|
|
stock prices, stock market today
* * * *
9/22/04 Investment House Alerts Report
* * *
IH Alert Subscribers:
MARKET ALERTS:
Target hit alerts issued Wednesday: None issued
Buy alerts issued: ERES; JCP (bonus)
Trailing stops issued: RIMM, SCSC
Stop alerts issued: BGC; PETC; RAE; AVL
SUMMARY:
- Stocks run into higher volume selling after attempting a breakout.
- Consumer sales, mortgage activity showing life, but bond yields and stock prices indicating longer term issues.
- Indexes slapped back below resistance on rising trade.
Earnings warnings, financial earnings results, rising oil rally sellers back into action.
During this rally, particularly in the last few weeks, stocks have more or less ignored earnings misses or warnings about future earnings. Indeed, many stocks have actually rallied on warnings. This has been one of the hallmarks of the rally, i.e. the ability to shrug off bad news and look for the silver lining.
Wednesday the silver lining lost its luster as MWD missed its mark, damaging the otherwise solid financial sector. AZO missed as well, WEN warned, GM announced a very aggressive loan plan, and FDX matched earnings estimates. All of this was viewed negatively, and the market was unwilling to find positives in any of it. It seemed as if investors finally had enough of being polite in the face of earnings warnings. The relief that the warnings were not as bad as anticipated was finally overwhelmed by the continued parade warnings. As noted last night, this warnings season is the most active in two years. Wednesday the investors said 'enough' and the sellers stepped in.
Volume was really racing through early afternoon, but it slowed as the indexes tried to find bottom for a late rebound. After NASDAQ broke two support levels, SOX fell back below the 50 day EMA, and SP500 did the same, however, there was not enough buying to push them back up. Volume started back up in the last half hour and by the close volume had tripped past Tuesday levels, turning solidly above average.
While this is not an automatic death sentence to any rally, it is one of the worst case scenarios: a break above key resistance on so-so volume (NASDAQ Tuesday trade) immediately followed by higher volume selling that shoves it right back down. DJ30, NASDAQ, and SP500 have now all met a 2004 down trendline and have reversed on stronger volume. At some point rallies run out of gas, and reversals at downtrends that then break through other key support are always actions to watch. After the breakout attempt Tuesday, it is a red flag.
THE ECONOMY
Consumers show renewed interest in consumption even as bond yield curve continues flattening as long term rates decline.
Despite the lower preliminary Michigan sentiment report, consumers have definitely shown an uptick in spending. Redbook reported the third consecutive week of rising sales at major retailers, up 2.6% last week versus the same time 2003. A bit slower than the 3% the prior week, but sales are still up 0.9% from the same time last month. The International Council of Shopping Centers reported a downtick this week from the prior week, but still up 3.5% year over year.
This is another example of how the consumer sentiment reports don't forecast consumer actions unless the sentiment hits extreme levels. It also shows how out of step the preliminary Michigan sentiment report is, but that is another story. This increase in consumption somewhat supports Greenspan's and the Fed's believe that the economy has regained traction and that output demand has increased. Of course, the key to the continued rally is further business investment. That will increase in Q4 as businesses take advantage of the last bonus expensing before it sunsets. After that there needs to be some catalyst. For now the increased consumer spending bodes well for the holiday season, and the increased business investment sets the stage for a good finish to the year.
Mortgage applications rise again.
The recent drop in long term rates is sending consumers back to the mortgage banks. Applications rose 1.8% and refinancing rose 4.1%, rising to 44.5% of the mortgage market, up from 43.2% last week. Again we see consumers ready to spend not just on retail goods but on new houses and lower mortgages.
This action has been brought about by a continued decline in long term rates. Mortgage rates fell 0.02% last week, and combined with the prior declines, that is brining in more homeowners. Indeed, rates are once again turning low enough to attract substantial refinancing activity, leading to more cash in pocket each month given the lower cost of servicing mortgage debt. Those continue to be economic positives.
Bond yield curve still flattening as bond investors, stock investors react to Fed rate hike.
This is all brought about by a rally in bonds that has driven yields lower. The Fed raised short term rates, but long term bonds still rallied as investors started rotating back into some debt issues after this stock run. That is part of the answer to the flattening yield curve. It is not the only answer, however, as we pointed out Tuesday.
The economy is expanding, but slowly. The Fed appears bent on getting short term rates to 3% given its statement released Tuesday. The bond market is indicating that such a move would be bad for economic growth, and thus the yield curve is flattening. Thus while the consumer looks good near term, the longer term economic prospects of the Fed hiking another 125 basis points through mid-2005 is not very palatable to financial markets. Indeed, part of the impetus for selling Wednesday was no doubt due to further thought regarding the economic future in light of continuing rate hikes.
THE MARKET
Decent looking action Tuesday turned downright ugly Wednesday. Pretty good upside breadth and volume as the indexes broke to new rally highs gave way to even stronger downside breadth and volume today. Look familiar?
Once again we look back to the May to June summer rally for some instruction. This rally is once again more or less following that path. A solid rally off the low, a lateral move to consolidate, another break higher, a second lateral move to consolidate, and then yet another break higher. Immediately, however, the third solid upside break is met with a reversal on rising volume that wipes out the last consolidation effort, undercutting it in a quick move. An attempt to hold at some key support at the 50 day EMA and 200 day SMA fails and the next downside leg starts.
Very similar action this rally, and given the shaky underpinnings at the start and the fact that it is September add to the problems. As with the May to June rally, it has led up to earnings. This has been a very active warning season, and that also adds uncertainty to the upcoming season.
Again, this is not guarantee of a significant drop, but it is enough to keep our stops tight and shoot first, ask questions later, if stocks continue to show weakness.
Market Sentiment
VIX: 14.74; +1.08. Volatility is starting to rise above 14 as the selling starts.
VXN: 21.06; +0.76
VXO: 14.57; +1.71
Put/Call Ratio (CBOE): 1.1; +0.34. Put buyers are edgy, quickly moving to downside positions for gain and for protection for big portfolios.
NASDAQ
Gapped up Tuesday on lower volume, gapped down and sold hard Wednesday on stronger volume, giving back the 2004 down trendline.
Stats: -35.47 points (-1.85%) to close at 1885.71
Volume: 1.607B (+4.62%). Back above average as NASDAQ turned back below the January/April 2004 down trendline. Lower volume break of resistance then a stronger volume reversal is a bearish combination. A key distribution session for NASDAQ.
Up Volume: 348M (-712M)
Down Volume: 1.251B (+809M). It was all downside volume.
A/D and Hi/Lo: Decliners led 2.92 to 1. Downside breadth was much stronger than the upside volume on the breakout attempt.
Previous Session: Advancers led 1.91 to 1
New Highs: 50 (-31)
New Lows: 37 (+9)
The Chart: http://www.investmenthouse.com/cd/^ixq.html
Turned back down below the January/April 2004 down trendline (1911) and filling the upside gap (1894) and more as it closed just over the 50 day EMA (1880). Not a good turn of events for the upside, but it is still over the 50 day and the October 2002/March 2003 up trendline. That said, another day of hard distribution and those are in jeopardy.
After failing at the 200 day SMA the large cap techs (NASDAQ 100/QQQ) turned lower on rising trade. Still above the 50 day EMA (34.76 QQQ) and there is support at 34.
SOX followed suite, giving back the Monday breakout above the 50 day EMA (396.50). Chips showed a second solid move off of the September low and on strong volume, but after the gain they were leading the market downside Wednesday.
S&P 500/NYSE
The large caps broke below the 200 day SMA as volume moved further above average than on the Wednesday attempt to breakout from the most recent lateral move.
Stats: -15.74 points (-1.39%) to close at 1113.56
NYSE Volume: 1.376B (+4.78%). Volume was up again, but this time the large caps and small caps put on a much stronger downside move than the recent upside rallies. That is often the way it works: fight and scratch for gains, then when some unrest hits the selling happens quickly.
Up Volume: 211M (-749M)
Down Volume: 1.158B (+817M). As with NASDAQ, down volume pounded upside trade.
A/D and Hi/Lo: Decliners led 2.33 to 1. It was ugly early, well over 3:1. Unlike NASDAQ, the downside breadth is not pounding the upside breadth.
Previous Session: Advancers led 2.39 to 1
New Highs: 103 (-93)
New Lows: 27 (+11)
The Chart: http://www.investmenthouse.com/cd/^spx.html
Gapped lower and broke the 200 day SMA (1116), a key support level, and broke it on rising volume. In the process it took out the recent lateral consolidation as well. Next support is the 50 day EMA (1109) and the late August top (1108). That should slow the move a bit, but if it does not hold there or 1100, it has some testing around 1075 to the August low (1063). As with NASDAQ, this was very similar to June and does not bode well for NYSE stocks.
Reversed the Tuesday surge, closing at session lows and giving back all and more of the Tuesday move. Important in that it turned right at the April high (293.65), a point that looks like a left shoulder to a larger head and shoulders base formed the past 6 months.
DJ30
Turned lower at the February/June 2004 down trendline (10,300) and the 200 day SMA (10,294) after struggling at that level for the past two weeks. Volume jumped back up as the blue chips turned lower and broke through both the 50 day EMA (10,179) and the 50 day SMA (10,118). Some support at 10,000, but that is somewhat vaporous.
Stats: -135.75 points (-1.33%) to close at 10109.18
Volume: 240 million Wednesday versus 223 million Tuesday.
The chart: http://www.investmenthouse.com/cd/^dji.html
THURSDAY
Thursday brings a return to economic data with weekly jobless claims and August Leading Economic indicators. Jobless claims are more and more important in relation to the election, and they are trying to make an abrupt move lower, but with the hurricanes and the associated dislocation of citizens, no one is putting a whole lot into them just yet. They are the 'leading' indicators in the employment arena along with the private surveys such as Manpower. We believe they are trending lower, but the data is still too jumble to give a reliable indication at this stage. With the economy starting to look again at news as opposed to ignoring it, the LEI could also impact the market, but most likely not rescue it even if there is an upside surprise. The inability to shed the bad news Wednesday indicates a shift from the heads down and rally mode to a more pensive 'earnings are just ahead and the market has rallied into them and oh my gosh it is September' mindset.
This turn lower was a big flag for us; despite the moves higher last Friday and earlier this week we were still saying it was time for caution. Things were starting to look a bit too positive, just like that late June break higher that looked to signal the 'all clear' only to sucker punch you if you were not looking. This certainly has that look and feel, and it does not help that there has been a September rally and that earnings season following an active warnings period is just about to hit.
Thus we are keeping stops tight, and would rather be wrong and cut a move off to preserve gain or avoid significant loss and have to get back in than ride them lower. There will always be entry points on a continuing upside move. Some positions we booked today will provide entry points after some more selling if this turns out just to be a head fake and stocks hold next support and put together another move higher.
We are going to be looking at some aggressive downside positions as well as some rebounds to test the move lower as the rest of the week and next week unfolds. After the hard dump lower Tuesday there may be a quick attempt to rebound before some further selling. That would work to set up downside positions better. Given the action Tuesday, the assumption is that the rally is in trouble and given the various factors discussed above, we believe any 'election' rally is close to over. It could still bounce right back up and power ahead, but again, we are not willing to bet on that given all of the factors.
Support and Resistance
NASDAQ: Closed at 1885.71
Resistance:
The 2004 down trendline at 1909
The 200 day SMA at 1965
Support:
The 18 day EMA at 1883
The 50 day EMA at 1879
The 50 day SMA 1856
The October 2002/March 2003 up trendline at 1859
July 2003 highs at 1755
S&P 500: Closed at 1113.56
Resistance:
The 200 day SMA at 1117
The March/April down trendline at 1116
1125 was key price support.
1130 stalled the last move.
1132 is the March/June down trendline.
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 1109
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 10,109.18
Resistance:
The 50 day EMA at 10,179
The 200 day SMA at 10,294
The February/June 2004 down trendline at 10,295
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 SMA at 10,118 is not totally broken.
10,000 is some support.
9783 to 9793, the August lows.
Economic Calendar
These are consensus expectations. Our expectations will vary and are discussed in the 'Economy' section.
September 21
Housing Starts, August (8:30): 2000K actual versus 1930K expected and 1988K prior (revised from 1978K)
Building Permits, August (8:30): 1952K actual versus 1985K expected and 2066K prior (revised from 2055K)
FOMC Meeting (2:15): 25 basis point hike to 1.75%.
September 23
Initial Jobless Claims, 9/18 (8:30): 338K expected and 333K prior
Leading Economic Indicators, August (10:00): -0.2% expected and -0.3% prior
September 24
Durable Goods Orders, August (8:30): -0.3% expected and 1.6% prior
Existing Home Sales, August (10:00): 6.65M expected and 6.72M prior
End part 1 of 3
|
stock prices
stock market today
|
