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us stock market, trend trading stock
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8/16/01 Stock Split Report
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Stock Split Report Subscribers:
SUMMARY:
- Nasdaq and S&P plunge below support but then reverse. Once again the reversal was not really impressive.
- Give them an up day and the summer rally rhetoric reemerges.
- Economic news better and worse. Still no definitive improvement, but the markets will rally before that happens.
- Team Trades
As soon as support is broached, the market starts higher.
The economic news was not bad before the open, but the Nasdaq was in no mood. CIEN reported earnings and admitted that 2002 looked pretty horrid. The stock was pummeled in the pre-market, but that was just an appetizer for the filleting to occur in full market trading. It gapped down and stayed down all session.
The Nasdaq fared better as it touched a new low once again not seen since April, and then bounced 50 points to close positive on rising volume. Volume was a hair above average, the first time it has done that in seven sessions. The last time it did that was on August 8 when the market was thumped for a 61 point loss. This was a reversal on higher volume, something it needed to do.
The S&P also ducked under support and it too recovered to the positive side as well. NYSE volume, however, was not as kind and fell just a bit shy of Wednesday's selling volume. The Dow never undercut support at 10,200 (10,271 on the low) before it reversed and rallied 120 points to finish positive as well. Lighter volume was again unconvincing, but given the mid-August date, not too bad.
The Dow and the S&P were able to close 'safely' back above potential support levels, though that is debatable, but it moved back over the previous July and August lows on the close. That put it in a relative 'safety' zone. The Nasdaq was another story. While it provided the most impressive reversal given the terrible news from CIEN as it climbed back on above average volume, it was unable to move back above that 1934 to 1940 level that marked the July lows that the Nasdaq just recently violated. It was able to close higher than Wednesday's lowest close since April; it still, however, has to deal with this initial resistance, and today the numbers were not there.
Summer rally finally here? Move was not that impressive.
Now just because today did not provide a nice, neat package labeled 'clean reversal,' we do not just discount it. Of course, we do not just fall all over ourselves saying the reversal has come and now that summer rally starts. Indeed, we heard some today saying that the Nasdaq move signaled that the old summer rally was now underway. Wow. That is a stretch. Decliners still led, down volume led, and new lows shot higher. Pretty thin ice to declare a summer rally, especially as the close on these weak internals was below resistance.
Today was a reversal on higher volume. It remains to be seen if it takes. We look down the road from here at next Tuesday through Friday to see if there are more sessions of gains on rising, above average volume and improved internals. That will tell us more. At this point we had a reversal off some new lows since April. It is not a definitive move by any means. The usual players made the good moves while the techs were all over the map. Indeed, we are still looking at continued downside plays if the Nasdaq cannot move over near term resistance or makes a weak move over it on lower volume. Looking at the individual players, volumes were not that impressive and tech patterns are in disarray for the most part.
THE ECONOMY
Overall the data today looked positive, but each report has a dark cloud that keeps investors from concluding that the economy is in fact on the road to recovery.
The Consumer Price Index was down 0.3%, the biggest drop since April 1986. Take out food and energy and the core rose 0.2%. That took some of the luster off of the low overall number that was aided by the energy price drop (11% on gas). Still, this makes it very easy for the Fed to continue lowering rates as long as Greenspan can keep all FOMC members on the same page.
Jobless claims fall again.
Jobless claims fell 8,000 to 380,000, lower than the 395,000 expected. The prior week was revised higher to 388,000. Still, continuing claims were down again after making a slight uptick the prior week, and the 4-week average fell again to 370,000. It is starting to trend down again, and even though some claim that jobless claims are still too high, it is important that they are holding below 400,000 and have been trending lower.
Housing starts strong, permits weak.
Housing starts surprised to the upside with a 2.8% gain (1.67 million units versus 1.63 million). That was impressive, but the prior month was revised down from a 3% gain to a 1.8% gain, almost slicing that move in half. That was sobering.
Even more sobering, permits fell for the second month in a row. Now permits started falling in May for a month, but then turned right back up. This is the second month in a row of falling permits, and it may be the signal that the housing boom is slowing down for now. Indeed, mortgage applications for new purchases and refinances as well are starting to trend down. The market has reversed before when it appeared to be flagging, but it did not have two consecutive months of lower permits to undermine it. We may not see the continued leadership from the housing sector. It is not dead by any means, but the expansion in the sector is slowing and possibly turning. Housing prices have edged higher, but we may see them start to plateau as early as next month.
Philly Fed in the tank but our leaders do not care or just don't get it.
Analysts were hoping for a reading of -10, and improvement over the -12.2 reading in July. What they got was -23.5. Manufacturing is down and cannot seem to get up. July was not a good month, but August is looking pathetic. And should we be surprised? We have been chronicling the lack of business-side investment to spur demand, and with that side of the economy still in quicksand, it is hard to imagine the consumer hanging on with steady, uninterrupted spending for the months and months it would take to have some impact on business investment. However, businesses cannot look for much help when some of our elected leaders believe they are being fiscally responsible with taxpayers' money when they increase taxes. Hello. If you are being fiscally responsible, with the record employment (even with the recent increases in unemployment) and record surpluses created by all of those employed taxpayers, you should be able to LOWER taxes. With more people working and paying more gross taxes than ever before (and the government taking more of the GDP than it has ever done), the only explanation for raising taxes would be a LACK of fiscal responsibility. A truly incredible statement, the incredulity of which is only topped by the lack of deafening laughter at its utterance. If we let this type of logic from our leaders go unquestioned, we deserve whatever malady hits our economy and prosperity.
THE MARKET
We need to keep the economy in mind, but we also need to remember that the markets will turn before the economy does. The market sniffs this out ahead of time. It rose in April and May, but has fallen since then. It has not totally retraced its gains, so we can still make the argument that the market is ahead of the economy as we see a few more positive economic reports. The bond market is not convinced for the moment, and when it turns again that will be a stronger signal.
The Nasdaq and the S&P did indeed push lower, but all indexes reversed and finished on the plus side. The Nasdaq showed a volume increase, but it could not close above near term resistance. The Dow and S&P continue to hang within their trading ranges after recovering today, but none of the indexes is out of the woods. Rotten patterns in many stocks does not give us a lot of confidence that the major indexes (particularly Nasdaq and S&P) will sustain a move higher.
Overall market stats:
VIX: 23.83; +0.06. Was a point higher intraday, but that is still very, very low, nowhere near a reversal level.
VXN: 50.98; +2.61. 52.56 on the high. As with the VIX, this is not a strong signal of reversal even with today's gain.
Put/Call ratio (CBOE): 0.96; +0.08. Close, but no cigar. The ratio came close to closing at 1.0 or better, a level that can indicate a market bottom in and of itself. What we have is a high put/call ratio for many weeks, but not enough fear to get everyone shorting the market. It may lead to a short-term move higher as we have seen in the past, but they have not been sustainable.
NASDAQ:
Stats: +11.43 points (+0.6%) to close at 1930.32.
Volume: 1.614 billion shares (+10.3%). Rising, above average volume on a gain is good action. The trade volume, however, was still less than the heavy distribution day back on August 8. We need to keep those relative numbers in mind as well in addition to the day-to-day examination of whether volume rose or fell on the day's action. Down volume still led the day at 881 million to 709 million shares. It was not a powerful volume day when analyzed closer.
A/D and Hi/Lo: Declining issues continued to lead even on an up day, though the lead shrank (1.05 to 1 versus 1.38 to 1 Wednesday). New highs fell to 116 (-9) as new lows leaped to 203 (+47). Not good internals.
The Chart: http://www.investmenthouse.com/cd/$compq.html
The Nasdaq gapped lower, tried to rally as expected, and then tailed off over the next three hours. It did not, however, take out its early morning low as it moved laterally, and that set up the move higher later in the session, although at the time it was a difficult read with lower highs and higher lows converging; those pennants can break either way. Buyers came in today. Volume was higher, but it remains to be seen if it can sustain a move higher. The index did not move over potential resistance at 1934 to 1942 (the July trading lows), and that represents resistance from this point. It could swipe them away in one move, but this move today left us with no warm fuzzy feeling. The intraday action was bullish, but the market could not carry it through to the close and take out resistance. And there were not many big names moving out of patterns; they are too busy just trying to hang on right now.
From what appears to be a route indexes can climb. The Nasdaq certainly is in such a position. Problem is, with the lack of good patterns for stocks to take the lead, rallies historically have little life. When we see good patterns developing that is an indication that there are buyers out there accumulating stock, and that gives strength and longevity of moves. Without the foundation of accumulation over time, there is not that burst of demand that drives the stock higher. What happens: the eager who want to get out of the stock sell at their first chance and waterlog the recovery. That is why we see the big techs and the Nasdaq make a surge just to struggle and waffle and then fall back once again. The Nasdaq has a lot of work to do on more volume and some better patterns.
Dow/NYSE:
Stats: Up 46.57 points (+0.5%) to close at 10,392.52.
NYSE Volume: 1.061 billion shares (-1.2%). Volume was down slightly on the session as the Dow rallied from near support. Up volume did lead at 540 million versus 499 million to the downside. Pretty tight, but still no overwhelming buy side activity. It does not wipe away the distribution we have seen, but it helps as the index climbed to safer levels.
A/D and Hi/Lo: NYSE advancing issues led again at 1.21 to 1 (1.12 to 1 Wednesday). The average NYSE stock as shown by the stocks on the reports continues to perform better than the indexes. New highs fell to 177 (-15) as new lows rose to 58 (+24).
The Chart: http://www.investmenthouse.com/cd/$dja.html
The Dow tested support somewhat on the low at 10,271.57 (support at 10,200) and rebounded from there. The close put it right below potential resistance at 10,400, but the resistance levels are compressing as the 50 day MVA moves lower (10,506.15). We question the low volume ascent, but the Dow has been behaving better at least in the sense it is easily staying within its trading range. It looks as if it is going to move higher in the trading range again as it was once again able to make a higher closing low. It has done that EACH time it has tested lower since May, and that is turning into very bullish action. The Nasdaq may look poor, but the Dow is trying to build strength to break higher and take out those pesky levels such as 10,600 that has held it back. With this higher low on decent volume, we are interested in playing the Dow higher here with some index calls. It gave us a test close to 10,200, but it does not appear ready to break that level.
S&P 500: Same action, but the S&P like the Dow never pierced the July intraday lows (the Dow never got close to the closing lows). The S&P 100 (OEX) did just that, but recovered to relative safety. On the low it hit 1166.08 and then reversed 15 points to the close. Volume was not bad, but lower and below average. Better than the bounce 5 sessions prior, but not outstripping the recent sellers. This index is a bit iffier; it has not been making higher lows, and it is not heading higher on markedly higher volume. On top of that, many big caps have poor patterns for the moment. Resistance at the down trendline at 1185 and 1200 is still ahead. Not convinced this one is starting a move up.
Stats: Up 3.64 points (+0.3%) to close at 1181.66.
Volume: NYSE volume fell on the gain, failing to erase any of the distribution. 1.061 billion shares (-1.2%).
The Chart: http://www.investmenthouse.com/cd/$spx.html
TOMORROW
Friday at last or at least? Michigan sentiment is out after the open, and that may have an impact, but economic news has not moved the market all week. On top of that, Friday's in August are typically light volume, and that does not give us much direction. What we do know: the market does not have a lot of direction. It is still in a downtrend. The Dow is the only index looking as if it is trying to rise as it is making higher lows and getting pinched between the lower highs - - just the pattern the Nasdaq was making today when it jumped higher. With cyclicals in vogue again (paper, soft drinks, etc.), no wonder the Dow is trying to put together an attempted move.
The techs are still in that 'love me for the day then leave me' state, jerked around by the news of the day. But even as they plunged today, they rallied back even in the face of CIEN, one of the remaining holdouts so to speak. It just won't give up, and though not terribly impressive, we cannot ignore the increased volume on the gain.
The economic news is again tipping slightly to the positive side when comparing report to report, i.e., totaling up the reports like runs. And as noted earlier, the retracement from the April highs is still in a range considered 'normal' after a final low in a three-leg bear market. It has just been grueling on investors, grinding them up as the time passes. We had what we think was the low in March and April, the market rallied ahead of the economic news that was turning positive. Earnings and some clinker economic reports in July stalled things further, but this week the preponderance of the reports is favorable. The market leads the economy by about 3 to 6 months, and if April was the low in the market, as we have noted before that puts us on track. Just when you despair the market makes its move. Most are ready to give up, so the stars are aligning.
Problem is, there is not a lot of traditional leadership to chose from. We have regional banks, paper, auto parts, etc. performing well, but they are not the usual horses that pull the market higher. Patterns in big financials, drugs, tech, biotech are pretty poor overall. Historically it has been hard for the market to make any sustained moves without one or more of these leadership groups poised in good patterns and ready to hit new highs. That indicates a longer time span for a real move higher.
With that in mind we are ready to play the Dow if it continues its move higher in its range, and continue to work the sectors that are leading, letting them work higher for us though it is choppy even for those stocks. We are still capturing short moves of 3 days when we can, keeping some positions open when we do. We view this move in the Nasdaq and possibly the S&P with suspicion, and stand ready to add to some shorts if they hit support and fall back again. It is tougher trading. We are limiting the capital we have in the market overall until the market shows us it is much healthier.
Support and Resistance Levels
Nasdaq: Closed at 1930.22.
Resistance: 1940, the July lows, could now prove to be some resistance if there are no buyers still. 1985 to 2013 is pretty congested.
Support: 1879 turned things back up. 1869 is still a possibility. The low is 1619.58.
S&P 500: Closed at 1181.66.
Resistance: 1185 is the down trendline. Then 1200.
Support: 1170 is some support. After that it is jumbled; 1150 has tried to act as some support or resistance in the past. The low is 1081.19.
Dow: Closed at 10,392.52.
Resistance: 10,400 could be some resistance, but mild. 50 day MVA is at 10,506.15. 10,600 is resistance.
Support: 10,200. 10,120.89 is the recent July low. After that there is 10,000 to 9992, the middle of its larger double bottom pattern.
Weekly Economic Calendar (All times Eastern). The figures are the consensus expectations, not ours.
8-14-01
Retail Sales, July (8:30): 0.0 actual versus -0.2% expected and 0.0% prior (revised down from 0.2%).
Retail Sales ex-auto (8:30): +0.2% actual versus 0.1% expected and -0.2% prior. NOTE: without autos and energy, retail sales were UP 0.6%.
8-15-01
Business Inventories, June (8:30): -0.4% actual versus -0.3% expected and 0.0% prior.
Industrial Production, July (9:15): -0.1 actual versus -0.3% expected and -0.9% prior (revised from -0.7%).
Capacity Utilization, July (9:15): 77% actual versus 76.6% expected and 77.2% prior.
8-16-01
CPI, July (8:30): -0.3% actual versus 0.0% expected and 0.2% prior.
Core CPI, July (8:30): 0.2% actual and expected, 0.3% prior.
Housing Starts, July (8:30): 1.67 M actual versus 1.625M expected (+2.8%).
Building Permits, July (8:30): 1.568M versus 1.568M prior.
Philadelphia Fed, August (10:00): -23.2 actual versus -10.0 expected and -12.2 prior.
8-17-01
Trade Balance, June (8:30): -$29.5B versus -28.3B prior.
Mich. Sentiment-Prel., August (10:00): 93.0 versus 92.4 prior.
End Part 1 of 4
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us stock market
trend trading stock
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