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us stock market, trade stock
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1/07/04 Stock Split Report Update
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Stock Split Report Subscribers:
Monday and Wednesday we issue a market summary and choice plays for the next session. Full reports issue Tuesday, Thursday and Saturday.
MARKET ALERTS
Targets hit alerts issued Wednesday : None issued. Letting stocks continue to run.
Buy alerts issued: ATYT; AXYX; CYBX; DRAX; TUTS
Trailing stops issued: None issued
Stop alerts issued: CFC
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:
- Stocks again shake off softer open, close higher.
- Mortgages regain lost ground, Secretary Snow wants more, mum on dollar.
- Volume again rises on bullish market action, indicating buyers are still in control.
Bullish action continues as stocks find buyers.
The pre-market news was a mixed bag with some stocks reporting weaker December sales (e.g., Darden Restaurants, home or Red Lobster and Olive Garden) and others reporting solid sales gains. The futures were lower, and after that big Monday gain we had a notion the market might want to rest a bit as it did last week, particularly with the jobs report due Friday. It has and it hasn't. The large caps, particularly the Dow blue chips, are taking a breather as DJ30 struggles with its upper channel line. At the same time NASDAQ and the small caps have stepped in with solid advances on volume and solid breakouts from leading stocks that have been taking a rest and forming new bases. This is the scenario we laid out for a further market advance: NASDAQ and the small caps returning to leadership. Even the large caps are still in the action with the SP500 posting yet another gain on once again stronger volume.
This is the action you want to see coming into the New Year. Buyers have come to the table ready to buy even after SP500 had put in a good run in December and NASDAQ broke out the week before. Leaders in tech and the small caps, after a pullback from strong gains during the NASDAQ 3 month consolidation, have started charging higher, not just for one session, but for several. The market will certainly need a breather at some point after such a strong run, and the looming resistance is a point where that could begin, but the action is very solid with expanding volume moving in as stocks rally to start the year. Many Dow watchers are downplaying the current move because DJ30 is struggling after its run. NASDAQ and the small caps, however, were set up to move higher and they are doing that on volume. Again, that shows the buyers have been back and they are active.
THE ECONOMY
New home mortgages, refinance applications rebound.
After hitting their lowest level in over a year in November, mortgage activity recaptured some ground. New home applications rose 2.9% while refinancing applications rose 6.8%. Not major moves, but with low interest rates remaining in place, the market remains set for another good year. Low rates drive the housing market. When rates are low the market will continue as more can afford home ownership. That steady stream of new homeowner hopefuls keeps the market moving as long as rates are low so they can qualify for the mortgage.
Treasury Secretary Snow avoids the dollar.
In a prepared speech Wednesday, Secretary Snow noted with pleasure the improving economy but was also quick to say there was more work to be done. Making the tax cuts permanent is a necessity for continued expansion as well as an energy policy, streamlining government, overhauling the medical system, and tort reform were other areas stressed by Snow. These are, of course, part of the Bush six point plan for the country. What people really wanted to hear about was the Secretary's take on the dollar. It has been falling quickly but steadily. In other words it is an 'orderly' fall even though it is rapid.
Everyone wants to know if and at one point the Treasury will step in and support the dollar. Ask most any currency trader right now about his or her methodology for trading with respect to the dollar and the answer will not have anything to do with fundamentals vis- -vis the euro or yen, but instead just the continued downside momentum. Remember what we said months back: once you engineer a dollar slide through benign neglect, it often takes on a life of its own until you take concrete actions to alter the course. Even then it takes a lot of work. Right now the traders are feasting on the dollar's fall much as we did on falling stocks during the long downtrend. There is nothing to put a floor under the dollar so it continues the erosion even though the US economy is surging as a result of aggressive fiscal policy while Europe has almost done the opposite to its economy. There is no doubt the US economy is and will be much stronger than Europe; we are recovering and thus we buy more foreign goods and have a higher current account deficit as a result. Still, once that slide starts, the momentum builds.
Thus when Snow said nothing there was disappointment. The dollar did manage to bump a bit higher, but with the Fed staying soft on interest rates and no administration indications of intervention there is nothing to stop the drop. What the dollar will need in the not too distant future is one fast Treasury intervention. That would stop the feasting momentum and start putting in a floor. Then the natural forces would have a chance to take hold, i.e., where the trade balances start the natural swing from a weaker currency to a stronger one as the effects of a strong economy and weaker currency make it an investing haven, particularly compared to the rest of the world.
THE MARKET
The action has been pretty stellar. NASDAQ and small caps are again rallying on strong trade as leaders that were on holiday return in the New Year on buyers' wish lists. Techs are performing again, even some of the stodgier. Look at INTC Wednesday; it gapped higher on strong trade, the best mover in the Dow. The large cap cyclical stocks are not in the dog house, but they are taking a much needed breather. They are not selling on rising volume, just resting.
Recall from December when we stated the cyclical stocks had to be watched when they started to pullback and NASDAQ started to rally again. Many times the cyclicals have their day and then fade into the sunset when the growth stocks return to favor in a growing economy. What we are seeing now does not suggest that is the case. It looks as if the cyclicals are taking that rest and will join the party again. It is not clear yet, but the early look at volume appears to look that way.
Expanding volume, breakouts from leadership growth stocks, surging in the New Year. Those are positives, but we also cannot lose sight of market mechanics. Good surges lead to pullbacks. Resistance has to be dealt with. After getting extended, buyers have to regroup and look for the next opportunity to buy. In other words after this rise there will be a pullback as always. The strength of the gains is a very promising indication of the rally's ability to hold on any pullback, test, correction, etc. The return of NASDAQ and leading stocks from good patterns is also promising. This is the action you want to see, we just need to be realistic and know that there will be a pullback at some point, perhaps after a pop higher on some good jobs numbers Friday.
Market Sentiment
VIX: 15.5; -1.23
VXN: 21.91; -0.85
VXO: 14.85; -0.49
Put/Call Ratio (CBOE): 0.69; +0.12. The Dow's struggles and the large cap index' slight gain have many worried about the move. Those are the cyclical watchers who have a natural disdain for growth stocks. Thus they ignore the growth and buy protection for their cyclical stocks. Not a bad practice for the big funds and some of the explanation for a rising put/call ratio even as the growth leaders surge.
NASDAQ
Another slow start and an even stronger finish on again expanding volume.
Stats: +20.31 points (+0.99%) to close at 2077.68
Volume: 2.314B (+1.6%). Volume rallied again after a modest breather Tuesday. This above average, expanding volume on the upside is a very powerful indication that the big institutions are heavy into accumulating the growth stocks. Even today on the financial stations there were the critics saying that tech stocks were overvalued, irrational, etc. In an expanding economy, particularly one that is showing the legs this one is (though most feel it cannot continue; the new mantra is after the first half of 2004 it will falter), PE ratios do not mean as much. When earnings peak and start to slide, growth stocks start getting the wood put to them. Earnings are expanding, and as we know, expanding earnings drive stock prices.
Up Volume: 1.321B (-111M)
Down Volume: 961M (+135M)
A/D and Hi/Lo: Advancers led 1.4 to 1. Hardly anything to get worked up over after that solid 2:1 session Monday.
Previous Session: Advancers led 1.28 to 1
New Highs: 307 (-48). Not good. New highs falling as the index moves higher. This is an indication that the momentum is slowing internally. It is not devastating, but it is an indication of weakening ahead of an inevitable pullback that will come sometime near the second early 2002 high at 2100.
New Lows: 5 (-3)
The Chart: http://www.investmenthouse.com/cd/^ixq.html
Another solid session, starting slower with a 10 point loss and then turning that on its ear with a 30 point swing to the close. Volume was modest early and then accelerated in the afternoon as the index finally shook off the morning lethargy and hits its upside stride. It is about another 'Wednesday' from the second peak in the early 2002 double top at 2100. Thus far it has laughed in the face of that level. Perhaps it rallies over that level on the jobs report and then starts taking a breather to consolidate some of the gains.
S&P 500/NYSE
It took awhile, but the large caps shook off a 7 point loss to close with a modest gain on rising volume. Extended but still showing good action.
Stats: +2.66 points (+0.24%) to close at 1126.33
NYSE Volume: 1.698B (+13.97%). Volume was up on the gain, starting slow but then rallying late as the index made its move from the lows to close positive. Volume has been solid with the Wednesday volume the best in 7 months. Volume is behaving just as you want it to do: lower as the index is soft, stronger as it rallies back.
Up Volume: 962M (+184M)
Down Volume: 711M (+23M)
A/D and Hi/Lo: Advancers led 1.17 to 1. It was a struggle for the large caps to recover positive territory, and the breadth showed the struggle. But for the small caps it may not have been positive.
Previous Session: Advancers led 1.09 to 1
New Highs: 352 (-142). The early new highs on the rally were stellar. The move is losing some momentum as the new highs fade on the new high hit Wednesday. After a good surge this is not unexpected, and the fact that the early new highs were very strong speaks well for the move.
New Lows: 3 (-1)
The Chart: http://www.investmenthouse.com/cd/^spx.html
It was a struggle for the large cap index, but after spending much of the session negative the index broke positive late and held on for a positive close. Volume was very strong as the stocks rebounded, an indication that buyers were still looking to buy when stocks retraced a bit. SP500 has surged well off the 50 day MVA (1073) the past 7 weeks, so there will be a pullback soon to consolidate some of the move. Still plenty of room below the tops from early 2002 at 1150 to 1175.
DJ30
Stats: -9.63 points (-0.09%) to close at 10529.03
Volume: 225 million versus 191 million.
DJ30 struggled again at its upper channel line (and was unable to close positive. It cut its losses substantially by the close, but the selling was never out of hand as DJ30 was down 72 at the worst. It sliced that loss with volume rising as it recovered. Thus while volume was higher on a down session, the intraday action was not bad. Still a bit of a churn after the solid volume surge Monday, but at this point no red flags waving. DJ30 needs a rest after a 7 week, 900+ point run. The 10 day MVA or 18 day MVA looks good.
http://www.investmenthouse.com/cd/^dji.html
THURSDAY
The volume expansion on the upside gains is very good to see but we also see some weakening new highs and narrowing breadth as the move continues. DJ30 continues to struggle with its upper channel and is in need of a breather. The market is correcting internally, i.e., rotating money again from certain sectors back to some growth areas. Again, that is a healthy development as money does not leave the market but shifts around. Indeed, new money has been entering the market this week with the return of everyone from holiday.
We were anticipating some slower action Wednesday and part of Thursday into the jobs report and then a pop on the news. Now that the market has rallied well there may not be much left to pop to the upside if the news is good, even better than expected. After some solid gains we may see that drifting session Thursday ahead of the jobs number. After all, there have been solid gains posted this week and the jobs report is considered by many as the major economic report. With the new year finally here and the December report being the one we were looking for gains to start, now is the time it really is important. Remember, we were looking for job creation to just be starting in December; it started in September and has been ramping up. 150K jobs are expected. Last month the whisper was over 200K. This time everyone is a bit more cautious. We are looking for a 200K number.
As for Thursday ahead of the number we will continue to look for good volume moves from solid patterns but again, given the substantial moves already made this week we are not going to be chasing a lot of new positions as a pullback is looming. Best to be patient at this point and let them test the recent breakouts and pick up additional or new positions on that. We won't just blow off any stocks making breakouts, but we will want to see it hitting on all cylinders when we do. If stocks get near targets on a further surge or on a surge Friday after the jobs report, we will be taking some nice gains off the table. Many stocks we have taken some gain on in the past are still surging. We tend to let them run as long as they maintain the trend. With option plays and newer buys, we will be locking in at least part of the gain if they hit or get near their targets.
Support and Resistance
NASDAQ: Closed at 2077.68
Resistance: The January 2002 double top (2044 to 2099).
Support: The March/August up trendline (2022). December high (2000), November high (1992). The 10 day MVA and the 18 day MVA (2019, 1996). The 50 day MVA (1952).
S&P 500: Closed at 1126.33
Resistance: 1150 to 1175, the early 2002 double top.
Support: The 10 day MVA and the 18 day MVA (1110, 1099). 1106 is a May 2002 top. 1100 represents some early 2001 lows. 1080 from February 2002 lows. November high (1061.40-1064).
Dow: Closed at 10,529.03
Resistance: 10,600 (March 2002 peak) starts the swath of overhead supply that runs up to 11,000.
Support: 10,500 (upper channel line). The 10 and 18 day MVA (10,427 and 10,319). 10,353 from May 2002 high. 10,259 (January 2002 high). The exponential 50 day MVA (10,043).
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): -1.4% actual, -1.5% expected, 2.4% October (revised from 2.2%).
ISM Services, December (10:00): 58.6 actual, 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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