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world stock market, us stock market
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1/14/04 Investment House Alerts Report
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IH Alert Subscribers:
MARKET ALERTS
Targets hit alerts issued Wednesday: PSSI (took the rest of the gain off the table); DTAS
Buy alerts issued: CORI; SNWL
Trailing stops issued: PMTI
Stop alerts issued: None issued
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MARKET SUMMARY
Once more stocks were rallying after a pullback session. Unlike prior sessions, DJ30 took the lead as NASDAQ was very volatile from the open, SOX was weak most of the day, and the small caps were quiet until the last hour; if there was going to be leadership it had to come from DJ30 or SP500, the December dynamic duo. They were strong enough to fend off mid-day NASDAQ selling and pull the entire market higher in the last two hours. It was enough to light a fire under NASDAQ for a close at the session high. Small caps were rekindled late as well and finished in second place behind DJ30.
It was still a lower volume session as the market once again, despite a gain, shows momentum is waning some. After a stellar start to the year, this week has seen volume fall on up sessions and rise on down sessions. No rollover yet, but the indexes are struggling with significant resistance, showing classic signs of running out of momentum. On the other hand, they have not rolled over and are just moving laterally near the highs. Whenever a stock or index runs out of momentum but can hold its gains, that is a sign that sellers are not willing to let go of the stocks they have been buying. In that vein, Wednesday was another session that showed buyers still ready to buy though their numbers have declined. Intraday action remained bullish. Up to the bell the market was holding well.
After the bell the earnings failed to excite the crowd. YHOO met expectations, INTC was solid but gross margins were less than many wanted, AAPL was so-so, QLGC was a disappointment. Tech stocks were getting hammered on the reports, and the loss of momentum at 2100 resistance looks as if it will turn into an actual pullback now. Strong breakout and 3 week run into earnings is ready to fall back and consolidate the move.
It was not all disappointment after hours: IBM moved up its report to tomorrow from next week. That typically indicates good news and it was most likely done so its owners and employees could take advantage of options prior to the Friday expiration of the January period. The continued economic expansion is going to continue to ramp up earnings faster than expected. Thus, after a pullback to consolidate the gains to this point, NASDAQ will be set to continue the move higher. We have taken partial gains on many positions with the intent to let the remaining positions work in the continuing uptrend. With any pullback that holds near support we will be looking at adding to those positions at 'bargain' prices having already banked a nice gain on a winner and then looking to focus more assets on that winner for the next move.
THE ECONOMY
Trade imbalance less than expected, boosts dollar along with EU central banker grousing.
For the second month the trade imbalance was less than expected (-$38.0B vs -$42.0B), and the October imbalance was revised lower as well. With the US individual consumer and business consumer still buying at strong levels, you cannot look say the import side was weaker and thus made the difference. No, the weak dollar is now actually starting to impact exports as overseas buyers see better value in US goods as the Asian expansion continues at a breakneck pace.
A strong dollar helped create the imbalance along with a global economy that, during the long Japan recession and repeated Asian flu, basically retooled itself to sell to the American consumer as the US remained healthy while others sank into recession. That is a hard habit to break, and it has taken recoveries in those other countries to start reversing some of that addiction to the US consumer. Much as with AA or any other behavior modification program, however, it will always be one day at a time because the US economy is recovering, and when that happens US consumers consume great quantities of goods. Thus, even with a weaker dollar the trade balance narrows slowly.
As we discussed a few months back (at least), the dollar/trade balance dilemma is created and cured by the same elements. The strong dollar helps create the imbalance as foreign goods are cheaper to US consumers and they buy more and more. Weak foreign economies cause foreign producers to look to the US as opposed to their own consumers in order to grow sales. That skews the trade balance and ultimately casts doubt on the US' ability to keep growth going. That starts to weaken the currency, and if the government does not want to step in, the slide continues as long as the imbalance remains relatively the same or starts to grow more. Then there is a crossover point, a point that is always different each time this scenario plays out. With a weaker dollar, US consumers are buying fewer foreign goods. A recovering world economy gives rise to foreign currency gains versus the dollar and foreign consumers see US goods that are a much better buy. There is always demand for US goods; it is simply that the US consumer just overwhelms the rest of the world when it comes to consumption. The trade imbalance starts to correct. At some point the weaker dollar, the improving trade imbalance, and the US economic prospects come together once more to make the US an attractive place to invest. That starts the dollar back up as foreign investment returns once more to the US.
You could see some of that Wednesday as the continued tame PPI and the improving trade imbalance started the dollar up against the euro. At one point there was a 1.4 cent gain; that is huge in currency trading. It helped that some EU central bankers issued statements about the euro getting dangerously high versus the dollar, furthering the rumor we reported during the pat week that an EU intervention as opposed to a US intervention may be coming soon. The US would much rather other governments take action as opposed to the US. That strengthens the US hand when it goes to the trade negotiation table as it can say it is for free trade while it is the other nations that are intervening in the free market. In short, the forces that caused the dollar decline are starting to contribute to its revaluation.
Producer prices remain under control.
The government's measure of prices remained slow with the overall rate up 0.3% while the core (less food and energy) fell 0.1% just as it did in November. Energy led the charge, up 1.8% after falling 1.2% in November. Gasoline was up 5.1% after dropping 4.8%. Food was up as well at 0.2%, also up from November (-0.3%). Year over year the changes are up but small. Finished goods up 4% versus 1.2% in 2002. Intermediate goods rose 3.9% versus 3.2% in 2002, and crude goods rose 18.2% but that was still down from a 24.7% rise in 2002. Even with the surging commodities, the cost of goods to producers outside energy is rising at a slower pace.
All in all that is good for stocks as it shows little inflation even with the economy surging. That is one thing that supply side tax cuts have historically shown: they unleash capital investment in the country as opposed to just demand side consumption. That is a key, key difference in creating economic activity. Companies and individuals invest in the long term of the country when supply side incentives are given, and those do not have the inflationary effect that demand side stimulus has. Supply side incentives help increase production capacity and the investment in technology and R&D only helps that capacity down the road as new technologies are discovered and put into use. Then no matter how hot demand runs, there is supply to meet it and thus no inflation with demand exceeding supply. We can thus enjoy strong economic growth without accompanying inflation. That is what we are seeing again once again.
THE MARKET
Stocks were back up again Wednesday, attempting once more to break through to the upside after starting a stall this week at some key resistance. As we have noted, volatility often accompanies the market at this time. Thus we have seen up and down sessions back to back as NASDAQ and DJ30 struggle with that resistance. They have held onto gains, showing some strength in not turning over and selling at the first sign of trouble. At the same time the price/volume action has deteriorated with gains coming on lower and lower volume while the Tuesday down session occurred on modestly higher trade. Nothing to shoot a hole in the action, but something of concern after a strong run. Up through the close stocks were holding their gains, a sign of strength.
That will be tested severely Thursday. After the close INTC, QLGC, YHOO and other techs were getting knocked around on the earnings results that were mostly in line to slightly better, but not the caliber that would push stocks higher after a strong run. Techs will be challenged to hold their gains Thursday, and we expect tests of near support.
The next question is how the large caps and Dow stocks react while techs struggle. Will money return to them in more rotation or leave the market for now? IBM moved up its earnings announcement to Thursday; it could very well be that large caps perform well while NASDAQ takes a breather. DJ30 has INTC and IBM, and they will be at odds. It further has the upper channel it is struggling with. Based on what we have seen up to this point we believe a NASDAQ pullback would be a test of near support, a breather. Same for the Dow. Even with the IBM earnings push, it still looks as if the market overall will find it difficult to move higher from here without a pullback.
Market Sentiment
VIX: 16.75; -1.29
VXN: 23.17; +0.12
VXO: 16.7; -0.17
Put/Call Ratio (CBOE): 0.66; +0.05
NASDAQ
Recovered the Tuesday loss, making it back up to the resistance just over 2100 as it continues its lateral move.
Stats: +14.69 points (+0.7%) to close at 2111.13
Volume: 2.112B (-12.14%). Above average but the lowest trade since January 2. Another session where upside gains were accompanied by lower volume. Price/volume action has deteriorated some, but has not become a problem at this stage. We can anticipate higher volume selling Thursday; how the index responds after that is the key.
Up Volume: 1.175B (+436M)
Down Volume: 878M (-754M)
A/D and Hi/Lo: Advancers led 1.53 to 1
Previous Session: Decliners led 1.24 to 1
New Highs: 342 (+34). No major surging in the index as measured by the new high list. Most stocks are stuck near highs as is the NASDAQ itself.
New Lows: 6 (+2)
The Chart: http://www.investmenthouse.com/cd/^ixq.html
NASDAQ retook 2100 on the close, but it has been unable to punch past 2115 the past four sessions as price/volume action has started to deteriorate. With that stall and the weakness in the volume, the long run to earnings, the earnings results were sending stocks toward near support after hours. The 10 day MVA is near, but the 18 day MVA (2041) and the up trendline just below that level look to be more likely to be the levels that try to provide support. Given the nice 3 month consolidation from October to December, the test most likely will not be another protracted one. For now we keep an eye on where it turns, the volume action, and how the stocks that have pushed higher in strong uptrends perform. It could be a reverse case: the early earnings cause selling given the run into the results, and the late results actually turn stocks back up.
S&P 500/NYSE
Held the 10 day MVA and bounced again, but similar to the NASDAQ in that the price/volume action has deteriorated some and it remains below the recent highs.
Stats: +9.3 points (+0.83%) to close at 1130.52
NYSE Volume: 1.518B (-1.45%). NYSE volume dropped off as SP500 and the smaller caps rallied back up from the Tuesday selling. Similar to NASDAQ the price/volume action has weakened as it moves laterally.
Up Volume: 1.117B (+509M)
Down Volume: 378M (-543M)
A/D and Hi/Lo: Advancers led 2.15 to 1. Breadth was so-so until those small caps came to life in the last two hours.
Previous Session: Decliners led 1.04 to 1
New Highs: 428 (+56). Decent numbers even as the SP500 closed below the recent highs.
New Lows: 3 (0)
The Chart: http://www.investmenthouse.com/cd/^spx.html
SP500 continues to move laterally below 1132, holding its gains and refusing to sell off. That is a sign of strength as the big money does not want to sell the positions they just took. The weakening price/volume action is eroding the index some. It will be very interesting to see how it performs vis- -vis NASDAQ. Again, will money flow back into its cyclical stocks as they leave techs? We still think after that long run it is ready for a test toward the 18 day MVA (1111) or down to 1100 or the trendline at 1088.
DJ30
Stats: +111.19 points (+1.07%) to close at 10538.37
Volume: 186M versus 197.3 versus Tuesday
After tapping the 18 day MVA (10,395) on the Tuesday low DJ30 rebounded sharply Wednesday, closing right back at the upper channel line (now at 10,547). A strong price move but it lacked volume as trade fell below average for only the second time this year (tossing out January 2, the Friday after New Years). DJ30 continues to struggle at the upper channel, something that is normal, particularly when the more recent trend has increased its angle of ascent. We are still looking for DJ30 to make a more sustained pullback. After increasing its rate of ascent in December, running up to the upper channel, and seeing weakening price/volume action, we look for a pullback to the 18 day MVA and beyond down to the up trendline near 10,275. IBM and INTC will fight it out tomorrow, but each index looks as if it is forming a modest interim top and is setting up for a pullback.
http://www.investmenthouse.com/cd/^dji.html
THURSDAY
The top that has been forming this week will get a push lower Thursday, particularly on NASDAQ as the earnings results thus far were met with almost disdain. Long run to this point, high expectations, conjecture becoming reality; the list is pretty classic. We have been raising stops and taking gains on the way up, and we will see trailing stops hit tomorrow. The questions are will it bounce and what will the 'rest' of the market do?
Given the nice consolidation to end 2003, we still look at NASDAQ as making a shorter term test back to the 18 day MVA or the up trendline, both in close proximity to one another. We view that as mostly an opportunity to move into strong stocks as they make a pullback after a very nice breakout and run to end 2003 and start 2004. We will be watching for those to develop over the next week as the index makes its pullback.
IBM will add some spark to the rest of the market, maybe even some technology, and the JPM/ONE deal will add some life to those on Wall Street though to the rest of us it will be something of a so what event (ONE shareholders are getting a roughly 20% premium, though that was eroding as JPM was selling lower after the announcement). The reaction CNBC was typical: INTC, YHOO, AAPL, and QLGC earnings were out, but they were footnotes to the coverage that focused on 'the deal' that had the anchors all lathered up. Maybe the merger will be the main news in the market Thursday, but we doubt it. Earnings is the key force that drive stock prices, and there is some key information hitting the market.
Even if the IBM and JPM/ONE news is well received, we doubt it will break SP500 and DJ30 past recent resistance. Those indices have already run far and shown signs of peaking this week. If they do spurt higher they are even more susceptible to a pullback.
Thus we will be wary of any upside move in some of these stocks and expect tech stocks to be under pressure. We will watch where they try to make a stand to determine just how strong of a pullback we are going to get. Odds are it is not going to be a one day test and rebound. Past earnings episodes in 2003 indicate a longer pullback, but again we are not expecting a protracted, month long consolidation.
Support and Resistance
NASDAQ: Closed at 2111.13
Resistance: The second peak in the December 2001/January 2002 double top (2100) is still not letting go. First upper channel line at 2136. 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 (2072, 2041). The March/August up trendline (2038). December high (2000), November high (1992). The 50 day MVA (1979).
S&P 500: Closed at 1130.52
Resistance: 1132 has turned into some resistance. 1150 to 1175, the early 2002 double top.
Support: The 10 day MVA and the 18 day MVA (1120, 1111). 1106 is a May 2002 top. 1100 represents some early 2001 lows. The former upper channel line at 1088. 1080 from February 2002 lows. The 50 day MVA (1083). November high (1061.40-1064).
Dow: Closed at 10,538.37
Resistance: 10,547 (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 (10,471 and 10,395). 10,353 from May 2002 high. 10,259 (January 2002 high). The exponential 50 day MVA (10,125).
Economic Calendar
1-14-04
Trade balance, November (8:30): -$38.0B actual, -$42.0B expected, -$41.6B October (revised from -$41.8B).
PPI, December (8:30): 0.3% actual, 0.2% expected, -0.3% November
Core PPI (8:30): -0.1% actual, 0.1% expected, -0.1% November
Fed Beige Book (2:00): Jobs improving but still needs more improvement.
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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world stock market
us stock market
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