|
|
trade stock, stock trading
* * * *
10/25/04 Investment House Alerts Report
* * *
IH Alert Subscribers:
MARKET ALERTS:
Target hit alerts issued Monday: None issued
Buy alerts issued: QTWW; JLG; ZQK
Trailing stops issued: None issued
Stop alerts issued: MRVL; WITS
SUMMARY:
- Market holds steady as modest afternoon bounce fades.
- Housing starts post another surprising gain. When is it no longer a surprise?
- NASDAQ, small caps holding 50 day EMA, trying to deliver a bounce.
- Insurance stocks rebound after hours on news Spitzer won't seek criminal charges against MMC.
Stocks fight off early pressure, rally modestly, but no buy side strength.
Stocks followed through a bit more to the downside after the Friday selling, but there was not a lot of pressure to push stocks lower. NASDAQ held at the 50 day EMA, and after a morning of sideways movement managed a rebound along with the other indexes, helped by a Smith Barney upgrade of the chip sector for the coming year. There was no power to the buying, however, as volume eased. NASDAQ turned positive in the early afternoon, but started fading almost as soon as it turned positive. Stocks slid into the close, but did manage to hold well off session lows.
The chip upgrade helped semiconductors lead the market (SOX +0.7%) with small caps right behind (+0.6%). That kept breadth decent even as the large caps struggled. NASDAQ was lower, but chips and small caps have played a large part in the market's ability to hold at least some ground. The ability to shake of some early weakness and rally, even though volume was modest, was a small positive.
It was also good to see strong stocks continuing to hold the line at near support. Rallies only last as long as the leaders continue to lead upside. Pullbacks are part of rallies as stocks need to consolidate and settle out the fluff built up in the surges higher. As long as leaders hold near support and hold their breakouts during these periods, the rally remains intact. Monday saw many of those stocks holding up just fine. Indeed, there were some scattered strong volume breakouts from leaders. Along with chip stocks, some retail stocks (specifically apparel) posted a fine session. It is interesting to see some retailers performing well even as higher oil prices continue to rise and are supposed to cut into spending.
At the close there was basically no change from Friday with NASDAQ, SOX, and SP600 holding support at the 50 day EMA, trying to set up the next bounce. They may get some help from SP500 and DJ30 in putting that bounce together, however, as both of those indexes showed nice dojis with tales, rebounding from early selling to recoup losses and close basically flat. That can be an indication of a momentum shift that can help foster a rebound. Of course, we saw those last Wednesday and Thursday, and all we got out of it was a dump lower on Friday. After hours the insurance stocks were recovering on news Spitzer was not going to seek criminal charges versus MMC. That could provide the tourniquet to the bleeding in the large cap index selling, allowing the NASDAQ and friends to start the rebound they have been trying to put together.
THE ECONOMY
Existing home sales rise when expected to fall.
September existing home sales rose 3.1% to 6.75M annualized units after expectations for a drop to 6.52M. There continues to be speculation about the housing market in a bubble with home ownership climbing to record levels, home price increases leveling off, and housing inventories reaching a multiyear high in this fall. The bottom line to the housing market is interest rates. They are still at historic lows, keeping mortgage rates low as well. That keeps affordability high and is driving the housing market.
When do we really have to worry about a housing 'bubble'? When interest rates climb enough to make houses less affordable as buyers start failing to qualify. That is when any market runs into trouble: a lack of consumers to drive it. What has made home ownership levels rise is low rates. As inflation continues, rates will rise and that will start to choke off the stream of qualified buyers. It also eats into the value of all things, including houses, and that works to keep potential buyers from making the plunge.
That somewhat mitigates the 'bubble' moniker attached to the housing market. Instead of a rapid collapse it would seem to be a more modest decline as interest rates continue to rise and the flow of buyers dwindles. That goes to housing buys. As for housing values, when the buyers market dries up the engine driving values also sputters. Home values could thus be the hardest hit in any significant deceleration in the overall market. While home values may fall, inflation actually helps those making payments. There is an old adage that you repay a debt with inflated dollars as those are worth less. As always, there is more than one side to any story.
THE MARKET
No real movement in the market, but given the selling of late, no movement can be a good thing. NASDAQ, SOX, SP600 held the 50 day EMA as they needed to do, but there was no big lift off of those levels. SP500 and DJ30 closed lower, but they also staged good recoveries and losses were modest on lighter volume. Stocks thus remain set to rebound. The question is whether they get a trigger to do so.
One bright spot Monday were some strong moves in the apparel sector, part of the consumer sector that everyone is worried about. If oil prices continue to rise the consumer is supposed to fall. Thus far, however, the retail stocks have not shown any appreciable decline. Stocks forecast economic activity and earnings. Thus when we see consumer based stocks breaking higher on solid volume, you have to look hard and economic projections. Stocks are not always right. A single stock can breakout on volume and then reverse under a wave of selling. As a group, however, they are much more accurate. When a sector has formed up solid accumulation bases near all time highs and then breakout on strong trade, you don't ignore that. Definitely an important part of the equation where conventional wisdom calls for a declining consumer as oil prices and inflation rise.
Despite the recent selling and SP500's lower low and DJ30's new 2004 low, the advance/decline line has been strong since the August low. It broke out in early September and rallied into early October. During the recent selling it has waffled and wandered slightly lower, a normal result. Now a breakout in itself is no guarantee the move will continue. When it comes after an 8 month trading range it bears more significance. It shows there is broad underlying strength to the move. Another factor to consider as SP500 struggles to hold its base and DJ30, a very narrow index, makes a new 2004 low.
Market Sentiment
Volatility gapped over the 200 day SMA Monday, clearing the October high and hitting its highest level since August when it peaked at 20 as that rally started. That seems significant, but volatility is still at very low historic levels, and it is hard to attach much significance to it from that basis. From a more micro view, these smaller spikes, just as with the put/call ratio spikes, have spawned upside moves in the base. At this juncture that is how we have to look at it to put the move into perspective.
VIX: 16.58; +1.3
VXN: 22.7; +1.34
VXO: 16.87; +0.78
Put/Call Ratio (CBOE): 0.76; +0.02
NASDAQ
Tapped the 50 day EMA on the low and basically held the line after the Friday reversal. It has made the test and now can it make a rebound back toward the top of the range?
Stats: -1.1 points (-0.06%) to close at 1914.04
Volume: 1.614B (-7.9%). NASDAQ lost a bit of ground, closing off of its intraday high because it had no volume to hold the move. The Friday selling volume was lower than the Thursday upside move, and the Monday volume was even lower. That is a positive, but NASDAQ is going to have to make something out of this eventually. Right now ahead of the election, holding onto this level on quieter trade was not bad.
Up Volume: 870M (+501M)
Down Volume: 711M (-661M)
A/D and Hi/Lo: Advancers led 1.19 to 1. Squeaked out an internal gain, but cannot take a lot from that specific result. Overall the A/D line has been solid even as NASDAQ has worked laterally.
Previous Session: Decliners led 2.07 to 1
New Highs: 62 (-29)
New Lows: 86 (+30)
The Chart: http://www.investmenthouse.com/cd/^ixq.html
After the Friday selling NASDAQ managed to tap the 50 day EMA (1905) on the low and hold the line. It managed a bounce to positive after the test, but that could not hold as volume slipped and no one really wanted to stick out the neck just yet. It remains within the October range, holding over the lows at 1900 as it attempts to set up the next upside bounce. It has managed to hang on without help from SP500 and DJ30, but that may be coming now.
NASDAQ 100 showed its own test of the 50 day EMA and rebound as it too held the lows of the recent range on lower volume. QQQ volume backed off on the modest loss as with the overall index.
Aided by a SSB upgrade, semiconductors posted the best overall gain as SOX rallied 0.7% though it too closed well off the intraday high. SOX is trying to make that higher low at the 50 day EMA (393.85). We note that volume on SMH shot higher Monday on the upgrade and as the SOX/SMH posted modest gains and showing a hammer doji at the 50 day. We are looking for a solid volume move higher off this level to take some more positions on our SMH play and look at some highly volatile SOX options as well.
S&P 500/NYSE
Down and then back up for a modest loss on low volume as the insurance probe widened. After hours, some good news for those stocks, however, may help out.
Stats: -0.94 points (-0.09%) to close at 1094.8
NYSE Volume: 1.378B (-6.22%). Volume backed off as SP500 reached lower in a follow through to the Friday selling, but then rebounded to recoup most of the loss. We saw a high volume reversal last week, and all that brought was a Friday sell off. This lighter volume doji on some lower volume may be a quiet reversal for a near term rebound.
Up Volume: 664M (+226M)
Down Volume: 699M (-281M)
A/D and Hi/Lo: Advancers led 1.1 to 1. Small caps helped keep the A/D line positive on a downside large cap session.
Previous Session: Decliners led 1.77 to 1
New Highs: 100 (-26)
New Lows: 63 (+18)
The Chart: http://www.investmenthouse.com/cd/^spx.html
Sold lower following the Friday selling, but volume was never there. That allowed the index to rebound and close just modestly lower. After making a lower closing low last week, SP500 tapped at the March lows at 1090 and managed a rebound. Volume will need to improve on a further rebound to show there is strength, but not a bad session. After the high volume reversal attempt failed last week, why not see how a low volume attempt succeeds?
The small cap SP600 tested its 50 day EMA (287.56) along with NASDAQ and SOX, and it posted a decent rebound itself though hardly a new breakout. It tried to rally past the 18 day EMA (290.39) on the high, cleared it, but could not hold it into the close. Good recovery from the Friday dump, and definitely in position to rebound. The small caps are still receiving a lot of investor money despite calls for their demise in favor of large caps. The opposite has been happening.
DJ30
Similar to SP500, the blue chip index sold lower once more but rebounded on lower volume for a modest loss. Still below the August lows at 9800 and still a very weak pattern. The blue chips are just about oversold enough on this downside leg to provide some sort of upside bounce, and it may get some help from AIG as the insurance stocks were actually moving higher after hours.
Stats: -7.82 points (-0.08%) to close at 9749.99
Volume: 233 million shares Monday versus 258 million shares Friday.
The chart: http://www.investmenthouse.com/cd/^dji.html
TUESDAY
Earnings reports were flying again after hours. It was pretty much feast or famine: if you beat handily and boasted about the future, feast. If you missed, famine. Everything else was treated ambivalently. We heard one commentator on a financial station remark that earnings season was going well. I suppose if you are looking just at earnings, it is not bad. Just over half way and 62% are beating and just 12% missing estimates. That has the look of a decent season, but that is not the story. Stocks are about the future and earnings reports are mostly about the past. It is the combination of a strong report and something significant in the future that really sparks stock price movement.
So, some stocks were surging while others were tumbling. The key report after hours was one that indicated MMC had reached an agreement with the New York AG that because of the measures the company took with respect to management and future practices that no criminal charges would be sought. That had the insurance companies all sharply higher after hours. That could provide the spark needed to start a bounce to alleviate some of the oversold condition.
In addition, the Conference Board's consumer confidence report is out at 10ET Tuesday. After the much weaker than expected preliminary Michigan report last week, this has the potential to impact stock action given the positioning of the market, i.e., if it starts to produce an oversold bounce. Confidence is expected to fall to 94.0, but that is still a number solidly in the 'consumption' band of consumer confidence. If the results come in better and thus offset the basically worthless preliminary Michigan sentiment reading, that could really help foster a rebound.
While NASDAQ, SOX and SP600 are poised for a bounce and could actually get help from SP500 Tuesday, that is still a long way from saying the rally light is back on. The August rally is being seriously tested with SP500 making a lower low in the recent selling. At the same time we see strong stocks holding near support and in position to continue their moves higher as well. As long as strong leaders hold the line and continue to lead higher on solid trade, that is the best indication for the market as a whole.
Given the market sentiment readings that show bulls hitting a bearish level last week, SP500 making a lower low, and all of the outside influences overhanging the market (election, terror before the election, oil), any rebound at this point is viewed as just a rebound move until it proves otherwise. What we will be looking at are the leaders that rebound on volume or make volume breakouts. Those stocks proved their strength in the pullback and will be the ones in good position and with the best credentials to rally and hold the move.
Support and Resistance
NASDAQ: Closed at 1914.04
Resistance:
October gap up point at 1952
The 200 day SMA at 1959.30
January/late June down trendline at 1963
October high at 1971
Price resistance at 2050
Support:
The 50 day EMA at 1905.17
The low of the September range at 1900
September gap up point at 1894
The October 2002/March 2003 up trendline at 1898
The 50 day SMA at 1888
S&P 500: Closed at 1094.80
Resistance:
September low at 1101
The 50 day EMA at 1111.92
The 200 day SMA at 1119.43
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:
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 9749.99
Resistance:
9783 to 9793, the August lows.
9980 to 10,000.
The 10 day EMA at 9891 (stopped the Tuesday move)
The 50 day EMA at 10,067
The February/June 2004 down trendline at 10,220
The 200 day SMA at 10,267
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:
9625 - 9660 from September 2003.
9500 from various price points in late summer to fall 2003.
9250. More solid support from the June through August 2003 consolidation.
Economic Calendar
These are consensus expectations. Our expectations will vary and are discussed in the 'Economy' section.
October 25
Existing Home Sales, Sep (10:00): 6.75M actual versus 6.54M expected and 6.54M prior
October 26
Consumer Confidence, October (10:00): 94.0 expected and 96.8 prior
October 27
Durable Goods Orders, September (8:30): 0.5% expected and -0.3% prior
New Home Sales, September (10:00): 1150K expected and 1184K prior
October 28
Initial Jobless Claims, 10/23 (8:30): 335K expected and 329K prior
Help-Wanted Index, September (10:00): 37 expected and 37 prior
October 29
GDP-Adv., Q3 (8:30): 4.3% expected and 3.3% prior
Chain Deflator-Adv., Q3 (8:30): 1.6% expected and 3.2% prior
Employment Cost Index, Q3 (8:30): 1.0% expected and 0.9% prior
Michigan Sentiment-Rev., October (9:45): 88.0 expected and 87.5 prior
Chicago PMI, October (10:00): 59.0 expected and 61.3 prior
End part 1 of 3
|
trade stock
stock trading
|
