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us stock market, trend trading stock
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2/17/04 Stock Split Report
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Stock Split Report Subscribers:
MARKET ALERTS
Targets hit alerts issued Tuesday: DVA; CALM
Buy alerts issued: IDCC; TELK; TOL; SPAB; EAR
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:
- Another strong price gain on strong breadth, but once more light volume.
- Manufacturing data remains solid.
- Overall consolidation continues as NASDAQ remains in range on lower trade.
Impressive price gain again on slow volume.
Once more stocks posted a solid price advance on strong breadth, and once again volume was lacking. Yes volume edged higher on NYSE, but it was still a rather pitiful volume session, hardly what you would consider strong accumulation, and hardly a match for the price gains. This has been a 'problem' with the market this month. Historically, markets that rise on low volume ultimately fail. That is truly a problem for this market, but we also have to put the moves into context. NASDAQ is consolidating, having come back to test the 50 day MVA and now more or less moving laterally along that support on lower volume. Sure there was a solid up volume session last Wednesday, but that was simply a good sign that there is accumulation ongoing in the overall consolidation. In short, it appears the market is showing us a healthy consolidation not quite ready to surge to new highs, particularly on NASDAQ. We cannot complain about that action at all, but we also need to sift through the raw enthusiasm shown on the financial stations about these up sessions on very low volume: they show great accumulation, but thus far no breakout.
Merger excitement rules.
We have not seen the financial station casts this breathless in quite some time. Last week Comcast started making the moves on Disney and this week Cingular outbidding Vodaphone for AT&T Wireless. Throw in some regional bank mergers on the heels of the JPM deal and you have what the financial shows really live for. They don't care about leadership stocks that we find making their breakouts on the way to quick 20% gains and beyond; they want the sex and the gore big deals create.
That excitement does feed into the market, however, as investors look for the next takeover target (victim?) and play roulette, hoping to guess which will be the next target. Thus you see money chase stocks around the market similar to a group of 5 year olds mobbing the ball as they 'play' soccer. The excitement gets higher, but as seen Tuesday, it does not necessarily bring in the big money.
Some money moves in after 4 NASDAQ down weeks.
No doubt some managers were ready to put some money to work after 4 down weeks on NASDAQ, and that prompted some of the upside. Again there were not enough buyers to post a strong accumulation session, but there were some institutions putting money to work. As noted, this is more like action you see in a consolidation, and given that NASDAQ is moving laterally, we like it. If NASDAQ was posting several gains back to back on lower and lower volume the index would be setting up for a hard fall. As it is the index is moving laterally under some accumulation, and that is not bad action at all. Not the feverish excitement that the merger mania is painting, but solid, building action.
THE ECONOMY
Manufacturing continues to post record numbers.
NY Empire State PMI surges to record.
The New York Fed recorded business conditions at 42.05 versus 38.85 in January, a record high. The record was good news, and when compared to the 36.4 expected, it was stellar. New orders were higher, and though employment was lower, it was still 'solidly' positive at 16.5. The average workweek for the region hit a record high.
Industrial production surges in January.
The manufacturing sector is coming out of a 3 year shellacking and is now posting its best factory activity in two decades. This was apparent in the production figures that posted a 0.8% gain. It was not all milk and honey, however; utility output jumped 5.2% due to all of the cold weather. Factory output was up 0.3% over the 0.1% in December. While each month there is some factor that is the dominant factor that skews the results, the overall trend is up.
John Deere reported excellent earnings and more than that raised guidance to revenues of $1B this year. That is $250 million more than originally expected. That demonstrates that the tax cuts have spurred the heavy investment needed to jumpstart the supply side of the economy, and that in turn helps stimulate demand. CAT shares jumped higher on the DE results and prognostications. The lower dollar makes this fine equipment cheaper to foreign buyers, and they are both selling tons of it (literally) to overseas markets. This type of growth is phenomenal and only underscores the need to continue the stimulus and economy friendly tax policies that allow businesses to expand markets.
Manufacturing still in decline.
As Greenspan acknowledged last week, US manufacturing has been flat to declining for the past 50 years with activity peaking about 20 years ago. Thus while it is excellent to see these numbers improving, it is just a piece of the overall economic picture. Fortunately the rest of the picture looks good as well though jobs as measured by the payroll figures continue to lag. We anticipate they will improve, but they need to start clicking off 200K+ new jobs per month if there is going to be continued sentiment improvement and sustained economic stimulus (e.g., supply side tax cuts). To us it is clear that the tax cuts worked to jumpstart the economy, and the economy needs to continue to expand to put people back to work. New trade regulations, 'make work' public jobs programs, and higher tax rates historically squelch economic activity as opposed to enhancing it.
THE MARKET
Stocks surge, volume does not.
NASDAQ is in a pretty classic consolidation, moving more or less laterally over the 50 day MVA after peaking in late January. It is moving on mostly lower volume with an occasional volume spike. The last spike was on an up session, an indication that there is indeed accumulation ongoing. This up and down action in a range is just what it needs: refusing to sell off, but taking its time on overall low volume to take a breather after a 50% gain in 2003. SOX even helped the picture Tuesday by recovering its 50 day MVA.
SP500, DJ30, and SP600 (small caps) are also working laterally, but they are doing so at higher levels after bouncing back briskly after a small pullback. Volume has really been lacking on these indices, not necessarily worse than NASDAQ, but more noticeable given the gains as opposed to NASDAQ's more pronounced consolidation. SP500 has shown some positive accumulation sessions (Tuesday and Wednesday last week, even Tuesday this week though below average volume on that session), and that is supporting these indices as they move right back up to the 52-week highs once more. While NASDAQ is in a classic consolidation, these are trying for new highs. Though there has been positive price/volume action, but for one session the upside volume has not been commensurate with the gains, and that will act to undermine these indexes as they try for new highs. Moreover, with NASDAQ holding back in a consolidation, they may find it hard to get too far out on the rope without NASDAQ moving in and helping them.
We continue to watch the trade as SP500 and friends move higher. Again, historically it is hard for an index to sustain moves made on low volume, particularly declining volume on up sessions. NYSE volume has shown some modest increases (though last Wednesday was strong) on up sessions; it is definitely not milk toast action. To this point, however, the majority of money managers have not been ready to commit to a big new upside breakout.
Market Sentiment
VIX: 15.4; -0.18
VXN: 23.87; -0.27
VXO: 15.56; -0.07
Put/Call Ratio (CBOE): 0.88; +0.12. The number of puts versus calls traded rose even as stocks posted strong price gains. There is some hedging ongoing as big money buys puts on existing positions as opposed to buying a lot more long positions. That in itself is a positive contrary view.
NASDAQ
Right back over the 18 day MVA, but stalled out at resistance at 2085 as volume was extremely light.
Stats: +26.79 points (+1.3%) to close at 2080.35
Volume: 1.63B (-10.33%). Volume shrank even further below average as NASDAQ advanced to the next resistance level.
Up Volume: 1.181B (+696M)
Down Volume: 401M (-920M)
A/D and Hi/Lo: Advancers led 1.91 to 1. Breadth turned around, as high as it was low on Friday's selling.
Previous Session: Decliners led 1.98 to 1
New Highs: 222 (+66)
New Lows: 8 (+4)
The Chart: http://www.investmenthouse.com/cd/^ixq.html
NASDAQ retook the 18 day MVA (2070) with ease but then found resistance at 2085 where the second up trendline stalled the rally. NASDAQ spent the last two hours below that level, selling down but not selling off. NASDAQ continues in its weeklong lateral move over 2050 and below 2100. Only three sessions of above average volume this month, with the two largest volume sessions split between an up session and a down session. As noted, this looks like some classic consolidation action as NASDAQ works more or less laterally over the 50 day MVA (2039). What does that mean? It means we will most likely continue to see the up and down action that marks a trading range. Buyers and sellers are 'having it out' as neither has the edge. The sellers sell into strength, the buyers buy on dips, but there are not enough of either to break the index out of the range. Once the buyers or sellers are worked out in this action the index can make its move. Right now it looks as if the action is accumulative, but NASDAQ may have two or more weeks to go before it is ready to make a breakout.
S&P 500/NYSE
After two modest declines the large caps were right back up, helped by industrial equipment and financial stocks responding favorably to earnings and merger news.
Stats: +11.18 points (+0.98%) to close at 1156.99
NYSE Volume: 1.389B (+6.36%). Volume was up again on a gain, the third such session in the past 5 trading days. That indicates accumulation in the large cap stocks (small caps as well as they have posted similar gains on those rising volume sessions). It is not powerful as the volume on two of the sessions was still below average. Nonetheless, it is positive action that is trying to build similar to NASDAQ.
Up Volume: 1.087B (+669M)
Down Volume: 288M (-582M)
A/D and Hi/Lo: Advancers led 2.72 to 1. Solid breadth again on an upside session. Aided by the small caps, upside breadth continues to be strong.
Previous Session: Decliners led 1.61 to 1
New Highs: 379 (+134)
New Lows: 4 (0)
The Chart: http://www.investmenthouse.com/cd/^spx.html
Approaching a new 52-week high once again (1158.89) after just a brief test of the 10 day MVA (1146). New highs are not exploding, coming in much less than prior new highs earlier in the year, but they showed nice improvement and with a new high we could see solid levels, particularly with the small caps performing so well. It is right at resistance and we will see if the low volume plagues it and keeps it from reaching that new high. If it does not make it we anticipate a lateral move continuing much as NASDAQ in the 1125 to 1150 range. It has had only the briefest of pullbacks as it continues to make higher lows and show modest accumulation. As noted over the weekend, after the near resistance there is not much to stop it up to 1175, the early 2002 double top and approximately 15% above its 200 day MVA (1031) where it historically starts to correct.
DJ30
Up off the 10 day MVA (10,628) but on significantly lower, below average volume as it approaches its 52-week high (10,747). The pattern is very similar to SP500 as it trades near that high, trying to muster the volume to break it out. A lot of the heavy lifting Tuesday came from CAT on the back of the DE earnings; big demand for heavy equipment, and the weaker dollar is making these premium brands very attractive. DJ30 does not have a lot of upside to run with the upper channel right overhead (10,762), and that has kept it in check on this run thus far.
Stats: +87.03 points (+0.82%) to close at 10714.88
Volume: 170 million versus 208 million Friday.
The chart: http://www.investmenthouse.com/cd/^dji.html
WEDNESDAY
Housing starts and permits are out, but it looks as if the action will be driven early by after hours earnings. Several good reports from NTAP, BRCM, BRKT had tech stocks running higher after hours. Stocks moved up into earnings and have had the typical pullback as they moved into the middle of the season and investors reached the saturation point. Now that some of the fluff has been taken out and the reports come in strong still, perhaps a move higher is in the cards.
That is possible, but it would be better for NASDAQ and stocks overall if they would continue the lateral moves, shake out the sellers, give the moving averages a chance to catch up some, then take off once more. The action to this point in NASDAQ has been this type of solid consolidation. SP500, DJ30, SP600 have not taken much time off at all, however, and are pushing at 52-week highs. Given the price/volume action we have seen, if they do make those breakout moves they will need to show a lot of upside volume or be subject to a harder fall after the buyers run out. Why? The price/volume action indicates that there are some institutions trying to play catch up, trying to get in on the move when they can, i.e., using each pullback to move in. Nothing wrong with that at all, but when there is overall low volume it can rally a market too fast. Thus far no new breakouts after a short pullback with questionable price/volume action; the market has come to the brink and paused Tuesday.
We remain cautious about the market but it does not keep us from taking positions on good moves, and we definitely saw those Tuesday. We also laid off some movers that did not have the volume behind them. That is pretty much our usual gameplan and one of the things we like about it: we don't have to adjust it a lot based on what is happening. Play it cautious by making stocks show us the performance that tells us they are worthy of our money. That means seeing a good pattern with good accumulation and a good volume move through the buy point that shows we are not the only ones buying. We are not going to move the stock; we want to see a lot more buyers other than us making the buy so we can move in as the stock starts a move that can give us a nice, rapid rise.
Wednesday we will continue with that same approach but really watch how SP500 trades at 1160 where many commentators are watching as important resistance. That is the closing high on early 2002 double top; that runs up to 1175 intraday. That entire range is worth watching along with the volume. It is not ready to make a sustained breakout, but if the big money decides to push it we cannot fight it.
Support and Resistance
NASDAQ: Closed at 2080.35
Resistance: The second up trendline (2087). The March/August up trendline at roughly 2120. The January high at 2150. 2200 then 2300 represent tops from Q2 2001.
Support: The 10 and 18 day MVA (2069, 2070). The March/December up trendline (2050). The exponential 50 day MVA (2039). The simple 50 day MVA (2034). Below this the November and December peaks at 1975 to 1990.
S&P 500: Closed at 1156.99
Resistance: The January high (1155). Next is 1175, the high in that double top that spanned late 2001, early 2002. Many are looking at the closing high at 1160.
Support: 1150, the first top in early 2002. The 10 day MVA (1146). The 18 day MVA (1141). 1125 is some minor support. The 50 day MVA (1117). 1106 is a May 2002 top and represents some early 2001 lows.
Dow: Closed at 10,714.88
Resistance: The January high (10,705) is not completely broke given the light volume. Upper channel line (10,762). 11,000 is roughly 15% above the 200 day MVA. Then some price tops at 11,300.
Support: The 10 day MVA (10,628). The 18 day MVA (10,588). 10,540 is the March 2003 up trendline. The exponential 50 day MVA (10,397). 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): 42.05 actual, 36.4 expected, 38.85 January (revised from 39.22).
Industrial production, January (9:15): 0.8% actual, 0.7% expected, 0.0% December (revised from 0.1%).
Capacity utilization, January (9:15): 76.2% actual, 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): 0.4% expected, 0.3% December.
Core PPI: 0.1% expected, -0.1% December.
Initial jobless claims (8:30): 352K 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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