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trend trading stock, trading system
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2/10/04 Stock Split Report
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Stock Split Report Subscribers:
MARKET ALERTS
Targets hit alerts issued Tuesday: VTIV
Buy alerts issued: CTX; ULTI;; PWAV; VRNT
Trailing stops issued: None issued
Stop alerts issued: None issued
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:
- Late surge adds life to a dull market.
- Greenspan speaks to Congress Wednesday, but expecting more politics than economics.
- Market is gamely hanging in there.
Late buy program perks up lethargic indexes.
The market was once again doing its indecision dance with NASDAQ moving back and forth around the next resistance at the 18 day MVA. Low volume, no buying, no selling; the market was positive, but it was more of the same indecisive drift. That turned to selling after lunch, and it looked as if the market was going to show its fear of heights yet again with a more bearish close on the lows. When you have this kind of light volume, however, just one mutual fund with a buy program can change the course.
That is what happened in the last half hour when a buy program hit the thin market. NASD turned on a dime and shot to close at the session high, recovering the 18 day MVA and second up trendline. Small caps screamed higher in a ballistic move after stalling out Monday. That helped NYSE breadth and volume improve in the last hour, pushing NYSE volume slightly higher than Monday.
Before we all shout 'accumulation,' note that volume was still below average. It was accumulation with a small 'a,' and one institution picking up some positions in light volume can paint the tape a bit. Thus, while definitely an improvement over gains on falling volume, we were not ready to rush the market with a wave of new buys. Indeed, NASDAQ volume slid lower even as it posted another gain. It is not selling off, but if volume continues to fall this rise off of the 50 day MVA cannot continue.
As we pointed out all day in the alerts, however, sellers are not stepping either. Thus there is no sell off and no big breakout, just a general drift with the trend that is punctuated now and again by a buy or sell program moving in and tilting the market up or down a bit. This is not bad action as the indexes work through the strong gains over the past several months with a relatively modest pullback to this point.
THE ECONOMY
Quiet market blamed on Greenspan.
Greenspan speaks to Congress Wednesday, and that in many books was the obvious reason for the pensive trade. Of course, the trade has been pensive for a week. Is Greenspan's reach that long? No, his speech is just the next item on the agenda that can be used as a reason the market is taking a breather. Surely it could not be that the market has surged for months on end and is taking a pretty decent low volume break (at least low volume of late).
Considerable time is devoted to when the Fed may raise interest rates next. The guesstimates run up and down like a squirrel in a pecan tree in the fall, changing with each economic report. Early in the year it was 'clear' no hike would come until 2005. Then the Fed changes its wording. June then became the magic month; no science to it, just a wild-assed guess from what we can see. Most are saying that Greenspan will say the reports are underestimating the level of job creation in the US, and they are concluding the Fed will be more inclined to pull the trigger on a rate hike if that is its view.
This is all idle speculation for the present. First, the Fed can raise interest rates 25 basis points and not put any pressure on the market. Real rates are higher than 1.25% if the Fed moves the discount rate to that level. While there may be some psychological impact at the time of the event, recall that the market started the current slog lower when the Fed changed its statement from waiting a 'considerable' time to just being 'patient.' Twenty-five basis points is priced in.
The real problem is that even with low rates, money supply continues to dry up. This was the problem during the first year of rate cutting: the Fed talked a good 'easy money' game, but it still had scores of banks on restricted lending status and it was not pumping any money into the system so businesses and people could take advantage of those lower rates. This was the 'pushing on a string' problem that some talked about but never connected to money supply. Without the actual money in the system, it does not matter how low rates go. You can have all of the fish bait you could ever want, but if you don't have any water to fish in all it does is sit (and, eventually, start to smell pretty bad).
A very big part of the slowing GDP in Q4 despite all of the investment is the shrinking money supply. We noted this was retraining growth about 4 months ago, and we saw the impact in Q4 and onto this year as projections for GDP growth are reined in. We said it then and we say it again now, the Fed has to do more than talk a good game; it has to get back into the game and make the money supply fit the rates. This low interest rates/tight money supply combination is really deceptive and unhealthy. It makes one long for Greenspeak because those, at least, were only words. The shrinking money supply held the recovery in check way too long, and now it threatens to slow it down just as it tries to hit its stride. Dangerous at this stage because there is still not a belief across the board that the recovery can last, and as businesses see GDP and other activity soften, they hesitate once more at moving in. The Fed cannot keep away from trying to be lord of the economy when its jobs is only to prevent inflation. It is trying to micromanage the economy even further behind the scenes, using money supply now that it is not watched as closely as the discount rate. At least some things never change. As Bud in 'Urban Cowboy' said, if a woman will lie about one thing, she will lie about others as well. The Fed is definitely two-faced with respect to rates vis- -vis money supply.
Of course Congress won't pick up on it. Instead the questions will all be posed to garner as much political fodder as possible. You will hear questions about jobs, each side trying to get something that can be waived in front of the cameras later out on the campaign trail. We might even see questions about the tax cuts. We will certainly see some self-serving indignation regarding deficits. And we may even get a question about what is meant by being patient versus a considerable period. As we have noted, deficits are not the problem; it is increasing spending that is the problem. As the economy grows the deficits would be cut but for increased spending. Simple concept, but in DC, simple concepts are viewed with contempt.
THE MARKET
The market was up most of the session, but gains were no lock. Selling, or at least a drop off in buying, entered in the early afternoon and pushed several indexes negative. Looked as if it could turn into a move back down toward the 50 day MVA on NASDAQ. A late buy program reversed fortunes and showed some more bullish action with stocks finishing at or near their session highs.
It could just as easily gone the other way with a low volume fade back toward support. The action is that weak. Without heavy buying or selling, the market drifts with the primary trend. That trend remains upside, so stocks have drifted slightly higher in the vacuum left by traders.
The distribution early in the moved down was a warning, but this more recent low volume trade and ability to rebound from losses is classic evidence of consolidation. For now the downside momentum has been checked and NASDAQ is working more or less laterally over the 50 day MVA, a very good place to form a base. We still think SP500 needs a deeper test, but it is not giving it thus far, refusing to give up much of its run; that may still come to bite it because in historical context it is well above the 200 day MVA and will struggle if it reaches toward the late January highs again. If NASDAQ keeps working laterally on low volume, however, SP500 can make another modest pullback and that might get it off with a free pass on this one.
Still very early in the pullback, and there still is no volume moving up off the test. NYSE volume was up some on the Tuesday gain, but still below average and not showing significant interest. This has the look of settling into a consolidation, but we cannot be too cavalier in assuming it is. There can still be a sharp upset when what little buyside volume there is dissipates.
Market Sentiment
VIX: 15.94; -0.45
VXN: 24.5; -0.71
VXO: 15.55; -0.22
Put/Call Ratio (CBOE): 0.72; +0.01. Holding at the higher end of the range as uncertainty about the market's future is keeping some nervous.
NASDAQ
Retakes the 18 day MVA on even lower volume. Does not look ready to make a strong breakout, but it also avoiding any real selling.
Stats: +14.76 points (+0.72%) to close at 2075.33
Volume: 1.674B (-5.13%). Honey, that's low volume. Volume has been sliding lower and lower as the index approached the 50 day MVA and then worked its way off of it. Low volume 50 day MVA bounces tend to indicate the move will fizzle. The low volume along with the lack of sellers, however, also suggests that the NASDAQ has moved into a consolidation stage over the 50 day MVA. That would indeed be very constructive action.
Up Volume: 1.049B (+182M)
Down Volume: 545M (-335M)
A/D and Hi/Lo: Advancers led 1.72 to 1. Late buying helped push breadth from a meager 1.2:1 level to a respectable close. This is secondary to volume, however.
Previous Session: Advancers led 1.22 to 1
New Highs: 217 (+2)
New Lows: 2 (-4)
The Chart: http://www.investmenthouse.com/cd/^ixq.html
Toyed with the 18 day MVA all session and looked as if it was giving it up in the afternoon, ready to fold its tent on low volume. A late buy program pushed it over the 18 day MVA (2069) and put it right at the second up trendline (2075) for the Wednesday open. The lower volume gave it no credibility, and if volume continues to lag the index will run out of steam. The positive is that the high volume selling has abated and NASDAQ is settling in over the 50 day MVA (2033). That would be a very nice level to hold, form a base, and then break higher from. That would almost be too good a scenario with too little pain. Thus we remain in guard that when this low volume ascent ends, the test of the 50 day MVA again may be a bit more violent to shake out some more sellers.
S&P 500/NYSE
Tested the short term MVA on the low, shook off some selling, and rallied on volume that jumped late in the session.
Stats: +5.73 points (+0.5%) to close at 1145.54
NYSE Volume: 1.386B (+8.14%). Volume rose on the late advance. You hate to call it bullish, but it was positive as it shows some big money buying into the market again. At these levels, however, it was not a lot of big money (semi-big?), and we have seen many times in the past how a modest volume move by a couple of institutions can be thwarted. All things considered, bulls cannot complain.
Up Volume: 855M (+194M)
Down Volume: 526M (-84M)
A/D and Hi/Lo: Advancers led 1.92 to 1. A real improvement in the last half hour as small caps went ballistic.
Previous Session: Advancers led 1.27 to 1
New Highs: 316 (+27)
New Lows: 2 (-4)
The Chart: http://www.investmenthouse.com/cd/^spx.html
1125 was as far as it went on the downside before making another run at the January high (1155). It broke the short term MVA Friday, tested Monday, and resumed the move Tuesday on rising though below average volume. Very little pullback and still very overbought for this index (11.5%; it starts to struggle at 10% and correct typically at 15%). That simply makes it harder to move into large cap stocks. With small caps looking solid once more as big money starts looking their way, we can sidestep a lot of the extended large caps and look for their smaller brethren or the large caps that are coming off a nice pullback. Resistance has to be up at the January high (1155), but the large caps are showing 9 lives.
DJ30
Edged higher fractionally on volume that looked more like the index was trading on a short holiday session. It again mimicked the SP500 action, moving off the short term MVA after breaking back over them Friday. Unless volume returns, however, it is dead index walking. Well, more than likely it will just have a hard time making a new high over 10,705.
Stats: +34.82 points (+0.33%) to close at 10613.85
Volume: 160 million versus 161 million Monday.
The chart: http://www.investmenthouse.com/cd/^dji.html
WEDNESDAY
Greenspan speaks. Supposedly uncertainty about what he will say is what all of the low volume was about Tuesday. If that was the case why would stocks rally to the close? All it means is that Greenspan was not the factor, just some institutions feeling it was a good time to move in.
The main problem the market has right now is poor upside volume following the downside distribution. The action is trying to stretch laterally, at least on NASDAQ, and that is mitigating the distribution and turning this more into a decent consolidation, again at least on NASDAQ. If it can continue to stretch the move laterally on low trade, that is very good consolidation action.
Greenspan starts speaking early, and there is some legitimate concern he will fail to clear up the FOMC's statement and may even make things more muddled as he likes to do. If he is too bullish on the economy fears of rate hikes may hurt. If he is too lame, fears of a slowing expansion might send the market lower as well. Again, the market may be looking for an excuse as it was when the FOMC issued its statement. At this juncture, however, stocks appear to be firming in a consolidation range (at least on NASDAQ), and Greenspan's comments may not have much of an impact as the consolidation continues to build.
How the market reacts to Greenspan's rather obtuse responses is guesswork. What we do know is that volume has been progressively lower after the distribution sent the indexes into corrective mode. The overall volume has flagged on the rebound. These are all indications that the market will continue its consolidation. The good news is that if that is the case, it is setting up a nice range to do it, though we would expect a few more bumps would be needed to shake out (scare out) enough sellers to allow stocks to reset and be ready for the next move.
Thus, while the market appears to be steadying itself after the distribution, it is still very early in the pullback attempt. Indeed, SP500, DJ30, and to a bigger extend the small cap indexes, are all posting gains. As the market works through this lower volume move, we will continue to go with the flow of the market, gravitating toward those stocks making the volume moves out of good patterns or rebounding on volume in continued uptrends. They are still out there putting in good moves, but they are fewer in number. We will also continue to let downside plays set up as they rise toward resistance on slower trade; those make great downside plays when the low volume rise runs out of legs.
Support and Resistance
NASDAQ: Closed at 2075.33
Resistance: The second up trendline (2075). The March/August up trendline at roughly 2104. The January high at 2150. 2200 then 2300 represent tops from Q2 2001.
Support: The 10 and 18 day MVA (2065, 2069). The March/December up trendline (2035). The exponential 50 day MVA (2033). The simple 50 day MVA (2026). Below this the November and December peaks at 1975 to 1990.
S&P 500: Closed at 1138.70
Resistance: 1150, the first top in early 2002. The January high (1155). Next is 1175, the high in that double top that spanned late 2001, early 2002.
Support: The 10 day MVA (1137). The 18 day MVA (1134). 1125 is some minor support. 1106 is a May 2002 top. 1106 represents some early 2001 lows. The 50 day MVA (1111).
Dow: Closed at 10,613.85
Resistance: The January high (10,702). Upper channel line (10,705). 11,000. 11,300.
Support: The 10 day MVA (10,551). The 18 day MVA (10,530). 10,494 is the March 2003 up trendline. 10,353 from May 2002 high. The exponential 50 day MVA (10,345).
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 o f3
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