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us stock market, trade stock
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3/02/04 Stock Split Report
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Stock Split Report Subscribers:
MARKET ALERTS
Targets hit alerts issued Tuesday: XTO; VAPH; SPAB
Buy alerts issued: None issued
Trailing stops issued: None issued
Stop alerts issued: None issued
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:
- You know it is a consolidation: market gives back a chunk of the gains.
- Job cuts falling sharply, but does that mean jobs are going to show up Friday?
- Indexes distribute modestly as market shows it still has work to do.
- Subscriber Questions
Market gives back some of the new month, new money gains.
The market posted solid gains Monday on lower trade to start the month as new money was put to work. The analysts tried to bolster the Monday move, or the Monday move bolstered analysts, and there were three brokerage houses upgrading semiconductors. LEH was the boldest, upgrading the group and calling for a lot more upside from here. LEH could be exactly right, but the market does not indicate that the move will start just yet.
An early rally attempt started to fizzle after the first hour, and by the close all of the indexes, including SOX that led the Tuesday action, sold into negative territory. Tuesday some sellers took advantage of the Monday rally and early Tuesday pop to sell into some gains. Volume climbed on NASDAQ as it gave back its gains, and NYSE volume edged higher as SP500 and the smaller caps pulled back as well.
The indexes did not surrender all Monday gains, and they did hold near support. There were more sellers Tuesday than buyers Monday, but on the bright side there was no avalanche of selling. Indeed, the indexes managed to hold at support. In short it was not a violent reversal of the Monday gains. What we have here is a market trying to consolidate. It is doing a pretty good job of it, but the continued tendency to mildly distribute indicates it still has more work to do before it is ready to breakout and start the next leg higher.
THE ECONOMY
Challenger February layoff report shows another drop.
January showed surprisingly few layoffs according to Challenger and February showed another solid decline, down 77,250 (34%), the lowest level since September 2003. That is a 44% drop from the February 2003 level.
This shows that the pace of layoffs continues to decline. In the face of a surging GDP, that typically means jobs are being produced. As always, the issue is how many. Job creation started in September 2003. Some said that was late, we said it was early. It was early because job creation lags actual economic recovery. While the recession officially ended the same year it started, the stock market did not bottom until October 2002. History shows that the market is a much more accurate indicator of economic recovery; when it bottoms, the economic recovery typically starts within six months.
Based on that tried and true indicator, we were not realistically expecting job creation in the non-farm payrolls until December 2003. They started early, but they have not ramped up at a dramatic rate. There is again talk that the Friday number will be a breakout number, and when the ISM showed a solid employment index Monday that was said to have sparked that rally. Then Tuesday Greenspan talked and stated that rates would not stay low forever. That started speculation that a big jobs number Friday would bring about quicker rate hikes and thus the selling. Let's see, up one day because jobs looked good and down the next because jobs could look good. Obviously that was not the issue.
We expect somewhere in the range of 150K jobs for February, enough to soak up the new additions to the force but not enough to start reducing the unemployed ranks. We hope it is 200K to 300K, but hope rhymes with dope, and the indicators of overtime, hours worked, etc., while improving, are not jumping fast enough to set the stage for big job creation in February. It is starting to set the stage for a breakout month in April or May, but in an election year, time is measure in dog years where two to three months seems closer to a year.
THE MARKET
Tuesday the market gave back some of the Monday gains on rising volume. Technically that is distribution and we cannot ignore that the price/volume action continues its rather ragged action. It starts to look a bit better then backslides with volume rising when the market loses ground. The action Tuesday was not a high volume reversal that washed away the Monday session. It did show that there are still significant numbers of sellers that are trying to sell stocks after they post gains. Those sellers have to sell out or be converted in to upside believers before the market will be ready to move higher.
Right now the buyers and sellers are roughly evenly matched. That is why NASDAQ is working laterally and slightly lower. It managed to hold the 50 day MVA on the close while the SP500 held over its short term MVA (the 10 and 18 day MVA). Volume rose but the indexes did not undercut these key levels. Again, the action was not great, but it was not a rollover. If it continues it will erode the foundation from under the market, but thus far the market has been engaged in a very orderly consolidation. We feel it will get a bit harrier before it is over, but the action is not pointing to any rout. It does show that even with upgrades of semiconductors and some decent outlooks for the future with respect to earnings, the market still has to take a breather, consolidate the gains, and set up for the next advance.
Market Sentiment
Still very quiet from a sentiment perspective. We anticipate volatility to rise some and the put/call ratio to get over 1.0 on the close a couple of times before this is over. It is not there now.
VIX: 14.86; +0.42
VXN: 22.42; -0.12
VXO: 14.6; +0.42
Put/Call Ratio (CBOE): 0.71; -0.03
NASDAQ
Opened lower, started to rally, then rolled over toward the 50 day MVA on rising volume. Still working in the consolidation and trying to find the bottom of the range.
Stats: -18.15 points (-0.88%) to close at 2039.65
Volume: 1.88B (+9.84%). Volume edged up on the selling but it was still below average. NASDAQ has not suffered above average volume selling in over a week when it dumped down to support at 2000. Of course, it was moving up just about every session since then in a weak relief bounce. Here at the 50 day MVA we will see if that volume returns if NASDAQ breaks that support.
Up Volume: 584M (-776M)
Down Volume: 1.279B (+939M)
A/D and Hi/Lo: Decliners led 1.6 to 1. Very modest selling versus the solid breadth advance on the Monday up session.
Previous Session: Advancers led 2.04 to 1
New Highs: 211 (-40)
New Lows: 10 (+5)
The Chart: http://www.investmenthouse.com/cd/^ixq.html
Started soft then rallied, helped by the SOX moving higher on the trio of upgrades. It peaked at 2064, however, and spent the rest of the session selling. It held the 50 day MVA on the close, but it was selling as the bell rang. Volume moved higher as the selling turned stocks over. It was not a massive reversal, but again it shows it is not ready to make a breakout move: higher volume selling to 2000 two weeks back, a lower volume bounce, then some selling on rising volume. The 50 day MVA (2037) is again key. If NASDAQ undercuts it again, another lower high is made since late January, and 2000 as a bottom become problematical. Volume on the moves remains the key.
S&P 500/NYSE
Large caps were sluggish all session, giving back a significant portion of the Monday lower volume rally, but managing to hold near support. The consolidation remains.
Stats: -6.87 points (-0.59%) to close at 1149.1
NYSE Volume: 1.479B (+1.67%). Volume moved further above average as SP500 gapped slightly lower and sold all session after a brief morning rally attempt. Price/volume action remains middle of the fence; it is selling some on rising volume but also rising on good trade over the past two weeks. All in all it is pretty decent action as it works laterally, refusing to give up gains.
Up Volume: 532M (-643M)
Down Volume: 931M (+671M)
A/D and Hi/Lo: Decliners led 1.29 to 1. Very modest decliners on the pullback after an impressive showing Monday.
Previous Session: Advancers led 3.16 to 1
New Highs: 368 (-105)
New Lows: 5 (0)
The Chart: http://www.investmenthouse.com/cd/^spx.html
SP500 continues to move laterally over the 10 and 18 day MVA (1147, 1144), working near the top of the range running from 1125 to 1160. 1160 is the closing high of the early 2002 double top and is key, key resistance. The index has not yet been able to break through, but it has not given up any of its gains during the 6 week lateral consolidation. Volume has noticeably declined the past 4 weeks as the consolidation stretches out, just what you want to see. That shows there are fewer participating as the market weeds out the sellers. Consolidations can get pretty boring with low volume and a narrow range before they make the breakout. SP500 may not give up a big chunk of its gains before a breakout, but we do think that it will ultimately test the 50 day MVA (1127) before it finally concludes the consolidation and can make the breakout.
DJ30
The blue chips gave back almost all of the Monday gains, falling once gain back near 10,600 on rising, above average volume. This was the strongest volume in over a week as DJ30 price/volume action again turns problematical. Similar to NYSE volume, DJ30 is not showing bad or good price/volume action, but is working laterally, holding most of its gains, while sellers and buyers are mostly evenly matched. DJ30 continues its 9 week lateral move where it trades around 10,600 with 11,000 as the top of the range and 10,400 on the bottom.
Stats: -86.66 points (-0.81%) to close at 10591.48
Volume: 215 million versus 185 million Monday.
The chart: http://www.investmenthouse.com/cd/^dji.html
WEDNESDAY
As was pointed out to me, the ISM services is out Wednesday. Not that it will make a lot of difference; the focus is on Friday and the jobs report, the last economic woe the recovery has left to correct. Sector by sector in the economy has seen the recovery reverse its fortunes, and jobs, while improving, are the last holdout from the recession that started back in the second half of 2000. That makes the first Friday of each month very important for political reasons and individual reasons as those seeking employment look for jobs.
One of the reasons jobs have been hard to create, and we are not talking about outsourcing that is supposedly robbing us of all jobs, is that the unemployment rate was so low during the recession. The boom caused over-hiring, and even as those companies went belly up and let their employees go, the jobless rate never really spiked. Back in the early 1990's unemployment was over 7%; that number was not approached during this pullback. Economic growth has to be breakneck to get back to those levels that were experienced during the boom. In other words, you almost need another boom to get back to the same employment levels. Given the market collapse, the subsequent economic collapse, election woes, 9-11, Afghanistan, the corporate governance debacle, and the Iraq war, the recovery has been spectacular. From zero capital investment to a boom in investment starting in 2003 is a tribute to the power of tax incentives. Without them there is no way the economy would be near where it is today and we would be thanking God to have 7% unemployment though it would probably be much worse.
That perspective is lost by all sides, however, in a political mud fight year. US citizens and businesses have done some amazing things in a short period of time, all the while supporting our troops overseas giving their lives so we can go about or lives and business back home. Sure wish both sides would remember that as we move forward in the election and really listen to each other as opposed to staking out ground, putting hands over their ears, and humming to drown out the other side.
In any event, jobs will be the focus, and the up Monday, down Tuesday action indicates that the sellers and buyers are still at a standoff. The key action will be around the 50 day MVA on NASDAQ and SOX and what volume stocks trade in. We don't want to see any strong surge in selling volume as we would like to see 2000 become the bottom of the NASDAQ range. We still feel there are several weeks of consolidation action ahead of us given the back and forth price/volume action and the price patterns of many stocks that still need more time to form up.
As noted in the Subscriber Question, however, that does not mean we don't see some potential leader stock already forming up and making good moves. We will continue to work into those positions if we see good price moves as those will have a good chance of being leaders and posting strong gains when the consolidation is completed.
Support and Resistance
NASDAQ: Closed at 2039.65
Resistance: The simple 50 day MVA is worth watching at 2055. The March/December up trendline (2084). The second up trendline (2124). The March/August up trendline at roughly 2152. The January high at 2150. 2200 then 2300 represent tops from Q2 2001.
Support: The exponential 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 1149.10
Resistance: The January high (1155). 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 (1127). 1106 is a May 2002 top and represents some early 2001 lows.
Dow: Closed at 10,591.48
Resistance: 10,655 is the March 2003 up trendline. 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: The simple 50 day MVA (10,533). The exponential 50 day MVA (10,469). 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 3
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