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us stock market, stock prices
Begin part 2 of 3
THIS WEEK
The speculation about rate hikes will continue this week as some important economic reports hit the wire. The PPI (Producers Price Index) and CPI (Consumer Price Index) give some insight, albeit from the government's rather tortured perspective, as to prices facing businesses and consumers. The trend shows gradual re-inflation in the government's basket of goods though as we have noted before, healthcare and education costs are inflating at a much faster pace. It will be interesting to see how much of a bite higher oil prices are taking.
Two things appear to be hampering the market's ability to find a bottom in this correction. First, speculation about how much damage the Fed will do when it starts hiking rates. Stocks have been discounting this ever since the March jobs and retail sales reports hit the street. As of yet they have not found the level that fully discounts the first rates hikes and their impact on the economy. It is more than that, however. As we have noted, nominal interest rates are much higher than 1%, and the Fed could raise rates 100 basis points and be basically neutral with short term rates. Thus a 50 basis point hike that is currently factored in by the August FOMC meeting (that means two 25 basis point hikes, one in June and one in August) will not stall out growth. Again, the market is concerned the Fed is going to go overboard in hiking rates as the Fed often does, and it is getting to a comfort level between stock prices and any negative economic results due to the Fed raising rates too high too fast.
The second issue involves Iraq and the struggle to reach the point of turnover to the Iraqi's. The continued violence from outside fighters and more recently native Iraqis makes the goal of achieving a democratic Iraq even more difficult and open ended, and that is weighing on the market. Japan and Germany were occupied for years after WWII before their totalitarian roots were gone, and to hand over control in just over 1 year after 40 years of dictatorship is ambitious. The turnover issue has to be resolved with some certainty.
Right now the sentiment indicators are getting to some extremes and the patterns are setting up similar to early 2003. There is the added concern of the Fed's interest rate campaign, something not present in 2003, but the market is selling and discounting that part of the equation. We believe that once the market is convinced the Iraq handover will occur as planned the market can start to move higher. As with the last Gulf war, it is not the actual date of the move but when the market is convinced it will happen.
The question then remains as to how much the market will move on a break higher. Summer is coming and that typically means lethargic stock moves on light volume. Summer rallies occur, but sustained moves are hard to hold during this period. 2003 was more of an aberration because the market was coming off a nasty 3 year decline. Thus if stocks to reverse and break higher, the upside may be limited after an early summer rally in the move.
We were very interested in the action on NASDAQ and SOX Friday as they were showing some relative strength after being the first indexes to sell off. They were unable to break through resistance, but they were showing some life along with the sentiment extremes. It may take SP500 and DJ30 selling closer to their 200 day SMA to get a turn, but the high sentiment readings along with the sold out performance of NASDAQ and SOX make the chance of a turn much more likely. Again, however, the price/volume action, the nuts and bolts of the market, have not shown indications of a turn and until we see a strong upside session and a solid follow through we are going to take it easy with new positions, requiring very solid moves through solid entry points.
Support and Resistance
NASDAQ: Closed at 1917.96
Resistance: The 200 day MA (1939). The 10 day EMA (1958). The April closing low at 1978. 1990 to 2000, the top of the late 2003 base. The simple 50 day MA (1994) and 50 day EMA (1995). 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: Mixed tops and bottoms at 1900. The March low (1896). 1850 below that.
S&P 500: Closed at 1098.70
Resistance: 1106 is a May 2002 top and represents some early 2001 lows. 1110, the weekly up trendline from the early 2003 lows. 1118 is the April closing low and the 10 day EMA (1117). 1125 stalled the last bounce attempt. The exponential 50 day MA (1125) and the simple 50 day MA (1127). 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: 1096 to 1100, then the March low (1087). 1075 to 1070 from the December consolidation. The 200 day SMA (1076).
Dow: Closed at 10,117.34
Resistance: 10,250. The 10 day EMA (10,284). The exponential 50 day MA (10,362) and simple 50 day MA (10,362). 10,570 is the April high. Price consolidation at 10,600 level. 10,747 is the February high.
Support: 10,000. The 200 day SMA (10,001). 9900-9850.
Economic Calendar
These are consensus expectations. Our expectations will vary and are discussed in the 'Economy' section.
5-12-04
Trade balance, March (8:30): -42.6B expected, -$42.1B February.
Treasury budget, April (2:00): $46.8B expected, $51.1B March.
5-13-04
PPI, April (8:30): 0.3% expected, 0.5% March.
Core PPI: 0.2% expected, 0.2% March
Initial jobless claims (8:30): 325K expected, 315K prior.
Retail sales, April (8:30): 0.1% expected, 1.8% March.
Retail sales ex-auto (8:30): -0.2% expected, 1.7% March.
5-14-04
Business inventories, March (8:30): 0.4% expected, 0.7% February.
CPI, April (8:30): 0.3% expected, 0.5% March.
Core CPI (8:30): 0.2% expected, 0.4% March.
Industrial production, April (9:15): 0.5% expected, -0.2% March.
Capacity utilization, April (9:15): 76.7% expected, 76.5% March.
Michigan sentiment, preliminary (9:45): 96.5 expected, 94.2 prior.
THE PLAYS:
Thursday night play results:
HLEX: Still holding the pattern well despite the selling in the market.
NXTP: Nice volume breakout.
PCSA: Still holding in the nice handle to the pattern.
NTE: Looks ready to roll over now.
New Plays:
Upside:
Play Date: 05/08/2004
ATRM (Aetrium--$7.83; +0.32; no options): Scientific & technical instruments
http://biz.yahoo.com/p/a/atrm.html
STATUS: Breakout test. Exploded higher in late April on solid earnings and guidance, moving out of a 10 week flat base sporting excellent 4 to 0 accumulation (4 up price weeks on rising volume to 0 down price weeks on rising volume). That shows money moved into the stock even as it rested. It formed over the 50 day EMA (5.85), another sign of strength. After the strong volume breakout is has come back to test that move but has held most of the gains as volume backed off. You want to see lower volume as it tests the move as that means the selling is limited to short term profit takers. With its solid money flow and relative strength showing it is outperforming the rest of the market, ATRM is setting up for the next move. Want to see a strong volume surge as it moves through the buy point.
Volume: 64.563K Avg Volume: 117.8K
BUY POINT: $8.12 Volume=177K Target=$9.78 Stop=$7.55
POSITION: - Stock (no option chain)
http://www.investmenthouse.com/ci/atrm.html
Play Date: 05/08/2004
CEN (Ceridian--$21.99; -0.15; optionable): Business software
http://biz.yahoo.com/p/c/cen.html
STATUS: Cup w/handle. Excellent action as the market sold. CEN continues to form its base, working on the two week handle where it tested lower on low volume. A nice 16 week pattern that has ignored the market selling. At the end of last week it held the 18 day EMA (21.70) on the low and rebounded, Friday on rising, above average volume. Positive 3 to 2 accumulation in the base with money flow running higher ahead of price.
Volume: 914.9K Avg Volume: 753.782K
BUY POINT: $22.58 Volume=1.1M Target=$26 Stop=$21.58
POSITION: CEN HX - Aug. $22.50c (46 delta) &/or Stock
http://www.investmenthouse.com/ci/cen.html
Play Date: 05/08/2004
IRM (Iron Mountain--$44.90; -0.20; optionable): Business management services (document storage)
http://biz.yahoo.com/p/i/irm.html
STATUS: Cup w/handle. A very nice, orderly handle is forming to the 8 week base as IRM fades to tap the 18 day EMA (44.55) on the intraday low and rebounding to close. The base formed over the 50 day EMA (43.99), a sign of strength as big money stepped in to support that stock at that level. Strong money flow is leading higher ahead of the price and relative strength is ready to make the breakout as well. Volume was up Friday as IRM tested the 18 day EMA and rebounded. Getting ready for the breakout move.
Volume: 231.4K Avg Volume: 277.856K
BUY POINT: $46.02 Volume=417K Target=$52.95 Stop=$44.38
POSITION: IRM JI - Oct. $45c (54 delta) &/or Stock
http://www.investmenthouse.com/ci/irm.html
Play Date: 05/08/2004
PSYS (Psychiatric Solutions--$22.67; +0.35; no options): Specialized health services
http://biz.yahoo.com/p/p/psys.html
STATUS: Cup w/handle. PSYS has formed a nice 8 week base, consolidating a strong March to March run. Good price/volume action in the pattern with volume drying up at the bottom of the pattern and then swelling as it rallied to form the right side of the base. Excellent money flow and relative strength is ready to make the breakout. Friday PSYS was trying to make the run on stronger, above average volume, but gave much of the move back. An 'A' rated stock as far as earnings and sales. Just waiting for it to show us the strong breakout.
Volume: 340.82K Avg Volume: 158.089K
BUY POINT: $23.85 Volume=300K Target=$28 Stop=$22.18
POSITION: - Stock (no option chain)
http://www.investmenthouse.com/ci/psys.html
Downside:
Play Date: 05/08/2004
ESST (ESS Technology--$11.75; -0.20; optionable): Semiconductors
http://biz.yahoo.com/p/e/esst.html
STATUS: Put. ESST crashed below the 200 day SMA (13.80) at the end of April on a big volume spike. It has since managed a low volume bounce back up to the 10 day EMA (12.09) but is stalling at that level showing a doji the past there sessions on very low trade. Looks ready to continue lower after this weak bounce.
Volume: 486.734K Avg Volume: 831.951K
BUY POINT: $11.64 Volume=825K Target=$9.88 Stop=$12.11
POSITION: SEQ SV - July $12.50p (-60 delta)
http://www.investmenthouse.com/ci/esst.html
End part 2 of 3
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us stock market
stock prices
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