|
|
us stock market, trade stock
* * * *
3/25/04 Investment House Alerts Report
* * *
IH Alert Subscribers:
MARKET ALERTS:
Target hit alerts issued Thursday: None issued
Buy alerts issued: RHAT; NVDA; SGMS; NSM; SWK; FINL
Trailing stops issued: None issued
Stop alerts issued: LRCX; ASF
MARKET SUMMARY
Stocks enjoy strong surge all session.
Wednesday we stated a bounce was coming, led by NASDAQ. Thursday the futures were higher and the market opened higher as well and never looked back. Stellar price gains across the board, strong breadth, and a smattering of better trade on NASDAQ. There were some good breakouts on very nice volume as well, and we were happy to take advantage of those.
Overall, however, breakouts from strong patterns were the exception. Much of the action involved rebounding from the recent beatings stocks have taken. Further, NYSE volume was lower, showing that though most of the market was moving higher, the non-tech small and large caps were moving on lower trade. In short, those looking for the holy grail from this rally will be disappointed. Once again the market is trying to establish the first bounce from a potential bottom; this first rally won't be the rally that takes it out of the correction, but it is a necessary part of setting up the bottom. Still, this move has more upside, and indeed, we want it to last awhile without an immediate reversal.
THE ECONOMY
Final Q4 GDP holds at 4.1% as profits surge, leading to investment.
There are some very positive synergies working in the economy, particularly on the capital investment side. As noted Wednesday, that is the key part of the recovery as it was the missing link in the recession. Consumers continued to spend and are still doing so even with the loose talk about how many jobs have been lost and how few have been created. There is continued fretting (though most of it is politically motivated) about how the consumer will lose steam if jobs don't surge, but any economist worth his or her salt will look at the confidence levels and note that compared to historical levels, they are no where near the point where a problem with consumption begins. Indeed, even with high gasoline prices a recent survey shows no impact in driving or consumption habits. Consumers responded that they would not change their plans on buying their big SUV's or trucks, they were not planning on cutting back driving or spending, and would not even do so if prices were $1/gallon higher than they are now.
That is why the 29% increase in profits in the Q4 GDP report is so impressive and important. The profits reported in the GDP report are very real; they are the ones reported to the IRS. They are up 90% from the bottom of the recession and to us they are ready to continue through this year, surging in the second half. As discussed Wednesday, that will get a boost from capital equipment purchases made to take advantage of the expensing and depreciation provisions in 2004, the last year they are available. In addition, many systems purchased at the turn of the millennium are antiquated and need replacing. New equipment will continue strong productivity and thus strong profits gains. That means even more investing in the business. That is a virtuous versus vicious cycle.
Jobless claims continue lower levels.
Jobless claims are doing their part, holding the recent drop well below 350K, coming in at 339K, a slight rise from the 338K the prior week (revised from 336K). Further, continuing claims fell to 3 million from 3.05 million. They are falling both as jobs eke into the economy and some workers leave the workforce. It is leading to higher jobs growth even in the non-farm payrolls number, but it is slow given the productivity and the wariness to increase overhead. As we have noted previously, contract workers are masking the number of jobs in the economy. They are not the high benefits jobs that were there at the peak of the boom, but they are what is typical when the economy starts over from a bust: contract workers first, then they are converted to full time workers as they prove themselves and the economic recovery proves it has legs. This is even truer today with the rise in contract worker groups beyond secretarial or labor jobs. With lawyers, engineers, architects, accountants and other professionals now working contract, there is not one industry where they are not utilized.
Hints that artificially low interest rates are going to end sooner.
The Fed is starting the very first stage of hinting rates are going to be changed. The message is mixed; earlier in the week a non-voting FOMC member said he was not convinced we had beat inflation. Thursday another FOMC member stated that the market needs to realize that rates are not going to stay low forever. The Fed is getting ready for a rate hike, but we still don't think it will come until there are a few good months of employment data. What this tells us is that the Fed expects the jobs report to start showing more job creation in the near future, and it is preparing the market for what it will do when there are a few good months of solid economic data. Remember, rates could easily rise 100 basis points without putting any pressure on real rates. The Fed is trying to be cautious as it prepares for what the rate hikes it knows are inevitable if the economy continues its expansion.
There are other signs popping up that the bond market could take on some water as rates rise. The dollar has started to rally against the euro again after double bottoming in January and February. Further, Japan has slowed its intervention against the dollar. Instead it is running commercials urging westerners to invest in Japan. There is real recovery ongoing in Japan as we noted a year ago. That has continued to improve along with the US economy. Perhaps Japan now feels it is far enough along to try to attract foreign investment again and that it does not have to artificially depress the yen versus the dollar. All of these would tend to adversely impact the bond market and thus interest rates.
THE MARKET
Big price surge and NASDAQ again showed some modest accumulation. Volume rallied back near average as NASDAQ surged off the 200 day MVA. It was a tremendous price gain and a so-so volume showing. You would want to see above average trade for such a move for it to really have a lot of meaning. Further, it was not supported by NYSE volume that lagged the Wednesday trade.
Many were calling this an oversold bounce, and yes it is that given that NASDAQ has sold pretty hard this month. It looks to be a bit more, however, in that the index tapped at the 200 day MVA for three days and then made the bounce. It also follows the hint of change in price/volume action. We expect it to continue the move for several sessions. No it won't be shooting higher session after session, but it will trend higher in the near term. It will try to break over 2000 or a bit higher, struggle along awhile, and then fall back to test the 1900ish level again. That will be the move where we see if the bottom has been set. If it can hold there and continue to build the base as well as show dramatic price/volume action improvement, we can start looking for the breakout catalyst.
Why is this not the move that takes it out of the correction? Because there is still a lot of work to be done on stock patterns. Looking at the majority of stocks, Thursday they were higher, but they are also still deep in their corrections. Thursday they posted nice bounces but they have not gone through enough basing to work off all of the overhead supply accumulated from the beginning of the year when this correction began. They have to continue to work off that overhead supply as money moves into them (accumulation), and that means working through the full base and then setting up for the next breakout. Nasdaq has to do the same, and if this is the rough bottom we think it is, there is still quite a bit of lateral work to do. Thursday was a good start toward, but not the end of the correction.
Market Sentiment
VIX: 17.88; -1.93
VXN: 23.7; -2.36
VXO: 17.76; -2.73
Put/Call Ratio (CBOE): 0.7; -0.18
NASDAQ
Led the charge along with SOX as we thought it would, surging an impressive 3% as it moved off the 200 day MVA.
Stats: +57.69 points (+3.02%) to close at 1967.17. You don't often get to see price moves such as this.
Volume: 1.973B (+6.67%). Volume was up but still below average. Accumulation for certain, and showing the continued improvement in the price/volume action on NASDAQ. It is still more of a change in the tide than a big surge (you would expect a lot more volume for such a strong gain), however, an indication that though the move was solid, the index still has more work to do before it is ready for a real breakout.
Up Volume: 1.833B (+783M). That is lopsided trade.
Down Volume: 109M (-659M)
A/D and Hi/Lo: Advancers led 2.85 to 1. Solid breadth. NASDAQ 100 was 99 to 1.
Previous Session: Decliners led 1.19 to 1
New Highs: 65 (+15)
New Lows: 16 (-7)
The Chart: http://www.investmenthouse.com/cd/^ixq.html
We said NASDAQ was ready for the first serious bounce in the correction, and Thursday it looks to have started. Good volume, super price move, some decent leadership. NASDAQ surged to the 18 day MVA (1966) in one move. That level can act as resistance in a downtrend, but on this move we think NASDAQ has more in it. We are looking for a run up to the 50 day MVA (2000) to 2020, maybe 2050. Those are rough levels, and we will have to see what the price/volume action is as it makes the move. We are also not looking for an immediate rollover when it reaches its peak. A move laterally at those levels for a week, maybe even a dip and then another try at them before it turns and falls back to make the second test of the 200 day MVA range. From there it will set the bottom and start the final part of the base.
S&P 500/NYSE
Excellent point gain, but volume contracted as the large caps rallied past 1106 on the way to the 10 day MVA.
Stats: +17.86 points (+1.64%) to close at 1109.19
NYSE Volume: 1.481B (-1.03%). Volume backed off from the Wednesday distribution as SP500 continues to lag as far as price/volume improvement. It most likely has not found its bottom in this correction based on this alone.
Up Volume: 1.253B (+805M)
Down Volume: 215M (-803M)
A/D and Hi/Lo: Advancers led 2.59 to 1. Solid A/D line as well though lagging the techs.
Previous Session: Decliners led 1.83 to 1
New Highs: 102 (+2)
New Lows: 9 (-15)
The Chart: http://www.investmenthouse.com/cd/^spx.html
Rallied to the 10 day MVA (1109), managing to clear some resistance at 1106. As noted, with volume lagging and still showing overall weak price/volume action, SP500 has not found its bottom yet in the correction. It can still rally up toward the 50 day MVA (1122 to 1125) on this move, but after that it will most likely test back toward 1075 to find the bottom. It will most likely do that when NASDAQ makes its test back toward the 200 day MVA after this rally.
DJ30
Unlike SP500, DJ30 has been trying to hold up similar to NASDAQ the past week, tapping at 10,000 on the lows. It posted a nice rally with the rest of the market Thursday, but volume was lower as it also holds onto the poor price/volume action demonstrated by SP500. DJ30 looks to be along for the ride on this one, and a rally up to the 50 day MVA (10,365) is our first target before it starts to falter some.
Stats: +170.59 points (+1.7%) to close at 10218.82
Volume: 216 million versus 224 million Wednesday.
The chart: http://www.investmenthouse.com/cd/^dji.html
FRIDAY
Personal spending and income are out before the open, the Michigan sentiment at 9:45. The former are the most important economically; as long as sentiment holds decent levels consumers will consume. Both are expected to rise slightly, and we anticipate that is what they will show.
As for the market, it has started a necessary rebound, particularly on NASDAQ, to start setting the bottom of the correction and building its base. We think it has more upside here, but the move Thursday was explosive and it won't make a repeat performance in all probability. What we want to see it do is continue the rally up to 2000ish on NASDAQ, move laterally and slightly higher as it tries to continue the move, and then after a couple of weeks come back down to test the 200 day MVA again, slightly undercutting it. That will set the stage for the bottom to solidify and stocks to start putting the finishing touches on their bases.
We will continue to look for solid plays to enter into, i.e., stocks with solid bases that are making the break higher or are just about to do so. Rebound plays are pretty much out of range already given the size of the bounce Thursday and the potential length of this run. This may turn into something better that does not come back again, but we would be very surprised; the tap at the 200 day MVA and rebound is a bit too pat. Once more good scare as we discussed over a month ago will be what the market needs to finally flush out the sellers when it looks as if NASDAQ is going to undercut its prior low and continue the selling.
Support and RESISTANCE
NASDAQ: Closed at 1967.17
Resistance: 1990 to 2000, the top of the late 2003 base. The exponential 50 day MVA (2000). The simple 50 day MVA (2037).
Support: Mixed tops and bottoms at 1900. The 200 day MVA (1890).
S&P 500: Closed at 1109.19
Resistance: 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 (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. 1096 to 1100 may also try to hold. 1075 to 1070 from the December consolidation.
Dow: Closed at 10,218.82
Resistance: The 18 day MVA (10,273). The exponential 50 day MVA (10,365). September/November up trendline (10,505).
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): 339K actual, 338K expected, 338K prior.
GDP final, Q4 (8:30): 4.1% expected, 4.1% preliminary.
Chain delflator, Q4 (8:30): 1.5% actual, 1.2% expected, 1.2% preliminary.
Help wanted index, Februy (10:00): 40 actual, 39 expected, 38 January.
Existing home sales, February (10:00): +2% (6.12M) actual, 6.12M expected, 6.00M 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
|
us stock market
trade stock
|
