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money investment, financial investment
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5/26/04 Investment House Alerts Report
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IH Alert Subscribers:
MARKET ALERTS:
Target hit alerts issued Wednesday: None issued
Buy alerts issued: ACLS; RHAT; PLXT; MODI; SSP
Trailing stops issued: None issued
Stop alerts issued: None issued
SUMMARY:
- Market takes a day of rest following a big move.
- New home sales crumble, volatile durable goods fade.
- Pausing at 50 day MA as market mulls a summer rally in face of oil, Iraq, terror threat.
Fairly normal day off after a big move.
Looking a the close, it would appear the market simply ran in place Wednesday after the good Tuesday upside surge. Running in place implies too much activity. It was more like taking a nap. Volume was lower, the gains were very modest. After an early dip that tested toward the 200 day SMA, however, the indexes stair stepped higher all session to close near session highs. In the face of some weaker economic data regarding new home sales and durable goods orders as well as renewed concern regarding a terror attack on home soil, the modest advance was not bad action at all.
NASDAQ managed to close above its exponential and simple 50 day MA along with the SP600 (small cap index). Significant, but not as much as the stronger volume move over the 200 day SMA Tuesday. Moreover, volume was lower, and thus any move over a resistance level is suspect. In short the market did pretty much what we felt, testing toward the 200 day SMA on the early low, then posting a modest recovery as it catches its breath after a pretty good follow through session Tuesday that shot up a lot of ammunition near term.
THE ECONOMY
April new home sales fall fastest in 10 years.
New home sales fell 11.8% in April to 1.09M annualized units, significantly lower than the 1.2 million rate expected. They were expected to fall, just not that much. March, on the other hand, was revised to a record high of 1.24M annualized units. Higher rates drove more people into the market, and after that group was pushed in, the newcomers were fewer. The big drop was in the south (-22%) while other regions held up just fine. That cast some doubt on the overall number along with the March revision to record levels.
Does this mean an end to home sales? Probably not though they won't be posting the record gains as rates move higher. Home sales are an early economic cycle leader, helped along by the nesting effect after 9-11 where money was transferred from financial assets to tangible assets. As the economy improves money will find other investment vehicles that will produce better returns. Rates are still historically low, and thus houses will continue to be purchased in solid quantity. Moreover, the slowdown is not the death kiss for the economy; other areas are picking up such as business investment as the economy becomes 'self sustaining' as a group of economists concluded last week.
April durable goods tank 2.9% after 5.7% surge in March.
The thing to take away from this number: this is a volatile report, month to month. Take out transportation and they were down 2.1%. Non-defense capital goods excluding aircraft (quite a mouthful) fell 3.5%. This is the proxy for business spending. Of course, it rose 6% in March and 2.3% in February. Again, volatile, but the trend is still strong. Indeed, May should show a good rebound as manufacturing continues to post gains outpacing much of the rest of the economy.
THE MARKET
Stocks took the day off after a big run. That is pretty much typical unless there is a very strong move ahead. With the built in governors of oil prices, Iraq, politics and heightened concern about domestic terror attacks, it is hard for the market to put together a massive surge. Last Wednesday may have set a bottom on the selling given the Tuesday follow through on SP500, but the question is how high the market can go here.
Monday is Memorial Day, the traditional summertime kickoff. That typically ushers in the slower summer sessions with lower volumes. Often there is a summer rally up to the July earnings and then the market goes into its summer swoon. Ahead of the Memorial Day weekend and the revisited concerns of a terror attack in the US, the market is pausing, pondering if it wants to rally into the weekend or go out quietly, see what happens, then resume an early summer move.
The follow through suggests a rally attempt, but as we stated before, this summer we do not expect stocks to continue through the entire summer, ignore a late summer/early fall drop, and continue higher as they did in 2003. The initial bloom is off and we can expect more typical action, at least typical with respect to having Iraq, an election, terrorism, and a Fed rate hiking campaign ready to get underway. Those act as a sea anchor on a rally. We see good stocks making some good moves, the indexes are defying the headwinds, and the economy is still strong for now even with the high gas prices. That is giving stocks a boost, but again, we will be pleasantly surprised if we get more than a modest early summer rally before the doldrums sink back in.
Market Sentiment
VIX: 15.97; +0.01
VXN: 21.63; -0.41
VXO: 16.23; +0.32
Put/Call Ratio (CBOE): 1.01; +0.11. A combination between those covering positions fearing a higher run and those looking at the 50 day EMA and thinking stocks could not move higher through that level combined to provide another close over 1.0.
NASDAQ
Volume backed off as NASDAQ managed to close over its simple and 50 day MA. Just a day of rest that had some leftover momentum.
Stats: +11.5 points (+0.59%) to close at 1976.15
Volume: 1.609B (-9.37%). Significant fall in volume from levels that were not exactly inspirational on the Tuesday gain. NASDAQ is still finding it difficult to attract a lot of big money as worries over future growth continue given the Fed rate hiking.
Up Volume: 1.184B (-216M)
Down Volume: 402M (+27.025M)
A/D and Hi/Lo: Advancers led 1.44 to 1
Previous Session: Advancers led 2.94 to 1
New Highs: 69 (+32)
New Lows: 28 (+13)
The Chart: http://www.investmenthouse.com/cd/^ixq.html
After some early selling NASDAQ turned higher and made a steady, stair step move higher to close at the session high. It fell back form the simple 50 day MA (1972), but then made a late push to take that level on the close. It continues working on its double bottom pattern, but has yet to show a big burst of buying to show the big money is again accumulating these stocks. No complaints about the action after the big Tuesday run; that it could continue to drift higher without sellers rushing in is in itself an improvement.
QQQ continued its move over its 50 day EMA and 50 day SMA (35.67, 35.71) on much lower, below average volume. Tuesday volume surged as the Q's make a good proxy that big money likes to move in and out of when it is not really certain about the market. Moving toward the 'hump' in the 4.5 month double bottom at 37.50. The large cap techs are moving better than the rest of the tech stocks.
S&P 500/NYSE
Tapped the simple 50 day on the high and settled for a very modest gain on lower volume.
Stats: +1.89 points (+0.17%) to close at 1114.94
NYSE Volume: 1.366B (-11.65%). No volume so it struggled all session, clearing the 50 day EMA but not the simple. Basically just held its gain from Tuesday, getting a better lay of the land.
Up Volume: 804M (-538M)
Down Volume: 544M (+381M)
A/D and Hi/Lo: Advancers led 1.74 to 1. Matched the lethargic action, though better than just the large caps would have shown as the mid-caps led the market.
Previous Session: Advancers led 4.91 to 1
New Highs: 70 (+9)
New Lows: 26 (+7)
The Chart: http://www.investmenthouse.com/cd/^spx.html
Cleared the 50 day EMA (1113.38) and stalled below the simple 50 day MA (1117). Made the first move after holding solidly over the 200 day SMA (1084) and now taking the first rest after that one day move. We are not disappointed in the lack of 'follow through' as some were calling the session because follow through occurred Tuesday. What we want to see is the index hold its gains here without giving much back toward the 200 day, then break through the 50 day simple on above average volume. With all of the pundits on the financial stations talking about buying large caps you would hope they could generate some volume.
DJ30
Barely perceptible movement, but what it did was interesting: tapped the 18 day EMA (10,081) on the low and rebounded to close basically flat on very low, below average volume. After a good, above average volume surge Tuesday, this was what we expected and not bad action at all. The Dow has cleared some serious near term resistance, and now it cannot take much time in catching its breath and then running higher toward the next serious resistance at 10,215 and 10,250 (50 day EMA and 50 day SMA, price resistance). One step at a time. It has taken the first, and after a bit of rest it needs to step up and take the next.
Stats: -7.73 points (-0.08%) to close at 10109.89
Volume: 171 million Wednesday versus 214 million Tuesday.
The chart: http://www.investmenthouse.com/cd/^dji.html
THURSDAY
The next GDP revision for Q1 is released before the open, and that has some ability to move the market. The longevity of the impact on a daily basis, however, is limited. It is more the cumulative picture drawn in the context of rising rates, a more active Fed, potentially more active terrorists, higher oil prices, and a political campaign.
With the 3-day Memorial Day weekend ahead, we may continue to see the light volume of Wednesday. The market has upside momentum and can continue to drift higher even with low volume because the short sellers have backed off for now. We may see some approach late Friday as the shorter term traders get squared away for the weekend. Indeed, a light volume drift Thursday and through lunch Friday will set up some late profit taking.
We moved into some more positions today on some solid moves despite lower overall volume. There will continue to be moves as we approach the weekend; the fight at this point is to refrain form chasing low volume movers. We have seen quite a few move higher for one or two sessions on low trade, and the temptation is to just go ahead and jump in and short term trade them. The problem is, light volume moves can reverse on a dime. Any move can reverse on a dime (say when the FDA drills one of your stocks), but if there is strong buying/volume to start the move, there is less likelihood those buyers will turn back over and dump the shares immediately. If stocks don't have that stronger backing on the move, they are more susceptible to quick reversals when sellers jump on them.
So we approach the session with patience, letting stocks show us the move before we put our money into them, letting stocks hold support on some testing, but not letting them slip too low in the even t the selling picks up.
Support and Resistance
NASDAQ: Closed at 1976.15
Resistance: 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 simple 50 day MA (1971) and 50 day EMA (1965). The 200 day SMA (1953). 1900 has acted as recent support. 1890, the gap up high at on Tuesday. The April lows (1880, 1878). 1850 below that. Some price tops at 1777, 1750.
S&P 500: Closed at 1114.94
Resistance: The exponential 50 day MA (1113) is not totally broken, 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 (1103). 1106 is a May 2002 top and represents some early 2001 lows. 1096 to 1100. The 200 day SMA (1084). April lows (1079, 1076). 1075 to 1070 from the December consolidation. 1058 - 1060 from November tops.
Dow: Closed at 10,109.89
Resistance: The 50 day EMA (10,216). The simple 50 day MA (10,251) and price resistance at 10,250. 10,570 is the April high. Price consolidation at 10,600 level. 10,747 is the February high.
Support: The 18 day EMA (10,081). The 200 day SMA (10,055). The 10 day EMA (10,037). 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): -2.9% actual, -0.8% expected, 5.7% March (revised from 3.4%).
New homes sales, April, (10:00): 1.09M actual, 1.2M expected, 1.239M March (revised from 1.228M).
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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money investment
financial investment
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