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online investment information, money investment
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11/29/04 Investment House Daily
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Investment House Daily Subscribers:
MARKET ALERTS:
Target hit alerts issued Monday: LCAV (interim gain, took half options)
Buy alerts issued: None issued
Trailing stop alerts: None issued
Stop alerts: IWOV
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:
- Stocks try post-holiday rally, but early move fades out.
- WMT fails to attract consumers in improving consumer climate
- Market moves laterally again as buyers not ready to continue holiday rally ahead of major economic data.
- Letting stocks test, take a breather, and watching for next leg.
Stocks again find resistance, unable to push higher as more investors return from holiday.
Volume was up on NASDAQ and lower on NYSE, but stocks went nowhere following the modest holiday bounce last week. Indeed, that bounce was just part of a 2 week lateral move after the rally off the October low hit resistance and stocks now try to rest, consolidate, and make another attempt at rallying. Monday stocks jumped out of the gate and cleared near resistance briefly. The move was short-lived, and the rest of the session was up and down as SOX led early only to yield to the small caps by the close.
The news to start the week was less than positive, and throughout the day different stories took their shot at the market. The first was Wal-Mart dramatically lowering its November sales forecast to 0.7% growth from 2% to 4% growth. Those stuck on the belief that as WMT goes the retail sector goes took it hard and found a reason to close positions in a wide range of stocks. Second, the economic issue of the month, the dollar decline, got some more headlines when it was announced Japan purchased fewer US treasuries in November than any month in the prior year. That raised the specter of dollar divestment again after it was rumored last week that China was slowing its dollar investments only to be denied by the Chinese government that same day.
Those two took the market down midmorning, but in an interesting afternoon twist, an Al Qaeda video from the number 2 man in the organization gave the market a boost. What we heard from the floor traders was that the statement that the number two thug would 'continue the fight' was interpreted as an indication that Bin Laden was no longer able to do so for whatever reason, most particularly his death. That did not last long, however, and stocks gave back almost all of that bounce attempt by the close.
In the end stocks closed basically flat with NASDAQ rising on some increased trade and SP500 falling on some lower trade. Given the market is moving in a lateral consolidation, that is decent action. Stocks were obviously not ready to make the next break higher, however, as they stalled out at near resistance once more. With the street pretty much divided on whether the move continues or ends here, most investors again took a wait and see attitude ahead of the coming flood of economic data. We saw little to get excited about and we also took the patient approach, letting stocks set up and show us the next move.
THE ECONOMY
There was no scheduled economic data released, but there was plenty of economic news. WMT, Japan and the US treasuries, and rumor of a new Treasury Secretary (Phil Gramm) gave investors plenty to mull. WMT sold on the news, but it was not a retail sell off. Seems saner heads looked past the theory that WMT is the end all for US retailing.
First, the kickoff weekend to the holiday spend-a-thon was pretty good. Friday was strong, Saturday was not so strong, leaving a 3+% gain over the same period last year. No blowout thus far, and the WMT November sales forecast revision put a damper on analyst enthusiasm for the Christmas season.
Is Wal-Mart the litmus test for the retail holiday season? Last year we argued against that very premise, and this year it is even truer. 34% of consumers say they are going to spend more than last year, 29% said they would spend less. As we know, however, what consumers say and do are usually two different things. Consumers will spend, but the thing that trips most everyone up is where they will spend. We posit that the analysts are fighting the last war when it comes to holiday sales.
What do we mean? After 2001 there was a lot of spending (consumer sales remained solid despite recession), just not at the same places. There was a lot of the so-called cocooning where people spent money on their homes as opposed to travel, fancy apparel, etc. It was recession time as well, and consumers were seeking value. We discussed that shift at the time as analysts bemoaned the lack of sales at specialty, department stores, and higher end retailers. Consumers spent at WMT, BBBY, and other discount stores; that was the new model as consumers were concerned as to what the future would bring.
Three years removed from 9-11, consumers are stepping out. The fear of another attack, while not necessarily diminished, is something we have learned to deal with. The economy has recovered, jobs are on the rise, and while some still don't believe it, consumers and businesses feel better. When consumers feel better about the future they want to start stepping out. When stepping out, WMT is not the number one spot for consumers. WMT does not sell plasma televisions, high end clothes or even high end digital cameras. WMT will garner a lot of sales; people still go there for household products (toilet paper, soap, toothpaste, etc.), but it simply does not sell a lot of the hotter items this holiday season, and its sales are already showing it after its post-Thanksgiving weekend.
Contrast that to a different type of retailer such as OSTK (Overstock.com). It is a discounter as well, but it is a discounter of the entire spectrum of goods. You frequently find high end, premium quality merchandise (jewelry, apparel, accessories) at substantial discounts from traditional retailers. Its sales are strong and with online sales up we hear it is enjoying a solid early start to the season.
Meanwhile, WMT is moving more and more into food sales as it tries to take over more of the consumer basics market. That is a mature, slow growth area with very thin margins. It adds more to the WMT bottom line as it takes over market share via its buying power, but again, it is a slower growth area versus other retail sectors.
In sum, no one questions WMT in what it does, but that does not mean that retailers cannot enjoy a nice holiday season at WMT's expense. People are more confident and want to buy some of the gadgets and higher end items they put off the prior few years. They are not as worried about recession and the terror war. Other retail sectors are showing excellent early results. In other words, the cycle has turned. What benefited WMT two and three years back has faded and a more confident consumer is aiming higher and WMT is having to deal with it. My wife does not go to Ann Taylor, Nordstrom or Neiman Marcus to buy Christmas lights and toothpaste, but she does when she wants to find something nice to wear or give. The point: WMT will still get the consumer basics business and toy sales but it is going to lose a lot of the gift giving business even more than it did last year.
THE MARKET
Stocks looked ready to breakout from their two week lateral range early, but after the first 10 minutes that attempt was done. A quick push past near resistance could not hold and stocks continued their volatile intraday action.
This action continues the consolidation of the rally off the October low. Volume was mixed Monday, but it was the right price/volume action with NASDAQ gaining on some solid, above average volume and SP500 fading some on below average volume. Of course volume was higher than Friday, but that was a half session; looking at the bigger picture the price/volume action was fine. There has been some distribution and some accumulation in the lateral move as it has not been a clear case of a simple pit stop on the move higher.
There are reasons for this. A big run higher from the October low needed a breather, and given this is a big economic data week capped by the Friday jobs report, investors are not showing they are ready to take the rally to the next level. Of course, investors have not sold off their positions either as the dip six sessions back was met with more buying. Investors are still stepping into positions when they see an opportunity, and that has kept stocks in this relatively narrow range. Indeed, most stocks are still holding near support along with the overall market, trying to set up for the next leg.
It was interesting to see the swing in buying intraday. Semiconductors were leading early in the session, moving back toward the 200 day SMA. Once more it fell back from a tap at that level. It is being pinched between support at 425 and the 200 day. Many of its stocks are showing a similar tight, lateral move, and if this index cam pop through the 200 day SMA, that rest of the market more than likely will post a further holiday rally. That was not the case Monday as early buying lost its bid and money rotated elsewhere.
In the end the market tried to break out of the range, but it was simply not ready. Stocks remain at the top of the recent range, and in decent shape. As with all consolidations this one could fail and stocks make a deeper test. After failing a breakout attempt we would not be surprised to see another test toward the bottom of the range as stocks continue to digest the gains and investors try to get a grip on the upcoming economic data. As for it failing, it could still do that, but we like that it has made a test of the low and held already and that price/volume action remains solid.
Market Sentiment
VIX: 13.3; +0.52
VXN: 18.83; +0.89
VXO: 13.46; -0.09
Put/Call Ratio (CBOE): 0.74; +0.01. Remains in the high end of the range, but it has mostly done its work, having spiked above 1.0 several times in October before that rally started.
NASDAQ
Broke above that near resistance at 2110-2112 early, but then bounced up and down in a 27 point range as it has done more than once in this consolidation. That indicates it is still not ready to make the next break higher.
Stats: +4.9 points (+0.23%) to close at 2106.87
Volume: 1.855B (+176.61%). Volume jumped of course. The key is that NASDAQ was above average on a slight gain, technically an accumulation day. Hard to classify it as clear buying, however, as it showed something of a loose doji on the candlestick chart as it tried but failed to make a breakout from its 2 week range. It suggests a bit of churning, but that is as far as we would go. In other words it was not a building session but not a sign of erosion either.
Up Volume: 1.136B (+731.922M)
Down Volume: 689M (+448.068M)
A/D and Hi/Lo: Advancers led 1.33 to 1. Last week the large cap techs led but on Monday they showed 57 declines while the overall NASDAQ showed a positive advance. Some view this as bad, but given the frequent leadership change in this market we are not making much of it at this point.
Previous Session: Advancers led 1.39 to 1
New Highs: 276 (+100)
New Lows: 15 (0)
The Chart: http://www.investmenthouse.com/cd/^ixq.html
Slight gain, closing in the upper half of the range (a positive) after failing an early attempt to breakout of the recent range. Things got a big dicey midmorning, but NASDAQ tapped at the 10 day EMA (2087) and then rebounded on some good trade as buyers once again used a dip to enter. It was not ready to make the breakout move but it did rebound off the lows once more. Would like to see it narrow its intraday range over the next few sessions on low volume, and then it would be ready for the break higher. Stocks often get their own quiet before the storm, and this tight range on low volume is their version. The index has been too volatile of late to be ready for the break higher as that volatility shows the buyers and sellers fighting for supremacy.
NASDAQ 100 posted a modest gain as well as it too bounced in a volatile intraday range. It broke from its range last week but could not extend the move Monday as it too appears to need more time before it can continue higher. We caution that this market tends to make its moves at what appear to be unlikely times. Thus though it looks as if it will continue to move laterally, we remain ready for the next break higher.
SOX was the early leader, up 1% and tapping at the 200 day SMA (439.08), but it lost its bid midmorning and never recovered. Indeed, it slipped several rungs lower and barely managed to top DJ30 and tied SP500 with its 0.3% decline. Nonetheless, it remains in a narrow range over support at 425 and below resistance at the 200 day SMA. Many of its key components are doing the same, and with INTC finally testing its 50 day EMA on its decline during this two weeks, it is setting up for the next attempt at that key resistance level.
S&P 500/NYSE
Similar to NASDAQ, SP500 made a run at next resistance but was unable to hold the move on rising but still below average volume. Still working laterally in its recent range, setting up the next move.
Stats: -4.08 points (-0.34%) to close at 1178.57
NYSE Volume: 1.375B (+171.68%). Volume surged higher compared to Friday, but with just a half session, comparisons are misleading. Of importance is that volume was below average, showing no real distribution.
Up Volume: 572M (+264.319M)
Down Volume: 791M (+604.511M)
A/D and Hi/Lo: Decliners led 1.31 to 1. In line with the modest decline on SP500 though the small caps did manage a modest gain to offset the large and mid-cap selling.
Previous Session: Advancers led 1.5 to 1
New Highs: 400 (+100)
New Lows: 9 (-6)
The Chart: http://www.investmenthouse.com/cd/^spx.html
Rallied to 1187 on this high, just clearing some recent resistance at 1185ish. With volume still holding below average, however, it did not have the strength to hold the move. An afternoon bounce failed along with NASDAQ and it closed mid range. It also continues its two week lateral move though the intraday 14 point swing did not show the kind of quiet action that typically precedes a breakout from a consolidation range. It has failed a breakout attempt and may sell back some before it settles down a bit more and then tries the break higher again.
A new all-time high once more as the small caps continued the move higher from the week long lateral move. There seems to be no stopping the small cap move as the trend higher continues. That always makes you concerned, but there is no arguing with the impressive and continuing upside move.
DJ30
No attempt to breakout from the two week range as the blue chips struggled after the opening surge. Volume was up but still below average as they tested the 18 day EMA (10,416) and rebounded to cut the losses in half. A good recovery, but as with the other indexes, the volatile intraday action indicates further consolidation is necessary.
Stats: -46.33 points (-0.44%) to close at 10475.9
Volume: 247 million shares Monday versus 91.5 million shares Friday.
The chart: http://www.investmenthouse.com/cd/^dji.html
TUESDAY
Monday was not necessarily a quiet economic day, but the scheduled data, some heavy hitting data, starts to flow tomorrow with another Q3 GDP reiteration, consumer confidence, and Chicago PMI. Those are warm ups for personal spending, national ISM, and the employment report on Friday. Understandable near term investors want to see how the data starts to pan out.
All in all the market is decent, holding its gains as it trades in a range on overall positive action. It still needs to settle down as the intraday volatility is much too wild to typically launch the next move higher. If it does not settle down, that could launch stocks lower and out of the bottom of the range. It could remain a bit rocky through this week as the economic data is released and absorbed, but unless the price/volume action erodes stocks are setting up for another bounce ahead of Christmas.
Support and Resistance
NASDAQ: Closed at 2106.87
Resistance:
Some recent resistance at 2110 - 2112.
January high at 2154
Support:
Price support at 2090.
The 10 day EMA at 2087
The April high at 2079
The 18 day EMA at 2065
2050, prior resistance, provided some support Monday
Some price points at 2000.
October high at 1971
The 50 day EMA at 1999
The 200 day SMA at 1953
S&P 500: Closed at 1178.57
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:
The 10 day EMA at 1176.64
1175 second high in that double top that spanned late 2001.
The 18 day EMA at 1168.72
January highs at 1158
1142-1146 are the June highs and the October high (1142).
The 50 day EMA at 1145.51
1128 to 1125 the September closing high.
Dow: Closed at 10, 475.90
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 10,481
The 18 day EMA at 10,416
September high at 10,342
The 50 day EMA at 10,265
The 200 day SMA at 10,241
9980 to 10,000.
Economic Calendar
These are consensus expectations. Our expectations will vary and are discussed in the 'Economy' section.
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): 96.0 expected and 92.8 prior
Chicago PMI, November (10:00): 62.0 expected and 68.5 prior
December 01
Auto Sales, November: 5.1M expected and 5.1M prior
Truck Sales, November: 8.1M 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): 330K prior
Factory Orders, October (10:00): 0.2% 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 3
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