|
|
us stock market, trade stock
* * * *
8/28/04 Stock Split Report
* * *
Stock Split Report Subscribers:
MARKET ALERTS
Targets hit alerts issued Friday: POT
Buy alerts issued: URBN; PTEK; WCN
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 hang in there, finish second positive week.
- GDP lower but better than expected with strong business investment.
- Michigan sentiment solid, Greenspan tries to make entitlements an issue.
- Techs, chips and small caps lead Friday but SOX still below 18 day EMA & other indexes face more resistance this week.
- Republican convention, pre-Labor Day week likely to keep volume modest and stocks struggling to advance.
Traders, fund managers cut out early.
They are saying that next week will be slow given the national election convention. If it gets much slower than Thursday and Friday they will have to dispatch paramedics to see if anyone is breathing on the floor. Volume hit lows for the year again, even back to the day before Christmas 2003. SOX, NASDAQ and SP600 (small caps) were leading once more, but all indexes posted gains. Moves were modest but the upside bias continued to close out the week.
Stocks found some silver lining in a lower GDP and they ignored Russia's announcement that at least one of the downed planes showed explosives residue as well as another sabotage of an Iraq production pipeline. In a very quiet market the bullish bias asserted itself once more to close out the week. Hardly a resounding upside move, just that drift higher toward next resistance that is very close.
There were some solid breaks higher on strong volume, but again they were scattered. Many stocks continue to set up their bases, but most stocks still need plenty more work before they are ready to advance to a new breakout. Sentiment indicators are improving in some stubborn areas, but they too still have plenty of work before they indicate a significant bottom. In sum, the market continues to show improvement with better price/volume action which is needed to help rebuild patterns for a breakout. The sentiment indicators and overall patterns, however, are not at the point to indicate this is the rally that breaks the indexes out of this base. The likelihood of another sharp sell off is fairly high.
THE ECONOMY
GDP lower but higher than expectations, shows some seriously positive developments.
As is usual, the focus was on the obvious and the negative in the GDP report. News stories talked of the slowdown from Q1, the sharply higher trade deficit caused by surging oil prices, and the slowing in consumer consumption. GDP was down to 2.8% from 3.0%, but that was also better than the 2.7% expected. Imported oil prices helped surge imports while softer European and Asian demand led to thudding exports. It was not only oil, however, causing the import surge. As noted last week, when the economy improves, consumers eat up a lot of foreign goods. The combination of higher oil prices and continued consumption of imported goods pushed the trade deficit to record levels.
Indeed, the Michigan sentiment survey final for August showed the usual improvement: preliminary numbers have been low for several months then followed up with a higher final reading. August was the same with a 95.9 reading versus 94 previously reported. Lower oil prices and the smooth running of the Olympics were credited, but oil prices fell too late to really impact the numbers.
The real story behind the GDP number is not in the slower consumer (1.7% gain versus 1% initially reported and 4.1% growth in Q1) but the excellent increase in business fixed investment (business spending). Spending jumped 12.1% overall, making it the fifth consecutive quarter of growth and the strongest jump since Q3 of 2003. Equipment and software spending jumped 13.6%, stronger than the 10% initially reported and easily topping the 8% from Q1. Business spending, despite a slowdown in June, has started ramping higher again. We can only expect it to get better as the economy moves toward Q4; the sunset on the investment tax incentives will drive companies to take advantage of them while they can. As a lot of investment made for tax reasons is put off as long as possible, we will see a surge in business investment as the year winds down.
While business spending advanced sharply, government spending moved more slowly (2.4% gain versus 2.5% in Q1). While spending is still out of control, it is always good to see it contract in favor of private investment. In addition, corporate profits rose a 'robust' 18%. Inventories rose $57.7B versus $47.5B originally reported and the $40B growth in Q1. They added about 0.66 to GDP, not quite the one point we were looking for as discussed in the Thursday GDP preview. Those stronger inventories did help offset the imports as we anticipated, but were insufficient to get GDP to 3% for the quarter.
Thus, despite the headlines of a slowing economy and softening consumer spending, the missing ingredient that caused the 2000 - 2001 expansion, i.e. business spending, continues to expand. That bodes very well for the last half of the year. Whether that holds up into 2005 is the question, but we think that it won't be the same with the tax incentives expiring in 2004. It should be a strong finish to the year, however, marking a pretty incredible run since the economy shut down post 9-11 after already being in recession
Greenspan makes hammering away at entitlements.
Greenspan again broached the taboo subject of making ultimately necessary adjustments to Medicare, social security, etc., but again received a cool reception from Congress and the presidential candidates. It is an election year after all and no one wants to take on real issues. Reminds me of an old 'M*A*S*H' episode where a general was asked some poignant questions at a press conference and replied 'This is a press conference; the last thing we want to do is answer a lot of questions!'
What was Congress' response? One republican said Greenspan should stay out of fiscal policy, and was angered that he was getting involved. While we agree that it is not the Fed's place, the gut reaction being one not of 'yes it is something we need to discuss, but it is not the Fed's place,' but instead visceral anger just goes to show the lack of vertebrae Congress has on the most important issues facing the country. Once the federal government made the step beyond the Constitution into taxing certain people to pay for others' retirement, healthcare, etc. and the courts allowed it, we set up the major problems we are going to face over the next thirty years. We are not in position to handle those problems, and we won't be if we continue to stick the old head in the sand. Kind of like pregnancy; it is not going to go away just because we ignore it.
THE MARKET
The large caps led Thursday and talk of large cap leadership quickly re-emerged. Friday the techs and small caps were back in the lead. This rally's form of rotation. This rally also has a different form of volume; extremely light. In the abatement of selling from July and early August, stocks have been able to rise. Sellers disappeared and some buyers emerged after initial short covering. That led to the current 2 week rally. There is a bona fide though modest follow through and some leadership stocks popping off here and there. Overall, however, it is minimal by any stretch.
Now the indexes are approaching the next key level where there is more solid resistance. This move can only go so far on this low trade before someone yells out the emperor has no clothes. At that point we believe the next down leg will begin, the one with the potential to set a bottom in the base. Despite the low volume, accumulation has resumed after a long sabbatical. Bulls versus bears sentiment is improving rapidly. The economy is better than most think. Another good plunge sets things up much better.
Market Sentiment
Bulls versus bears: Much, much improved over last week. Bulls dropped to 39.6%, well off that 43.6 last week (and near 50 the week before). Significance? When bulls drop to 35% that is a bullish sign. Bears were on the rise, hitting 30.2% last week after improving to 28.7% from 24% the week before. A 50% reading is bullish; still a long way to go, but a crossover of bears and bulls, i.e. bears higher than bulls, is just as good. It is getting there, and another run lower will most likely easily do the trick.
VIX: 14.71; -0.2. Volatility continues to slide lower toward 14, the level that has stalled each rally attempt this year. In June volatility slipped slowly toward 14 and the market slowly inched higher in smaller and smaller moves until it rolled over.
VXN: 21.27; -0.33
VXO: 14.79; -0.08
Put/Call Ratio (CBOE): 0.92; +0.08. Still more and more betting on this rally failing. That will probably keep it driving higher through next week; sentiment indicators tend to work that way.
NASDAQ
Continued the move higher to close the week positive. Volume continued moving the opposite direction. Has to bee some kind of record for points gained on such low trade.
Stats: +9.17 points (+0.49%) to close at 1862.09
Volume: 1.018B (-14.66%). Another low volume level for the year. This volume is going to be the death of this move higher.
Up Volume: 684M (+324M)
Down Volume: 307M (-500M)
A/D and Hi/Lo: Advancers led 1.69 to 1
Previous Session: Decliners led 1.45 to 1
New Highs: 43 (-7)
New Lows: 35 (0)
The Chart: http://www.investmenthouse.com/cd/^ixq.html
NASDAQ posted a solid gain on low volume. What is new? A better volume move Wednesday looked to open the door to a more robust continuation of the rally, but stocks immediately stalled, edging higher to close the week. NASDAQ is inching toward the 50 day EMA (1875) with the 50 day SMA (1894) right behind. We are expecting a struggle ahead to get to 1900, and even more to get to 1950 where we would like the move to hit. Does not look as if that will occur. When NASDAQ gets to 1900 it will be near peaking if no upside catalyst emerges.
NASDAQ 100 tried to make a move over the 50 day EMA (1391) intraday but could not hold the move. Volume faded but rose slightly on QQQ. The large cap techs have edged ahead of the overall index, making this resistance point first. A pullback to test the 18 day EMA would not be out of the norm.
S&P 500/NYSE
The large caps put it together and rallied off the 50 day SMA, heading toward the 200 day SMA, but still unable to muster any volume.
Stats: +2.68 points (+0.24%) to close at 1107.77
NYSE Volume: 875.558M (-14.13%). Micro volume as the large caps continued moving higher to test key resistance at the 200 day SMA. As with NASDAQ, the low volume will be the end of this rally. Once any sellers enter there are not enough ready buyers to resist them. Wednesday looked good with a very decent volume jump, but that was all the week showed as far as upside volume.
Up Volume: 556M (+3M)
Down Volume: 272M (-175M)
A/D and Hi/Lo: Advancers led 2.15 to 1. Small caps were back in action, and breadth was very solid.
Previous Session: Advancers led 1.24 to 1
New Highs: 99 (-5)
New Lows: 14 (-1)
The Chart: http://www.investmenthouse.com/cd/^spx.html
Moved up off the 50 day SMA (1104) and toward the 200 day SMA (1111), tapping 1109.68 on the high and backing off. With this volume it is going to find tough sledding at the 200 day. It took the Wednesday volume jump to push it through the 50 day EMA (1110) on Wednesday. It will need a similar volume spurt to push it through here and on toward 1125, our rough target for this rebound. With the convention this week, however, volume may be hard to come by. Several floor traders we know are not going to be on the floor. After bumping into the 200 day, a test of either 50 day EMA would be the norm. We want it to be on lower volume when it does.
Up off the 200 day SMA (277) and to the simple 50 day MA (279.83). Critical level for the index as there is serious resistance there from prior price consolidations. Working hard and may make it to 285 before hitting the wall.
DJ30
Edged higher Friday, resuming the move sparked by the Wednesday solid volume. Still struggling toward the 200 day SMA (10,253) but losing volume fast on the ascent. Wednesday helped trigger the resumption of the rally move, and we do anticipate DJ30 making 10,250. 10,500 would be better to set up the test; it may break through the 200 day and wave at it, but by that time VIX will be close to 14 and putting a lot of pressure on the buyers and the index. Price/volume action remains much improved, but the volume is going to make the 200 day SMA a real challenge.
Stats: +21.6 points (+0.21%) to close at 10195.01
Volume: 115 million shares Friday versus 132 million shares.
The chart: http://www.investmenthouse.com/cd/^dji.html
THIS WEEK
Republican convention all week and lots of New York traders are already out of town. Some fear the crowds, some fear a terror event, some fear both. As the week finished positive and just below next resistance, stocks may start the week a bit weak, fearing the uncertainty of the convention. Will there be an event, will Bush perform well or fall flat, etc. Lots of worries to start the week, but as the week continues those worries will start to abate just as they have done as the Olympics moved ahead smoothly other than the judging (but what is new).
We still expect the market to struggle along this week as VIX moves toward 14 and the indexes move up toward next resistance. A weaker start to the week and then stocks resume the struggle higher. June turned very choppy as it started to peak (remember: change of the weather is usually quite variable; as the market prepares to change it gets more volatile as well), so we will watch the price action closely, but especially coupled with the volume. Trade has been so light that volume will almost have to rise; slight rises on some price weakness is not too concerning. We don't want to see it spike higher as stocks sell as that would mean sellers are coming in with force, overwhelming the low volume buying. It also shows the big money dumping stocks that were just acquired as well as short sellers coming back in.
The week may completely surprise us and run higher with ease. The June move was 5 weeks; this one is just getting started at 2 weeks. With the improved intangibles heading into this rally we do expect more upside here to more closely match the June rally. A test of near resistance and then some lateral work, followed the following week by another try higher that ultimately fails and starts the last sell off in the base.
In sum, we don't believe the current move is the one to break the market out of its current base, but we do anticipate more upside though much choppier than the first two weeks. That keeps us looking for stocks moving on strong volume out of good patterns or breakout tests. As for the downside, more and more stocks are at or approaching significant resistance, setting them up for potential downside. We are keeping watch on many of those and will be ready when they roll over on rising volume that shows the sellers returning. As with the overall market, it may take a while for weak stocks to make the break lower. There will, as always, be those that breakdown ahead of the rest of the market, and we will look to pick off the best ones as they occur.
Support and Resistance
NASDAQ: Closed at 1862.09
Resistance:
The 50 day EMA at 1875 is key resistance.
May 2004 lows (1876 closing, 1865 intraday) may prove to be some resistance.
The March 2004 lows (1897 - 1989)
The 50 day SMA 1894
The 2004 down trendline at 1932
The 200 day SMA at 1971
Support:
1850 (July lows).
The October 2002/March 2003 up trendline at 1835
The 18 day EMA at 1836
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).
S&P 500: Closed at 1107.77
Resistance:
The 200 day SMA at 1111
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 50 day SMA at 1104.
The 50 day EMA at 1100
1096 to 1100 represent price support.
The 18 day EMA at 1093
May low at 1084 (closing) to 1076 (intraday).
1080 (May and July lows).
1062 - 1058 from November 2003
Dow: Closed at 10195.01
Resistance:
The 200 day SMA at 10,254
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 50 day EMA at 10,113
The February/April down trendline at 10,100
The 18 day EMA at 10,072
9783 to 9793, the August lows.
9625 - 9660 from September 2003.
9500 from various price points in late summer to fall 2003.
Economic Calendar
These are consensus expectations. Our expectations will vary and are discussed in the 'Economy' section.
August 30
Personal Income, July (8:30): 0.5% expected and 0.2% prior
Personal Spending, July (8:30): 0.7% expected and -0.7% prior
August 31
Consumer Confidence, August (10:00): 103.2 expected and 106.1 prior
Chicago PMI, August (10:00): 60.0 expected and 64.7 prior
September 1
Auto Sales, August: 5.4M expected and 5.5M prior
Truck Sales, August: 8.3M expected and 8.4M prior
Construction Spending, July (10:00): 0.4% expected and -0.3% prior
ISM Index, August (10:00): 60.0 expected and 62.0 prior
September 2
Productivity-Rev., Q2 (8:30): 2.7% expected and 2.9% prior
Initial Jobless Claims, 08/28 (8:30): 340K expected and 343K prior
Factory Orders, July (10:00): 1.0% expected and 0.7% prior
September 3
Non-farm Payrolls, August (8:30): 150K expected and 32K prior
Unemployment Rate, August (8:30): 5.5% expected and 5.5% prior
Hourly Earnings, August (8:30): 0.2% expected and 0.3% prior
Average Workweek, August (8:30): 33.7 expected and 33.7 prior
ISM Services, August (10:00): 62.5 expected and 64.8 prior
End part 1 of 3
|
us stock market
trade stock
|
