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us stock market, trade stock
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2/14/04 Stock Split Report
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Stock Split Report Subscribers:
Market is closed Monday.
MARKET ALERTS
Targets hit alerts issued Friday: UOPX
Buy alerts issued: None issued
Trailing stops issued: None issued
Stop alerts issued: OLGC
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 finishes weakly, losing momentum after one big session.
- Market worries over Michigan sentiment, but that report has been glaringly wrong of late.
- NASDAQ and SOX are struggling. If they lead, the market is in for a longer consolidation.
Low volume slog to close the week.
Stocks sold off again Friday, unable to continue Wednesday's strong session. Indeed, when you look at the week, but for Wednesday it was pretty much what we have seen for the past three weeks, i.e., working laterally on mixed price/volume action. There was improvement starting with the Wednesday rally, but by the end of the week NASDAQ and SOX, two key leaders from 2003, had given up the move. In short they are back where they started from. SP500, DJ30, SP600 (small caps) are all still holding to their gains, but if NASDAQ and SOX continue the fade into a longer consolidation, it will be hard for DJ30 and SP500, already well above their 200 day MVA, to continue past the January highs.
The market has been that schizoid lately, but that is the sign of a healthy market that has run a long way and is grudgingly trying to consolidate. It has bursts of buying after dips and then gets news it takes a shine to (e.g., Greenspan on Wednesday) even as it struggles on poor volume action. That suggests a market still in transition, still trying consolidate the gains, struggling hard to make another serious run. With the new money continuing to roll into mutual funds the market tries to rally on each dip as that money is put to work. Even that, however, has not been enough to deliver another strong breakout. After a lengthy run even a healthy market has to take a breather, and despite the Wednesday surge on solid trade, this market is still struggling. NASDAQ tried the bounce off the 50 day MVA, but that move has for all practical purposes failed.
Nothing wrong with that at all, but it could make for a slow few weeks of trading ahead as we wait for stocks to finish pulling back and forming up new bases. There are sectors that still look very good, e.g., the various health and medical sectors where money migrates to for 'safety' as the market pulls back, but overall stocks will consolidate with the market making it very important to carefully select upside and downside plays. As we have seen, the action as the market tries to fight off a consolidation is up and down; stocks in so-so patterns can easily get whipsawed. Again, the key is to be very choosy, and pick those stocks that are ignoring the market ups and downs.
THE ECONOMY
A good week of economic news ends on a sour note, but consider the source.
The economic data could not get a whole lot better. Great consumption, production, GDP, productivity, inflation, investment, along with favorable tax changes and a Federal Reserve willing to patiently keep rates low and let the economy run. Jobs still need to come around from the payroll side (though we see growing evidence that a new and large group of uncounted contract workers and small proprietorships have cropped up out of necessity as the large companies continue to downsize), but that is also going to happen. Every time there is significant upheaval in the economy we always hear the 'but it is different this time'. Sure there is truth in that; jobs are being outsourced to lower cost labor markets and companies are more comfortable in hiring contract workers now (that high cost of healthcare is changing the employer/employee relationship, something that needs to be done), but new companies are formed and new, more skilled jobs are being created for workers here in the US. It is different but the same: the industrial revolution saw many jobs utilizing old fashioned methodologies die off; they were replaced by jobs the very technology that killed the old jobs created.
We are not regressing but advancing. New technologies create new jobs in new areas, and it has always been more jobs than before because the technology wakes up new consumption demand that we did not know existed. It is painful for those losing the jobs, but in the bigger, long term economic picture it is a necessity for a growing economy if that economy is going to continue to grow and lead. If the government moves in and requires companies to keep jobs that should not survive here the government is deliberately impeding our ability to compete and innovate, the two things that make us the leading economy. If that is what we want, let's just go ahead and repeal the Constitution and set up a socialist country and degenerate into the scrapheap of those failed eastern block countries in Europe. If not, let's figure out how to get workers trained and into these new jobs. I have had three careers in my life, and I took the responsibility to train myself for each one. I know many others that have done the same. It is not uncommon in this country, but because it is happening on a mass scale it seems different. It was no different, however, in the 1980's oil bust where greater than 50% of all energy industry workers had to find other work. Instead of carping about jobs that should, based on economic efficiency (no to mention a tax code that makes it impossible for US companies to compete with foreign companies), leave the country, we should be focusing on getting people trained for the next wave of jobs.
Michigan preliminary sentiment much lower, again.
But I digress. Excellent economic news, but then we get the preliminary Michigan sentiment reading and it is 10 points less than expected. That makes the third straight month the preliminary number came in significantly below expectations. On the prior two months the final had to be revised much higher. Considering the preliminary survey covers as few as 100 households, it is no wonder it can be way off. The market knows this, but Friday it allowed itself to get spooked by another preliminary Michigan sentiment reading. What does that tell us? That the market is still jittery, still looking for a reason to take some gains. It is not collapsing in waves of selling, but is just working on a further consolidation. The Wednesday action looked good, but it is starting to look just like one strong day of accumulation in a continuing consolidation. That is good to see; you like to see accumulation continue during a consolidation.
THE MARKET
It was the session before a long holiday weekend and no one wanted to commit to positions without damn good reason. Michigan sentiment and the trade deficit gave investors a reason to sell, but it was more like a reason not to buy versus selling as volume was very light as stocks moved lower.
That was true on NASDAQ and SOX, the two leaders to the downside. They sold on lower volume, but they did more. NASDAQ gave up all of the gains for the week, breaking near support and moving toward another 50 day MVA test. SOX broke back below the 50 day MVA again. It looks as if NASDAQ failed its 50 day MVA bounce and SOX failed its 50 day MVA retake. More than that, SOX has set up a head and shoulders pattern and is threatening to sell back down to the neckline marked by the December low at 475.
DJ30 and SP500 are still in good shape, holding over near support on lower volume after a strong surge Wednesday on strong volume. As noted above, however, with NASDAQ and SOX heading back down to the recent lows, Wednesday looks more like a good accumulation session during an ongoing consolidation. Those are good to see from time to time during a consolidation as it shows money is still moving in overall even as short term profits are taken.
Market Sentiment
VIX: 15.58; +0.27
VXN: 24.14; +0.61
VXO: 15.63; +0.73
Put/Call Ratio (CBOE): 0.76; +0.20. Right back up toward the high end of the range when the selling continued. That is what we want to see.
NASDAQ
Broke the 18 day MVA, heading toward the 50 day MVA and the March/December up trendline.
Stats: -20.05 points (-0.97%) to close at 2053.56
Volume: 1.818B (-7.09%). Volume backed off as NASDAQ broke near support. Good that volume eased as it shows continued improved price/volume action even as the index continues to consolidate. That is what you want to see as it works through a consolidation; that makes it much like December to March consolidation where many said the rally off the October 2002 low had met its end even though it showed great price/volume action. WE just hope this one is not as long.
Up Volume: 485M (-218M)
Down Volume: 1.321B (+160M)
A/D and Hi/Lo: Decliners led 1.98 to 1. Got a bit ugly on the downside move.
Previous Session: Decliners led 1.56 to 1
New Highs: 156 (-77)
New Lows: 4 (+2)
The Chart: http://www.investmenthouse.com/cd/^ixq.html
After peaking at the top of the uptrend channel the last two weeks of January NASDAQ has started a consolidation. It got choppy at the top, showed some distribution, and tested the 50 day MVA (2037). When it moved off that level volume did not respond, indicating there was no rush to buy in this time after rallying up the 50 day for 11 months. Volume came in Wednesday on an upside move, showing signs of life and perhaps the index was ready for another run, but that was all it had for now. It turned over, making a lower high and fading. Volume has been lighter on the fall, a good sign, indicating it is simply easing back down to continue its consolidation. The strong Wednesday volume was a good accumulation session, and you want to see those as a stock or index works through its base. NASDAQ is ready for a test of the March/December up trendline (2048) and the 50 day MVA (2037) once more and it could fall to the February low at 2012. The failure of the 50 day MVA bounce indicates it is going to extend this pullback into a longer consolidation to work off the 11 month run. Most likely that means it will have to get to a point where it either scares investors out with a dip lower than is comfortable, or as in the spring of 2003, wear them out with a longer lateral move.
S&P 500/NYSE
SP500 is looking much better than NASDAQ, posting two rising volume gains (accumulation) and then easing back Thursday and Friday on lower trade to test and hold the 10 day MVA. Still overbought.
Stats: -6.3 points (-0.55%) to close at 1145.81
NYSE Volume: 1.306B (-10.23%). Volume backed off for the second session as the large caps sold modestly for the second session. Price/volume action has definitely improved, and other than its loft price it is good shape.
Up Volume: 418M (-205M)
Down Volume: 870M (+63M)
A/D and Hi/Lo: Decliners led 1.61 to 1. Did not get out of control on the pullback.
Previous Session: Decliners led 1.3 to 1
New Highs: 245 (-93)
New Lows: 4 (0)
The Chart: http://www.investmenthouse.com/cd/^spx.html
Wednesday SP500 managed a new 52-week high on an excellent volume surge, its second consecutive gain on rising trade. It ended the week with a low volume pullback to test its near support. This is very good action, a definite reversal from the distribution it was suffering to end January and in early February. It is holding up well, showing a potential double top but for the improved price/volume action. It is still high in its range with not a lot of upside before it reaches resistance near 1175, the early 2002 double top and approximately 15% above its 200 day MVA (1030) where it historically starts to correct. Other than just fear of heights, there is not a whole lot wrong with this index.
DJ30
Very similar to SP500 yet again, as the blue chips eased back to the 10 day MVA (10,609) following a high volume surge Wednesday. Well, not exactly easing back. Volume moved back above average Friday as the blue chips sold. Still in good shape, but the move back comes after a test of the upper channel line (10,760), so a test back to the up trendline (10,525) would not be uncommon. DJ30 still looks solid with stocks such as IBM looking decent. Of course there are stocks such as INTC, HPQ and MMM that look bad. Its movement depends in large part on what SP500 does , and if NASDAQ slips further into consolidation the entire market will feel it.
Stats: -66.22 points (-0.62%) to close at 10627.84
Volume: 208 million versus 197 million Thursday.
The chart: http://www.investmenthouse.com/cd/^dji.html
THIS WEEK
Last week, despite the volume surge and big price gains Wednesday, looks like a continuation in the consolidation effort. NASDAQ and SOX failed their efforts to rebound, and even though volume was light as they sold, they undercut the upside move for the week, effectively negating the Wednesday higher volume rise. The small cap SP600 matched its January high and turned lower; could be a double top, but too early to tell. Right now at worst the market is grudgingly losing the fight to hold off a consolidation. It could get worse than that before it is over, but it is very resilient as it tries to rebound from each pullback. With NASDAQ and SOX back in trouble, however, it looks as if the consolidation is going to win out.
That does not mean we fold up shop and go fishing, though that is never a bad idea. You don't want to overtrade in a choppy market because you run the risk of getting chopped up with it. Still, this market continues to receive lots of new money. That is why it is fighting the consolidation all the way. NASDAQ and SOX could simply reverse course and race higher. That is why we watch closely each session, glean what the market is telling us, and prepare accordingly. Even if the market pulls back and continues the consolidation, given the overall uptrend and money flow into stocks, there will be plays, e.g., in the medical and health areas that are showing good patterns and good action. Even if it is not turning over in a nose dive, there will still be downside plays to make as stocks break down below support. We just won't be able to shotgun stocks (which we never do anyway) because of the choppy consolidation action that keeps all stocks from rising or falling more or less together.
Tuesday we actually expect SP500 and DJ30 to try a bounce off of support early on. It will need volume once again to be able to hold the move. We are not expecting that to happen and will be watching when NASDAQ tests its 50 day MVA from above and the SOX tests its 50 day MVA from below as it tests the Friday drop through that level. An early bounce would set up some downside positions. It is a time to be selective and cautious; consolidating markets that are fighting the move can whipsaw you.
Support and Resistance
NASDAQ: Closed at 2053.71
Resistance: The 10 and 18 day MVA (2067, 2069). The second up trendline (2085). The March/August up trendline at roughly 2118. The January high at 2150. 2200 then 2300 represent tops from Q2 2001.
Support: The March/December up trendline (2048). The exponential 50 day MVA (2037). The simple 50 day MVA (2032). Below this the November and December peaks at 1975 to 1990.
S&P 500: Closed at 1145.81
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 (1143). The 18 day MVA (1139). 1125 is some minor support. The 50 day MVA (1115). 1106 is a May 2002 top and represents some early 2001 lows.
Dow: Closed at 10,627.85
Resistance: The January high (10,705). Upper channel line (10,760). 11,000 is roughly 15% above the 200 day MVA. Then some price tops at 11,300.
Support: The 10 day MVA (10,609). The 18 day MVA (10,573). 10,530 is the March 2003 up trendline. The exponential 50 day MVA (10,384). 10,353 from May 2002 high.
Economic Calendar
These are consensus expectations. Our expectations will vary and are discussed in the 'Economy' section.
2-17-04
NY Empire State Index, February (8:30): 36.4 expected, 39.2 January.
Industrial production, January (9:15): 0.7% expected, 0.1% December.
Capacity utilization, January (9:15): 76.2% expected, 75.8% December.
2-18-04
Housting starts, January (8:30): 2.000M expected, 2.088M December.
Building permits, January (8:30): 1.910M expected, 1.953M December.
2-19-04
Producer Price Index, January (8:30): 0.3% expected, 0.3% December.
Core PPI: 0.1% expected, -0.1% December.
Initial jobless claims (8:30): 340K expected, 360K prior.
Leading Economic Indicators, January (10:00): 0.5% expected, 0.2% December.
Philly Fed, February (12:00): 35.0 expected, 38.8 January
2-20-04
Consumer price index, January (8:30): 0.3% expected, 0.2% December.
Core CPI: 0.1% expected, 0.1% December.
End part 1 of 3
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