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us stock market, stock watch
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9/13/04 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 Monday: QCOM
Buy alerts issued: URBN; CELG; VIP; AGN; TRMB; DHR; SYY; VLO
Trailing stops issued: None issued
Stop alerts issued: CME
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:
- Rally continues with chips leading, but market slides well off highs to close.
- Fed inflation worries continue to soften.
- Volume up as indexes rally to yet another resistance point.
- Subscriber Questions
Strong start, mediocre finish.
Same story, new week. Semiconductors, techs and small caps moved higher in that order while large cap non-techs lagged. More of that rotation into the oversold semiconductors and large cap technology while the rest of the market tagged along. It was good to see the move carry over to a new week and to do so with continued solid volume; that gives a bit more credence the Thursday and Friday chip rally as the interest continued past the weekend.
No doubt there was some relief 9-11 came and went without incident. Asia and Europe were higher and the US jumped on board as well. Oil was up on worries hurricane Ivan would damage gulf production facilities. Indeed, the Louisiana offshore oil terminal has been closed ahead of the storm given the computer models that show a slight possibility Ivan could strike Louisiana. The market ignored oil for the most part, however.
The indexes rallied past near resistance once more, running down another potential stall level. On the highs they hit the next level and faded back to close. Volume was solid once more; the continued strong volume on upside moves indicates more than just short covering. Nonetheless, stocks could not hold onto much of the gains. We noted an intraday head and shoulders in an afternoon alert, and stocks slid lower all afternoon. A late rebound put a better face on the action, but after hitting the next resistance points mid-session, stocks clearly ran out of gas.
Specifically, SOX hit the 50 day EMA on its high and backed off. NASDAQ hit the January/April down trendline and fell back as well. SP500, lagging those two indexes, parroted the action. The question is whether the indexes have made their move on this rebound. SOX has trended lower below the 18 day EMA and was due for a rebound to test higher. It has hit the 50 day EMA, often the point of resistance where the sellers reload and start selling again. The candlestick patterns indicate some weakening in the move, but we also note that many semiconductor stocks are still advancing nicely, holding their volume moves to the close while the overall market faded from its highs.
THE ECONOMY
The Fed's Bies gave a weekend speech and reiterated what McTeer stated Friday. Bies indicated that while the economy's "main direction is clearly up," there is "no urgency" with respect to raising interest rates. Given Greenspan's statements last week that the economy is gaining 'traction' but his lack of use of more glowing terms as he used earlier this year, the Fed is no doubt playing the media game and is putting out its new position on the economy and the future rate hikes.
It is noteworthy that the SOX rally roughly coincided with Greenspan's comments. A shorter rate hiking period is historically favorable to tech stocks particularly, though the entire market benefits. With these sectors soundly roughed up since late June, they were primed for a rebound.
Last week we discussed how the 1984 and 1994 market moved laterally until the Fed let on it was through raising rates. Only at that point did the market snap out of its malaise and renew its rally. We know have three Fed officials including the chairman himself spreading the word the Fed is backing off its automatic rate hiking plan. As the market has spent almost 9 months basing, it is hard to fight the tide if stocks start breaking higher on volume. Still, these stocks will need another good test to at least form a handle of sorts. Either way this is good news for the market and provides us a lot of opportunity.
WMT says things are better.
For the second (or is it third?) consecutive week, WMT has stated it is on track for 2% to 4% sales growth. This comes after a spate at summer's end where WMT was down to 0% to 2%. To put it into perspective, WMT typically says 2% to 4%; earlier in the year when retail was rolling along it bumped them to 4% to 6% for a time. Now it is back to the 'norm.'
Another bright spot in the report was the statement that the back to school sales were improving. They were solid at first, then were altered when the 'soft patch' worries were not dissipating, and now the sales are picking up, particularly in electronics. Looks as if WMT is back on track, and that is good news for other discounters (e.g., TGT). They could join the specialty retailers that have been rallying, though many discounters still have work to do on their bases (TGT is in pretty good shape currently).
THE MARKET
Stocks continued the rebound Monday, following through with last week's renewed rally. Specifically, it was the chips and large cap techs that were leading again, rallying back from the serious downtrends endured since early July. Solid price/volume action continued its resurgence after a couple of distribution sessions immediately prior to this renewed rally.
As noted, it is hard to call all of this rebound short covering. Some outstanding volume is accompanying many of the individual stocks as they rebound. Undoubtedly there is some short covering ongoing, but there is also some bargain hunting on the notion the Fed is backing off its rate hiking and these stocks that were battered on the prospect of higher rates and further hikes are not taking some back some lost ground.
They mowed through the next near resistance on solid trade, but backed off in the afternoon after hitting some important resistance intraday. NASDAQ tapped the January/April 2004 down trendline and SOX bumped the 50 day EMA before both backed off, giving up a sizable chunk of the gains.
On the candlestick chart NASDAQ and SOX still look decent even with the close off of the intraday high at next resistance: they held most of the gains on solid volume. SP500 does not look as solid, showing a tombstone doji as it reversed almost all of its gain. It too is still in decent shape, however, as it is comfortably above the 200 day SMA and other support levels.
What the pattern does suggest is a pullback or a breather ahead, particularly given this key resistance and the prior solid move higher. The indexes tested this resistance and noticeably recoiled. We keep in mind that these are roughly the levels we felt the indexes would hit on this rally. Volume has jumped and the SOX has come to life. Maybe there has been a transformation into a full 'who cares if it is September' rally. A bit early to say that given the indexes rallied to resistance and turned back as you would expect.
What most likely is going to happen regardless of its strength is a pullback of some sorts. Strong run up to this level with a bounce down from resistance levels. Another try or two at that level that does not succeed and you get a pullback to consolidate some of the move. What we need to be watching for on that move is how volume reacts. If volume jumps even higher as stocks turn back down, that is a signal that the sellers are once again back in more force than the upside buying, and the fall will likely be more than a modest pullback to consolidate the nice bounce.
Market Sentiment
Volatility is dropping like brick, falling well below 14 where it has set off selling bouts most of the year. Perhaps this time is different as the base has matured and price/volume action has improved. This secondary indicator does not call the shots; it is a heads up to potential problems. With the indexes running to next key resistance and then fading intraday as volatility tanks further, we are watching closely how stocks respond to that late session fade from resistance.
VIX: 13.17; -0.59
VXN: 19.14; -0.42
VXO: 13.4; -0.09
Put/Call Ratio (CBOE): 0.68; -0.21
NASDAQ
Gapped higher and rallied to the 2004 down trendline where it stalled and faded to the close. Solid volume and held onto most of its gains.
Stats: +16.07 points (+0.85%) to close at 1910.38
Volume: 1.763B (+9.01%). Volume was up again, easily topping average and the highest level in a month. Vastly improved price/volume action to end last week and start this week, answering those two distribution sessions earlier the prior week.
Up Volume: 1.347B (+8M)
Down Volume: 393M (+132M)
A/D and Hi/Lo: Advancers led 1.58 to 1. Was 2:1 early but faded as the index faded from the 50 day EMA. Has failed to show blowout breadth on this renewed move. The best breadth is in the NASDAQ 100, the large cap techs that have been leading the overall index.
Previous Session: Advancers led 1.73 to 1
New Highs: 138 (+39)
New Lows: 29 (-10)
The Chart: http://www.investmenthouse.com/cd/^ixq.html
Another solid volume session and another market leading gain behind SOX. The summer maligned large cap techs have found renewed strength here in mid-September. Perhaps they did their selling early. We note, however, that July is often hard on stocks in a typical year, and that is then followed by a tough September. With NASDAQ hitting the January/April down trendline on the high (1919) and fading back we are watching for a break lower, but the upside volume has been solid. If it was a short covering rally we will most likely see the sellers return en masse as volume continues to climb on any selling. If not we would expect to see volume fade on any selling. An important point for NASDAQ; it did fine getting to resistance, but then it got cold feet. Still solid but needs to stay that way.
NASDAQ 100 posted a 1% gain, topping the overall NASDAQ. The large cap techs are way out in front of the overall index, coming close to the 200 day SMA (1440) on the high (1436) before backing off 9 points to close. With NASDAQ at the down trendline and NASDAQ 100 at the 200 day SMA, techs will find some rough going.
SOX rallied for a third session, running to the 50 day EMA (398) intraday and then fading. That preserved two-thirds of the gain, but after three strong upside sessions, it is due a breather. The question is whether it has just come up for air at the 50 day EMA after 9 weeks of selling since its last trip to that level or has really changed its stripes. The former is of course trouble as it would simply resume the selling. Given the strong volume on many chip stocks, it does not look to be only short covering. Thus there is some possibility a pullback may be modest and simply set up the next move on through this resistance at the 50 day EMA.
S&P 500/NYSE
The large caps lagged again, rallying with NASDAQ and SOX but then struggling to hold its gains late as it reversed on volume.
Stats: +1.9 points (+0.17%) to close at 1125.82
NYSE Volume: 1.296B (+2.77%). But for NASDAQ and SOX, if we saw this volume and candlestick pattern on SP500 only, we would be very concerned. A run higher through near resistance and then a reversal to give it basically all back and on stronger volume is not good action. Given that SP500 was mostly tagging along, however, we are not getting too worked up.
Up Volume: 815M (-25M)
Down Volume: 472M (+57M)
A/D and Hi/Lo: Advancers led 1.59 to 1. Solid 2:1 breadth faded as the NYSE stocks did the same in the afternoon.
Previous Session: Advancers led 1.55 to 1
New Highs: 179 (+39)
New Lows: 14 (+3)
The Chart: http://www.investmenthouse.com/cd/^spx.html
Rallied past 1125 resistance, tapping 1130 on the high. No specific resistance point at that level, but a range of resistance from 1125 to 1145, then 1150. The candlestick pattern shows a tombstone doji after attempting to enter that resistance, and with the higher volume on the reversal from the high, this is not great action. SP500 is roughly at the point we thought SP500 would hit on this rally. If it were the leader we would be concerned. Right now it is doing the following, and it is also sitting on top of some solid support in the 200 day SMA (1114). That gives it some room to test back once more if NASDAQ and SOX do the same.
SP600 (small caps) continued toward a new all-time high, furthering the impressive rally off of the August low. After a brief lateral move to end August, it has been pretty much up and up for the small caps.
DJ30
The blue chips continued to stall just over the 200 day SMA (10,280) while the techs and SOX make their rebound. If there is rotation from DJ30 stocks while SOX and NASDAQ rally, it is not doing much damage. DJ30 is moving laterally over the 200 day SMA, consolidating its gain to this point and biding its time for its next move.
Stats: +1.69 points (+0.02%) to close at 10314.76
Volume: 203 million shares Monday versus 217 million shares Friday.
The chart: http://www.investmenthouse.com/cd/^dji.html
TUESDAY
Ivan continues to churn toward the US, landfall looking to be Alabama or the Florida panhandle, but projections to date have been spotty. Oil remains jittery; a hit off Louisiana tears through a lot of production facilities. Indeed, anything from Mobile bay west impacts petroleum production. If winds remain over 120 mph, damage could take weeks to repair. At 140 mph, much longer. Oil will be volatile until Ivan stabilizes its course.
August retail sales are scheduled for release as well and they are not anticipated to be barn burners. Thus there is room for upside surprise. With WMT struggling in August, it is hard for a blowout surprise as that chain is just so big.
Now that NASDAQ and SOX have both tapped some important resistance points after putting in three (really two and one-half) solid rally days we see what the move is made of. If just short covering you would expect to see chips and large cap techs start to roll back over and on some continued strong volume. Given the strength of the move, however, we anticipate any pullback will start soft and then build if there is something negative brewing.
Stocks are just about where we anticipated they would run dry on this move. Volume has jumped, however, and that has given the upside move some credence. We have operated under the thesis a September/October pullback was coming, but have remained open to the prospect of a rally just continuing on up. We don't think that would be good for the market longer term given the underpinnings when this rally first started, but we are not the arbiter of what the market does and does not do. We watch what direction it points and go with it. That has moved us into some solid upside stocks during this rally, and is putting good money in our pocket. Tuesday is a key day once again as we see how the indexes react to resistance. So far not bad.
Support and Resistance
NASDAQ: Closed at 1910.38
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 1871
The 50 day SMA 1863
The 18 day EMA at 1858
The October 2002/March 2003 up trendline at 1852
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 1125.82
Resistance:
1125 was key price support and has been acting as resistance, and it has not been totally broken.
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 1109
The 50 day EMA at 1105
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 10,314.76
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 10,280
The 18 day EMA at 10,209
The 50 day EMA at 10,163
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): -$41.1 actual versus -$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): 0.8% 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): 343K expected and 319K prior
Philadelphia Fed, September (12:00): 25.0 expected and 28.5 prior
September 17
Michigan Sentiment-Preliminary., September (9:45): 96.7 expected and 95.9 prior
SUBSCRIBER QUESTIONS
Q: Enjoyed your comments on health savings accounts. They seem to be something a self-employed person should know about but I have heard little on them. Where can I learn more?
A: Lots of positive comments regarding HSA's. Many major insurance carriers, e.g., Fortis, are offering the high deductible insurance policies, and most also offer programs for the savings accounts as well. It is not mandatory you have both at the same place; they are separate and you can have your policy with one company and your account elsewhere such as with HSA Bank.
For some general information to get started, take a look at some websites dealing with HSA's, e.g., www.AllHSA.net.
End part 1 of 2
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