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11/24/04 Investment House Daily
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Investment House Daily Subscribers:
HOLIDAY SCHEDULE
Saturday through Tuesday: Market summary, best plays (new & current), continuing play table summary.
Wednesday: Market summary, continuing play table summary.
Monday: Full reports resume as usual
MARKET ALERTS:
Target hit alerts issued Wednesday: NTAP
Buy alerts issued: MACE
Trailing stop alerts: LTD
Stop alerts: None issued
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:
http://www.investmenthouse.com/alertdly.htm
SUMMARY:
- Upside bias, holiday rally join for a decent session.
- Durable goods orders sink.
- Michigan final sentiment decent but less than expected.
- Low volume rally pushes large cap indexes to top of range while small and mid-caps hit new highs.
- Half session Friday.
Stocks show holiday cheer.
The sessions sandwiched around Thanksgiving are usually positive, and it does not hurt that the market has an upside bias moving into that time. That was evident Wednesday as stocks overcame some lukewarm economic data and put on a decent rally. It was tech led with the large cap techs posting the best gain but NASDAQ, SOX and the small caps all posted solid sessions.
Volume was lower as expected. It started out quite strong, but then at noon it dried up and that took a lot of pop out of stocks. A late rally closed stocks near their session highs, though they waffled the last half hour after a spurt of buying pushed NASDAQ through its morning high. Stocks ended a volatile week on an up note, holding their recent lateral consolidation range. The small and mid-caps broke to new all-time highs, but that move just does not get us too excited as volume was so low; you need all of the players in the game to know how strong a move is. Often when everyone comes back they redirect that action a bit.
There were some volume moves but most moves were on light trade. Given the volume, it was a day best suited for letting positions run. We had positioned ourselves in good stocks and are letting them run in this rally. A good half session Friday could push more stocks toward their target points so we can pocket some cash for some Christmas shopping on the big post-Thanksgiving shopping sessions.
THE ECONOMY
October durable goods orders sag while September gets a big revision.
This report is as volatile as an NBA game. Not only does it vary wildly based on what the federal government orders (and in wartime that can be a lot or a little), but the report itself is often subject to big revisions. October and September were no exceptions. October orders fell 0.4% versus the 0.5% gain anticipated. Take out transportation and it fell 0.7%. There was simply not a lot to be happy about as non-defense orders fell 1.5%. Military aircraft orders leaped 35.2%. Civilian aircraft fell and autos dropped a sharp 2.8%. Computers and electronics fell 10.3%. Civilian capital goods orders less aircraft, a business spending proxy, fell 3.6% after jumping 5.2% in September. We are expecting businesses to buy more capital goods ahead of the expiration of the tax incentives, but that was not the case in October.
Or was it? The numbers were down, but September numbers were low as well before this revision pushed orders to 0.9% from 0.2% originally reported. That is a big revision, and revisions tend to tell more of the story as they are the actual numbers whereas the prior report has to make some assumptions. The October numbers were sharply off, and that goes against several other economic reports. This one will have to work itself out over the next couple of months, but we will not be surprised to see October revised higher as well as businesses start to spend to take advantage of a very nice tax break before it expires at year end.
Michigan sentiment falls a bit, still good enough.
November's final reading fell to 92.9 from the preliminary of 95.5. A reading of 96.0 was expected, but November was higher than the 91.7 registered in October. While some would be disappointed expectations were not met, as we have discussed before, sentiment really does not make much difference with respect to consumer consumption until it gets really low, down in the sixties or lower. Back in the early 1990 recession, sentiment was in the fifties. That is where the consumer spending tails off.
Weekly jobless claims fall again, speaking well for job creation.
Last week we discussed how weekly jobless claims were hitting levels that indicate stronger job creation. This week the number fell to 323K, less than the 335K expected. The 4-week average fell to 332K itself; when the 4 week average starts hitting the level that shows job creation it is an important statement for jobs.
As a bonus, the Labor Department said there were no external factors such as storms, plague, locusts or other disasters to account for the reduction. That was nice to hear, along with continuing claims hitting a 3.5 year low (May 2001), coming in at 2.755 million, a drop of 29K.
This is the trend we were looking for to signal a sustained rise in the more traditional non-farm payroll job creation. This recovery has been different from routine recoveries because there was major economic change occurring after the internet and technology boom and the inevitable shakeout that followed. That kind of job loss during fundamental economic change takes awhile to reverse. The first jobs that are created are the ones we often discussed, the start-ups, the self-employed that eventually lead to the stronger job creation as they start the new companies that lead down the road. It is very good to see non-farm payrolls start to expand as well as that shows businesses willing to loosen up a bit.
Still, we have to put this into its place. Employment is not a leading indicator; it lags. Business booms before employers decide to loosen up and start hiring.
THE MARKET
Another volatile start, but after the early surge higher survived a test, stocks worked higher all session, capping the move with a nice spurt in the last hour. The move pushed the larger indexes to the top of their recent consolidation ranges while the small caps, mid-caps, and NASDAQ 100 moved to new highs for 2004, the smaller caps moving to an all-time high.
Volume was lower but the bias is still positive. They are moving more or less laterally the past week, dipping early in the week but rebounding to hold the gains. One of the strengths of a market is the ability to hold onto gains. It got rocky early and then finished stronger. Stocks keep finding a bid, and leaders continue to hold up overall. This consolidation is still not out of the woods as the volatility and price/volume action degraded last week. How it responds next week when more of the players are back in the game will tell more. This period from Thanksgiving to Christmas has an upside bias, and combined with the general upside bid in the market we could see a continued rally. Again, the action last week was a caution flag though the leading small caps are breaking higher once more.
Market Sentiment
VIX: 12.72; +0.05
VXN: 17.88; -0.55
VXO: 12.97; -0.11
Put/Call Ratio (CBOE): 0.61; -0.18
NASDAQ
Was up from the open, never threatening to give back its early gains. Stalled several times at 2100 but managed to break over and hold that level on the close, but lower volume gave the move little credence.
Stats: +18.26 points (+0.88%) to close at 2102.54
Volume: 1.647B (-21.33%). Volume was running solid early but almost at the stroke of noon it dried up as the fund managers headed home for the holiday and weekend. Strong price moves without the volume show little conviction from buyers. Just best to enjoy the moves with current positions.
Up Volume: 1.057B (-112M)
Down Volume: 554M (-342M)
A/D and Hi/Lo: Advancers led 1.64 to 1. Narrow breadth as the large cap techs led the action Wednesday
Previous Session: Advancers led 1.25 to 1
New Highs: 215 (+47)
New Lows: 18 (-14)
The Chart: http://www.investmenthouse.com/cd/^ixq.html
Techs moved over 2100 and toward the top of the recent range (2104). Solid price movement all session, just not backed up by the volume, not surprising on the session before Thanksgiving. Despite a lot of running up and down the past week, it has traded laterally, holding its gains with the late week rebound from the 18 day EMA and support at 2050. Next week we want to see the breakout on strong volume to verify the move. We also note that this past week the 50 day EMA moved up and through the 200 day SMA; that move often indicates further upside strength.
NASDAQ 100 broke to a new 2004 high as the large cap techs led the tech move Wednesday. As with NASDAQ, volume was lower, not lending much validity to the move.
SOX moved laterally once more, holding the 10 day EMA (429.70) for the third straight session as it tries to regroup for another try at the 200 day SMA (440). Despite giving up the 200 day after a good break higher last week, this is good action as it works toward the next leg higher as it works up the right side of its base. Very good action considering the downgrade of Intel and other chip stocks the past week.
S&P 500/NYSE
The large caps rallied, but were the laggards Wednesday outside of the large cap techs. Working laterally as is the rest of the market but on much lower volume the past three sessions.
Stats: +4.82 points (+0.41%) to close at 1181.76
NYSE Volume: 1.151B (-19.34%). Major drop-off in volume Friday and the entire week as the large caps work laterally to consolidate the prior move. Not bad action but the lower volume rally should not be viewed as anything more than a continuation of the lateral consolidation.
Up Volume: 813M (+31M)
Down Volume: 321M (-300M)
A/D and Hi/Lo: Advancers led 2.65 to 1. Excellent breadth as the small and mid-caps led the way.
Previous Session: Advancers led 1.55 to 1
New Highs: 402 (+111). Getting solid once more as the market leading small caps move to new highs.
New Lows: 3 (-3)
The Chart: http://www.investmenthouse.com/cd/^spx.html
As with NASDAQ, a lot of up and down action the past two weeks, but all told just a lateral move. Volatility jumped, and it looked as if SP500 was going to pull back sharply. It checked up and rebounded this week though on low volume. Still holding over 1175, the second peak in the early 2002 double top. The lower volume this week on the rise was not what you normally want to see, but we do like seeing volume start to dry up as the index moves laterally.
SP600 was rocky as well last week, but it broke to another all-time high Wednesday. No volume on the NYSE, but the leaders were leading once again.
DJ30
The blue chips have tested and held the 10 day EMA (10,473) the past four sessions, this week recovering from the harsh selling last Friday. Volume failed to rise with the bounce higher, but as with SP500, working laterally on lower volume at near support is not bad action. Holding support at the June high (10,480) as well as the 10 day EMA is good action, setting up a move for next week. It was very good news to see the 50 day EMA moving up and through the 200 day SMA Wednesday; that often portends better gains ahead as prices are rising faster near term, showing a change in momentum.
Stats: +27.71 points (+0.26%) to close at 10520.31
Volume: 204 million shares Wednesday versus 254 million shares Tuesday.
The chart: http://www.investmenthouse.com/cd/^dji.html
FRIDAY
Half session Friday is typically a decent one, particularly when the market is moving in an overall uptrend and has been showing an upside bias. With no major economic news out it will certainly be a quiet session as the fund managers will see no need to be in the office. Low volume and an upside bias lets stocks trend higher.
We will watch for strong moves, but it is hard to get too active on a half session. Low volume moves can be quickly erased when the rest of the players get back to the office. Thanksgiving to Christmas is generally a lower volume period with a seasonal upside bias. Thus if we do see solid though not strong volume breaks higher, we will venture a few positions in the stronger stocks. We have to recognize the time of the year and the upside bias in a decent market and still expanding economy.
Support and Resistance
NASDAQ: Closed at 2102.54
Resistance:
Some resistance at 2100 is not totally broken given the volume.
January high at 2154
Support:
Price support at 2090.
The April high at 2079
The 10 day EMA at 2078
The 18 day EMA at 2055
2050, prior resistance, provided some support Monday
Some price points at 2000.
October high at 1971
The 50 day EMA at 1990
The 200 day SMA at 1953
S&P 500: Closed at 1181.76
Resistance:
Some resistance at 1180 to 1185 (recent high)
Q1 1999 lows at 1215
October 1999 low at 1233
Q2 2001 peak at 1310.
Support:
1175 second high in that double top that spanned late 2001.
The 10 day EMA at 1174.79
The 18 day EMA at 1165.80
January highs at 1158
1142-1146 are the June highs and the October high (1142).
The 50 day EMA at 1142.59
1128 to 1125 the September closing high.
Dow: Closed at 10, 520.31
Resistance:
Broke the 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 10 day EMA at 10,473
The 18 day EMA at 10,396
September high at 10,342
The 50 day EMA at 10,246
The 200 day SMA at 10,243
9980 to 10,000.
Economic Calendar
These are consensus expectations. Our expectations will vary and are discussed in the 'Economy' section.
November 24
Durable Orders, October (8:30): -0.4% actual versus 0.5% expected and 0.9% prior (revised from 0.2%)
Initial Jobless Claims, 11/20 (8:30): 323K actual versus 335K expected and 335K prior (revised from 334K)
Michigan Sentiment-Rev., November (9:45): 92.8 actual versus 96.0 expected and 95.5 prior
Help-Wanted Index, October (10:00): 37 actual versus 37 expected and 36 prior
New Home Sales, October (10:00): 1226K actual versus 1200K expected and 1224K prior (revised from 1206K)
November 30
GDP-Prel., Q3 (8:30): 3.7% expected and 3.7% prior
Chain Deflator-Prel., Q3 (8:30): 1.3% expected and 1.3% prior
Consumer Confidence, November (10:00): 96.8 expected and 92.8 prior
Chicago PMI, November (10:00): 61.0 expected and 68.5 prior
December 01
Auto Sales, November: 5.1M expected and 5.1M prior
Truck Sales, November: 8.0M expected and 8.1M prior
Personal Income, October (8:30): 0.5% expected and 0.2% prior
Personal Spending, October (8:30): 0.4% expected and 0.6% prior
Construction Spendin, October (10:00): 0.7% expected and 0.0% prior
ISM Index, November (10:00): 57.0 expected and 56.8 prior
December 02
Initial Claims, 11/27 (8:30): 323K prior
Factory Orders, October (10:00): 0.4% expected and -0.4% prior
December 03
Nonfarm Payrolls, November (8:30): 200K expected and 337K prior
Unemployment Rate, November (8:30): 5.4% expected and 5.5% prior
Hourly Earnings, November (8:30): 0.3% expected and 0.3% prior
Average Workweek, November (8:30): 33.8 expected and 33.8 prior
ISM Services, November (10:00): 58.5 expected and 59.8 prior
End part 1 of 2
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