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us stock market, stock prices
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8/19/04 Investment House Alerts Report
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IH Alert Subscribers:
MARKET ALERTS:
Target hit alerts issued Thursday: MSA
Buy alerts issued: JUPM; SYMC; MCIP; TUNE
Trailing stops issued: None issued
Stop alerts issued: None issued
SUMMARY:
- After four upside days stocks take a day off.
- Jobless claims getting better and better but leading indicators and manufacturing struggling.
- Market continues positive developments, retrenching after gains.
- Subscriber Questions
Positive day of rest allowing stocks to build toward further upside moves.
Stocks rally and rest rally and rest when they trend higher (sell and rebound, sell and rebound if trending lower), making higher highs and higher lows. After the last weeks rebound start they are trying to make their first higher low. It was a good start.
The market avoided a higher volume sell off before the follow through, something it could not do after the May to June summer rally. It then provided a follow through, again something it has not done since that prior rally though it made attempts. Similar to May, the follow through was not much on power, so the extent of the rally is a question mark. Thus far it is acting the right way, and that can allow it to extend the gains up to the next key resistance before coming back for the test and possibly the bottom of the correction.
What is 'acting the right way'? Opening soft, rebounding, fighting off a selling attempt, and closing mid range on lower volume. It is overcoming some weak economic data and further increasing oil prices. It is SP500 tapping the 18 day EMA and then rebounding to close. In sum, it was a quiet session with undertones of the strength that moved it higher 4 straight sessions. Ideally, another session or two of the same action would be great, setting it up for the next break higher in this move.
THE ECONOMY
Jobless claims still improving.
Last week we noted that jobless claims were starting a turn lower after being stagnant in July. That was one of the factors that led us to conclude that the July payroll report would not show any great improvement. Now we are seeing the weekly claims come closer and closer to 300K, the level that the Fed supposedly feared so much back in the late 1990's that it raised interest rates in part based on that data (fear of 'wage-led' inflation, one of those figments of Phillips Curve economists' imaginations).
After a 333K reading last week (revised from 334K), claims came in at 331K, below the 335K consensus. The 4 week average fell to 337K from 339.5K last week. Some are saying that the lower figures are due to hurricane Charley and how south Florida unemployment offices were closed. When you consider Florida has one of the best unemployment levels in the US, the conclusion is a serious strain on logic as some reporters try and find a way to cast good news as bad.
While employment is a lagging economic indicator and of little use to us right now during this economic 'soft spot,' we are watching it due to its political implications. This data further suggests that the July non-farm payrolls were somewhat understated and if the improvement continues, that the August numbers are going to show a strong jump.
Leading economic indicators, Philly Fed still point to continued slowing.
The July leading economic indicators slipped to -0.3% versus the -0.1% that was expected and was the reading for June (revised upward from -0.2%). This was the second consecutive down month and comes after a monthly increase each month from March 2003. The other leading indicators basket, ECRI, had been forecasting this slowing the past two months. The data do no suggest a cessation of the expansion, but with oil prices still rising, they are showing slower economic gain. If oil prices continue to move on through $50/bbl, then they may change from expansion to neutral, even contraction. Friday we are going to closely examine the new ECRI data to see if it forecasts an increasing rate of decline given the weakness seen in the regional manufacturing reports.
Specifically, the Philly Fed came in much weaker than expected, more or less corroborating the weakness in the New York survey released Monday. 28.5 was much less than the 30.8 expected and the 36.1 reported in July when it looked as if manufacturing was leading the move back out of the June slow patch. New orders plunged (19.2 versus 35.3), employment fell again (17.2 from 24.6), and prices paid moved higher (53.7 from 46.3). Prices received, however, were lower and below prices paid, thus once again showing the lack of pricing power that impacts corporate profitability. About the only positive was future expectations rising to 52.7 from 36.3. It just goes to show, hope springs eternal It is a good indication, however; if there was no expectation of improvement, there would certainly be none as money would not be spent.
In sum, the jobs data could provide a better picture for incumbents, but the leading indications are not showing a rebound from the current slowdown. We still feel there will be a flurry of activity in Q4 as businesses rush to take advantage of the expiring investment incentives, but beyond that we are not seeing much to indicate a robust expansion in 2005, but still an expansion. The market is still coming to grips with pricing in the magnitude of the expansion
THE MARKET
It was a slow day with the indexes closing lower on lighter trade, but it was not a completely dull session. There were some decent moves from good stocks, but overall things were quiet. That is exactly what the market needed after a good burst off of the recent lows. The 'burst' was not that powerful, but it has shown the necessary elements that set up a further upside move. As noted in prior reports, we view this rally as the one that sets up the next test lower, and thus it does not need to have sterling credentials. It does need to put in enough distance and time upside to allow stocks to rebuild and prepare for the next move that may set up the bottom of the correction. As such the Thursday action was just part of the work schedule.
The session was slower and on lighter volume as stocks sold back. They did not cave in, however, testing lower then rebounding to close in the upper half of the range. So far so good with the rebound and follow through. It is important to note that the follow through is a necessary part of any move higher, but it is also not a guarantee of a sustained rally. With oil stocks and metal stocks still showing the strongest patterns, the upside potential is questionable longer term. Significant rallies historically are not led by those groups but by the new and rapidly expanding sectors (e.g., wireless technology in 2002 and 2003) where there is rapid growth. At this juncture, however, we have to go with what the market is showing. If it continues to rest, rallies higher again, and then provides another good test to set the bottom, the next round of leadership will start to emerge as they set up their bases while the rest of the market jerks up and down. When they make their moves, then we will see what kind of market we all have.
Market Sentiment
Bears versus bulls: A marked improvement the past week as bullish advisors fell to 43.6 from near 50 while bears rose to 28.7 from near 24. 35% bulls is bullish, 50% bears is bullish. They still have work to do, but this is very good to see after that first dip lower. They are definitely off of the very bearish levels (55% bulls, 20% bears), and if the market rallies here and then rolls over in a hard plunge, then we could see those levels spike to significant levels.
VIX: 16.96; +0.73
VXN: 23.91; -0.26
VXO: 17.27; +0.79
Put/Call Ratio (CBOE): 0.89; -0.09
NASDAQ
Sold back to the 18 day EMA on lower volume, basically holding that level on the close, putting in a good rest session.
Stats: -11.48 points (-0.63%) to close at 1819.89
Volume: 1.422B (-10.08%). While volume was not blowout on the Wednesday follow through session, it was adequate for the type of rally we are looking for. Thursday volume was again adequate, backing off as the index gave back some of the move from the prior week.
Up Volume: 500M (-876M)
Down Volume: 909M (+713M)
A/D and Hi/Lo: Decliners led 1.52 to 1
Previous Session: Advancers led 2.79 to 1
New Highs: 38 (+9)
New Lows: 51 (-14)
The Chart: http://www.investmenthouse.com/cd/^ixq.html
Ran into some trouble after clearing the 18 day EMA (1822.60) Wednesday, a point also marked by the October 2002/March 2003 up trendline. In short, a good place for the stock to take a rest after a 75 point move off of the August lows. We would like to see the stock hold in this range for the next couple of sessions on continued lower volume, then resume the move toward the 50 day EMA (1882) and 1900 to set up the next test lower. So far it is doing what it needs to do.
Could not really differentiate the move between the NASDAQ overall and the NASDAQ 100 as it too showed a lower volume doji on the 18 day EMA.
S&P 500/NYSE
Very good action, testing the 18 day EMA on the intraday low and rebounding for a modest loss on lower volume. Perfect action after the four day rally off the lows.
Stats: -3.94 points (-0.36%) to close at 1091.23
NYSE Volume: 1.255B (-2.53%). Volume faded though it was still close to the Wednesday upside trade. SP500 did not provide a follow through move Wednesday, but could still do so after a rest here with NASDAQ and then a strong volume break higher Monday, the seventh day of the rally attempt. That would still put it in the category of stronger rallies.
Up Volume: 531M (-597M)
Down Volume: 701M (+559M)
A/D and Hi/Lo: Decliners led 1.25 to 1
Previous Session: Advancers led 3.43 to 1
New Highs: 61 (-15)
New Lows: 14 (-1)
The Chart: http://www.investmenthouse.com/cd/^spx.html
While Wednesday was not as strong as you want, Thursday was just what was needed. A good intraday test of the 18 day EMA (1086) on the low and a smart rebound to close in the upper half of its range. This is classic action when an index is resting, still showing the bullish undertones that helped spark the upside move. The 18 day EMA gives SP500 a cushion to work with as it takes this breather. Another session or two testing the 18 day EMA sets up another move higher toward the 50 day EMA (1099) and then the 200 day SMA (1110) to 1125 where we want to see it test on this move to set up the next drop. As noted Wednesday, it might just slide into a handle at that point instead of a deep test, forming more of a double bottom with handle.
The small caps were positive at one point, holding up the market. By the close they too faded, but showing just modest losses and holding easily above the 18 day EMA.
DJ30
The blue chips also tested the 18 day EMA (10,001) on the low and rebounded to close in the upper half of the range. Volume was lower as they too took a rest, this one below the 50 day EMA (10,105) and the February/April down trendline (10,112) that are not far away. Still want to see it reach the 200 day SMA (10,244) to 10,250 from the April and June highs before it starts the next test.
Stats: -42.33 points (-0.42%) to close at 10040.82
Volume: 162 million shares Thursday versus 187 million shares Wednesday.
The chart: http://www.investmenthouse.com/cd/^dji.html
FRIDAY
No scheduled economic data for once, so the market will look to itself and global events to determine its path. Thursday, even though oil climbed, Iraq hostilities were still underway, and the economic data was not encouraging, stocks held up well on a day of rest, basically ignoring what was going on with the rest of the world. When the market is stronger that is what it does. It puts its head down and goes about its business. You see that action in the stronger individual stocks when the market is struggling; they just go about their business putting together their own bases while the market sells off. When the market is done they get their trigger and make their move.
We are looking for the overall market to continue that kind of action Friday, testing the 18 day EMA, holding that level, and generally behaving itself in a quiet, orderly manner. The oil situation won't be resolved nor will the election. Most likely the recent resurgent fighting in Iraq won't conclude either. That will once again require the market to ignore global events and continue taking a breather. If it continues to do so it will demonstrate further shades of a character change following the July and August selling. That is part of the overall metamorphosis from a selling market to an accumulation market, and it is not the last act. Indeed, it still has more upside on this move after this rest period.
Even though we still feel there is another downside move to come after a continuation of this rally up to those resistance levels cited above, we are not going to ignore strong stocks setting up solid bases. As noted, that is often where the leaders are melded, forming their patterns at their own pace as the rest of the market sells off on the final test. If those stocks provide opportunity, we will continue to look at positions. We can see those stocks breakout and rally, then on the overall market test, pullback to test their breakout. From there they blast higher if the market is successful in its second test to try and form the overall bottom.
Support and Resistance
NASDAQ: Closed at 1819.89
Resistance:
The October 2002/March 2003 up trendline at 1827
1830 - 1850 (July lows) and the May 2004 lows (1876 closing, 1865 intraday) may prove to be some resistance.
The March 2004 lows (1897 - 1989)
The 50 day EMA at 1882 is key resistance.
The 2004 down trendline at 1935
The 200 day SMA at 1974
Support:
The 18 day EMA at 1823 is still mostly holding.
July 2003 highs at 1755.
Late July 2003 top at 1735.
June 2003 intraday highs at 1686 to closing range at 1644 to 1677 (mid-July low here as well).
1600.
S&P 500: Closed at 1091.23
Resistance:
1096 to 1100 represent price support.
The 50 day EMA (1099).
The 200 day SMA at 1110
The March/April down trendline at 1122
1125 was key price support.
1142-1146 are the June highs.
The April and January highs (1150 to 1155).
1159 (February highs) and 1160 to 1175 the highs in that double top that spanned late 2001, early 2002.
Support:
The 18 day EMA at 1086
May low at 1084 (closing) to 1076 (intraday).
1080 (May and July lows).
1062 - 1058 from November 2003
1048-1040 from September 2003
1010 - 1015 from June/July 2003
Dow: Closed at 10,040.82
Resistance:
The 50 day EMA at 10,105
The February/April down trendline at 10,110
The 200 day SMA at 10,244
Late April, June peaks at 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 18 day EMA at 10,001
9783 to 9793, the August lows.
9625 - 9660 from September 2003.
9500 from various price points in late summer to fall 2003.
9250. More solid support from the June through August 2003 consolidation.
Economic Calendar
These are consensus expectations. Our expectations will vary and are discussed in the 'Economy' section.
August 16
NY Empire State Index, August (8:30): 12.6 actual versus 32.3 expected and 35.8 prior (revised from 36.5)
August 17
Housing Starts, July (8:30): 1978K actual versus 1900K expected and 1826K prior (revised from 1802K)
Building Permits, July (8:30): 2055K actual versus 1950K expected and 1924K prior (revised from 1945K)
CPI, July (8:30): -0.1% actual versus 0.2% expected and 0.3% prior
Core CPI, July (8:30): 0.1% actual versus 0.2% expected and 0.1% prior
Industrial Production, July (9:15): 0.4% actual versus 0.5% expected and -0.5% prior (revised from -0.3%)
Capacity Utilization, July (9:15): 77.1% actual versus 77.5% expected and 76.9% prior (revised from 77.2%)
August 19
Initial Jobless Claims, 08/14 (8:30): 331K actual versus 335K expected and 334K prior (revised from 333K)
Leading Economic Indicators, July (10:00): -0.3% actual versus -0.1% expected and -0.1% prior (revised from -0.2%)
Philadelphia Fed, August (12:00): 28.5 actual versus 30.8 expected and 0 prior (revised from 36.1)
SUBSCRIBER QUESTIONS
Q: Hi, I'm a member for more then 3 years now and appreciated the newsletter every day of it. Great work.
You were referring in last newsletter that there were not enough big moves from leaders on big volume associated with yesterday's move. What number of big movers on big volume would you consider solid, moderate and not enough?
A: There is no specific number we are looking for, but instead a good representation of leading stocks from sectors that can sustain more serious rallies, i.e., growth sectors such as medical, healthcare, telecom, internet, new technology (wireless) as opposed to oil and gas or steel. When mature industries lead the move, the move is typically limited because the growth simply is not there.
We look for stocks in those types of sectors that are moving on volume off of a test of key support or out of a good base. When we see 20 or 30 such stocks surging on volume that is typically a strong move.
End part 1 of 3
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