|
|
world stock market, us stock market
* * * *
6/16/04 Investment House Alerts Report
* * *
IH Alert Subscribers:
MARKET ALERTS:
Target hit alerts issued Wednesday: MSSN
Buy alerts issued: SMTS; FSH; IPIX
Trailing stops issued: WOOF; NXTP
Stop alerts issued: WITS; TRFX
SUMMARY:
- Soft open gives way to modest, low volume gains.
- May production and capacity use hit multiyear highs, a good sign for the supply side.
- No change as stocks head into Thursday, again trying to muster a break over resistance.
Market sinks back into low volume doldrums, goes nowhere.
The market was set up for the next attempt on resistance with a softer open and just a short run to make it back to the 2004 downtrends. The economic data was solid with capacity and production hitting multiyear highs and earnings showing decent gains. Stocks, however, wallowed around at the open and most of the session, unable to make the breakout.
The indexes made it back to resistance levels, but it was an all-day affair getting there. There was no major surge, no jump in buyers, just a slow drift higher from mid-session into the close. Volume was very weak, breadth matched volume, and stocks were trapped in a narrow range all session. After a solid session Tuesday there was no catalyst to move higher as once again a good move one session found no legs for the next session. Stocks are still in position to move higher and continue the summer rally, but they need to get on with it and not give up this most recent rebound. Another lower high below the downtrend for the year is not building strength for an upside breakout.
THE ECONOMY
Production and capacity utilization rise, providing some breathing room for supply.
It is ironic if not indeed foolish that the Fed would look at relatively decent levels of production and capacity utilization back in the late 1990's and use them as another reason to conclude that inflation was just around the corner. That is when the Fed pulled out the old, crumpled Phillips Curve from the desk drawer and acted as if it was something they had forgotten during the boom years. According to that curve, too much industry, too many workers (of course, what constitutes 'too much' is itself open to debate), basically too much prosperity, would lead to inflation. We all joke about how it seems today anything can in some way be linked to causing cancer. Well, according to the Phillips Curve, any robust economic activity leads to inflation. The Fed used capacity as another excuse for clamping down on the economy and ultimately crashing the stock market and sending us into another recession.
The irony is that production and capacity utilization are good signs that the supply side is performing well. It is the supply side that stems inflationary pressures by providing the supply necessary to meet demand. If production is rising there will be less pressure from demand. If capacity use is rising that is a sure sign supply is strengthening, another plus in the fight against inflation. Sure levels could get to 98% and start causing bottlenecks, but that is nowhere near the problem. As it stands now, increased utilization is an economic plus for several reasons, no the least of which is decreased inflationary pressures.
Unfortunately economists are more interested in models and theories than reality. The Phillips Curve only fit the real world for about 6 years in the entire economic history of the world. The old idea was too much employment and industry would create too many dollars chasing too few goods. Thus the closer an economy moved toward full employment, the more inflation would rise as employees, flush with money, chased after the good life, competing with one another for the available goods. If unemployment rose, then the pressure on the economy would decrease because there would be fewer consumers chasing the available goods. Even now it seems bogus to us, but that is what they were and are teaching in economics books.
Of course, then you go to the 1970's where unemployment was 10% or better yet inflation was double digit, and stocks were worthless as no one invested in the country but hid money in tax shelters and hedged with gold and related items. Stagflation it was called, but it was clear that the 'rules' espoused by the Phillips Curve were not rules, just some economics theories that sold a few textbooks. Tangible history, on the other hand, clearly demonstrates the real economic relationship between supply and demand. When supply is given the incentive to invest and produce we experience growth without inflation. Indeed, supply can be said to make its own demand as plentiful and cheap goods are more easily procured by consumers.
Thus we should be heralding this most recent data where production hit a 6 year high and capacity hit a 3 year high as signs the supply side of the economy is still expanding. That more than anything else gives the economy hope that it can continue its expansion without encountering any inflationary pressures. If the Fed raises rates as it said it would and stays below or even with nominal interest rates, then there should be no problems with the Fed choking off the expansion. Problem is, the Fed used to talk the supply side talk in the early and mid 1990's, and it does some now as well, but it mixes it with demand side theories. The result is not great monetary policy as seen in the early 2000's and indeed pretty much any recession prior to that, and that has the market still worrying just what the Fed is going to do with rates. It talks a good game but then loses patience down the road with the usual disastrous results.
THE MARKET
A very narrow range, low volume, flat breadth, and again a test of resistance that failed to yield a breakout. It was a very sluggish session, particularly when compared to the 'wild' Tuesday session that saw the best volume gains in a month. Stocks made a run at resistance late with NASDAQ even moving past 2000 briefly, but there was no volume or other strength to support the move. Stocks drifted slightly lower to close, still below near resistance that they have to clear in order to continue the current rally. Not much was accomplished Wednesday as stocks mostly marked time.
That leaves stocks basically unchanged heading into Thursday, once more attempting to clear the 2004 downtrends so they can continue the rally from the May lows. They are still set to make the breakthrough, and we are just watching for the move.
Market Sentiment
VIX: 14.79; -0.26
VXN: 20.39; -0.49
VXO: 14.66; -0.34
Put/Call Ratio (CBOE): 0.69; -0.09
NASDAQ
Again cleared 2000 briefly on the high but without any volume the resistance levels were not in jeopardy of falling. Basically a nothing day as it continues to work toward a showdown with the down trendline.
Stats: +2.63 points (+0.13%) to close at 1998.23
Volume: 1.358B (-11.53%). Volume withered like a tomato plant in high summer. Without volume there was no chance of taking out near resistance.
Up Volume: 627M (-579M)
Down Volume: 708M (+399M)
A/D and Hi/Lo: Advancers led 1.19 to 1. Matched the price gains.
Previous Session: Advancers led 2.11 to 1
New Highs: 67 (+11)
New Lows: 37 (-2)
The Chart: http://www.investmenthouse.com/cd/^ixq.html
NASDAQ made two tries at 2000, the first early where it merely tapped at the level and then fell off for a midday slump. The second came late in the session as the index rallied back, took out 2000 on the way to 2002, but then gave it back in the last half hour. A rather impotent session given the rather impotent volume with NASDAQ trading in a whopping 12 point range. Given this market, the fact it did not roll over after a decent rally Tuesday was a plus. It is still holding the move and in position to take another run at the down trendline (2006) before it gives up.
Similar to NASDAQ, moving laterally on low volume Wednesday. It is already over its 2004 down trendline and setting up for a better break higher. It remains to be seen if it can lead NASDAQ higher and through its down trendline. We are not counting QQQ out in being able to do that.
S&P 500/NYSE
Again tapped at the 2004 down trendline on the high, unable to crack that level but holding a modest gain as it looks to make a break over that resistance.
Stats: +1.55 points (+0.14%) to close at 1133.56
NYSE Volume: 1.166B (-13.36%). Volume fell back to earlier levels, back to well below average, unable to generate levels needed to clear near resistance for this session. We are not counting it out.
Up Volume: 631M (-412M)
Down Volume: 511M (+225M)
A/D and Hi/Lo: Advancers led 1.18 to 1
Previous Session: Advancers led 3.44 to 1
New Highs: 96 (+11)
New Lows: 40 (+9)
The Chart: http://www.investmenthouse.com/cd/^spx.html
Tried the down trendline again (1135) but as noted, without the volume it was unable to make the break higher. SP500 held its bounce after testing the break higher a week back, an important step as it needs to avoid making a lower high on this bounce. That means it has to clear the trendline and the recent high at 1142 on this move. Looking bigger picture, it is still a solid pattern, showing a classic double bottom configuration, now forming a handle. Now just needs to clear the down trendline on a resumption of some better volume.
DJ30
DJ30 is setting up nicely, better than the other indexes. It is easing back after a good move higher a week back, holding over the 2004 down trendline (10,330) as it does. The 10 day EMA (10,328) is rising to meet it, and that may just be the trigger that starts DJ30 moving back to the upside toward the April high (10,570).
Stats: -0.85 points (-0.01%) to close at 10379.58
Volume: 153 million shares Wednesday versus 223 million shares Tuesday.
The chart: http://www.investmenthouse.com/cd/^dji.html
THURSDAY
The volume did not put on a repeat performance and the indexes were unable to make more than a token pass at resistance. SP500 and NASDAQ are in position to clear their down trendlines, and they could get some important help from QQQ and DJ30 that have already cleared their trendlines and are set to move higher. In addition, small caps have resumed some leadership as well, heading toward the recent June high (287) after a sharp rebound off the 50 day EMA.
Thus it appears there is still upside momentum in this little rally, enough to break it higher for another leg higher to the April highs, beyond those in some instances. We have to keep it in perspective. Volume has been below average just about every session since the move off the May low started. It is not a powerful run but a modest early summer rally. When it gets to the April highs it will have done a lot of work on little volume, and that leaves it open to attack from sellers. It can go further, of course, but it will have to show us that move. Certainly the patterns are such that the indexes could continue the move beyond those highs, but the time of year and lack of volume naturally make us wary of entertaining what is more a hope than anything founded in market fact.
For now we continue to focus on the resistance ahead of NASDAQ and SP500, watching to see if those indexes can bust through on some decent volume. If so they will provide another good leg higher, after which we will be ready to close some positions and watch for the next opportunity, unless the move shows much more strength than of late and runs through those April highs. It is an election year and those have historically given rise to better summer rallies than just this run to the April highs we are looking for. We will gladly concede to this if it in fact occurs.
Support and Resistance
NASDAQ: Closed at 1998.23
Resistance: 2000 is the top of the late 2003 base. 2006 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: The 50 day SMA (1978) and the 50 day EMA (1976). The 200 day SMA (1970). 1900 to 1890. The April lows (1880, 1878).
S&P 500: Closed at 1133.56
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: The 10 day EMA (1129) acted as support Wednesday. 1125. The 50 day SMA (1120) and the 50 day EMA (1119). 1106 is a May 2002 top and represents some early 2001 lows. 1096 to 1100. The 200 day SMA (1092).
Dow: Closed at 10,379.58
Resistance: Late April peaks (10,478 to 10,512). 10,570 is the early April high. Price consolidation at 10,600 level. 10,747 is the February high.
Support: The January/April down trendline (10,330). The 10 day EMA (10,328) held on the low Monday. The 50 day SMA (10,264). Price support at 10,250. The 50 day EMA (10,257). The 200 day SMA (10,117). March low (10,007). 9900-9850.
Economic Calendar
These are consensus expectations. Our expectations will vary and are discussed in the 'Economy' section.
June 14
Trade Balance, Apr (08:30): -$48.3B actual, -$45.0B expected and -$46.6B prior (revised from -$46.0B).
Retail Sales, May (08:30): 1.2% actual, 1.0% expected and -0.6% prior (revised from -0.5%)
Retail Sales ex-auto, May (08:30): 0.7% actual, 0.4% expected and -0.1% prior
June 15
Business Inventories, Apr (08:30): 0.5% actual, 0.4% expected and 0.7% prior
CPI, May (08:30): 0.6% actual, 0.5% expected and 0.2% prior
Core CPI, May (08:30): 0.2% actual, 0.2% expected and 0.3% prior
New York Empire State Index, June (08:30): 30.2 actual, 30.5 expected and 30.2 prior
Michigan Sentiment-Prel., June (09:45): 95.2 actual, 90.8 expected and 90.2 prior
June 16
Housing Starts, May (08:30): -0.7% (1967K) actual, 1950K expected and 1981K prior (revised from 1969K).
Building Permits, May (08:30): 2077K actual, 1970K expected and 2006K prior
Industrial Production, May (09:15): 1.1% actual, 0.8% expected and 0.8% prior
Capacity Utilization, May (09:15): 77.8% actual, 77.4% expected and 77.1% prior (revised from 76.9%)
Fed Beige Book (14:00): Signs of strength continue to build throughout the economy.
June 17
Initial Claims, 06/12 (08:30): 340K expected and 352K prior
Leading Indicators, May (10:00): 0.4% expected and 0.1% prior
Philadelphia Fed, June (12:00): 25.5 expected and 23.8 prior
June 18
Current Account, Q1 (08:30): -$140.9B expected and -$127.5B prior
End part 1 of 3
|
world stock market
us stock market
|
