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us stock market, trade stock
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10/06/04 Investment House Daily
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Investment House Daily Subscribers:
MARKET ALERTS:
Target hit alerts issued Wednesday: None issued
Buy alerts issued: AIRT; PAAS; LPX AKAM
Trailing stop alerts: IGL (took rest of nice gain off table)
Stop alerts: SEE
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. To subscribe to the Daily alert service you can sign up at the following link:
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SUMMARY:
- Sluggish session gives way to late shot higher.
- Oil inventories rise, but so do oil prices. Alternatives are there is we would work at it.
- NASDAQ breaks through 200 day SMA as rally resumes without much rest.
- Subscriber Questions
Slow session changes stripes in the last hour.
Stocks were soft once more as the market continued to digest the recent run. The early selling was modest, but it was not enough to lure in a wave of buyers. Stocks traded up and down in a relatively narrow range most of the session, not bad action for a consolidation, just a bit boring as we wait for the market to digest the gains and set up the next move.
The early action did not get much help from the news front. More earnings warnings came pre-market from a wide range of sectors. CMOS from semiconductors, TWTR from home electronics, ADTN from telecommunications, BLI from consumer retail. All warned of slower sales this quarter, giving rise to further concerns that the Fed's belief the soft patch is over holds little water. Further, oil inventories were higher, but not as high as anticipated; oil cracked over $51/bbl as the session wore on.
With that background stocks wandered, but they still hung in once more, refusing to give back much of the recent gains. They edged higher in the early afternoon, still looking sluggish, but in the last hour the buyers opened the wallet and stocks along with volume surged. Trade was running solid on NASDAQ but lagging on NYSE until the last hour when a burst of activity sent both above Tuesday levels.
NASDAQ topped its 200 day SMA while SP500 added to its move over its last down trendline of this year. SP600 hit another all-time high and SOX, while lagging the market, held its ground above 400 as it sets itself for a try at another run. Good consolidation action where stocks refused to give up their gains converted into more buying late. Not bad action at all.
THE ECONOMY
Oil rises on inventory reports
No government reports issued Wednesday in a rather quiet data session leading up to the Friday jobs report. Oil inventories were reported up 1.1M bbl, less than the 2.2M bbl expected (hoped?). Gasoline stocks rose 0.6% while distillates fell 2.1M. The latter was a hard hit to the consumer. Heating oil comes from distillates, and stocks had been rising in preparation for winter. Gasoline prices jumped the past month even as driving season ended, and it does not look as if the consumer will gain much relief as energy needs switch to heating. Decades of no energy plan and regulation providing disincentives to increase refining capacity have again come home to roost.
Alternatives out there?
We are amazed at the all or nothing form of debate with respect to energy. One side wants more oil and gas drilling, more nuclear, and some more hybrid power. The other side wants less oil and gas drilling and lots of investment in alternative sources. One wants incentives, the other regulations (a.k.a., requirements). Neither will give the other any ground, and it is not just because it is an election year. It is the same story that has kept us from an energy policy for, again, decades.
There are existing alternatives right now that would reduce our energy dependence, but they are hardly known in the common parlance. Most new government buildings are required to use geothermal heating and cooling as opposed to the traditional air to air cooling systems and direct fossil fuel burning heating systems. Geothermal is just an underground radiator with pumps that push water through pipes in the ground, transferring heat in the process. The only energy used is in the pump and blower. Very efficient, and though more expensive up front, they last longer and pay for themselves long before they need replacing. The typical air to air A/C is supposed to be replaced every three years even if it is working because it loses so much efficiency it costs more to run than buying a new one. My household did the math and opted for geothermal when replacing our system.
Solar power is also a reality now with inexpensive and readily available solar panels. It is widely used in RV's and other household uses such as solar attic fans. We use some of these on one of our buildings as well. Again, they pay for themselves and are running long after the electric powered fans have chewed through hundreds of dollars in operating costs and burned out motors.
Why not borrow some elements from both sides? First, educate as to the merits of geothermal and solar household applications, showing how they are indeed better values than their counterparts. More upfront cost, but a significant cost savings over the life of the system versus it cost and operation of its outdated counterparts. Second, instead of mandating use of the technology, provide incentives to use it. Favorable power pricing from utilities and tax incentives readily come to mind as a way to encourage smart choices in how we heat and cool houses and office buildings. Indeed, geothermal systems can be built on a neighborhood basis with the entire neighborhood sharing the central pumping unit. It is being done in some areas now but needs more publicizing, more education, and then incentives to start the ball rolling.
No this won't solve the problem, but the zero sum game that has been the rule for, well, ever, is not about to solve the problem. With consumption for geothermal at least 30% lower than the dated methods, imagine the reduced petroleum usage if it was adopted in half of the country? To say that would not help is the same as saying drilling less than 1% of ANWR would not help our oil situation. All the parts add up to the whole. You don't pay for your retirement with one trade; you work steadily at it, making the good investments, letting the winners run and cutting off the losers. Before you know it the results are stunning. Somehow that message is lost at the federal government level.
THE MARKET
Soft early, strong late. After a brief rest where stocks did not give up their gains, right back to rallying on volume. The bullish action that returned on this recent rebound has not abated. Wednesday it was basically showing off with a strong volume surge on NASDAQ that pushed it above the 200 day SMA for the first time since July when it dove through that level.
Market Sentiment
VIX: 13.28; -0.67
VXN: 19.77; -0.25
VXO: 13; -0.27
Put/Call Ratio (CBOE): 0.78; -0.05
NASDAQ
NASDAQ continued the move higher on strong volume, moving through the 200 day SMA without filling the Monday gap.
Stats: +15.53 points (+0.79%) to close at 1971.03
Volume: 1.946B (+12.59%). Strongest volume since the July selling as NASDAQ moved through the 200 day and toward the last down trendline of the year. Very strong price/volume action the past week as it has powered higher.
Up Volume: 1.376B (+374M)
Down Volume: 529M (-163M)
A/D and Hi/Lo: Advancers led 1.67 to 1. Negative most of the session and then turning positive as tech stocks surged to the close.
Previous Session: Decliners led 1.23 to 1
New Highs: 132 (+22)
New Lows: 34 (+7)
The Chart: http://www.investmenthouse.com/cd/^ixq.html
While it is hard to fault the Wednesday move with its late surge and powerful trade, we would have preferred it fill this small gap and set up a bit better test before continuing higher. There was not much rest at all; NASDAQ gapped higher Monday, stepped sideways Tuesday, spent most of Wednesday doing the same, but then blasted off late. Not much rest there and still that little gap with its gravitational pull. Not all gaps are filled, at least right away (it can take years as seen in the late 1990's run), but it would be nice to have put that one to rest.
Solid action still, and it is now moving toward the last down trendline of the year, the January/June trendline at 1975. In addition, the 18 day EMA has crossed, tested, and is now rising above the 50 day EMA. This crossover and test indicates more short term upside. A bit more rest would have set the move up better to try that resistance as well as to weather the Friday jobs report. It is never a perfect scenario, however, but when the market talks with strong volume moves, we have to listen.
Large cap techs surged higher on strong volume as well. NASDAQ 100 just about filled the gap as it tested the break over the 200 day and started higher. QQQ rallied to a new post-August high, but volume was below average for the second consecutive session, a disappointment given the strong NASDAQ trade.
SOX tapped 400 once again on the session low then rebounded for a modest gain. While it has lagged the past two sessions, SOX is setting up for another move higher after breaking through, testing, and holding the 400 level.
S&P 500/NYSE
Continued the move off of the January/July down trendline, rallying on rising, above average volume. Trying to put the moves on the June top.
Stats: +7.57 points (+0.67%) to close at 1142.05
NYSE Volume: 1.419B (+0.25%). Volume remained above average and added a smidge to the Tuesday level. That resumes positive price/volume action. Overall volume has been very solid the past 7 sessions where it has come to life and traded above average each session.
Up Volume: 1.376B (+374M)
Down Volume: 529M (-163M)
A/D and Hi/Lo: Advancers led 1.67 to 1. Flattish breadth all session before the late surge. With small caps leading higher, breadth was improving.
Previous Session: Decliners led 1.23 to 1
New Highs: 132 (+22)
New Lows: 34 (+7)
The Chart: http://www.investmenthouse.com/cd/^spx.html
Large caps surged late to post a solid gain on rising volume. This move put some more distance between it and the March/June down trendline (1130) and took it to the threshold of breaking the June high (1142-1146). Solid resumption of the rally, making SP500 the next likely index to test its 2004 high after SP600.
Speaking of small caps. They ran to a new closing high on the session, posting a market leading 0.9% gain. News of their demise was premature.
DJ30
The blue chips rallied on stronger volume as well, moving off of the 50 day EMA (10,162) test. Still below the February/June/September down trendline (10,260) and the 200 day SMA (10,298). Its work is still cut out for it.
Stats: +62.24 points (+0.61%) to close at 10239.92
Volume: 232 million shares Wednesday versus 224 million Tuesday.
The chart: http://www.investmenthouse.com/cd/^dji.html
THURSDAY
Weekly jobless claims are out before the open, but the die is more or less cast for the Friday jobs report. As noted earlier this week, the jobless claims have been all over the map due to the hurricanes, but the mean of those reports does not suggest any significant job gain, and some private reports regarding hiring and firing are not providing much comfort that even the consensus will be met, much more an upside surprise. Now there is speculation that the prior months will be revised significantly higher due to summertime inaccuracies, something not that uncommon. We saw substantial revisions two reports back with more minor changed last month. A nice round of strong upside revisions would really help take the sting from a modest headline for September. This would have more to do with sentiment and confidence than being a leading indicator.
As noted, we would have preferred another day or two of rest to set up the next break higher. Now it is making its move ahead of the report and the serious start to earnings season. A further rally in anticipation of jobs and earnings sets up the possibility of disappointment selling. We will keep the stops on current plays at a safe level to protect from disappointment.
Given the break higher, however, many stocks are ready to move higher again after making a brief test of the recent upside move. The market continues to show renewed strength in accumulation and in leadership. These are not to be ignored, but you have to look for good entry points and not chase stocks that have rallied and are due for a pullback, particularly with NASDAQ still having to deal with the last down trendline of the year, the jobs report on Friday, and earnings season ramping up next week.
Support and Resistance
NASDAQ: Closed at 1971.03
Resistance:
January/late June down trendline at 1976
Price resistance at 2050
Support:
The 200 day SMA at 1965
Gap up point at 1942
Recent September high at 1921
September gap up point at 1894
The 50 day EMA at 1891
The October 2002/March 2003 up trendline at 1875
S&P 500: Closed at 1142.05
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/June down trendline at 1129.50
1125 to 1130 stalled the last move and could be some support.
The 200 day SMA at 1119
The 50 day EMA at 1113
The 50 day SMA at 1105
1096 to 1100 represent price support.
May low at 1084 (closing) to 1076 (intraday).
1080 (May and July lows).
1064 (August low).
Dow: Closed at 10,239.92
Resistance:
The February/June 2004 down trendline at 10,260
The 200 day SMA at 10,299
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 EMA at 10,162
9980 to 10,000 held last week.
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.
October 04
Factory Orders, August (10:00): -0.1% actual versus 0.1% expected and 1.7% prior (revised from 1.3%)
October 05
ISM Services, September (10:00): 56.7 actual versus 59.0 expected and 58.2 prior
October 07
Initial Jobless Claims, 10/02 (8:30): 335K expected and 369K prior
Consumer Credit, August (3:00): $6.0B expected and $10.9B prior
October 08
Non-farm Payrolls, September (8:30): 150K expected and 144K prior
Unemployment Rate, September (8:30): 5.4% expected and 5.4% prior
Hourly Earnings, September (8:30): 0.3% expected and 0.3% prior
Average Workweek, September (8:30): 33.7 expected and 33.8 prior
Wholesale Inventories, August (10:00): 0.8% expected and 1.3% prior
SUBSCRIBER QUESTIONS
Q: You've frequently referenced the Jan-March down trendline on the NASDAQ recently and that it's now been cleared. But what about the Jan-June down trendline? Is that not important as well? Thanks, enjoy your commentary and stock plays nightly.
A: You are right to look to the next resistance level. As we have noted in the march off of the August low, it is one step at a time, one resistance level at a time. Now NASDAQ has also cleared the 200 day SMA, and that leaves the last downtrend for the year the January/June (1976)one that you reference. It is not clear sailing if it can break that level as there are still several interim highs from earlier in the year. Still, breaking trendlines is key because they are trends and stocks historically show move with them as opposed to against them. Thus when a trend is broken it demands attention, particularly when it is a trendline that has held many times.
End part 1 of 3
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