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world stock market, us stock market
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1/05/04 Stock Split Report Update
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Stock Split Report Subscribers:
MARKET ALERTS
Targets hit alerts issued Monday: None issued
Buy alerts issued: MBT; UTSI; TMWD; ASKJ
Trailing stops issued: None issued
Stop alerts issued: SMTC
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 gets down to business and surges.
- Construction spending surged in November, again.
- Greenspan says he did right by not doing much. We think he did too much.
- All stocks up, but it was a large cap session.
All the players were back and they were ready to buy.
The low volume stalling to end last week gave way to a rush of buying activity. Japan was up 1.4% and that set a positive tone for several upgrades of large cap technology names. In addition SEBL from tech raised guidance and said that corporate clients were spending again. The revived KMRT reported much better than expected results. Several chip upgrades along with the Semiconductor association saying November sales were up for the fourth month in a row helped revive that sector. There was enough good news tacked onto the sense that with a continuing improving economy there would be fewer and fewer chances to get into the market. That prompted money managers to buy. Those that had been buying bought some more while those that had held off waiting for a pullback bought to 'catch up.'
The result was a 2% gain on NASDAQ as it continued to resume its leadership role. Large caps were clearly in the lead after the noon hour though solid breadth showed most stocks rising. There was real buying ongoing as volume rushed higher. There may be some concern about the size of the gains and the resistance ahead, but that was shoved way to the back.
Last week we made a comment regarding the forecasting of January. It is a very good indicator as for upside moves. It is not perfect, but it is worth noting. In 28 of the last 33 years (85% of the time), when the first 5 days of January are up the market is up for the year. That is not a bad percentage. Of course, it is the underlying factors that lead to the symptom of a good January preceding nice gains for the year. In this case it is an economy that is expanding rapidly, low interest rates, tax incentives, job creation, and the prospect of more of the same. We will see how the week turns out. Last year January was down but the first week was up. The key remains, however, the right policy decisions being made. As we noted last week, the key remaining policy decision is to reduce spending. In an election year that is wishful thinking.
THE ECONOMY
November construction spending surges past expectations.
Yes it is all the way back to November, but it was a 1.2% gain when just 0.5% was expected. That is a huge swing. It is also the fifth consecutive month where spending was greater than 1%. Moreover, it was up across the board with business construction as strong as residential and public projects. It is also important as it shows how Q4 activity is at least holding steady with Q3 (there have been 5 months reported now, Q3 and the first two of Q4, and all have been strong). Strong underpinnings for a continued expansion and an indication that Q4 will be better than most forecasts.
China eliminating trade tariffs.
After a lot of posturing regarding the dollar and tariffs (the old 'my economy is better than your economy' game) the past several months the US dumped its steel tariffs. China has started slashing its tariffs, starting with steel and then a general reduction in all tariffs. It is a long way from eliminating tariffs, but it is an indication of sudden cooperation. What looked to be a world trade war is potentially turning out to be a great trade restriction easing. Sometimes you just have to grab everyone's attention, and that may have been what happened this time around. This is a big positive for the economy and the market longer run.
Greenspan claims by acting a little he did a lot.
Greenspan and some henchmen were out over the weekend and on Monday talking about the economy. Basically they are not worried about inflation or the dollar, and see no reason to raise rates anytime soon. While the dollar did not like that and took it on the chin again, the market too heart. But that was not all Greenspan had to say. He was into some legacy building, a sure sign that he is going to be stepping down after the election.
Greenspan defended his record, telling those thinking the Fed did too little to stop or deflate the stock market as it ran higher. Those critics claim that Greenspan gave too much, cutting rates at every potential crisis to prop up the market and the economy. His incremental step process in raising rates was the best medicine he claims, helping slow the economy and taking some of the sting out of what was considered an inevitable eventuality.
We said at the time and still believe that there were mistakes made on both sides of the ledger. As for being too easy, the big problem was in 1999 when Greenspan injected billions into the system for Y2K and left it in even as it became clear it was not needed. Then after NASDAQ ran up 80% from October 1999 to January 2000 and companies used it for a buying binge, he yanked it all back cold turkey, draining the economy and the market of money. In doing so he created the last huge spike in the 'bubble', and then he popped the bubble with one move that came on top of his interest rate hikes. In short, he was raising rates to control the expanding economy in the erroneous belief that expansion was inflationary, and yet pumped billions and billions into the economy for Y2K with the obvious result of just accelerating the expansion. Obviously these were at odds with one another. Then he cut off the economy from money in March. On cue the economy and market lurched, shuddered, and started to fall. The market always falls faster, and that is what happened.
The problem is not the latter part of the boom or just being too generous all the way up. The problem was not recognizing the benefits of disinflation and investment in the US that continued from the Reagan tax cuts to the Clinton reduction in the capital gains tax. The Fed obsessed, as did the 1929 Fed, that prosperity would lead to inflation. It started raising interest rates when it was not necessary and thus started creating the very imbalances it later said it raised rates to counteract. When the Fed starts artificially manipulating money it diverts it to areas it would not go to. If it makes a big misread of the economy as it did in 1999 and 2000, the results, as we saw, are disastrous. There would have inevitably been a slowdown, but it may have come later, and it may not have been as severe. Why? Because when artificial restraints are eventually overwhelmed by market forces (and this is also inevitable) the result is always worse because the pendulum, hammer, other shoe, whatever you want to call it builds up excess pressure and when it releases, it really releases. When the market is allowed to work the forces in the market work to balance competing interests, finding equilibrium. It is not always pretty, but it is almost never with the violent reactions we see when there is artificial props are put in and eventually overwhelmed.
Thus we say Greenspan did too much, not too little. He was a free market chairman, but then he started reading his press clippings, got scared of his shadow, stumbled across an old textbook of Phillip's Curve economics, or something. There was a change in 1997 that picked up speed in 1998. We have all lived through the results. Did too little? No, when he did very little the market was fine. When he started to tinker, things got out of hand. There is a lesson there for the next Fed chairman, but as with all Fed chairmen, it is a lesson that will go unlearned or will be forgotten over time.
THE MARKET
Monday was not just the same theme from the Q4 2003. It was an expansion where all stocks moved together. Indeed, NASDAQ took the lead again along with SOX. Small caps were running up early, just behind the techs and leading the large caps, but after lunch they faded as the large caps came on. All in all, it was a broad move where new money flowed into a lot of tech stocks that have been working on new bases during the Q4 consolidation. That is a good sign for the market overall.
There is still resistance ahead, but that was not on the market's mind today. That keeps us concerned, but there is also another maxim that you don't stand in the way of the market. You take what it is giving you, and the trend is still up and it is being joined by the technology stocks that were forming new bases. Hard to step in front of that.
As with the start of last week, Monday was a big surge on strong breadth. That may leave the rest of the week a bit sluggish after the rush to get in on the action to start the year. Big moves can be followed by hangover. You cannot argue with the move, however, as NASDAQ continued its breakout on some stellar volume, a sure sign of accumulation. There is resistance ahead and we will be watching for any headwinds, but again, stepping in front of the move, cursing the darkness so to speak, can get you hurt.
Market Sentiment
VIX: 17.49; -0.73
VXN: 23.89; -0.62
VXO: 16.71; -1.23
Put/Call Ratio (CBOE): 0.68; -0.07
NASDAQ
A gap higher and run to the close, extending last week's breakout on the best volume in 7 months.
Stats: +40.68 points (+2.03%) to close at 2047.36
Volume: 2.37B (+42.02%). Now that is good volume. Strongest volume in 7 months; that was when NASDAQ really kicked it into gear in early June. An accumulation session as funds obviously came back from holiday with new money to invest.
Up Volume: 1.674B (+513M)
Down Volume: 617M (+133M)
A/D and Hi/Lo: Advancers led 1.99 to 1. Breadth was strong all session, sagged midday, then jumped as the index surged to the close.
Previous Session: Advancers led 1.48 to 1
New Highs: 344 (+107). Good, but still not equaling the levels from back in the summer. This is a chink in the armor, but it also reflects that many stocks are still in their bases on NASDAQ and as they complete their consolidations they will be ready to make new highs as well. Unlike SP500 and DJ30, NASDAQ has been undergoing a consolidation just as the large cap indexes did in summer as NASDAQ ran higher. This is a positive for the market as it shows money is again moving into tech stocks. It is also moving into the large caps, a sign there was new money at work Monday. Again, that is healthy for the market.
New Lows: 4 (+1)
The Chart: http://www.investmenthouse.com/cd/^ixq.html
NASDAQ was in no mood to wait for more testing, gapping higher as many smaller techs broke out and larger caps moved up off the 50 day MVA in their bases. As in March and April 2003, that provides plenty of potential upside as several waves of stocks are ready to break higher as the index moves higher. That is the continued fuel for the rally as the techs don't shoot all of their ammunition at once. It will need it. NASDAQ made it to the first double top from early 2002 in one move, closing at 2047 (2048 is the first). That is the first of the twin tops, the second at 2100. Still room for a continued run to that resistance before it needs another rest, let the stocks regroup, digest some selling from overhead supply, and then make another attempt.
S&P 500/NYSE
A lateral move last week and then a surge Monday on excellent volume.
Stats: +13.74 points (+1.24%) to close at 1122.22
NYSE Volume: 1.567B (+38.07%). Not the huge surge as with NASDAQ, but very respectable volume, equaling the best volume over the past 4 months. As with NASDAQ, the volume showed accumulation again in the large caps.
Up Volume: 1.188B (+595M)
Down Volume: 370M (-156M)
A/D and Hi/Lo: Advancers led 2.07 to 1. Excellent breadth again on the upside as cyclicals rallied anew. This time they were joined by others as the market enjoyed a long gain.
Previous Session: Advancers led 1.16 to 1
New Highs: 620 (+153). Another outstanding showing from the new highs, an indication of the continued broad strength in the move across the board.
New Lows: 8 (-8)
The Chart: http://www.investmenthouse.com/cd/^spx.html
As with NASDAQ, SP500 did all of its resting Tuesday through Friday and found no need to pullback. Friday's churn turned into Monday's buying as the index scored solid gains on strong volume with the large caps really kicking it in after lunch. Plenty of upside room to the 1150 to 1175 peaks of the early 2002 double top. It is often hard for an index to continue such a strong surge the next session, but given this is a new year with new money being put to work, it is hard to bet against.
DJ30
Stats: +134.22 points (+1.29%) to close at 10544.07
Volume: 221 million versus 169 million
Similar action: lateral move after the Monday surge, then blasting higher again today on much stronger, above average volume. DJ30 stalled some at 10,500 intraday but then rallied well past that point on the close. IBM, INTC, HPQ and GE all broke higher, adding a missing ingredient to the Dow. They did not, however, surge on huge volume. The rising volume was reserved for those cyclicals that have enjoyed most of the move to this point, e.g., CAT, AA, IP, MMM. The move sent DJ30 through its upper channel line (10,485) with relative ease; it did not send it down just yet though a move over this level often has that effect as the index gets 'ahead of itself.' The move higher has increased its pace, and that is something we have to be careful of as the market continues to rise and particularly as DJ30 moves toward 11,000.
http://www.investmenthouse.com/cd/^dji.html
TUESDAY
Encore anyone? Last week the market had a hard time improving on the Monday surge. After a big break higher stocks frequently have to take a breather and are a bit hung over. With the broad move seen, the new year, and new money being put to work, however, there is not much to stand in the way of further gains. NASDAQ continued its breakout, a key element to a continued rally; if it went back into hibernation the upside would be limited. If it continues to rally, the market has a new dimension to carry it up to the higher ends of the resistance.
We are still watching the action closely as the market approaches that overhead supply. NASDAQ is rested after a 3 month consolidation, and the Monday move showed money managers buying stocks. Again, that action can carry the indices up to the next resistance before they feel any need to rest. We saw many NASDAQ stocks move up off the 50 day MVA or otherwise off the bottoms of their bases. If they market continues to rally and they continue to complete their bases, it will be very interesting to see how they react when they are at the breakout point and the indexes are near the upper reaches of resistance (at least on NASDAQ and SP500; DJ30 has up to 11000 as the top of its resistance range). If they form handles (low volume lateral and slightly lower pullbacks) and breakout, the move is indeed strong. We plan on participating on the move, as we did today, long before then, of course.
Back in August we noted that if the market could get through the seasonally weak periods of September and October without much trouble the rally had a lot more power to it than anyone anticipated, and it could very well be more than just a cyclical bounce in an otherwise overall downtrend for the market. It managed to avoid that selling, and NASDAQ's consolidation refused to give back any of the gains. That is a sign of strength. A rally up well into the overhead supply range that is able to consolidate in an orderly fashion and continue to show accumulation and base building would be another sign of the underestimated strength of this market that is driven by . . . the increase in earnings and the expected increases in earnings as the economy continues to expand well beyond expectations.
That is why looking at the economic numbers is so important. That is why back in early 2003 we were so positive about the market based upon what we were seeing in how stocks were forming bases along with the overall indices even as we had more and more clues as to a strengthening economy that just slowed temporarily ahead of the Iraq war. While many are saying the economy slowed, it did not slow much. Stock prices are pricing in the next data, and we see solid NASDAQ bases forming once again even as NASDAQ breaks out. Those are good harbingers for further gains.
Support and Resistance
NASDAQ: Closed at 2047.36
Resistance: The January 2002 double top (2044 to 2099).
Support: The March/August up trendline (2016). December high (2000), November high (1992). The 10 day MVA and the 18 day MVA (1995, 1978). The 50 day MVA (1943).
S&P 500: Closed at 1122.22
Resistance: 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 (1103, 1093). 1080 from February 2002 lows. November high (1061.40-1064).
Dow: Closed at 10,544.07
Resistance: 10,600 (March 2002 peak) starts the swath of overhead supply that runs up to 11,000.
Support: 10,485 (upper channel line). 10,353 from May 2002 high. The 10 and 18 day MVA (10,375 and 10,265). 10,259 (January 2002 high). The exponential 50 day MVA (10.002).
Economic Calendar
1-05-04
Construction spending, November (10:00): 1.2% actual, 0.5% expected, 1.1% October (revised from 0.9%).
1-06-04
Factory Orders, November (10:00): -1.5% expected, 2.2% October.
ISM Services, December (10:00): 60.8 expected, 60.1 November.
1-08-04
Initial jobless claims (8:30): 345K expected, 339K prior.
Wholesale inventories, November (10:00): 0.5% expected, 0.5% October.
Consumer credit, November (2:00): $5.0B expected, $0.9B October.
1-09-04
Non-farm payrolls, December (8:30): 148K expected, 57K November.
Unemployment rate, December (8:30): 5.9% expected, 5.9% November.
Hourly average earnings, December: 0.2% expected, 0.1% November.
Average workweek, December: 33.9 expected, 33.9 November.
End part 1 of 2
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