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world stock market, us stock market
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5/06/04 Stock Split Report
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Stock Split Report Subscribers:
MARKET ALERTS
Targets hit alerts issued Thursday: None issued
Buy alerts issued: None issued
Trailing stops issued: None issued
Stop alerts issued: KFY; UBET; MIK
The market alert service is a premium level service where we issue intraday alerts relating to the general market conditions, when stocks hit action points (buy, stop, target, etc.), and when we see other information impacting the market or our stocks. You can sign up for Stock Split Report alerts at the following link:
http://www.investmenthouse.com/alertssr.htm
SUMMARY:
- Stocks gap lower on weak technical pattern, rally back on short covering.
- Weekly jobless claims tumble.
- NASDAQ manages to salvage 200 day SMA on rebound but market still in weak position ahead of jobs report.
The low volume and modest price rebound Monday through Wednesday set up the potential for selling, and futures were decidedly lower from the open of the futures market. When stronger than expected weekly jobless claims hit, the futures firmed up some, indicating that the market viewed solid economic data positively.
That did not stop stocks from opening lower, however, given the technical position and the jobs report still due on Friday. Stocks gapped lower, tried to rebound and were indeed putting together a nice bounce when Mr. Greenspan released the text from his speech de jour in which he lamented low interest rates had made us less concerned about deficits, potentially setting up a harsh reality for the economy and financial markets. That was attributed as the catalyst for stocks to roll over and sell as it was interpreted to mean Greenspan was really serious about getting rates up, even to a level to make a point about not being too risk apathetic.
That sounds like the Greenspan from the late 1990's, the one that after years of talking free markets found an old dusty copy of the Phillips Curve and got scared of blowing the lead much as a sports team plays a 'prevent' defense when ahead. Instead of dancing with who brought you, Greenspan shifted gears and attacked prosperity. His language Thursday brought remembrances of that period, and that blew a very chill wind across the market. No matter how much Greenspan and the Fed talk about being accommodative and allowing the market to set rates, investors know he can and does say one thing while doing another. That paternalistic attitude that pops up from time to time in Greenspan is what really scares investors. When that text hit, stocks rolled over and fell hard on strong trade through mid-morning before finally finding footing, moving laterally, and then bouncing to the close. Indeed, in an early alert we stated we were not going to chase the market lower on the open on hard selling as that set up a rebound ahead of the jobs report. Later we noted that shorts would probably move in and cover before the close and that helped push stocks back up to the close, even turning SOX fractionally positive as traders tried to get neutral ahead of the jobs report.
The market managed to recover, slicing chunks off the lows as NASDAQ rallied back and made it to the 200 day SMA. Most stocks followed, cutting a massively negative A/D line (-6.5:1 on NYSE at one point, -4:1 NASD early) back but still not very weak on the close. Small and mid-caps were whacked, turning in a pair of -1.2% losses. That beat the NASDAQ and its -1% loss. Again, SOX made it back to positive on the close. As noted Wednesday, it appeared techs were getting a bit sold out vis- -vis NYSE stocks, and as SOX tends to lead upside and downside, this undercut of the March lows is textbook double bottom material. Of course, it has to bring in the buyers, and while there was some sampling of semiconductors and chip equipment stocks, there needs to be a massive move into them to right that ship.
In sum, the selling was technically set up with the low volume bounce to resistance. After a hard sell off early, however, the sellers were through and ready to pick up their chips off the table ahead of the jobs report. That brought the market back, even bringing in some buyers in semiconductors. The market somewhat tipped its hand with this recovery and late bargain hunting; regardless of the jobs data tomorrow we could see the market generate a serious relief bounce as opposed to the weak-kneed effort provided Monday to Wednesday.
THE ECONOMY
Weekly jobless claims tumble to 3.5 year low.
Weekly claims fell 25K to 315K, the lowest since October 2000. The 4 week average fell to 343,250, and that shows how variable the numbers have been of late. They popped back up for a couple of weeks before this tumble, but as noted, the trend toward lower and lower claims remained in place. Continuing claims fell back below 3 million, down to 2,935K.
Recall how the Fed fretted when the weekly numbers were just below 300K back in 1999? It moaned that the labor market was too tight with claims below 300K and that would lead to wage-led inflation. The weekly claims, if they can hold near this level and maintain the trend, are a stones throw from 300K and less that could turn the Fed wishy-washy again. As noted, that is the real investor fear, not the possibility of rising rates in general. The Fed almost killed off the expansion in 1994 just as the country got on its feet. The Fed and most commentators say it won't make the same mistake again, but the Fed often gets blinders on once it starts down a path.
Q1 productivity strong, in line with expectations.
Productivity jumped back up 3.5%, topping the 2.5% (revised from 2.6%) in Q1, and well above historical averages. This has been one of the whipping boys for the lower job creation (outsourcing one of the others), but strong productivity is vital to our increasing standard of living. Indeed, during the 1990's and that job creation, productivity was above historical trends as well. It looks as if we are going to see job creation hand in hand with solid productivity gains. That spells a higher standard of living down the road as new jobs in new areas are created based on technological increases as the economy turns the page.
THE MARKET
The weak relief bounce set up the rollover and stocks did just that. In a mid-session turnaround, however, stocks rallied and cut losses with SOX (semiconductor index) managing a modestly positive close. Volume rose on the reversal which is what you want to see, but it was not a blowout key reversal. SP500 turned and rallied off of a key support level at 1106 and NASDAQ reversed and rallied to close back at the key 200 day SMA. It started with short covering after a strong selloff and given the uncertainty as to the important jobs report. It brought in some bargain hunters for semiconductors, big techs and internets as well.
The late rally by no means rescued the market from its high volume selling and low volume relief bounce this week. At most we can say that traders were getting rather neutral before the jobs report, though there are still massive short positions in place against the 10 year Treasury note. The technical pattern is still weak, but it is set up for a double bottom if the big money feels it is time to go back to work.
Volume was higher though below average on the selling and reversal. Again, no clear reversal signal nor really distribution given the recovery. NYSE volume was still strong vis- -vis NASDAQ, coming in at 84%. Coupled with Wednesday's 92% reading and we still see a picture of the more speculative NASDAQ nearing the bottom of its selling.
Breadth was very weak. At times NYSE was -6.5:1 as the small and mid-caps were hammered. Tech stocks were no pretty picture either with -4:1 readings much of the day before the late rebound. This type of downside breadth is another indication that the selling is getting overdone on an interim basis. While not all-time extremes, they are getting stretched. We have to recognize that this is not a major bottom as in late 2002, but to a correction. We won't get the same extreme readings as you would at a major bottom.
Market Sentiment
VIX: 17.05; +1.28
VXN: 25.18; +0.84
VXO: 17.65; +1.42
Put/Call Ratio (CBOE): 1.26; +0.37. The third close at or over 1.0 in the past week. To see it immediately jump back up suggest this is getting into the real of a more sustained relief or other move higher. Given the important jobs report Friday, it also represents positioning ahead of that number. That still, however, is indicative of the substantial hedging and speculation as to the downside.
NASDAQ
Undercut the 200 day SMA but managed a rebound to hold at that level on the close.
Stats: -19.52 points (-1%) to close at 1937.74
Volume: 1.774B (+11.3%). Volume rose on the reversal from the lows, but still below average on the rebound. For a key reversal you need to see really big volume to indicate serious short covering and buying. The action Thursday suggests some positioning ahead of an important economic report.
Up Volume: 466M (-394M)
Down Volume: 1.282B (+596M)
A/D and Hi/Lo: Decliners led 2.46 to 1. Breadth was -4:1 at the worst, pretty serious selling before the reversal from the lows.
Previous Session: Advancers led 1.19 to 1
New Highs: 29 (-28)
New Lows: 76 (+37)
The Chart: http://www.investmenthouse.com/cd/^ixq.html
After that low volume three day bounce NASDAQ gapped lower and sold hard. Early volume was running strong. It popped the 200 day SMA (1938) and turned at 1923, no real significant level in its own. It easily pushed back through the 200 day in the late rally, but then faded back to that level on the close. Good rebound, something it needed to do and was not readily apparent until we saw the action set up during the session.
SOX rallied back from its low, easily holding above he recent intraday low (432.97) hit Monday. It was no strong feat, scratching out a fractional gain and showing another doji below the 10 day EMA (458) and the March low (453). That does not suggest the picture of strength, but the recent selling undercut the March low and has set the stage for a double bottom. There was some semiconductor buying late. Now it simply needs a breakout over the March levels on very strong trade in the semiconductor stocks themselves. Gee, no small order there. In short, technically it can make a double bottom, but it needs to show a change of character. It is also technically still below the March low and short term moving averages, indicating it has not started anything resembling a double bottom reversal.
S&P 500/NYSE
A bounce off the key 1106 level on the low fostered a rally back on rising volume. Still nowhere near out of the woods.
Stats: -7.54 points (-0.67%) to close at 1113.99
NYSE Volume: 1.505B (+2.73%). Volume edged as stocks turned off the lows and rallied back. They did not turn positive, but that is not always needed for a reversal. The key was that volume was still low relative to the recent selling: there was no major rush to get back in.
Up Volume: 297M (-514M)
Down Volume: 1.202B (+567M)
A/D and Hi/Lo: Decliners led 4.28 to 1. -6.5:1 at one point as the small caps and mid-caps were hammered even more so than the techs.
Previous Session: Decliners led 1.01 to 1
The Chart: http://www.investmenthouse.com/cd/^spx.html
The large caps held important support at 1106 on the intraday low and rebounded to recover the weekly up trendline from early 2003. Nice reversal, but it still left SP500 below the 10 day, 18 day, and 50 day EMA (1126) and SMA (1128), as well as price resistance at 1125. Good to see the reversal, but without more it still left the SP500 below key resistance and on still relatively low trade. That keeps it in the base, still groping for a bottom.
DJ30
Undercut 10,250 on the low (10,170) and rebounded to close just below that level and within the range of recent lows. Volume jumped on the recovery but remained below average. As with the other indexes, this reversal was not strong enough to indicate a major turn back up, particularly with serious overhead resistance at hand from the 10 day EMA (10,321) through the 50 day EMA (10,372). It still needs a blowdown to 10,000 and the 200 day SMA (9996) to really clear out the cobwebs and set up a better move toward an upside breakout.
Stats: -69.69 points (-0.68%) to close at 10241.26
Volume: 202 million Thursday versus 172 million Wednesday.
The chart: http://www.investmenthouse.com/cd/^dji.html
FRIDAY
Much of the picture will be painted before the open as the jobs report is released 1 hour early. We noted in the alerts today that there was massive short interest against the 10 year Treasury. Investors, speculators and hedgers have built in a big jobs number. A 150K reading will cause some unwinding and lead to a bond rally. Stocks have similarly discounted a strong number and a rate hike. With stocks, however, a strong number may not cause a selloff but launch a better relief rally.
Signals of a strong number. As we have noted this week, there are anecdotal indications of hiring showing up that we were looking for before the March number. They have been showing up, e.g., more hours worked, wages rising. March had some elements that will make it hard to match, namely the end of the west coast supermarket strike that pumped up the number by 75K. If the non-farms number beats 250K, it will be very strong indeed as that would top March's 'base level' when you back out the grocery store hires at the end of the strike. In addition, there are more recent signals. The Monster help wanted index jumped to 125 in April from 109 in March and 102 in January. If it correlates to the jobs report, the percentage of the jump bodes a much stronger report that the 150K to 175K expected. Finally, while not posted yet we have been advised that several administration big wigs are scheduled for CNBC Friday morning. We noted two weeks back that Treasury secretary Snow predicted strong jobs growth for April, though claiming to have no knowledge of any data complied to that point. He said the same thing before the March report. With all of the 'names' ready to get onto the tube in the morning, we surmise that the data has been seen and is strong. In addition, Greenspan gets a heads up on the data as well, and he gave his 'be cautious of deficits in rising rate environments' speech. Another strong report is one step closer to that first rate hike, and he and his henchmen are out preparing the world for the rate hikes to come.
This is one of those times where news takes the center stage and we just have to see how the market reacts. The possible outcomes of the jobs report is a wildcard in itself as well as the reaction to the report. We did not chase downside plays on the gap lower Thursday as we anticipated some volatile action ahead of the jobs data. Friday the market may well gap once more, making it more difficult to move into positions. We will wait for the first test of the opening direction, then start making our moves. It could still take a few sessions to work all of the data through the market and show us if this was the bottom forming event or not. Recall the response to the last jobs data: initial euphoria for a couple of sessions, then rolling over as strong data kept coming in. Thus this is a time to pick our shots, be patient, and see the good moves before we act.
Support and Resistance
NASDAQ: Closed at 1937.74
Resistance: The 10 day EMA (1967). The April closing low at 1978. 1990 to 2000, the top of the late 2003 base. The simple 50 day MA (1996) and 50 day EMA (1998). 2050 represents some prior price points and has stopped NASDAQ the last time it tried that level. Breakout from the pattern is 2080. 2089 is the February closing high. 2112 is the early January high.
Support: The 200 day MA (1938) is still a key point that is trying to hold. Mixed tops and bottoms at 1900. The March low (1896). 1850 below that.
S&P 500: Closed at 1113.99
Resistance: 1118 is the April closing low and the 10 day EMA. 1125 continues to stall the move. The exponential 50 day MA (1126) and the simple 50 day MA (1128). The April and January highs (1150 to 1155). Next is 1159 (February highs) and 1160 to 1175 the highs in that double top that spanned late 2001, early 2002.
Support: 1108, the weekly up trendline from the early 2003 lows. 1106 is a May 2002 top and represents some early 2001 lows. 1096 to 1100, then the March low (1087). 1075 to 1070 from the December consolidation. The 200 day SMA (1076).
Dow: Closed at 10,241.26
Resistance: The exponential 50 day MA (10,372) and simple 50 day MA (10,373). 10,570 is the April high. Price consolidation at 10,600 level. 10,747 is the February high.
Support: 10,250 continues trying to hold. 10,000 to 9900-9850. The 200 day SMA (9996). 9859-9855.
Economic Calendar
These are consensus expectations. Our expectations will vary and are discussed in the 'Economy' section.
5-03-04
Construction spending, March (10:00): 1.5% actual, 0.5% expected, 0.4% February (revised from -0.1%).
ISM, April (10:00): 62.4 actua, 62.7 expected, 62.5 March.
5-04-04
Factory orders, March (10:00): 4.3% actual, 2.4% expected, 1.1% February (revised from 0.3%).
FOMC meeting results (2:15): No change in the fed funds rate, no longer patient but will raise rates in a measured manner.
5-05-04
ISM services, April (10:00): 68.4 actual, 65.0 expected, 65.8 March.
5-06-04
Productivity, preliminary Q1 (8:30): 3.5% actual, 3.5% expected, 2.5% Q4 (revised from 2.6%)
Initial jobless claims (8:30): 315K actual, 335K expected, 340K prior.
5-07-04
Non-farm payrolls, April (8:30): 165K expected, 308K March.
Unemployment rate, April (8:30): 5.7% expected, 5.7% March.
Hourly earnings, April (8:30): 0.2% expected, 0.1% March.
Average workweek: 33.8 expected, 33.7 March.
Wholesale inventories, March (10:00): 0.5% expected, 1.2% February.
End part 1 of 3
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