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world stock market, us stock market
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3/30/04 Investment House Daily
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Target hit alerts issued Tuesday: None issued
Buy alerts issued: C
Trailing stop alerts: None issued
Stop alerts: None issued
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SUMMARY:
- Market starts soft, finishes strong, lacks volume.
- Consumer confidence still good enough though worrying about jobs.
- Small caps step up, lead market again.
- Subscriber Questions
Another up session as stocks show more bullish action though still lack solid volume.
The market has started to show at least two bullish attributes, starting soft and rallying to the close along with improved price/volume action. Now all it has to do is put the two together and it will be taking a good step in converting the correction into a bottom and working toward a new breakout. Monday it did that somewhat, posting a higher volume gains, but volume was still below average. Tuesday it showed good price action but no volume. While that is disappointing in the near term, overall it shows the shift taking place in the market as it transitions from the high volume selling in late January and early March toward more accumulative action the past two weeks. It has not made the transition yet, but it is a work in process.
Overall stocks had a decent day with NASDAQ and SP500 taking out (barely) the exponential 50 day MVA on the close. Stocks managed to hold their gains in a session-long melt upward. To be sure, volume on this move has hardly been strong with volume remaining below average for the past three weeks, up or down session. Stocks have found a bid the past week after NASDAQ tapped its 200 day MVA. That is what you want to see, but it did not trigger a huge influx of capital. There has been some mild accumulation, but that is not enough to conclude that the market is ready to breakout in the near future. Again, it is a work in progress, trying to set up for another test and then follow with a breakout.
THE ECONOMY
March confidence drops on jobs worries, but still higher than expected.
Expectations provide the silver linings to economic data. It appears that the negative vibes we have cited of late as contrary indications for the stock market have impacted sentiment as well, but not as profoundly as anticipated. March consumer sentiment slipped to 88.3 from a revised higher 88.5 in February. Thus from the originally reported level (87.3), sentiment rose. It was win-win in reality: a revision higher in February, and another solid showing in March.
These are not blowout numbers, but they still easily above levels where the consumer would bottle up. Sentiment has slipped this year, and it was the major component holding March readings lower, as consumers are under the impression that their jobs are in jeopardy even as the majority of employers surveyed say they are planning on adding jobs or at the minimum not eliminating jobs. Manpower's survey, one of the best as it compares cycles over the past 30 years, shows hiring increasing and set to continue to improve as the cycle is just now starting to show the signals that have always accompanied the start of serious hiring. Sentiment has thus lagged even more as a lagging indicator as consumers, despite economic growth rates not seen in 20 years, worry.
That did not stop them from buying as spending and retail sales show. Plans to buy autos were weak, but expectations to purchase other big ticket items such as homes, appliances and vacations were strong. Thus the consumer is not all that worried even with the somewhat renewed terrorism fears as they are planning to take those summer vacations.
Much of what we see in the numbers is not being driven by actual events, but as always, by the perception of what may happen. It is a political year and jobs are one of the footballs candidates kick around. Jobs going overseas, jobs not being created, the economy is going to slow without more jobs, jobs are coming, productivity is stealing jobs, foreigners are stealing jobs. That would tend to weigh on those holding jobs. Until jobs start rolling in at 200K+ per month, however, we are going to hear this as it is fair game in a political year.
Social Security is fine and everything else is out of step?
A new book is making the talk show circuit, and its premise is that social security is not broken, that statements to that effect are myth. The author claims that social security is indeed funded, that the treasury bonds the US buys are the evidence that the system is in perfect health. Of course bonds are not money; they are obligations of the federal government. No problem, however, because the US has never defaulted on its obligations. When pressed about how these bonds will be redeemed, the author said that was not a social security problem but a policy problem for our leaders. Somehow they would have to devise a plan of higher taxes, spending cuts elsewhere, a combination of both, or some magician's trick to do it, but that was not social security's problem.
From what the author argued, it is hard to imagine someone published it. The problem is that there is not enough money to pay for these obligations and that is why Greenspan said changes had to be made and others have come up with very good solutions that promote private savings in conjunction with social security. The argument espoused on the talk shows totally separates the system and paying for the system. It is like saying an airplane flying along and about to run out of fuel is not a problem with the airplane but one with the ground crew and it is up to the ground crew to figure out how to fix a perfectly good airplane. The airplane, of course, will be a pile of smoldering metal soon even though nothing is 'wrong' with it. The fuel and the airplane are so inexorably combined that the airplane is worthless without it.
Or, since medical stocks have been solid of late, how about a medical analogy. A heart is beating along just fine, but the arteries leading to it are clogging with plaque because of someone is combining the Atkins diet with the high carb, high starch diet the federal government espoused for the past 20 years. The argument would go that the heart is perfectly healthy all by itself, that it is the diet and subsequent clogged arteries that are the culprit. Well, back in kindergarten I recall that the foot bone was connected to the shin bone, the shin bone was connected to the knee bone, etc. The heart cannot live without the oxygen and nutrients the body brings it in the blood, and the body cannot live without the heart pumping the blood. It is clear that the heart is not perfectly alright because what feeds it is about to be cut off so that it cannot get enough what it needs and then you get vapor lock.
Social security's bond obligations are fed by the general fund that gets its money from tax revenues. When the baby boomers hit retirement and we go into an inevitable recession, there won't be enough money to pay obligations. There is no treasure chest buried at the Treasury. You have to raise taxes or cut programs or something else to feed it or the system collapses. If you raise taxes in a recession you get less tax receipts. In short, even if you assume that social security is totally healthy, when recession hits once many of the boomers are retired, there won't be a way to pay them because their simply won't be enough money. Greenspan said the economy could grow at an 8% rate indefinitely and still not be able to fund it. You could always print money and go into hyper inflation, but Brazil is the most recent country to show the world that just is not a lot of fun and just does wonders for the poverty rate. Yes, social security is just fine. Let's just stick our heads in the sand and let things roll along as usual.
THE MARKET
Above we discussed two reasons the market looks a bit better. As you have surmised, there are a few more. Small caps stepped back into a leadership role this past week, and were easily the strongest group Tuesday, posting a 1.1% gain over the mid-caps (+0.6%) and DJ30 (+0.5%).
Small cap leadership has been important for the entire run off of the October 2002 low. We noted this outperformance early and wrote about how smaller caps were a leading indicator of economic improvement to come as their bottom lines recover faster. When they started pricing in better times we became very interested in what looked to be a budding recovery. In this rally, when they perform well the market performs well. When it is up to SP500 and DJ30 to lead, the market is in trouble. We saw that this past month when the small caps dipped into their most serious decline in the rally.
Small caps do not always carry the torch during an entire recovery. That is leading many to say that small caps are not the future of continuing market gains, that instead investors are going to start investing in large caps and large caps paying dividends. If the economy continues to grow as it is indicating, then growth stocks are the key. When the economy starts to settle down and growth fades, the maybe the larger caps take over leadership. Small caps lagged for years and years as NASDAQ and the large cap indexes rallied in the last half of the 1990's. With the economy continuing to expand, we see no reason they will not continue to rally. That is why we like the recovery they have shown and their leadership Tuesday.
Market Sentiment
Over the past two weeks we have noted the overall gloom ratcheting higher as worries over terrorism, 9-11 commission, gas prices, Iraq, market selling, etc. all piled up. A major market crash scenario was trotted out on some weekend financial shows. Just toss in a few rally sessions, however, and you have the some 'correction is over' converts all over the stations. We listened as one Tuesday cited gains on strong trade as indicating it was over. As we have discussed, that is not really the case. It is showing a transition with volume improving vis- -vis price. It has not turned to 'strong' upside volume.
Just as the gloom foretold the bounce last week and it still foretells further gains, this brief respite from gloom or oasis of optimism tells us, along with the early transition in price/volume action, that the correction is not over. It may have found a bottom, but we believe it is going to go back and test that bottom before this is over. Maybe we are wrong, but this low volume rise coupled with brash statements that the 'correction is over' typically do not herald the end of corrections. Another fearful sell off where we hear phrases such as 'failed rally, ' 'heading to new lows,' and the like would be the indication that the bottom is being hit. Of course, it would have to actually bottom and reverse and rally on strong trade, but you get the picture.
VIX: 16.28; -0.22
VXN: 23.18; +0.02
VXO: 15.99; +0.03
Put/Call Ratio (CBOE): 0.61; -0.06
NASDAQ
Started soft but recovered. It still spent most of the session in negative territory before a solid, steady melt higher in the late afternoon took it over the exponential 50 day MVA.
Stats: +8.06 points (+0.4%) to close at 2000.63
Volume: 1.608B (-6.55%). Volume backed off on the gain as price/volume action started to falter again. This is not really a crisis. We anticipated that NASDAQ would rally up near this level and then start moving sideways, trying to break higher but failing to find the strength. We want it to move laterally on continued low trade and then make another test. After that we look for a high volume reversal and surge.
Up Volume: 901M (-564M)
Down Volume: 590M (+355M)
A/D and Hi/Lo: Advancers led 1.5 to 1. Modest session, modest breadth.
Previous Session: Advancers led 2.47 to 1
New Highs: 129 (-2)
New Lows: 13 (-2)
The Chart: http://www.investmenthouse.com/cd/^ixq.html
Continued the move up to the next resistance at the exponential 50 day MVA (1999) and 2000. We don't expect it to get much higher here, maybe a spurt toward the simple 50 day MVA (2029) but it would have a hard time making it that far. That would pretty much stretch it thin unless it gets an influx of buy side volume say from a strong jobs report. Even then it would need another test, but that test would not have to be as low if it posted some solid volume upside sessions.
S&P 500/NYSE
Large caps cleared the exponential 50 day MVA and some price resistance at 1125, but that lighter trade does it no favors on this bounce.
Stats: +4.53 points (+0.4%) to close at 1127
NYSE Volume: 1.306B (-4.06%). Volume fell back again on a gain after posting a modest accumulation session Monday. Price/volume action on SP500 has not come along as well as NASDAQ, and it needs more work before the index is ready to make a real breakout. On the next pullback from this bounce we want to see volume stay under control.
Up Volume: 930M (-253M)
Down Volume: 364M (+201M)
A/D and Hi/Lo: Advancers led 1.99 to 1. A solid breadth session again as the small caps again led the market.
Previous Session: Advancers led 2.73 to 1
New Highs: 187 (+7)
New Lows: 6 (-5)
The Chart: http://www.investmenthouse.com/cd/^spx.html
Cleared the exponential 50 day MVA (1122) and some price resistance at 1125 as the large caps posted their third gain in four sessions. Volume continues to mostly lag on the advance, and that suggests that there is not a lot of upside from here unless there is a new reason to buy. We would not expect the index to rally past the simple 50 day MVA (1134) on this move unless something dramatic occurs that acts as a catalyst for overall buying in the market, e.g., a super jobs report.
DJ30
The blue chips cracked their exponential 50 day MVA (10,358) as well and look as if they might try the simple 50 day (10,472). Volume continues to drop day after day after day on the index as it makes this bounce. If it makes it up to the simple 50 day, it will have put in a very nice move, enough to make a nice quick short in the final correction.
Stats: +52.07 points (+0.5%) to close at 10381.7
Volume: 189 million shares versus 197 million shares Monday.
The chart: http://www.investmenthouse.com/cd/^dji.html
WEDNESDAY
This lower volume rally is getting rather extended without some major new catalyst. After a bout of gloom, commentators are getting a bit too cavalier a bit too soon. Maybe the jobs report sends the market soaring. You can see the hope creeping back into the Friday jobs report, however, as the whisper number is back over 200K and Jim Cramer says 225K. To his credit he is just sticking to what he said quite some time back though it seemed he was not comfortable about standing behind it. We don't think it will hit the mark. We hope it does; there are a lot of people that still need jobs after the Fed took a wrecking ball to our prosperity. The economy has done some amazing things given all of the traumatic events it had to endure as the last boom collapsed. To be where it is so quickly is a credit to everyone working hard and believing in the US.
If it is a blowout number maybe that is all the market needs. Even if it is, however, the foundation for a sustained move up at this juncture is weak. We would like to see stocks hold up into the number as that would give the market over a week on this bounce and be a good set up for a drop on the jobs number for the test of the low in the correction. Even if it rallies on a good jobs number for another week, that would be an even better setup for a test of the low.
The question now is whether stocks can continue the move higher until then given the lower volume on the upside move. The quarter ends tomorrow and that might be the end at some point during the session of the end of quarter shuffle. We thought it might end Tuesday, but stocks continued to find a bid through the close. As noted with DJ30, the low volume rise has some tempting looking downside plays for a test lower. We will be looking at those for some potential quick downside action if we get the downside development we anticipate to finish out the bases.
Wednesday Factory Orders and the Chicago PMI are release at 10ET. Tuesday was somewhat frustrating in that many plays hit the buy point but did not have the volume. Some were on such a slow melt higher that they had some decent trade by the close, but were hard to enter. That may continue to be the case through the Friday jobs report as the quarter end shuffle comes to a close and the market turns to the big fish in the economic puzzle. Thus we will have to be extremely selective with upside positions as we anticipate a pullback coming. During that we will be looking for the strong stocks to hold up and provide another entry point when the selling is over.
Support and Resistance
NASDAQ: Closed at 2000.63
Resistance: The exponential 50 day MVA (1999) is not totally broken. 2000, the top of the late 2003 base. The simple 50 day MVA (2029).
Support: The 10 day MVA (1965). Some prices from the recent March consolidation attempt (1943). Mixed tops and bottoms at 1900. The 200 day MVA (1896).
S&P 500: Closed at 1127.00
Resistance: The exponential 50 day MVA (1122) and price resistance at 1125 are not totally broken. The simple 50 day MVA (1134). 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: The 10 day MVA (1114). 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 10,381.70
Resistance: The exponential 50 day MVA (10,358) is not totally broken. The simple 50 day MVA (10,473). September/November up trendline (10,530).
Support: The 10 day MVA (10,249). 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.
3-30-04
Consumer Confidence, March (10:00): 88.3 actual, 86.0 expected, 88.5 February (revised from 87.3).
3-31-04
Factory Orders, February (10:00): 1.5% expected, -0.5% January.
Chicago PMI, March (10:00): 61.0 expected, 63.6 February.
4-01-04
Initial jobless claims (8:30): 340K expected, 339K prior.
Construction spending, February (10:00): 0.0% expected, -0.3% January.
ISM (manufacturing sentiment), March (10:00): 59.5 expected, 61.4 February.
4-02-04
Non-farm payrolls, March (8:30): 123K expected, 21K February.
Unemployment rate, March (8:30): 5.6% expected, 5.6% February.
Average hourly earnings, March (8:30): 0.2% expected, 0.2% February.
Average workweek, March (8:30): 33.9 expected, 33.8 February.
End part 1 of 3
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world stock market
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