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world stock market, us stock market
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3/15/04 Stock Split Report Update
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Stock Split Report Subscribers:
Full reports issued Tuesday, Thursday and Saturday. Monday and Tuesday we issue a market summary and some solid plays for the next session.
MARKET ALERTS
Targets hit alerts issued Monday: SOX
Buy alerts issued: None issued
Trailing stops issued: AGN
Stop alerts issued: WRLS; EAR
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:
- World events pile onto a down market.
- Production, capacity utilization rise as New York manufacturing skids.
- Some pretty bad market internal readings are, from a contrary perspective, making the market look more appealing, but it has not shown it is there yet.
- Subscriber Questions
Stocks get no chance to breath as world events squelch buyers.
No one was interested in sticking out a neck on the upside Monday as everyone decided to wait for stocks to work through the world events and then try again. The bombing itself was not the big problem for the markets, but the result. It had the exact effect the bombers intended: provide an impetus for the discord in Spain's voters to gel and in a knee-jerk response vote against the leaders supporting the war on Iraq and also on terror. It is rather clear that AQ views the action in Iraq as an ultimate threat to it; if Iraq is a success and some form of democracy takes root, the effect will be contagious in the entire region. That is a direct threat to AQ that wants the region back in the tenth century versus the twenty-first century. So, bomb Spain and see if you can influence the result and maybe take another key European player out of the fight. It worked.
Over the weekend we pondered the effect. Some were saying Friday that this was a wakeup call for Europe to get on board versus the fight against AQ. We come to the initial conclusion that it will have the 'Spain' effect, i.e., keeping those already lukewarm to the terror war at best lukewarm if not downright cold. Those in the war will come under more pressure to get out. Unfortunately there is a history of appeasing enemies with a 'if we don't bother them they won't bother us' mentality. As history shows, however, all that does is allow the enemy to grow stronger, and when the next, inevitable hit comes it is far worse. Spain is sending a 'terrorism pays' message right back to the terrorists. Most likely all Spain did was buy itself time while AQ turns on other countries doing battle in the war on terror, but it did not get off the 'list.' Everyone with any sort of democratic society is on the list.
The market suffered all session as it tried to quantify the outcome of the bombing and Spain's reaction. The morning selling took it down to last week's lows where it held, moved laterally, and started an early afternoon bounce. All it could manage was a lateral move up slightly off the session lows. It set up for a move higher, but as soon as it tried the sellers undercut the few buyers out there. In the last half hour the indexes undercut their prior session lows and last week's lows as well.
The price action was again weak, i.e., closing at the lows and undercutting the prior lows in this pullback. Volume is still an interesting story. NYSE volume rose again after falling on Friday's rally. So did NASDAQ volume, but it barely edged higher as NYSE volume again increased proportionately when compared to NASDAQ. That indicates again that the more speculative NASDAQ is getting sold out as compared to NYSE stocks. It does not mean a bottom has been hit here, but it is one indication that a bottom is starting to form up. Breadth is also showing indications as well as discussed below.
THE ECONOMY
New York PMI starts things off slow but production and capacity solid.
The New York business sentiment survey for March fell like a brick to 25.3 from 42 in February. It was expected to fall, but the drop made expectations of 38.9 look grand. Everything was down. The employee index fell to 9.7 from 16.5. The average workweek index fell to 11.9 from 26.5. New orders hit 23.5 versus 34.9. Inventories dropped to 3.9 from 8.6. Sizeable drops but still positive. Expectations six months down the road were still decent, however, at 53 versus 53.9 in February. That is the key figure to watch. Businesses act based upon expectations, and measures of business expectations down the road continue to trend higher.
Manufacturing continues its recovery as February production climbs.
Production added to January's solid 0.8% gain with a 0.7% rise, beating expectations of 0.4%. Capacity posted another gain as well at 76.6% versus 76.4% expected and 76.1% in January. Many discount the manufacturing sector because it makes up a smaller and smaller percentage of economic activity (less than 20%) and employs fewer than 15% of all US workers. Manufacturing, however, is very sensitive to economic changes and the increase in activity shows capital investment in business that is so needed to keep the recovery going.
The production report again held promising insights. Over the past three months production is up 6.3%, very solid growth. Computers and office equipment investment jumped 25%. A very solid showing and key to the future. Still, that is keeping the employment in manufacturing lower as productivity outpaces the need to hire new manufacturing workers. Manufacturing is simply on a continued downtrend that it has suffered the past 50 years. Technological advances continue to mothball jobs just as they have done since the cotton gin. The US has become a service economy, and our manufacturing since the 1970's has become extremely efficient, focusing employment opportunity even more into the service sector.
Bottom line: manufacturing, while not the same economic powerhouse it used to be, is still important to watch because it is so economically sensitive. The strong upturn in production the past quarter continues to demonstrate the strength of the overall economic recovery even as we start having the doubts it is sustainable. This is a natural ebb and flow of sentiment, similar to early 2003. There was clear evidence the economy was improving (at least to us), but there was a lot of worry as we headed into the Iraq War that any nascent recover would fail. Same issues right now as worries over a very few number of 'outsourced' jobs has the major news providers and some of our leaders very negative about a strong recovery.
THE MARKET
The bombing did not give the weak volume rebound a chance to rally further as we were looking for. Another whipping pushed the market right back down, giving back the Friday gain and more. Friday's low volume bounce was in no way a sign that the bottom in this correction had come, and the Monday selling on some rising trade shows again that the selling has not been flushed out yet. SP500 continues to sell on stronger volume even as NASDAQ volume shows signs of dissipating on the downside. As of yet the price/volume action has not turned to accumulation though it is showing signs it is approaching that.
Breadth was atrocious. NASDAQ breadth was almost -4:1 and NYSE was not a breathless beauty at -2.9:1. NASDAQ breadth is getting extreme levels that are associated with bottoms being formed. Back in July 2002 NASDAQ breadth hit -4.7:1. On the second leg of the double bottom in October (10/9/02) NASDAQ downside breadth hit -5.9:1. While -4:1 is still a bit out of that league, it is close. Moreover, that was a major downtrend that was in the process of reversing; you will see more extreme levels in that situation.
But, we cannot get too excited about this just as we cannot say that just because NYSE volume is higher versus NASDAQ volume that a bottom is set. It is being set, and this is another indication to that effect. Back in 2002 these high downside breadth readings 2.5 months apart. Again, this is a sign that levels are getting extreme enough to start turning the market, but they are not something you can take to the bank and start loading the boat with equities just yet.
Other factors to consider: put/call ratio hitting over 1.0 again on the close, volatility breaking out of its near term downtrend, new lows very tame as the indexes crack through near support.
Market Sentiment
Volatility continues to rise with VIX continuing its break over the 200 day MVA and out of its near term downtrend. It is still well below what are considered reversal type levels; indeed, it is just now in the low end of the 'normal' range from 20 to 30. It has started a sharp rise over the past week, however, and that coincides with other indications such as rising NYSE volume as a proportion of NASDAQ volume, increasing downside breadth, and the put/call ratio.
VIX: 21.13; +2.83
VXN: 27.13; +1.83
VXO: 21.38; +2.66
Put/Call Ratio (CBOE): 1.05; 0. Third close over 1.0 in the past week. This is starting to indicate bottoming levels. The overall put/call ratio still needs to show another close or two over 1.0.
NASDAQ
Slightly undercut last week's lows as it gave back all of Friday's gains and more. Volume was higher, but modestly and well below average.
Stats: -45.53 points (-2.29%) to close at 1939.2
Volume: 1.739B (+1.78%). Volume was up but still well below average. Well below average volume as NYSE volume spikes higher and moves above average. As noted, this is another indication the market is working toward getting sold out in this pullback. It does not mean the selling is over.
Up Volume: 154M (-1.247B)
Down Volume: 1.575B (+794M)
A/D and Hi/Lo: Decliners led 3.92 to 1. Heading toward levels that also indicate the bottoming process is underway.
Previous Session: Advancers led 3.06 to 1
New Highs: 64 (+2)
New Lows: 12 (+2). Very few new lows are showing up even as NASDAQ hits new lows for the month. The fact that few stocks are hitting fresh 52 week lows shows the selling has not gotten out of hand even as some sentiment indicators show extremes.
The Chart: http://www.investmenthouse.com/cd/^ixq.html
NASDAQ played with last week's lows (1943) all session, managing to make a midday move off of a test of that level. It never found its feet, however, and by the close was back to those levels. In the last hour it undercut 1943, hitting a new closing low for March on rising trade. Volume was still well below average, however, after the strong selling Thursday that could not take stocks significantly lower. It is showing signs it is getting sold out, but a test of 1900 as noted last week looks to be in the cards.
S&P 500/NYSE
Still trying to hold near the May 2002 top, but volume was up again as selling returned.
Stats: -16.08 points (-1.43%) to close at 1104.49
NYSE Volume: 1.526B (+9.7%). Volume was back up to average on the selling, again showing more strength downside than NASDAQ.
Up Volume: 169M (-1.031B)
Down Volume: 1.35B (+473M)
A/D and Hi/Lo: Decliners led 2.88 to 1. Strong but not the blowout that NASDAQ showed. Last time they were hitting this level, however, NASDAQ did show more downside breadth than NYSE as it is doing now.
Previous Session: Advancers led 2.78 to 1
New Highs: 79 (+1)
New Lows: 19 (+1). As with NASDAQ, very few new lows even as SP500, SP400, SP600 hit fresh lows for the month.
The Chart: http://www.investmenthouse.com/cd/^spx.html
SP500 once again was trading around the May 2002 top at 1106, slightly undercutting it on the close. SP500 has been in a nasty game of catch-up with NASDAQ and SOX on the downside, and the rising volume Monday indicates it may not be over. 1100 to 1096 is some support, but after that rather weak support level there is not much until 1075 to 1070.
DJ30
As with the other indexes, the blue chips undercut last week's lows (10,120). Volume moved lower but was still above average as the selling renewed. Perhaps it is getting a bit sold out as well, but it still has no real support at this level. Some support at 10,000, but 9859-9855 is the next real support. As with SP500, this move is playing catch-up in the selling.
Stats: -137.19 points (-1.34%) to close at 10102.89
Volume: 219 million versus 223 million Friday.
The chart: http://www.investmenthouse.com/cd/^dji.html
TUESDAY
Housing starts, permits, and the Fed's one day meeting on tap for Tuesday. Those are on the back burner as were the manufacturing data Monday. The selling in the market has center stage along with world events. The market is showing signs it is reaching a point where selling is running its course, helped along by the events in Spain. Those events did not really prolong the selling, they are speeding up the resolution. We were anticipating a further relief bounce until Spain ousted its ruling party. That more than the attack had the world markets pondering what is next, and when that uncertainty exists, markets sell.
There is still a lot of downside momentum even with some signals the selling is getting extreme. That can still take stocks lower with DJ30 testing 10,000, SP500 undercutting 1100. We are still closely watching SOX. We looked at it hard today and decided to take a small gain on our downside play. We may have been premature, but it has been holding real support at 475ish. The rest of the market has yet to reach this level of support in its selling, and SOX has been tapping around this level for the past week. It and its components are not shouting it is time to move in, but we think it will turn first, and when it does it will be a sharp move that may come back to test this level once more, but it might take awhile; with options it is best to take the gain and look for a better point of attack. Maybe it gives one more push to the 200 day MVA (460), but we bet that is intraday, and will, in a very aggressive move, be looking at call options if is starts up off that level.
In sum, the market is showing signs it is putting in a bottom, but the price action is not there yet. Momentum is still down to test near support given the continued pondering of the ramifications of the Spain vote. Looking for SOX to undercut this 475 range but then reverse to signal that a short term upside push has started. That won't mean that the market runs straight up. It will most likely move sideways for another several weeks to complete the base/consolidation. We will see stocks set up good patterns during that time. Not a few patterns but many. Price/volume action will change character to accumulation. Attitudes toward stocks won't change much, however, and that will be a very good sign that the upside breakout is coming back.
Support and Resistance
NASDAQ: Closed at 1939.20
Resistance: 1990 to 2000, the top of the late 2003 base. The 10 day MVA (1990). The exponential 50 day MVA (2024). The simple 50 day MVA at 2058. The March/December up trendline (2115).
Support: 1950ish is trying to hold but is failing. Mixed tops and bottoms at 1900.
S&P 500: Closed at 1104.49
Resistance: 1125 is the first resistance on a bounce. The exponential 50 day MVA (1129). The simple 50 day MVA (1138). The 18 day MVA (1135). 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; it is trying to hold up. 1075 to 1070 from a December consolidation.
Dow: Closed at 10,102.89
Resistance: The 10 day MVA (10,353). September/November up trendline (10,425). The exponential 50 day MVA (10,440). 10,715 is the March 2003 up trendline. The January high (10,705).
Support: 10,000 to 9900-9850. 9859-9855 is the next real support
Economic Calendar
These are consensus expectations. Our expectations will vary and are discussed in the 'Economy' section.
3-15-04
New York PMI, March (8:30): 25.33 actual, 38.9 expected, 42.05 February.
Industrial production, February (9:15): 0.7% actual, 0.4% expected, 0.8% January.
Capacity utilization, February (9:15): 76.6% actual, 76.4% expected, 76.1% January.
3-16-04
Housing starts, February (8:30): 1.940M expected, 1.903M January.
Permits, February (8:30): 1.900M expected, 1.920M January.
FOMC meeting: 2:15 results.
3-17-04
CPI, February (8:30): 0.3% expected, 0.5% January
Core CPI: 0.1% expected, 0.2% January.
3-18-04
Initial jobless claims (8:30): 345K expected, 341K prior.
Leading economic indicators, February (10:00): 0.1% expected, 0.2% January.
Philly Fed, March (12:00): 30.0 expected, 31.4 February.
SUBSCRIBER QUESTIONS
Q: Why the delay in the January and February PPI?
A: The methodology for calculating the PPI is being changed. Specifically, certain items are being dropped while others are being added, and the way certain other categories are calculated are being changed. The PPI calculation has not been changed since the 1930's, so this was just a bit overdue. It has also been planned for a long time. When the data was put into the computer, however, the program did not crunch the numbers. They are working on getting the data and the software to mesh. They don't know when that will be just yet.
Some are saying it is a conspiracy because the data is horrible or some other idea about how we are being hoodwinked. Believe me, there are other ways the government is hoodwinking us in much more subtle ways. It is far more clever than publicly noting it cannot generate a report on time. Indeed, that only makes it look all the more innocent with respect to the other areas where it plays fast and loose. Now how is that for a conspiracy theory?
End part 1 of 2
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