|
|
us stock market, trend trading stock
* * * *
2/26/04 Stock Split Report
* * *
Stock Split Report Subscribers:
MARKET ALERTS
Targets hit alerts issued Thursday: DNA
Buy alerts issued: QCOM
Trailing stops issued: None issued
Stop alerts issued: CTX
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:
- Low volume rebound continues as NASDAQ, SOX probe 50 day MVA.
- Durable goods fall (sort of), new home sales dip, jobless claims steady, but everyone abuzz over social security.
- Rebound has yet to attract institutional investors.
Stocks rise but lackluster volume and gains.
The market continued its broad rebound from the last round of selling in the continuing consolidation, regaining lost ground but doing so once more on weak trade and a lack of big money support. It was a lethargic session despite the gains. Few stocks posted high volume gains despite some decent breadth figures.
Volume was higher, but it was still below the levels on last week's selling. With no catalyst, institutional money was not being put to work, and without that backing NASDAQ and SOX tested the 50 day MVA but they could not penetrate that resistance. Institutional backing is the key to a further move on this bounce, and for now this simply looks like a relief bounce in a continuing consolidation.
THE ECONOMY
January durable goods thud lower on weak auto, aircraft orders.
Orders fell 1.8% (+1.4% expected) as auto and other transportation equipment dropped 10.4% (autos -5%, aircraft down 30+%). Take out that drop and orders rose a solid 2%. Further, December was revised to a 1.6% gain versus the 0.3% originally reported.
The revision was good news, but also the business investment continues to show strength. Non-defense capital goods orders rose 3.6% on top of Decembers 3.8% gain. Computer purchases rose 7%. The investment incentives as well as the continued strong GDP are spurring businesses to continue their spending. Indeed, some Midwest manufacturing CEO's are starting to report bottlenecks in their production. Not with respect to full factories, but in getting the materials they need to produce their goods. Output would be stronger than it is showing now.
Jobless claims edge higher, continuing claims edge lower.
Jobless claims rose to 350K versus the 345K expected and 344K last week. That is right in the range it has been trading the past month as it continues to trend lower. Nothing new here. Continuing claims fell to 3.1 million from 3.16 million, a slight downtick. Neither show the movement needed to get off the bubble on job creation. We have not heard of more overtime being worked or a substantial increase in the workweek, at least to levels that historically indicate a big boost in hiring. Thus these weekly figures warn us that there won't be a big outsized jobs gain for February in next week's report, just a continued 100K to 150K growth rate.
That is not bad, but it barely covers the monthly increase in the labor pool. Jobs need to grow at 250K per month to start working down those job losses that show up in the non-farm report. That won't be easy to do, however, as many of the jobs being created are sole proprietorships and employees for new companies that are not even showing up on the federal government's radar screen yet. Though Greenspan has a long-winded and somewhat questionable rationale for why you have to look at the non-farm report versus the household survey, he does acknowledge that you have to 'average' both to come up with the true figure. Accordingly, he testified that the job losses critics are quoting are not nearly that bad.
Greenspan sparks a much needed debate.
The lines are being clearly drawn: those recognizing that change is needed and proposing reasonable methods to fix the problem, and those saying no way, no how are we going to touch social security. We have pointed out in the past that simple math shows a system designed to provide a modest stipend to those that survived beyond the average lifespan cannot function when the lifespan has increased by a dozen years and too many rely on it as their sole means of survival. If you want to get citizens to save more, you have to give them incentives. Creating private accounts, upping the retirement age, and changing the cost of living adjustment calculations for those with 10 or more years until retirement works if you do the math. Whether those fixes are ever implemented will be the question.
Many are incensed that social security was 'stolen' from them by virtue of tax cuts. There is no 'lockbox' full of money earmarked for social security. Social security is funded or not year to year based on the economy and whether it is strong enough to produce enough tax revenues to cover all of the outlays, including social security and Medicare, that are to be made that year. If the economy booms as it did in the late 1990's, more revenues are taken in than spent IN THAT YEAR. Once the economy falters, the surplus is used for current expenditures (Cowgirl Hall of Fame, Wyoming bison studies, etc.). It is not buried behind the Treasury Department in some treasure chest. The ONLY way to keep it solvent is to have a strong economy, but even that won't work as more and more retire. Structural changes are needed.
We are the first to say other areas need housecleaning before we tackle social security. Lots of funding that the federal government has no business being involved in at all can be cut. Existing programs should be cut by 50% with a directive to make do with what is left. We would be amazed (though sadly, probably not) by how these agencies could function much more efficiently on half staff and half funding. If an agency simply could not function after a full year of documented efforts to cut back and do so, then provide targeted, limited funding increases to be sunset for one year later.
'Sunsetting' is also a key for any new funding, requiring all new programs be scheduled to end unless renewed, and the renewal could not be a rubber stamp. It would have to be voted on by Congress in a separate vote and not lumped together with other programs or tacked onto the budget bill. Efficiency reports would be required. Unheard of for government, but anything we can do to eliminate the phrase 'good enough for government work' would be worthwhile.
Then we turn to the 'entitlements' or 'nondiscretionary spending' items, those congressional euphemisms for ducking the hard issues and passing problems onto the next generation even as they rant and rave about leaving 'crushing' debt for our children. The debate has been started, and we are surprised and extremely pleased at how much it is being discussed. To those who would do nothing except cripple the economy to 'save' a dying program, we need to say 'no thanks.' Something has to be done, like it or not. As Greenspan stated, it will do no good to take the easy out and fallback on the old 'solutions' to the problem, i.e., raising taxes, that don't fix the problem and will ultimately speed the collapse of the program.
THE MARKET
The market is still looking for the institutional investors to start buying. The low volume bounce off of support the past two sessions indicates that. It is not bad action, but it shows that the consolidation is still ongoing as it sold on rising volume and has attempted to recover on lower volume. The price/volume action will have to change and start showing accumulation (rising prices on rising volume, lower volume on falling prices) as opposed to the modest distribution (rising volume on selling, lower volume on gains) for the consolidation to take on a more positive tone.
Again, it is not terrible action right now as the distribution has been modest and the indexes, particularly DJ30, SP500 and SP600 are all holding up well in their ranges. Even NASDAQ and SOX have not sold in major plunges. As long as they more or less hold these ranges (there will still be ups and downs, and indeed there need to be more to shakeout the easy sellers) that will allow for a changeover to accumulation as stocks work through the base. That would be the same action seen from December 2002 to April 2003 when the market consolidated the strong gains off the October 2002 low, the bottom of the long downtrend.
That took almost 5 months to work through, and there was a lot of worry and fear the market was simply preparing to collapse once more into the downtrend during the last month or two of that consolidation. This gain from the April breakout has been substantially greater and longer in term than the original bounce. There is still the pervasive view that all is well and this minor hiccup will be rather quickly and easily resolved so stocks can continue their upward march. We very much expect this cavalier attitude to be tested before this market can make another significant move higher. Indeed, we hope it will do that because if it does not, a run higher without further foundation sets up a harder fall. We would much rather have it move up, consolidate, move up, consolidate; in that way the move can be sustained. If it shoots all of its ammunition at once that leads to much more severe corrections.
Market Sentiment
VIX: 14.83; -0.1
VXN: 23.1; -0.45
VXO: 14.65; -0.34
Put/Call Ratio (CBOE): 0.64; -0.13. Falling back as stocks bounce again. This indicator will more than likely need to approach 1.0 on the close for at least a couple of sessions as an indication that the fear or concern level is high enough to send stocks higher.
NASDAQ
Continued higher and picked up some more volume as it tests toward the 50 day MVA, but still relatively low compared to the selling.
Stats: +9.59 points (+0.47%) to close at 2032.57
Volume: 1.766B (+2.99%). A modest volume increase, but as noted, volume was still lower than the selling volume from last week. That still shows a lack of institutional backing on this move. That can change, but overall the price/volume action has yet to revert to a steady accumulation phase. Thursday may be the start of that, but even if it is there is still more lateral work to be done.
Up Volume: 1.201B (+9M)
Down Volume: 534M (+25M)
A/D and Hi/Lo: Advancers led 1.56 to 1
Previous Session: Advancers led 1.8 to 1
New Highs: 121 (+18)
New Lows: 5 (-4)
The Chart: http://www.investmenthouse.com/cd/^ixq.html
NASDAQ tapped toward the 50 day MVA (2037) on the high (2037) and faded slightly. This is the next key level for the index as it continues in its 6-week consolidation. It is holding over the top of the October to December range, but it is also instructive to note that right on the heels of that base and breakout, NASDAQ is right back to basing again. After a long run, that one base was not enough to flush out the pipes and set the stage for another long run. It ran for 3 weeks and then started this base, hardly a sustained surge. The need to immediately start a significant base once more tells us that the index still has plenty of froth in it that has the be wrung out. 2000 is a great, natural bottom for the consolidation as it shows some strength as the institutions are holding it up over the levels they last started their major buys. We suspect it may undercut that level at least once more, just as it may move over the 50 day MVA on this current bounce before it fades. We think it could rise to the 18 day MVA (2048) and the 50 day MVA (2048) on this bounce and then run out of gas and continue the testing to form the bottom of the base.
S&P 500/NYSE
Continues its excellent strength, easing over the 10 day MVA on some rising volume.
Stats: +1.24 points (+0.11%) to close at 1144.91
NYSE Volume: 1.371B (+2.13%). Edged higher though still below average. Still lower than some of the selling volume last week, but unlike NASDAQ, the selling volume was not as strong on the NYSE. This is consistent with the very mild consolidation SP500 is showing.
Up Volume: 889M (-58M)
Down Volume: 468M (+87M)
A/D and Hi/Lo: Advancers led 1.71 to 1. Breadth backed off on further gains, indicating the advance is losing momentum even as it moves higher.
Previous Session: Advancers led 2.02 to 1
New Highs: 199 (+69). One television commentator commented on the 'nice' expansion of new highs Thursday. This is not that great. Sure new highs are expanding; they typically do when an index is near its highs and posts a couple of days of gains after a pullback. 69 new highs is not much of an expansion, and the 199 overall is weak.
New Lows: 4 (-2)
The Chart: http://www.investmenthouse.com/cd/^spx.html
Volatile but in a narrow range as SP500 fell below the 18 day MVA (1142) but managed to recover to hang onto a break over the 10 day MVA (1144) by the narrowest of margins. Volume edged higher on the move, indicating some slight accumulation, but we are not starting to jump up and down with glee. This could very well be the start of the changeover to positive price/volume action, but it will take a couple of weeks of this accumulative action to set up the next breakout move. It is still tied to NASDAQ performance in our view, so the focus remains on NASDAQ and its consolidation, but SP500 is holding up very well.
DJ30
DJ30 continued its lateral move at 10,600, tapping the 10 day MVA (10,610) and up trendline (10,620) on the high and fading back for a modest loss. On the low it held easily in the 10,400 to 10,700 range. Volume backed off on the pullback, very good price action, improving over the higher volume distribution last week. A very orderly consolidation in a narrow range, is a good consolidation. It needs more time, and as with SP500 when NASDAQ is ready DJ30 will be ready as well.
Stats: -21.48 points (-0.2%) to close at 10580.14
Volume: 185 million versus 194 million Wednesday. A slight turn for the better in volume as it backed off on some selling. We will have to see if it takes, however.
The chart: http://www.investmenthouse.com/cd/^dji.html
FRIDAY
The economic data gets more interesting with a preliminary Q4 iteration before the market opens. Michigan sentiment is out 15 minutes after the open, then the Chicago PMI at 10ET. GDP will dominate as we have already seen the consumer confidence numbers and manufacturing continues to improve. GDP most likely won't surprise to the upside as it takes the later rounds to start pulling in the final data that can run the index higher.
Good GDP news could spark an attempt to push NASDAQ over the 50 day MVA. While we don't believe the market will be able to sustain such a move, we are not going to foreclose that possibility and will watch volume levels. We do note that there are not a lot of stock patterns across all sectors of the market that would indicate an upside breakout of magnitude is imminent. They are improving, but still need more time. There is also still a defensive tone to the market though some semiconductors were moving on stronger trade, trying to shake off the selling.
The market is doing what it has to do, i.e., work through the consolidation in an orderly manner. Even with the distribution sessions last week there was no runaway break lower. It has all been very contained. Probably too contained and will need to get a bit wilder to start shaking out some of the sellers.
Even as the market continues to consolidate, leaders and stocks setting up to become leaders will be completing bases earlier and prepare to break out. Even in the semiconductor sector we see some stocks already forming up. We will focus on these and other stocks that are also setting up for a breakout as our upside plays.
As the indexes rebound to test resistance, individual stocks are doing the same thing. We are also looking at these stocks that have plenty of downside room if the test of the breakdown fails.
Support and Resistance
NASDAQ: Closed at 2032.57
Resistance: The 50 day MVA (2037). The 18 day MVA and the simple 50 day MVA (2048). The March/December up trendline (2072). The second up trendline (2110). The March/August up trendline at roughly 2144. 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 1144.91
Resistance: The 10 day MVA (1144) is not entirely cleared. 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 (1123). 1106 is a May 2002 top and represents some early 2001 lows.
Dow: Closed at 10,580.14
Resistance: The 18 day MVA (10,599). The 10 day MVA (10,610). 10,618 is the March 2003 up trendline. The January high (10,705). Upper channel line (10,790). 11,000 is roughly 15% above the 200 day MVA. Then some price tops at 11,300.
Support: The simple 50 day MVA (10,502). The exponential 50 day MVA (10,450). 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): -5.2% (6.04M) actual, 6.27M expected, 6.47M February.
2-26-04
Initial jobless claims (8:30): 350K actual, 345K expected, 344K prior.
Durable goods orders, January (8:30): -1.8% actual, 1.4% expected, 1.0% December (revised from 0.3%).
New home sales, January (10:00): -1.7% (1.106M) actual, 1.075M expected, 1.125M December (revised from 1.060M).
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
|
us stock market
trend trading stock
|
