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us stock market, trade stock
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12/22/04 Stock Split Report Update
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Stock Split Report Subscribers:
Full reports issue Tuesday, Thursday and Saturday.
**Christmas week schedule:
Market closed Friday.
Monday through Wednesday: Reports as usual
Monday 12-27: Reports resume as usual. Will issue alerts Monday on any new plays we find hitting buy points.
Alerts will issue as usual on all market days.
**
MARKET ALERTS
Targets hit alerts issued Wednesday: SBUX
Buy alerts issued: WFMI; FLIR; SBUX; QCOM; CEDC; FLO
Trailing stops issued: None issued
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:
- Stocks surge on oil inventories then everyone goes home.
- Q3 GDP beats expectations.
- Lower dollar at work: Europe shops America.
- Up or down for 2005?
- Thursday set to be a bore given Wednesday afternoon trade, but there are some interesting developments
Did the closing bell ring at 11:00 ET?
Stocks opened just a bit softer and then as anticipated started a modest raise in line with the existing trend. GDP was stronger than expected, Boeing was selling a bunch of planes were the positives while MSFT getting a negative ruling from the EU and the RIMM earnings were the dampers. When oil inventories came in at 10:30ET much better than expected, however, stocks surged. Crude inventories rose 2.1M bbl after an expected 400K drop; distillates (from which heating oil is derived) rose 600K bbl when expected to drop 1M bbl. Even gasoline got in on the action as it posted a stronger rise than anticipated. Oil fell 3% ($1.52/bbl) on the news. After the rebound attempt was squashed last week when oil inventories were lower than expected, the positive inventory news helped stocks surge. Indeed, NASDAQ blew through 2154 on the news.
After that move we anticipated a test, and issued an alert stating that once the test was over we would look to add positions in stronger stocks on the rebound. Stocks pulled back with NASDAQ coming back close to 2154. We waited for some volume to build and then the rebound. We waited, and waited. Lunch came. Lunch went. We waited some more. Then with 20 minutes left stocks made their move. NASD moved up 2 points to the close. Ho-ho-hum.
Seems as if everyone was waiting for the oil inventory news. When it hit there was a flurry of short covering and some long buying. Volume surged on the oil news and oil rally. Then as fast as it started, the big money went home for the holidays. Volume dried up the rest of the day. It was a pretty amazing 4.5 hour flat line. Amazing, that is, if you were able to stay awake. We kept anticipating a last hour rise if nothing else because of the existing trend. The early surge and nice test of the breakout only helped to make a late bounce look more probable. Instead all we got was a late blip; if you missed it you didn't miss anything.
Thus an ever so modest continuation of the modest holiday rally. The fact that stocks could not capitalize on the early move suggests that Thursday, assuredly a light volume session, will be a sleeper. Maybe we get a modest rise with the trend and with the holiday season, but if stocks could not attempt a late rise on the good oil data, the likelihood of a decent gain Thursday diminishes.
THE ECONOMY
Q3 GDP 4%, beats expectations.
It did not have any real impact on the market, but GDP pushed to that 4% growth level for Q3, a very respectable number given this was the period of gloom when the economy was slowing down into the fourth quarter. Instead growth rises to 4% versus the 3.3% in Q2.
The pros. Prices remained in check with the Fed's favored personal consumption expenditures rising 0.9% annually, higher than the 0.7% reported for November. While some pointed a warning finger at that number, it has to be put into perspective. Yes it was up, but it was the lowest reading in a year (and we know that was already a low reading), up from a level that was last seen in 1962. We are sure the Fed is not shaking in their boots over the reading. Consumer spending surged 5.1%, over three times the Q2 level. Recall how the consumer was supposed to back off this year as the effects of the tax cuts supposedly waned. The problem with that thinking is that it fails to take into account the continuing impact of cuts in the marginal rates; you receive that benefit every day. Business spending remained strong at 13% annually, upping the Q2 12.5% gain. Seems the consumer has joined back up with the business spender to boost demand.
The report was not all roses. The extra 0.1% goose higher was due to lower than previously estimated imports; that weaker dollar at work. That is not a bad thing; that is how the trade deficit does that auto correction we have written about in the past. Corporate profits took a hit, much of that blamed on the hurricanes that slowed much of the southeastern US. That was it.
Q4 to be stronger. Gee, we are not in a recession anymore.
That was the bad news in the report. All in all it was a strong showing. Q4 should be stronger. Imports are down; exports are up. That helps GDP right there. Business spending will be even stronger with companies taking advantage of accelerated or 'bonus' depreciation before it expires at year end.
Moreover, despite the glum reports on holiday spending, the consumer is in their buying. There are the usual complaints about how some retailers sales are lower. Well, other retailers are enjoying big gains. This year discount is out (other than electronics), high end is in.
To us that speaks to a vastly improved mindset among consumers. After 9-11 and in the recession discounters ruled. WMT gained as the other department stores and higher end stores suffered. We are not in recession anymore. We are in an improving economy with improving job growth and improving sentiment. Consumers are spending on the high end, opting for more expensive items. This year WMT's loss is the other retailers' gain. Hey, the recession is over but the retail analysts have not figured it out; they are still analyzing things under a recession scenario.
Lower dollar sending buyers flooding to the US.
One of the biggest changes in the past 6 years? Now Europeans and Asians are coming to the US to shop. We used to do that when the dollar was abnormally high. Now that the dollar has faded to more reasonable levels and the euro has hit all-time highs versus the dollar (when it debuted the euro was worth about 80 cents). It is not so much that the euro is so strong, but that it was so weak against the dollar when it debuted that now US goods look very cheap to them for the first time in ages.
So they are coming to the US, flying over and shopping. They are paying retail prices because they seem cheap compared to what they used to be. New York is enjoying a very prosperous holiday season as a result. It may not be nationwide, but it is an example of how the trade balance starts to shift, at least with those countries that have currencies independent of the dollar. Unfortunately China, one of our biggest importers, is tied to the dollar. Thus dollar drops have no impact on the US/China imbalance. Thus the overall gap won't change substantially.
THE MARKET
Early surge on some good volume as shorts covered and longs bought on the positive oil news. When that move was over so was the action for the day. Modest gains, lower volume, modest breadth. Some good moves to be sure, but overall nothing more than a modest rise in line with the trend and the season.
What about 2005? We will go into this in more detail near the start of the year, but here are a few ideas to consider. First, small caps are considered dead given they outperformed the rest of the market for the past few years. We don't think they will roll over. They may not lead as clearly as they have, but they won't be noticeable laggards.
Second, many say the economy and thus the market go nowhere in 2005, citing its strong run from late 2002 through early 2004. After that run that was based on government stimulus they opine there is nothing left to drive growth in the economy or stocks. We have broached that possibility this past year, wondering where the additional upside impetus would come from. Historically, however, there are examples worth recalling. The market ran higher from 1991 to early 1994 without a pause. It then moved laterally the entire year as the Fed raised rates. After that it took off even harder, rallying . In the fall of 1982 the nasty bear market and recession ended. Stocks rallied from that point through the end of 1983. Then the Fed got tough on interest rates again and stocks moved laterally for the entirety of 1984. Once the Fed was more or less done stocks blasted off and ran sharply higher for almost three years, right into black Monday in 1987.
The point: you don't have to have government stimulus pouring into the economy to have continued gains. In the 1980's there was massive investment incentives. After that all there was were lower tax rates just as today. Big deficits, big debts. The economy and market surged anyway. Once you get big investment in the economy, that investment drives things higher. Everyone will say times are different now. There are always differences, but things stay the same more than they change. Thus those predicting a poor 2005 may be left in the dust as they were in 2004.
Market Sentiment
VIX: 11.45; -0.1
VXN: 17.15; +0.21
VXO: 11.81; +0.29
Put/Call Ratio (CBOE): 0.91; +0.12. Curiously higher Wednesday, but typically due to covering on the oil data as we noted above. Last week the oil market punished the stock market. This week those anticipating similar news had to cover or get crushed.
NASDAQ
Broke over the early 2004 peaks and managed to hold the move on the test. Not much volume, however, and that always puts a question mark next to the move.
Stats: +6.12 points (+0.28%) to close at 2157.03
Volume: 1.827B (-8.72%). Volume fell below average on the move higher. Given NASDAQ has not cleared the recent highs, the lower volume keeps the move the past two sessions from being confirmation of anything other than a bounce where NASDAQ had to bounce.
Up Volume: 1.122B (-357M)
Down Volume: 685M (+201M)
A/D and Hi/Lo: Advancers led 1.23 to 1. Pretty weak.
Previous Session: Advancers led 1.84 to 1
New Highs: 163 (-10)
New Lows: 10 (-13)
The Chart: http://www.investmenthouse.com/cd/^ixq.html
Volume continued to dry up as NASDAQ moved over the early 2004 high (2154) but was unable to move to a new high for the year. The index continues in a lateral range the past three weeks, making higher lows below that constant top near 2164. Indeed that is where NASDAQ hit on the high before fading back and then flat lining the rest of the session. We were not expecting blowout volume given the holiday week, but above average would have been better.
NASDAQ 100 crept higher but it too is below the recent highs, moving higher on lower and lower volume. The holiday week skews the results, but low volume gains are never what you want to see.
SOX started higher but ran out of steam at near resistance at 425, well below the more critical level at the 200 day SMA (432.71) that has been the key resistance since the October to November rally. Holding over the 50 day EMA (420.97), but having a hard time finding the legs to try that more important resistance level.
SP500/NYSE
Large caps broke to a new high for the year Wednesday, putting some good distance between it and 1200. Low volume, of course, but it had already made its break higher.
Stats: +4.12 points (+0.34%) to close at 1209.57
NYSE Volume: 1.389B (-6.72%). Third session of below average volume, just the number of upside sessions this week as well. Volume on NYSE has not shown the volatile, distributive action NASDAQ showed earlier in the month. Thus this low volume move, while not great, is not as dangerous and more in line with a typical holiday week rise with the existing trend.
Up Volume: 855M (-306M)
Down Volume: 494M (+190M)
A/D and Hi/Lo: Advancers led 1.44 to 1
Previous Session: Advancers led 2.54 to 1
New Highs: 381 (+98)
New Lows: 4 (-6)
The Chart: http://www.investmenthouse.com/cd/^spx.html
SP500 cleared the recent highs, taking the index to a new 2004 high and putting some further distance between it and 1200 that held it in check the past couple of weeks. It is now moving toward next resistance at 1215, then 1233. After the high volume selling to end last week as expiration and Russell rebalancing ruled, SP500 has resumed its steady trend up the 18 day EMA (1193).
New all-time high as small caps stepped up again and led the market, this time along with DJ30. Strange bedfellows, but DJ30 was feeling its oats after breaking to a new 2004 high Tuesday.
DJ30
Volume continued to move lower on DJ30 even as the index continued to move higher. Nice break to a new 2004 high Tuesday and a nice price follow up Wednesday. It has come to life the past two weeks after getting knocked around by the drug news. More of the oars are rowing together now as opposed to just 3 and 4 weeks back.
Stats: +56.46 points (+0.52%) to close at 10815.89
Volume: 252 million shares Wednesday versus 294 million shares Tuesday.
The chart: http://www.investmenthouse.com/cd/^dji.html
THURSDAY
The last 5 hours of the session may be indicative of the action Thursday. Stocks surged on the positive oil news but then faded for the rest of the session. They held some gains and closed positive, but there was absolutely no life in the market after that oil inventory related run.
Thursday volume will be even lighter and there is a full slate of economic data. Maybe that will elicit a bit more action in the market to close out the week, wrapping up a nice present for the holiday. Durable goods orders, personal income and spending, and Michigan sentiment could all work to influence the action in lighter trade, particularly if they are positive reports that help reinforce trade in line with the upside trend.
We see many stocks from all different stages of bases making moves higher, some with strong volume, some without. There are some interesting plays that are not necessarily breakouts or breakout tests, i.e., making strong moves off the bottom of a base and moving through significant resistance. Those may not be stocks we would hold forever, but they can provide nice gains as the stock climbs higher and forms the right side of the base. This is a pretty exciting development as it shows many stocks perking up ahead of the new year and may be a precursor to that 'January effect' that gets a lot of press. It also may be a harbinger of a good 2005. Too early to tell, but if we see a play that can make us money now, we will take it. That is in line with our motto 'take what the market gives.' It might be quiet Thursday, but based on these patterns that are showing some money circulating into new areas, we could see some nice buys that would put us in good shape for the move to the new year an on into January.
Support and Resistance
NASDAQ: Closed at 2157.03
Resistance:
2250 - 2260 from January/February 2001 highs and lows.
2282 from 5-2001 high.
Support:
January high at 2154 (early 2004 high).
The 18 day EMA at 2130.95
2110 - 2112, the top of the November consolidation.
Price support at 2090.
The April high at 2079
The 50 day EMA at 2068.93
2050, prior resistance and the June high.
S&P 500: Closed at 1209.57
Resistance:
Q1 1999 lows at 1215
October 1999 low at 1233
Q2 2001 peak at 1310.
Support:
1200 acted as resistance on the last trip higher.
The 18 day EMA at 1193
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 1169.89
January highs at 1158
1142-1146 are the June highs and the October high (1142).
Dow: Closed at 10, 815.89
Resistance:
10,975 - 11,000 from Q4 2000, Q1 2001
11,350 from the May 2001 highs
Support:
10,754 is the February high
The 18 day EMA at 10,619
Price consolidation at 10,600 level
10,570 is the early April high
The late April, June peaks at 10,478 to 10,512
The 50 day EMA at 10,443
10,400, the bottom of the recent range.
September high at 10,342
The 200 day SMA at 10,242
Economic Calendar
These are consensus expectations. Our expectations will vary and are discussed in the 'Economy' section.
December 20
Leading Economic Indicators, November (10:00): 0.2% actual versus 0.1% expected and -0.4% prior (revised from -0.3%)
December 22
GDP-Final, Q3 (08:30): 4.0% actual versus 3.9% expected and 3.9% prior
Chain Deflator-Final, Q3 (08:30): 1.4% actual versus 1.3% expected and 1.3% prior
December 23
Durable Goods Orders, November (08:30): 0.7% expected and -1.1% prior
Personal Income, November (08:30): 0.2% expected and 0.6% prior
Personal Spending, November (08:30): 0.3% expected and 0.7% prior
Initial Jobless Claims, 12/18 (08:30): 335K expected and 317K prior
Michigan Sentiment-Rev., December (09:45): 95.7 expected and 95.7 prior
New Home Sales, November (10:00): 1200K expected and 1226K prior
End part 1 of 2
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