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us stock market, trade stock
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1/12/04 Stock Split Report Update
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Stock Split Report Subscribers:
Monday and Wednesday we issue a market summary and a few choice plays for the following session. Full reports issued Tuesday, Thursday and Saturday.
MARKET ALERTS
Targets hit alerts issued Monday: ALTI
Buy alerts issued: ERES; RESP NCEN; LLTC
Trailing stops issued: None issued
Stop alerts issued: Cleaned out some dead wood. QLTI; CYD; KBH; LEN; PX
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
CD Seminar closeout!
We had several requests to put the special back on for a few more days, so we have put the special back on the website. This is the last of the current edition so act quickly.
Click on the following link and then click on the Holiday Special button. From there choose the holiday special that includes all 7 courses at a price less than half of the normal cost!
http://www.stockseminarsonline.com
The CD's and our detailed, example-filled materials will be on their way to you for a prosperous 2004!
SUMMARY:
- Stocks struggle then surge as NASDAQ continues to lead.
- Dollar firms a bit, helps steady market in absence of jobs.
- Stocks building in a lot of premium ahead of earnings.
Market gets back to work after a softer Friday.
Friday's selling was on lighter volume indicating no real selling interest, and after a volatile Monday morning the buyers overwhelmed any continuing selling interest. Prices firmed mid-morning, and after lunch NASDAQ broke through the early 2002 top at 2100 and rallied to the close. The leading indices from 2003 were back in the lead once again as NASDAQ, SOX and the small caps paced the action while the rest of the market went along for the ride. After spending October through December consolidating, NASDAQ was ready to move. SOX just completed a short base and broke out. The small caps slowed their ascent but have yet to form a new base. In short, the Dow and SP500 had rallied hard and were extended. Money has rotated from those sectors back into the 2003 leaders, once again propelling them to new post bust highs.
The Monday action returned to the more bullish intraday bias, i.e., a slow start that gives way to a wave of buying that pushes the indices up to close right at the session highs. The recent hot sectors were leading again, e.g., networking, internets and telecom, and they were joined by semiconductors and biotechs as they started to move as well. The stellar move continued unabated, but with earnings coming volume was lower. You could tell there was some trepidation to buy heavily ahead of earnings after such a strong run.
THE ECONOMY
The bullish trade was helped by a dollar that has started to show a sliver of backbone. The past two sessions it has edged slightly higher. Monday the floor traders and market makers were telling us the rumor about an EU intervention that we discussed in the weekend report. That talk is becoming widespread and will lose impact shortly as it waits on reality. At this point it is still just rumor. The market obviously liked it. In the absence of job production, a recovering dollar would be solid support for the market. Indeed, we heard many comments Monday about how the market seemed to simply shrug off the Friday jobs report with its massive 1K increase in non-farm payrolls. Many we talked with Monday seemed to feel the December numbers were an aberration
Lack of job creation a result of improper stimulus or just a matter of time?
We received quite a few emails regarding the December jobs report offering various interpretations. Many good points were made. One was the bifurcated nature of the recovery with higher end retailers performing well while the low end retailers suffered and the lack of demand for lower skilled labor. The stimulus was partially targeted at business investment incentives, partly at dividends to unlock some money tied up in companies, and marginal tax rates. There is no question the stimulus has jumpstarted the economy, but many are noting it is uneven, not the rising tide lifting all boats. It is suggested that a stimulus package directed totally at business tax credits for hiring workers.
There is some merit to that. It is an idea that we described back in the throes of the economic slide: give business incentives to hire and put people on the payrolls with a tax credit. That alone would not do the trick, however. That would have given those out of work a source of income to put back into the economy with their consumption, helping sales tax revenues, etc. It would have to be accompanied, however, by stimulus that would actually improve the business climate. Otherwise just having more workers would not create more business. It would have been a nice addition to an overall stimulus package that gave businesses reason to start buying form other businesses. It could have put a bit more horsepower into the current recovery as well.
Another subscriber noted how, unlike taxation matters, companies tend to put off hiring decisions until after the New Year. They will often implement decisions to fire in Q4, and it is worth noting that Q4 2003 was a light quarter for layoffs. They will make purchases in Q4 to take advantage of the tax benefits. They will put off bringing on new hires until the first of the year when budgets are flush again and they are not using the available funds for tax related purchases or other deal making. Indeed, we talked with a few headhunters and other staffing companies Monday and they noted that requests had been running stronger in January than December. That could presage a solid jobs number in January, but we also note that many of the orders are still for temporary or contract workers, still a popular method of beefing up the staff when needed. These temps, however, often fill a permanent need, and if the contract worker fits, it often turns into a permanent higher. That permanent hire is what shows up on the jobs report while the temp job does not.
THE MARKET
NASDAQ pushed through 2100, the early 2002 top that set off another downside run in the long downtrend. SOX broke out and small caps continued their impressive march higher. Volume was still solid, but it backed off even more from the Friday pullback levels. There has been an impressive surge the past three weeks and earnings are at the door. Yes stocks surged, but overall there are not as many big money managers willing to put new money on the table right now. Most still are (the market moved up on good trade), but the momentum is unwinding some.
That is understandable. That is one reason we have not been chasing a dozen new positions as stocks continue to move higher. Some stocks that are forming up well right now may not make it to the breakout point before the upside momentum on this current leg fades. We are keeping track of the good patterns and will take some positions if they make the breakout move or rebound from the test on strong volume, but again, we are not looking for a sack of new positions. We are letting current positions run, taking gains when targets are hit, and if this run rolls over, we will take more gain off the table even if the target is not hit. It has been a long run with NASDAQ 20% ahead of its 200 day MVA. It is overbought and due for a pullback. That keeps us cautious, but we also know a market or index can remain overbought for quite some time and continue running up. That is why we go with the market and let it and the leading stocks show us when there is trouble. That is when we act.
Market Sentiment
Volatility continues to edge higher but as noted over the weekend, it is still in its downtrend. Indeed, the VIX gapped higher Monday and then rolled back down.
VIX: 16.82; +0.07
VXN: 22.56; -0.45
VXO: 16.25; +0.31
Put/Call Ratio (CBOE): 0.79; +0.14. Put action rose even as the market rallied higher. Money managers are taking more protective put positions to protect their gains in the event of a correction from the current rally. That in itself is also a continued boost for the current move as the market climbs over the worries of investors, large and small.
NASDAQ
Another solid surge and new closing high, moving through the 2002 peak. Still trending higher in its impressive run.
Stats: +24.86 points (+1.19%) to close at 2111.78
Volume: 2.299B (-7.88%). Nice above average volume, but lower than the Friday selling volume. As noted, an indication that the move does not have as much backing as it did. Not much of a drop off, however, as the volume remained at levels from the move in the early part of the month.
Up Volume: 1.825B (+552M)
Down Volume: 443M (-760M)
A/D and Hi/Lo: Advancers led 1.92 to 1. A big surge in the last 15 minutes pushed breadth sharply higher from 3:2 shown most of the session.
Previous Session: Decliners led 1.48 to 1
New Highs: 374 (+26)
New Lows: 9 (+2)
The Chart: http://www.investmenthouse.com/cd/^ixq.html
Slower open, stronger finish. NASDAQ returned to its bullish ways Monday as it rallied through the early 2002 top that set of another round of selling. This was the first close over that level since it was made in 2002. It pushed solidly through it and will need to test it before it is proven support, but it was a good start. There is little doubt it will be tested. NASDAQ has rallied for three weeks off the 50 day MVA (1969), logging 193 points and 20% above its 200 day MVA. The index has started to peak when it hits 24% above that level. Indeed that is what it did the past two earnings quarters, rallying the first part of the month (July, October), and then peaking in the 25% range, then rolling over for a pullback or in the case of October, a longer consolidation (3 months). Given that it just went through the October to December consolidation, that gives it a better base to run from. Thus a pullback to take some air out of the move may be all it takes to get it ready for the next run.
We are talking as if the run is over. Monday shows us anything but as the index righted the Friday selling and still showed good volume even though it was lower. The first earnings announcements could send it even higher, but we will most likely start to see more volatility as it does move higher from these levels. 25% above the 200 day MVA is 2186. That gives NASDAQ room to run on the first earnings announcements that come in this week before it starts to stumble some. Remember, we are basing this on historical trends; NASDAQ can bounce a bit higher or a bit lower. Bin Laden could be captured and send it soaring. We will do what we always do: take our cues from the market action, all the while keeping this general historical overlay in mind.
S&P 500/NYSE
Nice recovery from the Friday selling, moving back up on solid though lighter trade.
Stats: +5.37 points (+0.48%) to close at 1127.23
NYSE Volume: 1.466B (-11.49%). Substantial drop in volume from the Friday selling. It shows no major accumulation though volume was still solidly above average.
Up Volume: 914M (+299M)
Down Volume: 535M (-500M)
A/D and Hi/Lo: Advancers led 1.69 to 1. Improved late as well, helped along by the small and mid-caps.
Previous Session: Decliners led 1.01 to 1
New Highs: 425 (-41). Declining new highs on an advance, a classic signal there is a bit more weakness creeping into the move.
New Lows: 2 (-4)
The Chart: http://www.investmenthouse.com/cd/^spx.html
SP500 continues its trend up the 10 day MVA (1117), continuing its 4 week run up that support after an even longer move up the 50 day MVA (1079). It is getting winded with this sprint after a distance run and will need a rest. The price/volume action is indicative of that: a big jump Thursday on the largest volume in the run, a price reversal Friday on still strong but lower trade, and a rally Monday on again lower trade. It does not mean the index is going to roll over and tank, but it is a sign that it is losing momentum after a run up the 50 day MVA and then an accelerated run up the 10 day MVA since mid-December. It could run another 20 points, but it is starting to lose momentum and it is not the best idea to initiate a bunch of new upside plays after such a run when you are seeing these signs.
DJ30
Stats: +26.29 points (+0.25%) to close at 10485.18
Volume: 197 million versus 223 million
Similar to SP500, DJ30 rallied Monday but volume was lower, barely cracking average. It too ran up the 50 day MVA (10096) only to accelerate that move in December as it ran up the 10 day MVA (10462). It is showing the same price/volume action that indicates the strength of the move is waning and it will need further consolidation. It held the 10 day MVA Monday but that most likely won't hold on any whiff of selling. The 18 day MVA is at 10,372 and the up trendline is right at 10,250 as potential support levels. As with SP500, it can still rally higher from here.
http://www.investmenthouse.com/cd/^dji.html
TUESDAY
Still no scheduled economic data for Tuesday, and the bigger earnings reports are later in the week. We are still in the season for earnings guidance or revisions ahead of the actual numbers, and there were more out after the close across the market. Tech will have some fuel Wednesday as STK said it was going guns blazing. There are many companies raising expectations ahead of earnings.
That can whip up the action ahead of earnings, but it also builds more froth into stocks ahead of the actual numbers. Again, once the happy speculation becomes fact it has been the pattern of the market over the last year to start taking a chunk of that gain out of once the first wave of earnings is over. Not a tank, just a pullback to consolidate in an uptrend.
With that overlay we approach Tuesday expecting the market to open higher on that good earnings news in the tech sector. We don't plan to chase a lot of stocks but we will be watching for good patterns that breakout on volume or rebounds from tests of breakouts or support. We will be watching early to see how a gap higher is treated. After the run to this point we are going to be very wary of a gap higher. If there is a good move it will show up early enough in volume and price action. While many stocks are making moves, a lot of the moves are continuations of runs already started. As for new positions there were not as many great breakouts today or Friday for that matter. It is a sign of a market that is getting stretched when the number of solid breakouts starts to wane even as the market pushes its gains further. The stocks that are going to run have made the breakout and have been running. Others are lacking the buyers at this point and may need another pullback to finish their consolidations.
Support and Resistance
NASDAQ: Closed at 2111.78
Resistance: First upper channel line at 2129. 2200 then 2300 represent tops from Q2 2001.
Support: The January 2002 double top (2044 to 2099). The 10 day MVA and the 18 day MVA (2056, 2025). The March/August up trendline (2035). December high (2000), November high (1992). The 50 day MVA (1969).
S&P 500: Closed at 1127.23
Resistance: 1150 to 1175, the early 2002 double top.
Support: The 10 day MVA and the 18 day MVA (1117, 1107). 1106 is a May 2002 top. 1100 represents some early 2001 lows. 1080 from February 2002 lows. The 50 day MVA (1079). November high (1061.40-1064).
Dow: Closed at 10,485.18
Resistance: 10,517 (upper channel line). 10,620 (March 2002 peak) starts the swath of overhead supply that runs up to 11,000.
Support: The 10 and 18 day MVA (10,462 and 10,372). 10,353 from May 2002 high. 10,259 (January 2002 high). The exponential 50 day MVA (10,096).
Economic Calendar
1-14-04
Trade balance, November (8:30): -$42.0B expected, -$41.8B October.
PPI, December (8:30): 0.2% expected, -0.3% November
Core PPI (8:30): 0.1% expected, -0.1% November
Fed Beige Book (2:00)
1-15-04
CPI, December (8:30): 0.2% expected, -0.2% November
Core CPI: 0.1% expected, -0.1% November
NY Empire State Index, January (8:30): 35.0 expected, 37.4 December
Initial jobless claims (8:30): 350K expected, 353K prior.
Retail sales, December (8:30): 0.8% expected, 0.9% November
Retail ex-auto: 0.4% expected, 0.4% November
Philly Fed, January (12:00): 30.0 expected, 32.1 December
Treasury budget, December (3:00): -$13.0B expected, $4.7B November
1-16-04
Business inventories, November (8:30): 0.2% expected, 0.4% October.
Industrial production, December (9:15): 0.5% expected, 0.9% November
Capacity utilization, December (9:15): 76.0% expected, 75.7% November
Michigan preliminary sentiment report, January (9:45): 94.0 expected, 92.6 December
End part 1 of 2
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