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us stock market, trade stock
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9/01/04 Stock Split Report Update
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Stock Split Report Subscribers:
Full reports issue Tuesday, Thursday and Saturday.
MARKET ALERTS
Targets hit alerts issued Wednesday: MBT
Buy alerts issued: DGX (bonus); ISCA; FAST
Trailing stops issued: BAC
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:
- Market hit with higher oil, terror scare, weaker economic data and still posts gains.
- Economic data remains soft through August, not boding well for Friday jobs report.
- Oil inventories fall and prices rise, but gasoline and heating oil set to fall.
- Still posting gains, but action turning more volatile on this leg of the upside move.
More curves thrown at market, but stocks manage another gain.
Stocks were set for a softer open after the Tuesday reversal and rally, typically a good scenario for a healthy market as the short term sellers exit and the long term buyers have an opportunity to buy at a lower price. Well, stocks, particularly the smaller caps and tech issues, shot higher in the first few minutes of trade as volume got out of the gates surprisingly fast. As it turns out, apparently there was a buy program for a basket of IWM stocks (Russell 2000 Ishares Index), but instead of being implemented over the course of the session, it was executed all at once. That shot those stocks higher early, but after that buy program shot its ammunition, many of those stocks slipped right back to where they started. That is why you see a lot of stocks with these hammer dojis Wednesday, i.e. running higher and then fading back to close where they started.
That was not the end of the gains, however, as stocks recovered from the fade right after that buy program and then rallied sharply to close out the first hour. SP500 stalled 3 points below the 200 day SMA, and from then on the market trended lower. Midday a terror scare in DC hit the wire and stocks sold sharply for about 7 minutes, turning the indexes negative. It was quickly dispelled as a prank and stocks rebounded, but they only rebounded to the intraday down trendline. They were unable to break that trendline until the last half hour when the posted a late push to close with a decent gain.
Volume was higher but still low overall. It started stronger thanks to the buy program, and the terror scare helped push it midday. By the close, however, volume was still at modest levels. Indeed, but for the two aberrations, volume would most likely have been lower. Another session of gains but as we anticipated, the move is getting tougher. Stocks solid back early in the week, found footing at near support, and rebounded. They are still scratching out gains, but they are smaller and the market, as seen by the terror scare, is still on edge. Overall the action retains a bullish bias as stocks start this second leg higher in the rally. Indeed, there were many strong moves from quality patterns Wednesday. Strong moves from solid stocks are a necessary indicia of a healthier move, and after being mushy even during the rally, we finally saw some decent action. That lends support to a continued move higher on this leg toward that next resistance.
THE ECONOMY
ISM shows slower national manufacturing expansion.
The regional reports indicated the same, and the national ISM confirmed the slower expansion, falling below 60 for the first time in 7 months. It did, however, log its fifteenth month of expansion with a 59.0 reading (60.0 expected, 62.0 in July). Most anyone can live with a slower patch as seen in Q2. Heck, even with that 'slow patch' the Q2 GDP noted strong unfilled durable goods orders (a very good sign for more activity ahead) and another quarter of strong business investment (ah, the power of tax incentives). In this 'by the minute country', however, where news is spooled 24 hours a day, seeing the big picture has become a rare talent. Thus we have the usual fretting over the Friday jobs report, as if that is an indication of what the economy is going to do in the future. Jobs are past history; they lag. Sure they have political impact, but at this juncture it is more important economically to look at the leading indicators. The regional reports show that there is still some slowing. The leading economic indicators continue to show expansion, but a slowing expansion.
Anecdotal jobs data shows late August fade.
The weekly jobless claims and reports from hiring firms along with overly restrictive seasonal adjustments to the prior jobs reports were piecing together a very solid jobs report for Friday. What looked good the first half of August has faded, however, as the month wears on. The regional manufacturing reports showed declining employment, something the national ISM did not refute; the national usually lags the regional, but not in this case. Jobs surveys from Hot Jobs and others show a slowdown in the last part of the month, in part attributed to the hurricane hitting Florida.
What it all adds up to is another jobs report that will in all probability disappoint. The job market continues to revive but the gains will still not meet expectations or whisper numbers. The weekly jobless claims are getting better and better and there are no announcements of layoffs. There are net creations of jobs each month. The household survey is showing a lot of people working. The employer report, however, the gold standard according to Greenspan, is lagging because big companies are lagging in their hiring. We expect to see some positive revisions, but we don't' expect jobs breaking past the 150K expected. Hope we are wrong and the earlier August data trumps the late August data, but the signs of a surge present earlier in the month have dissipated.
Oil inventories fall, gasoline and distillates rise.
Two stories worked to push oil prices higher Wednesday. The first was another explosion involving one of Iraq's transmission pipelines, and the second was US oil inventories falling 4.2 million barrels. There is plenty of supply, but the fear of lower inventories along with the fear of some event to disrupt supply worked to push prices higher.
Gasoline inventories rose 900K bbl and distillates (heating oil) rose 1.3 million bbl. As noted earlier in the week, we anticipated lower gasoline prices based on rapidly falling wholesale prices. The increased inventory numbers will only hasten the pass through of those lower prices to the retail side. The news was equally good for those using heating oil in the winter; inventories are being built up ahead of the season, keeping prices lower to start. Always better to start soft and with confidence.
The question most ask is how can oil prices rise yet gasoline prices fall? It is all about supply and demand at certain levels of price. As the driving season winds down and gasoline inventories grow, there is less demand. It may have cost producers more to make the gasoline, but if the market is unable to absorb the product, its price will fall. Gasoline does not have an indefinite shelf life, and that only adds pressure to get rid of stocks. Thus prices have fallen even in the face of rising oil prices (prices that were rising until last week). We all heard the mantra "higher oil prices will inevitably lead to higher gasoline prices." Yes, if prices rise dramatically and there is excess demand for gasoline. Right now the latter part of the equation has not been met.
THE MARKET
Stocks continued the second leg of the rally after the solid reversal off support Tuesday. Volume was solid but the moves were so-so. All indexes finished well off of their highs, unable to keep the momentum going all session. As noted, stocks hit their highs early and spent the rest of the day trending lower though holding the gains. The next key resistance is still just overhead. Still a lot of work to do.
And it is most likely going to seem like work. The action has been good overall: rally, test, then resumption of rally, all on solid price/volume action (though low overall trade). As seen Wednesday with the close off the highs, however, the gains will be harder to hold with more volatility similar to June where there was a lot of up and down action coming off the test of the first leg of the move before the final spurt higher that ultimately ran out of gas to end that month. Stocks have made a good start to the second leg, but they are going to struggle some to clear those key resistance levels still ahead.
There was another positive development Wednesday as many stocks sporting solid patterns posted strong breakouts. There was a lot of early movement on that big purchase, but while many of those stocks faded, the strong held their moves. Leadership in this market has been spotty at best. Wednesday leadership came from across the market. That is a missing link that can give the market the punch it needs to clear the next resistance levels and take the market higher to better set up the nice test later this month and October. If strong enough maybe there will be no test. That is jumping way ahead, however, and that kind of strength had not be evidenced.
Market Sentiment
VIX: 14.91; -0.38
VXN: 22.65; -0.27
VXO: 14.98; 0
Put/Call Ratio (CBOE): 1.05; +0.34. Put activity jumped even as the market rose. Suggests more covering ongoing as the indexes continued to push higher after the Tuesday reversal.
NASDAQ
Nice gain in volume as the techs pushed higher off of the up trendline and toward the key test at the 50 day moving averages.
Stats: +12.31 points (+0.67%) to close at 1850.41
Volume: 1.431B (+9.03%). A nice advance after the Tuesday reversal that saw more volume. Still below average, but continuing the better price/volume action seen during this rally.
Up Volume: 978M (+438M)
Down Volume: 379M (-327M)
A/D and Hi/Lo: Advancers led 1.48 to 1
Previous Session: Advancers led 1.46 to 1
New Highs: 109 (+63)
New Lows: 40 (-10)
The Chart: http://www.investmenthouse.com/cd/^ixq.html
Continuing the move off of the Tuesday reversal, rallying on stronger trade. After hitting its early high (1859), however, it trended lower most of the session and closing off the high. It moved briefly toward the 50 day EMA (1871), but after the terror scare it was never the same and could not recover that lost ground. With the Tuesday reversal on volume and the solid trade Wednesday, however, it appears that NASDAQ will be testing that resistance at both the 50 day EMA and the 50 day SMA (1885). Those are the next key levels to challenge NASDAQ as NASDAQ works toward 1900 to 1950. Given the rising overall volume the past two sessions, how NASDAQ responds at the 50 day MA is important. A higher volume reversal would indicate time to start clearing out of the way. A continued modest volume move through those levels does not engender much more confidence, but does better set up a September test that could help set the bottom.
Very similar action on NDX and QQQ, with those indexes actually making close tests of the 50 day EMA and then giving back some of their gains. Will be watching these closely as well.
SOX rallied as well, but after tapping the 10 day EMA and remaining well below the 18 day EMA, it faded into the afternoon for a modest gain. Still trending lower and still a drag on NASDAQ and the rest of the market.
S&P 500/NYSE
Continued off the 18 day EMA test, but disappointing gains after the good push higher early on as well as the decent volume.
Stats: +1.67 points (+0.15%) to close at 1105.91
NYSE Volume: 1.135B (+0.55%). Volume moved higher, again moving to levels better than the prior week's gains but also still below average. Price/volume action is still much improved, and the extra volume will help it take on the 200 day SMA.
Up Volume: 712M (-52M)
Down Volume: 410M (+44M)
A/D and Hi/Lo: Advancers led 1.67 to 1
Previous Session: Advancers led 2.31 to 1
New Highs: 176 (+55)
New Lows: 7 (-14)
The Chart: http://www.investmenthouse.com/cd/^spx.html
Rallied early to 1109, still below the 200 day SMA (1112). This is the area where it stalled last week. Better volume on this move so it has a better chance to move through that important resistance level. Not a bad start to the second leg of the move, but the close off the high was not the best action. We can expect more of this volatile, choppy action as this second leg continues its work to advance.
The small and mid-caps were leaders Tuesday, and they managed to move over the late August highs. Not a powerful move as the small caps need to get over 280 more definitively, but they are chipping away at that resistance and showing some leadership.
DJ30
The blue chips found it difficult to advance (they didn't), still stuck in the flypaper of the 50 day EMA (10,117). Volume is rising significantly the past two sessions, and it is not falling below this 50 day EMA support. It is getting ready to test that key level at 200 day SMA (10,259).
Stats: -5.46 points (-0.05%) to close at 10168.46
Volume: 172 million shares Wednesday versus 164 million shares Tuesday.
The chart: http://www.investmenthouse.com/cd/^dji.html
THURSDAY
More economic data set for Thursday with productivity (Q2 revised), jobless claims, and factory orders. The only fresh data is the weekly jobless numbers as factory orders are from July. If jobless claims drop below 300K we would say there is upside for the Friday jobs report. It won't, and if it did there would be cries of doctoring the numbers during a political campaign. That is one thing you can say; the numbers are not being doctored to make them more palatable to the electorate.
The market is showing better volume ahead of the employment report. The market is much healthier in its action ahead of the number, possibly anticipating a better number. The late month data are not that positive for an upside surprise. There could be big revisions to the prior numbers, however, given extraneous influences on those numbers as well as the household survey. Thus while the market looks to be setting up for disappointment, it also may be anticipating a wash on the data. That would allow it to continue its rebound.
If the indexes manage to rebound to the next resistance level on Thursday (50 day EMA, 200 day SMA), we are going to follow upside positions higher with tighter stop points. We have been moving them higher with the gains all along; if there is a nasty surprise we will be ready to close out the weaker performers if the indexes reach resistance and roll over on the news. Again, however, revisions to prior months could offset another lackluster gain. Either way, we also need to keep in mind that this move higher has been on below average volume. While trade improved the past two sessions, it is still below average and we still believe that factor will keep it from making the breakout on this rally.
Support and Resistance
NASDAQ: Closed at 1850.41
Resistance:
1850 (July lows).
The 50 day EMA at 1871 is key resistance and held last week.
May 2004 lows (1876 closing, 1865 intraday) may prove to be some resistance.
The March 2004 lows (1897 - 1989)
The 50 day SMA 1885
The 2004 down trendline at 1924
The 200 day SMA at 1969
Support:
The October 2002/March 2003 up trendline at 1839
The 18 day EMA at 1838
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 1105.91
Resistance:
The 200 day SMA at 1112
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 50 day EMA at 1100.
1096 to 1100 represent price support.
The 18 day EMA at 1096
May low at 1084 (closing) to 1076 (intraday).
1080 (May and July lows).
1062 - 1058 from November 2003
Dow: Closed at 10168.46
Resistance:
The 200 day SMA at 10,259
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 10,117
The February/April down trendline at 10,088
The 18 day EMA at 10,096
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): 0.1% actual versus 0.5% expected and 0.2% prior
Personal Spending, July (8:30): 0.8% actual versus 0.7% expected and -0.2% prior (revised from -0.7%)
August 31
Consumer Confidence, August (10:00): 98.2 actual versus 103.4 expected and 105.7 prior (revised from 106.1)
Chicago PMI, August (10:00): 57.3 actual versus 60.0 expected and 64.7 prior
September 1
Auto Sales, August: 5.2M actual versus 5.4M expected and 5.5M prior (revised from 5.5M)
Truck Sales, August: 8.2M actual versus 8.2M expected and 8.4M prior (revised from 8.4M)
Construction Spending, July (10:00): 0.4% actual versus 0.4% expected and -0.3% prior
ISM Index, August (10:00): 59.0 actual versus 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): 1.1% 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): 62.2 expected and 64.8 prior
End part 1 of 2
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