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world stock market, us stock market
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9/30/04 Investment House Alerts Report
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IH Alert Subscribers:
MARKET ALERTS:
Target hit alerts issued Thursday: CREE
Buy alerts issued: KCP; SHFL; ACDO; TWTI; GW
Trailing stops issued: None issued
Stop alerts issued: BWA; BLL
SUMMARY:
- Market swallows Viox problems, holds steady at next resistance.
- Consumer: Personal spending flat, income rises, jobless claims rise.
- Business: Chicago region shows better growth, world chip sales rise.
- NASDAQ and SP500 test downtrend twice, start October at that resistance.
Long time market bellwether disappoints market.
MRK announced it was removing Viox from the market due to health concerns and the stock was slaughtered. DJ30 hemorrhaged on high volume, but its losses are traced right back to MRK's doorstep. SP500 also showed a marked volume spike as MRK trades on NYSE, but the large caps overall had a decent session, balancing out MRK's downside. Without ties to the large cap drug stocks, NASDAQ posted a modest gain.
Even with the MRK news stocks were not on the selling block. The Chicago PMI was better than expected, and that helped support stocks a bit. Oil held near $50/bbl, but that was not raining on the parade. No sell off just NASDAQ and SP500 stalling at their near 2004 down trendlines after two strong upside rebound sessions off the 50 day SMA.
It had the look of a rest day after a solid rebound with volume up again due to MRK and more end of quarter portfolio shuffling. Indeed, without MRK the advance would have been greater on SP500. Now that October is over the market will show its colors a bit better. While Tuesday and Wednesday were solid upside sessions, the reversal last week just as stocks tried to break upside for the next leg higher still has the market hemmed in. NASDAQ and SP500 gave up their breaks over the down trendlines, and now are struggling to retake them. Now that the quarter is over money managers can redistribute their funds and that very well could resume the move prior to Wednesday.
THE ECONOMY
August spending flat, income rises while July shows better results.
Sending and incomes came in roughly in line with expectations (0.0%, 0.4%) while July spending was revised to 1.1% from 0.8%. In short, the consumer is still spending, simply showing the typical ebb and flow from month to month with respect to what and how much it buys. For example, durable goods spending fell 1.6% in August, but that follows a 6.2% burst in July. Non-durable goods spending and services spending both rose 0.2%. One area falls, the other rises. We have seen this month to month all through the recession and rebound. Again, we don't see much to worry about, particularly with sentiment holding at good enough levels and with the reports from the chain store sales showing gains for the fourth straight week (Redbook sales posted a 2.9% increase from the prior week and up 0.9% from August; the UBS report showed chain store sales up 3.5% year over year though slightly lower from the prior week).
Chicago PMI surprises upside.
September activity rose to 61.3 from 57.3 in August, well ahead of the 57.5 expected. Overall it was a decent report with employment rising to 53.9 from 51.1, and new orders surging to 68.7 from 58.0. Even prices paid were better, easing to 86.4 from 86.6; no major move, but with oil rising again, easing prices overall is good.
Even with the gain, not a lot can be drawn from this report. The regional indexes have been jumbled the past three to four months, failing to provide a clear trend as to a continued expansion. There has been no stalling, but the clear path higher has faltered, and it is not clear that the manufacturing sector has regained its footing. The recent reports are encouraging and show indeed there is not stall out. Now we need to see another solid round this coming month as well as a good report from the national survey Friday.
Weekly jobless claims still all over the map.
Claims rose 16K to 369K, easily topping the 340K consensus guess. It is a guess because with the hurricanes in the southeast and the resulting storms through the east, the jobs picture has been tossed into the air. Thus the coming unemployment report next week has the potential to be wildly off estimates.
August global chip sales rise.
August sales rose 34% year over year with PC and networking chips showing the best gains. That puts sales on track to meet the 28% growth forecast even with the series of lowered forecasts in the sector from INTC, TXN, XLNX, MU, ALTR, etc. based on weakening demand.
Spirits were lifted, however, because inventory levels are declining. When the softer demand was evident, seems chip makers started cutting production rapidly. What was an inventory build in Q2 is already an inventory decline in Q3 and heading into Q4. While that is good management and maybe worthy of a case study at a university, it does not speak well for the chip industry overall. Declining inventories due to production cutbacks in the face weakening demand do not excite economists, and they should not excite investors much. It is the Dell syndrome: the sector is not growing, you just manage better to cut costs and take market share to grow your earnings and revenues.
THE MARKET
Okay, NASDAQ and SP500 are at the lick log point, having rallied off the 50 day SMA and now at the first down trendlines formed in 2004. After reversing immediately after the breakout attempt last week and then forming a higher low this week, they are back at the trendline. At this point they show if they can continue the rebound or fade further below the reversal point.
The move higher this week was on strong volume. Breadth was decent at times but overall lackluster. We have opined that the move may be in large part based on late quarter shuffling to put a good look on the prospectus along with some short covering; the breadth indicates that as a possibility. Look at the end of the June quarter: stocks rallied into the last day of the quarter on solid volume and then spun out of control. This quarter stocks reversed after a breakout attempt, but then rallied back right before the quarter end. Will that same buy side support be there in October or was the real intent revealed on that reversal last week?
We have to acknowledge that there have been unmistakably solid moves by many leaders as well, however, something that transcends simple short covering and portfolio shuffling (e.g. EBAY, YHOO, AMMD, TDS, AAPL, AH, STJ). Leaders attract serious, longer term money as opposed to beaten down stocks that rebound after harsh selling in an obvious short covering move. When leaders perform well the market performs well.
Thus there are positives and negatives to where the market is right now. It skirted September without a major sell off, and it rebounded from that selling on some serious volume this week. The major indexes still trade below the down trendlines, and after that reversal last week, they are going to have to show they have what it takes to continue higher. Given the quarter has come to an end, we should see the move soon.
Market Sentiment
Sentiment indicators remain nowhere near extreme levels now or when this rally began. They continue to conflict as well, with the put/call ratio remaining at the high end of the range and short interest high as well. Both are a sign of fear, but we also not that the last time NYSE short interest was near current levels back in January, the market did not continue a climb but instead rolled over and fell into the current base.
Bulls versus bears: Bullish advisors edged over 50% to 51%, still working higher toward that bearish 55% level. Bears held roughly steady at 23%, just over the bearish 20% level. Neither are near bullish levels and have not been so since getting almost within shouting distance of those levels back in late August.
Thus sentiment continues to show a mixed picture, but one we view as overall negative for a sustained rally. Nonetheless, these are secondary indications; they can give us a heads up to problems ahead or can tell us to watch for an upside reversal, but as always, the price and volume action on the indexes and in the leading stocks themselves is the primary indicator. Based on the sentiment indications we remain cautious, but not so much that we are letting upside buying opportunities on strong moves from leaders pass us by.
VIX: 13.34; +0.13
VXN: 20.48; -0.19
VXO: 13.44; +0.63
Put/Call Ratio (CBOE): 0.86; +0.01
NASDAQ
Without having to deal with MRK, NASDAQ put on a decent show after two strong upside sessions, taking a breather below the down trendline.
Stats: +2.9 points (+0.15%) to close at 1896.84
Volume: 1.69B (+2.03%). Volume was up yet again, coming in easily above average for the third consecutive upside session. That is positive price/volume action, suggesting accumulation. The moves in leadership stocks the past two sessions buttresses the idea that there is accumulation taking place. Some of this volume is also related to quarter end shuffling JUST as it was back in June at that quarter end.
Up Volume: 994M (-270M)
Down Volume: 661M (+292M)
A/D and Hi/Lo: Advancers led 1.3 to 1. Modest breadth returned as NASDAQ tapped at the down trendline.
Previous Session: Advancers led 2.01 to 1
New Highs: 101 (+18)
New Lows: 35 (-13)
The Chart: http://www.investmenthouse.com/cd/^ixq.html
In a volatile session, techs managed to hold their gains from the prior two sessions, twice tapping the down trendline (1901) and fading. In the last hour it was falling back after the second test of the trendline, but it managed to avoid a major drop with a late rebound that kept it in the game. Volume rose once more, and with the gain that was technically an accumulation session. The modest gains coupled with higher volume and a close below the trendline, however, give just the hint of churning, i.e., high volume turnover that can indicate stocks changing hands rapidly. Think of it as running in place; you don't get anywhere and eventually get tired and have to sit down.
NASDAQ 100 also scratched out a small gain on stronger trade, but closed off its session high. QQQ gained modestly as well, but volume tailed way off as the rebound started to fade.
SOX surged over the 50 day SMA (386.42) on the high, but then faded and closed below that level when the bell rang. The chips, despite showing some life the past two sessions, are still well below the 50 day EMA (393.37) that typically stalls out upside moves in continuing downtrends. As with NASDAQ and SP500, SOX is at a critical stage in its bounce, but is not looking too strong.
S&P 500/NYSE
The large caps were under fire all session given the MRK announcement, managing to close basically flat at the down trendline.
Stats: -0.22 points (-0.02%) to close at 1114.58
NYSE Volume: 1.749B (+24.57%). Surging volume on MRK's 145 million shares (roughly 6M average daily trade). With a tight doji at the down trendline, the volume looks like a lot of churning.
Up Volume: 1.057B (+222M)
Down Volume: 667M (+117M)
A/D and Hi/Lo: Advancers led 1.5 to 1. Breadth not bad given the index move, but hardly strong on this move higher during the rebound.
Previous Session: Advancers led 1.22 to 1
New Highs: 205 (+54)
New Lows: 24 (-4)
The Chart: http://www.investmenthouse.com/cd/^spx.html
Sold to the 50 day EMA (1110) on the low and managed to rebound and twice test the down trendline (1115), closing right at that level. The candlestick chart shows a tight, 'hanging man' doji; the name says it all, as it is not a bullish indication after a bounce to the upside as seen Tuesday and Wednesday. High volume, flat close, doji at resistance; they point to churning and often indicate a turn back down. With SP500 having to deal with the one-two punch of the down trendline and the 200 day SMA (1118), its work to advance is cut out for it.
The small caps rallied back to the recent high (293.28) intraday, but gave up most of the move on the close. The candlestick pattern is a doji, this one something of a tombstone doji; as with the NASDAQ pattern, the name says it all. It is also at resistance, i.e. the April peak and the recent September peak that are the potential shoulders for a bearish head and shoulders base. It is much closer to its high than its low, however, as the small caps continue to hold up well despite the predictions of doom all year.
DJ30
DJ30 had little chance of making headway as MRK's 12 point loss translated into a loss for the blue chips. The 50 day EMA (10,155) remains its nearest obstacle to a further advance.
Stats: -55.97 points (-0.55%) to close at 10080.27
Volume: 377 million shares Thursday versus 218 million shares Wednesday.
The chart: http://www.investmenthouse.com/cd/^dji.html
FRIDAY
After hours RIMM disappointed some with its outlook and was getting hit, but overall stocks were little changed after the close. Tonight it is all about the debate, and that could impact trade if you believe the market is factoring in one candidate over the other. We hear that quite a bit, but there are arguments either way. Some say republicans are better for the market, but others argue a split White House and Congress are better. Others say that the economy does better under democrats, but the counter is that the republicans do the hard and unpopular work that sets up the good times the democrats take credit for. As you can see, when it comes to politics there are no answers that will satisfy the majority.
What will be on the front burner is Michigan sentiment and the national ISM. Chicago and New York posted solid recoveries in September while Philly did not. If the national number posts a strong result that could corroborate the other upside reports and provide some upside impetus.
Thursday we saw a lot of solid moves in many stocks; as you can see from the Wednesday report, the upside was represented much more as many stocks were setting up for upside moves. Thursday provided some solid advances. We are keeping our stop losses quite tight, however, because we still see a potential problem similar to the end of the June quarter once the quarter end shuffle ended. That reversal last week was a serious signal; it is going to take a serious break through that level to negate it. Right now the current bounce was solid, but the indexes are still in the downtrend, indeed testing that key resistance.
We still see upside plays, but after this bounce there are also the downside ready. Regardless of the market, there are strong patterns and weak patterns, and we are going to continue to seek those out as those are the plays that give us the edge as they tend to go about their business regardless of the overall market direction.
Support and Resistance
NASDAQ: Closed at 1896.84
Resistance:
The 2004 down trendline at 1901
Recent September high at 1921
The 200 day SMA at 1964
Support:
September gap up point at 1894
The 50 day EMA at 1880
The October 2002/March 2003 up trendline at 1870
The 50 day SMA 1854
July 2003 highs at 1755
S&P 500: Closed at 1114.58
Resistance:
The March/April down trendline at 1115
The 200 day SMA at 1118
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 EMA at 1110
The 50 day SMA at 1102
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 10,080.27
Resistance:
The 50 day EMA at 10,155
The February/June 2004 down trendline at 10,278
The 200 day SMA at 10,297
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 29
GDP-Final, Q2 (8:30): 3.3% actual, 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% actual versus 0.4% expected and 0.2% prior (revised from 0.1%)
Personal Spending, August (8:30): 0.0% actual versus 0.1% expected and 1.1% prior (revised from 0.8%)
Initial Jobless Claims, 9/25 (8:30): 369K actual versus 340K expected and 351K prior (revised from 350K)
Help-Wanted Index, August (10:00): 37 actual versus 38 expected and 37 prior
Chicago PMI, September (10:00): 61.3 actual versus 58.0 expected and 57.3 prior
October 01
Auto Sales, September: 5.2M expected and 5.2M prior
Truck Sales, September: 8.2M 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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world stock market
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