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world stock market, us stock market
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12/06/04 Stock Split Report
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Stock Split Report Subscribers:
Full reports issue Tuesday, Thursday and Saturday.
MARKET ALERTS
Targets hit alerts issued Monday: None issued
Buy alerts issued: SNDA; EMR
Trailing stops issued: BCR
Stop alerts issued: COLM
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. You can sign up for Stock Split Report alerts at the following link:
http://www.investmenthouse.com/alertssr.htm
SUMMARY:
- Stocks mount a decent recovery but only manage a mixed close.
- 2005 economic projections written higher as oil creeps back over $43/bbl
- DJ30, small caps holding back the next leg, or just setting up?
- Leaders starting to move ahead of market, a good sign.
Terrorism, almost forgotten, shows up Monday.
There was some upbeat news that could have fueled stocks higher, e.g., JPM and Smith Barney raising their SP500 targets (1275 and 1300 respectively). Problem is the good news was overshadowed by an old problem, terrorism. One of the factors weighing on the market leading up to the election was a Madrid-style terror attack in the US aimed at the political process. As the election approached, the worries dissipated and stocks actually started to rally ahead of the big day. As the election faded, fears of terrorism were pushed to the back burner and stocks were moving higher in an environment of promised tax reform, social security reform, and generally favorable attitudes toward business.
Monday that comfort level received a jolt as a US consulate in Saudi Arabia was attacked. It was not a car bomb or s homicide bomber, but armed fighters killing 4 Saudi guards as they fought there way into the building. Pretty sobering news for a Monday, and stocks were trading lower pre-market. On top of that, oil moved back above $43/bbl, not a huge move, but with talk of OPEC cutting production to set a floor at $40/bbl and news of more unrest in Nigeria that could lead at least to curtailed production it was enough to bring back remembrances of the speculation that drove oil to $50/bbl.
Those were two good reasons (at least for most investors) to approach the session with caution. A weaker open led to SP500 testing near support. That held and led to some buying. NASDAQ topped near resistance at 2154 on the rebound as techs led once more. DJ30 and the small caps lagged once more. In the end, that was enough to pull NASDAQ back below 2154 on the close as lower volume was not up to the task of driving stocks higher.
Once more stocks finished mixed once more on lower trade. NASDAQ and SOX led with modest gains, but the third member of the triumvirate, SP600, was down once more. When all three of these lead the market performs well. The small caps have been off the past three sessions coming back to test the 10 day EMA. No major collapse, just not participating. With DJ30 still languishing in its range of the past three weeks along with the small cap pullback, stocks once more pulled a bit in opposite directions. They need to start rowing together once more.
This has hardly been a breakdown by the small caps; indeed, after they kept rising to new all-time highs while the market stalled, they deserve a rest. Rotation is not a bad thing at all, though this market has not moved without the small caps. Again, this is just a test of the 10 day EMA thus far and a bounce in the smaller caps most likely will put the upside drive back into the overall market as well.
THE ECONOMY
US GDP expectations raised.
The Saudi Arabia attacks quelled investor enthusiasm and overshadowed some rather upbeat economic assessments regarding 2005. Morgan Stanley raised its 2005 GDP projection to 3.9% from 3.6% an 8% boost in prior projections. This went more or less hand in hand with the increased targets for SP500 by JPM and SSB as well as Ralph Acampora's forecast today that DJ30 would hit 13000 in 2005.
All of this bullishness has to make you take pause, but it is acknowledging the strengthening in the economy after the summer slowdown. Of course the Friday jobs data did not leave a good taste with many regarding the recovery, but as noted at the time, employment is a lagging indicator. The recognition that there can be improvement in spite of the Friday jobs report is encouraging; at least they are looking at other data that is more telling.
Moreover, such growth would far outstrip what Europe or Japan will be able to produce, making the US a much more desirable investment haven. Those worrying about the dollar, trade gap and budget deficit should find that more heartening. At a minimum, foreign investors will still be interested in putting their money in the US as the chance for growth is superior to Europe and Japan.
The dollar and trade gaps: dollar still falling toward historical norms but exports rising as it does.
In addition, the declining dollar is having an intended effect, i.e., raising the level of US exports. Those jumped 10% at the last measure, largely thanks to that weaker dollar. As we have noted, a lower currency is the self-correcting mechanism for a trade gap. One of the reasons the US has sported a large trade deficit for decades is that when the US economy is strong (as it has been for mostly decades with modest recessions), we buy a lot of foreign goods.
The other major factor is the very strong dollar. In the mid-1990's into the early 2000's the dollar was at historically high values to other currencies. When the euro was first launched the dollar tap danced on its head and kept rising against it. Remember also that in the 1990's on into 2000's (and indeed even now) the US economy was much stronger than the rest of the world. US consumers were thus ready to buy foreign goods, and the strong dollar made it even more conducive to do so. Hence big, big trade gaps then as well.
Just now the dollar is starting to get back to historical norms. As noted a couple of weeks back, as compared to a basket of foreign currencies, the dollar is still above the 30 year average. Further, as compared to the old German marc, the dollar is still 10% above its historical average the past few decades. It is no wonder we are now seeing stronger exports as US goods, still highly coveted despite stories of world boycotts, are getting more in parity with the rest of the world.
What is the normal dollar policy? From boom to bust. Sound familiar?
If you are still worried about the dollar, go outside and scream, shout and run around waving your arms. The exercise will do you good. After that think about where we are historically, noting what we wrote above as well as what happened in the 1990's. The dollar surged, surged some more, and then blasted higher as the US enjoyed a huge equity and production boom AND the administration did all it could to push it higher. The result was a dollar at historic highs against other currencies. That along with the strong economy and surging stock market led consumers on a buying binge. We always buy a lot of foreign goods, but with retirement accounts ballooning, imports did the same as demand surging as the price of foreign goods fell thanks to a rising dollar.
Thus the dollar is now falling back toward historical norms and we are all in a panic. The trade deficit is the reason because there is floated the theory that a trade gap eventually leads to a further falling dollar as foreign investors pull out of dollar investments. The gap starts correcting, however, when the dollar approaches norms. We are already seeing the correction now. It is not a done deal; nothing is. It is still a slippery slope when you talk down your currency, and the Bush administration, when compared to the Ruben administration, is doing that.
That is another important distinction: the current position of supporting a strong dollar and trying to achieve it through economic policy decisions is not a left handed way of talking down the dollar. It is the way value was typically determined before the Clinton/Ruben period. The dollar was goosed higher and higher during that time to unsustainable levels; once the economic boom ended, the dollar had to come down eventually. Right now we are 'paying the price' for a higher dollar that is correcting. As we are seeing, however, the price is increasing exports, a still rising stock market, and an economy that is nonetheless still growing at a pace faster than most of the world and will do so next year as well.
THE MARKET
Stocks could not advance, at least not with strength or in unison Monday, held back again by mixed action and as stocks still, for the most part, try to consolidate and set up the next move. Last Wednesday was strong as December started, giving us an indication that money would still seek stocks ahead of year end. Thursday, Friday and Monday, there was no follow through to that move. NASDAQ has wandered higher while the small caps and DJ30 have declined.
The news Monday gave investors a reason not to buy in, but even without it the action most likely would have been indecisive. NASDAQ looks as if it could test the Wednesday break out of the trading range, but SP500 and small caps look good with a lateral move and modest pullback to the 10 day EMA respectively. This has been a pause to regroup without any erosion in the market. We are anticipating the move to resume and we will see leaders starting to do just that ahead of the market in general. Monday stocks such as SNDA, CREE, NTAP, AMD, HAE, and EMR jumped on some strong trade. Those stocks have been leaders and were starting to do so again Monday. When the leaders start to move again we watch for the rest of the market to do the same if the fundamentals have not changed.
Market Sentiment
No change in these indicators. Volatility has remained at low levels while the put/call ratio has remained near the top of the range. We do note that the put/call ratio dropped off on the rally and has crept back up as the market moves laterally. That is not bad action. Again, the ratios showed us what we wanted to see back in October right before the rally kicked off for the overall market.
VIX: 13.19; +0.23
VXN: 19.53; +1.27
VXO: 13.57; -0.04
Put/Call Ratio (CBOE): 0.75; +0.01
NASDAQ
Gapped lower but then recovered in a continued show of relative strength. It was unable, however, to hold above resistance at the top of its 2004 base, giving that level up by the close.
Stats: +3.29 points (+0.15%) to close at 2151.25
Volume: 2.155B (-11.51%). Another 2B dinger but volume declined on the gain. You cannot see volume rise every session and it has been strong the past week. Still it was substantially lower, indicating less buying interest. Pretty obvious if you just watched the session, huh?
Up Volume: 1.449B (-185M). Good up to down volume ratio.
Down Volume: 682M (-98M)
A/D and Hi/Lo: Decliners led 1.25 to 1. Modest decliners leading, but again we note that decliners led on an upside session. NASDAQ 100 outpaced the overall NASDAQ, so we see it was the large cap techs leading and the small caps lagging just as on the NYSE.
Previous Session: Decliners led 1.12 to 1
New Highs: 135 (-205)
New Lows: 12 (-11)
The Chart: http://www.investmenthouse.com/cd/^ixq.html
Early softness, good rebound to take it through near resistance at the top of the 2004 base (2154), then unable to hold the move into the close. A familiar pattern the past few days, topping that resistance and then just fading back to the close. NASDAQ could still come back to test the strong Wednesday move, falling toward the 10 day EMA (2120) before continuing, but if the small caps start to rebound and SP500 breaks higher from its lateral move, NASDAQ will be right up there with them.
As noted, NASDAQ 100 led overall NASDAQ by 0.1% as the large cap names led while the small caps lagged. The index continues the run up the 10 day EMA that started again with force last Wednesday. We note the commentators talking about the market pullback currently underway. Looking at NASDAQ and NASDAQ 100 we know they are not looking at the overall market.
SOX was the other positive index Monday, coming back from a test toward the 200 day SMA. WE thought about moving into some SOX call positions, but wanted to see a better break higher. Will be watching for that Tuesday.
S&P 500/NYSE
Another lateral move in the large cap index, again on lower, this time below average, volume. It is setting up well to continue the move.
Stats: -0.92 points (-0.08%) to close at 1190.25
NYSE Volume: 1.351B (-13.52%). Volume backed off below average as the large caps moved laterally once more. Very good price/volume action setting up the move.
Up Volume: 560M (-295M)
Down Volume: 742M (+61M)
A/D and Hi/Lo: Decliners led 1.33 to 1. Fairly modest given the small caps lagging once more.
Previous Session: Advancers led 1.7 to 1
New Highs: 234 (-261)
New Lows: 34 (+16)
The Chart: http://www.investmenthouse.com/cd/^spx.html
Large caps performed very well Monday. A drop is good performance? You bet. It held its lateral move with a tap at the 10 day EMA (1184, also the top of the November lateral range) and then a rebound to basically flat. Volume backed off so there were few sellers. It has made a test of last Wednesday's jump higher. Basically it has held its gains, moved laterally on low volume to consolidate them, and is thus ready to continue the move higher. That is good action for a down session.
The small caps lost ground as well, but they too tapped the 10 day EMA (321.44) on the low and rebounded for a more modest decline. After rallying ahead of the rest of the market they are again taking another breather, setting up for another bounce off the 10 day EMA. Still look good though still extended on this run.
DJ30
Unable to clear 10,600 once more the point marking the top of the three week lateral range. Unlike the rest of the indexes, DJ30 has been unable to make a break over the last high to take it to the top of the 2004 pattern. It faded on low, below average volume Monday, another showing of good price/volume action. It is not far from making the break (we don't want to totally emasculate the index), and when the SP500 is ready to join NASDAQ in the next leg higher, DJ30 will probably clear this next hurdle in its climb out of the 2004 base.
Stats: -45.15 points (-0.43%) to close at 10547.06
Volume: 218 million shares Monday versus 286 million shares Friday.
The chart: http://www.investmenthouse.com/cd/^dji.html
TUESDAY
Economic reporting picks up a bit Tuesday with consumer credit and revised Q3 productivity. Neither is likely to move the market. We have a suspicion the action is going to key off of how calm investors feel after the Saudi attacks and how oil reacts to the OPEC production cut talk and the Nigeria unrest worries. It is more out of the headlines, but looking back the past year, stocks have traded in opposition to oil prices. The market clearly wants continued softening below $40/bbl just as OPEC says it wants prices at or above $40/bbl.
Still a lot of headwinds buffeting stocks down the road with the Fed still raising interest rates, Iraq elections still to come, and oil prices still over $40/bbl. Of course, we cannot forget the microscope retail sales are going to be under the next several weeks. We keep expecting to see a commercial that says 'Merry Christmas, now get you butt to the mall!' Ah, nothing quite like the warmth and good cheer at this time of the year.
Near term, stocks have rallied well from the October low with little rest. SP500 and DJ30 have taken a good breather while NASDAQ has continued its move higher with little time off. Same thing for SP600 (small caps). Now if SP500 and even DJ30 can emerge from this nap, most likely NASDAQ and the small caps will be there with them. SOX looked pretty decent Monday as well as tested the break over the 200 day SMA and looks ready to move once more. Several chip stocks were rallying well Monday in an off market.
Therefore we are still looking for more upside into Christmas following the strong surge last Wednesday. There has been no reversal of that move, and the strength of volume that session (first day of the month) shows money still wants to go to work in this rally. We will look for strong stocks breaking higher from good entry points.
Support and Resistance
NASDAQ: Closed at 2151.25
Resistance:
January high at 2154 (early 2004 high) stalled the move once more.
2250 from 2001 highs and lows.
Support:
The 10 day EMA at 2120
2110 - 2112, the top of the November consolidation.
Price support at 2090.
The 18 day EMA at 2096
The April high at 2079
2050, prior resistance and the June high.
The 50 day EMA at 2024
October high at 1971
S&P 500: Closed at 1190.25
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.
The 18 day EMA at 1177
1175 second high in that double top that spanned late 2001 is trying to hold.
January highs at 1158
The 50 day EMA at 1153
1142-1146 are the June highs and the October high (1142).
1128 to 1125 the September closing high.
Dow: Closed at 10, 547.06
Resistance:
Price consolidation at 10,600 level
10,747 is the February high
Support:
10,570 is the early April high
The 10 day EMA at 10529
The late April, June peaks at 10,478 to 10,512
The 18 day EMA at 10,475
September high at 10,342
The 50 day EMA at 10,317
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): 2.0% expected and 1.9% prior
Consumer Credit, October (15:00): $6.0B 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): 335K expected versus 349K prior
Wholesale Inventories, October (10:00): 0.5% expected and 0.5% prior
December 10
PPI, November (08:30): 0.1% expected and 1.7% prior
Core PPI, November (08:30): 0.2% expected and 0.3% prior
Michigan Sentiment-Prelim., December (09:45): 93.5 expected and 92.8 prior
Treasury Budget, November (2:00): -$53.0B expected and -$43.0B prior
End part 1 of 2
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world stock market
us stock market
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