that swath of resistance.

THE ECONOMY

Jobless claims fall to 339K but continuing claims hang on.

The unemployment report was pushed to next week given the holiday this week. The continuing decline in weekly jobless claims, however, is boosting expectations for non-farm payroll growth. That growth has averaged roughly 82K jobs per month the past 4 months, an improvement but that is not enough to even keep the unemployment rate from rising. Job creation has been increasing in pace, however, and the lower weekly initial jobless claims reports is at a level where job creation really kicks in. We said in the summer that when the jobless claims hit 380K we would see job creation, and when it got to 350K things would heat up. The first part held up, and now we see what the second part delivers.

At the same time continuing claims are still strong. They fell to roughly 3.3M, the lowest in 2 years. To put that in perspective, however, in Q2 2000 there were 2M continuing claims. Moreover, continuing claims can drop simply because benefits run out. The Bush administration has been fighting extending benefits, so the reduction includes both people finding jobs and those finding themselves at the end of benefits without a job. One thing is clear: according to the non-farm payrolls, i.e., the jobs at big companies, job creation has not been strong enough to start turning the tide.

Of course, when looking at this side of the equation you have ignore the surge in the entrepreneurial mindset that is fostered by a poor job market. Many, many small businesses have been born in the corporate downsizing. As the economy continues to improve and those small businesses grow, they will produce the jobs while GE and other behemoths continue to slog along, their growth days long over. This is the recurring economic cycle of the economy recreating itself every 20 to 30 years. Creative destruction is the phrase the ivory tower types toss about as if it was just a label and did not involve great individual upheaval. In the long run it is wonderful for the economy and free enterprise. Short term it can be quite painful for those living through it.

Corporate bosses feeling better.

The Economic Cycle Research Institute boys measure many things, one of them begin CEO optimism. Their most recent release for Q3 shows the percent of CEO's believing the economy is growing more than doubled. This comes after hugging very low levels for over two years. According to ECRI, this kind of surge is what ushers in corporate spending and new hiring. We have seen the business capital spending upswing in the Q3 numbers already. This optimism index is looking back, but ECRI says it also looks forward: once these trends start they gain momentum. That bodes well for those looking for stronger job creation.

THE MARKET

Volume jumped up to slightly above average on NASDAQ in what was expected to be a low volume session. As noted above, there were some undercurrents to this including locking in gains for the year to offset some 2002 loss carryovers. We note it and will watch what happens the first couple of weeks of January volume wise, but we don't think the rising volume and slight distribution indicates the beginning of any new trend of dumping tech and small caps.

Indeed, NASDAQ and SP500 both tested that resistance they broke on Monday, the second round of such testing. That test held again as SP500 touched 1106 and popped right back up. NASDAQ held easily over 1992 though it did undercut 2000 on the intraday low (1996) before rallying back. All in all the market was biding time ahead of year end and what the money managers are going to do to start the New Year. It may do more of the same Friday before a full week next week.

Market Sentiment

VIX: 18.31; +0.63
VXN: 24.49; +1.13
VXO: 17.51; +0.54

Put/Call Ratio (CBOE): 1.25; +0.66. Wild action in the options market as positions were squared and protection taken for the start of the new year. Speculating there could be a fall increases the likelihood of a continued move higher from here for the market.

NASDAQ

Volume jumped above average as NASDAQ struggled all session and posted a modest loss.

Stats: -6.51 points (-0.32%) to close at 2003.37
Volume: 1.776B (+14.2%). Volume jumped back above average on a session where tech stocks struggled. This is some distribution or, when it occurs at the top of a move, churning. It is the third such session in 12; that is not indicative of a bigger selloff, though 2 or 3 quick ones to start the year could put it in an alert scenario.

Up Volume: 906M (+8M)
Down Volume: 842M (+238M). A stand off on the session, and this too throws some doubt on announcing this as a clear distribution session.

A/D and Hi/Lo: Decliners led 1.37 to 1
Previous Session: Advancers led 1.2 to 1

New Highs: 210 (-91). New highs have lagged on this advance. NYSE new highs have been solid on this advance, but NASDAQ new highs did not come close to matching the September levels on this latest run.
New Lows: 4 (+1)

The Chart: http://www.investmenthouse.com/cd/^ixq.html

NASDAQ churned just over 2000, unable to advance but managing to hold over the November high at 1992. There is a range of potential support from 1992 to 2000, and NASDAQ is in the process of testing that and firming it up as a level NASDAQ can work off of as it moves toward the twin towers at 2048 and 2100 from early 2002. As indicated earlier, these are not levels of damnation. They are serious resistance points NASDAQ has to deal with. After a long run NASDAQ has been in need of a correction. It has been doing that for the past three months before making a modest breakout this week. Ideally it needs some more time to rest before taking on the resistance, but if it does rally from here to those levels, we will most likely get another consolidation as it bucks that overhead supply. That will be frustrating to those looking to put money to work for the New Year after an early bump higher. That is what happened last year, and watching the market and the leading stocks' performance convinced us a bigger run was coming and that is what happened. NASDAQ is currently in the process of consolidating and many of its stocks are in the middle of good looking bases. They have to continue this action to really set up a stronger move. If the current NASDAQ breakout continues, it will be less than an overall surge higher as many stocks will have to complete their bases. That is what happened when it broke out in April 2003, however, so we are not discounting such a move but we also put it in perspective of the resistance ahead.

S&P 500/NYSE

Posted a modest gain on modest trade as the large caps found some late buying to post another 52 week high to finish the year.

Stats: +2.28 points (+0.21%) to close at 1111.91
NYSE Volume: 985.658M (+1.64%). A modest volume bump but still well below average. Indeed the entire move the past 7 sessions has been on very low trade after a strong volume breakout mid-month. It has the volume kick it needed to break it out, and it rode that wave to year end. Now it needs to find buying volume again.

Up Volume: 521M (+8M)
Down Volume: 434M (+21M)

A/D and Hi/Lo: Decliners led 1.09 to 1
Previous Session: Advancers led 1.42 to 1

New Highs: 433 (-155). Backed off Wednesday, but new highs were very strong (600+) on the break higher, and that is an indication that this big cap move has more guts.
New Lows: 8 (0)

The Chart: http://www.investmenthouse.com/cd/^spx.html

Posted another 52-week high to close out the year as volume edged higher. This was really nothing more than a continuation move of the earlier breakout. While it is a bit extended on this move and can pullback to the 10 or 18 day MVA (1097, 1087) before it is ready to continue. There is no real slowdown in momentum in this index while there is some hesitation in NASDAQ. NASDAQ needs more work while SP500 rallies, but we also have to be watchful of any 're-rotation' back into the growth areas when the market starts factoring in further growth. The headwinds are at the 1150 to 1175 peaks of the early 2002 double top. That is not a killer point for SP500, but as the DJ30 overhead supply is massive, that could have an impact on this index as well.

DJ30

Stats: +28.88 points (+0.28%) to close at 10453.92
Volume: 139 million versus 132 million Tuesday.

Shook off the Tuesday weakness and rallied to post a new 52 week high as well. Volume has left the index the past 7 sessions, but with the holidays that is no big deal. Trade was solid on the break higher and in the mid-sections of the rally in December as well. Does it have farther to go? Look at IBM, INTC, GE, HPQ, MMM, UTX. The first four are setting up nice handles on good patterns. The latter two are in nice, flat lateral consolidations after strong moves. They are all setting up to move higher in the New Year. Of course, you always have to see the moves, but this index has been on a roll and if these other stocks join in, it still has room to move. Room up to around 10,600 to 11,000 where it runs into that long and wide swath of overhead supply. Maybe it eats it up without burping. It pays for us to be mindful of that level, however, as that can indicate short term trouble on DJ30 and may provide opportunity elsewhere, e.g., NASDAQ and smaller caps once more.

End part 1 of 2

world stock market
us stock market