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money investment, invest financial
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3/06/04 Investment House Daily
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Investment House Daily Subscribers:
MARKET ALERTS:
Target hit alerts issued Friday: None issued
Buy alerts issued: PETM; ONCY; MTE
Trailing stop alerts: None issued
Stop alerts: None issued
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SUMMARY:
- Intel, jobs report jar market, but stocks shake it off, continue consolidation.
- Anemic non-farm payrolls disappoint, but signs of upturn starting to show up.
- Refusing to sell, not quite ready to rise.
Market gets its feathers ruffled but fights off the bad news.
Another month, another poor payroll report. Investors were waiting for some good news, and the hype was building again ahead of the report with the dollar posting gains and estimates, though muted compared to the prior months, were rising. The waiting was finally over and the news was not worth the wait. Jobs barely scratched with a 21K showing and in 10 minutes the work done all week was unwound. The dollar gave back its gains versus the euro, futures turned and dove off a cliff. Bonds, on a renewed belief that the Fed is on hold indefinitely (and it certainly will be until job growth is sprinting ahead), shot higher and yields plunged. We even received a call from a mortgage banker today wanting to know if we were shopping for a mortgage, saying he had some new 'deals' based on the bond surge.
We were concerned about the increased expectations, the 'whisper' number for jobs as investors hoped for a breakout month. It looked grim at the open, but after a gap lower stocks stabilized, rebounded positive, and though they finished mixed and off the highs, the rebound was another sign of the market's steady consolidation. It was expecting a curve but got hit with a high and tight fastball. It hurt, but it did not take it out. Later in the session anticipation ran high that Martha Stewart was acquitted. When the word came down the market actually dipped on the news. This was hardly the caliber of the jobs news, but it had a sobering impact on investors. They were able to shake it off as well.
With all of the excitement volume was running higher earlier and it closed the day higher. NASDAQ and SOX lost ground on the session, the large caps and smaller caps posted gains with the mid-caps leading the way with a 0.6% gain. Hard to call it distribution on NASDAQ, hard to call it accumulation on SP500 as neither held the losses or the gains for the session, instead recovering the losses or giving back the gains as the case may be, and holding within the recent ranges. SP500 hit a new high intraday and NASDAQ managed to finish the week positive; not stellar credentials but an indication that perhaps NASDAQ has indeed found the bottom of its consolidation. Indeed, it took a double shot with Intel and the jobs report and managed to fight off some pretty serious early selling.
THE ECONOMY
Economic growth everywhere, but no jobs as far as anyone can see.
A pathetic 21K performance, and January and December were revised lower as well (97K from 112K and 8K from 16K). That puts job creation at 30K per month for the past 3 months. Hardly a sign of a burgeoning job market. The unemployment rate held at 5.6%, still a very low historical rate but one that will only draw ire as the status quo without further explanation is getting old for many.
That was evident in the commentary from Treasury Secretary Snow after the numbers were out. He was on CNBC discussing outsourcing and the jobs report. When asked how could it be better to pay someone in India $5K for a job versus a US citizen $10K for the same job where the money would be spent here and the income taxed, etc., instead of explaining why imposing employment restrictions is detrimental longer term to the US standard of living and technological advantage because the capital would be rerouted to other areas where a better return could be made, etc., Snow delivered the tired mantra of "well, the real issue is economic growth, and growth will lead to jobs . . ."
True, but why not explain what is going on? Why not be prepared, having reviewed the details of the jobs report so he could be an advocate for the economy. Not a republican, not a democrat, but a leader to provide some information about what is going on in the jobs market and encouragement to US workers. Instead he delivered in a stumbling, awkward manner that same old line we have all heard.
Outsourcing or something else?
Why not talk to investors and citizens about what is really going on. The current buzzword regarding jobs is outsourcing. Most experts that have looked at the issue note that while it is increasing and will most likely continue to do so, the current level is hardly significant enough to hold back the non-farm payroll numbers. The real issues are fairly simple and are not necessarily bad, indicating growth is underway.
We have discussed the reluctance of businesses to hire after the sharp downturn and three year recession in corporate profits. They are squeezing all they can from technology, pushing productivity to levels unseen in economic history. That is allowing them to put off significant hiring and it is also keeping the average workweek from rising. Companies are doing all they can to stretch profits as far as possible, and that means avoiding overhead wherever possible.
That includes avoiding permanent hires and the healthcare and other associated costs. Instead, do what you can with technology and fill in the rest with contract or temporary hires. This was the 'craze' in the early 1990's, and it has become even bigger with the professions now well represented in the contract ranks: lawyers, engineers, accountants, you name it. It is where employment had been heading, and it is only accelerating. For instance, there has been a 30K increase in temporary healthcare workers the past month. There are contract workers working in many other sectors. Companies are focused on profit, and as with many consumers, they want to 'try before they buy' as well as make sure the continuing need is there without incurring more fixed overhead that they cannot easily eliminate quickly if the need arises. The rising use of contract workers, while not picked up in the non-farm payroll numbers, are at least a positive sign that more workers are needed.
Sure we would prefer full time jobs with healthcare and other benefits, but the rising use of contract workers is a positive. And the average workweek did not rise and overtime is not surging. There are still signs that the big jobs surge is just not ready. But why not just tell us this? Why keep repeating the same old story that, while true, is hardly helping assuage US citizens. Instead, Snow was poorly prepared, not up on the details of the report, not an advocate for the economy. It was a pretty pathetic performance. The Bush administration is 0 for 2 with Treasury Secretaries. With Bush's inability to get a point across without a carefully prepared and rehearsed script, he needs cabinet members who can think on their feet and be effective policy advocates. As it is, we have a great economy that is going unnoticed and indeed being called a terrible economy. That is simply not true.
More 1980's parallels.
We have noted during this recovery the many times that the expansion has shown record levels or growth rates not seen for 20 years. That dates back to the period after the Reagan tax cuts were implemented and set off an explosion of investment and economic activity. Business activity exploded as we have seen after this round of tax cuts, ultimately creating a huge surge in tax revenues and the creation of millions of new jobs based on that investment.
What about jobs? Surely jobs were roaring in the 2 to 3 years after the Reagan tax cuts, right? Wrong. There are some dubious statistics that have not been matched since those years immediately following the Reagan tax cuts even as the economy surged out of that recession. Unemployment duration is currently at 20.3 weeks. The last time it was that high was in 1984. The percentage of those unemployed for 27 weeks is 22.9%, the highest since 1983. The point is the current jobs picture is paralleling that in 1984, the period that followed the Reagan tax cuts and set the stage for the next 20 years of economic prosperity.
There was major change transpiring at that time as well. There was a crushing bust in the energy industry after a huge boom. The S&L crash was in process, creating the tar pit of litigation and bailouts in the scandal that followed. Wealth that was created in the latter 1970's was washed away as quick as it was in the early 2000's. Hundreds of thousands lost their jobs and homes.
At the same time a new thing known as the personal computer was just starting to become a presence. Over the course of the next few years, millions of jobs would be created as that new technology expanded. We all know what transpired.
Right now we are coming off a very rough recession where business profits tanked and investment did the same. The tax cuts spurred investment when there was no incentive to invest. The economy has started roaring back, showing growth rates not hit in 20 years, the last time the economy was in such dire straights and a President had the insight to see that incentives to invest in America were the ticket to recovery. Jobs took a while to recover at that point as legions of unemployed energy workers and financial workers had to retrain to fill the new jobs created by the new wave of investment. Right now the same thing is happening. There are kernels of data showing the start of new job creation is near, but they are not there yet. Again, March, more likely April, before any serious creation.
THE MARKET
Homebuilders and mortgage company stocks, both interest sensitive, were market leaders Friday as the bonds surged on the idea that the Fed would not raise rates for quite some time given the woeful jobs report. We have said before that the Fed won't raise until jobs are at 250K or so for several months; the Fed said as much a year ago. In any event, bonds soared, yields fell, and interest sensitive stocks had a very nice day.
NYSE breadth was strong as mid-caps led the market with both the mid-cap and small cap indexes setting new all-time highs. The large caps tried a new high but could not hold it. Tech stocks continued to lag along with semiconductors. In general the major indexes continued their consolidations, shaking off bad news but unable to hold the rebound rallies when buyers moved in to pick up stocks on the gap lower. Buyers are still there, buying when the opportunity arises, but there are not enough of them to break the indexes out of the ranges.
Market Sentiment
VIX: 14.48; +0.08
VXN: 22.08; -0.42
VXO: 14.8; +0.09
Put/Call Ratio (CBOE): 0.79; +0.08. Put action rallied somewhat as investors were a bit more nervous on the jobs and the early selling. Still not at the level that would show excess fear to indicate a breakout is coming.
NASDAQ
Gapped lower, rallied, and then settled back to hold the 50 day MVA, right in the middle of the range.
Stats: -7.48 points (-0.36%) to close at 2047.63
Volume: 2.049B (+13.14%). Volume surged back above average and over 2B for the first time in two weeks as stocks sold hard early but then rallied back on continued solid trade. Good recovery, and given the news, the rising volume is not bad.
Up Volume: 815M (-431M)
Down Volume: 1.20B (+740M). Even with the rebound the downside volume was still stronger.
A/D and Hi/Lo: Decliners led 1.01 to 1. We note again how downside breadth is much milder than the strength on the upside.
Previous Session: Advancers led 2.02 to 1
New Highs: 232 (+36)
New Lows: 10 (+5)
The Chart: http://www.investmenthouse.com/cd/^ixq.html
A wild day, gapping down 18 points, selling further, and then rebounding back over the simple 50 day MVA (2061). It could not hold that move, however, but did manage to hold the exponential 50 day (2038). As noted last week, NASDAQ made its 7.5% correction, a level that historically is the deeper end of the corrections in new bull markets. Thus NASDAQ could have set its bottom at roughly 2000; that does not mean it rallies immediately form here. Still a very good consolidation underway that needs more time. It got a scare Friday and held up. That shook out some of the easier sellers, but it may not be the last time we see a strong drop as the consolidation continues.
S&P 500/NYSE
SP500 cracked to a new high intraday but could not hold the move. Still in a good pattern, but will need a push as it could not hold the move Friday.
Stats: +1.99 points (+0.17%) to close at 1156.86
NYSE Volume: 1.366B (+8.12%). Volume rallied as the index gapped lower and reversed. Still below average on the session, however, so hard to call it solid accumulation, but still a good show.
Up Volume: 819M (+27M)
Down Volume: 538M (+102M)
A/D and Hi/Lo: Advancers led 2.08 to 1. Again another good breadth advance on the upside move.
Previous Session: Advancers led 1.66 to 1
New Highs: 485 (+170). Even more respectable than Thursday. A breakout that holds will produce more.
New Lows: 3 (+1)
The Chart: http://www.investmenthouse.com/cd/^spx.html
Still working on that 6 week ascending triangle base that has formed over the 18 day MVA (1147). Friday it attempted the breakout, hitting 1163 on the intraday high, breaking through some resistance at 1960 that represents the closing high from the early 2002 double top. It cracked that resistance but could not hold the move. Volume was up, showing some slight accumulation. Not bad action for a bad news day. If it can make the breakout on volume, it may turn out to lead NASDAQ higher after all as opposed to waiting on NASDAQ. As noted last week, that could pull NASDAQ back up with it and allow NASDAQ to form the right side of the base.
DJ30
Still working laterally over the simple 50 day MVA (10,551), testing lower and rallying back to the 18 day MVA (10,601). Volume surged back above average as INTC traded 118M, twice its average trade. Not the same bullish pattern as SP500, but still decent in its 9 week lateral, flat base.
Stats: +7.55 points (+0.07%) to close at 10595.55
Volume: 223 million versus 161 million Thursday.
The chart: http://www.investmenthouse.com/cd/^dji.html
THIS WEEK
After the jobs data you would think the market needed to regroup. After all the gyrations, however, it managed to regroup by the close as the indexes held their range. We were expecting an in line report to keep the market building in its consolidation. Even with the poor showing the indexes still managed to hold easily within their consolidations. It handled bad news just fine.
Now we see how it survives in the aftermath of the last economic report that still needs to show some strong improvement. Earnings are done, retail sales have been reported, and now the barbs re the election begin. The economy has received a lot of guff, but as we laid out above, it truly is on track for an excellent continued expansion. Given the depth of the plunge and the massive displacement of workers as in the early 1980's, things are actually on track. The key for the economy moving forward is whether enough jobs are made between now and election time to demonstrate to whichever party that wins that the economy is in good shape and does not need 'fixing' with tax hikes. History shows and even Greenspan agrees that would be the wrong medicine; it would be more of what killed the economy as opposed to helping it continue to grow.
The Friday action was pleasing as it showed the consolidation is strong enough to take some bad news and hold its own. Buyers had a chance to push it to the breakout, however, but SP500 backed off. Stocks are holding up, but that does not mean they are ready to break higher just as NASDAQ may have found the bottom of its base but that does not mean it is ready to breakout right now.
We continue having to be very choosy with plays, looking for the strong moves out of an already good pattern. Friday we had to hold off from moving into some stocks that had hit the buy point but were simply not showing the type of volume we wanted to see to convince us this move was worth putting our hard earned money into. Volume equals conviction, and we want to see the money piling into our plays as they make the breakout. That gives it more upside momentum to make us money, and it also means that if things soften it is less likely to sell off because the big money won't turn and sell out quickly unless something really nasty occurs.
Many stocks still have a long way to go before they are ready, but money continues to work its way into stocks in various sectors, and as is usual, some are ahead of others in the development of their bases. We have seen that and have been picking up those positions, particularly in areas of retail, medical, drugs, healthcare, telecom, etc. Some techs are already in position, but many are still have plenty of work to do similar to NASDAQ itself. In short, there is opportunity, but you have to cast a pretty wide net to find the solid plays.
Support and Resistance
NASDAQ: Closed at 2047.63
Resistance: The simple 50 day MVA at 2061. The March/December up trendline (2092). The second up trendline (2140). The March/August up trendline at roughly 2158. The January high at 2150. 2200 then 2300 represent tops from Q2 2001.
Support: The exponential 50 day MVA (2038). 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 1154.87
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 10 day MVA (1150). The 18 day MVA (1147). 1125 is some minor support, bolstered by the 50 day (1130). 1106 is a May 2002 top and represents some early 2001 lows.
Dow: Closed at 10,595.55
Resistance: The 10 day MVA (10,604). 10,684 is the March 2003 up trendline. The January high (10,705). Upper channel line (10,818). 11,000 is roughly 14% above the 200 day MVA. Then some price tops at 11,300.
Support: The simple 50 day MVA (10,551). 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.
3-10-04
Trade Balance, January (8:30): -$41.8B expected, -$42.5B December.
Wholesale inventoris, January, (10:00): 0.4% expected, 0.5% December.
3-11-04
Initial jobless claims (8:30): 345K expected, 345K prior
Retail sales, February (8:30): 0.6% expected, -0.3% prior.
Retail sales ex auto (8:30): 0.5% expected, 0.9% January.
Treasury budget, February (2:00): -$100.0B expected, -$96.7B January.
3-12-04
Business inventories, January (8:30): 0.3% expected, 0.3% December.
Current Account, Q4 (8:30): -$136.2B expected, -$135.0B Q3.
Michigan sentiment, March preliminary (9:45): 95.4 expected, 94.4 February.
End part 1 of 2
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