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world stock market, us stock market
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10/20/04 Investment House Alerts Report
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IH Alert Subscribers:
MARKET ALERTS:
Target hit alerts issued Wednesday: None issued
Buy alerts issued: ARTI; KRY; DHR; CDIS; VLO; PKD; FSL; MSCC; WMB; LIFC
Trailing stops issued: None issued
Stop alerts issued: PMTC; AH
SUMMARY:
- Market meets Tuesday distribution with solid upside session.
- Oil inventories continue to fall, and that will continue crimping consumption.
- SP500 undercuts September low then rebounds on solid trade.
- SOX perking up.
Stocks rebound, look solid though volume backs off slightly.
The 'on/off' switch was still being used Wednesday. Stocks continued the Tuesday selling in the early going. SP500 made a token attempt to hold at the late September low (1101), but was slipping lower through that point when the oil inventories for the week came out below expectations across the board. The selling increased its tempo on the news and SP500 reached down to the next support. That was the undercut we were looking for.
Almost on queue the 'on' switch was thrown and stocks started to rebound, moving straight up the next half hour as SP500 moved right back up to that September low. It was not a clean break back through that level, but it held on for an hour, then rallied right on through on solid trade. Indeed, volume was solid as the market recovered. An afternoon fade tested the 1100 level until the last hour when the index rebounded to match the session high on the close.
Why so much discussion about SP500? NASDAQ is in better shape, easily holding above its September low and the 50 day EMA. NASDAQ will find it hard to pull the market higher on its own if the large caps are selling lower and lower. SP500's ability, thus far, to hold the late September low and rebound is key because it keeps the rally off the August low alive.
The test lower and rebound was a classic intraday test below support and a rebound to hold that level. That can initiate a further upside move as the shorts cover as they did Wednesday and longer term buyers move in as well. It was not all short covering as the better performing indexes were leading Wednesday (NASDAQ, SP600 small cap index). When short covering is the only game in town, the worst performing stocks and indexes are the ones that recover because those are the stocks the shorts were selling. No doubt shorts were at work, but they were not the only game in town. The potential is there for a continued rebound, but as always, the question is whether the longer term buyers will take the baton when the shorts finish their covering.
THE ECONOMY
Oil inventories down yet again and oil rises toward $55/bbl.
There is an old Sammy Hagar song about his inability to drive 55 mph; yes, it is that old. Now that oil is nearing $55/bbl and inventories of crude and gasoline keep falling lower, perhaps the song should be changed to 'I can't drive with oil at $55.' A rather lame segue into the topic, but the point is there: if prices continue to rise and stay at this level into the holidays, consumers and businesses will have to divert more disposable income to burning fossil fuels to get to work, stay warm, fire up the machinery, etc. With a slowing economic expansion already, the weight of higher oil prices is only going to pressure it further.
You might ask why inventories continue to drop with OPEC pumping at or near capacity. First, OPEC cannot absorb the additional demand as it used to. The extra capacity it can bring to bear on the market is primarily heavy sour oil, i.e. high viscosity oil with a lot of sulfur in it. That is costly to refine, and indeed, many US refineries cannot crack it even if they wanted to. Second, even though Ivan was not the train wreck it could have been for Gulf of Mexico oil production, upwards of a million bbl/day are still offline. Moreover, gulf coast refining capacity remains diminished as several refineries are still closed or operating at reduced capacity. With the volatile compounds they are dealing with, the last thing you want to do is rush something back on line only to have an explosion or some other event.
Thus the picture did not brighten at all regarding the immediate future with respect to energy. There is a lot of supply even with the Gulf production reduced, but there is still a lot of event risk built into the price of every barrel, sweet or sour. When the event risk abates, that will allow prices to steady, and the jumps higher will slow and steady as well. Unfortunately, the event risk does not appear ready to abate with the election still 2 weeks out.
THE MARKET
Once more stocks did what they had to do, meeting the Tuesday reversal and distribution session with a rebound. Again, the action was classic with the undercut of support and then rebound as the shorts covered and some longer term buyers moved in for some of their favorite names at lower prices. Volume was lower but still solid; it did not wipe away the distribution but it was a decent response given SP500 rallied back sharply from the lows and NASDAQ continued to hold solidly in its range. For another session, NYSE volume eclipsed NASDAQ volume; as noted before, that is an indication that the speculative index is sold out. With NASDAQ looking the best of the major indexes, that has some merit to it.
Even on the close, it is still no picture of beauty, just a blue collar day at the office, doing what had to be done to fight off a further and more damaging drop. Thursday starts once again with SP500 holding over the September low, having to hang on and try to mount a continuation of the rally.
It has not been easy by any stretch, and it was not just business as usual. The hyperactive New York attorney general has helped the selling in his quest to make more of a name for himself for when he runs for governor or some other higher New York office. The mutual fund scams were inexcusable, and his pursuit of them worthy. The lawsuits against the northeastern utilities for global warming were preposterous. While the allegations in the insurance lawsuits sure smell bad if true, one has to wonder at the timing, coming within three weeks of a national election. The SP500, heavily weighted with insurance and healthcare companies has been hammered. Stock market performance is an election issue. Spitzer has timed his actions to best benefit him on the national stage and likely to promote his party.
Talking to floor traders and market makers, they have no love for Spitzer and many blame him for the selling. Well, if the companies were doing as alleged, it is improper behavior and the traders have no real complaint regarding that. Their argument regarding the timing, however, has some merit. In any event, it is another factor, another weight on stocks that they have to try and shake off to rally. Indeed, just as they were trying to make that election rally the lawsuits hit and started some distribution. There is no really good time for the market to announce this type of news, but the fact that it was done just a few weeks before a presidential election has most traders we talk to rather upset.
Market Sentiment
VIX: 14.85; -0.28
VXN: 20.65; -0.19
VXO: 15.1; -0.53
Put/Call Ratio (CBOE): 0.85; -0.1. Recall that there is often a week or so delay between hitting those 1.0 closed on the ratio and a meaningful rally. At the brink?
NASDAQ
NASDAQ continued as the mainstay for the market, holding over the 50 day EMA and within its recent range, answering the distribution with a solid upside session. The SOX continued its quiet improvement.
Stats: +10.07 points (+0.52%) to close at 1932.97
Volume: 1.672B (-2.92%). Volume was lower but ever so slightly and still a strong, above average volume session.
Up Volume: 995M (+259M)
Down Volume: 660M (-310M)
A/D and Hi/Lo: Advancers led 1.28 to 1
Previous Session: Decliners led 1.57 to 1
New Highs: 56 (-36)
New Lows: 77 (+9)
The Chart: http://www.investmenthouse.com/cd/^ixq.html
NASDAQ undercut the 18 day EMA (1919), but never threatened the 50 day EMA (1902) on that low before rebounding to post a solid gain on some lower though still solid volume. It struggled on the oil inventory news, but it too rebounded sharply and closed at the session high hit earlier in the day. It continues to work laterally in a range between 1900 and the 200 day SMA (1961) as the large caps work through their selling. It has held the even keel for the market, and if SP500 did pull a reversal session out, NASDAQ may get some help and work toward a breakout from this range.
NASDAQ 100 showed similar action, undercutting the 200 day SMA (1440) on the low and then rebounding for a nice gain. The large cap techs performed a bit better than the overall index (+0.6%) and are in the best shape of the techs to mount a rally.
Then there is SOX, quietly building its base moving laterally the past 6 weeks. It just edged out the 50 day EMA (392.99) on the close with very good breadth in the index and in the chip world as well. It too has been trading in a range between 375 and roughly 406 on the high. If it comes through with a breakout, NASDAQ will be able to lead all the better.
S&P 500/NYSE
The reach down through support and then the rebound on solid volume to close positive. Nice reversal.
Stats: +0.43 points (+0.04%) to close at 1103.66
NYSE Volume: 1.689B (-2.55%). Volume faded but was still outstanding as stocks reversed and rebounded to the upside this day. It does not wipe away the distribution, but it was a good answer to it. Some of that trade was short covering, and that always has some fury behind it. That is, however, how rallies start.
Up Volume: 839M (+353M)
Down Volume: 813M (-398M)
A/D and Hi/Lo: Advancers led 1.16 to 1. Narrow breadth though small caps were one of the leadership groups. Breadth typically lags the overall turn, but narrow breadth on a rebound after some heavy selling tells us that short covering was involved.
Previous Session: Decliners led 1.83 to 1
New Highs: 40 (-87)
New Lows: 73 (+5)
The Chart: http://www.investmenthouse.com/cd/^spx.html
Discussed at length above with its continuation of the selling that undercut the important low and then reversed to rally positive on the close. It had the attributes of a key session, and the only thing substantively lacking was stronger trade than the prior day. Trade was excellent, just lower than the distribution the session before. The stage is set and now we see if the large caps can shake off the news that has plagued them the past two weeks.
The small caps continued to hold the 50 day EMA, undercutting intraday and then rebounding for a gain. Still in that narrow range between the 50 day EMA and 292. In position to rally, and if NASDAQ takes off and SOX rallies, you can bet SP600 will be there.
DJ30
Similar to SP500, the blue chips sold below the May low, tapped at the August lows and then rebounded. Unlike the other indexes, DJ30 rallied back on strong, rising volume. It was unable to close positive, but the intent was in the right place. If nothing else, DJ30 has sunk far enough in its downtrend to set up an oversold bounce.
Stats: -10.69 points (-0.11%) to close at 9886.93
Volume: 272 million shares Wednesday versus 264 million shares Tuesday.
The chart: http://www.investmenthouse.com/cd/^dji.html
THURSDAY
Earnings are really churning now, and after hours there were plenty to give a boost to the Thursday trade. EBAY was on the move higher after hours along with several technology stocks. After the reversal and rebound Wednesday, those earnings could help push stocks higher as they try to hold the recent low and resume the rally off the August low. Thus far earnings have been unable to generate sustained buying in stocks. The market looks to be at a point where stocks have price in the bad news and are ready for a rebound whether a serious, additional follow through rally or an oversold bounce.
The semiconductors are looking better but many are still way down in their bases. Some opportunity may arise there. Technology is still so disdained and yet still forming up to make breakout moves (along with NASDAQ and NASDAQ 100) that it is much more interesting. We also note that the oil stocks perked up nicely Wednesday, starting the recovery from their recent plunge lower. At the same time market leaders that pulled back during the recent selling have set up for a rebound, and some will provide new entry points the next few sessions if the rebound can continue to take shape.
Support and Resistance
NASDAQ: Closed at 1932.97
Resistance:
October gap up point at 1952.
The 200 day SMA at 1961.55
January/late June down trendline at 1965
Price resistance at 2050
Support:
September high at 1921.
The low of the September range at 1900
The 50 day EMA at 1902
September gap up point at 1894
The October 2002/March 2003 up trendline at 1895
S&P 500: Closed at 1103.66
Resistance:
The 50 day EMA at 1113.59
The 200 day SMA at 1120
1125 to 1130 is prior price resistance, and 1128 is the September closing high.
The March/June down trendline at 1126
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:
September low at 1101
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 9886.93
Resistance:
9980 to 10,000.
The 10 day EMA at 9980 (stopped the Tuesday move)
The 50 day EMA at 10,103
The February/June 2004 down trendline at 10,230
The 200 day SMA at 10,279
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:
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 19
Housing Starts, September (8:30): 1898K actual versus 1950K expected and 2020K prior (revised from 2000K)
Building Permits, September (8:30): 2005K actual versus 1950K expected and 1969K prior (revised from 1952K)
CPI, September (8:30): 0.2% actual versus 0.2% expected and 0.1% prior
Core CPI, September (8:30): 0.3% actual versus 0.2% expected and 0.1% prior
October 21
Initial Jobless Claims, 10/16 (8:30): 345K expected and 352K prior
Leading Economic Indicators, September (10:00): -0.1% expected and -0.3% prior
Philadelphia Fed, October (12:00): 18.0 expected and 13.4 prior
End part 1 of 3
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world stock market
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