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world stock market, us stock market
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8/23/04 Investment House Alerts Report
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IH Alert Subscribers:
MARKET ALERTS:
Target hit alerts issued Monday: MDCC
Buy alerts issued: AGYS; COG
Trailing stops issued: None issued
Stop alerts issued: NOC
SUMMARY:
- Volatile within a narrow range as market pauses on low volume.
- Retail sales blowing in the wind.
- Showing good action at an important level.
- Volatile, low volume hallmark Monday stock moves.
Indexes make a game try but investors not ready to back next move higher.
Stocks started soft in the first half hour, but with the return of a more bullish bias the past week they were soon back at even or better, trying to push the envelope out a bit further after last week's rally. The indexes came back, but they could not advance the ball. All indexes turned positive after lunch as a buy program hit and SP500 moved above the 50 day EMA after some early attempts at that level failed. After the buy program dissipated, however, volume was still low and the indexes could not hold the gain.
The last two hours stocks sold back on continued low volume, failing the attempt to take out the next resistance levels. Though resistance held, it is hard to call the day a failure. The test was not one that we expected it would win just yet. Importantly, it was not a reversal on volume either. Last weeks buyers just ran out of steam and stocks slid back from a modest attempt to take out next resistance.
That maintains the more bullish bias exhibited the past week with stocks tending to rise in the absence of any major news. Indeed, stocks rose last week even as oil topped $49/bbl and economic data remained soft. Monday stocks shook off Wal-Mart's morning report that back to school sales were lighter (0% to 2% now expected for the month) and still managed a rally attempt in the afternoon to take a shot at that resistance. Stocks closed near the session lows, a move that is not bullish, but the losses were quite mild on NYSE volume that just barely cracked 1B shares. As always each day is important at this juncture as the indexes test important resistance, but thus far the action is continuing the path we set out the past few weeks as the most likely scenario heading into early fall.
THE ECONOMY
Wal-Mart below plan, Target still on plan as driving season winds down.
There was no scheduled economic report Monday, so the focus went to the next most available, the weekly retail numbers from WMT and TGT. WMT spooked some economists when it reported back to school sales were slower than originally reported the past two weeks. Instead of 2% to 4% WMT suddenly announced a flat to 2% sales increase. It blamed closing 65 stores due to hurricane Charley, but that wrung a bit hollow. While Home Depot and Lowe's get the lion's share of business ahead of hurricanes, WMT is no slacker either as consumers buy batteries, water, duct tape, canned goods, etc. Back to school may have slowed, but pre-storm buying in certain items rose. Still, when WMT says it was a storm, it is hard to argue with it; the company reports weekly, keeping close tab on its progress. Moreover, as it reported 'brisk' back to school activity the preceding weeks, there was some impact from store closures.
TGT maintained its guidance in Mondays report (flat to 2% growth). Of course that was hardly encouraging as that is what WMT expects to do. We also note that specialty retailers and even department store JCP continue to report brisk back to school and late summer business. With gas prices rising and consumers starting to think about how far they will travel to buy something, it will be telling to see how these specialty retailers (e.g., ARO, AEOS) continue to perform.
Gas going to help more?
Sales may get a boost from gas prices. May sound crazy, but the summer driving season is coming to an end, and as we all know, gasoline prices have softened the past month well before the end of drive time. While conventional wisdom says gasoline prices have to rise again given the increase cost per barrel of oil, prices have yet to do so. Perhaps anticipating the end of the driving season has already capped them off. Now the issue is natural gas and heating oil as the northern states move into fall. Will this uncertainty premium find its way into heating oil, and if so, will it shoot higher or as with gasoline, rise but then plateau?
The issue of how much oil is out there changes from day to day. Not three weeks ago Saudi was saying how there was plenty of oil on the market but the speculators were driving the price higher. China is supposedly trying to slow its economy, but that is hardly working; oil imports jumped 47% in the past month. Monday an OPEC spokesman said that OPEC could provide no more supply and that world supplies would remain tight and that the consumers had to reduce their consumption. Then Russia assures the US that it will increase its production and Iraq finally has both the north and south filling their pipelines again.
What is the story? Plenty of oil but speculation, or just not enough oil? As always the answer is in between. There is speculation and there is a lot of usage. China is using a lot as is the US. The rest of the world economy is so-so, but their demand is not dropping. That puts pressure on existing supplies. Forecasts are we are going to run out of oil anywhere from 20 to 50 years down the road. Same story we heard in the 1970's with the energy crisis. World supply had peaked and it was a matter of time before we were paying $100/bbl and running out. Then that funny thing called technology allowed us to find more new sources and produce more of what we already found. Oil is a classic boom and bust commodity and industry. Certainly we will run low someday, but we cannot succumb to the hype that arises every 20 or so years that we are on the verge of running out.
It is very intriguing to note that the advances in hydrogen technology are going to change the entire face of energy consumption in about 20 years. People we talk to in the fuel industry say a viable hydrogen burning vehicle, i.e., one that can be mass produced at a marketable cost, is going to be a reality in 15 to 20 years. That will alleviate a major source of consumption around the world, the internal combustion engine driven vehicle.
Certainly that is long term thinking and it does not resolve the current spike brought about by the usual 'sky is falling' current mindset, but it helps us focus on the big picture. There are many saying oil will be at $50/bbl as far into the future as we can see. Heard that all before. As noted, in the 1970's oil was going to $100/bbl, and that was all there was to it. A lot of empty buildings in the 1980's were built on the myth of $50/bbl oil in 1975 dollars. Just as we see during the heat of a market sell off the statements 'this time it is different' or 'the usual market indicators don't work in this market', comments that oil is going up and is not coming down have to be taken with a grain of salt. Big grains of salt.
THE MARKET
Stocks behaved pretty much as expected at this next resistance, moving on low volume and testing back some. It was positive action with low volume and modest breadth. Intraday action was a bit volatile as well with some upside and downside runs, but it was contained within a narrow range.
No doubt the market is at another touchy stage. After a low volume rally, though one with a higher volume follow through session, the major indexes are at important resistance points with SP500 and DJ30 at the 50 day EMA, NASDAQ at 1850, and SP600 at the 200 day SMA. These are important resistance levels as stocks and indexes in downtrends below the 10 and 18 day EMA typically rebound up to the 50 day EMA before continuing the trend lower. The low volume all the way up made this first attempt pretty certain to be a failure.
The key to the upside is that this first avoid a higher volume rollover that gives back the rally and shows sellers jumping on stocks more than buyers were jumping into stocks as they fought back up. Stocks could certainly rollover here. There is a follow through session on this rally, but that is no guarantee of success. If the market is not done pricing in further economic slowdown, this is a golden opportunity to roll over on surging volume. By any stretch this has certainly not been what you would call a strong surge off the lows. Still, we believe at this juncture there is a further move higher on this rebound, though it will come after a few days of testing on lower volume similar to what it did Monday. Stocks continue to show the recent bullish bias and we are seeing more and more individual stocks shaping up their patterns. We still expect another leg back down, but we are looking for a move higher from here to better set up that test that hopefully will form the bottom.
Market Sentiment
Sentiment indicators did not know what to make of this market action, closing lower on the mixed moves the major indexes showed. We expect to see them rise as the market is under pressure some this week, then fall as it continues its next move (though not precipitously), then really rise as the market turns back down for that steeper test lower.
VIX: 15.88; -0.12
VXN: 22.54; -0.52
VXO: 15.86; -0.44
Put/Call Ratio (CBOE): 0.8; -0.15
NASDAQ
Low volume as tech stocks 'led' the market along with chips, but stalling at some resistance at 1850. Not bad action at all.
Stats: +0.68 points (+0.04%) to close at 1838.7
Volume: 1.227B (-9.1%). Very low volume, the lowest of the month and the lowest since the July 4 holiday. We want it to stay down as the index continues to move laterally and feel its way along below this resistance level.
Up Volume: 695M (-287M)
Down Volume: 517M (+166M)
A/D and Hi/Lo: Decliners led 1.43 to 1. Well contained, but negative on an upside session. Small cap techs were a drag on the breadth as small caps were suffering more than other sectors.
Previous Session: Advancers led 2.61 to 1
New Highs: 54 (+13)
New Lows: 34 (-13)
The Chart: http://www.investmenthouse.com/cd/^ixq.html
Gapped higher, filled the small gap, but was still unable to take out the next resistance point at 1850. That is not major resistance, but with SP500 and DJ30 struggling at the 50 day EMA, we don't expect NASDAQ to advance much without them. The 50 day EMA (1878) is still a key level ahead along with the 50 day SMA (1904) and price resistance at 1900 as well. Low, lower and lowest volume as the index moved higher. It needs to regroup here over the next few sessions and then try to punch through to make what we feel will be the final push on this rally attempt.
It was a large cap tech day as the NASDAQ 100 performed slightly better than the overall index (+0.3%). Tech stocks such as QCOM continued their upside swing while the rest stalled. No powerful moves, just some continued upside buying of the big names as the rally gasps a bit for air.
S&P 500/NYSE
Tried a move through the 50 day EMA but had no punch behind it. Gave back a bit of ground, but on anemic, pitiful volume. Just what we wanted to see.
Stats: +0.04 points (0%) to close at 1095.68
NYSE Volume: 1.022B (-14.54%). Now that is low volume, coming in even less than July 4 trade. That is just what we wanted to see on this move: no sellers jumping on stocks as they struggled at key resistance.
Up Volume: 365M (-613M)
Down Volume: 639M (+428M)
A/D and Hi/Lo: Decliners led 1.72 to 1. Hampered by small cap stocks that led the NYSE selling.
Previous Session: Advancers led 3.03 to 1
New Highs: 88 (-11)
New Lows: 11 (-2)
The Chart: http://www.investmenthouse.com/cd/^spx.html
Rallied to 1101 on the high, just over the 50 day EMA (1099), but without any volume there was little chance to hold this move. We want to see the volume remain low as it tests back slightly or moves laterally below this level. Then a turn back up in trade as it moves through the 50 day and on toward the 200 day SMA (1110). That would show the right kind of price/volume action, i.e., up on upside days and lower on downside days. That is important because we need to see the market transform into more accumulation as opposed to distribution. That shows us the big money is buying overall and gives support to any breakout move in addition to the accumulation we see ongoing in leadership stocks. Still looking for a move up to the 200 day SMA and maybe 1125ish before this rally attempt fizzles.
After closing over the 200 day SMA and the 50 day EMA Friday, small caps led the market lower Monday. In doing so they sold back below those levels. Stiff resistance at 285 to 287, though 280 is not chopped liver. They remain in a toppish pattern and need to hold near 275ish on this test and continue higher toward 285 in this rally.
DJ30
The blue chips struggled at the 50 day EMA (10,104) after tapping the February/April down trendline (10,125) on the high (10,131). Volume was, as with the other indexes, very, very low. Needs to hold in this range during the test. As with the other indexes, it also is at a critical level that could cause it problems given the low upside volume. We will be watching volumes closely as stocks trade the next 2 to 3 sessions. Want to see it move toward the 200 day SMA (10,245) and price resistance at 10,250 as the rough level where it starts the next test.
Stats: -37.09 points (-0.37%) to close at 10073.05
Volume: 144 million shares Monday versus 175 million shares Friday.
The chart: http://www.investmenthouse.com/cd/^dji.html
TUESDAY
It will be hard for volume to not top Monday's low trade, and thus if the market stays weak we could see some higher volume selling. The key will be how relatively strong the volume is. Again, the indexes are at important resistance levels; if the sellers want to come in this is their opportunity.
We are going to remain patient and let stocks take this pause at resistance. Continued lateral move to slight losses on overall lower volume is what we want to see. At the same time we have to watch for spiking volumes, upside or downside. Monday there were some volume moves upside and downside. Many of the upside moves struggled after a good surge, similar to the market; not just quite there. We are going to look at partial positions on the upside when we see good moves, working our way into positions as they show strength during the overall consolidation.
Durable goods orders are out before the open, volatile, but another good view of the manufacturing side of the economy that has been slowing. The market has more or less ignored economic data as it ahs rallied; at some point it will start paying more attention. Again, we are looking for a further move upside here, so we anticipate more ignoring any nominally negative data. Want to see that same overall quiet action the first part of this week and then a resumption of the upside move. Leaders will tend to move ahead of the rest of the market, and we will continue to watch for solid moves to accumulate some positions as they show good moves.
Support and Resistance
NASDAQ: Closed at 1838.70
Resistance:
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 1879 is key resistance.
The 2004 down trendline at 1935
The 200 day SMA at 1973
Support:
The October 2002/March 2003 up trendline at 1832
The 18 day EMA at 1825
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 1095.68
Resistance:
1096 to 1100 represent price support.
The 50 day EMA at 1099
The 200 day SMA at 1110
The March/April down trendline at 1121
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 1088
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 10073.05
Resistance:
The 50 day EMA at 10,104.
The February/April down trendline at 10,125
The 200 day SMA at 10,246
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 10,019
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 24
Existing Home Sales, July (10:00): 6.81M expected and 6.95M prior
Durable Orders, July (8:30): 1.0% expected and 0.9% prior
August 25
New Home Sales, July (10:00): 1300K expected and 1326K prior
August 26
Initial Claims, 08/21 (8:30): 335K expected, 331K prior
Help-Wanted Index, July (10:00): 38 expected and 38 prior
August 27
GDP-Preliminary, Q2 (8:30): 2.7% expected and 3.0%
Chain Deflator-Preliminary, Q2 08:30): 3.2% expected and 3.2% prior
Michigan Sentiment-Rev., Aug (9:45): 94.0 expected and 94.0 prior
End part 1 of 3
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world stock market
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