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world stock market, us stock market
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3/10/04 Stock Split Report Update
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Stock Split Report Subscribers:
Full reports issue Tuesday, Thursday and Saturday. Monday and Wednesday we issued a market summary and some solid plays for the next session.
MARKET ALERTS
Targets hit alerts issued Wednesday: None issued. Looking for another push lower from SOX Thursday.
Buy alerts issued: None issued
Trailing stops issued: FOSL
Stop alerts issued: BRNC; VAPH; IDCC; BRL
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:
- Shorts emboldened, longs worried as indexes plow through support.
- Trade gap, wholesale inventories will reduce Q1 GDP some.
- More distribution, breach of near support bodes longer correction.
Stocks continue selling as NASDAQ unable to hold above prior range.
The late Tuesday bounce was nice but as noted, not much behind it, and after one more try to bounce off support early, buyers were totally gassed. Sellers then took over. NASDAQ broke through its recent low. SP500 broke the simple 50 day MVA. A few more sellers entered. NASDAQ continued lower, breaking into the late 2003 consolidation. SP500 broke the exponential 50 day MVA, 2 for 2 in one session. Both continued lower, closing at the session lows, with SP500 managing to check up at the bottom of its 7 week range.
Sellers gained confidence, focusing on the NYSE stocks that had not sold as far as the techs. Thus NYSE volume jumped once again while NASDAQ volume edged slightly higher as the NYSE stocks play downside catch-up after holding out on the selling. Another session of distribution as NASDAQ fell through its range and SP500 made a big step downward to the bottom of its range. Lots of downside momentum, and the sellers were jumping on board with each break of support. NASDAQ failed to hold, now we see if SP500 is a follower or a leader. More recent history suggests the latter.
Don't know about you, but when CNBC's NASDAQ correspondent broke out in a colon tightening rendition of 'The Way We Were' on her fourteenth mention of the anniversary of the NASDAQ peak in 2000, we flipped to Bloomberg. That was about the only thing she could discuss Wednesday, other than Friday being the anniversary of the low. Only problem is, that is not the anniversary of THE low; that was in October. In any event, given the action we can understand the need for a distraction.
In sum, the market distributed further with NASDAQ breaking down into a lower range and SP500 turning over hard to close at the bottom of its range. It had a chance to put a bottom in and it looks as if now it will have to work on that further.
THE ECONOMY
Wholesale inventories inch higher, sales climbing faster, and some possible problems.
The inventory buildup is one of the quietest, most well-hidden buildups in modern times. January inventories continued a string of gains, but by the slimmest of margins (+0.1%). A 0.4% reading was expected to add to the 0.6% gain in December. Inventories continue to build, but they are slowing some to start the year. It is important to remember, however, that the trend is the key, not the monthly gyrations. Everything ebbs and flows, sometimes with big gains, sometimes with slack periods. January was slower, but the trend remains.
Still, if you are waiting for a big surge you have had a long wait. Solid gains in November and December for sure, but no surge in production. Sales, on the other hand, continue to run higher than inventory build rates. January sales rose 0.6% after a 1.5% December gain. That was even with a 6.6% dive in car sales (the worst since December 1997).
So with sales still rising and inventories still rising but at a slower pace, when will there be a big surge? Seems inventories are suffering the same problem as jobs. Companies are willing and able to get by with lean stocks on hand, utilizing all of that technology to efficiently control inventory. Some it seems are willing to risk alienating customers (a.k.a., pissing them off) by allowing stocks to run thin before re-ordering. Been in a Home Depot the past six months? The odds are better than even that it will be out of stock on 40% of your list unless you are buying 2 x 4 studs (8 foot length; 10 foot may be out of stock) or a 10 foot extension cord (and they did not even have that the last time I went).
The combination of technology and calculated lean stocks (the 'piss off quotient') may be the new business methodology in the recovering economy. It is certainly a holdover from the boom to bust when those with large inventories had to eat them (about everybody), as well as a continued worry that it may happen again. As with new hires in the job market, that may be what keeps companies from revving up: get by with the minimums until you simply cannot keep workers or customers. This even as the inventory to sales ratio remains at a record low of 1.17 months. That is remarkably low. If there is ANY hiccup in the supply chain (e.g., another longshoreman strike, a radioactive or bio-agent contaminating a port such as Long Beach) you have a major supply problem. Businesses cannot get their parts and supplies, prices shoot higher, the economy, still in recovery mode, would be under significant pressure.
Trade gap rises despite dollar drop.
The mini-trend the past few months had been a declining trade gap with exports growing and imports at least growing slower. The December gap widened. How can that be with the dollar falling making some coveted US products (yes, Japan does not have the corner on the world market for good names) more affordable? Because the Chinese yuan is tied to the dollar, and as China is our largest trading partner, that means the bulk of our trade does not benefit from the lower dollar.
THE MARKET
Stocks continued selling and on rising trade, making a third straight distribution session on NASDAQ, a second straight on SP500. This occurred as NASDAQ broke through the bottom of its base and SP500 slammed to the bottom of its range. Price/volume action was trying to mend, but it has now reverted to volume selling. When you move through a base, the initial price/volume action is distributive, it dries up to low volume meandering, then upside days on volume (accumulation) start showing up. That signals that the base is maturing and that money is moving in. That is what happened in the early 2003 base, and this action indicates the base has more work to do.
In addition, NASDAQ's inability to hold over the late 2003 base signals there is more work to do. Perhaps SP500 can hold and provide leadership, but it is struggling as well now with a big drop to the bottom of its range making the move much less deliberate and orderly. Increasing volatility in a base is typically not a sign the base is about to be resolved positively. NASDAQ has now corrected 9.6% in 6.5 weeks. In early 2003 it corrected 20% in 14 weeks at the bottom, and it was another 4 weeks before it provided a definitive breakout that started the big run that year. Again, the current action along with how the market acted in early 2003, indicates more work is to be done.
The selling was remarkably uniform with all major indexes selling off roughly 1.5% with the SOX as the outrider at -2.1%. Strong downside breadth along with this even percentage of selling shows stocks were being sold across the board. Several key sectors ran into selling today and that allowed the broader sell off. The homebuilders, energy stocks, drugs, and telecoms had been going about their way in spite of the selling. Wednesday they were under fire, the telecoms hurt by a weak earnings report from IDCC. There was not a lot of damage in these leading sectors, however, just pullbacks to support after strong runs. As noted, that weakness aided the drop in the market overall.
It is instructive to look at where the market failed. NASDAQ rallied past the late 2002/early 2003 double top but has rolled over and undercut that level (2046-2060). SP500 failed just below the early 2002 double top (1170-1172) as well, following the NASDAQ's peak in January. This is key resistance, and after that long run higher they needed to consolidate. Despite what some believe, the indexes were already doing so before this week. Thus some of the work has been done, but the price/volume action this week as well as NASDAQ's foray into the late 2003 base shows us it will be more like the early 2003 base than a 'Cliff Notes' version.
Market Sentiment
The negative sentiment continues on the rise as evident by the usual list of guests on the financial shows whenever the market goes through a pullback (of course, the same thing happens when it rallies as the bulls are trotted out and tell us why this will last forever this time). CNBC was making P/E comparisons between March 2003 and today (that anniversary thing) and then with dramatic overtones referred to the selling this March after a strong run as being coincidence or history repeating. Oooh. How about a strong run based on an economic recovery and now it is taking a necessary and normal breather. No, that would be too boring.
The bears were put on the air, and they made very solid points just as the bulls make solid points. Everyone can look at certain indicator(s) (e.g., commodities, gold, money supply, P/E ratios, etc.) and draw rational conclusions about where the market is in a long term, macro picture. Wednesday Bob Prechter and others were on making their bearish cases with the backdrop of the NASDAQ breaking its consolidation, etc. They point to very interesting economic and monetary trends that indicate the economy and the market are headed for trouble and their conclusions could very well pan out.
As one astutely noted, however, a market can stay irrational longer than anyone can stay solvent. In other words, you can size up all of these issues and make long term projections that may ultimately be right, but it could take a long, long time to pan out. That is why we look at what the market is telling us today because nobody can better tell you what is happening now and what the market holds in the near future than the market action itself through the collective of investor actions. And those actions are mostly dictated by sentiment. Thus we listen to what these fellows have to say (bulls and bears) because they are smart people and you can always learn from smart people.
With respect to the market, however, we use their appearance on the financial shows as an indication of market sentiment, part of what the market is showing us right now as to where it is going near term. Their appearance on the financial shows indicates there is growing fear in the market, something we have said for the past month it needs in order to get through this consolidation of the strong 2003 gains. It is a sign the fear is rising, and it does not mean the bottom is here. It is something that typically has to occur and it has obviously started.
VIX: 18.67; +2.07
VXN: 26.05; +1.35
VXO: 18.8; +2.43
Put/Call Ratio (CBOE): 0.91; -0.06. Actually backed off on the stronger selling. Though sentiment indicators are starting to show more fear, it is still not there as even the Wednesday beating could not produce a 1.0+ reading on the close.
NASDAQ
Diving into the late 2003 base on once more rising volume.
Stats: -31.01 points (-1.55%) to close at 1964.15
Volume: 2.163B (+2.52%). Not a huge surge, just as the Tuesday action was not a huge downside volume surge, but they add up. It is adding up on NASDAQ and the result is a clear erosion of this year's base as NASDAQ is still in the process of finding the bottom. As noted, price/volume action will turn positive before the base is completed.
Up Volume: 567M (-64M)
Down Volume: 1.527B (+85M)
A/D and Hi/Lo: Decliners led 3.42 to 1. Now this is getting to the level where you take notice. If it gets bad enough that also is a signal of an extreme. Getting there.
Previous Session: Decliners led 2.05 to 1
New Highs: 92 (-5)
New Lows: 13 (+5). Not very bad at all given the breakdown from the consolidation.
The Chart: http://www.investmenthouse.com/cd/^ixq.html
Tried to hold 1991 twice, but the second time it failed. It was a pretty steady decline after that as techs fell all afternoon, breaking down through 1989 marking the top of the October/December 2003 consolidation. That broke up the 2004 consolidation trying to hold 2000, and now NASD tries to find the new bottom. 1950 is some support, followed by 1900. That is an 11% drop, still only half of that in early 2003. NASDAQ will probe around the next couple of weeks to find that low, but it is getting a bit oversold short term, and we are going to be ready for a bounce back up to test 2000 starting some time over the next coupe of sessions.
S&P 500/NYSE
Volume jumped again as the large caps fell hard to the bottom of their recent range. Looks ready to give it an undercut as well.
Stats: -16.69 points (-1.46%) to close at 1123.89
NYSE Volume: 1.647B (+11.72%). Volume jumped for the second consecutive session, surging well above average. Again, price/volume action will be positive and this distribution, particularly heavy distribution, will be long gone by the time a base is ready to make a move toward a breakout.
Up Volume: 197M (-64M)
Down Volume: 1.444B (+248M)
A/D and Hi/Lo: Decliners led 2.93 to 1. Leaped higher on the selling as many stalwart sectors sold down but not necessarily sold off.
Previous Session: Decliners led 1.67 to 1
New Highs: 181 (-4)
New Lows: 12 (+4). Still very modest numbers of new lows.
The Chart: http://www.investmenthouse.com/cd/^spx.html
Large caps fell to support at 1125 at the bottom of its ongoing 2004 consolidation. This is the important point for the index if it is going to hold strong and help keep the overall market consolidation in check at higher levels. Looks more like an undercut coming toward some potential support at 1112, and a minor shelf at 1000. Three selling sessions under its belt, and we anticipate more selling and then a rebound attempt to test 1125. Looking for that at some point Friday.
DJ30
Swan dive below the exponential 50 day MVA (10,476) and continuing on through the September/November trendline formed by those lows (10,385). Granted that is a weaker trendline given it formed on just two points, DJ30 barely paused as it sailed on through as volume shot higher once again. As noted Tuesday, there is not much now to hold it up. A modest shelf at 10,250, then a drop to 10,000 to 9900. DJ30 is a follower as opposed to a leader for now, however, so what NASDAQ and SP500 do is our main focus. This was an impressive dive lower, however, as INTC broke down below the 200 day MVA, GE continued its slump, and a host of other Dow stocks thudded lower on higher trade.
Stats: -160.07 points (-1.53%) to close at 10296.89
Volume: 259 million versus 246 million Tuesday.
The chart: http://www.investmenthouse.com/cd/^dji.html
THURSDAY
Let's get some economic data so the market can start thinking about that again as opposed to reflecting upon itself. We can see what that has done. Weekly jobless claims are out, but unless they fall to 315K not many will bat an eye; sub-300K is what is really needed to command any respect. Retail sales are also out, a much more important number as there is worry consumers are losing faith in the economy. Sales will be solid if for no reason other than higher energy and gas costs. That is not good of course, as it is a tax on discretionary income, going to a specific part of the economy as being spent where consumers and investors think it is best put to use.
Though the economic data has more potential meat to offer Thursday, again, unless it is really solid one way or the other it won't have much impact on the current action. The indexes are still seeking a bottom in this consolidation and the momentum and volume is down. We are looking for a further move down, then an oversold bounce to follow, maybe as early as Thursday afternoon if the selling picks up intensely enough in the morning. We watch how the solid stocks hold up during the selling; as we did today, if they can hold significant support we will let them do it. We watch for the rebound and what volume we see on it. Does it provide good opportunity in the stronger stocks that we can use to enter new or additional positions? Or, is it a low volume bounce that is going to move up to the support just broken and run out of gas? That will provide downside opportunity once more. With the renewed distribution and sharp drops lower the market is still trying to find a bottom and that means the latter (lower volume rebound) is more likely as there is still work to do to find that new bottom.
We said it a month ago that this consolidation was needed and would take some time. It was close to making it a shorter move, but this action shows it will take longer to work through, more in the range of early 2003. Time to wait for the rebound and then start cherry-picking the strong stocks as they hold and move up again. Then if the move runs out of gas at resistance, pick off the failing stocks and indexes at that point and glean some short term downside plays as well.
Support and Resistance
NASDAQ: Closed at 1964.15
Resistance: 1990 to 2000, the top of the late 2003 base. The exponential 50 day MVA (2033). The simple 50 day MVA at 2062. The March/December up trendline (2100).
Support: 1950 provides some support, then mixed tops and bottoms 1900.
S&P 500: Closed at 1123.89
Resistance: The exponential 50 day MVA (1131). The simple 50 day MVA (1138). The 18 day MVA (1144). The January high (1155). Next is 1159 (February highs) and 1160 to 1175 the highs in that double top that spanned late 2001, early 2002.
Support: 1125 is some minor support. 1112 is an upper channel line from the summer. 1106 is a May 2002 top and represents some early 2001 lows.
Dow: Closed at 10,296.89
Resistance: September/November up trendline (10,385). The exponential 50 day MVA (10,476). The 18 day MVA (10,549). 10,700 is the March 2003 up trendline. The January high (10,705).
Support: 10,250 represents some support. 10,000 to 9900.
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): -$43.1B actual, -$42.0B expected, -$42.7B December.
Wholesale inventories, January, (10:00): 0.1% actual, 0.4% expected, 0.6% December.
3-11-04
Initial jobless claims (8:30): 343K 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): 95.0 expected, 94.4 February.
End part 1 of 2
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