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us stock market, trade stock
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2/21/04 Stock Split Report
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Stock Split Report Subscribers:
MARKET ALERTS
Targets hit alerts issued Friday: None issued
Buy alerts issued: NATI; ANPI
Trailing stops issued: DGX; WMS; WWCA
Stop alerts issued: NUVO; PWAV; TELK
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:
- NASDAQ test of 50 day MVA brings in some buyers, but no rush back into stocks.
- Consumer prices higher with healthcare and energy leading the way.
- Market holds where it needs to while semiconductors look weak once more.
Stocks continue Thursday selling, rebound to hold near support.
Friday stocks continued the late Thursday selling with NASDAQ testing and undercutting its 50 day MVA as expected. Also as expected, that brought in some buyers and/or short coverers; the buyers thinking they had a great entry opportunity, the short sellers thinking they had made what they could on NASDAQ undercutting the 50 day. Stocks rallied off the lows, NASDAQ retook the 50 day MVA, but the rally fizzled and stocks slid back to close basically in midrange for the session.
The early selling was blamed on a hotter than expected CPI, but things did not really break loose to the downside until reports Japan raised its terror alert to the highest level hit the wire. It continued to sell through lunch when Greenspan delivered yet another speech. He made it two in a row, delivering his second upbeat speech about the economy and jobs, saying the rate of increase in jobs would quicken as the economy continues to expand. Coincidence or not, that is when the market turned and rallied back to session highs.
As noted, NASDAQ retook the 50 day MVA on the rebound, but there was no rush back in. Volume slowed from Thursday, and after reaching the early morning highs the move ran out of gas. Stocks waffled then drifted lower and NASDAQ closed just below the 50 day MVA. The market held where it had to, making a decent rebound, but there was no flood of buyers. As it has thus far in the rally, stocks made a stand when close to breaking down. Many expect NASDAQ to make another 50 day MVA bounce, and it could start one, but it is not showing the same strength as many leading stocks are not set up to rally, e.g. many semiconductors.
THE ECONOMY
Consumer prices rise more than expected.
Expectations were for a modest 0.3% rise, but it checked in at 0.5%. That still kept the year over year gain at just 1.9%; higher than the 1.6% after the December report. The 'core,' taking out food and energy that no one really uses anyway, was up 0.2%, more than the 0.1% expected. Energy was up 4.7% after just a 0.3% rise in December, and gas was up 8.1%. That obviously accounted for much of the rise in overall prices. Energy, healthcare, and education continue to pace the rise in prices, no problem if you live on a tropical island with fruit on the trees and fish in the lagoon. The dichotomy continues in inflation: if you need a computer, television or other electronics on a weekly basis yet don't need the electricity to power them or the higher education to earn the money to pay for them then inflation is no problem.
Greenspan and his FOMC brethren seem to think inflation is no problem, and they said so Friday. After all, core inflation was up just 1.1% year over year, a level not hit since 1966. That in itself is a very interesting statistic; the Kennedy tax cuts had been enacted and had time to work, creating a very prosperous economy. Inflation did not explode higher, however. Once again history shows us that tax cuts create non-inflationary growth, something repeated in the 1980's and 1990's when the economy was allowed to run without a lot of government restrictions (or in the case of the nineties, it had the strength to run despite the government restrictions though they finally caught up with it).
Anyway, Poole from the FOMC said he saw "no reason why we should not see a similarly benign inflation outcome this year." So, the Fed feels there is no inflation, and measured in the manner the government does, there isn't any. Inflation is measured based on 'baskets' of goods that consumers typically buy. The baskets currently in use were last modified in the nineties. Some are saying our buying habits have changed since then and thus they are no longer accurate representations of our actual buying habits. Thus we are feeling inflation even as the measures of price increases don't show it. Think about it. Today we spend up to 30% or more of our household income on, well, housing. As for transportation, even 50% of those considered in poverty own 1 car and 30+% own two or more cars. Gasoline and auto costs directly impact them. College education expenses are much higher, and baby boomers are having to pay for their offspring are now in school. Contract workers, self-employed and even 'regular' employees are paying more and more for health insurance. In other words, the expenses that take up more and more of our incomes are rising. Thus, inflation that we are feeling is not really measured.
THE MARKET
Friday was more of the same that we have seen of late: stocks struggling but able to hold the trend when the final bell rings. NASDAQ was again toying with a more serious breakdown, having already broken its last up trendline from the March low and now undercutting the 50 day MVA again after doing so just two weeks back. It managed a rebound, but volume lagged as it did. Unlike the Thursday gap and tank on strong trade, Friday's reversal could not generate average volume on NASDAQ.
It was an expiration week, so perhaps the gyrations were simply connected to rolling over and squaring positions. All in all the market held up well with DJ30 and SP500 barely budging from the highs given the Friday rebound from the lows. Again, the trend held.
SOX is a real anchor chain, hole in the boat, or any other high school coaching clich you want to apply. After peaking in January it is in the process of making a lower high right at 535, the November to December peak. SOX hit 535 on the Thursday rush higher and then reversed. That is a head and shoulders in the making. Oh, it closed below the 50 day MVA (516) once again, a quick trip back to this realm. The 18 day MVA is ready to cross down through the 50 day as well; when that happens and holds, that is a pretty significant sign of further selling ahead. It has not done it yet, and until it does it is simply something to watch.
With NASDAQ and SOX showing signs of fatigue and lethargy, can SP500 and DJ30 continue to hold up? NASDAQ has been the key to the market rally, and though some continue to lament the failure of dividend stocks and large caps to take over the action and predict that the change will come, NASDAQ remains the key to the action. Remember back in the mid 1990's when the lament was how small caps were being ignored and only a narrow range of NASDAQ large caps were gaining? The point: no matter what part of the market is performing or not performing, someone is going to complain about it. If this market is going to continue to expand, it is going to be the growth stocks that do the heavy lifting as they always do. When a market falls back to relying on limited growth, high dividend paying stocks, the market is on its last leg.
One area we have been watching, while not a primary indicator, is the advance/decline ratios combined with the new high/new low ratios. The A/D line for NASDAQ and particularly NASDAQ 100 are making lower highs and lower lows. The new highs/new lows ratio is also weakening. These are not primary indicators; they show possible 'erosion' of the action. They are in line with the weaker price/volume action on NASDAQ as well as NASDAQ's recent propensity to hang out at the 50 day MVA. Stay in a bad neighborhood long enough and bad things can happen.
Market Sentiment
VIX: 16.04; +0.24
VXN: 24.12; -0.12
VXO: 16.25; -0.65
Put/Call Ratio (CBOE): 0.86; +0.14. More put buying as stocks sold though still off the significant 1.0 level on the close that can signal a round of selling is coming to an end.
NASDAQ
Continued the selling but reversed after taking out the 50 day MVA. Not much of a rebound as volume returned to below average on the recovery.
Stats: -8.03 points (-0.39%) to close at 2037.93. Recovered 15 points off the low to mitigate its losses.
Volume: 1.917B (-7.84%). Volume was lower and could not make it back to average on the reversal. You could look at it as a positive as the selling did not occur on rising trade. It would have been more encouraging, however, to see volume jump as the NASDAQ reversed below the 50 day and rallied. As it is the recovery was lukewarm.
Up Volume: 700M (+328M)
Down Volume: 1.194B (-495M)
A/D and Hi/Lo: Decliners led 1.65 to 1
Previous Session: Decliners led 1.9 to 1
New Highs: 89 (-89)
New Lows: 14 (+6)
The Chart: http://www.investmenthouse.com/cd/^ixq.html
NASDAQ gapped higher, rolled over, and broke the 50 day MVA (2040). That brought in some buyers and rallied it back over that level. It could not hold the move and closed back below this key support. It is close, not a clear break lower on the close, but NASDAQ is back at the 50 day again within two weeks. It did this in October, November and December as it consolidated. Maybe it is consolidating again at this level, indeed we think it is currently undergoing a consolidation. Whether it can hold the 50 day this time is more problematic. A test of 2000 looks in the cards, but stocks often trade the opposite way on the Monday after expiration Friday.
S&P 500/NYSE
Held up quite well after undercutting the 18 day MVA, continuing in its lateral move over that level. More of the same.
Stats: -2.95 points (-0.26%) to close at 1144.11
NYSE Volume: 1.462B (-3.33%). Volume was lower on the selling, a good indication, but it was also lower as the index undercut support and rallied back. Again, you like to see volume jump as a stock or index reverses such an undercut and buyers jump back in. As it is, buyers only hopped back in; volume was above average but lower than the selling volume Thursday.
Up Volume: 387M (-169M)
Down Volume: 1.047B (+125M)
A/D and Hi/Lo: Decliners led 1.81 to 1
Previous Session: Decliners led 1.71 to 1
New Highs: 98 (-135)
New Lows: 7 (+3)
The Chart: http://www.investmenthouse.com/cd/^spx.html
The large caps continue to hold up remarkably well as the selling intensity jumped again but was unable to hold SP500 down. It continues it its lateral move over the 18 day (1142) and below the early January 2002 double top (1060 closing, 1075 intraday). Again it is holding up well though showing signs of erosion toward the end of the week along with the rest of the market. Minor as far as SP500 is concerned; it could be simply attributable to the expiration. For now SP500 is holding up in its 4 week lateral move.
DJ30
Volume jumped at the end of the week as DJ30 attempted a new 52-week high, tapping 10,750 on the Thursday high and reversing, then tapping the up trendline (now at 10585) on the Friday low and rebounding. As with SP500, it managed to hold the range, closing over the 18 day MVA (10,606). It is holding up, but we have the feeling it is waiting on the other indexes as it continues laterally. It is going to have a test with its up trendline this week, however.
Stats: -45.7 points (-0.43%) to close at 10619.03
Volume: 220 million versus 219 million Thursday.
The chart: http://www.investmenthouse.com/cd/^dji.html
THIS WEEK
The Monday following expiration Friday typically trades in the opposite direction from Friday; not always, but often. As stocks tried to make a comeback in the afternoon we could see that early attempt to continue the rebound. Friday played out pretty much as expected, but now that NASDAQ has again tested the 50 day MVA and is at the fish or cut bait point. We are not expecting it to follow through with any real strength to the upside. The big issue is whether it continues to move laterally to consolidate or whether NASDAQ falls back through the 50 day MVA and tests lower toward 2000 now that it has made a bigger crack in that support level.
SOX could, as it often is, be the key. Chips are in just about everything now, and if SOX cannot hold up but rolls over in its forming bearish pattern, then NASDAQ will be hard pressed to hold the 50 day. NASDAQ impacts SP500, SP500 impacts DJ30, the knee bone is connected to the thigh bone, etc.
The prospect of a continued lateral consolidation puts a crimp on many upside plays, but we continue to see sectors with stocks setting up and moving higher. That is the money that continues to push into the market. Even as it pulls back money is being shifted and new funds put to work in areas that are still viewed as potential winners. The trend is still up, and most stocks move with the trend. The best stocks lead. Those are the ones we will continue to focus on.
We also look at downside plays that are struggling below resistance. Just as money moves to new areas in the market it leaves others. Still other stocks suffer their own problems and are struggling. Looking for more of a bounce to set them up better. The window is opening a bit more on those, and if SOX and NASDAQ fall further, there will be plenty of opportunity for some quick hitting downside plays.
Support and Resistance
NASDAQ: Closed at 2037.93
Resistance: The March/December up trendline (2061). The 10 and 18 day MVA (2061, 2065). The second up trendline (2100). The March/August up trendline at roughly 2132. The January high at 2150. 2200 then 2300 represent tops from Q2 2001.
Support: The exponential and simple 50 day MVA (2040) are not totally broken. Below this the November and December peaks at 1975 to 1990.
S&P 500: Closed at 1144.11
Resistance: The 10 day MVA (1146). 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: The 18 day MVA (1142). 1125 is some minor support. The 50 day MVA (1120). 1106 is a May 2002 top and represents some early 2001 lows.
Dow: Closed at 10,619.03
Resistance: The 10 day MVA (10,637). The January high (10,705). Upper channel line (10,780). 11,000 is roughly 15% above the 200 day MVA. Then some price tops at 11,300.
Support: The 18 day MVA (10,606). 10,585 is the March 2003 up trendline. The exponential 50 day MVA (10,425). 10,353 from May 2002 high.
Economic Calendar
These are consensus expectations. Our expectations will vary and are discussed in the 'Economy' section.
2-24-04
Consumer confidence, February (10:00): 93.0 expected, 96.8 January.
2-25-04
Existing home sales, January (10:00): 6.45M expected, 6.47M February.
2-26-04
Initial jobless claims (8:30): 347K expected, 344K prior.
Durable goods orders, January (8:30): 1.4% expected, 0.3% December.
New home sales, January (10:00): 1.095M expected, 1.060M December.
2-27-04
Preliminary GDP, Q4 (8:30): 3.8% expected, 4.0% first reading.
Michigan sentiment, final (9:45): 93.8 expected, 93.1 prior.
Chicago PMI, February (10:00): 63.5 expected, 65.9 January.
End part 1 of 3
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