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world stock market, us stock market
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3/11/04 Stock Split Report
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Stock Split Report Subscribers:
MARKET ALERTS
Targets hit alerts issued Thursday: HUM
Buy alerts issued: AZO
Trailing stops issued: CENT; DVA
Stop alerts issued: MVIS
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:
- Market tests, bounces, then folds on Al Qaeda reports.
- Retail sales still solid, jobless claims still dropping, but not enough for economy's critics.
- SOX trying to hold support as rest of market plays downside catch up.
Decent recovery throws in the towel on terror worries.
The market made the further selloff then started the bounce as anticipated in the Wednesday report. NSM's midday earnings helped trigger the rebound as it handily beat estimates and noted that the current quarter was much stronger than seasonally typical. Not bad given the pre-market action had NASDAQ futures -11 at one point following the terrorist bombings in Spain. Futures recovered well, however, even as the open approached. The market gapped lower, but then staged a very solid rebound, tested and held that move, and then rallied again. Volume was running strong, but had been all session with the turmoil from the prior selling and the bombing.
When Al Qaeda reportedly owned up to the bombing the market rolled over. SP500 gave up 19 points in the last 90 minutes as the market gave all of the bounce back and closed at session lows. The losses ranged from 1% to 1.6% with the small and mid-caps cracking their 50 day MVA. The SOX was out of step, dropping a 'modest' 0.5% and holding near key support. That was the lone bright spot, particularly with the NSM earnings, but as seen, even that could not stem the tide when terror concerns were stoked.
THE ECONOMY
Retail sales solid even with autos carrying the load in February.
February sales rose 0.6% on the back of autos, but were flat without them. Of course, January's gain jumped to 0.2% from -0.3%; ex-autos it rose to 1.2% from 0.9%. Big upward revisions, and upward revisions are what show continued above expectation growth. The flat growth sans autos disappointed most that take each month's data as some sort of isolated event much as many financial station anchors look at the market only on a day by day basis. Over the past two years auto sales have ebbed and flowed month to month, some months surging and others falling.
That has been the nature of the retail sales report. One month consumers buy cars, a sign they are confident enough to take on some debt. The next they buy clothes or other items and bypass vehicles. The January to February numbers illustrate this. In January auto sales fell 3%, then jumped 2.7% in February. The overall trend remains in place, i.e., rising consumer sales. Those sales are going to move even higher as tax refunds hit in force in March, April, and early summer. Stand back and look at the forest; it is still growing.
ECRI (Economic Cycle Research Institute) shows continued strong growth.
Speaking of the individual monthly or daily reports obfuscating the big picture, many are forgetting about the leading indicators that project what is going to happen down the road. The LEI continues to grow handily, pointing to solid, sustained growth 6 months out and beyond. The even more accurate ECRI indexes show impressive growth still to come.
The head of the institute noted Thursday that the weekly leading index continues at "really high levels," showing 10%+ growth in the indicator for the past 8 months. Really high? How about superb? He stated that not since the early 1980's following the Reagan tax cuts have the indicators shown this type of strength. That was his 1980's and Reagan comparison, not ours.
Despite the denials by many who feel going back to the prior tax scheme will (some misinformed in Congress call it the 'perfect level') right all wrongs, the actual historical data show the growth is for real. There is no conjecture. The cause of the growth is reinvestment in America that was unlocked by lower marginal tax rates and tax incentives to open the wallet and start buying new goods. This is the kind of investment that produces new businesses, new technologies, and ultimately new jobs to work at those businesses and use and produce that new technology. It is the kind of investment that spawned MSFT, DELL, CSCO, SUNW and the thousands of other businesses that created all of those millions of jobs that Greenspan and company grew to fear because we were too prosperous. Greenspan then set out to curtail it, and he did just that, and we lost a lot of those jobs. Now it is pathetically ironic that Greenspan is touting the same things that created the prosperity he played a large part in ruining in order to get back to that very level of prosperity he feared.
The early 1980's were just as much a time of change as now. The PC was rapidly developing along with all of its accouterments (printers, disk drives, bigger and faster chips, software, networks). A few jobs grew into millions based on this technology. As our economy and technology production grow, a small percentage of those jobs that were in the growth areas in the 1980's and 1990's are being 'outsourced' to markets where labor is cheaper. Given the US tax codes' inequities to US companies competing abroad, that is almost a necessity to stay competitive in these aging, yes even mature, PC-related industries born in the 1980's. DELL, MSFT, INTC, CSCO, TXN and the other huge tech companies can no longer be classified as growth companies. They are fighting over market share, trying to build a better mousetrap than their competitors. That means reduce costs at all costs in order to compete here and with the competition abroad. Look at Dell. It is not growing its market, just taking market share and being as efficient as possible, using overseas personnel to man the phones, etc.
These new jobs needed new skills, and workers retrained and college students were educated in these professions. There are new companies emerging and growing by developing new technologies. The wireless sector is an example with new companies springing up where the old line techs have failed to move. Those making flash memory, memory cards, miniature screens, etc. are growing and adding employees. Just as many of the jobs created as a result of the investment in the early 1980's were not foreseen, many now for some reason think we will no longer create sufficient jobs in new areas to employ those coming out of college and those unemployed needing a new job. Forcing companies to hang onto jobs in mature industries threatens those companies and thus those very jobs as they try to compete overseas, AND it diverts resources from the new technology development and threatens our standing as the major producer of new technologies. That in turn will eventually lower our standard of living vis- -vis the rest of the world. That is the bigger picture that the short term fix proponents cannot see.
What we need to do is keep the incentives to invest in the US that are currently present in order to keep the economy running strong. As Greenspan notes, that will ultimately lead to job creation of the type that the jobs report measures. In addition, we can add other short-term incentives to promote adding to payrolls such as tax credits for new hires to prime the pump for more job creation as the investment incentives did with regard to capital investment. You have to give businesses an incentive to hire and still leave them the money to invest in new technology that will continue our technological lead and provide for a continued increase in our standard of living.
THE MARKET
With SP500 and DJ30 cascading lower on strong volume it is hard to picture the market ready to make a turn. Those two indexes held up longer than NASDAQ without any real base under them to fall to and hold as support. NASDAQ has moved into its late 2003 consolidation and is in the middle of that range, slowing its descent. The other two large cap indexes, however, are in a plummet toward their next tops, and those are still significantly lower.
Those indexes were joined by trouble on the smaller cap front as the SP600 and SP400 broke their 50 day MVA. That is the first closed below the 50 day for the mid-cap index on this run from March 2003 since a momentary blip below that level in August 2003, and the index was rebounding on that session. The small cap index has closed below the 50 day MVA a time or two in its long run, but as both of them broke lower in unison, and as both have been stalwarts of the advance, their action over the next sessions will be important. A quick recovery is what you want to see, but despite just hitting new highs, their momentum the past 7 weeks has slowed.
SOX was interesting yet again Thursday. It was the first to start showing problems in December with a significant break below the 50 day MVA while the NASDAQ held that level. It recovered and rallied into January, but it started to sell before NASDAQ and the other large cap indexes there as well. It is also the first to break through the November and December highs and find the next support level at 475. The others are still heading toward that support level, including NASDAQ that at this point has just broken the November and December tops.
In short, SOX has been the leader, as is often the case, both upside and downside. It is volatile and it moves ahead of the others. It has found its next support level at 475, and while the rest of the market was plummeting (at least SP500 and DJ30), SOX tried to rally off that level. It failed ultimately when concerns that Al Qaeda was behind the Thursday bombing shook the market, but it ended the session showing a nice hammer doji as it again held 475. It is worth watching how SOX trades here. It can hold and start forming a bottom as the other indexes finish tumbling to their support in their game of catch-up selling.
Market Sentiment
The VIX is, compared to action over the past six months, soaring. It cleared its 200 day MVA for the first time in one year. The VXN is not showing the same kind of jitters though it is moving higher.
The TRIN index (short term trade index) is another measure of fear worth watching when times get dicey. It has closed above 2 for three consecutive sessions. It last did that in November of 2002, just after the market bottomed and was testing the first move off the lows. Many felt the rebound was over and that the bear would continue. Before the actual bottom, it closed over 2 on consecutive days (just 2, not 3) in June, August, and September. This is a rare reading that is typically seen when there is excess speculation and selling to the downside.
VIX: 20.67; +2
VXN: 26.58; +0.53
VXO: 21.71; +2.91
Put/Call Ratio (CBOE): 1.2; +0.29. The first close over 1.20 on this selling after hitting over 0.90 on the close the prior two sessions.
NASDAQ
Techs put on a decent show and were up over 10 points during the midday rally. The late selling was wicked, however, as it gave up 34 points.
Stats: -20.26 points (-1.03%) to close at 1943.89
Volume: 2.249B (+3.97%). Volume again rose but it die not explode higher as seen on NYSE. NYSE volume is starting to trade as a higher percentage of NASDAQ volume. As it was back in 2002, that is a sign that the excess is starting to get wrung out as the speculative index trades on lower proportional volume.
Up Volume: 559M (-8M)
Down Volume: 1.592B (+65M)
A/D and Hi/Lo: Decliners led 2.6 to 1. Breadth was not as bad as chips started to buck up.
Previous Session: Decliners led 3.42 to 1
New Highs: 53 (-39)
New Lows: 25 (+12)
The Chart: http://www.investmenthouse.com/cd/^ixq.html
Gapped lower, rallied back to try the tops of the October/December consolidation, but then could not withstand the wave of concern over possible AQ links to the bombing. 1950 is some support, but 1900 is a logical point as that is 11% from the high. That level represents a September high and the December low; tops are better support in some cases, and there is one at that level. Again, it is getting oversold, and it did not sell further after the gap lower. With SOX trying to hold it is still going to attempt at least an oversold bounce soon.
S&P 500/NYSE
Slammed lower on the strongest volume since late January. The selling is getting pretty intense.
Stats: -17.11 points (-1.52%) to close at 1106.78
NYSE Volume: 1.886B (+14.52%). Very strong trade as large cap stocks are dumped and NYSE volume jumps much more sharply than NASDAQ.
Up Volume: 254M (+57M)
Down Volume: 1.612B (+168M)
A/D and Hi/Lo: Decliners led 2.69 to 1. Still strong as small and mid-caps cracked the 50 day MVA.
Previous Session: Decliners led 2.93 to 1
New Highs: 73 (-108)
New Lows: 17 (+5)
The Chart: http://www.investmenthouse.com/cd/^spx.html
Diving toward some support at 1106, a May 2002 top. It managed to hold there Thursday, but with the strong downside momentum it is ripe for an undercut toward 1100 where there is a small shelf of support, or a bit lower, and then try a relief bounce toward 1125. SP500 still has to find its bottom, and after 1100 there is not much until 1075 where it moved laterally in December before breaking out on its last run.
DJ30
Look out below. When the blue chips broke, the broke in a hurry and on surging volume. DJ30 plowed under the September/November trendline formed by those lows (10,390). The small shelf at 10250 was waved at on the way lower. We said there was little support below the 50 day MVA (10,462), and it is showing that. 10,000 to 9,900 are the October and November tops where it should ultimately find some support. We anticipate it will try a relieve bounce before it gets that low.
Stats: -168.51 points (-1.64%) to close at 10128.38
Volume: 292 million versus 259 million Wednesday.
The chart: http://www.investmenthouse.com/cd/^dji.html
FRIDAY
We are still looking for a rebound attempt at some point over the next two sessions. Thursday the market tried, coming back well from some bad world news but then succumbing to further news that afternoon. There are real doubts that AQ was actually involved as the MO of claiming the deed immediately is atypical. The precision, however, was AQ-like.
SOX is trying to make a stand, and after gapping lower NASDAQ did not sell much further. They were the leaders in the selling and typically are the leaders in recoveries. The first bounce may just be in relief, however, as the indexes will need to test and make sure the prior levels are the lows. SOX can come back and test 475 after a bounce and the others can come back, undercut the previous lows, and then start up. When we say start up, we mean having found the bottom and can starting to form the bottom of the base. That does not mean ready to buy and straight back up.
The market is still seeking that bottom but is getting ready to bounce. TRIN is high, put/call ratio is surging, volatility is jumping, NYSE volume rising versus NASDAQ volume, breadth significantly negative for the past two sessions. After that bounce we will get bottom forming, i.e., after maybe an attempt to hold the bounce it fails for a second test. Then maybe some upside to start building the right side of the base.
For Friday that leaves us looking at a potential rebound attempt. We don't want to see it on the open but would prefer a lower open as on Thursday and then a recovery. That is always best as it shakes out the last sellers and lets the real money start the move. We will look for put plays to set up on the rebound; of course, that will depend upon how strong the rebound to test resistance turns out. Those stocks that have held support on this selling and are still in good shape to move higher are the stocks that we want to hone in on as the market rebounds.
Support and Resistance
NASDAQ: Closed at 1943.89
Resistance: 1990 to 2000, the top of the late 2003 base. The 10 day MVA (2004). The exponential 50 day MVA (2030). The simple 50 day MVA at 2060. The March/December up trendline (2104).
Support: 1950 provides some support but has been cracked. Mixed tops and bottoms at 1900.
S&P 500: Closed at 1106.78
Resistance: 1112 is an upper channel line from the summer. 1125 is the first resistance on a bounce. The exponential 50 day MVA (1130). The simple 50 day MVA (1138). The 18 day MVA (1140). 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: 1106 is a May 2002 top and represents some early 2001 lows. 1075 from a December consolidation.
Dow: Closed at 10,128.38
Resistance: September/November up trendline (10,390). The exponential 50 day MVA (10,463). The 18 day MVA (10,505). 10,705 is the March 2003 up trendline. The January high (10,705).
Support: 10,000 to 9900-9850.
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): 341K actual, 343K expected, 347K prior
Retail sales, February (8:30): 0.6% actual, 0.6% expected, 0.2% January (revised from -0.3%).
Retail sales ex auto (8:30): 0.0% actual, 0.5% expected, 1.2% January (revised from 0.9%).
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 3
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