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us stock market, understanding the stock market
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9/16/04 Stock Split Report
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Stock Split Report Subscribers:
MARKET ALERTS
Targets hit alerts issued Thursday: RIMM; SYY
Buy alerts issued: SHFL
Trailing stops issued: None issued
Stop alerts issued: BMET; FAST
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 rally back but lack volume and fade at resistance.
- CPI quite tame, but so is Philly Fed report.
- Stocks continue to rest after strong moves last week resumed the move.
- Stocks set to rebound on quad witching Friday, but a breakout would be a stretch.
Soap box: Sit down and watch one of the cable 'news' shows and count how many times the guests say 'the fact of the matter.' This phrase is used to bolster argument. Often the 'fact of the matter' is nothing more than the speaker's opinion. Facts should be stated and conclusions made based on those facts. Instead most of what we hear is opinion used as support for an argument. Unfortunately a basic understanding of logical argument is not required to appear as a purported expert on television.
Market finds some silver linings, posts a modest gain.
With early reports that Ivan was not meting out complete devastation (though the poor folks in the Florida panhandle would disagree) as it missed the major oil producing areas of the Gulf along with a tame CPI report, stocks started positive and rallied straight up to once again test the next resistance level. Volume was low from the open, and when the indexes hit that near resistance they did not have the firepower to break through.
Stocks gave back some gains and then quickened the pace when the Philly Fed report stunk the place up. Once more, however, stocks showed some strength, stemmed the selling, and rallied into the early afternoon. The move lacked the morning punch, and with the start of the critical last two hours stocks stalled again, making a lower high. That brought out a few sellers, and with the light overall volume, they pushed the indexes near session lows. A late bounce made things look a bit better than they were. By the close the indexes had only lost half of their session gains.
The small caps, recent laggards, led the move with a 1% gain. A very nice recovery after just two quick rest days in an impressive 45 degree bounce form the August low. Thus breadth was strong on NYSE even as volume lagged. The large caps could not match this move, but they managed to post gains of their own, rising off of near support. There was no power in the move, but the sellers could not gain the advantage either. After a distribution session Wednesday, stocks could not answer with accumulation, but they also fought off two modest attempts to sell stocks. NASDAQ and SOX are still below key resistance on this rebound attempt, and Thursday was basically a wash. That leaves the indexes still in the position of having to find some strength to once more resume the rally or back off further to attempt to reload. In short, Thursday failed to change the picture at all.
THE ECONOMY
August CPI tame again, at least as government measures it.
The Fed has talked of lessening inflation pressures, and the August CPI is another example, following the earlier soft PPI report. Both are important as producer prices can indicate higher consumer prices, but that relationship is surprisingly disjointed. Many times in the past producer prices have risen but consumer prices did not follow. Either companies had no pricing power, they were able to offset higher costs with higher productivity, or they were able to find other ways to keep prices lower and thus remain competitive. That is why the Fed focuses on the CPI and its measure of consumer prices more than the PPI.
The August numbers were tame with overall inflation at 0.1% and the core (less food and energy) rising 0.1% as well. The overall number rose from July (-0.1%) while the core grew at the same rate. Year over year inflation remains low, rising 2.7% overall and 1.7% on the core. Energy, gas, apparel and transportation prices fell while housing and food rose. We all use gas every day, but we also eat everyday. Once again the government number factors out those costs that hit the consumer directly and are subject to the greatest price spikes. The government's formula works to 'smooth out' those ups and downs, but no one is smoothing them out at the cash register for the consumer.
This raised more questions about what the Fed will do next Tuesday when it meets yet again to discuss the economy and interest. The Fed funds futures contract shows a 25 basis point hike as a near certainty. We would not expect the Fed to skip the chance to raise rates; it has claimed the 'soft patch' is over as the economy gains 'traction.' To leave rates alone would send mixed signals: the Fed thought things were hot enough to start raising rates earlier this year, but just as it started to do so the economy softened. It has continued to raise rates during the so-called soft patch. If it stops just as it says the soft patch is ending you get major mixed signals.
The Fed, despite its mantra that it looks at all data every meeting, never, and I mean never, acts as that is what it does. The economy was tanking rapidly in 2000 when it stuck that last 50 basis point rate hike on the economy. It had an agenda, and by golly it was sticking to it. Right now it is hell bent to get rates up to a level where it feels it has taken the slack out and has some maneuvering room in the event of trouble. It is going to raise rates again. It would love to get to 3%, but it is miles from there, and with a weakening expansion it cannot continue to hike rates. Thus it will tack this 25 basis points on and keep its language the same. It won't show its hand in the statement that it sees slowing inflation. That is for the innuendo in FOMC member speeches as we saw last week.
The market has taken those speeches and the lower PPI and CPI as an indication the Fed will raise once more and then go on hold. If the market expects the Fed to say that, the market will be disappointed. If stocks continue to play around at the current resistance levels by next Tuesday, that disappointment could spark a real test of the key support and perhaps another deeper test.
Philly Fed September report is poor.
Spirits picked up on the much stronger than expected New York PMI data Wednesday, but that index is proving quite volatile. The more respected Philly Fed tanked to 13.4 from 28.5, well below the 24.5 level expected. A reading above 0 shows expansion; Philly has expanded for 16 consecutive months. Similar to other economic data relating to manufacturing and business, the data shows a slowing expansion.
It was not wall to wall bad news. New orders rose to 26.4 from 19.2. Employment rose as well, up to 21.5 from 17.2. Silver linings, particularly new orders as that is the leading indicator of the two. Even with these two bright spots, the overall picture continues to be one of a slowing expansion. We also have to remember that this is a more leading index as it is current data as opposed to the other government reports that are 1 to 2 months old.
THE MARKET
Stocks continued to rest, trading between resistance and support once more. A rally attempt stalled again at key NASDAQ and SP500 resistance. SOX showed a nice doji right on top of the 18 day EMA as it too trades below key resistance.
Volume faded on the session before quadruple expiration (stock options, stock futures, index options, index futures), trading in the same narrow range for the past three sessions. Breadth was excellent on NYSE, decent on NASDAQ as the small caps were leading the action.
That was pretty much the extent of the 'excitement.' Stocks finished in the middle of the day's range, on middling volume, and in the middle of the recent trading range. A very middle of the road day that did not change the status: taking a breather as stocks try to regroup for another try at resistance.
Market Sentiment
Bulls versus bears: The spread between bullish and bearish advisors widened as the market resumed its move. Bulls rose to 50%, just off the 55% reading considered bearish. Bears fell to 24.5%, moving closer to that 20% level considered bearish, and well off the 30% hit at the end of August when the two readings were converging.
In our review of historical levels of sentiment, these indicators did not get to the level that would indicate an important bottom had been set in a long base. Maybe investors were just worn out of this base as opposed to scared out, but historically, either situation saw sharply higher bearishness and sharply lower bullishness. It was getting close, but the current rally snuffed a meaningful crossover.
Perhaps the election year will give stocks a bye on needed extremes in sentiment. With the indexes still below key resistance and in the range we anticipated this rally would start hitting the wall, however, we are not going to assume that scenario. Even if it does, the reckoning down the road will be harsher.
VIX: 14.39; -0.25
VXN: 19.92; -0.38
VXO: 14.44; -0.33
Put/Call Ratio (CBOE): 0.75; -0.19
NASDAQ
Tapped the down trendline once more on the intraday high (1914.38), rallying to that level early in the day. That was it, however, as NASDAQ trended lower most of the session, closing right at near resistance.
Stats: +7.56 points (+0.4%) to close at 1904.08
Volume: 1.333B (-16.82%). Volume faded sharply on another rest session.
Up Volume: 831M (+388M)
Down Volume: 475M (-671M)
A/D and Hi/Lo: Advancers led 1.82 to 1. Solid breadth, showing the continued internal strength in the index.
Previous Session: Decliners led 1.61 to 1
New Highs: 96 (+38)
New Lows: 21 (-7)
The Chart: http://www.investmenthouse.com/cd/^ixq.html
NASDAQ remains between support (1894 gap up point) and resistance (1915 down trendline), idling in this narrow range. The session did not change the bias: still showing upside resilience, holding on as it consolidates the recent jump higher and sets up for another attempt at the down trendline. While it continues this action we keep in mind this is getting into the area where we anticipate NASDAQ to struggle in this rally.
NASDAQ 100 checked up from Wednesdays selling, showing a doji over the Monday gap up point. It stalled the last move at the 200 day SMA, but as with NASDAQ, it is attempting to hold the gap and set up for another try at important resistance.
After leading the downside Wednesday, SOX checked the losses, holding the 18 day EMA support (379.33), showing a nice tight hammer doji. That can indicate a change of momentum, more important because it occurred at key support. Critical time for SOX as it pinches between the 18 day support and the 50 day EMA resistance (396.57). This is one of the key indexes we are watching.
S&P 500/NYSE
Same as the other indexes, holding above support but once again unable to take out some important resistance.
Stats: +3.13 points (+0.28%) to close at 1123.5
NYSE Volume: 1.11B (-11.37%). Substantial decrease on this index as well as the large caps continue to set up for another try at near resistance. We note that volume faded as the small cap index resumed its move, not a great indication as the small caps started back toward a new high.
Up Volume: 727M (+394M)
Down Volume: 367M (-536M)
A/D and Hi/Lo: Advancers led 2.94 to 1. Strong breadth as the small and mid-caps took charge. Good internals as NYSE stocks set up for another attempt at resistance.
Previous Session: Decliners led 1.46 to 1
New Highs: 147 (+56)
New Lows: 11 (-2)
The Chart: http://www.investmenthouse.com/cd/^spx.html
On the low the large caps sat on 1120, just above the 2004 down trendline (1117) and the 200 day SMA (1115), and below 1125 resistance. It ping-ponged up and down between the two, but after that early rally up to resistance, the rest of the session trended lower despite a midday rally attempt. As with NASDAQ, the move did not change the character: resilient in the rebound but testing some important resistance where we thought this rally would take it and then start to struggle.
SP600 was right back in action after two days of rest. The index moved to a new high since the early July peak. Small caps are definitely asserting leadership once more as they have rallied straight off the August low with only one significant rest period in late August.
DJ30
The blue chips held at the 18 day EMA (10,224) on the low and posted a modest gain. On the high the index rallied to test just below the 200 day SMA (10,287), but as with the other indexes, it could not hold the gain. Volume backed off after jumping Wednesday on the KO warning. Still in decent shape, but unlike the other indexes, it gave up a support level on Wednesday. It continued to find resistance in this 10,250 to 10,400 range, basically the area we anticipated it would struggle in this rebound.
Stats: +13.13 points (+0.13%) to close at 10244.49
Volume: 173 million shares Thursday versus 203 million shares Wednesday.
The chart: http://www.investmenthouse.com/cd/^dji.html
FRIDAY
Michigan sentiment at 9:45ET and expiration are the only scheduled fireworks. In reality, neither have shown much fireworks the past few months, and with Michigan sentiment being the preliminary number for the month (all 200 respondents worth) it is rarely accurate.
There may not be much of a catalyst Friday as positions are squared in both directions around current key levels as the indexes are sandwiched between support and resistance. On SP500 that key resistance is 1125 to 1130 as we indicated earlier this week. There is tremendous open interest on both puts and calls at that level, and the index tends to hold somewhat close to that level at expiration barring a major event. With SP500 closing just shy of that point we are not expecting major moves.
This is further bolstered by the indexes holding tight in a narrow range the past few sessions, riding out expiration. We could definitely see up and down action around this level, but it often does not stray too far.
As for what that leaves us, well, we will continue to watch those stocks set up for upside moves and those stocks set up for a downside fall. The market continues in its current rebound uptrend, but also below very key resistance levels that have not yielded. Unfortunately, Friday most likely won't deliver a move that will tip the balance in favor of one direction. Thus we look at good stocks in good positions, and if they give us a strong move we will accumulate some shares. Same for the downside. There are enough stocks in poor technical position and ready to move lower given the nod from the market. We are still very aware of a potential fade into October, and thus we have stops still set tight.
Support and Resistance
NASDAQ: Closed at 1904.08
Resistance:
The 2004 down trendline at 1915
The 200 day SMA at 1967
Support:
1894 is the gap up point this week.
The 50 day EMA at 1875
The 18 day EMA at 1871
The 50 day SMA 1859
The October 2002/March 2003 up trendline at 1856
July 2003 highs at 1755
S&P 500: Closed at 1123.50
Resistance:
1125 was key price support and has been acting as resistance
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 1117
The 200 day SMA at 1115
The 18 day EMA at 1113
The 50 day EMA at 1107
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 10,244.49
Resistance:
The 200 day SMA at 10,288
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 18 day EMA at 10,224
The 50 day EMA at 10,174
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): 0.9% actual versus 0.8% expected and 1.1% prior (revised from 0.9%)
NY Empire State Index, September (8:30): 28.3 actual versus 20.0 expected and 13.2 prior (revised from 12.6)
Industrial Production, August (9:15): 0.1% actual versus 0.5% expected and 0.6% prior (revised from 0.4%)
Capacity Utilization, August (9:15): 77.3% actual versus 77.4% expected and 77.3% prior (revised from 77.1%)
September 16
CPI, August (8:30): 0.1% actual versus 0.2% expected and -0.1% prior
Core CPI, August (8:30): 0.1% actual versus 0.2% expected and 0.1% prior
Initial Claims, 09/11 (8:30): 333K actual versus 343K expected and 317K prior (revised from 319K)
Philadelphia Fed, September (12:00): 13.4 actual versus 25.0 expected and 28.5 prior
September 17
Michigan Sentiment-Preliminary., September (9:45): 96.7 expected and 95.9 prior
End part 1 of 3
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us stock market
understanding the stock market
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