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us stock market, trade stock
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12/16/04 Stock Split Report
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Stock Split Report Subscribers:
MARKET ALERTS
Targets hit alerts issued Thursday: ATVI
Buy alerts issued: CHS; CENT; EYET
Trailing stops issued: TTC
Stop alerts issued: 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. You can sign up for Stock Split Report alerts at the following link:
http://www.investmenthouse.com/alertssr.htm
SUMMARY:
- Slow, steady climb stalls as volume continues to climb.
- Housing starts hit 11 year low as interest rates start to bite.
- Initial jobless claims plunge, current account less than expected, and Philly PMI surges.
- Distribution creeps in after Wednesday churn, high bullishness.
Not late rally to keep stocks positive.
Stocks faded mid-morning after a slow start, but then began what has been their standard this week, the slow and steady rebound to post a gain. There was some decent economic news with low jobless claims and a lower current account deficit, apparently enough to offset concerns about housing starts growing at an 11 year low. Stocks were making that recovery but after a lateral move over lunch they folded just as a strong Philly Fed report was released. They were well on their way lower when the FASB released its findings that companies should report and expense options on their financial statements. That provided additional reasons to sell, and within 2 hours NASDAQ had given back 25 points.
Volume climbed on the selling, particularly on NYSE while NASDAQ turned in volume roughly matching Wednesday levels. Strong trade most likely attributable to expiration, but after the Wednesday churn on NASDAQ and the high bullishness, this is exactly what we are concerned about. We saw some trouble in the large cap techs (e.g., YHOO, JNPR); nothing major, but also something to watch if it worsens.
The rally to this point has been steady though hardly breathtaking. The trend is still in place but stocks have been unable to take off and rally sharply as in November. Volume has jacked up and volatility as well (not the VIX but the day to day action). Further, the market continues to struggling to get all areas working together. After leading again Wednesday, small and mid-caps were lagging Thursday. Too much up and down action to be good, but again, the trend is still holding and with expiration Friday, we are tolerating a bit of volatility. If stocks cannot hold support, however, we are not going to wait around very long on any stocks that start to struggle and crack support.
THE ECONOMY
There was some good news, pretty good news, and disappointing news on the economic front Thursday. This was all under the umbrella of the second and final day of the D.C. economic summit where some excellent points regarding social security reform were made. Good things came out of the last economic summit and we hope more much needed change is enacted as a result of the current edition.
Weekly jobless claims post sharp drop, start to reverse recent trend higher.
Claims came in at 317K, well below the 342K expected and the 360K prior. Jobless claims had trended higher for the prior three weeks and this number went a long way to stall that move. It does not reverse it but it was a strong step in the right direction. There is still question as to how much the summer storms are still skewing the numbers, but the Labor department was adamant it had nothing to do with the tempests.
Current account holds steady.
The trade deficit held steady. Hurray. At -$164.7B that is mostly a moral victory. Still it was better than the -$171B expected as the dollar's fall has had an impact on imports versus exports. With a deficit still this high, however, one wonders how low and for how long the dollar would have to fall.
As noted again during the current economic summit, the dollar is not at any crisis level but is in fact slightly above historical norms and long term averages before it took off on that long upward run in the 1990's. We don't know whether anyone recalls, but there were as vehement of screams then that the dollar was too high and was going to trigger all types of economic and natural disasters, one being a ballooning trade deficit. It certainly helped as Americans snapped up relatively cheaper foreign goods with abandon, using those stock market gains.
As we all know, any currency, market, stock, etc. that surges well past historic norms will correct. The dollar is correcting because it was way, way too strong by historical standards. It is still correcting (though showing some strength of late), and has yet to return to historic norms. Indeed, markets tend to move through historic norms on the return trip before swinging back to equilibrium. Thus we can expect the dollar to continue its fall and move lower than the historical norms. That is what is needed to really put a dent in the current account deficit as US consumers will buy less foreign goods and foreigners will buy more US goods. Of course, the problem with that is China tying its currency to the dollar. Thus no matter how far the dollar falls, Chinese goods will remain relatively the same value to US consumers. As China is one of the largest importers to the US, that means that no matter how low the dollar goes it won't correct that portion of the trade deficit.
Philly Fed surges.
So maybe the New York survey did foretell the future once more. It was up sharply and Thursday the Philadelphia region reported a strong surge as well at 29.6 versus 20.5 expected and 20.7 in November. New orders rose to 26.4 from 22.1; shipments jumped to 32.0 from 24.5. As with the New York report, very solid gains and a good harbinger for the national number next week. The regional surveys overall continue to show solid, steady improvement, belying the 'economy in tatters' that we still hear on some of the talk shows. It may not be the economy they want, but it is hardly in tatters.
Housing starts drop 13%, an 11 year low.
Circle the wagons Martha. That is the gist of what we heard Thursday regarding the drop in housing starts. 1.77M annualized units versus the 1.98M expected. Permits fell 1.5%. The drop could not be explained away as just a slowdown in the storm ridden southeast as all regions suffered a slowdown.
Mortgage rates have ticked higher but are still near 6 month lows. Still, rates are higher than a year ago, and low rates have driven the housing market. The rise is having an impact though modest for now. It will, however, only worsen as the Fed continues raising rates and inflation ticks higher.
With building permits trending higher for several months, the November slowdown most likely had more to do with materials shortages after the summer storms than any major shift in the housing market. Of course the data raised the same 'new' questions about the stability of the housing market, the ones about how it cannot last, how a bubble is about to pop, etc. Maybe it will, but we anticipate more of an easing abatement as interest rates slowly rise. To us that means this last report was not a harbinger of doom but more of the same as seen over the last year: growth but at a more tempered pace. As rates rise growth will temper further. If rates get high enough by virtue of the Fed overreacting or inflation surging, then the housing market will stall abruptly.
You can bet the Fed watched this number with some consternation, however, as the Fed knows the housing market is what kept the economy afloat during the recession. The Fed also realizes, however, that housing is an early cycle in any economic upturn. The strength of the market would suggest this economic leg still has more to run. If meaningful change can be made regarding social security, if spending can really be held to the Bush budget of 1/2 of 1% growth, then the economy will indeed find much more room to run.
THE MARKET
We heard one commentator after hours say the NASDAQ is 'on fire.' While Thursday's selling was by no means a death knell for the current rally, it was a second day of high volume nothing. Wednesday NASDAQ showed a doji, unable to make any serious headway, as volume jumped. Thursday it sold on continued strong trade. Volume has surged this month, hitting levels not seen since January when the market peaked. NASDAQ has made some headway this month, but it was all in the first two days; since then it has traded in a range. Given the November run that would not be any big deal. The problem is the volume that has exploded this month. Either fund managers are chasing performance and dumping tons of cash into the market or there is a lot of stock changing hands as prices go nowhere. Actually those are both the same thing just stated differently. You want to see volume fade on a consolidation or lateral move, not mushroom to the highest levels in a year. Just as the single session of churn Wednesday, this month has been one of churn where stocks have traded hands a lot without going anywhere. On fire? In November yes. Now? If it is burning it is from within.
We will probably be labeled as Grinch, Scrooge, etc. for this cautious view. After all the indexes are still in their uptrends. As long as they hold them, great. Still, we have seen it dozens of times before: if you run in place long enough you get tired and have to sit down. SP500 showed a high volume doji Thursday similar to NASDAQ's on Wednesday. Maybe we just get a pullback here or maybe the market does what it did in October and November, i.e., rallying when it looked ready to fade. Unlike then, however, volume has shot higher. There were also a few more big tech names in trouble Thursday; nothing overwhelming, but some more cracks to go along with the super high bullishness and disturbing price/volume action that have raised red flags of late.
Market Sentiment
VIX: 12.27; -0.08
VXN: 18.6; -0.17
VXO: 13.01; -0.15
Put/Call Ratio (CBOE): 0.68; +0.05
NASDAQ
Unable to advance and indeed giving back a sizable piece of real estate on rising volume. Still in the trend so we won't get too morose.
Stats: -16.4 points (-0.76%) to close at 2146.15
Volume: 2.407B (+0.82%). Volume rose as NASDAQ tried to rally back early but then rolled over with some indigestion after lunch. As discussed, volume remains much too high for an index moving sideways.
Up Volume: 767M (-479M)
Down Volume: 1.468B (+370M)
A/D and Hi/Lo: Decliners led 1.61 to 1. Advancing breadth was weak, and this declining breadth was not too bad, a small positive for the session.
Previous Session: Advancers led 1.4 to 1
New Highs: 143 (-32)
New Lows: 16 (-3)
The Chart: http://www.investmenthouse.com/cd/^ixq.html
Okay, NASDAQ is still in the uptrend and Thursday can be characterized as a mere pullback to test the move the past week. There. Said it. That is true and without it breaking sharply lower through the October to December trend we don't want to overreact. After all what we are seeing are signs of problems that have not manifested in actual breakdowns. Thus the index can still rectify itself and continue the move after this sidestep the past 2.5 weeks. The high volume is something we are watching along with the Thursday distribution. It could all simply be related to expiration, but that would not explain the high volume to star the month. Call us grouchy or overly cautious, but what is new? You approach the market with a large measure of respect at any time; once you lose it you get your head taken off. NASDAQ is still in the trend but there are signs that in the past have spelled trouble. No harm in paying close attention to them.
NASDAQ 100 sold on volume as well, but it too held the uptrend that started in October. It has the makings of a small double top as does overall NASDAQ, but it is way too early to freak out about that. The sharp volume surge remains our main concern as the market tries to move laterally. We note that QQQQ volume has been low all week and dropped on this selling. It is hardly a substitute for the overall index but it is worth noting it is not distributing.
SOX turned back at the 200 day SMA (434) once more and now we see if it holds at the 50 day EMA (420.63) again and narrows the range further in order to try another bounce. Not looking very good, however, with the two recent peaks and what appears to be a lower high in progress.
SP500/NYSE
Volume jumped to the highest level of the month as the large caps ran in place, managing to hold 1200 after breaking below that level.
Stats: -2.51 points (-0.21%) to close at 1203.21
NYSE Volume: 1.791B (+5.9%). Large caps could not push higher after the breakout over 1200, selling back on the strongest volume of the month. Volume has been rather well contained on SP500 during the month, acting much better than NASDAQ. Thus we are not too alarmed by this doji on rising volume though it likely means a test of the recent move.
Up Volume: 790M (-319M)
Down Volume: 982M (+440M)
A/D and Hi/Lo: Decliners led 1.89 to 1. Recovered from -2:1 mid-afternoon. Not really bad given SP600 and SP400 were notable laggards and there are more of the smaller cap stocks than larger cap stocks.
Previous Session: Advancers led 2.11 to 1
New Highs: 248 (-90)
New Lows: 17 (+12)
The Chart: http://www.investmenthouse.com/cd/^spx.html
A doji on rising volume after the run higher the past week. SP500 has not had the high volume volatility shown on NASDAQ and thus this indicates a pullback to test the move over 1200 or the 10 or 18 day EMA (1195, 1188). The index has consistently pulled a gain out of what looked to be an imminent pullback. A quick test lower would better set up the next move.
SP600 has hit the early December high (326.35) and has turned back down. A potential double top at that level, but as with NASDAQ 100, much too early to discern as it is still in its uptrend. There are disturbing features to the market that tell us to watch this leading index closely, but it too is still in its recent uptrend.
DJ30
Led the market with a modest gain but it too showed a loose doji as its move continued to contract after a good week of rallying that saw volume finally kick in Tuesday. A 300 point move may need a bit of testing back to the 10,600 level that was key resistance. Good volume break higher over that level, and typically a test is in order. With SP500 showing a doji and indicating a potential test, we would expect the same from DJ30. As with SP500 that would better set up the next leg to take it toward the 2004 high at 10,754. Good break higher and that indicates a more normal test. Perhaps if SP500 and DJ30 continue to act solidly NASDAQ will be able to pull out of its questionable action.
Stats: +14.19 points (+0.13%) to close at 10705.64
Volume: 293 million shares Thursday versus 305 million shares Wednesday.
The chart: http://www.investmenthouse.com/cd/^dji.html
FRIDAY
Consumer price index is out before the open and it is a key report now given the inflation that has been hitting the economy. Producer prices have thus far not passed through with any force into the consumer side, but with continued strength in commodities, more will be creeping into the consumer side. That puts more pressure on the Fed to raise rates and that ultimately puts pressure on stocks. We should not forget that we are in a period of Fed rate hiking and that the Fed has given no indication it is ready to put an end to the campaign. If the Fed decides it has to go beyond fighting inflation and using rate hikes to try and support foreign investment in the US the market will have trouble. That is why it is so important to take real action against the reasons for our debt: federal overspending and entitlements that cannot be paid for without permanently hurting our economy and relegating us down the road to a had been economic power.
That is way beyond the purview of Friday. The action on SP500 and DJ30, even SP600, suggests a pullback after a decent run to this point. No problem with that. Our concern remains with NASDAQ action as outlined above. Will it act as a catalyst for trouble or just languish in its range and follow where SP500 and DJ30 lead? That would be a role change, but better than the alternative based on the very high volume run to nowhere, i.e. a sharper pullback.
As we have said, we don't like NASDAQ action but that does not mean it will tank. Leading stocks are still overall holding up just fine; when a lot of them start breaking down on volume then there is reason for real concern as they would be confirming the distributive action on NASDAQ this month. Even if NASDAQ does pullback that does not mean collapse. NASDAQ could top out here, move down and laterally as it continues the sideways move of this month, setting up for another leg higher. We are not predicting a January 2004-like peak, though the action will need to improve from the current lateral churn this month.
We are not going to hesitate to cut a position that we have doubts about, particularly tech stocks as those have shown the most recent trouble as epitomized by the overall NASDAQ. The Thursday distribution, while probably related to expiration and index rebalancing, is one of those flags we were watching and thus we won't let a good stock get ugly if we see volume on price weakness.
What we have done during the move higher was look for stocks ready to move and then step in if they rallied. That way we are moving into the stocks that are making the runs, and we continue to do that as long as they continue to set up and run and as long as most stocks are not starting to break lower. We see some problems with some bigger techs as noted above though nothing that is breaking the index down yet. That keeps us cautious and we look for really good situations to buy into at this point. If SP500 and DJ30 do make the modest pullback we are anticipating, all the better chance the rally continues into the New Year before taking a more serious rest. We will be watching NASDAQ and its big names to see how they trade out expiration. If they hold the range and show some decent action, the prospects improve.
Support and Resistance
NASDAQ: Closed at 2146.15
Resistance:
January high at 2154 (early 2004 high).
2250 - 2260 from January/February 2001 highs and lows.
2282 from 5-2001 high.
Support:
The 18 day EMA at 2123
2110 - 2112, the top of the November consolidation.
Price support at 2090.
The April high at 2079
The 50 day EMA at 2056
2050, prior resistance and the June high.
S&P 500: Closed at 1203.21
Resistance:
Q1 1999 lows at 1215
October 1999 low at 1233
Q2 2001 peak at 1310.
Support:
1200 acted as resistance on the way up.
The 18 day EMA at 1188
1180 to 1185, the top of the November consolidation range.
1175 second high in that double top that spanned late 2001.
The 50 day EMA at 1164
January highs at 1158
1142-1146 are the June highs and the October high (1142).
Dow: Closed at 10, 705.64
Resistance:
10,754 is the February high
10,975 - 11,000 from Q4 2000, Q1 2001
Support:
Price consolidation at 10,600 level
10,570 is the early April high
The 18 day EMA at 10,557
The late April, June peaks at 10,478 to 10,512
10,400, the bottom of the recent range.
The 50 day EMA at 10,394
September high at 10,342
The 200 day SMA at 10,238
Economic Calendar
These are consensus expectations. Our expectations will vary and are discussed in the 'Economy' section.
December 13
Retail Sales, November (08:30): 0.1% actual versus 0.0% expected and 0.8% prior (revised from 0.2%)
Retail Sales ex-auto, November (08:30): 0.5% actual versus 0.3% expected and 1.1% prior (revised from 0.9%)
Business Inventories, October (10:00): 0.2% actual versus 0.5% expected and 0.0% prior (revised from 0.1%)
December 14
Trade Balance, October (08:30): -$55.5B actual versus -$53.0B expected and -$50.9B prior (revised from -$51.6B)
Industrial Production, November (09:15): 0.3% actual versus 0.2% expected and 0.6% prior (revised from 0.7%)
Capacity Utilization, November (09:15): 77.6% actual versus 77.8% expected and 77.5% prior (revised from 77.7%)
FOMC Meeting, (2:15): 25 basis point rate hike to 2.25%. No change in statement or removing policy accommodation at a measured pace.
December 15
NY Empire State Index, December (08:30): 29.93 actual versus 20.0 expected and 18.86 prior (revised from 19.76)
December 16
Housing Starts, November (08:30): 1771K actual versus 1980K expected and 2039K prior (revised from 2027K)
Building Permits, November (08:30): 1988K actual versus 2010K expected and 2018K prior (revised from 1984K)
Current Account, Q3 (08:30): -$164.7B actual versus -$171.0B expected and -$164.4B prior (revised from -$166.2B)
Initial Jobless Claims, 12/11 (08:30): 317K actual versus 342K expected and 360K prior (revised from 357K)
Philadelphia Fed, December (12:00): 29.6 actual versus 20.5 expected and 20.7 prior
December 17
CPI, November (08:30): 0.2% expected and 0.6% prior
Core CPI, November (08:30): 0.2% expected and 0.2% prior
End part 1 of 3
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