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world stock market, us stock market
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12/04/04 Investment House Alerts Report
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IH Alert Subscribers:
MARKET ALERTS:
Target hit alerts issued Friday: ARTI; NCR
Buy alerts issued: MTSN
Trailing stops issued: TV
Stop alerts issued: None issued
SUMMARY:
- Market was set to move but jobs took the wind.
- Jobs fail to hit expectations and whisper, but a very solid year of growth.
- ISM services, a leading indicator, climbs above expectations.
- Market ends the week with promise unfulfilled, but set to continue the rally.
Stocks game, but lack punch without a strong jobs report.
The market was ready to move. Stocks were warming up pre-market and were stretched and ready to sprint on a good jobs report. When the mediocre non-farms number was announced, however, they stumbled out of the blocks. They did not do a face plant, however, as they still had the solid Intel mid-quarter update and the ISM services later in the morning to anchor the race.
NASDAQ and SOX managed a very nice rally the first half hour, catching a bit more wind when the ISM services came out ahead of expectations. That pushed NASDAQ past its near resistance at 2154 on up to 2165. It was about that time that a Charley Horse came up and bit the market. SOX was out in front gratis INTC, but the small caps were struggling once more. Indeed, outside of SOX and NASDAQ, there was little life. Breadth was weak, flirting with negative on NASDAQ even as it rallied higher through resistance.
Without the strong jobs report, the move lacked the enthusiasm traders were anticipating as much as a strong non-farm number. Oil prices continued to fall, but it did not matter. It did not matter that ISM services, a leading indicator as opposed to the jobs report, handily beat expectations. Talking to floor traders and market makers we got the impression that no one wanted to play given the disappointment. As a result the market stumbled and stuttered all session, giving up the early gains and then wandering in the lower half of the range into the close.
You could tell it was a weak session because the rumor mill was running rampant. The Spain bombings set the tone, and we heard several 'substantiated' reports it was Al Qaeda even after it was determined it was a group of local boys (somehow that is supposed to be comforting). After that it was one after another all session. We heard a few times that federal buildings were being evacuated; totally false. When the market gets a disappointment and hesitates, you get the shorts and those wanting a pullback so they can enter coming up with all sorts of BS.
Even with the side bar the market held up pretty well. It was even trying to mount a late bump higher before a thud in the last 5 minutes. All in all, however, given the several attempts to take it lower, the market just stuck around to the close. It basically hunkered down and went into hibernation, deciding to wait out the close and start anew this week. That still keeps it in pretty decent shape for a further move following the strong Wednesday surge that broke it out of its two week lateral range.
THE ECONOMY
Jobs miss disappointment exacerbated by high whisper expectations.
Rather modest expectations (200K) were too much for reality, and with the whisper at 300K or more, the disappointment was clearly apparent. NASDAQ futures went from +17 to +8, Dow and SP futures went negative. Never mind the unemployment rate fell to 5.45 from 5.5%. With the non-farms number miss, hourly earnings up just 0.1%, and the workweek falling back to 33.7hours from 33.8, no one wanted to find a silver lining. Everyone was watching the jobs number as usual, and what would have been a very big open was very ho-hum.
It is always somewhat amazing that the non-farm number gets so much attention because employment is such a lagging indicator. When it is booming we have to be concerned whether the boom or rally is starting on the downhill slope. This job watch pertains more to elections, consumer sentiment, and Fed-speak regarding wage-led inflation than it does to whether the economy is on an upswing or not.
Mixed blessing? How about a nice positive for equities?
Sure jobs did not surge, but over the past 12 months 2.2M non-farm payroll jobs have been created, and that does not even count all of the self employed jobs that show up in the household survey but whose existence the Fed chooses to ignore. In this last month the household survey shows 483K jobs added. Unlike the Fed we don't ignore this because unlike the Fed, we live in the real world and have lived through another major upheaval in the US economy.
One of the problems that leads to the disappointment is the new way the feds are calculating the numbers this year. Used to be they would use specified, seasonal adjustments at certain times of the year. Now they used adjustments on a monthly basis, and they cannot tell ahead of time just exactly what those adjustments will be. That leaves a lot of guessing as to the number, and it renders a lot of the empirical evidence you and me look at somewhat irrelevant in the short term. Longer term the indications such as weekly job claims, private surveys, and private placement firms will bear out the trend.
Indeed the trend is continued improvement. The number was a disappointment, but it was not a bad number. Mediocre, middle of the road, keeping the modest trend higher alive. Bonds rallied sharply on the news as yields dropped. In other words, bond traders viewed the number indicating the Fed would not be any more aggressive than it currently is, and possibly less aggressive. Two 300K numbers back to back would have been a different story, and it would not have been long before the pundits were worried about a too strong recovery.
The November number, while it won't change the Fed's posture in two weeks at the next FOMC meeting, it helps forestall the inevitable worries about an overheating economy and a Fed clamping down harder for fear of so-called 'wage-led' inflation that the Fed talked about in its 1999-2000 hiking spree.
Indeed, the strong profits growth, very solid GDP growth, and continued lackluster hiring speaks of very strong productivity. What we saw in the 1980's and early 1990's was that this scenario leads to impressive gains in our standard of living. The transition is tough, but this scenario sets the foundation for an even stronger future.
November ISM services rises to 61.3 (58.5 expected).
As with the national manufacturing index, the service sector expanded when it was expected to contract. Not a record, but a strong showing overall. The employment index fell to 55.0 from 55.8, new orders were down to 59.9 from 60.5. Prices paid fell to 71 from 74.1. At least the drops were across the board as well.
This was the twentieth month of expansion in the services, sector. It was the sector that saw the largest gain in jobs in this last report, adding 104K. In contrast, construction jobs were down 50K from last month and temps were down 40K from October. The big jumps in October were likely attributable to the post-hurricane rebuilding that tapered off this past month.
All in all the service sector report mirrors the other economic data the economy is spinning off: continued expansion at a steady, respectable, though hardly flashy, level. Problem is, we got addicted to 5% growth levels in the latter part of the boom, and the big surges in 2003 only primed everyone for go-go days again. This is more sustainable growth, and it allows the market to build in a sustained way as well. Looking at the 10 month base this year, it was definitely in a building mode.
THE MARKET
NASDAQ led the week, and it was fitting it was leading Friday at the close. Hardly an impressive gain, particularly after the strong surge Wednesday. Indeed, after breaking out of the two week lateral range on strong volume, the limp home Thursday and Friday was disappointing. Unfulfilled promise, kind of like the jobs report.
It did not, however, turn tail and fall, it did not break back down into the trading range. As noted above, it simply slid into the weekend like your kid slips into the house an hour past curfew, just wanting to be done with it. The indexes showed a couple of dojis after that Wednesday surge, and that can indicate a pullback. That is not the most likely scenario from what we see.
The market surged Wednesday and took a breather to end the week, trying to come to grips with jobs disappointment. The underpinnings are still solid after the breakout last week, and after this pause to figure things out we believe the rally ahead of Christmas will continue. It needs to from here; it is a bit precarious after Friday. Indeed, after another good surge we need to make sure our stops are pulled up on the shorter term positions.
Market Sentiment
VIX: 12.96; -0.02
VXN: 18.26; -0.38
VXO: 13.61; -0.3
Put/Call Ratio (CBOE): 0.74; -0.1
NASDAQ
Gapped higher and rallied through near resistance, but could not hold the move even with strong trade. It was the market leader of the large indexes, an indication the day was not banner.
Stats: +4.39 points (+0.2%) to close at 2147.96
Volume: 2.435B (+0.04%). Volume edged higher yet again, making it 5 sessions of rising trade, the last three quite impressive. The inability to make headway Friday on stronger trade indicates churning. It is the strongest volume in the move, and after you see a good run higher, failure to make headway on such strong trade tells you there is a lot of stock changing hands in something of a hot potato game. The breakout Wednesday was nice, but this action to end the week makes us want to see a good upside resumption at some point this coming week.
Up Volume: 1.634B (+191M). Good upside trade versus the downside.
Down Volume: 780M (-192M)
A/D and Hi/Lo: Decliners led 1.12 to 1. NASDAQ and NASDAQ 100 were up, but decliners led the index. This is a sign of internal weakness that indicates most of the action was in the big names that control the index' direction.
Previous Session: Advancers led 1.11 to 1
New Highs: 340 (+1)
New Lows: 23 (-1)
The Chart: http://www.investmenthouse.com/cd/^ixq.html
Gapped higher on the INTC news and ran through that near resistance at 2154. That is as far as it got, and that in the first thirty minutes. The move continued the Wednesday breakout, and on high volume. Again, the inability to clear near resistance that marks the top of the 2004 base, the small gains to end the week, and the surging volume are not great indications, but with the strong breakout of the range and the outside influences (e.g. jobs report), we are not inclined to call the move over. It may come back to test a bit to start the week, but looks as if it will hold the breakout and resume one more run ahead of Christmas. As noted last week, the lateral consolidation to end November after the year long base formed a rough cup with handle base that broke out Wednesday; a test of that move would not be uncommon before proceeding higher. Nonetheless we are going to keep our stops relatively tight.
Same action on NASDAQ 100, though another new high for the year for the largest cap techs. It too may pull back a bit to start the week but enjoyed a strong Wednesday breakout that should push it further on this move.
Chips expectedly gapped higher after the Intel mid-quarter update, rallying over some resistance at 450. As is often the case with gaps, it could not hold the highs, fading back and giving up over one-half the session gains. It is still above the 200 day SMA (437.48) on the close though it may come back to test that move a bit before resuming the break higher.
S&P 500/NYSE
Unlike NASDAQ, volume backed off significantly as the large caps rallied to another 2004 high only to give it back, showing a doji as well. Lower volume on this action is, well, better action.
Stats: +0.84 points (+0.07%) to close at 1191.17
NYSE Volume: 1.562B (-11.85%). Strong breakout Wednesday on heavy trade, stalled Thursday on continued strong trade, then volume faded as it prices stalled again Friday. Not bad action as no churn.
Up Volume: 855M (+140M)
Down Volume: 681M (-343M)
A/D and Hi/Lo: Advancers led 1.7 to 1. Not bad at all given that small caps finished the session lower, lagging the overall market.
Previous Session: Decliners led 1.64 to 1
New Highs: 495 (-29). Showing very solid levels all week, a good indication that stocks in general are performing well.
New Lows: 18 (+4)
The Chart: http://www.investmenthouse.com/cd/^spx.html
The large caps pushed higher once more Friday, hitting a new 2004 high after the breakout over the late 2001, early 2002 double top started three weeks back. That has been a sticky level and the index has struggled to move definitively past it. Wednesday it made a good start, breaking higher on volume and clearing that range that held it up. 1200 is proving to be some resistance near term, but as volume backed off Friday the NYSE stocks did not churn but just rested instead. That is simply taking a breather and setting up for the next move in this breakout.
The small caps lagged the last two sessions of the week after leading higher and posting a new all-time high on the strong Thursday move. A nice, easy pullback here would once more set up another run. Not too worried about this pullback as money rotates some just as it has done before, and the small caps continue their rise.
DJ30
The blue chips could not prosper along with INTC overall, posting a very modest gain on lower volume. Once more the index moved up to and through 10,600, and once more it was unable to hold a break higher through that resistance. As with SP500, however, it is in decent shape to continue the move, merely taking a lower volume breather Friday. Unlike the other indexes, it has yet to breakout from its lateral range of the past three weeks. It is setting up to do it, but it most likely won't until the other indexes resume their moves.
Stats: +7.09 points (+0.07%) to close at 10592.21
Volume: 286 million shares Friday versus 296 million shares Thursday.
The chart: http://www.investmenthouse.com/cd/^dji.html
THIS WEEK
The economic data parade slows a bit this week with the bigger reports being the PPI and preliminary Michigan sentiment (this report bugs us; it always seems to be around, much like the NBA season). That will allow stocks to regroup after the jobs disappointment. With oil most likely going to continue its fall, that will only help stocks regroup for the move higher.
NASDAQ showed some signs of churn to end the week and may try to come back to test. On the other hand SP500 held its ground on lower volume as the small caps tested their move in an orderly fashion. Maybe a test back by NASDAQ as it has put more distance between it and the breakout point, but this market tends to run when it should rest.
Some stocks are extended after this move, but there are the small caps easing back the past two sessions toward near support. We are going to look for leaders in that category and others testing their moves as good candidates for positions in the next run toward Christmas.
Support and Resistance
NASDAQ: Closed at 2147.96
Resistance:
January high at 2154 (early 2004 high) stalled the move Thursday.
2250 from 2001 highs and lows.
Support:
The 10 day EMA at 2114
2110 - 2112, the top of the November consolidation.
Price support at 2090.
The 18 day EMA at 2089
The April high at 2079
2050, prior resistance and the June high.
The 50 day EMA at 2019
October high at 1971
S&P 500: Closed at 1191.17
Resistance:
1200 is proving to be near resistance.
Q1 1999 lows at 1215
October 1999 low at 1233
Q2 2001 peak at 1310.
Support:
1180 to 1185, the top of the November consolidation range.
1175 second high in that double top that spanned late 2001 is trying to hold.
The 18 day EMA at 1175.42
January highs at 1158
The 50 day EMA at 1151
1142-1146 are the June highs and the October high (1142).
1128 to 1125 the September closing high.
Dow: Closed at 10, 592.21
Resistance:
Price consolidation at 10,600 level
10,747 is the February high
Support:
10,570 is the early April high
The late April, June peaks at 10,478 to 10,512
The 18 day EMA at 10,466
September high at 10,342
The 50 day EMA at 10,307
The 200 day SMA at 10,239
Economic Calendar
These are consensus expectations. Our expectations will vary and are discussed in the 'Economy' section.
December 07
Productivity-Rev., Q3 (08:30): 1.9% expected and 1.9% prior
Consumer Credit, October (15:00): $6.3B expected and $9.8B prior
December 09
Export Prices ex-ag., November (08:30): 1.0% prior
Import Prices ex-oil, November (08:30): 2.7% prior
Initial Jobless Claims, 12/04 (08:30): 349K prior
Wholesale Inventories, October (10:00): 0.6% expected and 0.5% prior
December 10
PPI, November (08:30): 0.2% expected and 1.7% prior
Core PPI, November (08:30): 0.2% expected and 0.3% prior
Michigan Sentiment-Prelim., December (09:45): 95.3 expected and 92.8 prior
Treasury Budget, November (2:00): -$53.0B expected and -$43.0B prior
End part 1 of 3
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world stock market
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