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us stock market, trend trading stock
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7/17/01 Investment House Daily
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A slow start and stronger finish, just like we want, and the stocks were making moves as well. BBBY and ESRX warranted sending out market alerts as they continued their moves higher. We continue to see stocks from the 'other' sectors (non-tech) just flat out perform, and we have a lot more on the report tonight. The alerts help me to focus on my trades even more than before do I really want to buy here or not? If yes, out goes the alert.
TONIGHT:
- A slow start, a tap of support, and then a rally on rising volume.
- Volume continues to lead on the up sessions as the Dow cracks over some stout resistance.
- Techs have a better day, but the non-techs have yet another of their own.
- Earnings not bad at all, and we have some positive visibility and affirmations of the future, but not from all.
- Production still weak but retail sales not bad for the week.
- Team Trades
Market finds footing and rallies.
In a continuation of the recent positive price/volume action, the major indexes sold lower at the open, touched some support levels, and then rallied higher on rising volume. The Dow was solid all day, but the Nasdaq was playing a tennis match before it turned positive for good after lunch. This is bullish action: slow start, tap on support, rally to the close. Higher volume to boot. In addition, the Dow jumped over the 200 day MVA and closed over the July high. Positive action.
Technically, today was the follow through we were looking for. The follow through can be found on any of the major averages, not just the one that reversed. However, all three major indexes reversed last Wednesday and today all gained 1% (S&P) or more (Dow and Nasdaq) on rising volume. NYSE volume was above average, and that is our strongest indication of follow through or confirmation. Nasdaq volume was not as heavy, coming in at average. Technically a follow through day on the Nasdaq, but we prefer to see above average volume. Not bad though.
The rising volume continues the trend of buying on stronger volume and selling on lighter volume. That means that there are net buyers in the market, particularly institutional buyers. That is what we are looking for in a follow through day: institutions buying several sessions after the reversal day, i.e., the day the rally started. That shows there is some staying power. As we have seen, however, we can still see two steps forward, one step back, particularly with tech stocks that are still primarily news driven. Other sectors, however, continue to perform day in and day out.
As you know, that is one of the themes we have had. We always see the eager tech buyers run back in on each up day, but they are still for the stout of heart as they get pulled in the tug of war between bad news and good news. Today we once again saw the non-tech leaders we have been following score very nice moves. JNJ, LPNT, OPMR, GMST, DFXI, BBBY, ESRX, WM, etc. all made fine moves. These stocks have superior patterns that indicate accumulation and more buying by the big institutions still to come.
Earnings everywhere.
Today saw all types of earnings from all types of companies. Maytag reported decent earnings, but this durable goods manufacturer sees things getting better. That makes sense: housing is still strong, durable goods orders are rising- - just the kind of things you would expect in an economy that is starting to turn the corner.
Then in tech we saw KLAC reaffirm its earnings for the year, and that gave the techs a jumpstart in the early afternoon. RFMD followed after the close with a very nice earnings report, stating it was seeing 10% sequential revenue growth and improving visibility. Those are magic words in tech land (any sector for that matter), and RFMD was nicely after the close.
INTC was next, and it beat the street by 2 cents by reported gross margins would drop about 1%. It also widened its revenue range to 6.2 to 6.8 billion, up from 6.5 billion. It was a decent report, but it did not inspire buying after the close. Note once again that yet another semiconductor reported that it sold more units even as sales revenues fell; there is demand for units, but pricing is low because there were so many produced during the booming economy before the Fed slammed on the breaks and broke the expansion's back. Again, lots of units sold is an indication that the rest of the economy that uses microprocessors (about everything) is running just find and benefiting from the lower chip prices: there revenues are better because component prices are low.
THE ECONOMY
Industrial production falls for the ninth straight month. Production dropped 0.7% in June after falling a revised 0.5% in May. That was more than the 0.5% drop anticipated and indicates that manufacturers are still suffering, though the drop is slowing. Capacity utilization fell to 77%, down from 77.6% in May, but that was higher than the 76.9% expected. Not much excitement here, but no tanking in the manufacturing sector either.
Retail sales for the week were reported at a 1.4% increase. Again retails sales remain solid though not spectacular. That is the way this recovery is going to be: a steady turn up as opposed to an explosion of economic activity.
Greenspan speaks at son of Humphrey-Hawkins tomorrow, updating the Congress on the state of the U.S. economy, the dollar, interest rates (maybe), and hopefully what the Fed's role has been and what the Fed is going to do. The Fed slammed the economy into the dust, but to hear it talk, it saved the economy from ruin. You would think that would be a very tough sell, but he has palm branches thrown down in front of him as he walks down the aisles of Congress. At a time we needed to expand our technological lead, the Fed opted to fight the specter of inflation and as usual, crashed the economic expansion.
What will he say? Things are slow, but things are looking better as we are at the bottom of the 'economic cycle.' He will also say things are not that great and that the Fed is remaining cautious and ready to act (that is, if he is asked that) because there is no risk of inflation. He will say the economy is about flat; he won't say the economy is in a recession. He will say things will improve in the second half. This will be more or less what is expected. He cannot say things are worsening as that would not be the company line (and it would probably be wrong). In short, there won't be much to really move the market higher. What he wants to do is drive home the point that inflation is not a risk and that we do not have to be worried about the Fed raising rates for quite some time. The risk is to the downside if he says the Fed is done or hints at that in strong words.
THE MARKET
A bounce up off of support levels on rising volume. The Dow made an important move, and the Nasdaq and S&P are trying to follow. It is still up and then some backsliding, and the latter two indexes need to break recent highs before things look better. But, we had confirmation of the reversal on last Wednesday as institutions moved back in to buy once again.
Overall market stats:
VIX: 25.36; +0.05. Holding in a neutral stance right now, again not providing much upside stimulus.
VXN: 54.84; +0.88. Not up a lot, but interesting that it was higher on an up session. On the high it was almost at 57, not racing out of control, but showing some signs of anxiety at what was happening early on. We like to see anxious investors out there in a recovery. Markets move up when there is fear and uncertainty. Even though the volatility indicators are not showing a lot of fear, they are part of the overall picture of negative news coverage, high put activity, and the general reluctance to invest after the bear market. Those are classic signs of a new bull market; not many will call it until 6 months after the fact. We were saying back in April and May we thought a new bull had begun.
Put/Call ratio (CBOE): 0.63; -0.17. As the market started moving higher, the put activity fell off. Standard action and still in the higher part of the range as option players remain skeptical of any market recovery. That is what we want.
NASDAQ:
Today the Nasdaq was able to shake off the morning dip when it hit 2006.80 and rally on strong volume. Instead of tailing off in the last hour, it put the wood to it, closing at the high. Bullish action.
Stats: Up 38.20 points (+1.9%) to close at 2067.32.
Volume: 1.696 billion shares (+13.9%). Up volume flipped to the top spot at 1.249 billion shares versus 437 million to the downside. Volume was average, and that was confirmation of the move last Wednesday, but we would have preferred to see above average volume on such a day. We want to see another confirmation day Wednesday or Thursday just to put the cap on the follow through.
A/D and Hi/Lo: Advancing issues led 1.33 to 1. This was not the 2:1 ration we like on confirmations, so that is why we want to see another such day but with a much better A/D line. New highs rose to 143 (+12) as new lows rose to 108 (+18).
The Chart: http://www.investmenthouse.com/cd/$compq.html
Bullish intraday action on stronger volume, and the low at 2006 was a good point to make a higher low for a turn back up toward the recent high in 2160. That is the next level it needs to solidly take out on strong volume, but that is 100 points away. The index can really move as we saw on Thursday, but we would prefer to see a series of solid, 30 to 40 point days on strong volume as we saw today. The index is acting fairly healthy, but we have to get over the notion that it will suddenly break free and rise a thousand points. It moves up and then gives some back. We need to stick with the best names and patterns and let them work for us in an otherwise choppy market.
Dow/NYSE: The Dow finally got the best of the 200 day MVA today, closing above that key level on strong, above average NYSE volume. That was really nice to see, and a good follow through to last week.
Stats: Up 134.27 points (+1.3%) to close at 10,606.39.
NYSE Volume: 1.225 billion (+17.8%). Rising, above average volume on a follow through is what we want and what we got. Up volume came in at 772 million versus 436 million to the downside. Not overwhelming up volume, but overall an accumulation day.
A/D and Hi/Lo: NYSE advancing issues moved into the lead, but at 1.53 to 1 they were not as solid as we would like. Not bad and better than the Nasdaq, however. Again, we want another follow through day with a stronger A/D line in the 2:1 or better range. New highs fell to 115 (-7) as new lows fell to 67 (-6).
The Chart: http://www.investmenthouse.com/cd/$dja.html
Okay, a lot of things happened with the Dow today. First, it gave us that confirmation day we were looking for as it rose 1.3% on above average volume. Also, it broke above the 200 day MVA (10,579.27) on the close at 10,606. That has been some sticky resistance, and it is good to see the move on stronger volume. It still has the 50 day MVA at 10,617.10 and 10,750 is next, but today was an important move after it looked as if it might try to stall out again at the 200 day MVA.
S&P 500: A light-volume pullback on Monday gave in to some volume buying today as the index recaptured Monday's losses, and did so on rising, above average volume. That continues the recent reversal to better price/volume action, showing institutional accumulation. Today also marked follow through to that tight doji reversal day we saw last Wednesday. The index was up the minimum (1%), but we really like the volume. Now with INTC reporting decent earnings but no real surprises, we will see how the big caps perform tomorrow. Big caps will remain somewhat sluggish compared to small and mid-caps, but we are seeing solid moves in stocks such as K (Kellogg) on the Daily last night. There are sectors that are alive even in large cap land.
As with the Nasdaq, the S&P still has to move over its recent high (1236.72, closing), but the 50 day MVA (1228.50) is looming ahead of that. It is a market of a few steps forward and then a step back, so each resistance level is a potential pullback point as the index gathers itself again. We need to see continuing improving economic news and earnings news that is not surprising to the downside.
Stats: Up 11.99 points (+1.0%) to close at 1214.44.
Volume: NYSE volume jumped above average on the gain, coming in at a solid 1.225 billion (+17.8%). That was confirmation quality volume.
The Chart: http://www.investmenthouse.com/cd/$spx.html
TOMORROW
Some important numbers tomorrow. The CPI should show no inflation at all. More important are the housing starts and building permits for June. We want to see the housing and permits numbers stay strong. Those numbers have a ripple effect in the economy that lasts months into the future as durable goods, etc. are needed to put in those new houses.
Futures are down after the Nasdaq after hours earnings report. The news tonight was not as bad as the news last night, however. Will that mean the indexes will shrug it off and move higher or pullback again. We feel there is still upside momentum here, but it might not come back until Thursday. We want to see another follow through day tomorrow or Thursday; multiple follow throughs show that institutions are staying with the buying, and that means more staying power.
What we are going to see is a continuation of the gains and pullbacks. The indexes have to break their recent downtrends, however, before that turns the tide definitively for another more substantial move up. We still feel we are in the beginnings of the next bull market, but it is market with the usual fear and skeptics who just cannot believe the selling is over or that the economy is strong enough. The Nasdaq and S&P need to break those recent highs on good volume as the market continues to follow through. Again, up and back. The key is to stick with the good stocks that we are following as those hold up better on the inevitable pullbacks and then surge when the market has its up days: more upside than downside. Again, let the stocks in good patterns and with good numbers do the work for you. We are seeing pre-splits make some nice runs off of support ahead of the splits and many good patterns making similar breakout moves. Very good action as we saw again today.
Support and Resistance Levels
Nasdaq: Closed at 2067.32.
Resistance: 2100 is mild resistance. Then 2160 to 2200. Then 2250.
Support: Bounced up off of 2000 today. After that, 1970, roughly. The low is 1619.58.
S&P 500: Closed at 1214.44.
Resistance: 1228.50 is the 50 day MVA. Then 1240 to 1250.
Support: 1200 held today (low at 1196). 1150 after that. The low is 1081.19.
Dow: Closed at 10,606.39.
Resistance: 10,579.27 is the 200 day MVA, and the Dow finally made it over that resistance today along with 10,600. The 50 day MVA is next at 10,616.10, but it should handle that. After that the next real test is 10,750. After that, 11,000.
Support: 10,200. Then 10,000 to 9992, the middle of its double bottom pattern. After that is a jumble. The low is 9106.54.
Weekly Economic Calendar (All times Eastern). The figures are the consensus expectations, not ours.
7-16-01
Business Inventories, May (8:30): 0.00% actual versus -0.1% expected and 0.0% prior.
7-17-01
Industrial Production, June (9:15): -0.7% actual versus -0.5% expected and -0.5% prior (revised down from -0.8%).
Capacity Utilization, June (9:15): 77% actual versus 76.9% expected and 77.6% prior (revised up from 77.4%).
7-18-01
CPI, June (8:30): 0.1% versus 0.4% prior.
Core CPI, June (8:30): 0.2% versus 0.1% prior.
Housing Starts, June (8:30): 1.6M versus 1.622M prior.
Building Permits, June (8:30): 1.621M versus 1.621M prior.
7-19-01
Initial Claims, 7/14 (8:30): 430K versus 445K prior.
Trade Balance, May (8:30): -$32.0B versus -32.2B prior.
Leading Indicators, June (10:00): 0.3% versus 0.5% prior.
Philadelphia Fed, July (12:00): -1.0 versus -3.7 prior.
7-20-01
Treasury Budget, June (14:00): $34.0B versus $55.9B prior.
SUBSCRIBER QUESTIONS
Q: [Last night we commented about when we would look at buying semiconductors in general, i.e., when their charts improved. This question followed today] What would the charts show to reveal a true buy signal? Aren't most chip stocks slightly above the April lows? What do you look for? Are you expecting more downside?
A: We would look for signs of more accumulation and not the back and forth, volatile action we are seeing. The stocks are totally news driven right now, and they are bought and sold day to day on high volume depending upon whether the news is favorable or not. We would look for more classic bases such as a double bottom or double bottom with handle. These occur in choppier markets, but they have a purpose: they weed out those that are not committed to the stock. Then they calm down a bit on low volume forming a handle (not in all cases), and then they breakout on strong volume as buyers want the stock and the only holders left want more money for it. Many of the chips are not there yet, though we did like the ALTR move out of its trading range last week. It is still way down at the bottom of its base, but that showed a higher volume move over resistance at the top of a 9-month flat trading range. It jumped over the 200 day MVA, has tested that gap higher and today moved up on stronger volume. That is more of a trend reversal gap, and something we will also play outside of a straight double bottom or cup with handle. ALTR looks pretty good, but it too is subject to news at this point.
TEAM TRADES
LPNT: Broke out recently, tested the 18 day MVA on low volume, and was up and running again today on strong volume. We were watching for the bounce after such a strong move last week, and when we saw the move we sent the alert out. It also started pulling back toward the close. A check of the volume looks great and we decided to use this weakness for more positions with the stock. We sent out the alert and then watched to see what happened as it moved toward the close. It continued back down, and right before the close we jumped in just below 45. We liked the move and feel as if we got a decent entry point for the remainder of the week.
BBBY: Hit another buy point today, and as with LPNT, started to fade in the last hour. We liked the volume and were looking to take some positions before the close again. It bounced down to its prior intraday high hit around noon and started back up from there after showing two tight doji's on the intraday candlestick chart. We fired out an alert and picked up some shares of stock at that point. Well, it pulled back to the doji point at the close and then really jumped after hours, last trade up 50 cents from the close.
As you can see, we often like to take positions before the close if we see a good move ongoing and we feel the stock could continue the move. That is why we often send alerts before the close to let you know what we are doing, but you can check them in the last hour to see volumes, what the stock is doing right there, etc.
End Part 1 of 2
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us stock market
trend trading stock
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