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2/23/04 Stock Split Report Update
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Stock Split Report Subscribers:
Full reports issued Tuesday, Wednesday and Saturday. Monday and Wednesday we issue a market summary and some good plays for the next session. As always the most recent reports are found on the web site.
MARKET ALERTS
Targets hit alerts issued Monday: None issued
Buy alerts issued: OEX
Trailing stops issued: GPRO; OTEX; SNUS; ANPI
Stop alerts issued: ASKJ; TIVO; MSCC; VTIV; IRM
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:
- Early bounce attempt fails, NASD and SOX bury the 50 day MVA.
- Federal Reserve out talking in force, just like the old days, but not necessarily the good old days.
- NASDAQ tests 2000, small caps test 50 day as consolidation approaches key levels.
Early upside fades as techs, chips sell on volume.
Fed speak, political news, sales, upgrades, and upside earnings revisions had the futures higher pre-market. A Fed governor said over the weekend that the Fed changed its wording so investors would start looking at the market for their signals as opposed to the calendar and the next FOMC meeting. WMT said it was still going for the high end of its monthly range (3% to 5%), Merrill upgraded semiconductors and wireless stocks, and QCOM exploded its previous guidance, raising its own estimates by 10 cents minimum. Even the political scene looked more market friendly as Ralph Nader threw his hat into the presidential ring, supposedly a help to Bush.
As noted, Monday following expiration often trades opposite the Friday close. That lasted about 15 minutes, however, as the large dose of news could not hold back the consolidation tide. Sellers used the bounce to move in when NASDAQ could not recover the 50 day and SP500 stalled at the 10 day MVA. They never let up, at least on NASDAQ as techs struggled and closed near the session low. DJ30 and SP500 bounced much better, cutting close to half of their losses. Sellers gained strength on NASDAQ as volume edged higher on the selling, a sign that a few more sellers are getting rid of their technology and semiconductor stocks. While non-techs are holding their own, while NASDAQ and semiconductors sell, the rest of the market is put on hold. They may not lose as much relative to NASDAQ and SOX, but they are also not running away to the upside. When NASDAQ and SOX suffer, the rest of the market loses some bounce in its step. They are definitely locked in their corrections and now it is just a matter of time and intensity.
THE ECONOMY
Remember when FOMC members had almost celebrity status during 1999 and 2000 with weekly appearances by guys you never heard of before and markets hanging on their words? We cannot complain about the added information; as a person in a republic who has a modicum of control over what happens via the vote, unelected officials cloistered behind closed doors and making decisions that can dictate your economic livelihood based on their beliefs does not make you rest easy. The federal courts, Federal Reserve, and a few other key agencies should have completely open and public proceedings. They wield way too much power and as we have seen in the past 10 years, are much too inclined to supplant impartiality with personal views. Case in point is Greenspan's admission back in 2000 that he was not certain that increased consumption and low employment rates would trigger inflation. Stunning admission given these are two of the cornerstones upon which the Fed proclaimed it was basing its pre-emptive rate hikes. Even more recent, last year the Fed came out and sucker punched the bond market with Greenspan saying one thing and then the FOMC changing its bias in an apparent contradictory manner. A little discussion of this out in the open as opposed to behind the closed doors of the FOMC might have shed a bit more light onto the issue.
Lately the Fed has been on a new campaign, and once again we are getting to know the FOMC members individually. Again, this openness is good, but can anyone believe what they say? When individuals give speeches and then have to go behind closed doors and reach consensus with others, discrepancies can and do arise. These discrepancies have hammered financial markets at various times during the past three years and beyond. So, is there anything wrong with Greenspan speaking four times this week? Again, no as long as the information we get is not some smokescreen as to what the Fed is really intending or is in opposition to what the FOMC discusses in its meetings. During the entire 1999 and 2000 pre- and actual rate hiking period that drove a stake through the market and then the economy the Fed gave all of these bogus reasons for raising interest rates including the 'new' indicators of wages and prosperity as leading to inflation. Any reason to feel otherwise now when Greenspan is fighting to save his legacy as 'the maestro?' Well, maybe that is the reason to feel otherwise: if he wants his legacy he will want people and businesses to spend and spend.
Problem is that credibility issue. Greenspan just said there is no inflation, but as discussed over the weekend, there is inflation in what matters to consumers. You go broke 'saving' on electronics if you keep buying a new DVD, TV, computer, etc. every week ('look how much money I saved you honey!'). Thus, it was no real surprise that equity, bond, and currency markets were not just soaring on the notion that the Fed's patience was going to be steady and predictable.
THE MARKET
NASDAQ gave up the 50 day MVA with ease and SOX put some distance between it and that level. Predictably that brought in more selling as NASDAQ volume climbed as tech stocks sold. With this higher volume breach it is clear that the consolidation is fully underway and it is now a question of how long an dhow low.
It can be more of both. NASDAQ has yet to set the bottom of the consolidation. It is making its second test of 2000, roughly the level of the highs in the October to December lateral base. This would be a logical place to form the bottom of a consolidation, but it will take a while for this to emerge, and it will also mean that the consolidation will be several more weeks.
Consolidations tend to scare and/or wear investors out. If the move lower is not that deep then you see more time taken to wear out investors and turn predominantly bullish sentiment to slightly negative. If the move lower breaks sharply through support and peels of chunks of real estate downside, that tends to scare investors out faster and sets the stage for a quicker rebound. Thus NASDAQ 2000 becomes important from the perspective of the type of correction. NASDAQ's failure to bounce sharply off the 50 day MVA and show any volume in doing so indicated the correction would be deeper. It is now deeper (150 points or 7%) and five weeks long. We anticipate NASDAQ will crack below 2000 and come close to 1950 where it will try and put another bottom to the consolidation in place. It will then undercut that to 1925 or so and put a good scare into investors that really sets the bottom. Then it takes several weeks to complete the new base after that bottom is set. These are general as opposed to exact numbers but the scenario we see setting up based on the price/volume action the market is showing.
Market Sentiment
VIX: 16.29; +0.25
VXN: 24.38; +0.26
VXO: 15.93; -0.32
Put/Call Ratio (CBOE): 0.62; -0.24. Surprisingly low given the level of selling experienced Monday.
NASDAQ
After holding the 50 day MVA Friday on the close NASDAQ plowed through that level on rising volume as more entered into the downside action.
Stats: -30.41 points (-1.49%) to close at 2007.52
Volume: 1.965B (+2.49%). Volume moved back above average on the selling, the second distribution session in three. Distribution indicates that more sellers are getting rid of stocks than there are buyers accumulating them. String together 4 or so in a couple of weeks and there is more selling. Technically there have been 5 sessions since late January.
Up Volume: 370M (-330M)
Down Volume: 1.587B (+393M)
A/D and Hi/Lo: Decliners led 2.53 to 1. Breadth getting pretty ugly on the downside.
Previous Session: Decliners led 1.65 to 1
New Highs: 95 (+6)
New Lows: 11 (-3). Not much expansion as stocks moved downside. Good sign.
The Chart: http://www.investmenthouse.com/cd/^ixq.html
NASDAQ closed just over its lowest close this year (2006), making a lower low under the early February bottom (2014). Higher volume selling again, two out of three (3 of 4 if you consider the modest Wednesday selling) and occurring as NASDAQ broke the 50 day MVA. After three days of hard selling NASDAQ will start looking for a bounce soon. 2000 is some support that could provide it; NASDAQ started to bounce late Monday off that level though the bounce was rather weak. We anticipate it may try to undercut 2000 and find some support at 1985 or so and then make the bounce. With SP600 (small caps) testing their 50 day MVA, a bounce from this area is likely. This is a bounce in a continuing consolidation at this point unless it shows something very powerful. Thus we would anticipate a rebound up to test the 50 day MVA range or a bit higher, and then continue the consolidation toward 1950.
S&P 500/NYSE
Slid below the 18 day MVA on the close, but volume was back below average and it cut its losses significantly. Still showing relative strength to NASDAQ.
Stats: -3.12 points (-0.27%) to close at 1140.99
NYSE Volume: 1.382B (-5.45%). NYSE has shown the best price/volume action with the few distribution sessions on overall low trade.
Up Volume: 431M (+44M)
Down Volume: 937M (-110M)
A/D and Hi/Lo: Decliners led 1.77 to 1. Breadth is not running away to the downside as NYSE stocks try to hold up without a serious breakdown.
Previous Session: Decliners led 1.81 to 1
New Highs: 116 (+18)
New Lows: 9 (+2)
The Chart: http://www.investmenthouse.com/cd/^spx.html
Still bending but not breaking as the large caps continue to hold near the 18 day MVA (1142). It has barely moved off of the high and the selling continues on lower volume when it occurs. Even with a failure at the 18 day, it has a nice point to land at 1125. Not saying that SP500 does not need its own pullback; it has held up almost too well, refusing to consolidate. A test of the 50 day MVA (1121) would not be such a bad thing. If NASDAQ continues to sell, it may see that level fairly quickly when sellers appear.
DJ30
Nice doji at the 18 day MVA (10,606) as the blue chips refuse to sell off despite individual breakdowns from stocks such as INTC. DJ30 tapped below the up trendline (now at 10,600) as well and rebounded to cut almost 50 points from the low. Holding up the best of the major indexes, but we are not really looking to it for leadership. As noted above, it may hold up and even gain some ground, but with NASDAQ and SOX tanking it will be hard pressed to make new high ground or at least substantial moves higher.
Stats: -9.41 points (-0.09%) to close at 10609.62
Volume: 230 million versus 220 million Friday. Volume spiked as INTC and UTX sold on much higher than usual trade. With DJ30 rebounding to cut its losses and hold the trendline and 18 day MVA, we don't view the higher volume as necessarily negative.
The chart: http://www.investmenthouse.com/cd/^dji.html
TUESDAY
Consumer confidence is out after the open Tuesday, the sole scheduled economic report. It is a big week for retail earnings, however, another indication of how well the consumer is holding up. When it comes to sentiment actions always speak louder than words. Despite the talk of a consumer becoming more and more worried, consumption has continued to increase. Not at the breakneck pace retailers want; of course, they want to recoup an entire recession in two quarters and thus will always groan and moan about sales if they are not absolutely huge. Through the recession there were continued calls that the consumer would fold and housing would tank just as now there are predictions the consumer will falter if jobs don't appear.
Sure if no jobs are created and job losses continue consumers will eventually have to pull back. But again, the jobs picture is not nearly as clear as those on both sides of the aisle try to paint it. Traditional employer payrolls are unquestionably lower. The household survey, a.k.a., the unemployment percentage, does not provide a detailed view of the employment picture because some have given up and left the workforce. There is something to the numbers that is not being attributed, however. If the non-farm jobs report is correct, then the unemployment rate should be pushing 7%. At 5.6% it is not close. With contract workers and self-employed on the rise the truth, as we all suspect, is somewhere in the middle of the two extremes.
In any event, after four down sessions NASDAQ is going to start looking for a bounce at some point. 2000 is a good spot but it may be too early for a bounce to take shape. A continuation to the downside that undercuts 2000 would probably bring in some buyers and short covering. Again, a bounce from here is most likely just a bounce after some pretty heavy selling. Any bounce up to the 50 day MVA on NASDAQ that takes SOX up toward that level will be another point to enter downside plays. At the same time we have to keep in mind the overall perspective on the selling. We don't think it is a resumption of a major downtrend, so there will be less room downside when looking at the market in general. Individual stocks will still have their problems, and they will be magnified by the overall market weakness. It still won't be a situation where you can run out and short everything though the indexes will provide some opportunity for general market downside.
Tuesday finds NASDAQ at a point it can bounce (2000). An undercut down to 1985 or so and then a reversal would give it a bit more momentum, and it would also take another session or so, making the snapback all the riper. There continue to be some upside plays with potential that a bounce could spring free, and we will be ready for those if the trade is there. We are going to let specific downside plays and index downside plays develop on a bounce, but again, there are some that we are watching that can be ready to go if they set up just a bit more.
Support and Resistance
NASDAQ: Closed at 2007.52
Resistance: The 50 day MVA (2039). The 18 day MVA (2059). The March/December up trendline (2064). The second up trendline (2102). The March/August up trendline at roughly 2134. The January high at 2150. 2200 then 2300 represent tops from Q2 2001.
Support: 2000 provides some support from the October/December consolidation. Below this the November and December peaks at 1975 to 1990. Some support at 1900.
S&P 500: Closed at 1140.99
Resistance: The 10 day MVA (1145). 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 (1121). 1106 is a May 2002 top and represents some early 2001 lows.
Dow: Closed at 10,609.62
Resistance: The 10 day MVA (10,632). The January high (10,705). Upper channel line (10,783). 11,000 is roughly 15% above the 200 day MVA. Then some price tops at 11,300.
Support: The 18 day MVA (10,606). 10,600 is the March 2003 up trendline. The exponential 50 day MVA (10,433). 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): 92.0 expected, 96.8 January.
2-25-04
Existing home sales, January (10:00): 6.27M expected, 6.47M February.
2-26-04
Initial jobless claims (8:30): 345K expected, 344K prior.
Durable goods orders, January (8:30): 1.4% expected, 0.3% December.
New home sales, January (10:00): 1.075M expected, 1.060M December.
2-27-04
Preliminary GDP, Q4 (8:30): 3.7% expected, 4.0% first reading.
Michigan sentiment, final (9:45): 94.0 expected, 93.1 prior.
Chicago PMI, February (10:00): 63.3 expected, 65.9 January.
End part 1 of 2
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