|
|
us stock market, trade stock
* * * *
9/14/04 Investment House Daily
* * *
Investment House Daily Subscribers:
MARKET ALERTS:
Target hit alerts issued Tuesday: INSP
Buy alerts issued: PETC; AAP; BYD; SSI; PXD
Trailing stop alerts: FMC
Stop alerts: 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. To subscribe to the Daily alert service you can sign up at the following link:
http://www.investmenthouse.com/alertdly.htm
SUMMARY:
- Stocks take the day off on lower volume.
- August retail sales rise modestly ex-autos
- Hiring intent remains steady.
- NASDAQ, SOX still butting against next resistance.
- ORCL, industrial numbers to pace Wednesday action.
- Subscriber Questions
After three upside sessions, nothing to push stocks higher.
The market was mushy all morning but managed to once again find some traction in the afternoon to close in the upper end of the session range. Once more stocks showed the resilience that has hallmarked this rally, shaking off negative territory in the last hour.
There was reason to take a breather. After three solid upside sessions NASDAQ and SOX moved to the next key resistance levels Monday. After such a move it is typical for stocks to take a rest and regroup for the next attempt. Some so-so August retail sales provided no lift. There were also more warnings as ODP, AOS and LSI, three rather diverse companies, said business was not that good. Office Depot was particularly interesting as it was one of the first in the recovery to note that business was up because small businesses were buying. To add some salt to the wound, oil rose again as oil companies evacuated Gulf platforms and the Mississippi River was closed for traffic as Ivan approaches.
Despite those headwinds stocks managed to rally into the afternoon and closed mostly positive. Tuesday it was the large cap techs leading while the small and mid-caps turned in a negative performance. No major breakdowns, no major breakthroughs, just spinning the wheels below resistance. All in all not a bad day given it is September and stocks are below key resistance.
THE ECONOMY
August retail sales sag on weak auto, apparel sales.
A 0.1% gain expected, a 0.3% loss was rung up. Auto sales fell 2%, and when factored out, retail sales rose 0.2%, right in line. In addition to autos, clothing and accessories fell 1.4%, and general merchandise stores lost 0.4%. Restaurants and bars also lost ground, falling 0.3%, indicating consumers are not eating out that extra meal a week. They are not hitting the booze either, however, and that is a decent sign (no sorrows being drowned).
It was not all downside. Electronics and appliance store sales rose 0.1% and personal care/health stores rose 1%. Moreover, July sales were revised higher to a 0.8% gain from 0.7%; ex-autos sales rose 0.3% versus the 0.2% originally reported. No big moves but showing continued consumer purchases.
Big picture, the retail sales trend is matching the economy: slowing expansion. Consumers are not stopping their buying, but are more conservative with rising gas prices. At least when gas prices were rising in July and part of August. Now gas prices are fading, and despite claims they will rise because oil is rising, they will most likely continue to fade until and if gasoline inventory levels fall below demand levels. With the summer driving season basically over, gasoline prices will probably remain low. Thus the consumer will have more discretionary capital to use in other areas as the holiday season approaches. Better for retailers but not a huge boost is expected.
Manpower survey shows continued intent on hiring into Q4.
Manpower's quarterly survey indicates employers maintain their intent to hire in the coming months. A survey of 16K employers revealed 20% plan to add employees in Q4. That is on par with Q2 and Q3 hiring. High praise indeed given the more recent Q3 hiring has failed to show any major surge. Still, when coupled with the Business Roundtable survey indicated 49% of the companies were going to make capital investments and 40% said they would increase hiring. CEO's still believe the economic expansion is strong enough to warrant such investments.
Based on this data some are predicting 200K to 225K jobs per month, very solid indeed. Not explosive by any stretch, but most everyone would be quite pleased with that rate of growth other than the non-incumbents running for office. Manufacturing states are showing the best gains as those jobs are in the lead for hiring. Retail is not bad either; the survey indicates retailers are planning on hiring more personnel for this holiday season than in 2003. Positive indications, but they need to translate into reality.
THE MARKET
A very even session. Volume was lower and near average. Breadth was practically flat. The indexes closed mixed but basically flat. After three solid moves to extend the rally stocks took a breather.
Once again NASDAQ and SOX, the leaders in the most recent surge, tapped at key resistance and backed off to close. These are key levels in this rally not only because NASDAQ is facing its 2004 downtrend and SOX its 50 day EMA, but also because the indexes, SP500 included, have retraced their losses to levels where they technically find support (SP500 has hit a Fibonacci level that, not surprisingly, matches prior price resistance levels). The fact that the indexes basically ran in place on lower volume after surging to these levels is at least a moral victory; the sellers did not jump back on stocks and drive them lower on high volume.
Some of the action was out of character. The small caps and mid-caps led to the downside while NASDAQ led to the upside. Over the past several months the small caps and NASDAQ typically moved together; when they were up the market was up. Tuesday the smaller issues were lagging, posting modest losses as that index hit the March and late April peaks. Nothing critical in the action, but when the character of a relationship or move changes, it is something to note. Large cap techs were in good shape again Tuesday as NASDAQ 100 led NASDAQ. Even with the larger caps showing some strength, a small cap breakdown while NASDAQ and SOX struggle at resistance is important. A breakdown could be an early signal of the test lower.
Market Sentiment
Money flows into mutual fund accounts showed a dramatic surge the past week as the stock market furthered its rally off the August lows. The return of large cap, household technology names to the upside as well as the rebound in semiconductors apparently has fanned more retail investor interest in stocks.
That could be trouble. At least it is worth watching. There is still a belief that the retail investor drives trade and volume in the market. Just the other day one commentator noted that the retail investor 'had to get back into the market' if it was going to continue the move. Fortunately one of the other commentators noted that typically meant the market had peaked.
That is the nature of sentiment indicators. When most think it is safe to go back in the foundation is already weakening. There are always exceptions to this contrary view, and it is always relative: differing variables at different junctures in the economic and market cycle have to be accounted for. The idea is fairly accurate historically, however: when sentiment starts to get some confidence it is time to start looking to see just what is making that light at the end of the tunnel.
In this rally the surge in confidence evidenced by the surge in money flows into stock funds along with the indexes hitting against important resistance levels is another warning sign to note. It may mean nothing; sentiment indicators alone do not tell us the whole story. If stocks do stall here, however, we don't view it as a cataclysmic one. We still see solid improvement in stocks overall as they work on their bases and show good price/volume action. Thus any turn lower might be scary and put some fear back into the newcomers to the rally, but at this juncture it does not look as if is a rally killer. Indeed, we would welcome such a move as we believe it would set up a much better rally to come.
VIX: 13.56; +0.39. Still very low and at the level where upside moves have failed during rally attempts in 2004.
VXN: 19.49; +0.35
VXO: 13.55; +0.15
Put/Call Ratio (CBOE): 0.93; +0.25
NASDAQ
Stalled once more at the January/April down trendline, unable to move on lack of volume, but also not selling off either.
Stats: +5.02 points (+0.26%) to close at 1915.4
Volume: 1.541B (-12.58%). Volume fell below average for the first time in four sessions, not bad given the index stalled again below the down trendline and looks ready to test back. The best pullback action is one on lower volume. Thus far it is on track.
Up Volume: 820M (-527M)
Down Volume: 691M (+298M)
A/D and Hi/Lo: Decliners led 1.14 to 1. Decliners led even as the index was positive. The reason: the large cap stocks were the cause for the advance.
Previous Session: Advancers led 1.58 to 1
New Highs: 75 (-63)
New Lows: 26 (-3)
The Chart: http://www.investmenthouse.com/cd/^ixq.html
NASDAQ advanced to the January/April down trendline (1917ish) and backed down slightly to close. Volume was lighter; no accumulation, no distribution, just the large cap techs squeezing the last bit of momentum out of the recent jump higher. NASDAQ gapped higher Tuesday, and on this pullback we anticipate it filling that gap at 1894. It may even fade to the 50 day EMA (1861) on a test. Without a doubt a key point for NASDAQ, but we note that it shows much improved price/volume action as SOX has joined the action.
Speaking of SOX, after tapping the 50 day EMA (397.86) Monday it showed something of a hanging man doji below that level. As with NASDAQ, it is testing an important resistance level after a 2 month downtrend below the 18 day EMA. It will most likely test back toward the 18 day EMA (378.86), and that will be the important move to watch. Will it resume the downtrend or just catch its breath and then breakout. A test back to the 18 day for a week or so could be enough.
NASDAQ 100 led the action Tuesday as the big, household names led the index. It is still testing its 200 day SMA (1441) on lower volume.
S&P 500/NYSE
The large caps closed positive on lower volume, once gain tapping at some resistance at 1130.
Stats: +2.51 points (+0.22%) to close at 1128.33
NYSE Volume: 1.199B (-7.47%). Volume faded below average as SP500 went nowhere and the small and mid-caps lost a bit of ground. No distribution on this move, keeping the price/volume action in solid shape.
Up Volume: 627M (-188M)
Down Volume: 561M (+89M)
A/D and Hi/Lo: Decliners led 1.05 to 1. The small and mid-caps provided no backing on the move and thus the weak breadth.
Previous Session: Advancers led 1.59 to 1
New Highs: 105 (-74)
New Lows: 14 (0)
The Chart: http://www.investmenthouse.com/cd/^spx.html
SP500 is not in bad shape as it continues its move above its 200 day SMA (1115) and the March/April down trendline(1118). It is running out of steam, however, as the daily price moves slow and the index is stalling at 1130. This 1125 to 1130 range is an important one and the index is being buffeted some here, feeling the resistance but holding up well.
SP600 stalled for the second day at 290 and faded some. They were uncharacteristically lagging while NASDAQ was leading. Still in good shape as well on this strong rebound. That in and of itself indicates it needs a rest as well. 285 is the 10 day EMA.
DJ30
The blue chips are setting up quite well, moving laterally over the 200 day SMA (10,283). A very tight range over important support, forming something of a handle to a roughly formed double bottom. Maybe the blue chips want to try and lead.
Stats: +3.4 points (+0.03%) to close at 10318.16
Volume: 186 million shares Tuesday versus 203 million shares Monday.
The chart: http://www.investmenthouse.com/cd/^dji.html
WEDNESDAY
More economic data starts hitting the market with industrial production, inventories, and the New York PMI released. This data goes directly to the business side of the economy and is thus very important. This is a recovery led by the return of business investment and activity. It is thus very important that businesses do not go back into hibernation. The Manpower and other private surveys indicate that is not what is happening, but some governmental data as corroboration would help.
With Ivan ready to buffet the shore with hurricane winds Wednesday evening, activity may start to slow a bit more. Monday was fairly active with expiration coming Friday. Things may quiet down some ahead of Friday as investors see the extend of the problems associated with landfall. A good excuse if nothing else for a market that is set to take a breather to do just that.
After hours ORCL announced some decent results. It was up and down after hours, finishing near the top of the range. We doubt it will power stocks higher; QQQ was down after hours. Thus we expect stocks to continue this pause below resistance. We are watching the small caps closely to see if they continue to lag and if that turns into trouble for any other indexes. NASDAQ and SOX as well as SP500 are at important levels, and how they respond sets the pace for the rest of September. The test can be a low volume one; indeed, we would love to see a low volume one that is just deep enough to get many doubting if this rebound will hold. If the market makes a modest pause and the rebounds higher, we will go with it, but we sure won't be comfortable with how it set up given the weak sentiment indications on the last test.
Support and Resistance
NASDAQ: Closed at 1915.40
Resistance:
The 2004 down trendline at 1916-17
The 200 day SMA at 1968
Support:
1894 is the gap up point this week.
The 50 day EMA at 1873
The 18 day EMA at 1864
The 50 day SMA 1861
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 1128.33
Resistance:
1125 was key price support and has been acting as resistance, and it has not been totally broken.
1130 is proving to be some 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 1115
The 18 day EMA at 1111
The 50 day EMA at 1106
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 10,318.16
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 10,283
The 18 day EMA at 10,220
The 50 day EMA at 10,169
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): -$166.2 actual versus -$158.6B expected and -$147.2B prior (revised from -$144.9B)
Retail Sales, August (8:30): -0.3% actual versus -0.1% expected and 0,8% prior (revised from 0.7%)
Retail Sales ex-auto, August (8:30): 0.2% actual versus 0.2% expected and 0.3% prior (revised from 0.2%)
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: I have been noticing that on that when you show suggested options trades on your report you usually suggest calls that are 3-4 months out. However, Puts are usually suggested 1-2 months out. Why is this?
A: It is all a matter of how stocks tend to move and the power of greed versus fear. At extremes the market is controlled by these two emotions. They are both powerful, but greed at its worst cannot hold a candle to fear when players are sprinting toward the door. Even old women and babies won't fare well in the stampede for the exit.
Thus, downside moves tend to be faster once a stock loses its institutional or other support and the majority turn to sellers of that issue. Ever notice how a will scratch and claw its way higher, and then when things go south it blows all of those gains in relatively short order? That is the difference between the two emotions. Sure a stock can explode to the upside with violence, but when the market is rising as it has been the past 6 weeks, most of the gains are scratched out a bit here and a bit there at a time. When the fear or doubt hits a stock, it takes no time for the move to occur.
Thus when looking at long option positions (where we buy the option), we look to buy more time on the upside versus on the downside. With the downside there is usually a window you can sell into. As quickly as the stock turns and sells off it can just as fast find support and rebound. We therefore don't plan on staying in downside positions for a long time unless the market is really selling hard. We have a specific target, we figure out what our gain will be based on the option delta, price, and the dollar move we anticipate to the downside, and we buy enough option time to make the move. If it is going to happen, it usually happens pretty quick. A stock may try to hold up, but typically they fail within several days of showing that weakness.
End part 1 of 3
|
us stock market
trade stock
|
