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us stock market, trade stock
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1/13/04 Investment House Alerts Report
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IH Alert Subscribers:
MARKET ALERTS
Targets hit alerts issued Tuesday: THER; ACO; AMXC; VAR
Buy alerts issued: SINA; TUTR
Trailing stops issued: TTI
Stop alerts issued: INAP
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MARKET SUMMARY
The market has been losing momentum, and Tuesday that momentum loss turned into selling. Stocks spent the morning session heading lower, stabilized the middle three hours, then rallied to cut the losses as some last hour bargain hunters moved in. Overall stocks closed lower, but there was some hint of that continued bullish intraday activity, i.e., softer open and stronger close.
While the intraday action was modestly bullish, the volume was not. Volume on both NYSE and NASDAQ surpassed the Monday volume on that gain. Not by much, but it was a technical distribution day, i.e., where volume rises as stocks sell off. That shows there are net more sellers than buyers. That is obvious as stocks sold off, but the rising volume shows there are more sellers in the market relative to the buyers the prior session when stocks rose on lower volume than the preceding Friday and the Tuesday selling. That is a shift from the strong accumulation as the indices rallied higher the prior three weeks when we saw volume rising higher and higher as stocks climbed. That shows more and more buyers coming into the market, and those fresh legs help keep it running higher. When those fresh legs get tired and no more come in to help them out, then you start to see the market lose momentum, stall out, and start to sell.
The key is whether the market sells on rising volume or if it dips on lower trade. Lower volume indicates that while stocks on the whole are selling, there are fewer sellers relative to the buyers on the way up. That means no one is dumping the stocks they just bought, and after a pullback to test support they will be ready to move up again. Tuesday saw some distribution. One day does not mean head for the doors; it takes a few quick distribution sessions to show sustained unloading of shares that can foretell even more losses beyond near support. In addition, part of the Tuesday volume was the last hour buying that sent the indexes up to cut their losses, and that is not negative. Thus Tuesday was technically distribution but it was not enough to make us don the sackcloth and ashes and talk about the end being near.
Leaders are still holding up relatively well, pulling back toward near support on light trade. The leadership is really the final litmus test of the market. If the leaders are not under pressure then the market will most likely avoid major pitfalls. For now the leaders are still leading though they too are stalling out and starting to test back. As long as they are not diving through support on rising trade the action remains solid. For now that is the case.
THE ECONOMY
Greenspan upbeat in Europe
Greenspan was speaking in Berlin Tuesday, and as one subscriber noted, every time he talks investors lose money. Greenspan was walking the line in front of the EU, justifying the US trade deficit as not being a threat at the current levels. He was also upbeat on jobs, stating that if you stimulate it (growth), jobs will come. Of course it has to be strong growth similar to the levels seen in the US, but the idea Greenspan relies on is history: growth brings jobs. Jobs have been stymied in the early part of the recovery by 8% annual productivity growth, but that won't forestall job growth indefinitely. Greenspan basically was telling the EU that we had ours in one pile in the US and that the EU needed to get with the program.
Of course, listening to the political discourse here in the states (and we toss Robert Rubin in the political category as well), you would think we were just about to fall off the precipice. We cannot start saying 'all is well' because it is not; the recovery needs to continue to raise all boats, something that has not happened yet. Bush and his team seem to get that and want to push for more innovation in taxation with personal savings accounts, social security reform, etc. Others think the solution is to remove the stimulus. Now that would even out the effects of the recovery: it would put us all back into recession. We call that the 'misery loves company' economic plan. It can also be called the one step forward, 5 steps backward plan.
Can we revive manned space flight? Just spend more!
The following is some editorializing on spending, comparing today with 40 years ago. You are forewarned.
While we have had a 30 year lapse in real manned space flight there is little question we have the ability to renew putting men into space for extended trips. The question is money. We doubt that even in the surplus years of the last 1990's if there would be enough scratch to cover the cost. There most certainly would not have been when the inevitable economic downturn would come and the tax revenues would dwindle. How can that be? A trip down memory lane.
Back when the 'space race' was started the US was just about to enter the 1960's. When Kennedy declared we would put a man on the moon before decade end things were looking pretty good: Kennedy had cut taxes and the economy was surging and tax revenues rolling were in. So how is that different from the late 1990's or even in a year or two from now when the tax revenues the surging economy generates swell the Treasury and cut the deficits? Back in the early 1960's the multiple balls and chains now hobbling the economy (e.g., Medicare, social security, welfare) were not in existence or at most were modest assistance programs. Johnson's 'Great Society' entitlement programs did not pass until 1965. Thus, tax dollars could go right to the 'bottom line' for an item such as space exploration (and it was not really exploration; it was part of the defense spending on the new cold war and thus within the purview of the federal government). There were not trillions of dollars of ravenous entitlements that had to be fed before we could think of doing anything so grand (or even not so grand).
Now we have programs that have grown into multi-headed hydras, sprouting more heads even without hewing one off. The latest is the Medicare prescription drug program; it grew without deleting any other program. So you want to put a man on Mars? Better clear that with those who pay no taxes but receive 51% of the federal benefits paid out. They may not want the technological advances such an endeavor would create if it would jeopardize some of the take. Check with the seniors as well because social security, originally planned to be a modest stipend, has now morphed into a subsistence level payment. Today there is no way we can fund such a massive effort without simply adding more spending. But that is really no problem to the federal government. Just ask those 35% that pay 85% of the taxes to pay more. At the same time, explain to them where in the Constitution it says the federal government should be involved in healthcare, education, housing, etc. Something about those powers not specifically enumerated would be reserved to the states comes to mind, but the Constitution has been used as a doormat by Congress and the courts for decades now.
In sum, if we did not have the massive entitlement programs weighing down the economy and tying our hands we could pay for such a program no problem. Those dollars are earmarked even before they are collected, however, and thus any program is tied to additional revenue dollars.
THE MARKET
The market underwent modest distribution Tuesday though as noted above, some of the late volume that pushed trade past Monday levels was due to the late rebound that cut losses. After a solid gain the past three weeks as NASDAQ broke out and DJ30 and SP500 increased the pace of their ascent, the market has lost some momentum and is starting stumble. It was down Friday, up Monday, and then down Tuesday on rising volume. That volatility is indicative of a market that is ready for a pullback, and it started that pullback Tuesday.
It is interesting to note that the NASDAQ 2001 level, the second peak in the late 2001/early 2002 double top, has actually received air time the past two sessions. Good to know that now that we are there (of course, one anchor called it a 'psychological' level, missing the importance altogether). We have been talking about that for the past two months as an important point for NASDAQ and the market as well given NASDAQ's leadership status during the entire run off of the October 2002 low. This points out one of the problems about listening too closely to the financial stations. It is important to know what the crowd is being fed and thus we listen, want to or not. Problem is, they focus on the trees each day with respect to what is going on for that snapshot in time. Sure they talk of longer term, but 90% of the coverage revolves around what happened in the last half hour. It is too easy to get sucked into the play-by-play commentary and lose sight of the big picture that is driving the action you are seeing right then. Just keep on level ground and you will be fine.
In any event, NASDAQ struggled again at 2100, and it looks as if this is going to send it lower once it gets finished trying to pierce it on this move. The issue we are looking at is whether it is a sustained correction or consolidation or just a pullback to near support to reload and start running again. NASDAQ has already put in a 3 month consolidation from October to December and is thus fairly well rested; a pullback to regroup is all it really needs. We are keeping a close eye on that higher volume selling as well as NASDAQ leadership stocks and sectors such as semiconductors. The latter have been forming good patterns and are set up to move higher if the NASDAQ is conducive. They too may need to pull back, however, before they are ready to make a breakout. With a good run and earnings coming out, once the buildup becomes fact stocks during the past year have peaked and sold back to prepare for the next run.
Market Sentiment
VIX: 18.04; +1.22
VXN: 23.05; +0.49
VXO: 16.87; +0.62
Put/Call Ratio (CBOE): 0.61; -0.18. Backed off as the market sold. It has been acting opposite the way it would be expected to act, but at this point it is not doing much indicating.
NASDAQ
Turned over after a long run higher though it did manage to cut half of its losses on the session.
Stats: -15.34 points (-0.73%) to close at 2096.44
Volume: 2.404B (+4.59%). Volume rose on the selling. As noted, some of the volume increase was developed in the last hour as the index turned back up. Modest distribution after a long run indicates the index has some more pullback ahead.
Up Volume: 739M (-1.086B)
Down Volume: 1.632B (+1.189B)
A/D and Hi/Lo: Decliners led 1.24 to 1
Previous Session: Advancers led 1.92 to 1
New Highs: 308 (-66)
New Lows: 4 (-5)
The Chart: http://www.investmenthouse.com/cd/^ixq.html
NASDAQ is showing the classic up one day, down the next day action that, after a run higher, indicates a pullback in the making. We could get caught up in the fact that it rebounded to cut its losses, but it was still lower on rising volume. The rebound is good; it shows there is no rush to the exits, but it does not wipe away the overall action. 2100 is proving to be some resistance, just how strong is not known at this juncture. NASDAQ actually pierced it on the close, so it is not a steel wall. NASDAQ has already put in that 3 month consolidation and then broke higher, so if earnings are good the pullback will be modest, back to the 18 day MVA (2033), even a full test back to 2000. If volume runs higher and higher on the selling and leaders implode through support, that is another story. Again, it remains to be seen, but thus far the attributes indicate the pullback will be 'normal' after a breakout, i.e., to near support.
S&P 500/NYSE
Tested below the 10 day MVA on the low and then rebounded on rising volume for a 0.5% loss, maintaining the uptrend over the 10 day.
Stats: -6.01 points (-0.53%) to close at 1121.22
NYSE Volume: 1.541B (+5.06%). Volume rallied as NYSE sold, but it also rose as SP500 rebounded 6 points off the low, cutting its losses in half. That higher volume on a rebound indicates buyers were stepping in and thus the rising trade does not show necessarily pure distribution, i.e., bailing out of shares just purchased on the way up.
Up Volume: 608M (-306M)
Down Volume: 921M (+386M)
A/D and Hi/Lo: Decliners led 1.04 to 1. Nice recovery in the late surge.
Previous Session: Advancers led 1.69 to 1
New Highs: 372 (-53)
New Lows: 3 (+1)
The Chart: http://www.investmenthouse.com/cd/^spx.html
Big volume and price surge Thursday, reversal Friday, rebound attempt Monday on lower volume, then a test lower intraday and partial recovery on rising volume. That is the definition of a top being put in. As with NASDAQ the issue is how far it tests. It has run much further than NASDAQ without a rest, having started its move earlier. 1100 seems pretty certain. Below that 1088. It is also important to note it is working on a top. That does not mean it turns over and tanks from here. The intraday action Tuesday shows there are still buyers in there fighting, and the buyers and sellers are in the process of working out who is the strongest right now. Thus we can see more up and down action ahead even as it works on the pullback.
DJ30
Stats: -58 points (-0.55%) to close at 10427.18
Volume: 197.3 versus 197.9 million Monday
The blue chips were under pressure all session, testing the 18 day MVA (10,378) on the low and then rebounding to the close, cutting losses by half (60 points). DJ30 ran into and struggled at the upper channel line (10,525) and is now fading back below it. Volume on the Tuesday selling was slightly lower; no distribution, just a pullback to test the strong move from late November. It has held the 18 day MVA so far, but we anticipate a test of the up trendline near 10,260 before the pullback is over. As with the other indices, the action could be volatile, but it is also now clearly showing its intent to pullback and thus the action will most likely be more in the direction of near support.
http://www.investmenthouse.com/cd/^dji.html
WEDNESDAY
Economic data starts hitting the market again with a reading on producer prices. While important, the focus now shifts to earnings. Wednesday after the close INTC and YHOO report. After hours LLTC released earnings that were in line with stronger revenues and a nice dividend. The reaction was down then it rebounded. The market has typically bounced on the first few big names announcements if solid, then it runs out of gas and tests back. Thus we could see another jump on news from INTC, YHOO, et al, but we don't think it will propel stocks into another upleg just yet.
Stocks are already bucking after a strong gain in anticipation of earnings. Good reports could confirm the expectations and give that little extra boost, but we don't expect much more after that. There may be individual stories where stocks shoot higher, but overall we anticipate the earnings will not forestall the pullback that is starting. It may interrupt it shortly, but not prevent it. When the selling does start more in earnest, we look for NASDAQ to pullback to near support. SP500 and DJ30 could have more of a pullback and consolidation as they have run hard and were in the lead long before NASDAQ's December breakout from its consolidation.
Accordingly we will use any bounce as a chance to book some gains. We have moved up stops as well to preserve gains as well: Wednesday may see some more weakness ahead of the INTC and YHOO reports after the close. Then if those are strong reports a pop Thursday will give us a chance to take some gains yet again. There is a rumor, as usual, that INTC's guidance won't be stellar. After raising expectations the past two quarters, there is the idea that things can't keep getting better. That may work again to keep a lid on stocks Wednesday as well.
As we don't see a major correction from here, playing the downside is a bit risky. WE are looking for breakdowns and downtrending stocks to take part in, but we want to see a lot of weakness and a stock on the precipice that can make us money quickly before the market decides it is time to rebound.
Support and Resistance
NASDAQ: Closed at 2096.44
Resistance: The second peak in the December 2001/January 2002 double top (2100). First upper channel line at 2132. 2200 then 2300 represent tops from Q2 2001.
Support: The lower peak in the January 2002 double top (2044). The 10 day MVA and the 18 day MVA (2063, 2033). The March/August up trendline (2035). December high (2000), November high (1992). The 50 day MVA (1974).
S&P 500: Closed at 1121.22
Resistance: 1150 to 1175, the early 2002 double top.
Support: The 10 day MVA and the 18 day MVA (1118, 1108). 1106 is a May 2002 top. 1100 represents some early 2001 lows. 1080 from February 2002 lows. The 50 day MVA (1081). November high (1061.40-1064).
Dow: Closed at 10,427.18
Resistance: 10,525 (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 (10,456 and 10,378). 10,353 from May 2002 high. 10,259 (January 2002 high). The exponential 50 day MVA (10,109).
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 3
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