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world stock market, trade stock
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8/24/04 Stock Split Report
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Stock Split Report Subscribers:
MARKET ALERTS
Targets hit alerts issued Tuesday: BAC (took some interim gain)
Buy alerts issued: VIP; NCEN; ARO
Trailing stops issued: AET
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:
- Another day of rest as market continues to ignore most news.
- Oil falls further but stocks fail to rally, leaving some to conclude market has adjusted to higher long term energy prices.
- A bit more rest and stocks will be ready, but semiconductors a bit worrisome.
Taking the rest it needs.
All in all another good day of rest after last weeks rally. Stocks acted ready to go pre-market on a CAT upgrade, rising foreign markets, and, oh yes, lower oil prices. A three day slide in oil prices has taken them about 8% off the highs. The news lifted stocks early, but after last weeks gains a morning lift higher was most likely a head fake, particularly with important resistance still ahead.
Sure enough SP500 lifted over the 50 day EMA on the intraday high, but almost immediately it turned and gave back that key level. NASDAQ faced similar action at its resistance at 1850, unable to punch through for the second straight session. There was no rollover, no surge of selling even though volume rose slightly on session. NASDAQ traded down to its near support levels, held, and helped trigger an afternoon lift off the lows. Trade was still well below average, and as discussed Monday, something would be seriously wrong if trade did not top those levels. Low volume, no major sell off, holding onto most of last weeks gains. Pretty solid action.
THE ECONOMY
Chain store sales show modest increases, continuing the worries about the consumer.
Redbook reported sales +1% year/year, but that was down from the 2.3% gain reported the prior week. Thus far in August sales are down 1% versus July. The UBS/Intl. Council of Shopping Centers showed sales up 0.1% for the week versus -0.6% last week. Year/year sales were up 2.9% (+3% the preceding week). USB cut its August forecast to a 2.5% gain from 3%.
A lot of what we saw in this report was a result of WMT and TGT with their mediocre performance. What we are hearing from retailers is that the specialty stores are enjoying the strong back to school action, e.g. AEOS, ARO for clothes and BBY for electronics. Seems kids want clothing of a certain style and color found at the specialty shops as well as a high-end electronic gadget to head back to class. From what we hear that is cutting into WMT's back to school action just as the specialty retailers cut into its holiday sales in 2003.
Point: One overlooked aspect of an improving economy is that sales demographics shift. In the stock market crash and recession consumers looked for deep discounts. They still do (that is a hard habit to quit cold turkey, e.g., auto sales), but they also are willing to pony up for more expensive items as opposed to the discount fare. This is an indication that despite what the national polls show, the consumer is still in very good shape. Of course it is never good when the world's largest retailer is not performing up to its expectations. WMT is in so many areas now (grocery, small business with Sam's Club, DVD rental, drugs, eyeglasses) that a slowdown in its sales means something. Indeed, last Christmas saw WMT sales lag as others jumped, and the overall season was so-so. Thus we cannot take too much solace in the specialty stores performing better, but we also know that it is a sign of continued confident spending.
July existing home sales fall 2.9%, miss expectations.
This market makes up 80% of the housing market, and when the new home sales were strong earlier, expectations for existing sales were jacked up. After June hit a record on lower mortgage rates the economists got greedy. Sales were 6.72 million (annual) when 6.81M was expected (June was 6.92M). Though sales missed, it was still the third best month ever. That's like missing an eagle put on 18 when you were 5 shots ahead.
The action is supposedly led by the children of baby boomers, those entering the housing market for the first time. They are supposed to drive the market for the next 10 years just as the boomers did. Boomers continue to look at second homes in the mountains, at the lake, ocean, etc. Home prices keep rising, up 8.7% year over year.
That rise has prompted one none too camera shy Yale economist to pen another opinion piece on a housing bubble that he claims exists in California, New York and a few other select areas. He defines a bubble as an unreasonable expectation that prices will continue to rise in the future. Seems those unreasonable expectations have had a bubble going in California for decades now.
There is no doubt that areas from time to time get unreasonable expectations about future prices. Back when the stock market was on the skids in the long downtrend and a lot of money was heading into houses, things were even more heated than they are now. In our neck of the woods homes on the Gulf or bay were succumbing to that unreasonable expectation of future gains. The housing market remains strong, but those price expectations have backed off without a 'bubble' bursting, at least not yet. It seems the increase in the rest of the economy has helped divert money elsewhere from just housing and real estate, and that has had the affect of naturally cooling the market. This is what we are hearing from some real estate folks, and the home builders won't directly confirm it, but they say the market is stable and expanding.
Oil continues to back off from the highs.
After flirting with $50/bbl earlier, oil has slid back for three days, now about 8% off the highs. Maybe $50 was the tipping point, or maybe this is just a breather after a breathless run higher. After all, nothing climbs a straight line forever. Oil charts were weaker, gained strength, and our now faltering some again. Neither the oil chart or the oil stocks' charts are really showing any definite break lower that would indicate some sort of break in the trend or a blow off top in oil prices.
With that in mind we note that the market sold heartily as oil climbed into the mid-forties, but then started to recover even as oil climbed higher toward that near term top last week. Stocks finally started to ignore oil for the moment. Indeed, stocks ignored oil as it fell this week. Either stocks have factored in the price of higher oil or they are forecasting oil falling and stabilizing at a lower level. As with the oil chart, this is not clear either. The market handicaps results ahead of time. Right now the market is in the early steps of recovery from this base. It still has a long way to go, and again, there is no definitive answer at this point.
Will the market really rally on the realization that higher oil prices are here to stay? Some seem to think that is what the market is doing, i.e., recognizing that world oil capacity has peaked, i.e., that demand has now outstripped supply on a permanent basis. To say the market is not reacting to lower prices because it believes high oil prices are here to stay is another way of saying the market has gone just about as far as it can go.
We are not convinced that is the case. For one, predictions in the past of world oil supplies peaking have grossly underestimated demand curves and the ability of technology to replace reserves. Certainly some day we could run out of oil. In the 1970's they were sure that would be in the 1990's and that oil would continue higher and higher each year. Economic reality as well as technology played a role in debunking that doomsday scenario. The notion that world oil demand has suddenly slipped up and surprisingly overtaken supply forever is a bit farfetched.
The market is most likely working on the bottom to the next up phase. In so doing it is distilling all of the information it has about the future. If it can continue to build and ultimately set the bottom and break higher, it has concluded the economy will continue to expand and that earnings will do the same. Oil prices that are permanently in the $45/bbl range most likely don't fit into an economic expansion scenario. One thing the market does when it gets sold out is start to ignore news. It ignored oil prices rising near $50/bbl last week. This week it is ignoring oil as it falls back. Some interpret this as a bad thing. We interpret it as the market going about its business in making its base as it moves into the final stages of pricing in what oil is going to do, what the outcome of the election will be, resolution in Iraq. When it does that it starts to ignore the noise that has whipsawed it during its indecision phase.
THE MARKET
Another session below support on relatively low volume. Stocks and the indexes have risen to a level of key resistance and have stalled for two days just below that level. The pessimist says the low volume rally is over. The optimist says it is a pause.
Well, there is more to it than that. The pessimist has near history on his side as stocks are still in a downtrend for the year and have not shown the volume to change things on this move. Looking at the bare bones, there is not a lot to forecast anything further here.
Beyond that, however, there is something else. There is a follow through session on rising volume that sets the stage for further gains; no guarantee, but it sets the stage. The market has started to ignore the news, typically a sign that the selling is done, at least short term. Sellers are hesitant to jump back in when the opportunity to do so is golden. Maybe they still will, but unlike prior downturns as the market sold off, they are almost having to be baited in. Instead the market is holding its gains, taking a breather on low volume.
What will tip the scales? SOX is something to note. It was the loss leader Tuesday, down 2.8% with the semiconductor based indexes selling on some rising trade. CSCO was downgraded and that had an impact on several of the chip stocks in the networking and communication business. SOX had a rough day, turning down at the 18 day EMA. Chips can often be harbingers of a move, kind of like the swallows returning home to nest. After hours they got some good news, however, as SMTC reported some solid results, sparking an after hours upside move in semiconductors and putting some life into QQQ.
The market could still use another day or two of testing here. SP500 could come back and test the 18 day EMA more fully, hold, and then rebound to better set up the next attempt through resistance. We still would like to see this move last another 2 to 3 weeks at it breaks this resistance and advances to the last stage of this current move. That means it won't be just a straight shot, but many sessions of trade similar to Tuesday. That won't be terribly exciting, but it will be what the market needs as it sets up the next test lower that we are looking to set the bottom of the current base. Thus Wednesday we are looking for another slow session and some more downside from SP500 as stocks follow SOX' lead and sell down some more, but do not roll over.
Market Sentiment
Volatility is getting lower than we wanted it to on this move. The market stalled out, showed some signs of upside, some signs of selling. Volatility sank further below the 200 day SMA. We wanted to keep some fear in the market as stocks made this move. While there still appears to be more bearishness (we will know more Wednesday and Thursday when those reports hit), we want to see all of the sentiment indicators start to move together.
VIX: 15.33; -0.55
VXN: 21.97; -0.57
VXO: 15.21; -0.65
Put/Call Ratio (CBOE): 0.79; -0.01
NASDAQ
Hampered by semiconductors it sold back on a bit more volume. Still held up well, rebounding from support to cuts its modest losses.
Stats: -1.81 points (-0.1%) to close at 1836.89
Volume: 1.313B (+7.07%). Volume climbed as NASDAQ lost some ground. The loss was marginal, however, so not a distribution session. SOX and chips were a drag, however, and some of the higher volume is attributable to their weakness. Watching the chips closely.
Up Volume: 519M (-176M)
Down Volume: 718M (+201M)
A/D and Hi/Lo: Advancers led 1.19 to 1. Managed to hold positive even though the index closed lower.
Previous Session: Decliners led 1.43 to 1
New Highs: 35 (-19)
New Lows: 46 (+12)
The Chart: http://www.investmenthouse.com/cd/^ixq.html
Gapped higher once more but was not ready to hold the gains. On the low it tapped the 18 day EMA (1827) and the October 2002/March 2003 up trendline (1832) and rebounded to cuts its losses into the close. Still below resistance at 1850. After that there is the 50 day EMA (1877) and the simple 50 day MA (1901) that may be where the move stalls out. Another test of the trendline or the 18 day EMA will set up that attempt.
NASDAQ 100 tapped the 18 day EMA on its low as well and rebounded to cut its losses. Volume was still quite low on both NASDAQ 100 and QQQ moving on continued below average trade.
S&P 500/NYSE
Another attempt at the 50 day EMA, another failure. Volume rose a bit as the index managed a positive close; not accumulation, not distribution, just what we wanted.
Stats: +0.51 points (+0.05%) to close at 1096.19
NYSE Volume: 1.091B (+6.75%), Rising but still below average volume. Nice rebound from the lows but also stalled out at resistance. After Mondays low trade a rise in volume was not surprising. It remained low overall on the test, however, and that is what we wanted to see.
Up Volume: 534M (+169M)
Down Volume: 525M (-114M)
A/D and Hi/Lo: Advancers led 1.26 to 1. No one group led.
Previous Session: Decliners led 1.72 to 1
New Highs: 89 (+1)
New Lows: 17 (+6)
The Chart: http://www.investmenthouse.com/cd/^spx.html
Once more the large caps moves above 1100, and once more they fell back on lack of enthusiasm. The candlestick pattern showed a tight doji, an indication of a change in momentum. That can portend a pullback toward the 18 day EMA (1089). A test of that level on continued lower volume better sets up the rebound as it shakes out the last sellers. Again, this is a key level for the index; so far it is resting on lower volume than the gains logged last week. Another test lower to shake out the last sellers.
The small caps tried to retake the 200 day SMA on the high, but they too had no volume to hold that move over key resistance.
DJ30
The CAT upgrade had a sympathetic affect on other industrials and DJ30 was positive most of the session. It rallied to the simple 50 day MA (10,158) on the high but then sold off to close below the 50 day EMA (10,104) and the February/April down trendline (10,120). Definitely bumping some resistance here, but as with the other indexes, the move is on much lower volume than last week's rally off the August lows. A test to the 18 day EMA (10,028) as with SP500 may work to shake out the last sellers.
Stats: +25.58 points (+0.25%) to close at 10098.63
Volume: 143 million shares Tuesday versus 144 million shares Monday.
The chart: http://www.investmenthouse.com/cd/^dji.html
WEDNESDAY
Thus far stocks have performed as wanted, i.e., providing a follow through on some better volume and moving up to that first strong resistance. Once there volume has backed off as stocks move laterally, holding onto most of their gains. Kind of quiet action. Wednesday may see some of that action pick up. We anticipate the indexes will test lower before ready to move back up and try again to take out this resistance. Looking for SP500 and NASDAQ to test toward the 18 day EMA over the next couple of sessions, then hold and reverse off of that level to again try resistance.
Again, you can look at this in a negative view and not be totally incorrect. There are some additional intangibles so to speak on this move that were not present in the late July bump higher. While we don't expect those to carry this move to the breakout of the base, we believe they will carry it higher on the current upside move and then turn back down for another test lower to set the bottom.
We will still be watching volume. SOX was struggling Tuesday into the close. After hours chips were helped by a solid earnings report, and perhaps that will turn the tide on the selling. The action warrants continued watching of volume as the indexes make the test of the 18 day EMA. Volume overall is still low; it can creep some, but not much more on selling. Thus far so good, but being cautious in our approach still, adding upside positions mostly piecemeal if the opportunity arises. There was not a lot of opportunity Tuesday, but it is a time to be patient.
Support and Resistance
NASDAQ: Closed at 1836.89
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 1877 is key resistance.
The 2004 down trendline at 1934
The 200 day SMA at 1972
Support:
The October 2002/March 2003 up trendline at 1832
The 18 day EMA at 1827
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 1096.19
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 1119
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 1089
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 10098.63
Resistance:
The 50 day EMA at 10,104
The February/April down trendline at 10,120
The 200 day SMA at 10,248
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 10,027
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): 6.72M actual versus 6.81M expected and 6.92M prior (revised from 6.95M)
August 25
Durable Orders, July (8:30): 1.0% expected and 0.9% prior
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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