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us stock market, trend trading stock
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1/08/04 Stock Split Report
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Stock Split Report Subscribers:
MARKET ALERTS
Targets hit alerts issued Thursday: TRPH; QCOM; TKTX
Buy alerts issued: None issued
Trailing stops issued: EMBT
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:
- Another rising volume gain with solid intraday action to boot.
- December same store sales solid, jobless claims rise modestly.
- NASDAQ staring down 2100, spurred by strong buying.
- Looking for some breakout tests after Friday jobs report.
Gap open tests and holds for another rally to the close.
In another show of strength the market gave us some razzle dazzle. After a solid surge already, the gap higher had us leery. Stocks jumped higher but immediately started selling back. Classic indication that the market may be getting a bit fatigued after a good run: after a good surge everyone wants to get in. The smart money then uses the influx of late buyers to sell their positions and leaves those buyers holding the bag during the ensuing correction or pullback to support.
The market was not ready to throw in the towel on this move, however. NASDAQ never turned negative, never really got close. The buyers saw the pullback as opportunity and moved in, pushing the index higher to the close on once again expanding volume. NASDAQ twice tapped 2100, the second peak in the early 2002 double top. On the second tap it fell back and looked ready to sell off to the close. Once again buyers surged back in, pushing NASDAQ to close at the high, right at 2100 on the button.
Once again solid price/volume action with gains coming on expanding volume and a test lower early met with buying that takes stocks from the lows to close at session highs. That is very healthy upside action, demonstrating the market is controlled by investors still putting money to work in the market even after an excellent breakout and surge.
THE ECONOMY
December same store sales beat expectations.
Same store sales rose 4.2% versus the 3.2% expected as sales climbed solidly across the board. There were upside surprises (ANN) and downside surprises (GPS). 74% of the retailers exceeded forecasts while 26% missed forecasts. What does it all mean? Sales were solid but now blowout. Gee, just what it looked like two weeks back. Many retail stocks gapped higher only to give the move back. Retail ran well half way into the season and then peaked. Many patterns have formed up well again, but they are having a problem making the break higher. They need more rest before moving out again, but the overall picture is still solid consumption.
Weekly jobless claims edge higher.
353K filed for jobless benefits, up from 339K last week. Expectations were for 345K. the 4 week average continued its fall, down to 350, 250 from 355,750. That is the lowest level since February 2001. Continuing claims fell, but just edging lower. This is a very hard period to accurately assess as the holiday season hiring and firing stirs the pot. All in all the trend toward fewer layoffs remains in place with no major changes. The market treated the news just that way.
Wholesale inventories and sales rise.
Inventory building was still underway in November with stores rising 0.5%, in line with expectations. That was the same gain posted in October. We have been looking for inventory building to take off, and these numbers indicate it is starting but has not definitively broken higher. It is climbing, and it has to climb further to meet demand. It helped that sales rose just 0.3% after bursting higher by 2% in October. That takes the pressure off of possible inflation that the October report hinted at: supply has to be able to meet demand in order to keep inflation at bay. The stock to sales ratio still fell, however, despite inventories increasing faster than sales. Indeed, the ratio set its second straight record low at 1.18 (that is the number of months needed to deplete current inventories at the current rate of production and sales). This points to the continued need for production to increase, and it will do that. Indeed, December production and Q1 production should be quite robust.
IMF warns US to raise taxes, lower spending. Thanks, but go ruin someone else's economy.
That bastion of economic savvy, the International Monetary Fund, the same agency that has helped dozens and dozens of struggling economies into recession and depression, warned the US Thursday that its projected deficits had to be dealt with. It noted that the US would run a deficit of 2% versus GDP. "Undoubtedly" fixing the supposed problem would "require both tax and spending initiatives." The deficit purportedly needs to be reduced to avoid rising interest rates and 'crowding out private investment.'
Gee, looks as if Robert Rubin should file a copyright claim against them. Rubin just put out a book where he scribes his often expressed opinions about deficits and interest rates. He opines that if deficits run too high the government has to borrow more money to finance the spending, and that 'crowds out' private investment as the government hogs the available money and businesses just wait for rates to fall before making any more investments.
The only problem with this theory, as with the Phillip's Curve theory of inflation, is that reality does not support the premise. Rubin says you have to have a balanced budget to keep rates low; surpluses are even better. Even looking at recent history shows the opposite: rates fell in the 1980's and early 1990's as the deficits were accrued and then started to fade. Rates started to rise when Clinton raised taxes early in his term. They continued to rise as some budget discipline and the results of the economic boom produced surpluses.
In reality, it is government growth fueled by spending private resources acquired through taxation that stalls private investment and in turn the economy. That scenario has played out again and again in our history: boom times and the tax revenues they generate beget government largesse. When the boom is slowed by the sapping of the economy through the proliferation of new spending and the central bank's fear of prosperity, tax revenues start to fall and those spenders in DC are quick not to cut spending, but to raise taxes. That further drains needed investment capital from the economy, and if the policies go on too long (as they always do), the economy breaks down. Then we have to go through the process of jumpstarting it again with deficit spending. If we would hold off on the spending in good times and reduce government instead of growing it, the economy would be even more stable and more productive.
Do you recall how in the late 1990's the IMF 'warned' the US to raise interest rates to prevent a recession that would hurt the world? Well interest rates were raised and ushered in that recession in the US and thus the world. Is there ANY reason to listen to the IMF? Only if you are stumping to get elected and are desperately looking for some way to attack economic policy that is producing recovery the strength of which has not been seen in 20 years.
What about the deficit at 2% of GDP that the IMF says is unsustainable? That is based on static views of the deficit: cut taxes by x amount and the deficit will grow by x amount. Further, that 2% is not out of line with the historical level of the deficit in relation to the GDP as the US economy has struggled along all these last 100 years. Listen to the IMF? With a track record that is littered with crashed and burned economies around the world, only a fool would support what that group propounds.
THE MARKET
If the early 2002 double top is going to act as resistance, it will have to do a better job. It looked as if it was going to give NASDAQ trouble and it still may do that, but after two intraday tests failed, NASDAQ rallied right up to that level on the close Thursday as volume shot higher. The market is showing very strong accumulation as stocks rise on strong volume.
That does not mean it will rise indefinitely. The action of gapping higher and rallying on the strongest volume of the run after a very solid breakout and run smacks of some overly enthusiastic buying. It is great to see money stay in the market with mild rotation has taken some, but not much, wind out of cyclical names (more like a pause to rest than selling). It makes you take pause when volume shoots higher along with stocks after an already stellar run.
With the jobs report due out before the open, it sure looks as if the market is setting itself up for some sort of pullback as it prices in some really robust economic activity ahead. That is what this run in the cyclicals and now the return of the kings (techs; had to work that one in somehow) is pricing in: after a lull and a lot of worry over a 'weak' holiday season, the sales are showing very solid buying, and the tax rebates to come in Q1 are set to usher in a lot more consumption. A strong jobs report can send stocks even higher and set up that pullback. A disappointment like last month now that everyone truly expects substantial job creation (talk of 200K+ and even 300K+ is running on the trading floors) after such a run up to the number also sets up a pullback.
Don't get me wrong, the action and the market is still very healthy. Rising volume on gains and breakouts by leading stocks is a sign of strength. The market has that strength. It cannot, however, run higher forever. The race higher Thursday on tremendous trade raises some concerns. We wanted some softer action ahead of the jobs report to set up a further rise. The market has rallied in anticipation. We won't be surprised if it starts to dip soon either after a jump higher on the jobs report or from the open. Again, that does not mean the market is going to tank; given the action it is simply due for a pullback to test the move. That can set up some great buy points on the leaders that have been surging and our plays that have been doing the same.
Market Sentiment
VIX: 15.61; +0.11
VXN: 21.89; -0.02
VXO: 14.46; -0.39
Put/Call Ratio (CBOE): 0.65; -0.04
NASDAQ
Two times it challenged 2100 and fell back, then rallied to close at that level on tremendous trade.
Stats: +22.57 points (+1.09%) to close at 2100.25
Volume: 2.699B (+16.6%). By far the best trade since June of 2003 when NASDAQ gapped higher and reversed after a solid move up. That did not stall the uptrend, and any pullback here won't either given the strength of the accumulation in the base and on the surge this year.
Up Volume: 1.849B (+528M)
Down Volume: 827M (-134M)
A/D and Hi/Lo: Advancers led 1.63 to 1
Previous Session: Advancers led 1.4 to 1
New Highs: 433 (+126). Better but still not exceptional given the size of the move this week.
New Lows: 1 (-4)
The Chart: http://www.investmenthouse.com/cd/^ixq.html
Gapped higher, tested, and ran back up to close right at 2100, the second peak of the December 2001/January 2002 double top. It took two shots at it, failed, and then shot higher late. Volume surged to the best level in 7 months. A gap higher on substantially strong volume after a solid run asks for a consolidation or some sort of pullback. It kept us cautious taking new positions as we indicated in the reports earlier in the week. It does not mean the run is over; as noted, the action is very healthy. It is just that a lot of NASDAQ stocks are suddenly getting extended after explosive moves higher. NASDAQ is now 20% above its 200 day MVA (1742); it has started to struggle in the 20% to 25% range the past year.
S&P 500/NYSE
Continued the strong rally, closing at the high on a surge in NYSE volume.
Stats: +5.59 points (+0.5%) to close at 1131.92
NYSE Volume: 1.85B (+8.95%). The best volume in 14 months as SP500 continued its move up the 10 day MVA, an 80 point run on this move. Accumulation continues.
Up Volume: 1.247B (+285M)
Down Volume: 604M (-107M)
A/D and Hi/Lo: Advancers led 1.62 to 1. Modest volume on a strong move as the small caps backed off from leadership status.
Previous Session: Advancers led 1.17 to 1
New Highs: 506 (+154). Nice surge in new highs once again after moderating earlier in the week. Again a signal the move is strong though showing some mixed signals.
New Lows: 6 (+3)
The Chart: http://www.investmenthouse.com/cd/^spx.html
A strong finish after trading in negative territory early in the session, repeating the action that has been the hallmark of the early breakout and then the continuation of the move this year. It has screamed up the 10 day MVA (1114) the last four weeks, a 79 point move. As with NASDAQ it is showing the strongest volume after the run is well established. We are not betting against it, but at this stage it is hard to find a lot to buy into. It is still well within the next resistance (1150 to 1175) and running well, but it will need a breather as always.
DJ30
Stats: +63.41 points (+0.6%) to close at 10592.44
Volume: 237 million versus 225 million.
As with the other indices, the volume keeps rising and the index keeps rising. DJ30 started the run higher for the market with the surge off of the 50 day MVA (10,064) back in late November. 964 points later it is still climbing at a steeper angle, holding over the 10 day MVA (10,457). It cannot keep that angle of attack going indefinitely, but it is not showing signs of stalling other than perhaps getting a bit too hot. Hate to sound like the Fed, but a long run is something to at least be cautious of. Wednesday it was INTC, Thursday it was HPQ as the tech components start coming to life within the index. During the earlier rally they were dormant; they are now joining, and the results are as predicted. DJ30 is right at the threshold of a range of resistance running from 10,600 to 11,000. As noted earlier in the week, that resistance won't necessarily slam the door in its face, but as it extends in this move it will find it harder to make headway as it moves into that overhead supply. No complaints about the move otherwise. It is like finding fault with Ted William's batting swing.
http://www.investmenthouse.com/cd/^dji.html
FRIDAY
Time for the economy to start putting up some more numbers, now with respect to jobs. Job creation has started, but it needs to get over 150K per month to make a dent. 200K? 300K? The market has rallied well in anticipation of some good news from the jobs front and earnings that started Thursday with Alcoa beating expectations by 5 cents and Nokia raising guidance.
Question is, after this run into the number, is there much more upside room? NASDAQ is butting up against 2100 and is 20% over its 200 day MVA; it has started to struggle when it gets in that range. DJ30 has been on a moon shot since late November. They can always keep moving higher, and we are not going to stand in the way of that move. It just gets harder to buy into it at this stage.
That is one reason we took it easy Thursday. We have a lot of great positions making us a lot of money and we were looking for very good moves to open new positions. The market started with a gap and got mushy; by the time it showed it was going to hold a lot of the new positions had moved higher and were stuck in a rut, not tanking but not moving higher. Others were basically holding steady or posting modest gains in a wide intraday range after an already decent move. Many stocks at this stage have run a ways to get to the breakout point, and the intraday action (volatile much of the session even as they moved higher) kept us cautious. There were some solid moves worthy of buying into; on others, as we said earlier, the moves needed to be perfect or we would hold off. With the jobs report out early after a strong run, we were not too interested in jumping into a lot of positions just to see them make a test when speculation becomes reality.
We are talking a lot about the market falling back after the jobs report, either after another bound or from the open, but the fact is the market is in a strong accumulation trend. It is extended, but it is in a strong uptrend showing institutional buying. That is the lifeblood of an expanding market. What is keeping us from buying into it other than gut feelings that are typically a bad method for gauging the market? The number of good buy points available after a strong run. NASDAQ stocks set up some good bases and broke out. Others shot up off of the bottom of the bases in big moves; they will most likely need to form handles or otherwise test those moves just as the early breakouts will need to test their moves. When that happens we will see a lot of opportunity in leading stocks ready to resume their moves. We were practicing a bit of self-imposed restraint in not chasing extended stocks, knowing we would get a chance to add to positions or take new positions on the tests. Those are some of our favorite entry points as the breakout is 'proved up' by the test that then rebounds on strong trade as buyers use the pullback to pile back in.
Friday we will just have to see how the market reacts to the jobs report. We have a feeling based on the action up to the number that it will ultimately start a pullback after the report. Maybe not Friday, but then the following week. We can use another pop higher as a profit taking opportunity on those stocks that have made solid moves.
Support and Resistance
NASDAQ: Closed at 2100.25
Resistance: First upper channel line at 2122. The January 2002 double top (2044 to 2099). 2200 then 2300 represent tops from Q2 2001.
Support: The 10 day MVA and the 18 day MVA (2034, 2007). The March/August up trendline (2026). December high (2000), November high (1992). The 50 day MVA (1958).
S&P 500: Closed at 1131.92
Resistance: 1150 to 1175, the early 2002 double top.
Support: The 10 day MVA and the 18 day MVA (1114, 1103). 1106 is a May 2002 top. 1100 represents some early 2001 lows. 1080 from February 2002 lows. The 50 day MVA (1075). November high (1061.40-1064).
Dow: Closed at 10,592.44
Resistance: 10,620 (March 2002 peak) starts the swath of overhead supply that runs up to 11,000.
Support: 10,506 (upper channel line). The 10 and 18 day MVA (10,457 and 10,347). 10,353 from May 2002 high. 10,259 (January 2002 high). The exponential 50 day MVA (10,064).
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): 353K actual, 345K expected, 339K prior.
Wholesale inventories, November (10:00): 0.5% actual, 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 3
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