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us stock market, trade stock
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9/11/04 Stock Split Report
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Stock Split Report Subscribers:
A time to remember a time that we should never forget. It is painful but worthwhile to watch those images once more and call to mind how fortunate we are, how precious our freedom is, and the determination it takes to keep that freedom intact for us and for those others seeking freedom. We owe it to those who came before us and fought to preserve this great experiment in freedom as well as those who will follow us and inherit this republic to stand up against those who would see it destroyed and to ensure our liberty is not diminished.
MARKET ALERTS
Targets hit alerts issued Friday: ZBRA
Buy alerts issued: CREE; RAE
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:
- Indexes gain strength to end week as laggard chips, techs join the rally.
- Producer prices fall, trade deficit shrinks as oil prices back down.
- Volume returns as indexes move toward target levels for this run.
Semiconductor rebound continues, gets contagious in the afternoon as oil tanks.
Since the semiconductors joined the rally Thursday, volume has returned. It started with short covering after a nasty 136 point drop from July that led to more covering. The large cap techs joined the move as well with some of their own short covering, but some longer term buying as well. The non-tech large caps took a breather to end the week as the tech counterparts rallies. A bit of rotation that helped further the rally. That is another sign of a healthier market: rotation that continues the move higher as the leaders take turns with none really selling off. That way the gains can build upon each other.
Stocks of all sizes joined in late Friday, however, as oil, after rising on lower US inventories Thursday, turned over in the afternoon and dropped $1.78/bbl. That triggered a general melt higher in all stocks, even DJ30 and SP500, the laggards Thursday and Friday. Breadth was narrow again; not all stocks are able to row together just yet. Volume backed off, but was still pretty solid for a Friday before the third anniversary of 9-11. Rising volume as the laggards lead off of new lows coupled with narrow breadth is a classic sign of a short covering move. On the bright side, short covering starts all rallies. It is the loud cousin that the family tries to ignore, but is no less a part of the family.
So it was not a perfect session. They rarely are. Nonetheless the market continues to show signs of improving health. While we still doubt this move will be the breakout move from the 2004 base, it is doing some very important things. When you are sick you have to stop getting worse before you start getting well. Price/volume action has improved the past month. Leadership continues to expand. Tough resistance levels are showing they can be broken without an immediate reversal. It can handle bad news. The rally started even as oil prices were hitting their highs. INTC hurt but did not take it down. TQNT, ALTR and other chips piled on. TXN warned but was treated as a hero, sparking the turn in chips. The economic news has steadily declined; it still shows expansion, but the expansion is expanding at a slower rate.
Despite all of this, stocks are managing to rally, keeping the move going even as NASDAQ looked to be on the ropes. Stocks have priced in a lot of bad news and have been making the transition to a healthier market. This has still been a low volume rally with improving but tepid leadership and sentiment indicators that never hit levels to set a true bottom. We still remain skeptical about this rally's ability to deliver a breakout from the 2004 base. We are not sitting on the sidelines and refusing to play; if the play is there and the market is giving, we are taking.
There are enough signs, enough flaws, however, to keep us honest and not get too wrapped up in the 'we are out of the woods' mentality some are espousing. Volume has really improved as SOX and NASDAQ joined the move to end the week, but that is precisely what happened in June when the summer rally peaked: NASDAQ broke higher from a lateral consolidation, showing strong volume as it did. It rolled over to end the month and started the July to August leg lower. This move has tracked the May to June rally in remarkable fashion. Maybe it does not roll over here; the current move is showing healthier action, something we would expect as the base draws nearer to an end. That means it could continue to climb. If it does we have been moving right up with it. We are being very deliberate, however, ready to exit if more distribution returns this week after this volume break higher to end the week.
THE ECONOMY
Fed's McTeer hints Fed may not be ready to ratchet rates further, market starting to pick up.
The Fed has been on a mission: talk up the economy and use that cover to raise interest rates to a level it is comfortable with. As it was approaching its rate hiking campaign, economic growth was indeed solid. Almost coincident with the start of the rate hikes, however, the data started to soften. Sounds somewhat familiar to other episodes in history. Softer data became a 'soft patch,' and the soft patch is still pretty mushy even though Greenspan says the economy has found traction.
Ever since the Fed made clear it was going to raise rates and was very vague as to how much or how long, the market went into a slump. Now going on 9 months, this is looking very familiar. We discussed in the past how this sure looked like 1984 and 1994 despite what the fund managers and other television pundits claimed. In those years the Fed was on the rate hiking warpath and the market moved laterally for the whole year, not starting back up until the Fed said 'we are done.'
Friday McTeer was on an after market wrap show, and stated that rising inflation and rising oil prices were no longer a fear. As he went through the litany of weakening economic data with the hosts, he stated that the Fed would have to consider whether it was necessary to continue the automatic 25 basis point rate hikes until the Fed funds rate is back at 3%. McTeer is not a voting member right now, but his word's somewhat echo Greenspan's comments earlier in the week that "inflation and inflation expectations have eased in recent months." That the Fed is starting to ponder the 'we are done' scenario is huge for the market.
Indeed, it seems as if the market is anticipating this to a certain extent. As noted above, it is showing much healthier action after 8.5 months of basing. The financial stocks continue to hold up very well despite the rate hikes. The market appears to be anticipating the end of the Fed rate hiking. Maybe one more rate hike and the Fed says it is on hold unless and until it sees some trouble.
PPI less than expected, trade deficit 'shrinks.'
August producer prices (prices received by farms, factories, refineries, etc.) are just the type of data McTeer had in mind. Prices fell 0.1% when a 0.2% gain was expected. Take out food and energy and prices still fell 0.1% (0.1% expected), the first decline since February. Year over year prices are up 3.4%, much slower than the recent months, indicating the impact of oil prices is diminishing. Gasoline fell 5% as energy prices moved up 0.2% (after a 2.3% gain in July). Food was down for the third straight month and trucks and SUV's fell 2.4%. Perhaps Greenspan had the data when he spoke earlier this week; it would not be a first.
Hand in hand with the lower PPI was the smaller trade deficit. Smaller is relative of course. July was down 9% to $51.75B from June's $55B. That was the biggest monthly decline since December 2001, but when you are dealing with record deficit numbers it is easier to have record moves. Imports fell 1.4% to $146B (declining oil prices) while exports rose 3% to $95.9B, just short of the record set in May. At least exports are moving higher again even with a stronger dollar. The records are on the other side of the ledger as well, so it is not all the doom and gloom some suggest.
With the softening economic data and the falling PPI, some Friday suggested more fear of deflation than inflation. Wow. It has been over a year since we heard that one, and it sure sounds ridiculous. An economy growing at a 3% to 3.5% rate after exploding out of the blocks in 2003 ready to deflate is preposterous. It does, however, show just how gun shy many still are about the economy and the market, ready to push the ejection button at the first sign of perceived trouble.
THE MARKET
Market action has improved significantly over the past few weeks. Despite some distribution sessions it recovered nicely and has shown overall a nice improvement in price/volume action (up on rising volume, down on lower volume). There has been some improving leadership as well, though steel and oil are not the typical accouterments of a raging bull market in stocks.
Thus the recovery of the chips and large cap techs, rotation if you wish, is another good sign. The market does better overall if more stocks are moving higher as opposed to just select and discrete groups. It does very well with technology rallying. Telecom is already establishing itself as a potential new leadership group. With chips and other laggard techs starting higher there is potential for more leaders emerging. These stocks have been rather beaten down and have started to rebound. They are starting to work on the right side of their patterns, building back from the selling. That move sets up their bases, and when the market pulls back for the next test, the strong will hold up and form handles or lateral consolidations, shaking out the last sellers and setting the stage for a breakout move.
The fly in the ointment is that many of these stocks in tech and particularly semiconductors are still near the bottom of their descent. It will take significantly more rallying to set up new bases. Fortunately there are telecom, biotech, retail, and medical appliances as examples of very capable leadership groups that are performing well. They can lead without requiring a new semiconductor cycle. The chips have roared back the past two sessions as the shorts sold to get out of positions. A good start, but as noted, as a group they have a lot of work to do.
With that we note that the indexes are closing in on the levels we cited early in the rally as likely resistance points that would stall the action and give way to another test lower that would set the bottom in the base. While the action to end the week was on stronger volume indicating some accumulation after the distribution earlier, it is hardly a confirmation of the low volume rally to this point, and the indexes are still at key levels. They have been taking out one resistance point after another as a healthier market will, but we again note this action is very similar to June.
In short, we are still cautious at these levels about another test back. Thus far things have set up just as we thought they would. Maybe the market will just breakout and continue higher on stronger trade. We will go with whatever the market gives us, but we also have to watch what it is telling us. Weak sentiment indicators to start the rally, low volume, scattered leadership. As stocks test another important level we are remaining on guard.
Market Sentiment
Bulls versus bears. After converging two weeks back with the bulls cracking just below 40 and the bears rising to just over 30, the recent rally has caused them to diverge once more. Bullish advisors are at 45.9%, heading back toward that 55% level that is historically a bearish level. Bearish advisors fell back to 26.5%, back toward the bearish 20% level. They are still shaky on this rally, however, and a sharp bout of selling could quickly reverse the recent swings.
VIX continues to hover near 14, a level coincident with three market peaks this year. Stocks have been rallying the past month as VIX has made a mirror image decline. It hit 14 two Fridays back and had worked laterally along that level since. With the indexes hitting the levels we projected at the start of this rally, that is a warning sign. It is a secondary indicator, however, so we don't let it drive the car. It is just a road sign that says 'caution.'
VIX: 13.76; -0.25
VXN: 19.56; -1.02
VXO: 13.49; -0.26
Put/Call Ratio (CBOE): 0.89; -0.02
NASDAQ
After a lateral struggle below the 50 day EMA, NASDAQ broke through on the second session of above average volume.
Stats: +24.66 points (+1.32%) to close at 1894.31
Volume: 1.617B (-3.3%). Volume contracted on the move but was still above average and stronger than the prior distribution sessions. Short covering tends to jack up volume as the shorts rush to cover positions they sold over a longer period of time. Thus volume jumps as they buy them all back at once. That gives the impression of longer term accumulation, but looking at the circumstances we know there is a lot of covering ongoing.
Up Volume: 1.339B (+37M)
Down Volume: 261M (-52M)
A/D and Hi/Lo: Advancers led 1.73 to 1. Again relatively modest breadth as the index posts its second consecutive session of solid gains.
Previous Session: Advancers led 1.83 to 1
New Highs: 99 (+16)
New Lows: 39 (+2)
The Chart: http://www.investmenthouse.com/cd/^ixq.html
Volume was solid for a second session as large cap techs rebounded along with semiconductors. NASDAQ put the 50 day EMA (1870) behind it after fighting with it for over a week. After some distribution in the early part of the week upside volume roared back into command. While it may have been driven mainly by short covering, it shows the shorts were not in total control. Now it is approaching 1900, the start of the range we cited as the rally began as a potential stall point. It marks the March bottom and roughly the May lows. This range from 1900 to the January to April 2004 down trendline (1916) is significant. After that is the 200 day SMA (1968). There is a lot of resistance at that point as well from October to December 2003 highs.
NASDAQ 100 surged over the 50 day EMA, rising on above average volume as well. The large cap techs already managed to move through their January to April down trendline on the Friday move.
SOX cleared the 18 day EMA Friday, something it has not been able to do since early July when it started its downtrend. A rally up to the 50 day EMA near 400 will be the key test on this move. In a downtrend below the 10 and 18 day EMA, after 4 or so bounces lower, a rebound to the 50 day EMA is typical before it continues the move lower.
S&P 500/NYSE
The large caps joined in the move again, moving past the down trendline, but on lower volume.
Stats: +5.54 points (+0.5%) to close at 1123.92
NYSE Volume: 1.261B (-7.76%). After popping above average for the first time in a month Thursday, volume backed off Friday. Still solid trade levels compared to the majority of the rally.
Up Volume: 840M (-4M)
Down Volume: 415M (-95M)
A/D and Hi/Lo: Advancers led 1.55 to 1. Small caps were one of the leaders, though a distant third on the Friday list. Even with that the breadth was lackluster.
Previous Session: Advancers led 1.55 to 1
New Highs: 140 (-2)
New Lows: 11 (+1)
The Chart: http://www.investmenthouse.com/cd/^spx.html
Tapped the 200 day SMA (1114) on the low once more as if assuring itself it had that support. A weak morning where it failed at the 2004 down trendline (1118) gained speed in the afternoon as the entire market moved higher to the close. It tapped a key resistance point at 1125 and backed off some to close. 1125 is the bottom of a range of resistance up to 1145 formed January, February, April and June. That range is the level we indicated as the point where this rally would meet resistance and set up the next test lower.
SP600 continued higher, moving through 287 resistance and moving closer to its all-time high at 296. More price peaks at 290.
DJ30
The blue chips failed to participate significantly in the Friday move though they did recover off the low that broke back through the 200 day SMA (10,277) and posted a modest gain. Volume remained strong on the move, the fifth above average volume session. Volume was helped by AA's warning as that stock gapped lower on heavy trade. Seems DJ30 volume has been inflated by a series of earnings warnings. It has held up well despite the INTC, AA, and other warnings. It is sitting on top of 10,250, the level we were looking at to start stalling this move. Next serious resistance is near 10,500.
Stats: +23.97 points (+0.23%) to close at 10313.07
Volume: 217 million shares Friday versus 223 million shares Thursday.
The chart: http://www.investmenthouse.com/cd/^dji.html
THIS WEEK
A key week ahead as the indexes deal with key resistance levels that we cited back in August. The indexes have made some higher lows and took out some of the minor peaks on the prior selling in July and August. There has been an overall improvement in price/volume action, leadership, and the other areas cited above. The market is similar to June, but it is also healthier now as it has gone through more basing. It is getting closer to ending the base. The question is whether it does it here or makes another test lower.
We have looked for another test and we still have not changed that prognosis. There is still a lot of work to do in several key sectors such as large techs and semiconductors. A further bounce here that rolls over for another test would do that. With oil prices falling, the political situation seeming to find favor with the market, and the sense that terror fears are waning near term, stocks have put together a decent advance and show signs of continuing. Again, this is what it looked like in June before that move failed. At some point, however, one of these moves won't fail.
Perhaps the election will help drive the market higher during September. It is almost mid-September, and the action to end the week does not bespeak of an imminent fall. Volatility has us concerned, leadership is still spotty though improving, key leadership sectors still have plenty of work. We remain cautious but are not avoiding good moves when we see them. Instead we take what the market gives, but we are using tight stops to offset our concerns about September and the markets ability to fend off a September dip in this more typical year.
Support and Resistance
NASDAQ: Closed at 1894.31
Resistance:
The March 2004 lows (1897 - 1989)
The 2004 down trendline at 1916
The 200 day SMA at 1968
Support:
The 50 day EMA at 1870
The 50 day SMA 1865
The 18 day EMA at 1852
The October 2002/March 2003 up trendline at 1850
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 1123.92
Resistance:
1125 was key price support and has been acting as resistance.
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 March/April down trendline at 1118
The 200 day SMA at 1114
The 18 day EMA at 1107
The 50 day EMA at 1104
1096 to 1100 represent price support.
May low at 1084 (closing) to 1076 (intraday).
1080 (May and July lows).
1062 - 1058 from November 2003
Dow: Closed at 10,313.07
Resistance:
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 200 day SMA at 10,277
The 18 day EMA at 10,197
The 50 day EMA at 10,157
9783 to 9793, the August lows.
Economic Calendar
These are consensus expectations. Our expectations will vary and are discussed in the 'Economy' section.
September 13
Treasury Budget, August (2:00): -$40.0B expected and -$76.6B prior
September 14
Current Account, Q2 (8:30): -$158.7B expected and -$144.9B prior
Retail Sales, August (8:30): -0.1% expected and 0.7% prior
Retail Sales ex-auto, August (8:30): 0.2% expected and 0.2% prior
September 15
Business Inventories, July (8:30): 0.7% expected and 0.9% prior
NY Empire State Index, September (8:30): 20.0 expected and 12.6 prior
Industrial Production, August (9:15): 0.5% expected and 0.4% prior
Capacity Utilization, August (9:15): 77.4% expected and 77.1% prior
September 16
CPI, August (8:30): 0.2% expected and -0.1% prior
Core CPI, August (8:30): 0.2% expected and 0.1% prior
Initial Claims, 09/11 (8:30): 346K expected and 319K prior
Philadelphia Fed, September (12:00): 25.0 expected and 28.5 prior
September 17
Michigan Sentiment-Preliminary., September (9:45): 97.0 expected and 95.9 prior
End part 1 of 2
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