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world stock market, us stock market
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6/08/04 Investment House Daily
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Investment House Daily Subscribers:
Stock markets will be closed Friday in honor of President Reagan
Talking to people around the country, it is clear that President Reagan's death has brought back a lot of memories. It is of course human nature in recalling the past to gloss over the difficulties confronted and to emphasize the good points. The common recollection and a very positive development in our view is the return to that Reagan optimism that we can overcome the problems that confront us in both the short term and long term. Regardless of the political outcome, that optimism is the key to our success, and we need to foster it.
MARKET ALERTS:
Target hit alerts issued Tuesday: None issued
Buy alerts issued: AME
Trailing stop alerts: None issued
Stop alerts: VSH
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:
http://www.investmenthouse.com/alertdly.htm
SUMMARY:
- Market takes a breather but shows bullish intraday action.
- Greenspan shows takes a more hawkish tone at world central bank conference.
- Oil falls, dollar rises.
- Summer rally continues as leadership stocks still making volume moves.
- Subscriber Questions
Good day of rest as market overcomes lower open, Greenspan remarks.
Stocks were softer as expected after the big point gains Monday. NASDAQ gapped lower and the other indexes fell negative early, but the losses were modest as the indexes easily held above near support in the early trading. A quick double bottom and that set the low for the session. Stocks spent the rest of the session working steadily higher. Nothing spectacular, just a steady build. After turning positive with 1.5 hours remaining, an attempt was made to sell the market. The indexes turned negative but then immediately reversed and rallied to close at session highs.
Volume was lower all session, but similar to Monday it improved late. It did not overtake Monday's trade, but it was definitely stronger in the last half hour. Good intraday bullish activity even if the session was not another upside surge. Indeed, stocks were able to shake off a more hawkish Greenspan as he put on his tough face for the meeting of international central bankers. Falling oil prices also helped stocks also as the government forecast $36/bbl oil by the third quarter. All in all, stocks continue to find a bid as investors come to grips with the problems confronting the economy this year. It has been no surge, no massive bout of accumulation, just a typical early summer rally that is getting good leadership from quality stocks.
THE ECONOMY
Greenspan makes clear Fed will raise rates to match advance in yields, but his speech was not as hawkish as reported.
Snippets from Greenspan's panel speech before the International Monetary Conference were referenced all session. Taken out of context phrases such as "the persistence of the rise in energy prices is a worrisome element in the cost picture" and "higher oil prices . . . are likely to boost core consumer prices" sound pretty harsh. His summation that if the Fed's judgment that interest rates could be raised at a measured rate was "misplaced . . . the FOMC is prepared to do what is required to fulfill our obligations" also had the television pundits humming. They went beyond Greenspan's comments, even incorrectly saying the Fed would move 'aggressively' if necessary. That was an added goose to the language.
The market seemed to ignore them. No wonder. In the context of the speech they were not an imminent call to a stronger rate hiking campaign than expected or than the chairman himself had discussed with congressmen just a few weeks back. He noted increased business pricing power as evidenced by the core consumer prices, particularly the PCE (personal consumption expenditure index) that rose from 0.8% in December to 1.4% in May. Sounds troublesome, but Greenspan concluded his commentary on pricing by noting that business price increases would be naturally capped by the forces of competition and drop them back to normal levels.
As for oil prices, Greenspan is concerned about their impact on inflation. That is always a source of concern for us. He cannot resolve the oil issue by raising interest rates. The cause and effect is too distant. Some smart people have taught me not to worry about what I cannot control. Greenspan needs the same instruction. Even if he slows the US economy significantly through rate hikes, that still won't stall the Chinese economy. Sure oil prices may fall, but the US wouldn't be the beneficiary. Much as with prescription drugs, the US would be underwriting the rest of the world being able to have lower oil prices because we slowed our economy. That is just stupid. That is very much burning down the house to save it from the fire. Greenspan has yet to really learn this lesson. There is such a thing as the lesser of two evils, and letting the economy run even with higher energy prices is better than an economy mired in stagnation with lower energy prices. Yes son, we may not be going anywhere, but damn we are making some good time.
Greenspan then talked about where rates already are. He noted that the expectation of Fed rate hikes had already induced necessary adjustments in the mortgage market. He noted the federal funds futures reflect expectations of a "substantial firming," but "unlike 1994, there has been an appreciable increase of market rates in anticipation of policy tightening." Substantial was morphed into 'aggressive' by many commentators. With the Fed plainly saying the market had done a lot of its work for it, it is hard for us to make that leap. The Fed thus far has strongly indicated it is going to follow the market, not get in its way as Greenspan's reference to 1994 indicates.
Still, there is something to be concerned about knowing the Greenspan Fed's history. Certainly Greenspan put on his 'tough guy' face for the benefit of the other world bankers, but as we saw in the late 1990's, the international pressure can surreptitiously influence even the Fed's best intentions to let the market be its guide. We have discussed before how the central bank always sounds reasonable as it starts raising rates. It is the test of time that is often the Fed's downfall; it cannot maintain the detached and unemotional evaluation of the economy once it starts raising or lower rates. It is the nature of interest rate hikes that they do not show impact for long periods of time and when they do it is gradual. Gradual, that is, unless the Fed loses patience and starts increasing the frequency and the intensity of the hikes just as it did in 1999. All in all, however, the market read the Chairman's statement for what it was, an affirmation the Fed was going to go slow with rate hikes given the current economic data it has.
Oil continues to fall, dollar rallies.
Oil started peaking the past few weeks as we predicted based on the charts of the oil related stocks. Tuesday oil fell further when the government forecast $36/bbl oil by Q3. We think that is in the ballpark, but it could be more toward $30. OPEC said it could reduce oil by $7 to $8 per barrel, and that would put it in the low thirties. We know Saudi likes to meet its public statements, and we anticipate oil will be lower than $36/bbl in the next 4 weeks. Indeed, the oil futures contract closed below its 50 day MA Tuesday as oil and oil futures swooned late in the session. This came even after oil rose early in the day on word that the Iraq to Turkey pipeline had been interrupted again by sabotage. When prices continue a course even with that kind of news, you know the trend that is starting to assert itself is strong. Thus we see oil dropping lower than $36/bbl and sooner than the government predicts.
The dollar has been in decline the past 4 weeks, but Tuesday it hit a support level and bounced. Nothing major, but with Greenspan again talking of rate hikes the dollar firmed. Since double bottoming in January and February the dollar has been trending higher. It held that support Monday and Tuesday, now we see if it can continue its steady, modest, and healthy rise.
THE MARKET
Started modestly weak, then modestly rallied the rest of the session. Volume was lower, breadth modestly lower but not bad (SP500, SP600 showed positive breadth), and stocks again returned to bullish intraday action. NASDAQ and SP500 both continued to rise above their near term down trendlines as they fought off an attempt to sell in the last two hours. It was not a banner day, a day of unequivocal strength, but it was solid recovery all session long. For a day we anticipated being soft, it was not bad.
Indeed, it was another positive though light volume day in the summer rally. Volume has not been blowout, but we continue to see leadership stocks move well on some very good trade. Rallies are basically made of leaders that are, well, leading the market. Rallies vary in strength. There are those with blowout volume that show massive accumulation that typically set up longer term moves. There are those that show positive price/volume action, but volume is overall lower; the buyers are in control, but overall there is not the same level of participation. That is what we have right now in this rather typical summer rally: light overall volume with leaders showing good moves on solid and even strong trade. Most of the money seems to find its way into those stocks with the strongest earnings and sales growth. That is typical for rallies regardless of the overall strength.
In the end the market fought off some so-so news and continued its move higher. Stocks still have to deal with the April highs as the primary level of near resistance and a real challenge to an overall low volume rally. That and the approach to the July earnings season will be its real test, and that is what we have to be wary of as the market moves to the second half of June.
Market Sentiment
VIX: 15.01; -0.38
VXN: 22.26; -0.39
VXO: 13.75; -0.95
Put/Call Ratio (CBOE): 0.86; +0.01
NASDAQ
Gapped lower but then recovered to post a modest gain, taking it a bit further past its down trendline.
Stats: +2.91 points (+0.14%) to close at 2023.53
Volume: 1.47B (-1.28%). Volume remained low again, but it was lower during the early selling and picked up speed as the market moved modestly positive on the close.
Up Volume: 802M (-467M)
Down Volume: 639M (+433M)
A/D and Hi/Lo: Decliners led 1.27 to 1
Previous Session: Advancers led 2.48 to 1
New Highs: 93 (-7)
New Lows: 17 (-11)
The Chart: http://www.investmenthouse.com/cd/^ixq.html
Modest gain but again, it reversed an early gap lower finished positive. This further moved the index over the near term down trendline at 2012. NASDAQ remains in its 19 week base, moving toward the April highs (2060, then 2080) where it will receive its real test in this move. The low volume is, longer term, the downfall of the move, but while we see leaders making good runs it is a summer rally we want to take advantage of. If it can break through the April highs and provide a breakout to the double bottom pattern, we will be somewhat surprised. That does not mean we won't continue to take advantage of those stocks that continue to show leadership if it does.
QQQ was similar to NASDAQ. It is already much closer to its April high (37.50), and Tuesday it seemed to already feel the weight, posting a very modest gain on very low volume. We are focusing intently on what QQQ does at this level as an indicator for the overall NASDAQ. A solid break through that level on better trade is a good sign for the techs overall.
S&P 500/NYSE
Easily held over support, adding a bit to the Monday move on continued low trade.
Stats: +1.76 points (+0.15%) to close at 1142.18
NYSE Volume: 1.19B (-1.38%). Modest decrease in volume, showing the same pattern as on NASDAQ: lower as stocks sold early, rising as stocks recovered late in the session. Overall very low trade continues in a more typical summertime rally mode.
Up Volume: 577M (-523M)
Down Volume: 582M (+483M)
A/D and Hi/Lo: Decliners led 1.14 to 1. SP500 breadth was actually positive. Overall not a bad day.
Previous Session: Advancers led 3.74 to 1
New Highs: 101 (-33)
New Lows: 15 (-2)
The Chart: http://www.investmenthouse.com/cd/^spx.html
Large caps edged higher in a nice intraday reversal from the early softness. More of that intraday bullish action that has marked most of the sessions of late. SP500 is rapidly approaching its April highs (1145-1150) as its breakout Monday came at a higher level than NASDAQ. We still believe that this low volume move will be put to the test at the April high. At a minimum we anticipate a lateral move as it reaches that level. Again, if it can form another lateral to slightly lower, low volume handle at that point that would be a real positive. Of course, it will have to provide the breakout as well; lots of pretty pictures are never bought, another way of saying that a lot of pretty stock patterns never make the breakout move. We expect it to put up a fight at that level, to try and form up for another breakout. With typical summer patterns appearing to be in force, however, it will indeed be a fight to make the next breakout.
DJ30
The best gain of the day (0.4%) as the large caps found more strength following the breakout from lateral range and moving over the simple 50 day MA (10,265). The blue chips have the same near term obstacles in the form of the April highs: 10,512 to 10570. After lagging a bit it is trying to show some strength; it will need it to challenge these levels successfully.
Stats: +41.44 points (+0.4%) to close at 10432.52
Volume: 170 million Tuesday versus 172 million shares Monday.
The chart: http://www.investmenthouse.com/cd/^dji.html
WEDNESDAY
Again we remind you that the market is closed Friday, and that keeps investors even more in check than the already light volume indicates. In short, with the G-8 conference, the state funeral, the long weekend, and the renewed terror threats, volume will tend to remain light. That is not really a problem; volume has been light up to this point so we hardly expected it to dramatically improve whether trading was held Friday or not. Wholesale inventories are out Wednesday, and that will not have much impact either. The PPI Thursday has the most market moving potential given Greenspan's speech.
We continue to see stocks moving well individually, a sign of the health of the summer rally. The indexes will be tested as they approach the April highs; if they do manage to push through we still expect rough water as the market moves into the July earnings season. It might stall before earnings hit or it may cruise on into the season and post gains into the first two weeks as it has done in the past. We are not expecting the rally to continue through the summer, instead following more typical summer patterns. That does not mean we are going to ignore it if it continues the move. We are simply preparing along the lines of a low volume early summer rally; if it wants to give us more, we will take it.
Thus as stocks move nearer to the April highs we will begin tightening our stops further and be prepared to close positions if they start running into trouble. We can always get back in if we turn out wrong. Moreover, the stronger stocks will typically hold up better, leaving us in the stronger stocks if the market continues the move. Again, we are not expecting a breakthrough from this level, at least one that holds. That puts us in the mindset to protect what we have gained and ready to take advantage of those stocks that still hold up and move higher.
Support and Resistance
NASDAQ: Closed at 2023.53
Resistance: 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: 2012 is the January/April down trendline. 1990 to 2000, the top of the late 2003 base. The 50 day SMA (1980) and the 50 day EMA (1972). The 200 day SMA (1964). 1900 to 1890. The April lows (1880, 1878).
S&P 500: Closed at 1142.18
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 (1117). The 18 day EMA (1118). 1106 is a May 2002 top and represents some early 2001 lows. 1096 to 1100. The 200 day SMA (1089).
Dow: Closed at 10,432.52
Resistance: 10,478 (late April highs). 10,512 (late April high); 10,570 is the April high. Price consolidation at 10,600 level. 10,747 is the February high.
Support: The 50 day SMA (10,265). Price support at 10,250. The 50 day EMA (10,231). The 18 day EMA (10,201). The 200 day SMA (10,091). 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 notice there are great discrepancies between the average volume and target volume from stock to stock. Does this target volume vary day to day depending on market conditions and proximity to the buy point?
A: The target volume for any play on the reports is typically going to be a lot higher than the average daily volume, because it's that huge demand in buying that is what will push the price past resistance, giving it that explosive move that starts the next run. We want to see lots of buyers piling in when a stock breaks out of a pattern, since that will help insure the move is successful. Certain plays will require certain volumes. On breakouts from bases like cup with handles, double bottoms, and flat bases we look for at least one and a half times the average volume. For breakout tests where a stock has already shown big volume on the breakout, we just want to see volume surging when the stock resumes the move (preferably an above average volume surge). Same goes for a test of the 18 day EMA or the 50 day EMA; we want to see good volume on the rebound, but don't have to see huge volume if the stock has already shown that strong trade when it made the move that started the run. If the market is in a lower volume rally we may lower our sights some, but as we have seen, even with lower volume overall, strong stocks make strong volume moves. That is why we typically don't equivocate on volume when we are looking at entering a position.
The target volume will vary with respect to changes in the average daily volume at which the stock is traded. Since the average is determined over a certain length of time (we prefer a 50 day moving average to give an accurate gauge of the strength of moves) the average daily volume will remain fairly steady over the chosen period of time, especially when viewed within the time frame of most of the stock plays.
End part 1 of 3
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world stock market
us stock market
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