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us stock market, stock watch
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7/24/01 Investment House Daily
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SUMMARY:
- Selling on any news is the rule today as volume moves higher.
- Across the board losses leave no shelter from the storm.
- Indexes touch near recent lows. Will they rebound this time?
- Greenspan says economy will recover, and when it does it will be strong.
- Retail sales up but a bit lower than expected.
- Software makers doing better on earnings, chips doing crappy; just as everyone thought.
- Tough market the past few sessions, but we are buying on these dips in the economic sensitive stocks.
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Market hears nothing it likes and sells on any news.
Today it did not matter if earnings were good, bad or indifferent; there were no buyers and more sellers than on Monday. Volume rose on the session, but was below average on the Nasdaq and cracked over average on the NYSE. That did not make anyone feel better, however, as stocks sold down early and then harder in the afternoon. But for a late move off the lows it was going to be a really ugly day. It was still quite homely anyway.
Not many places to hide today.
There was no shelter today, or at least not much. Damn near everything I own was down today as any news was rewarded with selling. Not necessarily a thumping selloff, but just a 'take that for good measure' selling. Many stocks are approaching support levels in the form of trendlines or moving averages (18 or 50 day MVA). They are either going to turn up and continue to build for the economic recovery, or they are going to roll over and die.
Over the weekend and Monday we expressed some concern over the homebuilders as they had sold back from new highs on high volume. That is an indication that the current rally could be over as they have run far, are reporting great earnings, but are being sold off. Jitters about the economy based on crappy earnings from techs. Look how things are shaking out: most earnings in non-tech areas are doing just fine. Techs, as expected (particularly telecom - LU today - and semiconductors), are unable to provide either the bottom line numbers, any guidance on the future, or both. Unfortunately, the techs inability to provide guidance is being imputed to the whole economy as weakness. Hence the across the board selling today.
The selling of all issues can mean a few things. One is that everything is going down and down hard. It is disturbing that the financial stocks are performing so poorly as the economy tries to recover. They usually are up there with the other early risers, helping pave the way. Or it can mean a change of guard; we have heard some say that techs were now good values as opposed to the cyclicals and other economically sensitive stocks that have done well of late. We are not sure that is the case. The economic recovery is too young at this point.
Recent lows are challenged.
With no real pockets of strength, the indexes were in the mood to check out lower levels. All of the majors undercut levels we wanted to hold as support, but just when it looked as if they were going to go into the death spiral, buyers came back in and rescued the indexes from the brink.
The news as reported was really negative of course. The financial stations were all chirping about the support levels and how they were about to be broken, etc. That of course raised speculation as to how far the indexes would fall. Most, to our disappointment, said the indexes would not fall to the prior lows. We would have preferred full capitulation, i.e., predictions of a retest of the lows, etc., but we cannot have everything.
The selling on higher volume was a concern, but unlike the reporting today, it was not 'intense' selling. We have seen intense selling. We have lived through intense selling. This was no intense selling. It was not comfortable, but it was not intense. We still believe economic recovery is in the cards, and while we have to watch where the indexes are heading (resuming the downtrends), last time they reached this level and the negative comments jumped, they found support and jumped back up. Maybe not this time, but they did bounce back up off the recent lows. We continue to look at this as an opportunity to pick up economically sensitive stocks as they approach support. It is tough in the market the past few sessions as they have sold down, and we will now see if the institutions are serious about accumulating stocks or not. We will, of course, follow their lead.
THE ECONOMY
Greenspan says economy will recover. In response to questioning today, Greenspan stated more forcefully that the economy would indeed recover and that the underpinnings were much stronger than in prior recessions. He went further and said that when the turn inevitably comes it will be stronger than normal economic times because it will be necessary to complete the technological infrastructure, etc. that still needs to be completed. He said (he hoped) it would not be as strong as 1999, but that it would be strong. The market apparently took that the wrong way because the major indexes really started to peel off after that statement was uttered.
Retail sales up but not quite as high as expected. Depending upon which survey you looked at, sales were down or up last week. The Mitsubishi report stated sales were down 0.5% versus a 0.1% drop the prior week. That was still up 2.2% from a year ago. Redbook reported sales up 1.3% and up 1.9% year over year. These were lower than expected, but they were not bad at all. Still, we are concerned about sentiment. Flagging stocks and continuing negative reporting and job layoffs are taking their toll. We really need some credible leadership on the issues from our leaders. So far it is not coming, or at least no one is believing it.
Book to bill ratio does not give much to crow about. About the best thing to say was that orders were up 2% month over month, the second week of gains. That is some sign of improvement, but orders are still at low levels. June (the one reported today) was 0.54; May was 0.48, April was 0.44, March was 0.59, February was 0.71, and January was 0.80. After falling last fall and winter, semiconductor orders are rising and sales are improving. They are still slow and prices are low.
A lot of recovery still needed here, but that is nothing new. We need to keep an eye on the other sectors of the economy, and we will have more word out on those beginning tomorrow with existing home sales.
THE MARKET
Overall market stats:
VIX: 27.63; +1.50. Inching up, but still not anywhere near an extreme condition as of yet.
VXN: 57.62; +2.90. This measure is edging higher as well, but it is also far from an extreme as the index and the volatility measure still are relatively coincident.
Put/Call ratio (CBOE): 0.75; +0.23. Quite a jump, but that is what we have seen on selling: quick to rise, quick to fall depending upon what the market does. Even with volatility relatively low, the put action remains high. Lots of talk about just going ahead and shorting the market. That is a VERY important indication that sentiment may be reaching the right level for the next rally. When a lot of bulls give up and say they are going to play the downside, it is about time for another rally or at least a reflex bounce.
NASDAQ:
Touched down very close to the recent lows. It did it with ease and on higher volume, something we don't like. We will see if the late day bounce can continue to the upside.
Stats: Down 29.32 points (-1.5%) to close at 1959.24. This is its lowest close since the rally off the low really took off. At least for once the Nasdaq sold down the least of the three major indexes.
Volume: 1.599 billion shares (+17.9%). The second distribution day in the past 10 sessions, but it was on below average volume; moves have more teeth or meaning if they occur on average or better volume. Still, that is little consolation on the selling. Down volume was way out ahead at 1.093 billion versus 492 million shares to the upside.
A/D and Hi/Lo: Declining issues pulled well out in front at 1.85 to 1 (1.54 to 1 Monday). That is more of the intensity we wanted on the upside moves. New highs plunged to 84 (-46) while new lows jumped to 153 (+46).
The Chart: http://www.investmenthouse.com/cd/$compq.html
The Nasdaq did not get slaughtered mainly because not all of the big names were down. CSCO actually finished the session higher, indicative that the big names were not all leading the downward charge. Still, the index flirted with new lows since the rally off of the April bottom (1619.58) started, and managed a new closing low since the big gap higher in April. On the low it touched1939.28, testing the earlier July low of 1934.67. It was touch and go for awhile, but when we get this close it is much like horse shoes. Now we will see if it bounces. It started to do that in the last half hour, but we have to also recognize that the Nasdaq continues in a downtrend from the high in May after the rally off of the lows, and it will have to break that downtrend on some solid volume. That may happen, but will it have more staying power this time than a day or two of strong rallying.
One last thing to note. There were no real places to hide today on the selling, yet the selling was not on really high volume; yes volume was higher, but it was still below average volume. When all of the sectors take their lumps, that usually means we can expect a turn back the other way. We saw the big names fall, but not a lot as the selling was in the other sectors that had been doing pretty well in the index. With the recent leaders getting theirs and the big names stemming their losses, it looks as if the index will at least try to move higher here. The big question is whether buyers will be in the majority again and give the move off the April low another breath of life.
Dow/NYSE: Turned in its second straight triple digit dumping on above average volume to boot. The Dow did not crash through support, but it gave it a good test. Will the late session bounce turn into a real rally? We think it will.
Stats: Down 183.30 points (-1.8%) as the Dow turned in the worst performance of the day, closing at 10,241.12.
NYSE Volume: 1.201 billion shares (+21.6%). Rising, above average volume on the selling, marking a more significant distribution day on this index as volume moved above average. There was just not a lot of interest in any stock, and the Dow stocks were prime targets as many had been performing relatively well. Down volume was way out in front at 1.017 billion shares versus a mere 176 million upside shares.
A/D and Hi/Lo: NYSE declining issues really took command at 2.2 to 1 (1.62 to 1 Monday). Again, no place to hide. New highs were a mere 68 (-23) with new lows at 72 (+22).
The Chart: http://www.investmenthouse.com/cd/$dja.html
The Dow was also flirting with its recent lows, touching down at 10,203.69 on the low (10,120.89 was the recent July low) before bouncing back up in the last half hour to close right at some support in the 10,250 range. The higher volume selling indicates further downside, but we will see if the July low or 10,000 holds once again. The Dow had been performing well compared to the other indexes before the last two sessions, so it is simply getting its licks. We will now see if it can hold at the 10,000 level for the next move higher.
S&P 500: The S&P was the most dramatic as it actually undercut the earlier July low (1168.46) on the intraday low today (1165.54). It too rallied a bit in the last hour to pull back up off of that low, but as with the Nasdaq, it made its lowest closing price since rallying up off of its lows. It does not look very good right now with the higher volume, above average volume selling. As to whether it holds from here is a crapshoot. It dove back into its downtrend in a big way and could lead the other indexes lower. It is the broadest of the three, and it was hurting today.
Stats: Down another 19.38 points (19.61 points Monday) (-1.6%) to close at 1171.65.
Volume: NYSE volume jumped on the selling as large caps were dumped by institutions. Not looking good at this point.
The Chart: http://www.investmenthouse.com/cd/$spx.html
Summary: What the indexes need right now is better economic news. The gains earlier were based on improving economic numbers ahead of earnings. Then selling came on warnings and fear of Q2 earnings, but that was expected. Problem is, not many companies are coming up to the plate and saying that things look good in the future. Or, more correctly, those that are saying things look good have already jumped up and are not in the sexy sectors. They are getting ignored in favor of the grim picture being painted by the techs, particularly semiconductors and telecoms (e.g., LU and friends). News flash: those areas are not going to recover soon, at least not those big caps. We hear from BRCM, AMCC, RFMD and the like that things are stabilizing, but that is a long way from turning around. ORCL, MSFT (for the year), PSFT, PRGN and other software companies are reporting solid earnings and positive outlooks; that is as expected and logical. They are unable, however, to turn the tide with respect to the hardware makers. Without a LOT more positive guidance, the economic news has to get better. While we think it will continue to do so, the problem is consumer sentiment is flagging at a critical juncture, and that makes it all the more, shall we say, interesting.
TOMORROW
Existing home sales are out a half hour into trading. That is the first piece of economic news for the week on a sector that has been solid in the economy. We really want to see them continue that strength, for if they cannot, that is a sign the consumer is potentially losing its nerve, and that really causes some problems. We want that consumer to spend every penny of that whopping $300 that started hitting the mail today (back in the early seventies it was proposed to give everyone $1000; that was real money). That creates waves through the economy that are bigger than the original amount spent, so it is important that the consumer stay confident and not want to save that money. It should come with instructions to spend it or pay it back; after all, that is the way our government agencies work: spend your budget or get it cut. So, it is spent.
We anticipate a bounce at some point tomorrow. We would prefer to see the selling continue, but futures are up, and with the rally off of the lows today, a move up from the close is not out of line. We are just concerned about gaps higher at this point as the market is weak and could gap and fold. At this point, however, it is either going to hold at the previous lows on the test or it will not, gap or no gap.
The market has been very tough the past few sessions. The question: do you hang onto your stocks that have been performing well and appear to be testing support, or do you sell them for what profit you have? Well, we have been selling some calls, some shares, and hanging onto some. At this point, it is a matter of whether they will bounce higher and continue their uptrends, or will they continue to fall and undercut support. If they undercut support, that makes the decision for us on the rest of our positions in that stock whether we sold some earlier or sold calls on it. We are anticipating a bounce and were even buying today when some stocks hit support and stated to turn higher from there. We sent a few alerts out to that effect and were picking up BBY, etc. We are still looking for this move to hold, but we cannot deny what the market does. If stocks we hold break support levels, we have to stick with our stop loss rules lest things really tank and we are in the hole waiting for it to dig back out.
Support and Resistance Levels
Nasdaq: Closed at 1959.24.
Resistance: 2100 is mild resistance. Then 2160 to 2200. Then 2250.
Support: Fell through 1970 without any problem and tested the recent low at 1934.67. If it is going to hold, it needs to do it here. The low is 1619.58.
S&P 500: Closed at 1171.65.
Resistance: 1223.06 is the 50 day MVA. Then 1240 to 1250.
Support: Flirting with the recent low at 1168.46. We want it to hold above the 1150 level on any test. The low is 1081.19.
Dow: Closed at 10,241.12.
Resistance: The 50 day and 200 day MVA are at 10,591.80 and 10,578.43, respectively. After that the next real test is 10,750. After that, 11,000.
Support: 10,400 did not hold, but 10,200 did. 10,120.89 is the recent July low. After that there is 10,000 to 9992, the middle of its double bottom pattern.
Weekly Economic Calendar (All times Eastern). The figures are the consensus expectations, not ours.
7-25-01
Existing Home Sales, June (10:00): 5.37M versus 5.37M prior.
7-26-01
Initial Claims, 7/21 (8:30):
Employment Cost Index, Q2, (8:30): 1.1% versus 1.1% prior.
Durable Orders, June (8:30): 2.9% versus 2.9% prior.
Help-wanted index, June (10:00): 60 versus 60 prior.
7-27-01
GDP-Adv., Q2 (8:30): 1.2% versus 1.2% prior.
Chain Deflator-Adv., Q2 (8:30): 3.2% versus 3.2% prior.
Mich. Sentiment-Rev., July (9:45): 93.7 versus 93.7 prior.
New Home Sales, June (10:00): 928K versus 928K prior.
End Part 1 of 2
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