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world stock market, us stock market
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2/24/04 Stock Split Report
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Stock Split Report Subscribers:
MARKET ALERTS
Targets hit alerts issued Monday: None issued
Buy alerts issued: SNDK; CEC
Trailing stops issued: None issued
Stop alerts issued: NFLX; CRA; NSIT
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:
- Market tests lower and bounces, but loses momentum even on rising trade.
- Consumer confidence flagging.
- Small caps lead off of 50 day MVA, NASDAQ ready for relief bounce.
Selling eases off as market bounces around all session.
Volatility was the rule Tuesday, but the market managed to finish more or less flat by the close. As anticipated stocks sold early with NASDAQ coming close to the 1985 target on the low (1991) where it then rebounded. That first move was solid, but it could not hold as stocks drifted lower the rest of the session until a late bounce brought them back from the depths of another more serious distribution session (higher volume selling).
As it turned out, stocks mostly sold but NASDAQ managed to hold support at 2000 after the early undercut, showing a loose doji on the candlestick chart. That pattern where the open and closing price are in close proximity indicates that the sellers and buyers are pretty evenly matched after the sellers were in control and pushing stocks lower. It is an indication that the current leg of the selling could be ending. Indeed the selling momentum was less as stocks bounced up and down as the buyers and sellers fought it out in a much more even session.
The action left NASDAQ looking ready to make a relief bounce toward the 50 day MVA. SOX may try to do the same, but its pattern is pretty ugly at the moment. Again, DJ30 and SP500 held up quite well and the small caps held the 50 day MVA with a doji of their own. They all look pretty much ready for a bounce higher, but it has been NASDAQ that has controlled the rest of the market because it has been the leading index for this rally. When it has sold the rest of the market has been on hold, not selling off but unable to continue their gains. Thus the NASDAQ looks ready for a relief bounce toward the 50 day MVA and that will give life to the rest of the market, but once that bounce is done, it will be hard for them to continue on. The market is in a correction that is going to have to get more fear and pessimism built in before it is ready for the next sustained leg higher.
THE ECONOMY
Consumer sentiment in February thuds lower but hardly at a crisis stage.
Overall sentiment fell to 87.3 compared to 96.4 in January and the 92.0 expected. October 2003 was the last time sentiment was this low. Present conditions were the hole in the boat at 73.1, down from 79.4. Expectations (6 months down the road) fell to 96.8 from 107.8. The biggest factor according to some economists is worry over the job market, and more than a few noted the negative comments about the job market in the election campaigns is adding to the pessimism regarding an economy that is showing the best growth in 20 years. One analyst hit it on the nose: one good jobs report will change the attitudes, but one good jobs report is what we have been waiting for that quite some time. Indeed, two months of solid jobs growth would tear down the paper tiger of outsourcing that, while definitely causing some migration of jobs, is not emptying the US of all the quality positions. One by one, each attack on the quality of the recovery has been shredded by the recovery itself, and jobs will be the next. The question is just when it will happen.
Some merit to the jobs migration argument.
Any time there is technological change after a downturn there is upheaval in the jobs market. The boom and sudden bust orchestrated by the Fed was at a very bad time for the US and was one of the big, big problems we wrote about often in 2000 and 2001 that the Fed's misguided attack on prosperity would create. At the time we said the US needed to be expanding its technological edge, putting to use all of that equipment and software that was being bought. Companies were buying and hiring like mad, but before they could put the equipment into full deployment, the Fed's attack on prosperity through constant rate hikes and a complete draining of the money supply caused the stock market to seize and roll over in a typical and very accurate prediction of the economic plunge to come.
At the time we were saying with the baby boom generation approaching retirement and thus the consumption engine in the US slowing, we needed to go full speed ahead and become the unquestioned technological leader of the world. Then when the baby boomers retired the rest of the world would come to us with their technological needs. The burgeoning Asian and Latin American populations would provide the consumption we need to maintain our economy. That would also keep a lot of high paying, high-tech jobs at home. Instead, the Fed purposefully hobbled the economy, and as has been the case each time it raises rates, it caused a recession. This one was worse than the textbook definitions say because the GDP growth rate was so lofty; it was a long fall from 8+% growth per quarter to negative, and it happened fast. Major shakeouts occurred as companies laid off employees then went bust. That would have happened eventually as the fat is always cut after a boom, but it was prematurely and violently ended by the Fed because it totally dried up liquidity by draining the money supply.
Instead of continuing our technological gains, we lost our edge and our lead with three years of zero investment in the US technological/business side of the economy. That gave India, China, Pakistan and other nations a chance to grow. With companies reeling from expenditures based on strong economic growth projections but for the Fed's purposeful economy crash, they had to save money where they could. Cheap labor overseas was a part of the answer. Companies struggling to survive turned overseas. The Fed thus sped up what would eventually have happened, but by causing such a dramatic collapse in the US business economy, the natural transition has not taken place. Instead there has been massive upheaval as a steady, longer term rotation from jobs to be outsourced to the next jobs arising in our economy was completely undermined by misguided beliefs the market forces could not work on their own.
The Fed basically cost us our economic advantage and we are suffering for it now and will continue to suffer for years to come. We lost our technological advantage; we lost jobs ahead of schedule before the transition to new jobs was occurring, as many that would have retired now cannot but have to work longer and thus provide more competition for fewer jobs; we are forced to expend more limited resources on promoting job creation and job training that would have occurred in the private sector; we suffer more strain on social security, Medicare and the like as those out of work have to rely more on the government and cannot contribute; we risk becoming a second class economy without the consumption demographics to drive internal demand and thus promote investment in the economy (remember Japan?).
These are not problems that happened in the last three years. They were set up starting back in 1995 and 1996 when the Greenspan Fed turned from free market principles to running scared of its own shadow, when government spending continued to grow out of control and suck more and more from the free market economy. The foundation of outsourcing was laid by shortsighted views and arrogant attitudes about being able to control the economy and have a federal government provide utopia for all citizens. Gee, that is what Marx promised. We know better. We know that we are the strongest because we had a system that allowed ideas, money, people and other resources free exchange to go where needed. The only way we can regain what was lost is to quit trying to slap more band aids on symptoms such as outsourcing and companies moving offshore and fix the problems that cause this to happen. The Fed has once again found the religion of free markets, and while it is late, it there is still enough time in the game to regain our edge if the feds will back off, cut spending, and let the market work.
THE MARKET
After a week of selling stocks were able to reverse off the lows and mount a recovery. It was nothing dramatic as everything but SOX and the smaller cap indexes was negative. Still, the indexes held at support on the close and look to have set up a relief bounce. The small caps could provide us some very nice upside plays as they continue in their uptrend. NASDAQ is not in its uptrend any longer, however, and between a battle of small caps and NASDAQ, small caps most likely won't lead by themselves.
Stocks are set for a relief bounce, but they were not very enthusiastic about it Tuesday, giving up on the early sharp rebound and drifting the rest of the session. Again, the NASDAQ is well into its consolidation, still trying to set its bottom as it tests support at 2000, the top of the late 2003 consolidation. We will watch how robust the trade is to the upside, but from the look of this a relief bounce, the 50 day MVA is what looks to be the top of a move. There is just too much complacency right now with most everyone thinking this is just a short term pullback and a buying opportunity. It won't become that until most change their view and advise people to wait or even sell positions. Then it will most likely be ready, but of course the final determination is when the stocks that have set up solid consolidations start blasting higher out of their well formed bases.
Market Sentiment
As noted, most everyone believes this correction is a minor affair and the market will be right back up after the froth is blown off the top of the beer mug. That is what keeps traders (and that includes hedge funds and mutual fund managers) moving back in on each dip, holding the market up even as it continues to erode technically. There are a few that feel they missed out on the 2003 move that believe the pullback will be short, and thus they keep putting money in on the dips. They have to get to the point where they feel they had just better sit and wait again before this market will get through the correction. That is a 'wear them out' scenario versus 'scare them out,' and that could take another two or more months.
VIX: 15.9; -0.39
VXN: 24.68; +0.3
VXO: 15.82; -0.11
Put/Call Ratio (CBOE): 0.76; +0.14. Started to rise again after falling during the strong Monday selling. It will need to get over 1.0 on the close a few times after more selling to indicate the market is starting to 'get right' for the next advance.
NASDAQ
Undercut 2000 and held more or less where expected and rebounded. Trying to set up for a bounce to test the 50 day MVA.
Stats: -2.08 points (-0.1%) to close at 2005.43
Volume: 2.073B (+5.51%). Volume moved back above average and 2B shares as NASDAQ reversed off the lows. Technically distribution as the index finished lower, but with the recovery of 2000, hard to call it that. A reversal of sorts, but nothing powerful that would end the selling.
Up Volume: 906M (+536M)
Down Volume: 1.157B (-430M)
A/D and Hi/Lo: Decliners led 1.24 to 1. Well over -2:1 but with the late recovery many stocks were in better shape on the close.
Previous Session: Decliners led 2.53 to 1
New Highs: 87 (-8)
New Lows: 18 (+7)
The Chart: http://www.investmenthouse.com/cd/^ixq.html
NASDAQ held 2000 on the close after tapping 1991 on the low, the top of the October to December consolidation. It has come back to completely test the move and thus far has held where it should. That sets up the next bounce after the second test of this level in February. Before you shout 'double bottom,' we have to be concerned about the distribution leading up to this point as undermining NASDAQ's ability to rally significantly from here. It could still successfully rally on up to 2500 from here, but after the run from late March 2003, it looks as if NASDAQ is going to form another and similar consolidation here, and it is in the first 5 weeks of what could be another 16 to 18 week lateral move.
S&P 500/NYSE
Hanging in there with a reach lower and recovery back to the 18 day MVA on rising, above average volume. Refuses to give in, but also cannot make headway with NASDAQ lagging.
Stats: -1.9 points (-0.17%) to close at 1139.09
NYSE Volume: 1.523B (+10.17%). Volume rallied as NYSE stocks sold and then recovered to hold support. That is typically a good indication as it shows the sellers came back in on the dip to buy. The $64K question is whether there are enough buying to propel the market higher. Thus far they have been unable to push stocks higher, but this is not bad consolidation action: buyers came back in Tuesday after some pretty hard selling Monday.
Up Volume: 624M (+193M)
Down Volume: 876M (-61M)
A/D and Hi/Lo: Advancers led 1 to 1. Slight edge to the advancing issues on the close as they rallied back well even as the large caps closed lower.
Previous Session: Decliners led 1.77 to 1
New Highs: 119 (+3)
New Lows: 12 (+3)
The Chart: http://www.investmenthouse.com/cd/^spx.html
Again it bends but does not break, rallying back from a deeper intraday test (1134) to hold close to the 18 day MVA (1142) once again. Volume rallied as stocks rallied back, again a signal that buyers were biting on the dip and that pushed the large caps back up to support. SP500 continues to move laterally, making its own 5 week consolidation but holding up much better as it does. If NASDAQ bounces toward the 50 day MVA, SP500 will try a new high (1159). It may make that new high on such a move, but we doubt it will be able to sustain a run, instead moving laterally and continuing its consolidation along with the NASDAQ.
DJ30
Tested lower, rebounded, but then managed to hold in the middle of the range for the close. Volume backed off but remained solid at well above average levels. It continued its two week pullback as it struggles at resistance from 10,600 to 10,700. It is moving more or less in step with SP500, holding up decently in its range from 10,400 to 10,700 the past seven weeks. It too has been locked in on the upside as NASDAQ consolidates.
Stats: -43.25 points (-0.41%) to close at 10566.37
Volume: 225 million versus 230 million Monday. Volume has turned back above average the past four sessions, but it has occurred as DJ30 reversed trying for a new high Thursday and then sold the next three sessions. No vigorous selling, but a steady slide.
The chart: http://www.investmenthouse.com/cd/^dji.html
WEDNESDAY
After hours Ingram Micro (PC hardware, networking equipment, software) reported results that beat the street by 11 cents. It shot higher $3 before settling back. Those results may help spark the move higher for techs and NASDAQ to test the 50 day MVA after being down 6 out of the last 7 sessions. With NASDAQ holding some support at 2000 as it shows a loose doji on rising volume, looks as if stocks are set for a bounce to test resistance.
We will be watching volume as it rebounds to see how many institutions are backing the move. Thus far we have seen some big money moving in on dips, but overall there are more downside participants than upside. Looking for a rebound from NASDAQ up to the 2050 range where the 50 day, 10 day, and 18 day MVA all come together. If volume wanes on the move, that will set up more downside positions as NASDAQ turns from that resistance and sells back to continue the consolidation. 2000 is trying to hold but we would not be surprised to see it testing near 1975 on the lows when it does come back.
The upside move may unleash some stocks in solid patterns that have been holding up well and setting up the next move even as the market pulled back. We are finding these scattered throughout the market across sectors with many being smaller caps. These can deliver a nice percentage move as the market rallies back in the consolidation. We will limit our profit horizons a bit more during this period and be happy with smaller takes until the consolidation works through and stocks resume the trend.
Support and Resistance
NASDAQ: Closed at 2005.44
Resistance: The 50 day MVA (2038). The 18 day MVA (2053). The March/December up trendline (2067). The second up trendline (2104). The March/August up trendline at roughly 2138. 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 1139.09
Resistance: The 18 day MVA (1142). The 10 day MVA (1144). 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: 1125 is some minor support. The 50 day MVA (1122). 1106 is a May 2002 top and represents some early 2001 lows.
Dow: Closed at 10,566.37
Resistance: The 18 day MVA (10,602). The 10 day MVA (10,620). The January high (10,705). Upper channel line (10,788). 11,000 is roughly 15% above the 200 day MVA. Then some price tops at 11,300.
Support: 10,606 is the March 2003 up trendline. The exponential 50 day MVA (10,438). 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): 87.3 actual, 92.0 expected, 96.4 January (revised from 96.8).
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): 3.8% expected, 4.0% first reading.
Michigan sentiment, final (9:45): 94.0 expected, 93.1 prior.
Chicago PMI, February (10:00): 63.5 expected, 65.9 January.
End part 1 of 3
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world stock market
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