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world stock market, us stock market
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7/14/01 Investment House Daily
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It was a quieter day on the indexes, but we still had some solid plays. HDI hit the buy point and after the Alert was sent it was ready for a buy. BRCM hit an old buy point intraday on strong volume; it backed off at the close, but its volume on the preceding three up days has been impressive. We keep monitoring all of the plays, and that is why you don't lose track of a play when you have the Market Alert service!
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TONIGHT:
- Market avoids Friday the thirteenth hex.
- Last week was important, but this week is crucial.
- Economic news is up and down again.
- Team Trades
A quieter day that avoided the big pre-weekend sell off.
Friday was viewed as positive by some and negative by some. The negative comments were that there was no follow through from Thursday's big gain, and that meant everything was left in limbo. Moreover, the action to the upside was on lighter volume. The positive comments related to another advance after such a strong move on Thursday, and whether light volume or not, it avoided a selloff before the weekend.
We agree that both sides of the debate have some merit. The lighter volume on a gain is not what we want, but it was better than selling off and it was a Friday in the middle of summer; Mondays and Fridays in summer are notoriously light volume days. As for no follow through, well we all know that you look for follow through 4 to 7 days after the reversal, not the next session. Friday was too early to be asking for follow through. Sure, we don't want high-volume selling immediately after a strong rally, but we have to wait a bit to see if the institutions are still interested longer term, not just the next session. Thus, we did not view the negative aspects of Friday all that negatively.
We do like the fact that even though the indexes tried to sell down in the afternoon, they rallied at the end of the day to finish positive. It would have been really easy for the indexes to sell off after a big gain and right before the weekend. Buyers stayed in the game (up volume leading down volume) to the end of the week.
One thing that was (and often is) overlooked in all of the commentary about the three major indexes: what were the majority of stocks doing? The were moving up. Moreover, the leadership areas such as small caps and mid caps continued to breakout of solid bases. That is so important in any rally; you have to have leadership coming from stocks that are being accumulated and heading to new highs. That is what we have been seeing again lately. Every solid move up in this rally has been on the backs of those two classes of stocks. It was important Thursday that the Nasdaq gapped back up from where it previously gapped higher. It is equally if not more important that the quality stocks continue to break out of very nice patterns.
Looking to this week for more direction.
When the market has moved higher, it has done so on volume that has easily outstripped the selling volume. Problem is, during the test of the rally off of the lows, there were more selling days than buying days. So, even if there was accumulation going on in the small and mid caps (and some of the large caps that make up the indexes), it was masked by the overall weakness in the large caps where the index numbers are derived.
Still, there has been accumulation ongoing, just not in the stocks most people know and watch. This week will tell us more as to how strong that is. We have to remember that we are in the middle of summer, and it is hard for the market to generate a lot of momentum as many investors and fund managers are off on vacation. Nonetheless, the market needs buyers in numbers to make a good move. That means this week, starting with Monday, will be important. Monday through Thursday represent the fourth through seventh days, respectively, since the reversal action last Wednesday. We want to see one or more days where one or more of the major indexes climbs 1.5% (preferably more) on rising, above average volume. We also want to see a good A/D line in the 2:1 range or better as we saw on Thursday. That will tell us that the institutions are back in buying once again; that gives us a stronger belief that Thursday was not just a one-day wonder.
THE ECONOMY
The economy is still the key. We said we were going to get up and down data coming in, and after the spate of all positive data, we are now getting some less than upbeat reports. Thursday initial jobless claims came in quite higher than expected and back over 400,000. Much of that was attributable to the seasonal shift in auto plants as they retool for the next year model, but we also have to realize that the retooling was already figured into the equation. Still, the vast majority of the decline was in the auto sector.
June retail sales up.
Friday saw retail sales climb by 0.2%, but expectations were +0.3%. Moreover, when the strong auto sector was backed out, retail sales fell by 0.2%. This rattled some, but we have to remember something important about retail sales are calculated. Retail sales measures the VALUE of what is sold, not the VOLUME. Much of the drop in sales was due to lower energy prices and retail discounting. That does not mean that LESS was sold, just that the cost of what was sold was lower. There was still a lot of buying going on, it was just at lower, bargain prices.
PPI drops hard.
That dovetails with what the PPI number showed. It came in at -0.4%, well below the -0.1% expected. Much of this was again attributable to lower energy costs. Two important points: corporations have no pricing power and there are no inflationary pressures. Remember when everyone was freaked out early in the year about the 'inflation' that was showing up? Same thing in early 2000 as well. That did not materialize and neither did it this year. Much of what we saw earlier in the year was that demand overhang that often accompanies economic slowdowns. The lack of pricing power continues and that keeps inflation low; it also, however, hurts profits.
Michigan sentiment rises.
Consumer confidence rose greater than expected to 93.7% versus 93% expected and 92.6% prior. The consumer continues to show increasing confidence in the future, something that appeared lost on many of the commentators Friday who were saying there were 'cracks' in the consumer based on the retail sales number. Maybe the consumer cannot keep up the pace of spending, but if so, it would not appear to be based on concerns about the future. As we showed, lower retail sales only meant that consumers were buy cheaper goods, not that they were buying fewer goods.
THE MARKET
About what was expected on Friday, but instead of selling off there was a gain. We will take it, especially as many solid stocks broke out of solid patterns once again.
Overall market stats:
VIX: 23.87; -0.65. Volatility continued to drop right back down toward the low end of the range (20 considered complacency). Again, it continues to be contrary to a rally, but it is a secondary indicator and it tends to be low in the summer.
VXN: 53.47; -0.55. Nasdaq volatility fell again on another session of gains. As with the VIX, it is falling, but lower summer volatility is the norm.
Put/Call ratio (CBOE): 0.61; +0.10. Even with gains in the market, put activity rose on Friday as some believed the gains would not last. We always like to see put activity say at the high end even as the indexes gain. It indicates continued worry about the market.
NASDAQ: Not a bad session, and the index did fight off last hour selling with a late rally to close positive. Not a great day, but we were not expecting one. It held on, and now we look to this week.
Stats: Up 9.05 points (+0.4%) to close at 2084.79.
Volume: 1.56 billion (-17.2%). A lighter volume day, but up volume still held the lead at 796 million to 708 million downside shares. Not bad as it had to overcome the early selling to even make an attempt at a positive close.
A/D and Hi/Lo: Advancing issues continued to lead, but a much narrower 1.16 to 1 (2.07 to 1 Thursday). That is fine, but we want to see those advancing issues really jump up on any follow through day this week. New highs rose to 128 (+27) as new lows fell to 28 (-31).
The Chart: http://www.investmenthouse.com/cd/$compq.html
The Nasdaq was not showing a lot of power on Friday, but it was not expected. It went out positive on lower volume, and that was a good save for the session after such a huge move on Friday. At its high, the Nasdaq just crossed its exponential 50 day MVA (2098.54; 2105.15 on the high), but it started selling back almost immediately. It made up a 20 point loss, was up 30 points, and then had to rally to finish with the gain. It is still looking at a lot of overhead resistance, and it failed Friday at that first one at 2100. The next is 2160. What can we expect from the Nasdaq? Well, a lot of the big names are in networking, telecom and chips. Those are going to hold things down while software and other niche areas move higher. The key will not be to really look at how high the overall index will move, but to be in those stocks that are going to be making the moves. That means the better sales and earnings and the better patterns.
Dow/NYSE: The Dow put in another gain, and it really was not in jeopardy of a negative close. Not much power, but again, not a bad day given the circumstances.
Stats: Up 60.06 (+0.6%) to close at 10,539.06.
NYSE Volume: 1.122 billion (-19.1%). Volume was right at average; not a great day, but not a bad day. Up volume was well in front at 698 million to 388 million downside shares. Not a bad session at all for a summer Friday.
A/D and Hi/Lo: NYSE advancers led 1.37 to 1 (1.66 to 1 Friday). Nothing spectacular. New highs rose to 121 (+21) as new lows fell to 45 (-20).
The Chart: http://www.investmenthouse.com/cd/$dja.html
The Dow is fast approaching the 200 day MVA at 10,581.14, just below the 10,600 level that stopped the Dow on its most recent attempt at moving higher. After that is the 10,750 barrier that has also acted as both support and resistance in the past. In short, the Dow also has a lot of overhead it will have to make it through, and that has a tendency to make things choppy even if the overall trend is upward based on a belief in an improving economy. We have to focus on those leading stocks and let them work for us.
S&P 500: The big cap index rallied higher as well Friday on lower though still average NYSE volume. It too is trying to overtake its most recent high at 1240, a level that stopped it the last two times it tried to take it on. That also roughly coincided with the 50 day MVA (now at 1230.16). That is the first order of business, i.e., to get over the near term resistance. 1230 to 1240 is important, and a first step. Hey, Abby Cohen says the S&P will be at 1550 by year end. What more do we need?
Stats: Up 7.54 points (+0.6%) to close at 1215.68.
Volume: NYSE volume fell to 1.122 billion (-19.1%), but that was still solid, average volume.
The Chart: http://www.investmenthouse.com/cd/$spx.html
THIS WEEK
Again the focus is on what the indexes do Monday through Thursday as we look for a confirmation of the move that started on Wednesday. We also continue to watch for improving economic data, and there is going to be plenty of chances this week for that with business inventories on Monday, CPI, housing starts, building permits, the leading economic indicators, and the Philly Fed. Another full week of the economy for you.
What to expect? Continued mild improvement in the economic numbers. We want to focus on housing, building permits and the LEI's. Those are much more future oriented and will give us more direction. We are seeing the economic activity start up, and we want to see the future prognosticators continue to show that things are looking better for the future. Housing starts indicate that more durable goods and the 'stuff' that does into houses will be sold in the future. Rising or continued strong permits signal further building down the road. The LEI's look 3 to 6 months down the road; if they keep improving, we have a better shot at recovery from this slowdown.
The market prices all of this in ahead of time. Any wonder we have seen builders so strong? And now we are seeing trucking and other shipping stocks move higher on strong volume. Much as the containerboard glut showed us that shipments were slowing down, the stock price appreciation in these areas is showing us that expectations for a recovering economy are increasing. We keep seeing the nuts and bolts of the economy doing better in their stock charts, and that indicates improving views toward the future. Builders, financial services, specialty retail, shippers, and other early warning sectors are all performing well. We hate to seem overly optimistic, but it is cautious optimism that is steeped in the history of recovering economies and financial markets.
Calamity can happen and scuttle everything, but look at what the Argentina news did to the market: nothing. If the whole western hemisphere tanked, that would be a problem. But as we have said before, the notion that the U.S. cannot recover without Europe or South America is not very accurate. We carried the world economy own our own for 10 years, and we are going to make our own wake this time as well from the looks of it. Sure it would be great to have Europeans snap up our goods, but we are always net importers; it is the home market that makes our economy churn at least for now.
Aging baby boomers will stop spending as much some day, and that is why it is SO important that we get our economic house in order and look to the future where we are selling to the rest of the world. We need to keep the technological lead because that is what we are going to be selling. We NEED investment into technology to get it going again, and our leaders need to recognize that and make appropriate policy, such as eliminating the capital gains tax and providing massive incentives to invest in the form of tax credits. But there is this bizarre notion in DC that surpluses allow for tax cuts. No, tax cuts make surpluses. It is critical not to get the two confused, but that is the tripe that is being churned out on the nation's capitol. Surpluses are created out of a booming economy. Booming economies come from tax cuts. The cycle is as old as the economy: Investment is needed to taxes on investment are cut. The economy surges ahead because of the investment and the jobs and productivity it creates. Then taxes are raised even more to pay for ever expanding government. That ultimately chokes the economy (along with a fearful Fed) and then the cycle has to be started again. They never learn.
Support and Resistance Levels
Nasdaq: Closed at 2084.79.
Resistance: 2100 is mild resistance. Then 2160 to 2200. Then 2250.
Support: 1970, roughly. The low is 1619.58.
S&P 500: Closed at 1215.68.
Resistance: 1230.16 is the 50 day MVA. Then 1240 to 1250.
Support: 1200 may try to hold. 1150 after that. The low is 1081.19.
Dow: Closed at 10,539.06.
Resistance: 10,581.14 is the 200 day MVA. 10,600 is next, then 10,750. After that, 11,000.
Support: 10,200. Then 10,000 to 9992, the middle of its double bottom pattern. After that is a jumble. The low is 9106.54.
Weekly Economic Calendar (All times Eastern). The figures are the consensus expectations, not ours.
7-16-01
Business Inventories, May (8:30): -0.1% versus 0.0% prior.
7-17-01
Industrial Production, June (9:15): -0.5% versus -0.8% prior.
Capacity Utilization, June (9:15): 76.9% versus 77.4% prior.
7-18-01
CPI, June (8:30): 0.1% versus 0.4% prior.
Core CPI, June (8:30): 0.2% versus 0.1% prior.
Housing Starts, June (8:30): 1.6M versus 1.622M prior.
Building Permits, June (8:30): 1.621M versus 1.621M prior.
7-19-01
Initial Claims, 7/14 (8:30): 430K versus 445K prior.
Trade Balance, May (8:30): -$32.0B versus -32.2B prior.
Leading Indicators, June (10:00): 0.3% versus 0.5% prior.
Philadelphia Fed, July (12:00): -1.0 versus -3.7 prior.
7-20-01
Treasury Budget, June (14:00): $34.0B versus $55.9B prior.
End Part 1 of 2
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world stock market
us stock market
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