|
|
us stock market, stock split
* * * *
2/07/04 Stock Split Report
* * *
Stock Split Report Subscribers:
MARKET ALERTS
Targets hit alerts issued Friday: UOPX; STJ
Buy alerts issued: OLGC; SLAB
Trailing stops issued: None issued
Stop alerts issued: AFCO; MGAM
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. You can sign up for Stock Split Report alerts at the following link:
http://www.investmenthouse.com/alertssr.htm
SUMMARY:
- Market surges on 'just right' jobs report.
- Payroll jobs improve but again less than expected while household survey shows continued gains.
- Upside volume has disappeared.
- Subscriber Questions
Jobs fail to scare investors, fuel a low volume surge.
We thought it would take a really good jobs report to rally stocks. Instead it took middle of the road jobs news that showed there was indeed job creation but not at a level that would cause the Fed to be pressured into activity anytime soon. Remember, the market took it hard when the Fed changed from 'considerable period' to being 'patient' regarding low rates; an indication that the Fed would have to stay on the sidelines reversed some of that. Not to mention great 6% GPD growth the past two quarters and expectations of 4% to 5% for 2004, low inflation, the best economic indicators in 20 years, and a great earnings recovery, but we don't think investors were factoring those into the equation, at least directly, Friday.
The market jumped out of the gates posting a solid gain by mid-morning. It moved laterally for four hours but was not done. It rallied to the close, closing the week out at the session highs. Breadth was tremendous as the small and mid-caps, after a notable absence, raced back onto the scene with impressive price gains. Solid gains across the board.
All the ingredients but the most important and the one that typically controls the ultimate direction: volume. Huge price and breadth gains but volume that could not scratch average on NASDAQ or the Dow. With a 2.5% gain on SP600 (small caps), 2.2% on NASDAQ, and 4.8% on SOX, the below average volume was hardly commensurate. Despite the gushing reports on the financial stations, it was a low volume relief bounce that started with some early short covering. Sure it could turn into something more upside, but despite the price gains and high fives Friday afternoon, the volume and other factors warrant continued caution for now. These are covered in detail in the 'market' section.
THE ECONOMY
Not much volume, not many non-farm jobs. But government looks in the wrong places at the wrong times.
The stock moves lacked volume, the jobs report lacked jobs, at least those measured by the government. 112K fell far below the 165K expected and the whisper of 200K to 300K. Those would be the jobs at large companies that have been in existence for awhile. Any new business started in the past year are not counted because it takes at least a year for the government to figure out they are there from tax filings, etc. We know the big companies have been laying off and outsourcing as opposed to hiring permanent staff, so we know they are not going to show job creation. Contract workers don't show up in the non-farm payrolls, but the percentage of contract workers is growing. Small businesses produce roughly 70% of the jobs anyway, and if there are more cropping up as indeed the household survey indicates, there are more jobs out there than the government is counting.
Look for jobs where the growth is.
Why are non-farm payrolls not telling the whole story? Because in a recovery from a dramatic slowdown (bust?) that results in a major shakeout in businesses, the new jobs come from new start-ups and not the mature companies. Microsoft isn't growing as it used to so it does not need to bring on the same number of people. Even if businesses are hiring, they are utilizing contract workers to save the expenses of benefits (i.e., healthcare) and committing to long-term relationships. Better to hire a contract helper from the legions of highly skilled out of work former employees of now defunct companies. Then if the need dries up you just say we don't need you anymore. No fuss, no muss.
Thus when an economy is recovering from a bust, you don't go ask the companies that have peaked in their growth if they are hiring, at least if you want an accurate idea of how many people are working. That is like asking a silent film star how many films he has going right now when you are trying to determine the status of the modern day film industry. Since the government won't have this data until at least a year later, you have to look at the most relevant source, and that would be the household survey.
Jobs are being created, non-farms are rising as hours worked increase.
The household survey showed a drop in unemployment to 5.6%, the lowest rate in 2 years. That survey shows a gain of 500K jobs in January and 2.4 million jobs over the past year versus the 2.35 million lost since March 2001 in the non-farms measure. The household survey shows that people are working just as it did in the early 1980's after the horrid seventies when tax incentives were put in place and small businesses started springing up when there were few traditional jobs. With more and more workers going contract (whether by choice or by lack of alternatives), the household survey which picks up those workers is indeed a more accurate measure than the non-farms; these jobs exist, they are just not being measured. Thus the household survey is an integral part of the jobs picture in a recovering economy, and it is showing solid growth.
Non-farm payroll jobs lag after a bust, but they too are improving. December was revised higher (16K from 1K) along with November, and that showed 55K net jobs for those months. The 112K in January were the most jobs in 3 years. 'Traditional' jobs are now being created on top of the self employed and contract jobs that have worked to show the 2.4 million job gain the past year. It is slow going with jobs going overseas, but it is improving. Problem is, there are still many unemployed that are in need of an employer/employee relationship; a steelworker cannot start a steel factory on his own just as a logger cannot grow his own forest to log.
THE MARKET
We sound like heretics because we are not gushing over the price gains and the volume. Both of those are great. NASDAQ held the simple 50 day MVA and bounced, a good technical indicator. As we discuss in the seminars, however, upside moves need fresh legs to keep them running. You want to see volume surge on a 50 day MVA test as the big money institutions step in and use that level to pile into stocks they own, picking them up at a lower price. When they don't buy in volume that shows us they don't feel stocks are priced right yet. Without new money coming in from the institutions, it is hard for stocks to continue the rise.
That is a continuation of the price/volume action seen of late: down on up sessions, up on down sessions. Early January saw a lateral consolidation where distribution crept in. The market managed to break higher, but on that move it started to waffle again but managed to burst higher to a new 52 week high. Volume did not move up with it, however. It was met with a higher volume selling session, and then suffered more distribution as it fell lower. Once again there has been a jump back up, but volume has not followed. Again, volume could race back in, but the price/volume action has not indicated that buyers are ready to surge in. With the gains we saw Friday you would expect much better volume if the buyers were really ready to step back in.
In addition to the price/volume action, there are fewer and fewer stocks that are set up to make breakouts. After some hard selling the majority need to form up their bases again. In most sustainable rallies, stocks set up deliberately and then break higher. Major, major news can turn a poor pattern into lasting gains, but having gone through earnings season and getting the most recent jobs report it would truly take a wildcard news item to get stocks breaking out without completing their new bases. That does not mean there are not upside plays; we see many good breakout tests and still some bases that have continued to set up just fine, ignoring the rest of the market. Those can provide leadership to the rest of the market, and we are focusing on those for our upside plays.
Some might say we are obsessing over this, but if so, it is because historically when a market shows this kind of action after a long run it is not ready to jump right back up. Thus we remain cautious to the upside as NASDAQ approaches its next resistance.
Market Sentiment
VIX: 16; -1.71
VXN: 24.67; -1.5
VXO: 15.98; -1.77
Put/Call Ratio (CBOE): 0.63; -0.13
NASDAQ
Truly impressive point gain off the 50 day MVA on surprisingly low volume indicates the move thus far is just a rebound from the heavy distribution.
Stats: +44.45 points (+2.2%) to close at 2064.01
Volume: 1.859B (-5.26%). Already noted: volume was below average on a 2.2% gain. Hardly in line with that size of gain and warranting caution. The price/volume action has deteriorated with 3 distribution sessions in 9.
Up Volume: 1.523B (+480M)
Down Volume: 330M (-548M)
A/D and Hi/Lo: Advancers led 2.96 to 1. Truly impressive breadth as some shorts were covered.
Previous Session: Advancers led 1.26 to 1
New Highs: 172 (+63)
New Lows: 5 (-6)
The Chart: http://www.investmenthouse.com/cd/^ixq.html
After gapping down on volume Wednesday after the FOMC result NASDAQ held the line at the simple 50 day MVA (2022) and on Friday jumped off that level. This move follows a weak run to a new high in late January that was met with high volume selling. Big money funds were dumping some of their shares at that high. They continued to do so last week, and when stocks subsequently rallied, they did not join the buying in any numbers.
Friday the point gain was strong and NASDAQ closed right at the 10 day MVA (2063) and right at the second up trendline (2067). The 18 day MVA (2069) is also right there to act as resistance as well. Without upside volume those short term MVA become resistance. It was a good technical signal to rally off of the simple 50 day MVA (2022), but again, the lack of volume was telling. Volume can always come back in, but the overall price/volume action has been weak and it would take a change of character to put it back on track.
S&P 500/NYSE
Surged out of the lateral move though volume continued to decline on the advance.
Stats: +14.17 points (+1.26%) to close at 1142.76
NYSE Volume: 1.451B (-7.73%). Volume did hold above average unlike NASDAQ, but it was still in decline on up sessions. Similar to NASDAQ, it showed a low volume new high two weeks back then reversed on rising volume. Since then the price/volume action has been reverse what it should be, i.e., down on up days, up on down days.
Up Volume: 1.256B (+341M)
Down Volume: 194M (-456M)
A/D and Hi/Lo: Advancers led 3.97 to 1. Outstanding breadth as the small and mid-caps jumped back into the action in a big way.
Previous Session: Advancers led 1.14 to 1
New Highs: 246 (+126)
New Lows: 5 (-8)
The Chart: http://www.investmenthouse.com/cd/^spx.html
Held 1125 and moved through the short term MVA in a strong price gain, closing at the session high. The index continues to show distribution, not accumulation, however, and the lower volume gain Friday was sparked by some short covering that built on itself as the session wore on. Very few good breakouts, and very few that are ready to make the breakout moves. It is hard to argue with the price gain, however, though we feel it will run out of gas this week given the deteriorating price/volume action for the past month. Having cleared the 18 and 10 day MVA, the next resistance it at 1150.
DJ30
Similar to SP500, DJ30 jumped through its 10 and 18 day MVA. It moved into the middle of its uptrend channel, thus maintaining the trend. For the second consecutive session it showed lower, below average volume on a price gain. Its price/volume action is a bit better than the other two main indexes, but still negative (2 to 3) the past week. Other than the price/volume action it is still in good shape, holding the uptrend and rallying off that level. Volume could be better, but it is hard to complain about how the blue chips are holding up technically.
Stats: +97.48 points (+0.93%) to close at 10593.03
Volume: 183 million versus 187 million Thursday.
The chart: http://www.investmenthouse.com/cd/^dji.html
THIS WEEK
Economic data is slow to start the week, and earnings slow considerably as well, kind of a cold turkey after the jobs report that is receiving all of the attention. It is almost taken for granted that the rest of the economy still continues at a nice clip. We can expect a good consumer surge this quarter as tax refunds of $100B or so hit consumers. Historical data shows that these are typically spent. That is good for the economy and good for retail stocks. They reported surprisingly strong January same store sales last week as consumers cashed in gift cards in January. They are far from dead at this point even though they are typically early cycle stocks.
We kept a close eye on volume as we said we would, and saw it was running lighter Friday. That kept us from jumping into a lot of upside positions because low volume runs when the market is in more of a distributive mode tend to quickly turn. After such strong gains through January there is a tendency to want to keep jumping in when it looks as if stocks are set for a bounce. With the distribution, low volume upside sessions, and fewer stocks set to breakout, it pays to tread cautiously. We are watching several potential downside plays rally toward resistance on lower volume, setting up for a test of resistance. If they roll over at resistance they are good candidates for downside plays if there is no near support.
With the money that is flowing into the market, it can always right itself and continue on its way. Overbought markets can become much more overbought; that would be the case if SP500 continued its move. NASDAQ has made a 50 day MVA test and has bounced; it at least is in better position. The price/volume action and lack of a plethora of strong stocks ready to break from strong patterns, however, is typical of a market that needs further consolidation.
That means we will continue to let upside positions rebound as long as they will. If volume does not improve we will be ready to take the money off the table when the stocks and/or indexes hit resistance and stall. At the same time we will be ready to jump on some quick downside plays. Most likely the consolidation continues, but the key word is consolidation. NASDAQ has already hit the 50 day MVA and even after a bounce higher in relief we do not see it plowing significantly lower but instead moving more laterally around 2000 to 1950. Thus we want to focus on individual stocks that are breaking through support and not just short any stock.
In sum, while the market jumped sharply Friday, it did not flash the primary indicator of strong volume. Indeed, volume did not come close to matching the price gains and breadth. Thus the weaker action continues and we view the market as in a consolidation stage. That means moving into fewer plays simply because the trend is being tested and there will be more frequent whipsaws when that occurs. We will find good buys that are breaking out or that provide an opportunity to take a few positions in a good stock to take advantage of, but as with Friday, we have to keep our eyes on the bigger picture and not get sucked in by moves that don't have all of the attributes that give it sustainability. There are still many stocks in good position the upside. With a little patience they and the market will complete this consolidation and we will be well positioned when the next solid, sustainable move starts.
Support and Resistance
NASDAQ: Closed at 2064.01
Resistance: The second up trendline (2067). The 10 and 18 day MVA (2063, 2069). The March/August up trendline at roughly 2098. The January high at 2150. 2200 then 2300 represent tops from Q2 2001.
Support: The exponential 50 day MVA (2030). The simple 50 day MVA (2021). The March/December up trendline (2033). Below this the November and December peaks at 1975 to 1990.
S&P 500: Closed at 1142.76
Resistance: 1150, the first top in early 2002. Next is 1175, the high in that double top that spanned late 2001, early 2002.
Support: The 10 day MVA (1135). The 18 day MVA (1132). 1125 is some minor support. 1106 is a May 2002 top. 1106 represents some early 2001 lows. The 50 day MVA (1109).
Dow: Closed at 10,593.03
Resistance: The January high (10,702). Upper channel line (10,705). 11,000. 11,300.
Support: The 10 day MVA (10,528). The 18 day MVA (10,514). 10,468 is the March 2003 up trendline. 10,353 from May 2002 high. The exponential 50 day MVA (10,325).
Economic Calendar
These are consensus expectations. Our expectations will vary and are discussed in the 'Economy' section.
2-09-04
Wholesale inventories, December (10:00): 0.3% expected, 0.5% November.
2-12-04
Business inventoris, December (8:30): 0.3% expected, 0.3% November.
Initial jobless claims (8:30): 345K expected, 356K prior.
Retail sales, January (8:30): 0.0% expected, 0.5% December
Retail ex-autos (8:30): 0.5% expected, 0.1% December
2-13-04
Trade balance, December (8:30): -$40B expected, -$38B November
Michigan sentiment, February preliminary: (9:45): 103.3 expected, 103.8 January
End part 1 of 3
|
us stock market
stock split
|
