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world stock market, us stock market
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6/07/04 Stock Split Report Update
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Stock Split Report Subscribers:
Full reports issued Tuesday, Thursday and Saturday.
Stock markets will be closed Friday in honor of President Reagan
When I was completing my undergraduate work Ronald Reagan was elected President. I studied his economic plan my last year in college and became a believer in supply side economics. His economic insights, however, were just part of a comprehensive understanding of what it meant to be free and to be a citizen in this great country where truly anyone can achieve and succeed. Freedom is not cheap, it is not easy, but President Reagan made it easy to believe and to again feel that we were truly blessed to live in a country that was in position to help lead the world to freedom and peace through strength of ideals. One of my greatest regrets is that he was not able to contribute to the public debate these past 10 years, particularly as we face the increased threat of terrorism. If, however, we never forget his optimism for our greatness still yet to come, each year will be the new dawn for America and our allies.
MARKET ALERTS
Targets hit alerts issued Friday: None issued
Buy alerts issued: ATVI; PLMD; ALDN; MSA; POSS; BMET
Trailing stops issued: None issued
Stop alerts issued: None issued
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:
- Summer rally continues on stronger though still light trade.
- Strong price surge as SP500, NASDAQ clear near resistance.
- Subscriber Questions
Stocks continue the upside move on what some term the 'Reagan' rally.
The rally that started 3 weeks back continued with a strong boost Monday on rising though still light trade. As we noted in an early alert, this light volume is typical of summer rallies. It may not give you that rush of confidence that a strong volume move provides, but in the summer, many times this is what you get. Volume was up and there were some very good individual volume moves. Certainly no one will complain about the strong price gains and the move through resistance. Given all that confronts the market, it is hard to complain indeed.
Some were calling this a 'Reagan' rally. Maybe that played a role; some floor traders told us of a feeling that remembering the Reagan years might benefit Bush's campaign. As is typical, in recalling the past the worst portions are forgotten. All day, however, it was repeatedly noted that it was not summer evening stroll for Reagan. Europe considered him a cowboy with an itchy trigger finger. Environmentalists felt he was against all that had been won in the 1970's. His economic policies were derided. His foreign policies were feared. The parallels between then and now are real. The bitterness seems worse, however. It has been said that Reagan and Tip O'Neill could have a beer together after hours. Today the animosity between the parties makes that seem unlikely between their present day successors. Maybe this will impact the campaign, maybe not. If nothing else, they could take heed that we are all in this together, and at the end of the day we do have to work together. Turning off the electorate with extremely bitter interplay between the parties is not the way to do that.
In all likelihood the move is simply based in the continued summer rally as investors continue to come to grips with the Iraq handover and the Fed rate hiking campaign. The Fed is doing all it can to say up front that the past does not dictate the future as far as the Fed's intention. As we have noted in the past, that sounds great, but it takes extraordinary restraint to remember that and then apply it a year down the road. Better to raise rates to just below the target level now and then back off, but that won't happen. Near term, however, the market is willing to venture further into stocks, though not deeply as the volume indicates. Still a summer rally and still room to the upside, but as we know, summer rallies, without some major outside force, run their course before the summer is over. So far so good, but the volume tells us that investors are not pumping money hand over fist into stocks.
THE MARKET
Very strong breadth, strong price gains, and some really good individual moves (price and volume) combined for a nice session despite overall low volume. Volume was up but still well below average in classic summer fashion. Thus as SP500 broke over 1125 and NASDAQ broke through 2000, the move lacks serious conviction. Again, classic summer rally action with the sellers sitting on the sidelines for now, allowing the buyers to push the market higher.
With lighter overall volume you always have that nagging concern about how long the move can last. With strong, above average volume you still worry about a move's longevity, but you also know that if the majority of investors are behind it, it is less likely to reverse sharply as it would take a majority to change their minds about the market direction. With overall light trade, you know there are many sitting on the sidelines. If they decide to act they could push things higher with force or turn them south with force.
For now the summer rally continues to unfold with new breakouts over the near resistance that held NASDAQ and SP500 in check for over a month. Extremely strong breadth and upside volume (along with the strong price gains) show that those in the market are buyers. Investors are loosening the purse strings, perhaps with more comfort regarding Iraq, oil, and the Fed. We have to remain vigilant for higher volume selling that will market the summer rally's end. We still believe it can match the April highs, however, before it runs out of steam as it heads into the July earnings season.
Market Sentiment
VIX: 15.39; -1.39
VXN: 22.65; -1.19
VXO: 14.7; -1.81
Put/Call Ratio (CBOE): 0.85; -0.17
NASDAQ
Played at 2000 resistance through the first two hours and then rushed higher all afternoon after clearing that resistance.
Stats: +42 points (+2.12%) to close at 2020.62
Volume: 1.489B (+4.43%). Volume was up but as NASDAQ broke sharply higher, but it was still well, well below average. For six weeks trade has only topped average three times. Not a dramatic showing of strength, but it is interesting to note that volume was very, very low on the second low in the double bottom in mid-May. The sellers just dried up. Unfortunately, the buyers have not ramped up their purchasing strength after that bottom.
Up Volume: 1.269B (+187M)
Down Volume: 206M (-118M)
A/D and Hi/Lo: Advancers led 2.48 to 1. Excellent breadth as tech stocks were bid higher all session.
Previous Session: Advancers led 1.95 to 1
New Highs: 100 (+45)
New Lows: 28 (+5)
The Chart: http://www.investmenthouse.com/cd/^ixq.html
Gapped higher, traded around resistance at 2000 for four hours, and then started a strong afternoon surge where stocks kept getting bid higher all session. Closed on the high with a late strong push that carried it past the January to April down trendline near 2015. There is a whole raft of congestion from here to 2080, the April high, but that high is really the key for the index. 2050 to 2080 will be very difficult without solid conviction from buyers. That is the breakout point from the 19 week double bottom. We expect NASDAQ to struggle at that point and the key for the index is whether it forms another handle at the 'hump' in the double bottom and can breakout from there or if selling comes in on rising volume. Key point, but still in the distance as NASDAQ has just broken form the lower ranges of its right leg in the pattern.
QQQ provided a good breakout on rising, below average volume. A better handle than the overall NASDAQ as it formed higher in the pattern and could foster a move over the April high at 37.50 without the need for another consolidation.
S&P 500/NYSE
After a week of lateral movement that tapped at 1125 resistance, the large caps broke through on some rising though still rather low volume.
Stats: +17.92 points (+1.6%) to close at 1140.42
NYSE Volume: 1.207B (+8.22%). Volume increased over Friday's extremely light trade, but it was still below average and barely matched the trade to start last week. As with NASDAQ, the upside conviction overall is less than satisfying, but there also are very good individual moves in both large, mid, and small cap stocks.
Up Volume: 1.1B (+267M)
Down Volume: 99M (-177M). 10:1 upside volume. You don't often see this; if the overall volume was higher it would, of course, mean more. As it is, those in the market are buyers. That is good as long as those sitting on the sidelines don't want to become sellers.
A/D and Hi/Lo: Advancers led 3.74 to 1. Tremendous breadth as the small caps surged off the 50 day EMA.
Previous Session: Advancers led 1.95 to 1
New Highs: 134 (+73)
New Lows: 17 (+1)
The Chart: http://www.investmenthouse.com/cd/^spx.html
A very strong move, but still lagged the small caps (+2%) and NASDAQ (+2.1%). Whether it lagged or not, the index made a very significant move through resistance at 1125 and surged toward the top of the 'hump' (1150) in the 16 week double bottom base. It was not a powerful volume surge, but it was a powerful price move. In addition, SP500 provided the best follow through to its mid-May rebound off the 200 day SMA (1088); technically it has the best move going, and the breach of 1125 is thus very significant. 1150 will prove to be important resistance as it roughly matches the February and March highs (1165). The move also pushed through the March/April down trendline. As with NASDAQ, not a powerful move, but an important one.
DJ30
Lagged the rest of the market, but a 1.4% gain is not bad at all. Volume was up though still below average as DJ30 made a decisive break through the 50 day SMA (10,260.80). As with the other two big indexes, the Dow broke through the February/April down trendline as it heads toward the April high at 10,570. Again, it has the weaker pattern of the three, but it is ready to follow the SP500 and NASDAQ.
Stats: +148.26 points (+1.45%) to close at 10391.08
Volume: 172 million shares Monday versus 161 million shares Friday shares Thursday.
The chart: http://www.investmenthouse.com/cd/^dji.html
TUESDAY
We are now looking at another 4 day week with the markets closed Friday in honor of President Reagan though that will most likely not significantly impact the action Tuesday. The Producer Price Index has been pushed up to Thursday as a result of the Friday closures.
With no economic reports scheduled the market will be on its own Tuesday. A strong move such as Monday often experiences some softness as short term profits are taken. No problem as long as the volume is lighter, indicating that the sellers are not jumping in to try and push a big move right back down. Sellers have been very quiet the past 4 weeks, and we doubt that we will see them really start attempting to sell the market until it approaches the April highs, a natural resistance point. That will be a key level as the market has made a series of lower highs to that point. If there is to be further near term upside it will have to break through that level. If it fails at or below that level, i.e., turns and starts selling on volume and not just forming a handle, that is a red flag for us.
For now we have several good positions that are working well for us and we will let them continue to do so as long as the market and the stocks themselves continue to show overall positive price and volume action. As the indexes approach the next resistance level we will need to necessarily be more cautious until we see what the market is going to do at that key support. As stocks approach that level we will tighten stops a bit more and really pay attention to the price/volume action to determine if sellers are coming in or if it is just a normal consolidation at the next key resistance point.
As for new plays we will continue to look for strong breakouts. We were watching some moves today that were tempting but were on volume that was just too low, even for a summer rally, to really get into. We have entered into leading stocks making solid moves heading into this session, and we continued to move into good movers Monday as the breakout occurred.
Now we become even more selective as the market moves toward that next resistance. Now if there is some softness after the strong Monday move, that can give us an opportunity on some stocks we considered Monday but stayed out of because the simple were not mustering quite enough trade. If they can test back and rebound on some continued solid volume, those will be worth our consideration. The upside move is nice, and some of the individual moves are downright strong. We don't want to lose sight of the fact that thus far this is still just showing the attributes of a summer rally. Sure we will gladly participate, but we also have to keep the bigger picture firmly in sight and watch how stocks react to the next and very key resistance point.
Support and Resistance
NASDAQ: Closed at 2020.62
Resistance: 2015 is the January/April down trendline. 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: 1990 to 2000, the top of the late 2003 base. The 50 day SMA (1978) and the 50 day EMA (1970). The 200 day SMA (1963). 1900 to 1890. The April lows (1880, 1878).
S&P 500: Closed at 1140.32
Resistance: 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: 1125. The 50 day SMA (1119) and the 50 day EMA (1116). The 18 day EMA (1115). 1106 is a May 2002 top and represents some early 2001 lows. 1096 to 1100. The 200 day SMA (1088).
Dow: Closed at 10,391.08
Resistance: 10,478 (late April highs). 10,570 is the April high. Price consolidation at 10,600 level. 10,747 is the February high.
Support: The 50 day SMA (10,260). Price support at 10,250. The 50 day EMA (10,222). The 18 day EMA (10,173). The 200 day SMA (10,086). March low (10,007). 9900-9850.
Economic Calendar
These are consensus expectations. Our expectations will vary and are discussed in the 'Economy' section.
6-07-04
Consumer credit, April (3:00): $3.9B actual, $5.9B expected, $9.3B March (revised from $5.7B).
6-09-04
Wholesale inventories, April (10:00): 0.5% expected, 0.6% March.
6-10-04
Initial jobless claims (8:30): 335K expected, 339K prior.
PPI, May (8:30): 0.6% expected, 0.7% April.
Core PPI (8:30): 0.2% expected, 0.2% April.
Treasury budget, May (2:00): -$67.5B expected, -$88.9B April.
6-11-04
Trade balance, April (8:30): -$44.9B expected, -$46.0B March.
Michigan sentiment, preliminary for June (9:45): 91.0 Expected, 90.2 May.
SUBSCRIBER QUESTIONS
Q: I haven't heard anyone mention it, but did you notice that the NASDAQ 100 did an "island reversal" on the recent low (and hasn't closed the gap yet)? That can sometimes be a pretty bullish sign. That index was pretty "gappy" on a day to day basis near the recent low...lots of volatility.
A: An island reversal is a candlestick technical analysis chart pattern. This kind of reversal develops when a small trading range is separated from the rest of the stock's price action by two gaps, one occurring before and one after the stock's high (or low) price which occurs at the top (or bottom) of a run. These gaps essentially isolate the peak (or the inverse) of the move, hence the term 'island'. They usually develop after an extended advance or decline and often indicate a reversal of trend. This one is a bit more certain than other candlestick patterns and some say it can be traded without confirmation. With candlestick patterns we prefer to see some confirmation of the change in direction before jumping in. These kinds of patterns can also often create the top of a head and shoulder formation (or the bottom of a reverse head and shoulders). It's also interesting to note that this pattern is a tool developed by westerners and is not a traditional Japanese candlestick formation.
You are correct about the island reversal shown on the chart for QQQ, signal day May 17. On that day the low tapped the longer term up trendline for the index, which connects the November 2003/March 2004 lows and from there commenced the bullish activity you note in your email when the index pushed back over its 50 day EMA on strong volume. It's continuing that action today in fact with the summer rally, breaking back over the short term down trendline (January and April highs) on good volume. The QQQ is in a double bottom base since mid-January with highs around $39. It closed today at $37.05.
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