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world stock market, us stock market
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6/22/04 Investment House Daily
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Investment House Daily Subscribers:
MARKET ALERTS:
Target hit alerts issued Tuesday: None issued
Buy alerts issued: ALAN; BEAV; ORB
Trailing stop alerts: None issued
Stop alerts: USPI
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SUMMARY:
- Volatile morning tests support, delivers afternoon higher volume rally.
- Lack of economic data providing a benefit to the market.
- SOX provides lift to NASDAQ as volume returns.
- Odds of April high test improve, but character has to really change for a significantly further upside move.
Test of support and ready to bounce.
Once again the major indexes tested the bottom of the recent trading range and put together a nice rebound. The prior Tuesday NASDAQ and SP500 came off of a test of key support (200 day SMA and 1125) on rising volume. The move did not last as stocks faded to support once more. Again, however, stocks found buyers and rebounded, again on better volume. Indeed, volume hit average on NASDAQ and came close on NYSE as stocks posted modest gains, holding onto the day's advance at the close.
The action started quite volatile with NASDAQ and SP500 testing key support twice, undercutting that support, and then rebounding mid-morning to start the steady move higher. We were commenting in the office how gloomy all of the brokers and floor traders sounded, and that was pretty much when we decided to watch for a rebound. That undercut of the 200 day by NASDAQ was enough to chase out the last sellers and brought in some buyers. It built on itself the rest of the session with the added bonus of actually getting some good volume as stocks recovered. The rising volume, break over the down trendline, and rebound from the SOX has set the stage for the continued rally toward the April highs that we have been looking for.
THE ECONOMY
Another very quiet session on the economic front. Oil prices slid fractionally, and though higher than a week ago due to the attacks against the Iraq oil delivery infrastructure, the trend still appears to be softening. Very importantly to consumers gasoline prices continue to slide even as the teeth of the summer driving season grinds away. Ten cent and greater drops in price per gallon are contrary to the conventional wisdom that says supplies are tight and only getting tighter. There was obviously some overreaction to concerns regarding Iraq and Saudi, and that part of the 'premium' has settled down and so has the price for oil and gas. That risk premium is still there, and a big attack on supply will push it right back up near term. Thus overall prices remain high but have ceased the fear and speculation driven runs experienced in May.
Outside of oil prices the big news is next week with the FOMC meeting and the second quarter end. That is the prelude to second quarter earnings, and we can expect some jockeying ahead of quarter end as well as earnings. The market has moved laterally and slightly lower after the move off the May low, and that has set it up for a pop just ahead of and into the first wave of earnings as is somewhat typical in the summer.
THE MARKET
SOX comes to life off 450 support, provides boost to rest of market.
SOX was showing signs of some life at 450, and after acting as a drag on NASDAQ while SOX sold off from its last test of the 200 day SMA, it provided the foundation for NASDAQ, and the rest of the market, to rally back Tuesday on some solid volume. This is the bounce we discussed in the Monday report, and the markets responded with SP500 breaking over the downtrend.
Volume showed its best session since the Friday expiration, and there has been a shift of price/volume action to positive in the past 6 sessions with gains on rising volume 3 of those days versus 1 down day on rising volume during that span. That helped set the stage for an upside move and run to the April highs. Perhaps it will run higher, perhaps it won't. There are still a lot of undetermined issues loose in the world that the market has to deal with. At some point stocks come to grips with what bothers them, and this rising volume upside move is some indication it is learning to deal with Iraq, oil, etc. That does not necessarily translate into a sustained upside move as the market can still harbor reservations even as it allows stocks to factor in a bit more resolution into the issues facing it. In other words, it can rise because it feels better about some of the issues, but that does not mean it won't have a problem with those issues down the road as the global problems continue to shift.
Just looking at Tuesday, it was one of the most constructive sessions in a long time. Many quality stocks posted solid gains on outstanding volume. Good to see the indexes respond well, but the leading stocks are even more important. Many of our plays were popping Tuesday, and the stronger chip stocks were doing the same. That there are two other recent higher volume upside sessions adds sauce to the action. A good start to the next leg toward the April highs.
Market Sentiment
Despite a high, and thus bearish, bull versus bear count last week, stocks found some support and rallied on rising volume. We did note a high level of resignation among brokers and floor traders early Tuesday. Indeed, it was downright gloomy and we were discussing that in the office. The statement was made that things were just too gloomy, and I then enforced the our own market control or 'curb' system: when the gloom all around you gets as thick as it was this morning, step back and let the market make its test. Go get a glass of tea, catch up on the morning reading, etc.
Sure enough we then heard the infamous statement on CNBC that some floor traders were saying that indicators such as the VIX no longer accurately gauged the market in this environment. Red flag. Warning, warning. Whenever you hear that market indicators just don't work in this market, rest assured they are doing just that. Shortly after that NASDAQ recaptured the 200 day SMA and a nice rally was underway.
Back in October 2002 we heard the infamous statement that the 'normal market indicators just don't work in this bear market.' We noted at the time that statement was telling us to get ready for an upside move. This was after the July low and subsequent bounce, and stocks were flagging again in October. The despair that the July rally that had extreme sentiment indicators had failed and the market was resuming the downtrend was rampant. This comment about how technical indicators had failed was just another indication of extreme sentiment. Shortly thereafter it surged in the rebound off the second leg of the double bottom.
The indicators are not as extreme right now, and indeed there has been complacency among the investment advisors as noted Monday. Nonetheless one cannot ignore the 'indicators don't work this time' statements, and indeed, the market rebounded with rising volume on the heels of such a statement Tuesday. As with the rest of the indications, however, for now we view this as a move toward the April highs. If it shows stronger volume upside and can break those levels, all the nicer.
NASDAQ
This time SOX did not fade and NASDAQ was able to hold its gains into the close on some much improved volume. Still has to deal with the downtrend, but it is on better footing to do it.
Stats: +19.77 points (+1%) to close at 1994.15
Volume: 1.682B (+20.11%). Substantial move in volume back to average as tech stocks undercut the 200 day SMA, reversed, and posted a nice close at the session high. Three solid upside volume sessions in the past six puts the NASDAQ on markedly improved footing, but it still is not a massive volume move. This sets up a move toward the April highs, but for now that is all you can say about it.
Up Volume: 1.122B (+695M)
Down Volume: 493M (-351M)
A/D and Hi/Lo: Advancers led 1.3 to 1
Previous Session: Decliners led 1.26 to 1
New Highs: 53 (-7)
New Lows: 55 (+11)
The Chart: http://www.investmenthouse.com/cd/^ixq.html
NASDAQ fought off the 200 day SMA (1972) once more, coming back after a brief undercut down to 1964 on the low. Instead of maintaining the breakdown and thus setting up the downside scenario discussed Monday, NASDAQ reversed and rallied positive and closed at the session high. Solid reversal on volume, aided by a 3.5% (15.65 point) gain in SOX. SOX did not fade and thus NASDAQ held its gains. As noted, some of the better positioned chip stocks turned in market leading performances along with leaders from other sectors. NASDAQ still has to deal with 2000 price resistance and the 2004 down trendline just over 2000, but this improvement in volume on the upside puts it in better position to break through this level and moving up to the April highs at 2080.
QQQ tapped the simple 50 day MA on the low and rebounded on the best volume in three weeks. The move recaptured the down trendline now near 36 as well as the 10 and 18 day EMA. Ready to make a run at 37.50.
S&P 500/NYSE
Tapped and broke just below key support at 1125 and then staged its own rebound on much improved volume to close above the down trendline.
Stats: +4.11 points (+0.36%) to close at 1134.41
NYSE Volume: 1.382B (+22.98%). Nice volume jump though it could not quite make it to average trade. Still the best trade of the month outside of Friday's expiration, and a good boost to even further upside movement. SP500 has an extra positive session out of the last 6, as one session it tapped support on the low and then reversed to close basically flat. That gives SP500 four upside sessions on higher volume, setting up a pretty good foundation for an upside move even with Friday being mostly expiration related.
Up Volume: 871M (+418M)
Down Volume: 482M (-173M)
A/D and Hi/Lo: Advancers led 1.17 to 1
Previous Session: Decliners led 1.09 to 1
New Highs: 93 (-39)
New Lows: 28 (-5)
The Chart: http://www.investmenthouse.com/cd/^spx.html
As on Friday, SP500 closed above the 2004 down trendline (1132) on rising volume. This time it just might find the glue it needs to hold the move given the improved price/volume action and solid leadership moves scattered through the market. Still looking at the April highs as the first target (1150). If the strength continues to improve with stronger volume that can be adjusted, but we will have to see a solid change in character. The volume Tuesday was higher, but still below average. In a strong move you would see above average volume. Thus there is no real character change as SP500 had held its ground and still looked ready to put in a rally toward the April highs. It will have to show some surging volume on further upside moves to indicate a character change.
DJ30
DJ30 could not get its footing as did the other indexes. It sold to the 18 day EMA (10,316) on the intraday low and then made the same comeback as the other indexes. Volume was up, back to average as it held and then reversed for a modest gain. It overcame a late selling bout and then rallied back at the close. No breakout, but still well positioned to move higher along with the rest of the market.
Stats: +23.6 points (+0.23%) to close at 10395.07
Volume: 203 million shares Tuesday versus 175 million shares Monday.
The chart: http://www.investmenthouse.com/cd/^dji.html
WEDNESDAY
Still no scheduled economic reports, and the market is able to work through the sessions on its own. Not a bad one Tuesday after looking pretty weak Monday. A turn of fortune, and a significant improvement in the action as it made that turn. Still no major character change, just the move that we have been looking to start. NASDAQ volume was still just average while NYSE remained below average; that right there fits right in with our conservative view of the April highs being more or less the target for this move. As always we will let the market tell us if there is more there or not, but that will show up in the form of continuing strong leadership and stronger overall volume as the move progresses.
Tuesday saw some of the former and some of the latter, but neither in massive amounts. We will continue to look for opportunity to take advantage of this move to augment our existing plays, but we are gong to be looking at the reward potential versus where the stock is and how much it can move for us as the market rallies toward the April highs. Strong volume breakouts, rebounds from breakout tests, or other rebounds from test of significant levels will get the focus. Today several stocks made price moves but volume was not there so we let those alone. Typically the strong volume leaders will run further than the average stock, and if the market taps out at the April highs, they give us a bit better gain and tend to give us more of a cushion in deciding to exit or hold them as they tend to fight off selling efforts more.
Support and Resistance
NASDAQ: Closed at 1994.15
Resistance:
2000 is the top of the late 2003 base.
200 - 2001 is the January/April down trendline.
2024 is the June high.
2050 represents some prior price points and has stopped NASDAQ the last time it tried that level.
April high is 2080.
2089 is the February closing high. 2112 is the early January high.
Support:
The 200 day SMA (1972).
1925 is some support.
1900 to 1890.
The April lows (1880, 1878).
S&P 500: Closed at 1134.41
Resistance:
1142 is the June high.
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 March/April down trendline at 1132.
The 18 day EMA (1127).
1125 is key support.
The 50 day EMA (1121) and the 50 day SMA (1119).
1106 is a May 2002 top and represents some early 2001 lows. 1096 to 1100.
The 200 day SMA (1095).
Dow: Closed at 10,395.07
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 10 day EMA (10,362).
The January/April down trendline (10,315).
The 50 day EMA (10,276) and SMA (10,255).
Price support at 10,250.
The 200 day SMA (10,134).
March low (10,007). 9900-9850.
Economic Calendar
These are consensus expectations. Our expectations will vary and are discussed in the 'Economy' section.
June 24
Durable Orders, May (08:30): 1.5% expected and -3.2% prior
Initial Claims, 06/19 (08:30): 340K expected and 336K prior
Help-Wanted Index, May (10:00): 39 expected and 38 prior
New Home Sales, May (10:00): 1125K expected and 1093K prior
June 25
GDP-Final, Q1 (08:30): 4.4% expected and 4.4% prior
Chain Deflator-Final, Q1 (08:30): 2.6% expected and 2.6% prior
Michigan Sentiment-Rev., June (09:45): 95.0 expected and 95.2 prior
Existing Home Sales, May (10:00): 6.50M expected and 6.64M prior
End part 1 of 3
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world stock market
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