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us stock market, stock share
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2/09/04 Investment House Daily
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Investment House Daily Subscribers:
MARKET ALERTS:
Target hit alerts issued Monday: None issued
Buy alerts issued: SFE
Trailing stop alerts: None issued
Stop alerts: HAR
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SUMMARY:
- Volume continues to dry up as NASD stalls at 18 day MVA.
- Wholesale inventories suggesting businesses starting to restock shelves.
- Market still deciding between just a pullback or longer consolidation.
NASDAQ takes a shot at the 18 day MVA, volume fails it.
Monday stocks were sluggish, hung over from the price part Friday. Volume was not there Friday to support the big price move, and it was even lower Monday as NASDAQ tried the next resistance level at the 18 day MVA. After a steady gain through the early afternoon where NASDAQ overtook that resistance, the lack of volume caught up with the move and the large techs slipped back below near resistance, closing at or near session lows.
We say large caps because the mid-cap index was leading all session with the small caps not far behind. That kept breadth positive even as the large cap indexes all closed lower, and that has always been a positive for this rally in the past. Even the smaller cap indexes, however, were not strong with the SP600 (small caps) showing a doji after it jumped off the 50 day MVA Thursday and Friday, and the SP400 (mid-caps) tapping at the late January highs (600 to 603) and fading at the close. They too suffered late from the lack of volume.
In the end most viewed Monday as a day of rest after a big Friday gain. That is what it was overall. The failure at the 18 day MVA resistance is a twist many do not mention, and the lack of volume is a big hole in the boat. It is still in the game as it did not fail at the 18 day on much stronger volume, but all it did was buy some time Monday.
THE ECONOMY
December wholesale inventories rise 0.6%, beating 0.3% expectations.
Another solid month after November rose 0.5% as inventories posted their largest gain since 0.8% in December 2002. This growth in inventories is one part of the GPD equation that is expected to continue to boost GDP as 2004 continues. Indeed, the stronger inventories will also help the Q4 GDP revisions to come. Auto inventories were one of the largest percent gainers (3.0%). That is not necessarily great news; auto sales declining is the cause as opposed to autos ramping up production to meet demand.
Sales rose 1.0%, again exceeding inventory gains. 2003 sales rose 5.2% versus a puny 1.6% in 2002. That put the inventory to sales ratio at another record low of 1.17 to 1 (1.18 in November). This ratio means it would take 1.17 months (35 days) at the current sales pace to completely liquidate inventories. That means production will still have to continue its improvement, but even with the record low stock to sales ratio for several months, production has not surged. Production is doing just enough to keep ahead. If demand surges, there could be a hint of inflation.
THE MARKET
The market left us with questions unanswered, but some fairly telling attributes remained. There was no distribution as volume fell sharply once again; a high volume failure at the 18 day MVA on NASDAQ would have been about the worst upside signal it could give. There has been no buyside volume, however, to support last Friday's big jump. NASDAQ came off the 50 day MVA like a freight train without any freight; big price moves but such low volume it was apparent that there was no great swell of buying. You want to see buyers commit when a stock or index tests the 50 day MVA and bounces as that shows across the board conviction that this was a good buying point and the move had a lot more left in it.
Without new buyers with fresh legs at that level, there can be problems. Those that have been holding back or buying on the past dips are not convinced this is the one to get in on, waiting for a bit more consolidation. It doesn't mean there are lots of aggressive sellers out there, but a lack of buyers can stall an attempted rally as easily as a bunch of sellers.
Thus the market is still trying to decide if this is just a pullback that is a great entry point or a time to take a longer rest. The volume is telling us that there is no big push to enter at this pullback. After all, SP500 has barely given any ground, a sign of strength no doubt, but at 11% above its 200 day MVA it does not, by a historical analysis, have a lot of upside on this move. There is good interest in the smaller cap issues, a stalwart in the 2003 rally, but if NASDAQ cannot attract more buyers, the overall market is going to have a harder time making further headway.
Right now the market has yet to give in as sellers are not yet stepping up their selling efforts and it continues to more or less hold the uptrend. It definitely has not shown a major breakdown of the trend, just a failure of buyers to enter as NASDAQ makes a key test. As noted, that can be a big 'just' as a market without buyers is not going to keep moving higher.
We really do not like the lack of volume or NASDAQ's failed attempt at taking out the 18 day MVA. The Monday decline was on low volume, however, so it was not a certain rollover signal. Instead, stocks took a breather on light volume after a big price party Friday. If volume had jumped Friday there would be little question. As it is, there has been three heavy distribution days the past two weeks and a lack of upside volume on the recovery attempt. That keeps us guarded about this bounce attempt.
Market Sentiment
VIX: 16.39; +0.39
VXN: 25.21; +0.54
VXO: 15.77; -0.21
Put/Call Ratio (CBOE): 0.71; +0.08
NASDAQ
Broke the 18 day MVA but then gave it back up on low volume, avoiding a high volume reversal, but continuing the low volume attempt to push higher.
Stats: -3.44 points (-0.17%) to close at 2060.57
Volume: 1.764B (-5.12%). Volume turned in its second consecutive below average volume session, unable again to generate volume off of the 50 day MVA. Buyers are just not yet stepping up on the 50 day MVA test to this point.
Up Volume: 867M (-656M)
Down Volume: 880M (+550M)
A/D and Hi/Lo: Advancers led 1.22 to 1. The smaller caps kept the breadth positive as the market struggled.
Previous Session: Advancers led 2.96 to 1
New Highs: 215 (+43). New highs rose on a down day. Similar to the A/D line, it was a silver lining.
New Lows: 6 (+1)
The Chart: http://www.investmenthouse.com/cd/^ixq.html
After an early dip low the techs made a slow steady climb through lunch, but without any volume could not hold the move. The 18 day MVA and second up trendline (2068) were taken then given up in the afternoon selling that close NASDAQ on its low. If volume had been stronger Friday this would just be written off as a day of rest after a strong move. As the Friday jump had no support, this failure at the 18 day MVA due to lack of buyside action continues the weak 50 day MVA bounce. It does not spell the death of the uptrend. There have been 3 distribution sessions in the past 2 weeks that have undermined the pullback to test the 50 day. The lack of volume on the bounce is the second stage of the poor price/volume action since the last NASDAQ test of the upper reaches of the uptrend.
S&P 500/NYSE
Volume slipped below average as it took a rest after the Friday bounce. Still not giving up ground.
Stats: -2.95 points (-0.26%) to close at 1139.81
NYSE Volume: 1.282B (-11.66%). Volume fell below average for the first time since January 1. Unlike NASDAQ, volume was not horrid Friday, managing to hold above average but declining nonetheless.
Up Volume: 661M (-595M)
Down Volume: 610M (+416M)
A/D and Hi/Lo: Advancers led 1.27 to 1. Breadth was also positive on NYSE as those mid and small caps scratched out small gains. As with NASDAQ, a decent sign and a clear signal there was no heavy selling.
Previous Session: Advancers led 3.97 to 1
New Highs: 289 (+43). New highs increased on the NYSE as well even as the large cap indexes lost ground. Another sign of very modest selling.
New Lows: 6 (+1)
The Chart: http://www.investmenthouse.com/cd/^spx.html
Friday SP500 burst over its 10 and 18 day MVA (1135, 1132) with a strong price surge. As is often the case after such a move the next session is lethargic. That is what happened Monday. The only problems with SP500 is the volume (3 distribution sessions in the past 10, and the lower volume on the Friday move) and the lack of a good pullback to rest after a very strong December to January run on top of the prior gains in 2003 (still 11% above its 200 day MVA). We hate to play scared of our shadow, and thus don't see a lot of problems with SP500. NASDAQ is making things pretty interesting, however, and it will have an impact on SP500 at this level.
DJ30
Mimicking SP500 (or vice versa?), DJ30 jumped higher Friday on low volume (not just lower, but low, below average volume) and then took a breather Monday on even lower volume. The blue chips moved laterally in a tight range for 6 sessions just over the up trendline prior to the move, a good setup for the Friday jump. It is still in the middle of its uptrend channel and thus in overall solid shape.
Stats: -14 points (-0.13%) to close at 10579.03
Volume: 161 million versus 183 Friday.
The chart: http://www.investmenthouse.com/cd/^dji.html
TUESDAY
The Tuesday action did not change our view of the action as the market scratched out a low volume early gain, tried to overtake near support, but then gave it all back late in the session. No high volume reversal; that would have made it easy. Instead it was a continuation of the failure to muster any strength as it tried to move higher. At the end of the session it looked just like a low volume day of rest after a big surge, but in the overall picture the market is struggling as price/volume action has deteriorated. Some distribution to end January and a failure to garner a lot of buyers on the bounce show that buyers have not jumped back in after the distribution (higher volume share dumping).
Volume versus price action is one of the key indications of the market's direction, and after the past two weeks this is a point where the market needs to find some on the upside moves or it is looking at a longer pullback as opposed to a two week pullback. We are not giving up on the possibility of a further gain from here; volume could turn up once more and the market continue its long uptrend. There are certainly stocks out there that are in good buying position. The lack of volume is an important part of the market that has to correct, however, if the move is going to continue without further consolidation. As it stands now, we are leaning toward a further consolidation based on what the price/volume action has shown.
Not much of any bounce to set up further downside plays, but they are still there as are some good-looking upside plays. We have been picking off plays as they emerge, but we are still being very selective and moving slow in the current environment. The market is showing it is still in some distress, but it has yet to give up. Out of all of that plays still arise, but it is not the strong trend move up or down where you see most of the stocks fall in line with the dominant trend. As it stands a consolidation, i.e., slightly downtrending, move is tipping the balance, but it has not won the day.
Support and Resistance
NASDAQ: Closed at 2060.57
Resistance: The second up trendline (2068). The 10 and 18 day MVA (2063, 2068). The March/August up trendline at roughly 2100. The January high at 2150. 2200 then 2300 represent tops from Q2 2001.
Support: The exponential 50 day MVA (2031). The simple 50 day MVA (2024). The March/December up trendline (2032). Below this the November and December peaks at 1975 to 1990.
S&P 500: Closed at 1139.81
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 (1110).
Dow: Closed at 10,579.03
Resistance: The January high (10,702). Upper channel line (10,705). 11,000. 11,300.
Support: The 10 day MVA (10,537). The 18 day MVA (10,520). 10,484 is the March 2003 up trendline. 10,353 from May 2002 high. The exponential 50 day MVA (10,334).
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): 0.6% actual, 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
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