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us stock market, trade stock
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3/01/04 Stock Split Report Update
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Stock Split Report Subscribers:
Full reports issue Tuesday, Thursday and Saturday. Monday and Wednesday we issue a market summary and choice plays for the next session.
MARKET ALERTS
Targets hit alerts issued Monday: MBG; EVCI
Buy alerts issued: CAKE; CLKS; COH
Trailing stops issued: None issued
Stop alerts issued: SNDK; OEX
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:
- New month means new money but no volume.
- ISM shows promising employment gains.
- Small and mid-caps surge to new highs, defining the market advance, but volume is not commensurate with the gains.
New money for the new month as market continues low volume rise.
Japan got the ball rolling with a big 2+ % gain overnight, sparking buying interest across the world. It also helped that a new month was here and time to put all of that new money to work. Dollars continue to flow into US equity funds despite the NASDAQ pullback the past 1.5 months. Those dollars are typically put to work relatively quickly, and the new month is a good time for the funds to work into new positions. Many are still playing catch-up, having hesitated too long to buy into the move. They are using this consolidation to accumulate positions.
No problem with that, but we just have to be aware of what the price/volume action is telling us so as not to get suckered into just buying any stock out there. Lots of stocks rallied Monday, but most of them on lackluster volume. Looking over the market, those that moved on the best volume are the stocks that have moved on good volume all along, showing solid accumulation in the base. Those are the ones that held up during the selling and will hold up well during the next soft spot. Monday had the pundits gushing. We like to see good consolidation moves, but we also recognize that Monday probably was not a defining move.
Yes breadth was excellent, the 3:1 on NYSE underscored by the SP600 and SP400 hitting new highs (small and mid-caps). Those were the stellar performers. Of course, NASDAQ cleared the exponential and 50 day MVA and SP500 is bumping up against the prior highs. The economic news was good overall as the ISM showed very substantive employment growth. The stage was set, and when NASDAQ cleared key resistance that begat more buying in that beneficial cycle where good news feeds off of itself.
Volume again remains the big mystery. NASDAQ trade declined to even further below average levels after rallying Friday as NASDAQ spun its wheels below the 50 day MVA. Monday it appeared that NASDAQ was the index that decided to tag along with SP600, SP400 and SP500, just going up as a good will gesture. It still has no strength on this move: it has enough buyers to overcome modest selling, but it continues to post below average volume gains. That simply is not good technical news. Even SP500 gained on lower volume though it did manage to crack average trade. That was still lower than the Friday trade.
Again, this action suggests that the consolidation is continuing and not a new rally starting. It is part of an ongoing and very necessary rest stop to let the gains from 2003 settle. Stocks can always ignite and blast off from here, but the price/volume action has not shown it is ready to do that. We thus anticipate that this rally will not lead to a new breakout on NASDAQ or SOX, and that the consolidation that is underway will continue until the price/volume action does improve and stocks overall (not just a few) are in much better position to begin new rallies. This is not, however, a bad thing. The market is consolidating but is holding up well as it does. It will need some more fear and time to complete the consolidation, but it is giving us opportunity even as it does.
THE ECONOMY
February ISM cools slightly but shows some employment promise, hitting highest reading in 16 years.
The Chicago PMI showed a stronger employment sub-index, and that carried over to the national ISM. The overall reading fell to 61.4 versus the 62.0 expected (63.6 January), but still showing expansion as it has for the past half year. Overall respondents were much more upbeat about the breadth of the recovery. The biggest news was in the employment index showing a 56.3 reading (52.9 January), the best since 1987. That marks the fourth month above 50 and it signals that finally there will be some gains in manufacturing helped by the rise in exports resulting from a weaker dollar and a strong China/Asia economic region. Good news indeed.
Prices paid jumped to 81.5 from 71.1 in January, fueled in large part by energy costs. That was the highest level since 1995. New orders fell to 66.4 from 71.1, but overall, the trend remains very positive for the manufacturing sector, surging nicely on the low dollar and after three years of depression. After that, of course the numbers look good.
Personal spending again outstrips incomes.
There is so much talk about the need to save, but none of the government's policies give the individual incentive to do so. When 50% of what you make is taken by taxes (income, sales, property), many people have a hard time saving for the future and the whopping 2% returns social security provides.
January spending was up 0.4% following December's 0.5% gain. Income was up 0.2% after a 0.3% rise in December. Once again consumers spent more than they made, at least relative to the incremental changes. Overall the savings rate rose to 1.8% after a 1.4% gain in December. This is a bit deceiving; many are again putting money back into the stock market as a form of saving with higher octane returns.
Spending was down for durables as car demand fell. It rose 1.5% for non-durables, well ahead of the 0.2% gain in December. Services rose 0.7%, another gain over December (0.5%). All in all, not a bad report. Not bad either, considering that the tax refunds have not really hit the consumer pocketbook yet. Remember, they have it, they will spend it. That is one reason some of our leaders do not want personal savings accounts or some form of social security private accounts; that would increase the incentive to save versus spend and take away an economic driver that produces tax revenues. Bigger picture, however, these are good for the economy as it gives foreign investors more faith and comfort in the US economy. An economy thrives on investment, no matter where it comes from. You have to maintain the sound underpinnings, however, to attract and then keep the investment. That is the biggest fear today, i.e., that foreign investments will be liquidated.
THE MARKET
Stocks rallied but the small and mid-caps provided the juice. Those indexes posted new highs and many of the smaller issues were the ones garnering a disproportionate share of volume. Breadth was huge, but the volume was not finding its way into every market corner. Those stocks showing the best overall accumulation during the consolidation enjoyed the best volume. NASDAQ did not enjoy good volume. It cleared the 50 day MVA but trade fell. That is not a sign of strength. SOX rallied to the 50 day MVA, but volume among leading chips was mostly below average. SP500 is trying for a new high, but volume is not. These moves can continue on momentum, but they typically fail when push comes to shove.
In short what we have is a market that is rallying on lower volume, once again showing big price gains but volume that is hardly commensurate with the price moves. This has not been disastrous for the market, but each time NASDAQ has made one of these moves, before long it was selling back down as there simply is not the kind of support built in on these low volume moves to hold it up when the buying fades.
Thus we have a market where a former leading index is still very much in a pullback and the other leader is very much breaking out. What does that mean? It means we have opportunity even as the market consolidates. Low volume moves typically fail, but we are getting some solid volume moves in smaller issues. Again, that spells opportunity. It does not behoove us to ignore the volume and move into any stock we like that moves higher. Still time to stick to good accumulation and patterns because this overall low volume move typically indicates trouble at previous highs and further pullbacks to come unless there is a big, big change such as a huge jobs report Friday. As we have discussed the past two weeks, however, while there are indications of some employment improvement, there is no surge in overtime, the workweek or wages that typically foretell rising hiring.
Market Sentiment
VIX: 14.44; -0.11
VXN: 22.54; -0.3
VXO: 14.18; -0.58
Put/Call Ratio (CBOE): 0.74; +0.02
NASDAQ
Rallied through the exponential and simple 50 day MVA but volume fell even more.
Stats: +27.98 points (+1.38%) to close at 2057.8
Volume: 1.712B (-8.77%). Lower and continued below average volume as tech stocks basically followed the rest of the market higher. It is not showing the type of volume that would support the type of price gains seen.
Up Volume: 1.36B (+497M)
Down Volume: 340M (-640M)
A/D and Hi/Lo: Advancers led 2.04 to 1. Excellent breadth as has been typical of these big price gains on low volume.
Previous Session: Advancers led 1.22 to 1
New Highs: 251 (+103)
New Lows: 5 (0)
The Chart: http://www.investmenthouse.com/cd/^ixq.html
Moved through both the exponential and simple 50 day MVA (2037, 2053), closing at the session high. Semiconductors were under pressure but then managed to run around and post a gain as well. That index closed at the exponential 50 day MVA, and its components failed to show strong accumulation. NASDAQ has successfully bounced off of 2000 and has managed to move through some key upside resistance. It still has to deal with the near up trendlines (March/December at 2080) and importantly, the February high (2095). We anticipate NASDAQ will fail before it reaches that point unless it gets some seriously good news and volume.
S&P 500/NYSE
Up off the short term MVA on lower, average trade. Trying for a new high and it may reach it, but from there whence?
Stats: +11.03 points (+0.96%) to close at 1155.97
NYSE Volume: 1.455B (-3.22%). Volume fell, coming in just above average as SP500 tried for a new high. Volume was getting closer to some of the selling volume levels, so it was not all bad. Overall it is trying to show better price/volume action, and in any event, it ahs not been terrible.
Up Volume: 1.175B (+287M)
Down Volume: 260M (-337M)
A/D and Hi/Lo: Advancers led 3.16 to 1. Excellent breadth as those small and mid-caps surge to new closing highs.
Previous Session: Advancers led 2 to 1
New Highs: 473 (+194). Nice improvement in new highs as the index approaches one of its own.
New Lows: 5 (+3)
The Chart: http://www.investmenthouse.com/cd/^spx.html
The large caps are trying for a new high (1159 intraday in February), having never given up their gains. There is some resistance at the current level and then at 1160 to 1175, the closing and intraday highs in the early 2002 double top. Impressive strength after just a six week lateral move, but it too is lacking volume. Not bad volume by any stretch, and much better than NASDAQ. Just not delivering the conclusive action that would typically accompany such a surge.
DJ30
Solid move after holding the line at the 10,600 level. DJ30 spurted higher toward the February highs (10,753), but volume did not follow it. Volume fell and came in below average as the blue chips posted their best gain in three weeks. As with NASDAQ, volume did not rise equivalently, coming in below average on an above average price move. Another index showing that while there are more buyers than sellers, there are not that many buyers, and when stocks hit prior resistance, that makes it very difficult for the index to rise further and sustain any breakout attempt.
Stats: +94.22 points (+0.89%) to close at 10678.14
Volume: 185 million versus 200 million Friday.
The chart: http://www.investmenthouse.com/cd/^dji.html
TUESDAY
ISM services out midmorning and the Fed Beige Book in the afternoon. Those will attract some attention, but now that the ISM has been noted along with its rising employment sub-index, the focus will shift to Friday and the jobs report. Jobs are the last remnant of weakness in the economy, and while we do believe the economy will start showing good job growth, we don't think the February report is the one to do it. Hope we are wrong, but the other signs are not there (overtime, workweek, wages). If the market continues the rally or holds onto its gains up to that point, then it could be primed for a pullback if the report provides another disappointment.
The low volume keeps us doubting the move, but at the same time we continue to find good stocks that show good accumulation in good patterns. Those stocks are moving well, and we are playing the market move by buying into those as they show good volume breaks from the pattern. They are not a 100% protection guarantee in the event the low volume index moves fails, but they tend to hold up much better than stocks overall because they are under accumulation by funds or other institutions that believe in them, and they are not as likely to turn and sell these stocks, instead stepping in to support them when they slide back to near support.
After this new money is put to work, unless there is some really good news the market will find it hard to continue this break higher. We are going to be wary of any gap higher in the morning, but we will learn a lot of there is a pullback by where the indexes hold. There is ready support at the 50 day MVA and short term MVA that should hold if these moves are going to continue. Of course, volume will have to rise as stocks and the indexes try to take out the old highs. If not, we could see them move past resistance only to turn back down just as they have done on each low volume rally in this consolidation. Again, that is not bad action, and indeed shows continued buying during the base. Ultimately that pays off with a good breakout on the next leg. Patience is the key for now, finding good stocks under accumulation and then waiting for them to break higher.
Support and Resistance
NASDAQ: Closed at 2057.80
Resistance: The March/December up trendline (2080). The second up trendline (2120). The March/August up trendline at roughly 2150. The January high at 2150. 2200 then 2300 represent tops from Q2 2001.
Support: The 18 day MVA (2047). The 50 day MVA (2037). 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 1155.97
Resistance: The January high (1155) is not totally broken. Next is 1159 (February highs) and 1160 (the closing) and 1175 (intraday), the high in that double top that spanned late 2001, early 2002.
Support: The 18 day MVA (1144). 1125 is some minor support, bolstered by the 50 day (1126). 1106 is a May 2002 top and represents some early 2001 lows.
Dow: Closed at 10,678.14
Resistance: The January high (10,705). Upper channel line (10,800). 11,000 is roughly 14% above the 200 day MVA. Then some price tops at 11,300.
Support: 10,635 is the March 2003 up trendline. The 10 day MVA (10,618). The 18 day MVA (10,606). The simple 50 day MVA (10,524). The exponential 50 day MVA (10,464). 10,353 from May 2002 high.
Economic Calendar
These are consensus expectations. Our expectations will vary and are discussed in the 'Economy' section.
3-01-04
Personal income, January (8:30): 0.2% actual, 0.5% expected, 0.3% December (revised form 0.2%).
Personal spending, January (8:30): 0.4% actual, 0.4% expected, 0.5% December (revised from 0.4%).
Construction spending, January (10:00): -0.3% actual, 0.3% expected, 0.6% December (revised from 0.4%).
ISM Index, February (10:00): 61,4 actual, 62.0 expected, 63.6 January.
3-03-04
ISM Services, February (10:00): 63.4 expected, 65.7 January.
Fed Beige Book
3-04-04
Initial jobless claims (8:30): 345K expected, 350K prior.
Productivity (revised), Q4 (8:30): 2.7% expected, 2.7% prior.
Factory orders, January (10:00): -0.6% expected, 1.1% December.
3-05-04
Non-farm payrolls, February (8:30): 125K expected, 112K January.
Unemployment rate, February (8:30): 5.6% expected, 5.6% January.
Hourly earnings, February (8:30): 0.2% rise expected, 0.1% rise January.
Average workweek, February (8:30): 33.8 expected, 33.7 January.
Consumer credit, January (3:00): $5.0B expected, $6.6B December.
End part 1 of 2
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