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money investment, investment help
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5/25/04 Investment House Daily
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Investment House Daily Subscribers:
MARKET ALERTS:
Target hit alerts issued Tuesday: None issued
Buy alerts issued: BRCM; ELN; LPNT
Trailing stop alerts: BPA
Stop alerts: CTX; WMGI
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. To subscribe to the Daily alert service you can sign up at the following link:
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SUMMARY:
- Broad rally on increased volume as oil prices ease.
- Job confidence offset by gas price worries.
- Small caps lead as SP500 follows through, NASDAQ, DJ30 clear 200 day SMA.
Stocks find footing, move through some key resistance on rising trade.
The market started stronger, fought off the urge to sell on slightly lighter consumer confidence numbers, then proceeded to take out one resistance level after another. Maybe a little inspiration from lower oil prices, maybe a little relief after the President's speech, maybe just enough sideways movement without a breakdown. Volume was decent, but then ramped higher in the afternoon session as stocks continued their move higher. Solid, steady 45 degree climb through the close.
For once it was not all price, and not a lot of volatility. NASDAQ gapped higher the prior two sessions and then traded all over the street until the close. When it did close, it was well off the highs. Tuesday there was steady, continued buying. Floor traders we talked with said there was short covering action but also some of their longer term clients were putting money to work. Thus the rising volume: short covering always starts a move higher, and then the question is whether other big money moves in, the kind that wants to buy stocks and hold them, either adding to existing positions or creating new ones. The fact that the indexes hung on near key levels and never gave them up with a big breakdown showed they held onto some positions and started building onto them Tuesday.
It was no blowout. NASDAQ volume strained to reach average even though it was one of the strongest indexes, coming in right behind the small cap indexes. NYSE volume was much better, moving easily above average. Almost fitting given the strong move in small caps this week and given SP500 has done the heavy lifting in keeping the market from rolling over. It showed some sustaining power with this follow up move to last Wednesday, a good start to what could be the formation of the double bottom patterns on the major indexes.
THE ECONOMY
May consumer confidence slips as jobs fence with gas prices.
Confidence remains at solid levels though lower than expected for May. The reading came in at 93.2 versus the 94.0 expected, but that still was above the 93.0 (revised from 92.9) in April. Improving confidence regarding the job market helped, though it was somewhat internally conflicted itself: those finding jobs plentiful increased significantly, but those finding jobs hard to get increased significantly as well. Overall, confidence regarding jobs continued to help the overall reading. Gas prices were the counter to jobs, hurting the near term confidence. At this point, however, they have not been sustained at these high levels enough to really dampen enthusiasm. Expectations from the experts are that gas prices will remain high through August. Anyone filling up an SUV or truck lately is pretty much shocked by the speed at which the bill rises. It won't take many $80 fill ups in that Yukon XL for consumers to have to start cutting back.
Existing home sales surprise, rise 2.5%.
These sales make up 80% of all sales, and they came in at 6.64 million annualized units, better than the 6.45M expected and 6.48 in March. That helped reignited interest in the housing stocks to our chagrin, with many of those stocks rising on stronger volume. Higher interest rates have moved many that were waiting to buy into the market the past three months. Historically rates are still quite low, but the rise is inevitable and fence sitters are getting locked in as best they can. Even existing home sales bode well for the economy as they can require new furniture and appliances just as much as new home sales.
Retail store sales decline from prior week, still strong year over year, but showing early impacts of costly gas.
The weekly retail sales reports continued to show year over year growth though weekly sales the past two weeks have softened. The fancy sounding International Council of Shopping Centers showed a 0.5% drop after a 0.8% drop the prior week. Sales rose 5.5% year over year, down from the 6.2% year/year growth the previous week. Redbook saw major retailers sales rise 4.1% year over year versus 4.8% growth the prior week.
The theories were wide ranging as to why sales dropped. Some blamed Shrek II as stealing customers from the mall. Okay. Others blamed bad weather in the Midwest or Memorial Day coming later this year. Well, Mother's Day came early this year so that should have offset the later Memorial Day, right? The point is, these are store sales, not the total retail sales that would include the cost of gasoline in it. Thus these store sales could already be reflecting some impact from the higher gasoline prices, and that does not bode well for the demand side of the economy. Prices have been high, but not at this $2 level for a sustained period. If this keeps up through the summer as most predict, the economy will have a harder time than most are anticipating.
THE MARKET
That won't be good for the market. The Tuesday action may help start some type of early summer rally toward July earnings at which point the market will probably top out and go into a late summer, early fall correction before an election rally. Election years typically are positive, but if gas prices continue to rise or hold over $2, that will have a definite impact.
The small caps seem to be making the difference. SP500 hung on to its 200 day SMA, but so did the small caps, and when they came back to life starting Friday and Monday, the rest of the market did likewise. After years of underperformance, the small caps helped lead the charge in the rebound, and the market has been unable to advance without them. Looks as if they set the stage and allowed the rest of the market to follow.
Tuesday was a follow through session for the rebound that started on SP500 the prior Tuesday. You could even go back to the prior Wednesday and say the rally started with that big reversal session as SP500 never came back to undercut the low that session. Either way the action Tuesday on SP500 was a follow through with a 1.6% gain and a 2.1% NASDAQ gain on rising volume. SP500 was above average volume, what you want to see on a follow through. Breadth was also very strong, another prerequisite for a follow through of any merit. A follow through always occurs before a bigger rally. Don't jump the gun, however. They always occur before a rally, but they can occur without a bigger rally. It sets the stage, and then we pick off the good stocks as they make strong breakout from solid patterns. In that way you get the best stocks that are leading any potential rally that follows the follow through.
The action went a long way toward helping the market form the right leg of the double bottom it has been toying with forming the past few weeks after three months working on the rest of the pattern. NASDAQ and DJ30 managed to clear their 200 day SMA, both on rising though not stellar trade. It was a good session as far as price moves, and there were some good volume moves. The volume was not blowout, however, and thus many stocks were up on rising volume but hardly at levels to show the kind of commitment we want to put our money in them. There were good moves that we bought, and there were some that were pretty good that we bought, but there were also many good price moves that we let go. The move was a decent follow through, but it was far from perfect and there is still a lot of work to be done. For an early summertime rally, however, it was not bad.
Again this may give us that early summer rally, but we don't expect the market to rally continually higher as it did in 2003. We expect a more traditional market move: early summer rally, then a pullback into the late summer and October, that followed by a better move from fall into Christmas. That, of course, is dependent upon several things, chief being the gasoline and oil prices and whether Iraq can be handed over successfully. The market will anticipate that handover (may have already started doing just that), but then it will have to put out so to speak. If Iraq collapses into turmoil later on this year, that is not a good situation at all for the security of the world, and that puts all economic recoveries under additional pressure just as did 9-11, the corporate scandals, etc.
Market Sentiment
VIX: 15.96; -2.12
VXN: 22.04; -2.29
VXO: 15.91; -2.4
Put/Call Ratio (CBOE): 0.9; +0.13. Rallied on the strong upside move. The gain involved covering up the downside positions and selling some puts for upside moves.
NASDAQ
Burst through its 200 day SMA on higher but still disappointing below average volume. Still, hard to argue with a 41 point move.
Stats: +41.67 points (+2.17%) to close at 1964.65. Strong enough gain for a follow through.
Volume: 1.775B (+24.56%). Volume was up, technically a follow through criteria, but it was also below average. You want to see volume above average on the follow through, though given the weak trade all month volume was clearly much stronger.
Up Volume: 1.4B (+455M)
Down Volume: 374.975M (-81.025M)
A/D and Hi/Lo: Advancers led 2.94 to 1. Solid, follow through caliber breadth.
Previous Session: Advancers led 1.66 to 1
New Highs: 37 (-23)
New Lows: 15 (-49)
The Chart: http://www.investmenthouse.com/cd/^ixq.html
NASDAQ cleared its 200 day SMA (1952), the first time back over that level since breaking through early this month. Steady rise all session, closing at the high. The move took it right to the 50 day EMA (1964.40) and the simple 50 day (1971.22), and that could still block the advance. It was a follow through session for the SP500 reversal (any major index can provide the follow through for another index), but that volume was still disappointing. It helps set the stage for a further rally as it starts the last leg in forming the right leg in its double bottom that started forming in January. The move up to 2075 near the 'hump' in the pattern will be quite a move in itself. We are expecting an early summer rally, and it can give us a nice run into July. We will just have to let it play out, moving into quality stocks as they show volume moves. Again, there were some of those Tuesday, and there were also a lot of stocks that posted nice price gains but on less than inspiring trade.
QQQ blasted through both the 200 day and 50 day EMA, closing near the high on a big burst of above average volume. The large cap techs performed the best, and QQQ is in a good position to attack the April high (37.50) that is the 'hump' in the 4.5 month double bottom base.
S&P 500/NYSE
Surged up to the 50 day EMA on rising, above average volume. A solid if somewhat modest follow through.
Stats: +17.64 points (+1.61%) to close at 1113.05. Minimal price gain for a follow through, clearing the 1.5% threshold. 2% is better as on NASDAQ, but volume on NYSE was better than NASDAQ. Both were somewhat lacking.
NYSE Volume: 1.546B (+26.06%). Above average volume on the price gain, thus providing the solid volume foundation needed for a follow through session.
Up Volume: 1.342B (+519M)
Down Volume: 163M (-213M)
A/D and Hi/Lo: Advancers led 4.91 to 1. Excellent breadth, helped by the market leading small caps. Definitely the kind of breadth you want to see for a follow through session.
Previous Session: Advancers led 2.6 to 1
New Highs: 61 (+30)
New Lows: 19 (-8)
The Chart: http://www.investmenthouse.com/cd/^spx.html
Wasted no time in running right through the 18 day EMA (1102) that had blocked its advance the past week. A solid climb all session that saw volume increase as the afternoon buying turned from short covering to long buying. The strong move took the large caps right up to the 50 day EMA (1113.32), another potential resistance point. With the strength of the move on the heels of a dogged fight to hold the 200 day SMA (1083), the bigger picture move was impressive. Now it is moving up to complete the double bottom pattern, and similar to the other indexes, that move alone would take it to 1150, quite a move in its own. Good start.
DJ30
Lagged the rest of the market even with its 159 point gain. Volume was up and back to average as it clear near resistance at the 200 day SMA (10,050) and 18 day EMA (10,077). A classic double bottom with the right leg undercutting the left. Now we see if the 30 can get it together and make a move, but this is not the leadership index. Clearing the 200 day SMA was key, however, as it was holding it back.
Stats: +159.19 points (+1.6%) to close at 10117.62.
Volume: 214 million Tuesday versus 187 million Monday.
The chart: http://www.investmenthouse.com/cd/^dji.html
WEDNESDAY
We stated the obvious the other day, i.e., if the indexes could all move past the 200 day SMA then they would have a better shot of attracting more money, or if to the downside, lose more money. NASDAQ, DJ30, SP500, SP600 are now above the 200 day, and moved on some decent volume with a follow through session. With SP500 and NASDAQ at the 50 day EMA, we might see a quick test toward the 200 day SMA before making another attempt higher. We will keep that in mind as they test, and if they hold at the 200 day or above, then we will start adding to positions on some of the stronger stocks as they ease back. We will get out of downside plays on that move as well. If the test fails, that is another story, but with SP500 holding tough over the 200 day and then the strong break higher, we like the look of the near term prospects.
Again, we are not looking at this as a 2003 rally that takes us through the summer, fall and into Christmas. Even though there was follow through it was less than powerful. There is still the SOX and some big name chips that are struggling. Many good price moves Tuesday were not backed by strong volume. There are holes. Thus we take the move with a grain of salt, but we participate in the good moves as they present themselves. If volume cannot continue to come in on upside days and it starts to erode, we will protect positions. One thing to anticipate: if SP500 and NASDAQ get toward the April highs, they will most likely slow. If they move laterally, that may mean a handle forming and we will have to watch volume closely as it is a fine line between a stall out and a handle. That will be a nice problem to have, however, as that is a good move to that level as noted above.
Support and Resistance
NASDAQ: Closed at 1964.65
Resistance: The simple 50 day MA (1971) and 50 day EMA (1965). The April closing low at 1978. 1990 to 2000, the top of the late 2003 base. 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 SMA (1952). 1900 has acted as recent support. 1890, the gap up high at on Tuesday. The April lows (1880, 1878) trying to hold. 1850 below that. Some price tops at 1777, 1750.
S&P 500: Closed at 1113.05
Resistance: The exponential 50 day MA (1114) and the simple 50 day MA (1117). 1125 stalled the last bounce attempt. 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: The 18 day EMA (1102). 1106 is a May 2002 top and represents some early 2001 lows. 1096 to 1100. The 200 day SMA (1083). April lows (1079, 1076). 1075 to 1070 from the December consolidation. 1058 - 1060 from November tops.
Dow: Closed at 10,117.62
Resistance: 10,250. The exponential 50 day MA (10,224) and simple 50 day MA (10,252). 10,570 is the April high. Price consolidation at 10,600 level. 10,747 is the February high.
Support: The 18 day EMA (10,077). The 200 day SMA (10,050). The 10 day EMA (10,020). March low (10,007). 9900-9850.
Economic Calendar
These are consensus expectations. Our expectations will vary and are discussed in the 'Economy' section.
5-25-04
Consumer confidence, May (10:00): 93.2 actual, 94.0 expected, 93.0 April (revised from 92.9).
Existing home sales, April (10:00): 6.64M actual, 6.45M expected, 6.48M March.
5-26-04
Durable goods orders, April (8:30): -0.8% expected, 5% March.
New homes sales, April, (10:00): 1.2M expected, 1.228M March.
5-27-04
GDP, Q1 second revision (8:30): 4.5% expected, 4.2% prior.
GDP chain deflator (8:30): 2.5% expected, 2.5% prior.
Initial jobless claims (8:30): 335K expected, 345K prior.
5-28-04
Personal income, April (8:30): 0.5% expected, 0.4% March.
Personal spending, April (8:30): 0.2% expected, 0.4% March.
Michigan revised sentiment, May (9:45): 94.2 expected, 94.2 prior.
Chicago PMI, May (10:00): 62.0 expected, 63.9 April.
End part 1 of 3
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