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us stock market, trade stock
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1/15/04 Investment House Alerts Report
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IH Alert Subscribers:
MARKET ALERTS
Targets hit alerts issued Thursday: XING; KEI; CTRA
Buy alerts issued: CTRA; SVVS; STXN; NUFO
Trailing stops issued: None issued
Stop alerts issued: None issued
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MARKET SUMMARY
DJ30 posts modest gains, NASDAQ modest losses.
IBM posted excellent earnings aided by strong foreign sales. INTC and YHOO posted strong results as well. The Dow posted a gain, NASDAQ posted a loss. Simple. More precisely, there was good earnings news, some of it better than expected, some of it not as good as hoped (though it met what was expected). The market fought to a draw on the good news, not so good news results. Once again the market showed solid intraday action as it bounced from morning selling to close easily in the upper range for the session. Once again, however, the market could not push past pesky near resistance that has held it in check for the past week. In sum it shook off sellers, refusing to fall, but it also could not advance past resistance. It is trying to form a lateral consolidation at the top of the range. Not bad action, but we are not sure it can pull off a lateral consolidation and then make a break higher without a pullback, particularly on DJ30 that is bucking against the upper channel line.
THE ECONOMY
Regional manufacturing reports continue to surpass expectations.
New York's survey posted 39.2 for January, topping the 35 expected and 36.2 in December. It was yet another record. The Philly Fed beat expectations as well with a 38.8 reading (30.0 expected, 30.3 prior). While not a record, it was a . . . 20 year high. Those are some big hits, particularly the Philly report. Once more we see economic indicators posting gains and new levels not seen since the last real tax cutting growth boom started back in the early 1980's. This shows the expansion is continuing, not slowing down. There was some slowdown in the new orders sub-index and the employment index. Even with the slowdowns, they are still very much showing their highest readings since 1988.
Retail sales called disappointing but November and December were very nice to retail.
December sales rose 0.5%, lower than the 0.8% expected. Ex-autos they were up 0.1% versus the 0.4% anticipated. November was revised higher to a popping 1.2% gain (from 0.9%), thus making the two-month run to the holidays very solid. Moreover, the year over year gain in 2003 was 5.6% versus 3% in 2002.
While it might not have been the quarter or month WMT, TGT or other discounters wanted, retail sales were solid and the wealth was spread around to retailers that had suffered the prior two holiday seasons. Just as those other retailers were complaining in prior seasons while WMT reaped the benefits of shoppers looking for discounts in a recession, WMT was 'complaining' this year because it lost sales to higher end as the economy recovered and shoppers looked to higher end goods.
Such is life in the retail industry. The key is looking at sales, and they were up sharply year over year as the economy moved into recovery mode. Sales are still holding up well as the new year gets underway based on our surveys. They should continue to do so as a wave of tax refunds due to excess withholding hits consumers' pockets. We will probably see business spending remain fairly solid as new budgets are opened for 2004, but that will start easing off in Q2 after spending in Q4 to take advantage of those tax benefits.
Jobless claims fall, as 4-week average hits its lowest level since February 2001.
343K versus 350K and 354K the prior week. The weekly claims continue to hold in the 350K level, a level that is historically associated with job creation. Recall that during the boom claims under 300K were considered by the Fed to indicate too tight a labor market and potentially resulting in 'wage inflation' that could lead to price inflation. Utter hogwash, but it is relevant to put the 350Kish numbers in perspective.
Government read of consumer prices shows little inflation.
After a -0.1% core reading in November, prices edged higher in December, rising 0.2% overall and 0.1% excluding food and energy. In 2003, core prices rose 1.1%, equaling the slowest growth pace since May 1963. While you would be hard pressed to find anyone who says that prices are as tame as the government indicates, overall prices are not taking off even with the strong economic growth. As we have discussed previously, if you have growth ignited by the right sectors, you can enjoy prosperity and growth without inflation. That is what the tax incentive tax cuts have done yet again just as they did in the 1980's that set the stage for the 20 year economic boom. At least the new expansion has a good pedigree behind it.
THE MARKET
The tenacity of the indices as they bump against near resistance is clear evidence of the desire to accumulate more equity positions and new money hitting the market each time a hint of weakness appears. That has kept the indices moving laterally at resistance after a long run as opposed to turning over and selling back. Can it continue? Price/volume action was deteriorating this week. Thursday that action was mixed with the SP500 and DJ30 posting gains on rising volume while NASDAQ lost some ground on rising volume; good for the former, not so good for the latter. Bigger picture: stocks fought hard but could make no headway at resistance even as volume rose. That suggests some churning, i.e., higher volume turnover after a strong move higher where the early buyers sell out while the newcomers, eager to get in, buy their shares. That is not good for the market because once the new buyers are done and the early buyers are gone there is no one to buy and prices start to fall.
Thursday was just a suggestion of churn. That it came on the heels of some weaker price/volume action is another thing to consider as stocks struggle to break clear of near resistance. The fact that they have held up so well, moving laterally while taking a breather, indicates that not all, not even many, of the buyers in this rally are ready to dump their shares. There is some short term profit taking going on, but thus far no major selling. That is a testament to the strength of the move, and even if there is a pullback (something we feel is coming, something that is really needed to set the next move) it won't be that severe as we have indicated in prior reports.
One thing we are keeping lookout on are the leaders. They are holding up well, even extending their gains as the rest of the market moves laterally. EBAY, XLNX, JNPR, AMZN, and many others rallied to new highs. There is very little leadership buckling, and many stocks are still in good bases that can produce additional breakouts for the market. Indeed, the lateral move is allowing many stocks to complete some nice bases. It is very hard if not foolish to argue against the market leadership. The overall market is taking a pause; if the leaders rest and then break higher once more, the market will most likely follow. We still view the market as overextended and the odds of significant gains from here given the DJ30 and NASDAQ resistance falling, but with strong stocks still breaking higher from good bases we are not going to stand in the way. Where leaders go we try to follow.
Market Sentiment
VIX: 15.56; -1.19
VXN: 22.64; -0.53
VXO: 16.23; -0.47
Put/Call Ratio (CBOE): 0.58; -0.08
NASDAQ
Sold early, rallied positive in a show of defiance, but then slipped back to negative as 2115ish again stalled the index.
Stats: -2.05 points (-0.1%) to close at 2109.08
Volume: 2.246B (+6.31%). Volume rose as NASDAQ ran lower, ran higher, then finished in the middle. That kind of action on rising volume shows some higher volume turnover as the buyers and sellers are really fighting it out.
Up Volume: 1.096B (-79M)
Down Volume: 1.101B (+223M)
A/D and Hi/Lo: Advancers led 1.09 to 1. Dead heat just as the price action.
Previous Session: Advancers led 1.53 to 1
New Highs: 330 (-12)
New Lows: 5 (-1)
The Chart: http://www.investmenthouse.com/cd/^ixq.html
NASDAQ has spent the past 5 sessions moving laterally at the early 2002 high, the peak in the double top and a level of overhead supply. It has closed above and below that level this week, finding 2115 as a repeated point of resistance. We have been expecting a pullback to test the strong move up from mid-December. It has not materialized, instead trying to consolidate laterally at resistance. The 10 day MVA (2078) is moving up toward the index. If NASDAQ continues the lateral move for a few more sessions, it could have completed its rest without having to pullback. We will have to see it to believe it, but it is being stingy with its gains, a good sign despite some mild churn on Tuesday and Thursday. With a favorable reception after hours to earnings from JNPR and friends, it might try another run again Friday thought eh long weekend may blunt any strong moves.
S&P 500/NYSE
It too was up and down and then closed nearly flat as volume jumped. Some high volume turnover here as well.
Stats: +1.53 points (+0.14%) to close at 1132.05
NYSE Volume: 1.695B (+11.64%). Strong jump in trade as SP500 notched a gain. Not so fast with the accumulation moniker. It was a very slight gain and the action was all over the map. It could have easily closed the session slightly lower as did NASDAQ. Volume was up sharply on increased volatility; that is not the best action if you are looking for a breakout upside.
Up Volume: 864M (-253M)
Down Volume: 799M (+421M)
A/D and Hi/Lo: Decliners led 1.01 to 1. As with NASDAQ, the internals were very evenly matched.
Previous Session: Advancers led 2.15 to 1
New Highs: 439 (+11)
New Lows: 3 (0)
The Chart: http://www.investmenthouse.com/cd/^spx.html
SP500 broke over 1132, rising to 1137 on the high. It could not hold the move, closing at that new resistance as 1132. It continues the lateral move over the 10 day MVA (1122), trying to consolidate the 100 point run from November without giving up the gains; a kind of have your gains and eat them too approach to consolidation. In a strong move this flying plateau action acts as a short term breather or way station before another leg higher. That is what it is trying to do here. Price/volume action has wavered, but the index has not given much ground. Again we let the leaders point the way.
DJ30
Stats: +15.48 points (+0.15%) to close at 10553.85
Volume: 260 million versus 186 million Wednesday.
The strongest volume in four weeks had DJ30 the market leader, at least early on with IBM surging. It made it to 10,592, just below 10,600 where that wide band of overhead supply begins, but that was all. It fell back and closed right at the upper channel line, once more unable to punch through that level. Typically indices and stocks move in channels as they trend up or down. The upper channel is marked by the highs in that leg of the trend. Those form an upper channel line that acts as a barrier. An index tends to move up so far before it gets extended and needs to take some gains. It can always change, i.e., when a stock or index breaks out, but after a long run it is more difficult. It is also moving laterally and is trying to consolidate its rally without giving up gains. That action can produce another breakout, but we would prefer a modest pullback to at least the 18 day MVA (10,411) or the up trendline near 10,285.
http://www.investmenthouse.com/cd/^dji.html
FRIDAY
After hours earnings reports from JNPR and other techs had stocks jumping in the after market. JNPR had one of the most bullish conference calls we have heard since 1999; the stock was up over $3 from the close. That kind of good news coupled with the lateral move the past 5 days may try to break stocks higher and out of the recent range. As we have said, we would prefer a pullback given the market's rally to this point; that would allow stocks to reset and gather strength for the next leg. There have been some signs of weakening price/volume action and some churning, but thus far it has not resulted in a sell off.
While we would be wary still of any move higher, if there are solid breakouts from the many solid consolidations that are still in the market we will continue to take part in the rally. A strong uptrend is still in place, and stocks can rally well beyond what one thinks is rational before they make a more serious pullback. Thus while we are still cautious about some of the signals the market is throwing off, strong breakouts from solid patterns are the strongest indication.
We will be careful of a strong jump higher Friday given the distance of the move, the trouble the market has had with this near resistance, and the fact that it is a Friday before a long weekend (Monday the market is closed for Martin Luther King Jr. Day). After solid gains some hedge funds will be inclined to book some profit before the long weekend and that could turn an early rally into some late selling, particularly with the market at near resistance and still having showing that deteriorating price/volume action (down on up days, up on down days, the opposite of what you want for an uptrend). That means sticking to solid pattern and breakouts and rebounds on breakout tests, what we typically look for. This market has many to choose from right now.
Support and Resistance
NASDAQ: Closed at 2109.08
Resistance: The second peak in the December 2001/January 2002 double top (2100) is still not letting go, and 2115 has been stalling the index of late. First upper channel line at 2140. 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 (2078, 2048). The March/August up trendline (2044). December high (2000), November high (1992). The 50 day MVA (1984).
S&P 500: Closed at 1132.05
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 (1122, 1113). 1106 is a May 2002 top. 1100 represents some early 2001 lows. The former upper channel line at 1089. The 50 day MVA (1085).
Dow: Closed at 10,553.85
Resistance: 10,558 (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 (10,486 and 10,412). 10,353 from May 2002 high. 10,259 (January 2002 high). The exponential 50 day MVA (10,142).
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% actual, 0.2% expected, -0.2% November
Core CPI: 0.1% expected, -0.1% November
NY Empire State Index, January (8:30): 39.2 actual, 35.0 expected, 37.4 December
Initial jobless claims (8:30): 343K actual,, 350K expected, 354K prior.
Retail sales, December (8:30): 0.5% actual, 0.8% expected, 1.2% November (revised from 0.9%).
Retail ex-auto: 0.1% actual, 0.4% expected, 0.7% November (revised from 0.4%).
Philly Fed, January (12:00): 38.8 actual, 30.0 expected, 32.1 December
Treasury budget, December (3:00): -$16.2B actual, -$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
SUBSCRIBER QUESTIONS
Q: I would like to know when we should sell half our position and let the rest run when your stock picks reach their target price. Is there a way you could tell us when it would be a good idea to take half the profit and let the rest ride?
A: Good question. When the market is in an overall uptrend, and particularly the stock we are playing, we like to let part of our position on stocks that are making a strong surge continue to run even after they've hit the initial target. Most stocks will follow the market, so if there is a strong uptrend we are more confident with that strategy. Once a stock makes the move we want and hits its target price, taking half of the position off the table and letting the rest run can make the most out of a strong move while already locking in some nice profit. We can then look for the next entry point for the stock if it remains strong and is proving to be in a longer term uptrend. That way we have protected some nice gain and are already ahead when a leader shows us it is ready for the next run. Why look elsewhere if it can make us more good money in a timely fashion (i.e., compared to other strong stocks it is a good place to have our money)?
We issue alerts on stocks that have reached target, and will note at that time if we are leaving part of the position, stock or options, to continue to work in the uptrend. We'll also let you know in the continuing watchlist. We really have to see how the stock is moving when it hits the buy point, e.g. the volume, whether it is a new breakout higher, etc. For your own decisions look at whether the move is peaking after a ballistic shot higher or if it hits the target after a consolidation and blasts higher on a new breakout. The former would indicate taking the position off the table if the stock could fall a long way to near support and give back much of the gain. In the latter we would let it run even more before taking some gain, but would look at taking a partial position when the run was slowing, letting the strong trend work for us.
Another consideration has to do with timing. If we are using options we always have to consider the time decay for options we have purchased. Can we let it drop again and make a test of the move and rally back without losing time value? If we are getting within 60 days of expiration we tend to close it out. If there is plenty of time and there looks to be plenty of upside ahead, we can take half the gain and let the rest work for us, but we still have to be careful not to let it fall too far back given the limited time we have on option positions.
End part 1 of 3
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