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us stock market, trade stock
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1/22/04 Investment House Daily
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Investment House Daily Subscribers:
MARKET ALERTS:
Target hit alerts issued Thursday: None issued
Buy alerts issued: RTI; FMTI
Trailing stop alerts: Protected some gain. ADCT; PTNR; NOOF
Stop alerts: TDAI
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. To subscribe to the Daily alert service you can sign up at the following link:
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SUMMARY:
- Rotation continues as DJ30 outperforms, NASDAQ lags.
- Leading economic indicators point to continued expansion.
- Uptrend continues, but choppy day-to-day action wearing on stocks.
Stocks sell but large caps show relative strength.
One thing that has kept this market going is investor willingness to move money from one sector to the other as opposed to taking money out of stocks altogether after a sector cools. We saw that in October through December as cyclical stocks took the torch from technology and small caps. Then in late December technology and small caps again broke higher and took the torch though the cyclical stocks did not roll over and tank by any means. Now that earnings are here and well underway, techs are showing signs of wear already after the relatively short move in the limelight, and the large caps are trying to show some relative strength.
Trying is the key word. All stocks have run far and are somewhat weary at this stage, thus making leadership more a game of hot potato than something to bet on. Rapid changes in leadership, much the same as jumping volatility, are a sign of change. There is also more of a struggle to forge ahead. There are bursts of buying but then there is an immediate struggle. There obviously has not been a break of the uptrend by any stretch, but this faster rotation between sectors, the struggle to advance, and SP500's second tap at 1150 are more items we are watching.
On the positive side, once more the indices showed solid price/volume action, i.e., falling back on the selling. That shows that while sellers were in control, there were not as many sellers as there have been buyers. In other words, when stocks rise on rising volume and pullback on lower volume, investors are net buyers. That is what we have seen on this entire rise other than a bit of choppiness during the lateral consolidation two weeks back. That good price/volume action means modest, low volume pullbacks as stocks hold near support. As long as they hold near support and can rebound on rising trade the current move remains in tact. At some point, most likely during this earnings season, stocks are going to make that pullback to test support. NASDAQ may have started the move today, seeking its 10 day MVA as earnings failed to impress investors.
THE ECONOMY
December leading indicators show another gain.
The 0.2% rise (in line with expectations) made it 9 months in a row these 10 indicators have notched gains. This indicator looks out 6 months out, and this string of gains means the economic expansion momentum continues to rise despite many saying it cannot keep up the pace. While this economic indicator is relegated to cousin status by many, it is one that we were watching early before the recovery was hinted at by most commentators. We saw it turning, and combined with other signals of life back when the picture was pretty dark, we wrote about the turn coming. Thus it is not one to brush off, but it should, as with all indicators, be part of the picture the economic data paints.
Weekly jobless claims fall again.
341K versus 345K expected and the revised 342K the prior week. The 4-week average fell to 344,500 from 347,750, the lowest since January 2001. This level is consistent with the start of job creation. Despite the moans regarding lack of job creation, based on the stock market recovery and jobless claim numbers, the time for job creation has just started. The fact that non-farm jobs showed their first gains in September just means job creation is a bit ahead of schedule. Now it is just a matter of the strength of creation.
Treasury Secretary Snow believes the December numbers were understated; one of the main topics on the floor early Thursday was the information source for his conclusion. Speculation is running rampant about whether he has some inside information; that would be nice, but most likely he is shooting from the hip. Nonetheless we do anticipate significant job creation even on the non-farm side of the ledger the next two months to break the ice and get the hiring going.
Official recession dates to be rolled back.
The last recession officially started in March 2001, less than three months after Bush took the oath of office. Of course he has been blamed for the recession, apparently wreaking such havoc in those three months that the economy reversed and fell into ruin, as measured by the stock market, through October 2002. Of course, many commentators still claim that the economy is ruin even as it comes out of its slump. Many also think the stock market is in the toilet even as it emerges from a downtrend and scores huge gains for those that can read the signposts. The facts show recovery, the emotions are stuck in the past as fear controls most attitudes toward the economy and market.
That start date is going to be slid back, possibly to November 2000. That in itself does not really match, however. We said even at the time that we were in recession though not the textbook 'two quarters of negative growth.' When GDP growth plunges from 8% to 1% in just over 2 quarters, you have a major economic shutdown underway. When a healthy person is suddenly stricken with grave illness you don't have to wait until he is fighting for life to officially pronounce the person is sick. Something is very wrong, and if nothing is done it is going to get worse. Again, when activity tanks from 8% to 1% in less than 3 quarters, there is a serious problem. That was the economy even before the official recession began, even before the modified recession date if it is slid back. It was very ill before the people that needed to worry about it diagnosed its problems.
Greenspan retirement ahead?
Greenspan's term as chairman is up this summer though his post on the Fed runs for a year past that. With job production still lagging and continued grousing about whether the economy is strong or not we are certain he will be reappointed in the summer. Once the election is over he will most likely resign. He, in his mind, mitigated the effects of the economic bust and then orchestrated the current expansion. Legacy intact, at least good enough for the spin doctors to paint glowing epitaphs to his career. With that in his pocket he will step down, confident in his mind his job is done.
THE MARKET
The market is in the meat of earnings season and the reports are running ahead of expectations. The reaction has been overall positive as the market maintains its uptrend. Big gains, however, have been limited to mostly to the names announcing the earnings (e.g., JNPR, NFLX). If you beat by a penny and raise guidance you are not sold. If you are in line and 'warn' regarding expectations, the ground rushes up to meet you. Thursday saw stocks reporting basically solid earnings selling while those that were blowout got the blowout treatment. The former were common, the latter much less, and the market thus struggled. After hours Thursday MSFT and KLAC failed to wow investors and were selling off after hours. Earnings lethargy is rising.
This is a common occurrence over the past year. Stocks rally ahead of earnings, march a bit higher during the first surge, then fall back to support to consolidate the gains. That is no big deal. It is normal market action on any run. It is healthy as long as the selling remains under control, i.e., selling on mostly lower volume. Thursday the market showed more earnings sluggishness, and to us that indicates that the earnings lethargy is setting in. NASDAQ is showing the most despondence over earnings as it eases back toward the 10 day MVA. SP500 again tapped the 1150 resistance, this time edging back. This could very well be the start of its pullback to consolidate some of the move, but they have not even broached the 10 day MVA yet.
Market Sentiment
VIX: 14.71; +0.37
VXN: 21.74; +1.03
VXO: 15.01; +0.58
Put/Call Ratio (CBOE): 0.92; +0.25. No, no one is hedged and the put/call ratio was at a 'dangerous' level. Interesting there was no commentary on it on the financial stations. The put/call ratio has remained at historically high levels and only earlier this week dipped. Once some selling started, however, it shot right back up.
NASDAQ
Techs and chips led the downturn, and though it lost 1.1%, volume was lighter and it still was above the 10 day MVA.
Stats: -23.44 points (-1.09%) to close at 2119.01
Volume: 2.367B (-2.81%). Volume backed off on the selling, maintaining the good price/volume action and indicating the selling was not dumping. Still solid trade, but backing off from the upside session volume.
Up Volume: 684M (-165M)
Down Volume: 1.618B (+79M)
A/D and Hi/Lo: Decliners led 1.69 to 1. Nothing outrageous about this. Indeed, it was mild compared to selling bouts earlier in the year even as the index rose.
Previous Session: Decliners led 1.11 to 1
New Highs: 301 (-95)
New Lows: 7 (+4)
The Chart: http://www.investmenthouse.com/cd/^ixq.html
Volume was lower, but the intraday action was poor as NASDAQ tried to form up an intraday base but then tanked in the last half hour to close at the low. After two dojis at 2150 NASDAQ could not mount a further advance. It is still over the 10 day MVA (2110), but we still view that NASDAQ will start the typical mid-cycle earnings pullback and test the 18 day MVA (2080) or the up trendline (2064). Thursday may have been the start of that pullback with the heaviest downside session in weeks, but this leg has nine lives. Even if it is we will simply keep on top of positions, let it test back, and look for new entry points.
S&P 500/NYSE
After the big Wednesday surge a modest, lower volume pullback in the stellar uptrend.
Stats: -3.67 points (-0.32%) to close at 1143.94
NYSE Volume: 1.694B (-3.64%). Strong but still lower than the Wednesday gain. Price/volume action remains solid after getting choppy a week back during the lateral consolidation.
Up Volume: 691M (-335M)
Down Volume: 990M (+269M)
A/D and Hi/Lo: Advancers led 1.09 to 1
Previous Session: Advancers led 1.7 to 1
New Highs: 517 (-10). Dropped but held up well. New highs have been solid.
New Lows: 1 (-1)
The Chart: http://www.investmenthouse.com/cd/^spx.html
Tapped 1150 again on the high, the first top in the late 2001/early 2002 double top that set off the last ugly downleg in the long downtrend. It was no major reversal, particularly on the heels of the solid accumulation Wednesday. The 1150 level is a key one we have noted for over a month, however, and it is gingerly testing that level after a long run. A pullback to the 18 day MVA near 1125 would set it up for a run through that level. Right now the uptrend is solid but extended. 1150 is being tested. The large caps are trying to take the leadership role, but it is time to watch and see how it handles this level.
DJ30
Stats: -0.44 points (0%) to close at 10623.18
Volume: 220M versus 215M
Volume rose as DJ30 ran in place, showing a tight doji just over the upper channel line (10,612). The blue chips have maintained their uptrend this month, but they are hugging the channel line, managing to use the 18 day MVA (10,478) as support. It is showing excellent strength, but has basically failed to advance since the big January 5 move, the second session of the month. The trend remains in place but DJ30 is struggling to advance. Another good time to sit back and let it make its move. The best would be to come back and test the up trendline at 10,315.
The chart: http://www.investmenthouse.com/cd/^dji.html
FRIDAY
Earnings continue, and there could be some hangover from the Thursday evening earnings. While no major selloff after hours, investors were not lining up to buy. The market looks ready to make the inevitable pullback, but it has looked that way before on more than one occasion on this run. The length of the run, the SP500 at 1150, and the pattern of pulling back half way through earnings season all point to that pullback. We don't foresee that as catastrophic but instead more of a needed rest that will provide better entry points for a continued move higher. As the market is showing no signs of the type of wear that indicates a bigger top and thus stronger selloff.
As noted, it is a time to take it easy and see how SP500 handles 1150 and how DJ30 finally resolves the upper channel. Historical technical trends indicated a pullback. NASDAQ appears to have started one. Again, we don't expect a major drop, just a pullback to test the trend, allow stocks to rest, let others complete their bases, and then resume a move upside. We will continue to protect gains on stocks we feel we can pick up again at a better price while on others we will let them test and look to add to positions and focus on a winner.
Support and Resistance
NASDAQ: Closed at 2119.01
Resistance: First upper channel line at 2165. 2200 then 2300 represent tops from Q2 2001.
Support: 2115 acted as slight resistance as NASDAQ consolidated. The second peak in the December 2001/January 2002 double top (2100). The 10 day MVA and the 18 day MVA (2110, 2080). The lower peak in the January 2002 double top (2044). The March/August up trendline (2064).
S&P 500: Closed at 1143.94
Resistance: 1150 to 1175, the late 2001, early 2002 double top.
Support: The 10 day MVA and the 18 day MVA (1133, 1123). 1106 is a May 2002 top. 1100 represents some early 2001 lows. The 50 day MVA (1093). The former upper channel line at 1090.
Dow: Closed at 10,623.18
Resistance: 10,612 (upper channel line) is keeping the index more or less in check. 10,620 (March 2002 peak) starts the swath of overhead supply that runs up to 11,000.
Support: The 10 and 18 day MVA (10,548 and 10,478). 10,353 from May 2002 high. 10,315 the March 2003 up trendline. The exponential 50 day MVA (10,209).
Economic Calendar
1-21-04
Housing starts, December (8:30): +1.7% (2.088M) actual, 1.950M expected, 2.054M November
Building permits, December (8:30): +3.3% (1.924M) actual, 1.875M expected, 1.863M November
1-22-04
Initial jobless claims (8:30): 341K actual, 345K expected, 342K prior.
Leading economic indicators, December (10:00): 0.2% actual, 0.2% expected, 0.3% prior.
End part 1 of 3
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