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us stock market, stock watch
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2/19/04 Stock Split Report
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Stock Split Report Subscribers:
MARKET ALERTS
Targets hit alerts issued Thursday: none issued
Buy alerts issued: None issued
Trailing stops issued: None issued
Stop alerts issued: VRNT; SPPI
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:
- The gap and reversal on high volume, the bane of the market.
- Leading indicators strong again, jobless claims falling once more, but Philly Fed disappoints.
- Market continues in its consolidation range, but action starting to show volatility on big volume.
Consolidation tries to hang on but was kicked around Thursday.
It was the day before expiration Friday, so some extra volume and volatility was to be expected. Volume was running a bit higher and volatility a bit lower, at least until the last half hour. At that point sellers hit the market and sold stocks hard. Volume jumped above average as stocks turned sharply lower. DJ30 had held positive all day, trying to lead the market to a new 52-week high. It gave up 70 points in a half hour to close negative. SOX turned from +1% to -1.5% over the same period.
The day started on yet another giddy, ain't life great gap higher on some good semiconductor earnings and guidance. At least that was the light hearted banter on the financial stations. As we told our alert subscribers, however, it was a good idea to beware this gap. NASDAQ started selling almost immediately despite the gains in the semiconductor index. Nonetheless, the overall market held most of it gains though it was clear it was going to struggle to make new highs. While NASDAQ started its more serious slide with 1.5 hours left, it was not until that last hour that sellers hit the broad market.
Floor traders were telling us the downside action was started by some hedge funds trying to see if the market was ripe for selling after the early gap failed to make and hold new highs. SP500 again failed at that key 1160 to 1175 resistance level. It may have started with some hedge funds, but the volume on NYSE and NASDAQ blew through average with NASDAQ hitting 2B again. That indicates the selling involved more than a few hedge funds.
NASDAQ finished worst, down 1.5% (though SP600 small caps were down 1.4%), punching through trendlines and closing in on the 50 day MVA. It was really struggling. DJ30 and SP500 held up quite well in contrast, holding over the 10 day MVA. All closed in the consolidation range but the high volume reversal after a gap attempt at important resistance is one of the uglier signs a market can give investors. As we have seen before during the past two months, it is not an automatic rally killer, but it is hard to overcome. It is like resetting the clock on any breakout attempt and requiring more time to prepare for the next move at best; at worst it breaks the rally down to new lower levels. With DJ30 and SP500 still holding up well, it looks like the former, though with NASDAQ breaking lower we have to watch closely how it trades at the 50 day MVA.
THE ECONOMY
Leading Economic Indicators still posting solid gains.
This basket of forward looking indicators (they forecast 6 months down the road) continues to post solid gains, showing a 0.5% rise just as expected. It was flat in January and down 0.4% in December, but had shown for solid up months prior to that. Overall the trend remains higher, forecasting continued economic growth as we move into the summer. With $100B in tax refunds coming and continued business investment based on tax incentives it looks as if the indicators are pretty much on target. What remains to be seen, however, is whether jobs really start to ramp up.
Jobless claims resume decline but continuing claims still rising.
Weekly claims fell 24K to 344K as claims resume the trend lower after some modest bumps higher the past two weeks. This level and downtrend is historically commensurate with job creation. Indeed, there is some job creation ongoing as we have seen. It started earlier than we anticipated, but it has also failed to ramp up as quickly as we anticipated once it began. Before the January employment report was released we made a quick assessment of the indicators to glean a better insight to the job growth we would see. Based on what they were showing we anticipated the 150K jobs created, but there was no evidence that the 200K to 300K whisper number would be met.
Despite the falling jobless claims, continuing claims are stubbornly holding steady with even a slight uptrend. Indeed, continuing claims edged higher again last week, rising 106K to 3.19 million. If continuing claims keep rising that means the jobless are not finding enough jobs even to offset the slower pace of job cuts. That indicates a continuing very weak job market, at least in the traditional employer/employee relationship. As we have discussed before, the non-farm payrolls number does not count contract workers and sole proprietorships that have sprung up in the past year.
Still, the claims keep rising. On its face then, there is some discrepancy in the report itself. Weekly claims continue to trend lower, indicating that some are finding jobs and some are dropping off unemployment rolls as benefits run out. But continuing claims are rising even if benefits are running out for some and those people fall out of the purview of the report (a major shortcoming of the data as you have surmised). What is happening is that new claims are lower because fewer are looking for work. They have given up for now. This was shown in the January employment report that noted the workforce shrank, so the unemployment percentage was artificially low.
This giving up on finding work is not uncommon when the economy recovers. Jobs are the last element to return, but when those out of work see better economic reports they jump back in looking for work. When they don't find it they again leave the job pool and wait for some more positive news and then try again. Those that are still on unemployment continue to collect benefits. They keep the continuing claims at the same level. The claims rise based on those incremental job losses that are not sopped up by the jobs created. Thus based on the weekly jobless claims there has not been the big surge in job creation. We can see more in the 150K range in the February report, but based on the weekly numbers and also what corporate bosses were saying this week, there is still no big surge. Maybe we get 200K+ with the report. That would be great, but continuing claims need to slack and hours worked and overtime rise more to pave the way for a real surge.
THE MARKET
Don't like the sluggish action seen Wednesday? Okay, how about a high volume reversal? You never like to see these volume reversals, particularly as indexes try to break to a new high. Not only did they fail, but volume rose as they failed, indicating sellers moved in with some authority to push them back. Now volume was running higher early on the buying and dried up on the early selling attempts. It really shot higher, however, in the last 45 minutes as the Dow, SOX, and SP500 joined the selling. Definitely some churning, i.e., high volume turnover, at resistance.
Yes, SP500 did fail at that 1160 to 1175 resistance once more, failing at 1158 on the high. As noted, the index did not collapse, just fell to the 10 day MVA on the close. DJ30 looked even better, holding in its lateral move and closing over the 10 day MVA with a hammer doji. Hardly the look of a nefarious reversal.
That is reserved primarily for NASDAQ which broke through its March/December up trendline, the lowest one since the breakout early this year. It did not breach it by much and is still holding over the 50 day MVA, so all is not lost. It was a pretty harsh dump lower, however, after some good news in the semiconductor sector initially bucked prices higher. A gap higher, a reversal, selling on higher volume in the face of good news, breaking the lowest up trendline. That is not a list of attributes that you assign to an index right before it makes its next big move.
Sure it was the day before expiration Friday and that often kicks volume and volatility higher. While overall volatility indicators (e.g., VIX, VXN) are not showing much upswing, we have seen some big price and volume moves up and down the past month. Rising volume reversal form the highs in late January, big volume drop in early February, big volume gain 6 sessions back, and then the Thursday volume sell off. These are still somewhat scattered, but something we always watch for near highs or when a rally has run a long way. What you want to see is action die down in a consolidation. NASDAQ was doing that with these occasional jumps up and down. With the Thursday action they have turned more negative as NASDAQ suffers the kind of session it had early in the month when Greenspan talked. Rising volatility on big volume can be a signal that the weather is changing some.
NASDAQ has been in a consolidation, working along rather well. This high volume selling shows that it has not worked the sellers out. It could just mean that the consolidation takes longer as there are still too many sellers with strength that fight the move. It could mean that there is more downside ahead as NASDAQ is breaking its consolidation and heading toward key support. Either way the action shows it is not ready to make a sustained move yet.
Market Sentiment
VIX: 15.8; +0.21
VXN: 24.24; +0.51
VXO: 16.9; +1.16
Put/Call Ratio (CBOE): 0.72; -0.06
NASDAQ
Gapped higher and reversed on volume in the face of good news. Its consolidation is in jeopardy as it heads toward the 50 day MVA.
Stats: -30.51 points (-1.47%) to close at 2045.96. Nothing like a 50 point reversal to put a new light on an index.
Volume: 2.08B (+15.77%). First 2B session since the big volume gain 6 sessions back. Volume was running slightly higher but gained strength as the late selling accelerated. Of the big volume days this month, 2 of 3 have been to the downside. Definitely some distribution in tech shares Thursday.
Up Volume: 372M (-396M)
Down Volume: 1.689B (+688M)
A/D and Hi/Lo: Decliners led 1.9 to 1. Ran from -1.3 to 1 in the last hour, picking up speed as the selling did. Not surprising, and not all that bad given the rout late in the session.
Previous Session: Decliners led 1.41 to 1
New Highs: 178 (-30)
New Lows: 8 (+1)
The Chart: http://www.investmenthouse.com/cd/^ixq.html
We have covered this pretty well: gapped higher and reversed from the start. Volume rallied as it sold. It broke the last up trendline from the March breakout (2058), and is looking the 50 day MVA (2039) right in the face. It is clear it will test that level. That is the last support level for the uptrend to remain in tact. With the high volume reversal it looks more like NASDAQ is ready for a further lateral and lower move. 2000 is the next solid support level once the 50 day MVA is breached. A lateral move over that level would be a great area to continue the consolidation. Again, the sharp downside action indicates it is not ready to sustain a breakout move. For now that is all it is showing, and it has recovered after each one of these sell offs during this run.
S&P 500/NYSE
Failed at 1160 again and rolled down on above average volume, but lost only 0.4% and held the 10 day MVA, a cakewalk compared to the NASDAQ reversal.
Stats: -4.76 points (-0.4%) to close at 1147.06
NYSE Volume: 1.512B (+10.81%). First distribution session since the start of the month. The action was some churning below resistance where some shares of large cap stocks were dumped.
Up Volume: 556M (+103M)
Down Volume: 922M (+16M)
A/D and Hi/Lo: Decliners led 1.71 to 1. Not awful selling and mainly it was due to a 1.4% drop in the small cap index (SP600).
Previous Session: Decliners led 1.55 to 1
New Highs: 233 (-32)
New Lows: 4 (+1)
The Chart: http://www.investmenthouse.com/cd/^spx.html
SP500 remains in its lateral move below resistance from the early 2002 double top (1160 closing, 1175 intraday). It reached up to tap that level early and backed off. It did not turn and run, but it could not withstand the late selling. It fell to the 10 day MVA (1147) on the close. It continues to show amazing resilience after a strong surge, refusing to give up its gains. Despite this tenacity, we still note that it is close to 15% over its 200 day MVA if it were to run up to 1175; that has always dogged the index as it gets too top heavy with its more stodgy, slower growing companies. That makes it hard for SP500 to make those stronger moves above this level such as NASDAQ with its boatload of growth oriented stocks. SP500 has not broken down. Indeed, it is still holding its lateral move over the 10 day MVA. The action took a turn for the worse Thursday, but it was not debilitating.
DJ30
The blue chips held up well all session, fighting off the selling attempts until the last half hour. Sell programs hit the market and the stocks that were rallying were hit as much as the ones just milling around. That took DJ30 near session lows on the close, but that still held it easily over the 10 day MVA (10,641) and well within the rather quiet lateral move at that level. It did make a break to a new 52-week high mid-day as other stocks sold, but it could not keep the pace. Still a very solid session given the action in technology as it holds in its range below 10,750 and above the 10 day MVA.
Stats: -7.26 points (-0.07%) to close at 10664.73
Volume: 220 million versus 164 million Wednesday.
The chart: http://www.investmenthouse.com/cd/^dji.html
FRIDAY
The late volume selling puts a bit more spin on Friday. Friday is expiration and thus we have to recognize that some of the volume Thursday was due to position squaring ahead of that session. Thus far the market has recovered from this type of selling with even NASDAQ fighting off a gap lower to start the month that sent it to the 50 day MVA. Thus while the action suggests further weakness ahead, it does not automatically require it. NASDAQ is still in its range and can hold the 50 day MVA while DJ30 and SP500 hold their lateral moves just as they did Thursday.
Will that happen? We still expect there will be more pain than has been seen thus far in this move. it ahs been a long run and this has been a modest pullback. DJ30 and SP500 have barely moved lower at all. We would be surprised, however, if buyers did not move in as NASDAQ tests the 50 day MVA. There is still a lot of money flowing into funds, and a 50 day MVA test would be just too good to pass up for some to put some new money to work. Thus we expect to see a bounce either after a test of the 50 day or an undercut of that level.
Again and again, this market continues to punish those entering long positions early. This may not be the case Friday if NASDAQ finds support at the 50 day MVA, but with expiration Friday we could see continued volatility though the actual session the past few months has been quieter than the days preceding the event. HPQ gave a modest earnings report and was getting punched around some after hours; that could provide the additional downside impetus to test the 50 day or slightly undercut it, and then we expect a bounce.
We are not going to be biting much on that bounce because we don't think it will carry too far. We will continue to look at good patterns with accumulation. We would look at more trades on a bounce, but the range is fairly limited and we are not convinced that another test of the 50 day MVA will be the charm. Stocks that are holding up well and have good accumulation behind them tend to continue their moves though at a slower pace if the rest of the market is struggling. That is just an attribute of a market in consolidation.
We will also be looking for a bounce to set up some more downside plays that are really in trouble. After a big move lower and a relief bounce that carries them back to resistance they broke, they will be primed to resume the move lower. If the market remains in a consolidation we may not get huge moves lower, but we will look for those that can give us a nice 40% or so without too much trouble on a nice put option play.
Support and Resistance
NASDAQ: Closed at 2045.96
Resistance: The 10 and 18 day MVA (2066, 2068). The second up trendline (2098). The March/August up trendline at roughly 2130. The January high at 2150. 2200 then 2300 represent tops from Q2 2001.
Support: The March/December up trendline (2058) is not totally broken. The exponential 50 day MVA (2040). The simple 50 day MVA (2039). Below this the November and December peaks at 1975 to 1990.
S&P 500: Closed at 1147.06
Resistance: The January high (1155). Next is 1160 (the closing) and 1175 (intraday), the high in that double top that spanned late 2001, early 2002.
Support: 1150, the first top in early 2002 is not broken but is loose support. The 10 day MVA (1147). The 18 day MVA (1142). 1125 is some minor support. The 50 day MVA (1119). 1106 is a May 2002 top and represents some early 2001 lows.
Dow: Closed at 10,664.73
Resistance: The January high (10,705). Upper channel line (10,775). 11,000 is roughly 15% above the 200 day MVA. Then some price tops at 11,300.
Support: The 10 day MVA (10,641). The 18 day MVA (10,604). 10,555 is the March 2003 up trendline. The exponential 50 day MVA (10,418). 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
(Delayed) Producer Price Index, January (8:30): 0.4% expected, 0.3% December.
(Delayed) Core PPI: 0.1% expected, -0.1% December.
Initial jobless claims (8:30): 344K actual, 352K expected, 368K prior (revised from 363K).
Leading Economic Indicators, January (10:00): 0.55 actual, 0.5% expected, 0.2% December.
Philly Fed, February (12:00): 31.4 actual, 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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