|
|
world stock market, us stock market
* * * *
6/09/04 Investment House Alerts Report
* * *
IH Alert Subscribers:
Stock markets will be closed Friday in honor of President Reagan
MARKET ALERTS:
Target hit alerts issued Wednesday: None issued
Buy alerts issued: ACXM; ASE
Trailing stops issued: HLEX
Stop alerts issued: Took no chances with stocks that started to break near support. SNTS; TWW; BR; ASKJ; ELN
SUMMARY:
- Stocks start lower, unable to match recent intraday rebounds.
- Wholesale inventories fall, sales rise. Oil inventories rise.
- Stocks distribute modestly after approaching April highs, ready to test the break higher.
No intraday rebound to rescue stocks from lower open.
The bullish intraday action enjoyed by the market Monday and Tuesday evaporated Wednesday as stocks opened soft and continued to weaken all session. Indeed, modest downside breadth and volume expanded later in the day as NASDAQ and SP500 broke near support. NASDAQ closed below 2000, but SP500 managed to hold easily over 1125 support.
Volume remained below average but rose, indicating sellers started to outnumber the recent buyers. There was no breakdown, but in one session the indexes gave back half to two-thirds of their gains. The higher volume puts us on alert, and we were quick to close positions that were faltering and undercutting near support. We were looking for a more complete test of the April highs before serious selling, and that of course still may come. After a nice break higher to start the week a pullback is not out of the ordinary. It will have to buck up and hold over the breakout points to keep the move alive. Given the lower volume on the rise we are prone to shoot first when it comes to maintaining positions. Indeed we raised most stops today as you will note in the continuing play table.
THE ECONOMY
Wholesale inventories fall as sales rise.
Expectations were for inventories to rise 0.5% as the inventory rebuild in the economy continues. Instead they posted a 0.1% decline after a 0.5% March gain. Sales rose a brisk 0.8%, putting additional pressure on the inventories.
Again there is the dichotomy of views regarding inventories: did they fall because demand ate up more of them or did they fall because there was a drop off in manufacturing. Given the economic growth and the continuing consumer and business demand, the latter is not likely. Manufacturers are producing, businesses and consumers are buying, but they production is not yet at dramatic levels. Again, manufacturers and producers are still holding back from really cutting loose with production despite strong demand and increasing jobs and wages.
More than anything else in the economy, this is what drives inflation. The Fed watches wages and the PCE (personal consumption index), but they are not really leading indicators. Wages are not really anything with respect to inflation, and consumption is a by product of a robust economy. The key is whether supply is there to meet the demand that has been increased by the Fed's easy money policy. Textbooks define inflation as more dollars chasing fewer or stagnant goods. If the supply side does not increase to match demand, then you have inflationary pressures.
It is that simple, yet they try to make it so hard. They have to; how else could Greenspan have gotten away with his argument he had to hike rates to stave off inflation when there was this huge boom in the supply side that, after Greenspan killed the economy, left that huge inventory overhang? There was no threat of imminent inflation, just Greenspan following orders to curb the growth as the US pulled away from the rest of the world economies and created too many new billionaires that threatened the ultra wealthy and their ability to exert control over key world markets. This new information and technology age was empowering the masses and was a rising threat to the old world order.
In any event, that is why it is key to maintain incentives for the supply side to produce. Is it not better to encourage more production and thus defuse inflationary pressures and enjoy a flush, growing economy than to clamp down on demand by raising interest rates, slowing the economy to a crawl (or worse, recession) in order to balance supply and demand? Again, it seems rather simple, history has proved this to be the case, yet the current and conventional wisdom chides supply side economics. Again, it only has history on its side with the Coolidge, Kennedy, Reagan, and now Bush tax cuts showing that the economy can boom without inflation, even reducing inflationary pressures, when the supply side is encouraged to produce more and more goods.
Indeed, the supply side tends to create its own demand. The problems arise when, as in the late 1990's, the Fed or other governmental policies work to curb demand or supply and create the very imbalances Greenspan cited as the reason he was raising rates. By the last several rate hikes, his actions had exacerbated the problems as can be seen as the stock market crashed even before his last 50 basis point, 'take that to grow on' rate hike.
And now we have the great sage Greenspan saying he will go slow unless, of course, he does not. As we have discussed before, how is this transparent, clear policy? Basically what Greenspan is saying is he does not have a clue, something his actions have shown though his words rarely admit. What is clear is that nominal rates have risen with the economy. It would be very, very easy, very transparent, and very helpful to the markets and the economy if the Fed simply said it was going to raise rates to a point just below current nominal levels and then do it. The market and the economy would love it. The Fed would have some maneuvering room in the event of crisis as well. The odds of this happening? About the same as me winning the U.S. Open this year.
Oil prices fall then reverse course.
US crude and gasoline inventories were greater than expected, but apparently not great enough. Oil fell below $37/bbl early in the session but by the close had recovered that level. Oil remains volatile session to session, but for the time being it has peaked, and as we said, we felt that it would end up closer to $30/bbl than the $36/bbl the government forecast.
That has prompted some readers to send articles, etc. regarding the impact of terrorism on the price and volatility of oil, how it will remain high, etc. We have been clear that we do believe terror activity relating to Middle Eastern and indeed other oil exporters is a very real concern for the US economy. The best way to get to the economy is through oil given that the US is not as easy a target as it was in 2001. That terror threat has placed a premium into oil prices. It rises when an event such as the attacks in Saudi occur; it fades when there is no terror activity. It is there, however, one of the elements keeping oil higher than normal market forces. It acts much like the volatility component in option prices: rises when there is news, fades when the news fades.
The existence of that premium does not mean oil cannot fall to near $30/bbl when there is no terror event or threatened imminent event. It does not mean that increased production from the Middle East or from sources outside the Middle East will have no impact on prices. When there was fear regarding the Saudi attacks, promised increased production limits did not help price much. When that fear faded, production limits were raised, and other producers outside the Middle East started pumping more oil, prices started to fall.
Yes they will remain volatile and will rise with threats of new terror of with new terror events. That is normal for any commodity, equity, etc. The real fear is of attacks directly on the facilities that hinder or stop production. We were saying this long before it was the discussion on the financial stations in the aftermath of the last attack on a Saudi oil compound. That does not mean it has not peaked in price outside of a significant terror incident. It is currently still pulling back, but may stabilize some near $36 ahead of the Iraq pullout. Once that is over, we anticipate the erosion will begin again.
THE MARKET
Stocks could go no further toward the April highs and reversed course on some rising volume. That shows that there were more sellers in the market than buyers on the recent upside moves. Low volume moves up or down are subject to upset when more players enter the market. This is something we discussed the past week and it was evident today. Stocks that put together some good, solid moves gave a chunk back.
The session was not constructive for the upside as the indexes eroded on higher volume and several leaders sold on rising volume. It was not a breakdown as SP500 is still comfortably over near support, but as noted, plenty of leadership stocks fell through near support. As stocks trend higher you want to see them hold the short term MA (10 or 18 day EMA) or the recent breaks higher. When they don't that indicates a deeper test and choppier trade. Strong stocks that are in strong trends will rise along the 10 or 18 day EMA (for downtrends, the fall below the 10 and 18 day EMA) after breaking higher. When they turn over and undercut those levels shortly after a breakout, that is not a good sign.
That was not the predominant action as most leaders held near support. A number we were watching did in fact undercut near support, and that, along with the rising volume on the selling, has us more cautious, moving up our stops as indicated above.
Market Sentiment
VIX: 15.39; +0.38
VXN: 22.35; +0.09
VXO: 14.76; +1.01
Put/Call Ratio (CBOE): 0.92; +0.06
NASDAQ
Gapped lower and sold all session, giving back two-thirds of the gains early in the week.
Stats: -32.92 points (-1.63%) to close at 1990.61
Volume: 1.529B (+4.01%). Volume remained well below average but rose to levels greater than the Monday and Tuesday buying. While volume was still light, it was nonetheless distribution (higher volume selling). Given that the move higher was also on low volume, you cannot ignore the rising trade as the index fell back through 2000.
Up Volume: 274M (-528M)
Down Volume: 1.243B (+604M)
A/D and Hi/Lo: Decliners led 2.77 to 1
Previous Session: Decliners led 1.27 to 1
New Highs: 64 (-29)
New Lows: 30 (+13)
The Chart: http://www.investmenthouse.com/cd/^ixq.html
Fell back to the Monday gap up point, and it appears as if NASDAQ is going to fill that gap in short order as it fell through 2000 and back toward the 50 day SMA (1980). After a brief move over the January/April down trendline (2011) Monday and Tuesday, it caved in with a significant point loss on the heels of the Monday significant point gain. It now has to regroup at this point and continue the move. A day of distribution is not fatal to a rally that has shown follow through, but given the lower volume on the moves higher the past three weeks, a day of distribution is not something to simply shrug off, particularly when it looks as if the index is going to give back the gains it just made on the break higher from the early month lateral consolidation.
QQQ fell as well, bouncing up off of its 10 day EMA (36.40), hit on the low. On the close it held the January/April down trendline. The move gave back all of the breakout gain this week, but the bounce back was positive. If it can hold this trendline at the close and then resume the move, that will be a positive for the other indexes as the large cap techs of the QQQ are showing leadership as a group.
S&P 500/NYSE
Steadily sold all session after breaking below the March/April down trendline. Sold on stronger volume but managed to hold over support at 1125.
Stats: -10.85 points (-0.95%) to close at 1131.29
NYSE Volume: 1.274B (+7.04%). Volume rose as the large and small caps fell. Volume was still below average but significantly higher than the upside volumes earlier this month.
Up Volume: 274M (-303M)
Down Volume: 978M (+396M)
A/D and Hi/Lo: Decliners led 2.98 to 1
Previous Session: Decliners led 1.14 to 1
New Highs: 89 (-12)
New Lows: 18 (+3)
The Chart: http://www.investmenthouse.com/cd/^spx.html
It closed on the low, but its losses were still less than 1%, leaving SP500 in better position than NASDAQ. The large caps are still easily over support at 1125 though they did undercut the March/April down trendline at 1137. As with NASDAQ, a distribution session on the heels of the break higher is not a good indication. After a follow through to the rally, one such day is not fatal, but this market has been shaky and moving on low volume. A successful test of 1125 with some volume on the bounce would confirm again the rally. That is the action we will be watching for over the next few sessions.
DJ30
The blue chips, after posting the best gain on Tuesday, held up the best in the Wednesday selling. A modest 0.6% loss on just slightly rising volume as they held above the January/April down trendline on the close. Support at 10,300 if the market continues to test lower to close the week. Still in a good position, taking a modest breather after a good run that started off the late May low near 9900.
Stats: -64.08 points (-0.61%) to close at 10368.44
Volume: 175 million Wednesday versus 170 million Tuesday.
The chart: http://www.investmenthouse.com/cd/^dji.html
THURSDAY
The last day of the shortened trading week. The PPI was scheduled to be released early, but it has been pushed back to June 15 at the earliest. That leaves weekly jobless claims and the Treasury budget as the economic catalysts for the market. We don't expect them to influence the market much.
We do anticipate NASDAQ to make a test of the gap higher and SP500 to come back a bit more to test the Monday break higher. The Wednesday action was not particularly constructive for the upside move, but it was also not fatal. A test of the move that holds and rebounds would establish the move and give it even firmer foundation as the indexes climb toward the April highs.
The full test and rebound may not take place Thursday given the long weekend. One concern we had Wednesday was the hard time some leadership stocks had holding near support. Seeing rising volume on the selling, we were not waiting around on most positions if they faltered at near support. We will continue to watch positions closely as the indexes make the test back to the beginning of the Monday break higher. Given the higher volume selling we will err on the side of caution if we see breakdowns. An early test lower that holds will keep us from cutting too fast, however. A follow through to the downside that rebounds near support is a favorite move of the market. Thus we will let the market makes its test, see if it can hold, and protect as best we can against the bigger breakdowns.
Support and Resistance
NASDAQ: Closed at 1990.61
Resistance: 2000 is the top of the late 2003 base. 2010 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 is the lower end of the range of the tops of the late 2003 base. The 50 day SMA (1980) and the 50 day EMA (1973). The 200 day SMA (1965). 1900 to 1890. The April lows (1880, 1878).
S&P 500: Closed at 1131.33
Resistance: The March/April down trendline at 1135. 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 (1120) and the 50 day EMA (1117). 1106 is a May 2002 top and represents some early 2001 lows. 1096 to 1100. The 200 day SMA (1089).
Dow: Closed at 10,368.44
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 January/April down trendline (10,355). The 50 day SMA (10,265). Price support at 10,250. The 50 day EMA (10,236). The 18 day EMA (10,218). The 200 day SMA (10,096). 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): -0.1% actual, 0.5% expected, 0.5% March (revised from 0.6%).
6-10-04
Initial jobless claims (8:30): 335K expected, 339K prior.
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.
End part 1 of 3
|
world stock market
us stock market
|
