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money investment, investment help
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3/24/04 Investment House Alerts Report
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IH Alert Subscribers:
MARKET ALERTS:
Target hit alerts issued Wednesday: None issued
Buy alerts issued: TTP
Trailing stops issued: None issued
Stop alerts issued: MICU; PD
MARKET SUMMARY
Stocks fight to a standstill to end a very choppy session.
Investors sold into each rally attempt Tuesday, pushing the indexes to their lows on the close. Wednesday stocks tried to rally again, and gains were again sold into. Dips were bought, however. So, the session was a series of rallies and declines, rallies and declines. In the end NASDAQ and SOX were positive, the other indexes negative, but none far from flat. Volume was slightly higher on NYSE and NASDAQ. The indexes ran some slow motion wind sprints, finished where they started, and took it to the showers.
If Monday had not been such an ugly down session, the action thus far would have been a very nice continuation of the prior week's lateral consolidation attempt. The Monday selling on fears regarding world events broke up that lateral move, but the market, at least NASDAQ, is trying to continue its consolidation, just at a lower level. Right now the tech bulls and bears seem evenly matched, and after a sell off that typically signals a rebound. As noted in Tuesday night's conclusion, NASDAQ is showing signs it wants to rebound some right here, and the Wednesday action solidified that notion. With the overall lethargy in the market and the small caps struggling, it will have to do the work itself along with a recovery by SOX.
THE ECONOMY
February durable goods orders jump, but the real key is the rising capital investment.
Orders jumped 2.5% (1.5% expected) after -2.7% in January. We all know about the March wind and how volatile it is. The durable goods report is that way 12 months of the year. Thus a 5% swing is not abnormal. What shook up investors if you want to call it that was the ex-trans number that shows a modest 0.3% gain versus the 0.4% expected. The ex-trans revision was solid, positing a 0.6% jump versus 0.2% previously reported. Between January and February we saw transportation flip-flop as did the remainder of the report. In short, this is much like retail sales numbers where auto sales swing month to month.
The details are the key, and there is not much devil in them. Unfilled orders were up for the sixth straight month, rising 0.1%. That bodes well for continued solid production numbers, and indeed, we see industrial production continuing a steady if not spectacular increase. Non-defense capital spending was up 1.1% month/month, and that continues its double digit gains year/year. Indeed, orders for electronic equipment and computers rose 1.2%, its third consecutive gain, and a 15% year/year rise. Orders for computers alone were up 24% year/year.
This business investment remains the key for the economy as it was lack of business investment in 2000 and beyond that so hammered the economy. The tax incentives worked to get businesses spending once again. Those incentives such as increased expensing and depreciation allowances run out in 2004. Thus we will see a business spending orgy of sorts this year, particularly in the second half and specifically the fourth quarter. A lot of computer systems installed in the late 1990's and in 2000 are dinosaurs at this point, and the expensing and depreciation won't be passed up. Same with vehicles for business; they won't pass up expensing in addition to the incentives that will continue at least through midyear. Thus we can expect to see capital spending remain strong in 2004 as companies rush to take advantage of incentives that are going to expire.
New home sales rise 5.3%, greater than expected.
February sales rose a bit faster than expected, posting 1.163M annualized units versus 1.1M expected. Low rates continue to have a solid impact on sales, jumping them to the largest increase since last August. The power of low rates is strong. Coupled with a belief that rates will rise in the future only stokes the desire to take advantage of them. Thus, new home sales jumped just as mortgage applications rose again this week after a stellar rise the prior week.
THE MARKET
Stocks pulled a mixed move but neither the selling nor the buying were strong. After a continued hard drop Monday, NASDAQ is once again trying to find support, tapping at 1900ish and the 200 day MVA on the lows and managing to hold the line. It along with SOX have found this level first, and thus they would be the first to attempt a recovery. NASDAQ may have come close enough to the 200 day to trigger the move. It needs a nice rebound up near 2000 (the exponential 50 day MVA) to start the recovery process. A move up to that level and a stall out could take a few weeks and set up the next test of the 200 day MVA that would act to solidify the bottom of the correction.
That of course means that the market is still not ready to make a break to new highs on any bounce. It is still mired at the low of this correction. Even if it does bounce, many stocks are not in position to make sustained moves. They still have to complete their bases, i.e., get all of the sellers out and get in position where the long term investors believe they are solid buys. That typically takes a test of the prior low, and if NASDAQ can make a sustained bounce from here (that means more than a few sessions) that is just the first step in the process. Still, such a move would be very playable, so to speak.
Market Sentiment
The financial stations had in-depth (for them) discussions of the correction, discussing how long it would last, how much further down it would take stocks, what investors were feeling, etc. When discussing mutual fund outflows, one anchor said investors were "walking away" from the market. Others stated you should buy when there is 'blood in the streets,' his point being we were not there yet. These are somewhat showing the extremes of sentiment, some drawing the conclusion investors had once again had it with stocks, while others still think a massive bear market is set to continue.
That is why sentiment is a secondary indicator and rather tricky to judge. Certainly there is not 'blood in the streets' right now. The economy is in expansion, coming off a recession and an almost cataclysmic drop in business investment. The blood in the streets has passed. That is a good time to start averaging in, but it is not the only time to buy either. There is no 'one time' to buy. The market gives opportunities as it trends higher, just as it is building in an opportunity now. It is up to us as investors to read what the market is telling us, looking primarily at the overall economy, price/volume action, and leadership. Sentiment augments that analysis by showing us whether investor psychology has hit extreme levels.
In this correction will there be a the massive extremes seen for instance in July through October 2002? Probably not. That was the end of that long downtrend and there were very high levels of volatility, put activity, negative breadth, negative volume, and bearish sentiment. Those come at major market turns. We still look at the current correction as a normal correction in a continuing uptrend based on a continuing economic expansion and thus a continuing earnings expansion. While we will see sentiment hit some extreme levels, we won't see all sentiment indicators screaming higher. The put/call ratio has been closing around and over 1.0 on several occasions, an indication of extreme. The TRIN closed over 2.0 on three consecutive sessions two weeks back in that selling; that indicates a tradable rally in the next 7 to 10 sessions, just about where we are now. Volatility has jumped, but is nowhere near strong levels.
VIX: 19.81; -0.86
VXN: 26.06; -0.78
VXO: 20.49; +0.04
Put/Call Ratio (CBOE): 0.88; +0.20
NASDAQ
Tapped again toward the 200 day MVA and rebounded, holding the bounce to the close this time. Trying to set up for a bounce.
Stats: +7.68 points (+0.4%) to close at 1909.48
Volume: 1.85B (+0.5%).. Volume crept higher again on an up session. It was hardly inspiring accumulation, but just as distribution can sneak in on below average volume, accumulation can start in a low key manner. More of a change in the undercurrent than a sudden reversal.
Up Volume: 1.05B (+218M)
Down Volume: 768M (-221M)
A/D and Hi/Lo: Decliners led 1.19 to 1. Breadth turned negative despite the advance, just as breadth was positive Tuesday despite the decline. It is mixed but modest, what you would see in a transition attempt.
Previous Session: Advancers led 1.04 to 1
New Highs: 50 (-4)
New Lows: 23 (-7)
The Chart: http://www.investmenthouse.com/cd/^ixq.html
NASDAQ showed a doji as it again held over 1900 and the 200 day MVA (1889). A doji is where the open and close price are in close proximity, indicating that the buyers and sellers were at a standoff. After a rally or a selloff this can indicate that the tide is changing. The tapping at 1900 and rebounding off that level is also an indication that there is some buying interest at this level. NASDAQ has come down from 20% above its 200 day MVA to sitting right on top of it. It starts to correct at that high level, but falling to the 200 day does not automatically mean it will rally right back up. With the put/call readings we saw the past two weeks, the extreme TRIN reading, and now the subtle shifting in the price/volume action trying to take root, we are anticipating NASDAQ is going to start the first serious bounce in this correction. We don't expect it to carry NASDAQ to the breakout, but it will last more than a couple of sessions. It will set up another test, and if that is successful, then it can complete its base along with its stocks and provide a breakout, perhaps when earnings season is in full swing.
Now it may make another test lower before starting that move. MU reported some good earnings after hours but missed by a million on $1B revenue. It was getting roughed up after hours, and that could set the index lower at the open. A good sell off early could flush out the last sellers and get the rebound underway.
S&P 500/NYSE
Still seeking the bottom, undercutting the recent lows and closing at a new low for the correction as volume rose.
Stats: -2.62 points (-0.24%) to close at 1091.33
NYSE Volume: 1.497B (+4.52%). Volume again rose on the selling, coming in just below average. SP500 and the small caps remain under distribution (overall big money selling), but it is rather mild. Nonetheless it has not seen the subtle changes as on NASDAQ, and with SP500 having sold modestly to this point, there is still ongoing erosion that could easily transform into further selling. Whether that occurs now or after a NASDAQ led rally we will see.
Up Volume: 448M (-289M)
Down Volume: 1.018B (+339M). Well out in front of up volume, demonstrating the weakness.
A/D and Hi/Lo: Decliners led 1.83 to 1. Pretty stout as the small and mid-caps had a rough go of it as well.
Previous Session: Advancers led 1.33 to 1
New Highs: 100 (+23)
New Lows: 24 (+6)
The Chart: http://www.investmenthouse.com/cd/^spx.html
The large and small cap indexes made new closing lows in their corrections Wednesday, doing so on rising, near average volume. They are still making lower lows in their corrections, having given back half the amount of NASDAQ. As noted previously, they appear ready for a test of 1075, but if NASDAQ decides to rally they will most likely follow to a certain degree. That means they may put in the lower test toward 1075 or even a bit lower on the second selling dip in the correction. That would create a classic double bottom pattern.
DJ30
Now DJ30 is showing action more akin to NASDAQ, tapping at 10,000 this week on the intraday lows. It lost ground Wednesday, but just a nominal amount. After tapping 10,000 on the low it rebounded, and it did so on rising volume. It also showed a doji over this support similar to NASDAQ. Looks ready to bounce. 10,250 to 10,370 is a likely range where it could bounce and then and find resistance.
Stats: -15.41 points (-0.15%) to close at 10048.23
Volume: 224 million versus 215 million (average) Tuesday.
The chart: http://www.investmenthouse.com/cd/^dji.html
THURDAY
A good warm up on economic reports with jobless claims, final GDP, help wanted index, and existing home sales. This precedes personal spending and income on Friday. There has been a lot of worry about the economy, and basically about anything else that an investor could worry about, and some solid numbers could start to swing the tide and help start the bounce NASDAQ looks ready to give. The real news hits next Friday, however, with the March jobs report. That remains the last issue for the economy; start a string of 200K per month jobs and you have the main issue of the year pretty much put to bed. Unfortunately, that is most likely not going to happen with that report. April at the earliest.
We are going out on a limb somewhat as we are watching for NASDAQ to start a rebound here that lasts more than a day and one-half move up to the short term MVA. The 200 day MVA is a typical place to rally though we think it will ultimately be slightly undercut before this correction is over. We will be looking for some short term trades as well as picking up those stocks in good patterns that use the rebound to breakout. Those could be the early leaders in the next breakout and rally by the market.
Again, NASDAQ could take an early drop on the MU earnings, shake out the last sellers, and then start the move.
Support and Resistance
NASDAQ: Closed at 1909.48
Resistance: 1940 and the 10 day MVA (1942). 1990 to 2000, the top of the late 2003 base. The exponential 50 day MVA (2002). The simple 50 day MVA (2040).
Support: Mixed tops and bottoms at 1900. The 200 day MVA (1889).
S&P 500: Closed at 1091.33
Resistance: 1096 to 1100. 1106 is a May 2002 top and represents some early 2001 lows. The 10 day MVA (1109). Price resistance at 1125. The 18 day MVA (1118), the exponential 50 day MVA (1123). The simple 50 day MVA (1136). 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: 1075 to 1070 from the December consolidation.
Dow: Closed at 10,048.23
Resistance: The 10 day MVA (10,185). The 18 day MVA (10,280). The exponential 50 day MVA (10,371). September/November up trendline (10,495).
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.
3-24-04
Durable goods orders, February (8:30): 2.5% actual, 1.5% expected, -2.7% January.
New home sales, February (10:00): +5.3% (1.163M) actual, 1.1M expected, 1.106M January.
3-25-04
Initial jobless claims (8:30): 338K expected, 336K prior.
GDP final, Q4 (8:30): 4.1% expected, 4.1% preliminary.
Chain delflator, Q4 (8:30): 1.2% expected, 1.2% preliminary.
Help wanted index, February (10:00): 39 expected, 38 January.
Existing home sales, February (10:00): 6.12M expected, 6.04M January.
3-26-04
Personal income, February (8:30): 0.3% expected, 0.2% January.
Personal spending, February (8:30): 0.5% expected, 0.4% January.
Michigan sentiment revision, March (9:45): 93.5 expected, 94.1 preliminary.
End part 1 of 3
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