* * * *
2/05/04 Investment House Daily
* * *
Investment House Daily Subscribers:
MARKET ALERTS:
Target hit alerts issued Thursday: XMSR
Buy alerts issued: WWCA; OEX
Trailing stop alerts: OHI
Stop alerts: CORI; ABGX
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:
http://www.investmenthouse.com/alertdly.htm
SUMMARY:
- Market bumps higher on low volume after Wednesday thumping.
- Retail returns to the fold, enjoys surprisingly strong January.
- Tepid relief bounce ahead of Friday jobs report.
Stocks come up for air but show little strength.
After getting spanked hard Wednesday, stocks gamely tried to rebound Thursday, aided by some surprisingly solid increases in January same store sales. The bounce held to the close, but not without a swing back to flat in the morning and then a tepid recovery in the afternoon.
It was another volatile session intraday with NASDAQ twice testing the exponential 50 day MVA on the high and twice failing to take that level out. Volume faded as the market tried to rebound. Investors moved back in but it was also some pre-jobs report short covering after a pretty good plunge in the market. Lower volume, modest breadth, investor indecision. Pretty much the classic signs of a relief bounce move.
THE ECONOMY
WMT and others enjoy a stronger January.
Same store sales reports started hitting Thursday and they were much better than expected. Wal-Mart reported a 5.7% jump, and it was joined by TGT, JWN (+8.7%), JAS (+10.3%), CLE (+10%), COST (+13%) in blowing away January expectations. Some pointed to the cold weather as the catalyst, but much of this strength was in the gift cards given over the holidays that are not counted until they are cashed in. I have a few of those still myself; perhaps a February surge as well? This is a new phenomena in the holiday retail season, and these very solid January numbers show that the retail season was not as bad as groused about during the holidays. Hey, someone has to keep the Scrooge mindset; why not the analysts?
Q4 productivity rises but a shadow of Q3.
Productivity hit 2.7%, not the 3% expected and well off the 9.5% growth pace in Q3. Even with this slowdown productivity for the quarter was better than what it typically averages. This keeps the pace at a healthy clip, allowing the economy to run at a faster 'speed limit' according to the Fed.
Jobless claims move higher, but still in the sweet spot.
356K from 339K the prior week. Some headlines said that jobless claims 'soared' during the week. The economy must be ready to tank, right? Right. The trend of lower and lower claims is still safely in tact. It is at a level that is historically associated with job creation.
Ah, job creation. Once again the bidding is open. 157K expected, but again the speculation is that the jobs report will show more than expected, something at least in the 200K range. Maybe the third time will be the charm. Treasury secretary Snow hinted two weeks back that the December number significantly understated the jobs created. The Fed is confident that jobs will turn up, but is very concerned if they do not do so this month.
All of the economic factors are present except for the jobs. Remember when all of the factors were present but business spending? That was the 'missing link' that was discussed in every economic conference if not on many street corners. Despite claims that demand was not there and no signs of a business spending pickup, the numbers started to show that was exactly what was happening, and the economy started to surge.
Jobs are a bit different, however, because unlike business spending, there was no tax incentives included in the economic package to give them a kick start. It was assumed, and most likely rightly so at the time, that a surging economy, particularly one growing at over 6% the past two quarters, would create jobs. It is creating jobs, but not huge waves of jobs to soak up all of the unemployed. Of course the unemployment rate is lower than it has averaged over the last several decades, and as many people in the household survey say they are working now as there were when the recession supposedly started (it actually started earlier and the date will be slid back). Non-farm jobs will come, i.e., the traditional employee jobs, but they have lagged the creation of self-employed positions and contract workers, both of which are not counted in the non-farm jobs report.
The point: we are in a typical jobs recovery in an atypical economic recovery. This was not a plain vanilla recession and rebound. This was a race to lofty heights on the back of a rush of new technology, and then a nasty plunge as the money that fueled the rally was suddenly taken one day. Marginal companies that joined in on the fun and even good companies bit the dust in the ensuing collapse. Massive bankruptcies and consolidation as many of the companies formed ceased to exist. The workers did not just go away with the jobs, placing a great strain on the federal and state budgets along with wiping out many savings accounts as people cashed out to by food and pay the mortgage.
Then business investment lagged because of the overcapacity, meaning no jobs available. Then when business finally picked up, companies have been loath to hire and cut into the bottom line for fear the recovery may not last and they need the cash to ride it out. Thus those that cannot find jobs do what they have to do: start their own enterprises or go contract. Been there, done that back in 1983. Out of that lack of job creation the start-ups forged the foundation for a huge boom that created the millions and millions of jobs in the 1990's. We hear a lot of 'this time it is different' again, and in a way that is correct, but it is also incorrect because it has been this way before. There are wrinkles such as the outsourcing, but in times past entire industries disappeared in the wake of a major collapse, and the jobs came back. It is not just rehiring back to hold jobs because many of those are gone. It takes creation of new companies, and that has just been getting underway.
THE MARKET
Thursday the market dragged itself back up on its knees, pretty much like a mouse trying to breath after an elephant sits on it. About all it showed was the market was not dead.
Well, it showed a bit more. NASDAQ held the simple 50 day MVA and that fueled a rebound that was strong enough to keep the index from falling back to re-test that support. It twice failed at the exponential 50 day MVA, however. SP500 held 1125 again, showing it too has some starch left in it, but it also failed at near resistance in the form of the 10 and 18 day MVA. Volume lagged and breadth was weak. Not many wanted to step out in front of the jobs number after the pullback, and thus the market moved up and down and at the close settled near the middle of the range. Relief bounce from the selling and pensiveness ahead of the jobs report.
Market Sentiment
VIX: 17.71; -0.16
VXN: 26.17; -0.48
VXO: 17.75; +0.17
Put/Call Ratio (CBOE): 0.76; -0.05. Backed off as stocks bounced mildly, but still in the upper end of the range.
NASDAQ
Gapped higher but stalled at the exponential 50 day MVA. It is hanging in there ahead of the jobs report.
Stats: +5.42 points (+0.27%) to close at 2019.56
Volume: 1.962B (-14%). Volume backed off as NASDAQ rebounded from the hard selling. No accumulation, just a relief bounce.
Up Volume: 1.043B (+747M)
Down Volume: 878M (-1.081B)
A/D and Hi/Lo: Advancers led 1.26 to 1. Modest advancers as the index rebounded, very much in sync with the overall move.
Previous Session: Decliners led 3.46 to 1
New Highs: 109 (-2)
New Lows: 11 (+1)
The Chart: http://www.investmenthouse.com/cd/^ixq.html
Twice it tried the exponential 50 day MVA (2028) and it failed both times. That did not set off a wave of selling, just killed the tepid moves higher to test resistance. It managed to hold the simple 50 day MVA (2019) on the close after testing lower intraday, one sign that the index has not folded and that it may try to bounce further, particularly on a strong jobs report. Even with a bounce on a strong jobs report, NASDAQ is still in the first portion of what appears to be a larger consolidation than a quick rebound from a test of the 50 day MVA. If it bounces on a jobs report it runs into resistance at 2063ish (10 day MVA, one up trendline); that point would also fill the gap down and set up the next round of selling.
S&P 500/NYSE
Held 1125 support on the low but stalled at the 18 day MVA on the high yet again. Hanging in there still, but the price/volume action is not supporting it.
Stats: +2.07 points (+0.18%) to close at 1128.59
NYSE Volume: 1.573B (-3.03%). Volume backed off on NYSE as well as it posted a modest gain. No accumulation, just a relief move.
Up Volume: 915M (+493M)
Down Volume: 650M (-532M)
A/D and Hi/Lo: Advancers led 1.14 to 1. Very modest, matching the point gain and dwarfed by the Wednesday action.
Previous Session: Decliners led 2.64 to 1
New Highs: 120 (+29)
New Lows: 13 (+1)
The Chart: http://www.investmenthouse.com/cd/^spx.html
A relatively small loss Wednesday, a relatively small advance Thursday. SP500 continues to hold in the narrow range where it moved laterally to start January. It could be working through another consolidation, but price/volume action has turned for the worse. It has not shown the definitive break lower as has NASDAQ, but with the distribution starting to crop up and NASDAQ starting a longer consolidation, it will be very hard for SP500 to avoid a much needed test of the 50 day MVA (1107). The definitive move will be the break below 1125 as volume moves higher.
DJ30
The blue chips continue to move in a tight lateral range below the 18 day MVA (10,504) and above the up trendline (10,455). As with the other indexes, price/volume action has recently turned upside down with volume falling on up sessions and rising on down sessions. It remains in solid shape, easily holding the uptrend.
Stats: +24.81 points (+0.24%) to close at 10495.55
Volume: 187 million versus 228 million on the Wednesday selling.
The chart: http://www.investmenthouse.com/cd/^dji.html
FRIDAY
The jobs report dominates the action, and we will get the look before the market opens. If jobs are stupendous (250K or more) then maybe the market takes off again on more than just a continued relief bounce. More than likely a good jobs number gives the market a solid early boost that could possibly carry to the close, but we will be watching for it to stall. NASDAQ may retake the exponential 50 day MVA on a good report, but after it fills the gap up toward 2050, it most likely continues the consolidation.
The key will be the volume as any rebound approaches the next resistance level following a stronger break higher. Buyers have to be ready to move in to hold long term, and given the long run and relatively brief pullback, that is less likely. After this sharp drop on NASDAQ, more patterns have to recover and set up once again with some accumulative action. There are still patterns out there in good shape to advance with breakouts, and there are also many stocks that have tested support and are ready to bounce. Again, a good jobs number could bounce them higher, but there has to be volume with it. We suspect a further relief bounce if the number is good, just setting up the next phase of the consolidation when it fails.
Thus on any new upside positions we want to see solid patterns and volume breakouts. At this juncture, any bounce higher is suspect, and if volume is not there it will simply be a good set up for some downside plays as the market continues to work its consolidation. If the jobs number is a dog again, then the market struggles more. We don't think it would tank; it may even try a bold 'in your face' bounce, but again, we don't think it would hold either. A weak jobs report more than likely continues the consolidation without a lot of fanfare. Indeed, a strong jobs report probably does not circumvent the consolidation, but it would provide a bounce that more than likely sets up more downside.
Right now the market is in the midst of correction. When the market is in this mode it is not selling hard and of course solid upside positions are harder to come by and the moves are harder to hold. Thus we don't get too active, but look for very good positions and want to see very good moves to enter whether upside or downside. The market is in the process of setting up much better entry points, and we will force ourselves to be patient by not getting too aggressive and push marginal plays. We will not pass up the great moves, but this is not the time to put the foot to the floor.
Support and Resistance
NASDAQ: Closed at 2019.56
Resistance: The exponential 50 day MVA (2029). The second up trendline (2064). The 10 and 18 day MVA (2063, 2069). The March/August up trendline at roughly 2092. The January high at 2150. 2200 then 2300 represent tops from Q2 2001.
Support: The simple 50 day MVA (2019). The March/December up trendline (2025) is also still in range. Below this the November and December peaks at 1975 to 1990.
S&P 500: Closed at 1128.59
Resistance: The 18 day MVA (1131). The 10 day MVA (1133). 1150, the first top in early 2002. Next is 1175, the high in that double top that spanned late 2001, early 2002.
Support: 1125 is some minor support. 1106 is a May 2002 top. 1106 represents some early 2001 lows. The 50 day MVA (1107) is the key point.
Dow: Closed at 10,495.55
Resistance: The 18 day MVA (10,504). The 10 day MVA (10,514). The January high (10,702). Upper channel line (10,700). 11,000. 11,300.
Support: 10,455 is the March 2003 up trendline. 10,353 from May 2002 high. The exponential 50 day MVA (10,314).
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): 65.7 actual, 60.0 expected, 58.0 December.
Factory orders, December (10:00): 1.1% actual, 0.2% expected, -0.9% November (revised from -1.4%).
2-05-04
Productivity, Q4 (8:30): 2.7% actual, 3.0% expected, 9.5% Q4 (revised from 9.4%).
Initial jobless claims (8:30): 356K actual, 340K expected, 339K prior (revised from 342K).
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
|
