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3/08/04 Stock Split Report Update
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Stock Split Report Subscribers:
Full reports issued Tuesday, Thursday and Saturday. Monday and Wednesday we issue a market summary and some good plays for the next session.
MARKET ALERTS
Targets hit alerts issued Monday: CEC
Buy alerts issued: EBAY
Trailing stops issued: ABTL
Stop alerts issued: NATI
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:
- Indexes tap resistance, go into retreat.
- NASDAQ 100, SOX break down on volume though many stocks holding their own for now.
- TXN raises its EPS, revenues guidance, fails to inspire investors after hours.
Early test brings in some sellers.
Both NASDAQ and SP500 started positive and ran to near resistance on the high. That took 30 minutes, pushing SP500 back to the top of the range and NASDAQ to the simple 50 day MVA. At that point buyers ran out of gas and that gave sellers an opening. They made the most of it and started the indexes on a session long slide that did not stop at the close. After hours TXN gave its mid-quarter update, and though it upped guidance, it was selling along with other tech stocks even further.
Again it was quite apparent that stocks were not ready to breakout from their ranges as a test of the rarer air sent them gasping lower. NYSE volume was lower, but NASDAQ trotted out its second consecutive 2B share losing session, the first 2B sessions since the last February distribution sent it to the 2000 level. After a decent albeit low volume bounce off 2000, stronger trade is returning but on downside action. On the other hand, NYSE volume backed off as SP500 and the smaller cap indexes pulled back. They continue to show solid action, and it appears the real test coming is whether NASDAQ and SOX lead a downside breakdown or SP500, SP600 and SP400 can hold things up and continue the consolidation at the current lows in the trading ranges.
THE MARKET
It is extremely difficult to keep your emotions locked away as the market trades up and down. Even after doing this for years the emotion still manages to bleed over into the market summary from time to time. We do take pride, however, in putting together a rational look at the market each session. Even with the Monday sharp selling, so far the market is still in its consolidation, now experiencing one of those sharp selling periods that spikes up some fear. That is why when we see some television pundits' emotions rise and fall with each trading session we can relate and redouble our efforts to be rational. The point: no matter how much experience you have, always try to tune out the noise and look at the facts. One pundit in particular tends to be ebullient on up sessions and somewhat crestfallen to shades of somber when the market stumbles. Today he was more somber, predicting the oil rise was at the cause of the selling and presented trouble ahead for the market. Of course, oil went down Monday and it is really no higher than it was six sessions prior when he declared that particular low volume rise was 'confirmation' of the recovery off the NASDAQ February low. We feel he is certainly right that oil's rise is playing a part in the market weakness as stocks forecast economic activity 6 months and more down the road, but the landscape is not that different from that 'confirmation' session a week back. What the market has been doing, what the price/volume action has been showing us, is consolidating the big 2003 runs. That consolidation is about to get a serious test, but the consolidation for now remains intact. Again, the point is to try and keep the emotion out and look at the moves rationally based on the facts.
It is a fact that SOX and the NASDAQ 100 undercut the February lows Monday on some slightly rising volume. At the same time SP500 along with the small and mid-caps faded on lighter, below average trade. Many stocks held near support quite nicely on low volume. The market is continuing its consolidation, but as we have noted the past few weeks, there will be some scarier moments in the consolidation; it would not do its job without some sharp selling that raises the fear level. There is still a lot of complacency in the market; almost everyone is still in agreement that it rises after this modest correction. As the brief test of resistance early in the session demonstrated, this consolidation still has work to do. The SP500 was not, at least Monday, able to lead the rest of the market with an upside breakout that eventually pulled NASDAQ with it. After another test of the lows in the NASDAQ range we will see if the buyers are ready to come back in.
The renewed distribution is not a good sign. NASDAQ was able to recover from the last round and bounce up off of the November and December highs to continue the consolidation. Think of distribution in the aggregate, that is, building upon itself, eroding the foundation from under the market. Accumulation sessions build the foundation as we say when describing the accumulation in our individual stock plays. Distribution tends to undermine that foundation. Get enough distribution and the foundation starts to buckle. If NASDAQ dives through support on strong volume that will crack the foundation, but we will also expect an attempt to retake that level if that happens similar to how it undercut 2000 intraday in late February and managed to recover and bounce higher.
Market Sentiment
Volatility has rising to the down trendline, roughly coinciding with the 50 day MVA of each sentiment index. If it breaks through with some force that would be noteworthy. For now it is in the trend.
VIX: 15.79; +1.31
VXN: 24.08; +2
VXO: 15.33; +0.53
Put/Call Ratio (CBOE): 0.82; +0.03. Rising but still not showing the spike to 1.0+ on the close that signals significant fear, worry, concern, or whatever you want to call investor angst.
NASDAQ
NASDAQ turned over from an early test of the simple 50 day MVA and raced lower toward a test of support at 2000.
Stats: -38.85 points (-1.9%) to close at 2008.78
Volume: 2.059B (+0.49%). Volume is edging higher as tech stocks start selling again. Second 2B+ session in a row as volume returns to its late February selling strength. This type of reversal volume begs a test of support. We will watch how volume reacts when NASDAQ makes that test. A strong reversal is good; a strong volume breach that cannot recover is not.
Up Volume: 379M (-436M)
Down Volume: 1.498B (+298M)
A/D and Hi/Lo: Decliners led 1.98 to 1. Starting to get a bit rougher on the downside, but again not awful given the size of the decline.
Previous Session: Decliners led 1.01 to 1
New Highs: 210 (-22)
New Lows: 5 (-5)
The Chart: http://www.investmenthouse.com/cd/^ixq.html
Broke sharply below the exponential 50 day MVA (2037) after a weak early tap at the simple 50 day MVA (2061) failed to bring in any more buyers. Sharp move lower that accelerated as the session progressed. It closed on the low almost guaranteeing a test of 2000 where it held on the close in late February. That is a significant level as it also represents the November and December tops (1989 closing) when NASDAQ moved laterally for 3 months consolidating before breaking higher and running to 2150 in January. We expect a test and an undercut, then we see if the buyers are ready to return and keep 2000 as the bottom of the consolidation or if it expands down to 1950.
S&P 500/NYSE
Tapped 1160 resistance again and rolled over, but did not distribute.
Stats: -9.66 points (-0.84%) to close at 1147.2
NYSE Volume: 1.252B (-8.29%). Volume backed off as the large and small caps gave back some of the gains but did not distribute. Many of the solid small and mid-caps did not give up support as the lack of selling intensity on NYSE indicates.
Up Volume: 372M (-447M)
Down Volume: 866M (+328M)
A/D and Hi/Lo: Decliners led 1.37 to 1. Nothing bad here at all. Advancing breadth is still well out in front of declining breadth.
Previous Session: Advancers led 2.08 to 1
New Highs: 374 (-111)
New Lows: 5 (+2)
The Chart: http://www.investmenthouse.com/cd/^spx.html
The large cap index sold off as did all indexes, but there was no wanton selling. In short, volume declined significantly and was even further below average as stocks sold. SP500 cracked just below the 18 day MVA (1147.50) on the close, but there was no breakdown. SP500 continues in its 6 week triangle as it continues to outperform NASDAQ and SOX on a relative basis. The big question is whether it can provide the upside catalyst for the market along with SP400 and SP600 or if it is going to acquiesce to NASDAQ and let NASDAQ pull everything lower. Thus far it is holding its pattern, but we could see a shakeout, i.e., a low volume test that drops it below the uptrend in the pattern for a session or two before it resumes. Right now nothing is indicating a breakdown looking at the price/volume action.
DJ30
GE did DJ30 no favors, announcing a new share offering and tanking below the 50 day MVA. The blue chips found it hard to be happy after that and slid lower by 66 points. Volume was lower, however, falling back down to average as the index dropped but still managed to hold easily within its range from 10,400 to 10,750. Its next support is the 50 day MVA (10,484), still above the bottom of the 9 week range. It too is outperforming on a relative basis, but it looks more to be following SP500 than making its own wake.
Stats: -66.07 points (-0.62%) to close at 10529.48
Volume: 199 million versus 223 million Friday.
The chart: http://www.investmenthouse.com/cd/^dji.html
TUESDAY
No economic news scheduled so investors will be looking at the TXN mid-quarter update that was quite good with TXN raising the lower end of the range on both earnings per share and revenues. The company's strength is in the flash memory and other chips used in the wireless industry. It was not helping TXN after hours or the chip market broadly. Of the two, Intel is the bigger player as far as the overall chip market; we may see the wireless chips do fine but it was not pushing investors to buy stocks after hours.
With the indexes closing on their lows after testing resistance, there is plenty of downside momentum, and a test of NASDAQ 2000 and even undercutting that seems reasonable. With NASDAQ 100 and SOX clearing the path, that is an easy step. Just as many stocks ran higher early only to give back the gains, we will be watching to see if any undercut early leads to a rebound in the market. Indeed, many times NASDAQ 100 and SOX have been diving lower but the rest of the market checked up and started to rally back with them following. This down leg on NASDAQ is starting at a lower high, however, and thus it is at risk of significantly undercutting the bottom of the range.
Despite the 38 point NASDAQ dive this is still the consolidation we have been watching for the past 7 weeks. It is performing more or less as expected, and this looks like one of those serious tests of investor conviction as it dives sharply lower to test the consolidation. It needs periodic bouts of sharp selling to get rid of some of the complacency. Again, this looks like one of those bouts.
Many stocks are holding up quite well given the selling. We will see how they continue to hold in the face of further selling. If we do get the undercut of 2000 on NASDAQ, we will watch how solid stocks hold up and if any break lower, if they recover by the close. As long as stocks are able to hold their support on the close we are happy with them and will let them work through this selling round. We had to be patient Monday; many stocks shot higher and were looking very good. We were watching a test of the resistance and it sure enough failed. We held off on many positions and watched strong moves erode. There were even some that looked good up to the last thirty minutes that then cracked and fell toward the close. We had to hold off on those until another day to see if they can hold the moves and then start back up.
Support and Resistance
NASDAQ: Closed at 2008.78
Resistance: The exponential 50 day MVA (2037). The simple 50 day MVA at 2061. The March/December up trendline (2095). The second up trendline (2142). 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 1147.20
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 (1147.50). 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 10,529.48
Resistance: The 10 day MVA (10,591). 10,690 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 (10,555) is not totally broken. The exponential 50 day MVA (10,484). 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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