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us stock market, trade stock
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4/06/04 Investment House Daily
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Investment House Daily Subscribers:
MARKET ALERTS:
Target hit alerts issued Tuesday: None issued
Buy alerts issued: WBSN
Trailing stop alerts: None issued
Stop alerts: BRKT (warning killed a solid move); OMCL (another gap lower); MRBA (and yet another).
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SUMMARY:
- NOK gives a reason for some selling after two rally weeks.
- Same store sales solid, layoffs shrinking.
- Market takes a breather, could use some more before resuming rally.
- Earnings not off to a great start.
Lower earnings guidance starts some modest selling.
NOK was the big market news story as it warned on revenues; it is selling a lot of units, but the pricing is lower. That helped lower futures that were already squeamish with BRKT warning Monday evening and then MRBA and EPNY joining NOK Tuesday morning with warnings of their own. After the close the warnings continued with STX, the disk drive maker, saying demand for its drives was dwindling. Before you get too petrified by that, STX warned 5 weeks back as well even as sales of PC's have posted sharp gains. Thus while not great news for tech stocks overall, its warning was not necessarily reflective of the overall PC market.
After almost no warnings the market was taken aback somewhat by the series of mea culpa statements. Futures dove lower on the news and the market follow suit. Techs, chips and small caps, the real leaders when the market makes its real moves, were leading to the downside. The non-tech large caps (DJ30, SP500) kept losses modest all session with the blue chips pulling out a modest gain thanks to strength in the machinery stocks on news that Cummins engines was selling more engines than it can make. Thus the day was a weak one for techs with a high profile warning, but a decent one all things considered for the large, 'old economy' stocks.
All in all it was a rather quiet start to some selling. Instead of turning over and tanking stocks fought back early, then rallied again after a midday slump. While NASDAQ lost its nerve late, DJ30 and SP500 continued higher, making this session quite mild. Volume edged higher but neither showed much trade as volume remained well below average. The market needs a breather, and this was a good way to start it as it fought off what could have been some damaging warnings and sold rather gingerly.
THE ECONOMY
Job layoffs hit a nine month low.
It is not the same as hiring (one less layoff is not a new job), but it helps the job market turn the corner when new jobs are created. That gets the unemployed back to working if the new unemployed no longer keep hitting the street and fighting over the available jobs.
In any event, Challenger Gray reported March layoffs at 68K, down 12% from February. Q1 layoffs were down 8% versus Q4. Challenger noted that these were very solid improvements; just threw that in to put the numbers into perspective and show that the do represent In short, the layoffs continue to fall and are at 'good' levels. That means any job creation goes directly to the bottom line so to speak, in that new jobs reduce unemployment almost one for one.
Retail sales holding their own.
UBS reported a 0.3% sales increase versus a 1.9% drop the prior week. That pushed year over year sales for the week to a 7.5% gain over 2003. Indeed, even with the decline the prior week, those sales were up 6.6% over the same week in 2003. Redbook's survey of major retailers showed a 7.2% jump in sales year over year versus a 6.9% increase for the prior week. March sales rose 0.4% over February. This stronger showing counters Redbook's forecast of a decline in April sales. Thus far the month is pretty solid. Indeed, even with the gain sales were hurt by weather in the Southwest and Northeast. Gas prices also took money away from discretionary items found at the chain stores.
What the results show is that retail sales remain strong and the year over year comps will be very strong. The consumer has a lot to sift through and digest right now with the already contentious campaign, higher gas prices, and escalating violence in Iraq. IBD reports confidence slipped a couple of points even as jobs started to improve. With the US gearing up to take on the terrorists and insurgents in Iraq, it is only going to get worse for the consumer. At this point, however, confidence remains at levels that keep consumers spending. If jobs continue to rise, that will help offset much of the other negative items.
THE MARKET
Stocks took a rest Tuesday after the additional bump the jobs report provided Friday and Monday. As noted before, stocks were ready to pullback last Thursday, but the good jobs data provided a reason to buy stocks. We noted at that time that once the jobs bounce waned stocks would be ready to take that breather. NOK and friends helped usher in the selling as noted.
Stocks with warnings or other negative news sold with some big gaps lower as earnings warnings season, notably light until now, has started to wreck some good patterns and good-looking stocks. This shows that stocks are not going to get any slack at these prices, something seen back in the late 1990's when stocks did not dare miss and the result was those accounting shenanigans that toppled when the market collapsed. Fortunately there is more credibility in the earnings at this point as they require executive sign off and the corporate fraud lawsuits still ongoing.
Overall, however, the selling was well contained (DJ30 closed positive) with the indexes holding well above near support. Volume gave a whiff of distribution, but was pretty steady given the negative news. Overall the volume was still well below average as stocks turned back after a two week rally. Some pre-earnings jitters no doubt given that upside move leading into the actual numbers. The market definitely needs more selling or at least lateral movement to better set up the next upside move, but it has been typical for stocks to rally into the first earnings results before rolling over. This small wave of warnings splashed some ice water on stocks ahead of earnings, but with a few good reports from early announcers such as GE and YHOO, the market could see that typical pop before it consolidates further.
We would prefer to see it ease back here so stocks that have started to rally back up could pause and shake out the last sellers and thus set the stage for stronger breakouts. The timing is a problem, however, with earnings just starting. Earnings are potent whether good, bad or in line (and the latter can be either good or bad), and stocks typically do not have neutral reactions. Thus there is either upside or downside on earnings results. Expectations are for solid earnings and stocks have run into the news. Those expectations have in the past continued to push stocks higher in the initial earnings reports, but the action peaks as the news gets fully priced in, then the pullback. It would not take much more upside to fully price solid earnings reports. In short, Tuesday's warnings may be about the only downside news we see for stocks for awhile. That allows stocks to bounce further, but with the rally in anticipation of earnings already two weeks old, there is not much more upside room. Thus it takes a bit longer for the needed pullback to take place.
All of this is said more with respect to NASDAQ and perhaps SOX as opposed to SP500 or DJ30. The latter have had very short corrections both in depth and length; hardly the kind of pullback and base that consolidates the 2003 move upside and sets up the next long run. Their patterns leave us wondering how much upside the market can muster, but with NASDAQ forming a good base, it is going to be in position to lead the market once again. As we have seen, when NASDAQ leads the market does well. If SP500 and DJ30 fail to form bases however, they will present a drag on NASDAQ.
Market Sentiment
VIX: 15.32; +0.35
VXN: 22.23; +1.12
VXO: 14.49; +0.61
Put/Call Ratio (CBOE): 0.82; +0.15. Healthy jump in the put market as some funds are hedging their portfolios after stocks have rallied well into earnings.
NASDAQ
Struggled all session, gapping down at the open and trading in the in a narrow range on slightly rising volume.
Stats: -19.22 points (-0.92%) to close at 2059.9
Volume: 1.823B (+3.61%). Modest rise in volume on the selling. Technically a distribution session but not a whole lot to get worked up about. It could have been much worse but we saw buyers try to move twice after the market sold back.
Up Volume: 554M (-755M)
Down Volume: 1.194B (+757M)
A/D and Hi/Lo: Decliners led 2.03 to 1. Picked up a little steam as techs were the target for most selling.
Previous Session: Advancers led 1.63 to 1
New Highs: 180 (-94)
New Lows: 14 (-3)
The Chart: http://www.investmenthouse.com/cd/^ixq.html
Gapped lower but held above 2050 where there is some support and easily over the simple 50 day MVA (2019), close to the gap up point at 2015. We would love to see the gap filled in some modest selling and then see volume return as NASDAQ recovered. It could be that the early earnings fail to provide any upside impetus and NASDAQ makes that pullback, then when JNPR reports mid-month that sparks upside. The permutations are many, but the action we expect is a test of this move either ahead of earnings or following a further move higher on the early results.
S&P 500/NYSE
A modest pullback on steady volume as the large caps were relatively stronger. Of course, this comes after being relatively weaker on the rebound. Up less, down less but still quite solid.
Stats: -2.41 points (-0.21%) to close at 1148.16
NYSE Volume: 1.398B (+0.11%). The slightest rise in volume but basically no change as the index showed basically no change. Just stalling out some after a two week run that saw price/volume action finally start to improve.
Up Volume: 536M (-358M)
Down Volume: 850M (+365M)
A/D and Hi/Lo: Decliners led 1.73 to 1. With the small caps selling downside breadth was a bit more robust.
Previous Session: Decliners led 1.19 to 1
New Highs: 189 (-70)
New Lows: 44 (+5)
The Chart: http://www.investmenthouse.com/cd/^spx.html
Ran up to 1150 Monday and then stalled Tuesday, showing a hanging man doji on the candlestick pattern. After a run higher that can indicate a pullback, particularly when it coincides with a resistance level. As seen last week, however, it can give a false signal as it did Wednesday. With the index knocking at the old high, what a perfect place for a lateral move for a week or so to shake out the last sellers with a move toward the simple 50 day MVA (1133) or even 1125.
DJ30
Eked out a gain on the close, but it was never really in trouble, selling down to 10,500 on the low early in the session and then never looking back. Volume subsided further below average as it posted this very modest gain. It too is at resistance, indeed, a whole slew of resistance from 10,500 to 10,750. As noted above, a very short and shallow correction, it hardly seems ready to continue a meaningful move from here or even with a test back to the exponential 50 day MVA (10,379). It formed that short and shallow double bottom, but that would run its course at the prior high near 10,750. Of the 3 large indexes, DJ30 appears to have the least upside potential though SP500 is a close second. Neither have had a real correction or base form compared to NASDAQ, and that makes sustained gains of the type seen in 2003 less likely.
Stats: +12.44 points (+0.12%) to close at 10570.81
Volume: 175 million shares versus 182 million shares Monday.
The chart: http://www.investmenthouse.com/cd/^dji.html
WEDNESDAY
The first bad news of earnings season took a shot at the market and it mostly brushed it off. Certainly volume did not indicate investors heading toward the door. Alcoa announced after hours and it missed. It was down but was trying to come back on some upbeat outlooks by its officers. It is all about the outlook with respect to any further stock gains. Thus far the words we are hearing are not that great, but the last bad news has to get cleared out ahead of earnings, earnings that will be quite solid. The market has put in a solid rally to this point, however; it will take some really good news to further it. If it gets it, stocks rally further but then the earnings get priced in and stocks come back. With the run to this point it does not take much more upside to get to saturation.
The market has needed a further rest and we have been looking for one. It simply has not materialized and we have continued to go along with eh move, picking the stocks that are moving in good patterns and on good volume. We don't want to let what we think will happen or what we think should happen overly color our actions but follow the market. It has shown some improving price/volume action and thus is in better position to sustain gains. It has refused to give back the move. We have been buying solid stocks when they make good moves but even that is not a failsafe around earnings. After this 2 week run and with DJ30 and SP500 back near their old highs, there appears to be more of a chance of a pullback after a short foray higher as earnings come out. That would be good for NASDAQ, allowing it and its stocks to finish up their bases. As for SP500 and DJ30, we will have to see how they fare in their short pullback patterns.
We are anticipating some more upside over the next week or so, but that is about it. Much depends upon how stocks react to this first group of earnings. If they continue to waffle and spend another week moving laterally and lower and then JNPR blows out its number again and says it is printing money in the basement and gold nuggets are dropping out of the backside of its routers, NASDAQ will be ready to rumble. That is the reverse scenario from the typical earnings pattern we have seen, but with stocks already making a strong run in anticipation of the quarterly reports, it is not unrealistic.
All in all we will remain cautious here. Sure earnings may be better than expected, but with a 2 week rally under its belt, the market was expecting something good. We will continue to look at good patterns with accumulation and overall focus on stocks with good growth rates in earnings and sales. There will be a few that are simply well positioned for a nice run higher, and we won't shut the door on them if the risk/reward is favorable. Thus we are cautious with a purpose to take what the market gives us and then look for the next opportunity.
Support and Resistance
NASDAQ: Closed at 2059.90
Resistance: 2089. 2112. 2154 is the January high.
Support: The simple 50 day MVA (2019) is possible with the 10 day MVA (2017) bolstering that level. The exponential 50 day MVA (2006). Then a jumble of support merges near 2000. 2000, the top of the late 2003 base. The 18 day MVA (2003). Some prices from the recent March consolidation attempt (1943). Mixed tops and bottoms at 1900. The 200 day MVA (1903).
S&P 500: Closed at 1148.16
Resistance: 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 simple 50 day MVA (1133) and the 10 day MVA (1131) are merging. 1125, still a key level. The exponential 50 day MVA (1125). 1106 is a May 2002 top and represents some early 2001 lows. 1096 to 1100. 1075 to 1070 from the December consolidation.
Dow: Closed at 10,5570.81
Resistance: September/November up trendline (10,585). 10,600. 10,747 is the February high.
Support: The simple 50 day MVA (10,458) is possible. Then the 10 day MVA (10,401). The exponential 50 day MVA (10,379). The 18 day MVA (10,367). 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.
4-05-04
ISM Services, March (10:00): 65.8 actual, 61.5 expected, 60.8 February.
4-7-04
Consumer credit, February (2:00): $7.7B expected, $14.3B January.
4-08-04
Initial jobless claims (8:30): 340K expected, 342K prior.
Wholesale inventories, February (10:00): 0.3% expected, 0.1% January.
End part 1 of 3
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us stock market
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