|
|
us stock market, trade stock
* * * *
1/29/04 Investment House Alerts Report
* * *
IH Alert Subscribers:
MARKET ALERTS
Targets hit alerts issued Thursday: BCR
Buy alerts issued: AFCO; CELG
Trailing stops issued: RHAT; XING
Stop alerts issued: AMZN; CDCY
MARKET SUMMARY
Stocks head lower again but find buyers.
Stocks sold on volume for the third straight session as investors continued to mull the Fed's policy statement. It tried to hold up mid-morning through lunch and set up a rebound, but that caved. Then the Fed released its minutes from last month's meeting that noted the Fed considered changing its statement at that meeting.
That seemed to appeal to investors, along with a near 100 point decline in NASDAQ in just 2.5 days. The selling stalled, DJ30 and SP500 turned back to positive, and NASDAQ sliced 27 points off of its losses. Most indexes showed dojis or variations thereof although the SP600 small cap index failed to rebound with the rest of the market. Key to the move was NASDAQ's ability to hold the primary up trendline after undercutting it and testing the secondary up trendline on the intraday low. A good recovery, but the pullback most likely is not over.
THE ECONOMY
Jobless claims continue to fall, continuing claims continue to rise.
Jobless claims continued their trend lower, hitting near expectations at 342K, down from the 343K last week. These are levels commensurate with job creation. It is just that serious job creation has not showed up. As I discussed on CNBC earlier in the week, there is a lot of economic activity, but too many CEO's burned in the last boom. Sure things look good right now and ahead, but a lot of companies were burned by ramping up too much at the peak and then having too much staff and too much stuff (inventory). They had to lay off staff, write off inventory, and in many cases, get to know a bankruptcy lawyer better than they had ever hoped. Even with the surging economy, there is still a lot of hesitation when it comes to expanding ahead of demand. Thus even though things are solid, they are not making that leap of faith that the expansion will continue. There has been some fitful job hiring since September, but CEO's have not let go of the ledge yet. Until they absolutely have to, they are going to play it safe and insure an improving bottom line and avoid shareholder suits in the future if things fall back into the scrap heap.
That along with the ability to utilize more technology to handle more of the load has allowed businesses to improve profits as economic activity increases without adding a lot of overhead. Again, they are stretching out the current staff as long as they can. In addition, they are adding contract staff to fill the void: contract workers mean no added benefits cost. You hire, they work, you pay the agreed upon rate. No insurance, no 401k administration, fewer administrative costs. If things work out and business remains solid, those contract workers often become full time.
That, however, depends upon when management feels comfortable that there is 'sustainability.' These workers are not counted in the non-farm payrolls, and they are one reason that the household survey shows more people working than the industry survey. These are not only the 'Kelly Girls' but lawyers, engineers, CPA's, and other professionals. Thus they are not all burger flippers as some suggest. We still believe there is going to be a breakout in hiring, but looking at continuing claims (up 11K to 3.131 million), you can also see even contract workers are not soaring: many who have lost a job enter the contract market. The fact that so many are still seeking benefits indicates that the job creation has yet to explode higher.
Employment cost index rises, but below expectations.
This measures the cost of an employee, including not only wages but healthcare and other perks. It climbed 0.7% while a 0.9% gain was expected and a 1% gain was posted in Q3. Benefit costs again led the climb, rising 1.2%. That, however, was the smallest rise in benefit costs since Q3 2002. Wages gained 0.5%, the smallest in a year.
The index provides additional evidence regarding the jobs market. Wages have not been climbing, meaning that market has not hit the level where the current workers are being pushed to the limit and are ready to hit the door unless they get more pay. Overtime and wages give us another insight into the pressures in the market. The rather anemic rise in wage costs indicates there was still slack even as GDP roared ahead 8.2%. Before jobs appear in number, you typically see wages start popping and overtime jump. Overtime comes out next week with the jobs report, but up to that report it has not shown the type of expansion that would indicate a jump in jobs is in the near future.
THE MARKET
The day started with a lukewarm bounce attempt that was over in 10 minutes. The selling started, volume was running strong, and breadth was horrid (almost -3:1 at NASDAQ's worst). NASDAQ had been holding at the up trendline, but dropped through right after lunch on the East Coast. It would have been easy to cut and run but as we said in the alerts, after such heavy selling in such a short period it was time to fight emotion and be patient. Right after that post-lunch dip stocks bottomed and posted a nice surge to the close. Some shorts started to cover after a big drop and ahead of a Q4 GDP that could surprise to the upside.
The rebound does not necessarily herald the end of the pullback. NT announced just incredible earnings and revenues after the close, and that certainly won't harm the telecom and networking stocks. Still, as noted in the Wednesday report, stocks may need two tests of support before being ready to rebound. If volume does not continue at strong levels as stocks rebound, that is very likely.
On the other hand NASDAQ undercut its primary up trendline, tapped the secondary trendline, and rebounded to hold the uptrend. After a run higher in an uptrend channel and coming near the upper channel on the run, a test of the trendline is often all it takes to resume the move. This is particularly true in this case as on the low NASDAQ came very close to tapping at the breakout point from its 2.5 month consolidation. That combined with holding the trendline may have been all it needed to shake out the sellers.
While not all stocks managed to hold support and rebound off session lows, many did just that. As long as most stocks hold support during some wicked selling, the prospects are very good that they rebound when the selling pressure subsides and stocks and the indexes move to resume their trends. DJ30 and SP500 actually concrete action, recovering to positive territory on a solid volume jump. SP500 is still very overbought looking at the chart, however, and that keeps us from simply saying it was a quick and fast pullback that is over. The large cap index needs a bit more taken off, but with the big financial stocks holding up it was not giving ground.
Market Sentiment
VIX: 17.14; +0.36
VXN: 25.2; +0.04
VXO: 17.11; +0.01
Put/Call Ratio (CBOE): 0.8; -0.05. The put action remained high again even with the rebound. It definitely started showing signs of more fear as the selling started this week.
NASDAQ
Big tumble lower on volume reversed for a much more modest loss as NASDAQ tested and held its trend.
Stats: -9.14 points (-0.44%) to close at 2068.23
Volume: 2.643B (+13.4%). Tremendous volume as techs probed the uptrend and then rebounded off that level.
Up Volume: 810M (+289M)
Down Volume: 1.824B (+87M). Even with the rebound buyside volume was easily outflanked by downside.
A/D and Hi/Lo: Decliners led 1.87 to 1. It was really ugly mid-session, hitting right at -3:1, but when stocks rebounded the breadth of course improved.
Previous Session: Decliners led 2.65 to 1
New Highs: 99 (-127)
New Lows: 11 (+5). Remarkably few new lows even as NASDAQ undercut the uptrend briefly.
The Chart: http://www.investmenthouse.com/cd/^ixq.html
Down 110 points in 2.5 sessions and on rising volume. The key feature of the session was the tap of the secondary up trendline (now at 2050) and then a recovery to roughly hold the primary trendline near 2075. A strong volume reversal, but the early selling volume was strong as well. It is not out of the woods. It did make a test of the uptrend after a move up past the midpoint in the uptrend channel, and that often results in a rebound back in the trend. A key point is that it has come back to almost completely test the breakout from the late fall consolidation, filling the gap higher earlier in January. It may come back to test closer to the 50 day MVA (2025) before it can make the move, but this has taken a lot froth off the index and shook up some investors with the high volume downside moves.
S&P 500/NYSE
Broke further below the 18 day MVA, but then rebounded for a positive close as volume surged.
Stats: +5.64 points (+0.5%) to close at 1134.11
NYSE Volume: 1.922B (+6.23%). Strongest volume in over one year as large caps sold off but then reversed to close positive.
Up Volume: 801M (+418M)
Down Volume: 1.082B (-365M). The rebound evened up the up to down volume ratio, or at least dramatically improved it.
A/D and Hi/Lo: Decliners led 1.74 to 1. Breadth was ugly as well on NYSE, but dramatically improved even though SP600 lagged.
Previous Session: Decliners led 2.56 to 1
New Highs: 117 (-175)
New Lows: 3 (-5)
The Chart: http://www.investmenthouse.com/cd/^spx.html
The reversal was impressive. The pullback, however, has not been much for this index, particularly given the impressive run from November. It gives us a lot of concern moving forward as it recovers toward 1150 resistance. We would have preferred more downside to take a little more out of the move, but with NASDAQ tapping its up trendline, holding its breakout and then rebounding, there may not be any more downside on this pullback, and that leaves SP500 vulnerable again after a relatively short move higher. 1150 becomes very important once again if SP500 runs right up to that level.
DJ30
Similar to SP500 the blue chips tested lower and then rallied back to close positive. It did not make it back to the up trendline (10,380) before rebounding. After a test of the upper channel you prefer to see a stock or index return to test the trendline to set the move back up. While the reversal was nice to see, the Dow did not clear the 18 day MVA (10,514) on the rebound. Both SP500 and DJ30 fit the bill for another test back after this rebound.
Stats: +41.92 points (+0.4%) to close at 10510.29
Volume: 274 million versus 247 million Wednesday
The chart: http://www.investmenthouse.com/cd/^dji.html
FRIDAY
Stocks recovered Thursday afternoon after some heavy selling, helped in no small way by some short covering after a big, hard, fast selloff for 2.5 days. Why? Q4 GDP is going to be released, and despite some lower than anticipated economic reports the past week, many feel the actual GDP number will be stronger than anticipated. That helped start the move up and buyers came in as well.
It is still time to be patient overall. As noted SP500 and DJ30 have not tested back sufficiently to take enough froth out for a new sustained move. Thus we could see an interim recovery and another fade to fully test the uptrends (at least on DJ30) before the market is set to make its next sustained run.
With many stocks making pullbacks to near support, we will see stocks rebounding to resume their breakouts or uptrends. Some pullbacks have been fast and hard, others more orderly. Those that came back hard may need another test after a bounce higher in order to make the shake out all of the sellers and set the stage for a resumed rally.
Thus we still feel that the market has not made all of the pullback it needs and we will be patient and cautious with new positions. We will look for steady tests of breakouts and good volume on the rebound. In that way we can participate in any upside, and if it turns out to be a continued rally, we will be in it with good stocks. If, as we have a suspicion, it rallies but then fades in one more test, we won't have chased a bunch of positions and we can use the bounce to close out marginal plays.
Volume will still be the key on the move: can stocks show solid trade as they rebound, or is it just a low volume relief bounce in an overall larger pullback? We suspect the latter, but as always, open to whatever the market throws at us. Overall, while NASDAQ has made a significant test of its breakout, SP500 has only made a token pullback and SOX is still fighting at the 50 day MVA. It won't take much for SP500 to get right back up to 13% to 15% over its 200 day MVA (11% at the Thursday close), a level at which it really starts to struggle.
Support and Resistance
NASDAQ: Closed at 2068.23
Resistance: The second peak in the December 2001/January 2002 double top (2100). The 10 and 18 day MVA (2103, 2090). First upper channel line at 2184. 2200 then 2300 represent tops from Q2 2001.
Support: The March/August up trendline at roughly 2075. The lower peak in the January 2002 double top (2044). The secondary up trendline (2050). The exponential 50 day MVA (2025).
S&P 500: Closed at 1134.11
Resistance: The 10 day MVA (1137). 1150, the first top in early 2002, was broken but then held. Next is 1175, the high in that double top that spanned late 2001, early 2002.
Support: The 18 day MVA (1130) hung on Thursday. 1106 is a May 2002 top. 1106 represents some early 2001 lows. The 50 day MVA (1102).
Dow: Closed at 10,510.29
Resistance: The 18 day MVA (10,514). The 10 day MVA (10,553). Upper channel line (10,658). 11,000. 11,300.
Support: 10,355 the March 2003 up trendline. 10,353 from May 2002 high. The exponential 50 day MVA (10,274).
Economic Calendar
These are consensus expectations. Our expectations will vary and are discussed in the 'Economy' section.
1-26-04
Existing home sales, December (10:00): +6.9% (6.47M) actual, 6.10M expected, 6.06M November.
1-27-04
Consumer confidence, January (10:00): 96.8 actual, 98.0 expected (revised from 95.1), 91.7 December (revised from 91.3).
1-28-04
Durable goods orders, December (8:30): 0.0% actual, 2.0% expected, -2.3% November (revised from -2.5%).
FOMC (2:15): No change in rates. Changed key wording stating Fed would remain patient with its accomodative stance.
1-29-04
Employment cost index, Q4 (8:30): 0.7% actual, 0.9% expected, 1.0% Q3.
Initial jobless claims (8:30): 342 actual, 340K expected, 343K prior (revised from 341K).
Help wanted index, December (10:00): 38 actual, 40 expected, 39 November.
1-30-04
GDP (1st), Q4 (8:30): 5.0% expected, 8.2% Q3
GDP chain deflator, Q4 (8:30): 1.3% expected, 1.6% Q3
Michigan sentiment (revised), January (9:45): 103.0 expected, 103.2
Chicago PMI, January (10:00): 62.1 expected, 59.2 December
End part 1 of 3
|
us stock market
trade stock
|
