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world stock market, us stock market
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8/14/04 Stock Split Report
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Stock Split Report Subscribers:
MARKET ALERTS
Targets hit alerts issued Friday: None issued (let IR run as it looks very weak)
Buy alerts issued: CNF
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:
- Stocks find no reason to rally, hold steady into an uncertain weekend.
- Producers' prices soften as does the world economy.
- Michigan sentiment weakens, but fears were it would be worse.
- Indexes hold closing lows for week, trying to set up next test of resistance.
Quietly stepping out the back door to end the week.
Stocks had too much to face in the coming days to attempt much of a move. In spite of, however, oil prices topping $46/bbl, the start of the Olympics and the related terror concerns, the Venezuelan recall vote, and the critical battle ongoing in Iraq, stocks managed to close out the week with a mostly positive session.
The session was nothing to crow about with low volume and stocks treading water at best after another week of up and down trading. NASDAQ ran into trouble with earnings forecasts, and it slipped to another decisive new low along with SOX. Outside of the tech sector that left other indexes where they started the week, but cracking new intraday lows Friday once more. Volume slipped Friday as stocks tried to bounce but found no traction. Breadth was narrowly positive on NYSE, negative on NASDAQ. It was a nowhere day, but after what has happened in July and the start of August, holding position to finish the week basically flat was not a bad finish.
That flat week on SP500 did not change the market's character. Stocks remain in a downtrend that really took hold in July and the first week in August. Looked as if stocks might try a bounce mid-week, but that was not yet ripe. With all but NASDAQ and SOX moving mostly laterally for the week, it appears as if stocks are trying for a bounce higher in the downtrend to test near support as they refused to give in though they could not hold a bounce more than one session. Indeed, as weak as the market has been, a lateral move might be all of the 'upside' it can muster. Sentiment indicators are still lethargic overall; even with a bounce they would not support a substantial one that ultimately leads to a sustained breakout. Thus stocks closed the week still in a downtrend as they work through the throes of trying to find a bottom to the correction.
THE ECONOMY
Modest increase in producer prices heartening, but world economy slows.
Thursday night we pondered the fate of the world economy if China overdid its attempts at structuring its own 'soft landing' along the lines of the plunge engineered by the US Fed in 2000. Friday the rest of the world gave us some insight into how they were performing. Japan and the Euro zone released GDP results and estimates. It was not all that heartening.
US producer prices moderated, rising 0.1% overall and 0.1% at the core level. How did the core (less food and energy) match the overall reading? Energy rose 2.3% while food had its biggest drop in 2 years (-1.6%), effectively offsetting each other in the overall picture. Year over year prices rose 4%, but the core rose just 1.7%. Prices resumed their rise (-0.3% in June) though at a slower pace than the 0.2% expected.
Foreign GDP growth slows as world hit a 'soft spot' as well.
Japan's GPD grew 0.4% quarter over quarter, a 1.7% annual rate. While anyone can tell 1.7% is anemic growth, expectations were for a 4.1% annual rate, almost 2.5 times the actual rate. The EU grew just 0.5% after some already weak 0.6% Q1 growth. While the miss was disappointing, Q3 and Q4 were forecast at just 0.3% to 0.7% growth, another disappointment. At least that sets up the possibility of an upward surprise, however unlikely. With unemployment running 9%, the highest since 1999, the outlook is just not pleasant.
US trade deficit widens as exports collapse.
The weakness abroad was evident in the US' trade balance numbers. It ballooned to $55.8B, well above expectations and the highest we can recall in recent memory (lately that seems about all the memory we have left). Two opposite forces cause the record gap. First, rising oil prices were 11.3% higher year over year in July. The total dollars spent on oil imports worked on widening the gap.
That was not good of course, but when the export side of the equation plunged, there was nothing to offset the rising cost of oil imports. Even though growth has slowed somewhat in the US, it is still way ahead of the rest of the world, China and maybe a couple of others excepted. That puts extra burden again on the US consumer and business community to consume what we and the rest of the world produces. That is why we were not too upset to see our consumption of foreign goods high; historically, when the US economy is doing well we consume a lot of foreign goods. That is at least a sign the domestic economy is still showing strength.
Indeed, this puts us back into a similar situation as in the 1990's when the US was so strong compared to the rest of the world. There was the Asian meltdown, the South American slowdown, and the European slide. All the while the US economy grew and our technological lead widened. That was one of the reasons that the Fed, other central banks, and wealthy, faceless world elite orchestrated the supposed US inflation crisis with the Fed inventing new indicators of inflation to convince all of us that it had to hike rates to avoid a nasty bout of inflation. There was no sign of inflation, and in the end the Fed overdid its act, harpooned the US economy, and dragged the rest of the world further under.
In all likelihood the US would have held on just fine with a more gradual slowdown without Fed intervention, and that would have spared the rest of the world the troubles seen from 2000 through 2002. Now we are back with the Fed raising interest rates at a time when the only major free economy is once again the US. As we noted last week in discussing the similarities between 1984, 1994, and 2004, once again history appears to be repeating though on a lesser scale as the economies are not at such lofty heights.
Michigan sentiment eases in August, gives some insight as to current market psyche.
We had stopped reporting the preliminary Michigan sentiment survey each month because it was so inaccurate it was useless. Friday it was expected to read 97.5 up from July's 96.7 final reading. It came in at 94.0. You would think the market would have taken a hit on the news. Talking with floor traders, however, given the over-hyped concern about the US economy of late, the whisper number was lower than 94. Thus when the reading came in, there was a sigh of relief more or less that it was not lower. That was the key to this number and indeed gives an indication that worry is indeed starting to move higher in the market as expectations are lowering.
THE MARKET
The market put on a decent finish to the week all things considered, but it is still weak. SP500, SP600, DJ30 were volatile but moved in a lateral range all week, managing to hold it more or less on the close. That indicates an attempt higher once more, and the longer a consolidation the better the move typically is. As of yet, however, it has not been able to shake off the downtrend and deliver more than a short bounce. The last serious bounce attempt was off the late July low, and it failed at the short term MA (10 and 18 day EMA). Since then NASDAQ has slid steadily lower as has SP500.
They are due for the next bounce up toward the resistance in the downtrend. The indexes looked ready to try a move early last week, but that was put to an end by some high profile tech earnings problems and a spike in oil. That SP500 and other non-tech indexes managed to hold a trading range for the week is a further indication a bounce attempt is brewing. We anticipate it would carry the indexes up to the 10 or 18 day EMA, the typical resistance in downtrends.
At this point we cannot assume more. The indexes are still showing distribution though less on NASDAQ relative to SP500, a potential sign that the market is getting somewhat sold out. There remains a lack of leadership. Financial stocks are trying to perk up on the possibility that the Fed may slow or cease raising rates, but that is unlikely near term and thus this strength is likely transitory. Other leadership areas have turned somewhat defensive, e.g., drugs and healthcare showing some life. There are indications that sentiment is turning more negative, but overall it is nowhere near extreme levels that indicate a sustained rally.
For every modest positive the market shows there are as many ore more negatives. For now the market is still very much in its downtrend, particularly technology and chips, and the other indexes have breached the lows of their bases for the year. That opens the door to more downside or at least a test of that level after a more significant relief move. Though the indexes are showing few signs they are ready to put in a meaningful bottom, we do note that during this entire base, DJ30 is down just 8.7% from its February high, SP500 just 8.6%. They are either still way overpriced or just in a moderate correction as they digest last year's gains and set up for the next move. While they have made these modest pullbacks, NASDAQ had done the heavy selling for them, down 18.6% from its January top. If indeed it shows further signs of selling out vis- -vis the NYSE in terms of overall volume and distribution sessions, then the market may indeed be approaching a bottoming point.
These are just indications, however, and modest ones at that. Setting up the bottom and then actually setting the bottom and making a follow through breakout are different animals. Right now the market is still working on part one, i.e., finding that first low that holds and produces a decent relief move. After that is step two, the test of that first low. It can be violent or quiet. That is followed by the rebound, and then a week later a follow through to the rally where some leading stocks in solid patterns breakout and start to lead higher. You see, not much to do before now and October.
Market Sentiment
Volatility still has much more to go before it shows a real bottom. As noted last week, a reading in the forties often does the trick. The put/call ratio has shown improvement as well. CBOE has had four closed over 1.0 the past three weeks, and the overall put/call ratio showed two such closed. Positive developments, but not likely lasting. The jumps in the put/call ratio in the absence of similar surges in other sentiment indicators can produce a decent bounce, but typically not lasting. Thus we could see that more sustained bounce off of this low that sets up the final test lower, but as we have said, we will have to see it.
VIX: 17.98; -1.1
VXN: 27.46; -0.82
VXO: 18.77; -0.39
Put/Call Ratio (CBOE): 1.02; -0.04
NASDAQ
Sold to a new 2004 low intraday but then rebounded for a positive, albeit low volume, close.
Stats: +4.73 points (+0.27%) to close at 1757.22
Volume: 1.35B (-17.76%). Extremely low volume to close out the week, a week that saw no further distribution on NASDAQ. Indeed, despite the 150 point drop this month, there have only been two distribution sessions compared to 4 on NYSE. Percentage of volume compared to NYSE has been falling as well. Slowing somewhat in the selling.
Up Volume: 746M (+506M)
Down Volume: 582M (-810M)
A/D and Hi/Lo: Decliners led 1 to 1
Previous Session: Decliners led 2.72 to 1
New Highs: 13 (+3)
New Lows: 235 (-41)
The Chart: http://www.investmenthouse.com/cd/^ixq.html
Nothing like a nice, stiff 300 point loss in 6 weeks to put the techs in something of an oversold condition. Plenty of bad news along the way last week to keep the pressure on, so much so that Dell's in line earnings helped the market attempt a rally Friday. That did not stop NASDAQ from making a new intraday low (1750.82) for the year as it continued its nasty downtrend below the 10 and 18 day EMA. It is getting oversold, but it has had a few rebounds along the way to relieve the pressure and allow the selling to continue. Such a bounce early last week set up a further fall. NASDAQ still managed to end the week holding some support at 1755 from the July 2003 high. A good place to mount a rebound toward the 10 day EMA (1800) or the 18 day EMA (1830).
NASDAQ 100 held the July 2003 high as well (1300), testing that level Thursday and Friday on the lows as volume backed off. Trying to bounce but not much to hang your hat on just yet.
S&P 500/NYSE
Held steady over the November 2003 highs all week as it worked laterally for the week, setting up a modest range at that will try to set up the next bounce to test the downtrend.
Stats: +1.57 points (+0.15%) to close at 1064.8
NYSE Volume: 1.175B (-16.41%). Volume tanked as investors sat on the sidelines to end the week. No distribution for the week but four such sessions this month has continued to erode the index.
Up Volume: 621M (+438M)
Down Volume: 533M (-676M)
A/D and Hi/Lo: Advancers led 1.42 to 1
Previous Session: Decliners led 2.36 to 1
New Highs: 28 (+3)
New Lows: 110 (-21)
The Chart: http://www.investmenthouse.com/cd/^spx.html
A turbulent week, but steadily holding over the November 2003 highs (1062). Trying to consolidate over that level as the distribution took a breather for the week. Needs to show a lot more upside volume on an attempted bounce to have any success in taking out the 10 day EMA (1077) or the 18 day EMA (1085), key resistance levels in a continuing downtrend. We have re remember that SP500 just broke to a new low for the year two Fridays back, opening the door for more downside. Again, it looks as if SP500 is going to try another rebound, but it will need to show a lot of volume to have any success in producing the type of upside move that lasts a few weeks and sets up the next test lower that would try to set the bottom. Showing some promise, but still in the early stages.
SP600 is hanging on the best it can below the May lows, trying to buck up for another test higher at the key 270 level. Still in the grip of the head and shoulders breakdown that occurred last week. While NASDAQ is in a clear downtrend, this one is a bit more disturbing. SP600 has been a key leader during the market rally, and it still has more downside as a result of this pattern. If it cannot break it up on a rebound from here it has significant downtrend to near 255 where there is some support from price highs and lows in October and November.
DJ30
Very close to SP500, recovering some from the Thursday huge volume selling of HPQ. It has also broken through the bottom of the 2004 range but is holding at the October and November 2003 highs from 9750 to 9850. Also a good place to mount a rebound, but has the 10 day EMA (9927) and the 18 day EMA (9992) that it has to break to avoid slipping into a more pernicious downtrend after the break through the bottom of the base. If it fails, there is some additional support at 9660 - 9640. The more serious support is around 9250.
Stats: +10.76 points (+0.11%) to close at 9825.35
Volume: 183 million shares Friday versus 248 million shares Thursday.
The chart: http://www.investmenthouse.com/cd/^dji.html
THIS WEEK
This week a few questions will be answered but many more will linger. There will be the next look at regional manufacturing reports. They started to swing back nicely in July though employment lagged, and this is the freshest economic data there is. This week they will be scrutinized for further gains as well as rebounding employment as well. CPI and its inflation implications will also be important as investors try to divine if the Fed is still on course or not (it is and will be as we have indicated). The regional PMI paints the best picture, but the market overall may not be ready to believe.
As for the lingering questions there is oil, worries over a terror event in Greece, and the continued increased military action in Iraq. Those are not answered immediately, and thus there are not quick answers for the market. At some point it prices in all of the muck swirling in the air and starts its next move higher. Right now it is not showing it is anywhere near that despite more and more calls last week that a bottom was approaching. Problem with that is it only puts the bottom further off as it keeps hope alive and those that are just about ready to sell in the market a bit longer.
SP500 looks ready to make another bounce attempt. The put/call ratio is indicating a bounce is setting up as well, just not a lasting bounce. It is about time for a 3 week rally higher similar to March or June to set up the test lower in September that attempts to set the bottom for an October follow through. The timetable is right but is the market ready.
If there is a rally attempt this week we don't go diving in. More than likely any rally from this level that lasts more than a day and one-half is still going to fail; there simply are too few stocks in position to provide leadership. That could change rapidly with a 2 to 3 week rally and then a test of the recent lows. That allows the leaders to rally back up and then shakeout the last sellers as they form handles while the rest of the market makes a deeper test. As the market bottoms they set up for the breakouts.
With that in mind we can still look at upside plays that are market leaders or can give us a quick move higher in a market rebound; a 2 to 3 week rebound can make us some good upside money as long as we don't look for unrealistic gains. We also look at stocks that will set up great downside plays with such a move when they rally back to resistance and stall. The drop back to test the prior lows (last week's lows) can be a fast and wild one.
Of course, if there is no rally from here or it gives us that one day wonder move, if SP500's lateral move last week was the best upside it can produce, then there is some ugly downside still ahead. We are going to keep at least a few downside plays that are ready to fall from here on the burner to be ready in the event last week was just a pause in the selling.
End part 1 of 3
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