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9/28/04 Investment House Alerts Report
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IH Alert Subscribers:
MARKET ALERTS:
Target hit alerts issued Tuesday: BWA
Buy alerts issued: AHC
Trailing stops issued: None issued
Stop alerts issued: BOL; HDTV
SUMMARY:
- Morning selling on more bad news, afternoon rebound on some good news.
- Consumer sentiment lower but not tanking, retail chain sales still solid as TGT says above plan.
- Indexes test lower, hold next support and start a relief bounce, but relief on strong volume.
Stocks sell further on continued dour news, then find support and rebound on solid trade.
Stocks continued to sell on the heels of the prior four sessions that reversed a breakout and turned it into a breach of key support. Another semiconductor downgrade, a warning from Cypress Semi, oil hitting $50/bbl, and a lukewarm consumer confidence report added to the recent downside momentum. Dell's and Lowe's affirmation of Q3 guidance and TGT being ahead of plan could not sway investors. Stocks continued to sell with NASDAQ moving to the 50 day SMA and SP500 falling to next support at 1100.
After just over 4 days of selling, that was enough for stocks. They rebounded from this next support to work off an oversold condition. By lunch the bounce had peaked, however, and stocks started to drift lower once more. Then the pivotal announcement came. CAT announced its business was so good that it had to up its 2004 projections across the board. Heavy equipment stocks jumped, and commodities and materials stocks, already moving higher, enjoyed renewed vigor in their moves.
What was just an early afternoon relief bounce was energized by the news. Volume jumped in the last hour and came in sharply higher than Monday, giving the rebound off support some real strength. No doubt some of the action was short covering after several sharp downside sessions and the indexes bouncing off the next support level. It was not all short covering, however, as the advance fanned out broadly in the afternoon with small caps leading all stocks into the bell. SP500 retook the 50 day EMA and NASDAQ the October 2002/March 2003 up trendline.
Stocks finished just off their session highs as well, rounding out the return of bullish bias: reversal off support, rising volume. close near session high. After several sessions of the opposite, however, that is what you would expect on a rebound. The issue is whether this is the start of a new run higher or just a rebound that got the shorts covering across the market (don't forget that small caps were selling hard as well and some shorts were being covered there too) that accelerated to the close. NASDAQ still has that gap down to fill, and we are not convinced that this session washes away that 'in your face' reversal last Wednesday just after the market looked to be breaking higher. No move is straight regardless of direction, and with oil still climbing and the Fed still hiking, that is a hard one-two punch for stocks to overcome.
THE ECONOMY
Oil again trades at $50/bbl.
In case you missed one of the 4,238 updates on oil prices on CNBC, Bloomberg, etc., we will tell you that oil trade at, over, and below $50/bbl Tuesday, closing just below that mark. There is still enough worry with Nigerian rebels ready to declare 'all out war' (the mother of all wars?) to keep pressure on prices. Of course, Nigeria, hurricane Ivan, world demand, terrorism threats have little to do with the recent price spike according to some politicians. Somehow this is solely the current administration's fault. While the continued lack of an energy policy spanning back to the Clinton administration beyond is also Bush's problem, it is hard, indeed preposterous, to pin the recent rebound in prices on Bush just as it was preposterous to pin the 2000 hikes on Clinton. The problem is much, much bigger than any short term fix, but our political timeframe is now measured in months as opposed to years. Thus no energy plan and once again higher energy prices.
Saudi said it was going to up production by 1.5M bbl/day from 9.5M to 11M. Yee hah. Turn on the taps and let it flow. The only problem is, Saudi crude is thick and sulfurous, hardly an equal trade for Nigerian sweet crude, particularly when US refineries are geared toward the latter not the former. The market is such that it now discerns between grades of oil just as a Japanese sushi connoisseur can distinguish between sushi that is just minutes apart in age.
Oil was well on its way to sub-$40/bbl just a few weeks back when once again several issues cropped up that sent it right back up. The market is so jumpy it takes very little to push prices higher. It had its big chance to fade, and for now that has passed. Perhaps after the storms settle down and Nigeria does the same oil will again start to slide, but the pond is so muddied right now it is not going to settle out near term, not before the low gasoline inventories combined with low crude inventories lead to a sharp gasoline spike.
As for the lasting impact on the economy, we would note that 2004 $50/bbl oil is still less than roughly $80/bbl oil in the early 1980's (adjusted for inflation). Thus there may be too much being made over the price of oil, but regardless of inflation, history has shown that prolonged periods of prices greater than $35/bbl leads to significant business slowing and less consumer consumption outside of energy purchases. Sometimes it leads to recession; otherwise it has always led to a slowdown. With talk that prices will remain well above $40/bbl into year end, there could be very serious economic ramifications.
Consumer confidence slides as current expectations take the hit.
Confidence fell to 96.8 after expectations dropped from 100 to 99.5. On the bright side, August was revised up to 98.7 from 98.2. The culprit was the current conditions slipping to 95.5 from 100.7, and according to the conference board, that speaks to jobs and gas prices. Expectations barely moved, indeed improved; confidence regarding the future is still positive. The drop the past two months is jobs related as those re-entering the market still find it hard to get the jobs they want.
These numbers, however, are not enough to stall out the consumer. It would take much more to beat them down and put off current and planned consumption.
THE MARKET
As anticipated, stocks sold to the next support level and then recovered with an afternoon rebound that saw significant upside volume return. Some short covering and some buying off the 50 day SMA on NASDAQ and SP500 closed SP500 over its 50 day EMA and NASDAQ back over the 2002/2004 up trendline. SP500 put together the best move, combining price with volume to move up over key levels. NASDAQ looks ready to fill the gap lower from its 50 day EMA Monday. What it does at that level will tell more about the Tuesday move.
Until then, despite the solid volume, the recovery from the early selling, and the renewed vigor in leaders, we are not convinced this session was a turning point back to the upside. We liked the action in the leaders; as noted Monday, the strongest leaders will continue to lead in the selling by holding up and then springing back to life in market rebounds. That is what was happening Tuesday, and it was not only in metals, energy, and materials. Defense and internet were two other groups performing well. Indeed, it is good to see other areas of leadership other than oil and gas. A market led by oil means increasing energy prices, and that is ultimately not good for the economy and stocks; kind of like eating the gingerbread house you live in.
Again the key is how the market reacts when NASDAQ fills the gap. SOX is still lagging, rebounding with the market, but still posting a loss. It too is ready for a bit of a rebound, but when NASDAQ hits its 50 day EMA, SOX may just run out of gas.
Market Sentiment
Volatility tanked as the market recovered in the afternoon. Still at very low levels. The 14 level finally triggered some selling last week through Monday, and we anticipate the continued low level and the return to 14 will keep the pressure on.
VIX: 13.83; -0.79
VXN: 21.2; -0.72
VXO: 13.05; -1.25
Put/Call Ratio (CBOE): 0.91; -0.08
NASDAQ
Started retracing the Monday gap lower after tapping the 50 day SMA on the low and attracting some short covering volume on the move back up.
Stats: +9.99 points (+0.54%) to close at 1869.87
Volume: 1.554B (+16.58%). Highest volume since the Wednesday reversal. As noted, that indicates some short covering off of the 50 day SMA as well as some buying to push the index back over the up trendline (1867). The strength was a positive for the upside.
Up Volume: 812M (+545M). Despite the volume surge, it was still evenly divided.
Down Volume: 720M (-334M)
A/D and Hi/Lo: Advancers led 1.62 to 1. Decent breadth though much tamer than the strong downside breadth Monday and the preceding downside runs.
Previous Session: Decliners led 2.56 to 1
New Highs: 63 (+17)
New Lows: 72 (-6)
The Chart: http://www.investmenthouse.com/cd/^ixq.html
Gapped up Tuesday after gapping lower Monday. The initial move failed, leading to a test of the 50 day SMA (1855). With that additional selling and the hold at next key support, some shorts started to cover. The snowball started to roll and more shorts covered. Some late positive announcements helped renew a flagging rally, pushing NASDAQ over the October 2002/March 2003 up trendline (1867) on the close. Potentially a reversal session as NASDAQ held support at the 50 day SMA and a price consolidation range from late August, early September and bounced on that stronger volume. Looking for it to fill the gap up to the 50 day EMA (1879); the strength of that move will tell more about this rebound.
NASDAQ 100 used the 50 day SMA as support as well, ping-ponging between that level and the 50 day EMA on the high. Volume was up modestly on QQQ as it and NDX showed a doji. A bounce back up to fill the gap, but from there we doubt a lot more.
SOX continued lower though managed to rebound off of its lows. Trying to hold some support at 375, but not showing much strength. A rebound with NASDAQ up toward the 50 day EMA (394) may be all it has.
S&P 500/NYSE
One of the stronger moves, tapping the 50 day SMA on the low and rebounding on much better volume, even stronger than the last Wednesday selling volume.
Stats: +6.54 points (+0.59%) to close at 1110.06
NYSE Volume: 1.397B (+10.97%). Volume was solidly above average as the large caps jumped off of the 50 day EMA and reclaimed the 50 day EMA. The volume strength of the large caps was powered by energy, industrial equipment and other commodity-like sectors.
Up Volume: 958M (+648M). Much better up to down volume ratio on NYSE.
Down Volume: 418M (-523M)
A/D and Hi/Lo: Advancers led 2.16 to 1. Solid upside breadth as the small caps surged higher and led the market.
Previous Session: Decliners led 1.79 to 1
New Highs: 191 (+67)
New Lows: 51 (-8)
The Chart: http://www.investmenthouse.com/cd/^spx.html
A solid rebound from the 50 day SMA (1101) test. The move took it back over the 50 day EMA (1109) on the close, a significant move. Hard to complain with respect to the quality of the move from an upside perspective; it was a solid day. The proof will be at the next down trendline near 1115 and the 200 day SMA (1117). The SP100 also rallied, but it is in much worse condition, still below both the 50 day SMA and 50 day EMA.
SP600 took back all of Mondays losses as the small caps led the market into the close. Still fighting the 6 month head and shoulders pattern. Once again the 290 level will be the test.
DJ30
The blue chips joined the rally as well, spurred on by the pleasant earnings guidance increase from CAT. They held 9980 more or less on the low, right at 10,000. it has rallied back toward the 50 day SMA (10,108), easing back from that level on the close. Still in a weak pattern.
Stats: +88.86 points (+0.89%) to close at 10077.4
Volume: 232 million shares Tuesday versus 199 million shares Monday.
The chart: http://www.investmenthouse.com/cd/^dji.html
WEDNESDAY
The final Q2 GDP revision is out before the Wednesday open. Not much excitement there as this is the third viewing. This session will be more one of seeing how solid the Tuesday move is as the indexes work back up to the next resistance levels just snapped after the reversal last Wednesday.
We were not expecting such strong volume on the rebound effort, and that lends it some credence to the move trying to reverse the selling set off by the, well, reversal. Metals, energy, basic materials and the like continue to surge. Tuesday they were joined by an internet recovery, financials, defense and others. With the strong volume we will be watching how NASDAQ handles the 50 day EMA, the point where it fills the Monday gap lower. You could call the Tuesday move a reversal, but with the poor action preceding it, the move will have to prove itself when it confronts that serious resistance.
Thus on a further move we will look to those stocks that are showing the kind of patterns that will allow them to breakout and run ahead of the market. At the same time, if this bounce loses steam, it will be setting up solid downside plays when NASDAQ fills the gap. Time to be patient, continue to pick our spots, and move in when the opportunity presents itself.
Support and Resistance
NASDAQ: Closed at 1869.87
Resistance:
The October 2002/March 2003 up trendline at 1867 (gap down point)
The 50 day EMA at 1879
September gap up point at 1894
The 2004 down trendline at 1902
The 200 day SMA at 1965
Support:
The 50 day SMA 1854
July 2003 highs at 1755
S&P 500: Closed at 1110.06
Resistance:
The 50 day EMA at 1109 could not hold was cracked Tuesday.
The March/April down trendline at 1114
The 200 day SMA at 1117
1125 to 1130 stalled the last move.
1130 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 SMA at 1101.
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 9988.54
Resistance:
The 50 day SMA at 10,109
The 50 day EMA at 10,159
The 200 day SMA at 10,296
The February/June 2004 down trendline at 10,285
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:
9980 to 10,000 held as support Tuesday.
9900 is some support from the May and July lows.
9783 to 9793, the August lows.
Economic Calendar
These are consensus expectations. Our expectations will vary and are discussed in the 'Economy' section.
September 27
New Home Sales, August (10:00): 1184K actual versus 1155K expected and 1082K prior (revised from 1134K)
September 28
Consumer Confidence, September (10:00): 96.8 actual versus 99.5 expected and 98.7 prior (revised from 98.2)
September 29
GDP-Final, Q2 (8:30): 3.0% expected and 2.8% prior
Chain Deflator-Final, Q2 (8:30): 3.2% expected and 3.2% prior
September 30
Personal Income, August (8:30): 0.4% expected and 0.1% prior
Personal Spending, August (8:30): 0.1% expected and 0.8% prior
Initial Jobless Claims, 9/25 (8:30): 340K expected and 350K prior
Help-Wanted Index, August (10:00): 38 expected and 37 prior
Chicago PMI, September (10:00): 58.0 expected and 57.3 prior
October 01
Auto Sales, September: 5.1M expected and 5.2M prior
Truck Sales, September: 8.1M expected and 8.2M prior
Michigan Sentiment-Revised, September (9:45): 96.0 expected and 95.8 prior
Construction Spending, August (10:00): 0.4% expected and 0.4% prior
ISM Index, September (10:00): 58.3 expected and 59.0 prior
End part 1 of 3
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