|
|
investment help, Breakout test
* * * *
2/02/04 Investment House Alerts Report
* * *
IH Alert Subscribers:
MARKET ALERTS:
Targets hit alerts issued Monday: AOT; FMTI
Buy alerts issued: CALM; ABTL
Trailing stops issued: CHU; MAXM
Stop alerts issued: MKTY
Market goes down, up, down and finishes flat.
The market has obviously lost some of its drive, having sold off last week after a strong surge December to January and now working laterally the past two sessions on lower volume. The buyers lost control and have not yet come back to the table. The sellers that were in charge last week as the market sold on higher volume have also taken leave the past two sessions.
The few buyers and sellers that are active are fighting to a standstill as the indices move laterally on that light trade. With NASDAQ and DJ30 moving laterally as their up trendlines rise to meet them, this is not bad action as they start to hold their ground above key support. SP500 held the 18 day MVA and bounced, but it still looks significantly overbought. Thus we have two views, neither one of them all that great though NASDAQ and DJ30 at least have some support to move up off of. The market is still in need of a bigger consolidation overall, but NASDAQ is holding support and has tested the breakout from its 2.5 month consolidation from October to December.
In short the market had another slow session as it works through the recent run higher, trying to consolidate gains. NASDAQ could rally from here, but it has to deal with SOX that broke below its 50 day MVA on good industry news. Selling on good news is another signal the market is saturated, i.e., has priced in all of the good news it can handle for now. Nasdaq looks pretty good, but it has to bring the rest of the market with it when it makes its move. With SP500 still near its highs and SOX heading the other way, that will be a chore.
THE ECONOMY
National manufacturing continues its expansion.
The ISM grew to 63.6 from 63.4, lower than the 64 expected, but still continuing the solid expansion. Indeed, it was the highest reading since a 69.9 in December 1983. While the overall number improved, the sub-indexes showed minor regressions. Employment fell to 52.9 from 53.5 in December, still keeping the job component expanding, however, for the third straight month. That is good, but then again it was below 50 for just over 3 years. New orders eased to 71.1 from 73.1 while production rose to 71.1 from 69.2.
All in all it was another good report card for the manufacturing sector, but there was some disappointment on the street that it did not reflect the strength shown in the Chicago PMI last week. As we saw when the ISM made its turn positive, however, the regional surveys turn up first and then the national ISM follows.
Income and spending continue to rise.
Incomes rose 0.2%, right in line, down from the 0.3% from 0.5% in November. Spending outpaced savings as usual, up 0.4%, just missing expectations at 0.5% and the November 0.5% (revised up from 0.4%). While incomes were higher, compensation fell 0.2%; it was offset by higher proprietorship income. That is an interesting feature. It jibes with the household employment survey that indicates more people are working for themselves or as contract workers as opposed to employees.
THE MARKET
The action was quiet and more or less a continuation of the slower Friday session. Stocks were volatile as buyers and sellers pursued their agendas. About the only thing that was constant was the low volume that was lower than even Friday's trade. A low volume, lateral move is not bad action for indexes and stocks trying to consolidate, particularly when it occurs over some potential support such as NASDAQ and DJ30. These indices are moving laterally as their up trendlines rise to meet them, and that can set off another move higher.
Counter to those is the SP500 and SOX. SP500 has given back little of its strong rally, a potential sign of strength but for the fact that it has surged for two months and appears to be in need of a further consolidation before it can make a further sustained gain. Meanwhile SOX continues to struggle below the 50 day MVA, breaking lower on good news that 2003 chip sales rose 18% with a strong second half surge, and that 2004 is expected to rise even more. When stocks break lower on good news that is a sign that the news has been built in and more consolidation is needed.
Market Sentiment
VIX: 17.11; +0.48
VXN: 25.81; +0.75
VXO: 16.87; -0.18
Put/Call Ratio (CBOE): 0.72; -0.09
NASDAQ
Sliding laterally along the up trendline on lower volume, trying to set up for another bounce higher.
Stats: -3 points (-0.15%) to close at 2063.15
Volume: 1.927B (-0.69%). Volume eased back again as the index continued to move laterally after the strong volume sell off last week. It needed to hold if it was going to maintain the uptrend, and it is doing just that for now.
Up Volume: 763M (-195M)
Down Volume: 1.056B (+106M)
A/D and Hi/Lo: Decliners led 1.13 to 1
Previous Session: Advancers led 1.17 to 1
New Highs: 175 (+46)
New Lows: 10 (+5)
The Chart: http://www.investmenthouse.com/cd/^ixq.html
Techs are moving laterally over 2050 and the second trendline, trying to lick their wounds after the high volume selling last week. They are holding over the breakout from the 2.5 month consolidation, holding where they have to in order to keep the trend moving along. It is hampered by SOX breaking below the 50 day MVA. It is make or break time for NASDAQ in this uptrend, and its components still have solid patterns, but they are going to have to deliver. The prettiest patterns can turn to so much scrap if the buyers don't step up. Right now buyers have backed off and are trying to regroup. This is where they have to do it to keep the uptrend running.
S&P 500/NYSE
Moving laterally as well, holding the 18 day MVA on lower volume, but this price pattern is still overbought.
Stats: +4.13 points (+0.37%) to close at 1135.26
NYSE Volume: 1.578B (-3.71%). Volume backed off as SP500 tried to bounce from its 18 day MVA. It ended up giving back over half the day's gain, managing to salvage 4 points. Lower volume kept it from holding the bounce as not enough buyers stepped in.
Up Volume: 880M (+14M)
Down Volume: 657M (-87M)
A/D and Hi/Lo: Advancers led 1.19 to 1
Previous Session: Advancers led 1.1 to 1
New Highs: 243 (+103)
New Lows: 6 (+1)
The Chart: http://www.investmenthouse.com/cd/^spx.html
The large caps continue the fight to hold support at the 18 day MVA (1131) after some higher volume selling to that level. As with NASDAQ this is what it needs to do in order to continue the move higher, but the modest pullback still leaves SP500 well over its 200 day MVA (11%) after hitting close to 14% in late January before the present pullback. After a 125 point run, this pullback has not taken much off the table to set up the next move higher. We view it as still needing a further pullback to digest the move, and as such a potential drag on any move attempted by NASDAQ and/or DJ30.
DJ30
The blue chips are moving laterally just below the 18 day MVA (10,510), regrouping and holding position while the up trendline (10,390) rises to meet it. It would not take much to get DJ30 back to the point where it would bounce. After a long fight with the upper channel, another 2 to 3 sessions moving laterally would move the trendline up to price, and from there it would be ready to make the move if it is going to make it. Volume was up Monday as the blue chips posted a modest gain. As with the rest of the market, a key test is coming soon.
Stats: +11.11 points (+0.11%) to close at 10499.18
Volume: 224 million versus 209 million Friday
The chart: http://www.investmenthouse.com/cd/^dji.html
TUESDAY
The action ahs quieted down after some higher volume selling last week. NASDAQ and DJ30 are holding their uptrends, setting up for the next rally attempt. SP500 is holding much of its gains, but it is still very top heavy and it is hard to call this action consolidation. SOX is breaking lower, a very real drag on all other indexes. In short the market is coming to an important near term inflection point this week and perhaps next when the NASDAQ and DJ30 uptrends rise to meet the indexes. They will either spawn new buyers or send fail to excite the crowd and slip into a consolidation more than just an uptrend test.
This looks as if it is coinciding with the January jobs report to be released Friday. There is no doubt the economy is in gear. Much of that has been price into the market. What the market wants to see now is substantial job creation so the recovery can head onto the next phase and more or less assure investors and businesses that the consumer will be there to go along with the expansion in business spending. The market anticipated job creation in the past and was let down. Now it is more of the 'show me' phase, wanting to see the job creation before it prices any more of it into stocks.
The jobs related data has not been that convincing to this point other than the decline in weekly jobless claims. They are at levels commensurate with job creation, but overtime, employee wages, and want ads are not in sync with the jobless claims. The wild card is the time of year; the December jobs report has been hinted as understating the actual number of jobs created. That most likely was the case, but again, the other indicators of strong creation are not yet there, and in this recovery they appear to be important indications.
Of course, this is only looking at company jobs and ignores individual businesses and contract help. Job creation is taking the form of self help in the recovery as is historically the case after severe declines that see large scale bankruptcies and severe industry shakeouts. In short, we expect to see an increase in payrolls given the purse strings for new hiring loosened to start the year and December adjusted higher, but would be very pleasantly surprised to see at 200K+ month.
With the market looking for this last confirmation of job expansion, there may not be a whole lot of movement heading into the number. Some solid economic data Monday was mostly ignored. Stocks are still overbought at this level and remain indifferent to general good news. It has the appearance of needing a new jolt of unexpected positive news to send it higher.
Thus we may not get a lot of movement ahead of Friday. NASDAQ and DJ30 seem content for now to move laterally, but before Friday they will start bucking. SP500 may ease back more from its extended position. SOX is the 'X factor' to watch; it is struggling and in trouble. If it dives lower from its 50 day MVA that will put a lot of pressure on NASDAQ to come back and test the trendline. We continue to see good upside positions, but we are looking at downside as well. We do not want to get too aggressive to the downside given indices are still easily in their uptrends, but there are opportunities with SOX struggling.
Support and Resistance
NASDAQ: Closed at 2063.15
Resistance: The March/August up trendline at roughly 2085. The 18 day MVA (2085). The 10 day MVA (2090). The second peak in the December 2001/January 2002 double top (2100). First upper channel line at 2190. 2200 then 2300 represent tops from Q2 2001.
Support: The lower peak in the January 2002 double top (2044). The secondary up trendline (2052). The exponential 50 day MVA (2028).
S&P 500: Closed at 1135.00
Resistance: The 10 day MVA (1135). 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 (1131). 1106 is a May 2002 top. 1106 represents some early 2001 lows. The 50 day MVA (1104).
Dow: Closed at 10,499.18
Resistance: The 18 day MVA (10,510). The 10 day MVA (10,534). Upper channel line (10,670). 11,000. 11,300.
Support: 10,390 is the March 2003 up trendline. 10,353 from May 2002 high. The exponential 50 day MVA (10,291).
Economic Calendar
These are consensus expectations. Our expectations will vary and are discussed in the 'Economy' section.
2-02-04
Personal Income, December (8:30): 0.2% actual, 0.2% expected, 0.3% November (revised from 0.5%).
Personal Spending, December (8:30): 0.4% actual, 0.4% expected, 0.5% November (revised from 0.4%).
Construction spending, December (10:00): 0.4% actual, 0.8% expected, 0.5% November (revised from 1.2%).
ISM Index, January (10:00): 63.6 actual, 64.0 expected, 63.4 December.
2-04-04
ISM Services, January (10:00): 60.0 expected, 58.0 December.
Factory orders, December (10:00): 0.2% expected, -1.4% November.
2-05-04
Productivity, Q4 (8:30): 3.0% expected, 9.4% Q4.
Initial jobless claims (8:30): 340K expected, 342K prior.
2-06-04
Non-farm payrolls, January (8:30): 165K expected, 1K December.
Unemployment rate, January (8:30): 5.7% expected, 5.7% December.
Hourly earnings, January (8:30): 0.2% expected, 0.2% December.
Average workweek, January (8:30): 33.8 expected, 33.7 December
Consumer Credit, December (3:00): $7.3B expected, $4.0B November.
End part 1 of 3
|
investment help
Breakout test
|
