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us stock market, trade stock
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1/08/05 Stock Split Report
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Stock Split Report Subscribers:
MARKET ALERTS
Targets hit alerts issued Friday: None issued
Buy alerts issued: None issued
Trailing stops issued: PRFT; PNK
Stop alerts issued: CERN; TASR; HAR
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:
- Friday a microcosm of the entire week.
- Jobs remain in slower lane, but solid November revision and 2.2M for the year.
- Large cap indexes still in position to recover, but losing help from smaller caps and not working from a position of strength.
- Earnings start this week with surprisingly few warnings.
Market remains consistent (consistently weak) to end the week.
Friday was a repeat of prior sessions: an early bounce faded quickly for a down morning, a rebound through lunch, then a fade to close. Once more modest gains were no match for the almost inevitable late selling. Stocks were not slaughtered as the large cap indexes fell 0.1% to 0.2% though the small caps were pummeled once more (-1%). SOX even managed a 1.3% gain as that index bounced in relief after the hammering it received earlier in the week pushed it down through the 50 day EMA.
The problem was the same weak intraday action as gains were given away into the close with stronger volume on NASDAQ though weaker NYSE volume (the flip from Thursday). That kept NASDAQ below the 50 day EMA for the third consecutive session. That pushed SP600 lower below its 50 day after a weak tap at that level Thursday, a move that looked very much like the kiss goodbye that often leads to further downside. We note that the market had its 'best' day Thursday when the small caps attempted to rally. Investors may be moving out of small caps right now, but they were not moving into anything new last week.
While they were not putting money into any particular area with any zeal, the larger cap indexes did manage to hold above or right at the 50 day EMA, a key institutional support level. That leaves them in position to rebound this coming week if the big money decides it is time to start putting some of the money taken out of the market last week and some of the new money piling up to work. As of the close Friday that was not the case.
THE ECONOMY
December jobs fall below expectations, November revised upside.
157K jobs was basically more of the same as the 175K expected was indeed lofty given the weakness in the regional manufacturing reports and the private employment surveys. The unemployment rate held at 5.4%, average hourly wages rose 0.1% (less than the 0.2% gain expected). The report was bolstered by the November report that was revised upward to 137K jobs versus the 112K reported originally.
All in all the December report was more of what we have seen all year, punctuated by a few huge upside months here and there. The same scenario holds: big companies are still laying off workers (over 500K job cuts announced in the four months ending 2004) and the smaller companies are utilizing technology to the max before bringing on any new help.
That does not account for all of the micro businesses that have started where the employees are the owners; the employment rate has dropped from 5.7% to 5.4%, suggesting an additional 2 million plus jobs beyond the non-farm payroll jobs were created in 2004. That is reality that should not be ignored, but the government ignores a lot of reality in how it gathers and accounts for information relating to the economy.
2.2M non-farm jobs for the year.
Even with the relatively meek end to the year, 2004 averaged 183K jobs per month. 76K manufacturing jobs were created, the most since 1997. That is an important statistic as manufacturing has suffered a secular decline for over thirty years. The increase in manufacturing jobs even as cheaper labor in Asia and Central and South America pull more and more jobs from industrialized economies shows the power of investment incentives such as those contained in the tax cut package: increased expensing, bonus depreciation really helped small to medium businesses add equipment and expand operations at lower cost and thus bring on extra personnel to help.
The 2.2M were the most created since 1999. Makes sense as the market then the economy toppled over in 2000, wiping out any job creation. In 2001 9-11 wiped out 1 million jobs in an instant. Looking back on the market collapse in 2000, the 2000 election uncertainty, the 9-11 attacks, Afghanistan war, corporate scandals, Iraq war, etc., to have come back so strong in such a short time is amazing. There is still plenty of work to be done, but solid GPD growth and a good year of corporate profits has helped rebuild some confidence and will help with more jobs in 2005. We don't anticipate any surge to start the year; we will have to see how it pans out in Q2.
Consumer credit falls in November.
The consumer was expected to increase credit by $6B in November. It reduced credit by $8.7B, a mere $14.7B swing in expectations. Revolving credit was the largest contributor to the drop, falling $7.2B (credit and charge cards). This was the sharpest drop since January 1943 when the government started collecting this data.
But for the December sales results announced late this week this number would have likely caused panic. Just think if it has been reported early in the week ahead of the sales results; already nervous about the holiday season, many analysts would have predicted doom.
Lest you get overly worried about the November results, note that they are quite volatile. October credit was revised higher to a $9.7B increase from the $7.7B originally reported. With consumer confidence rebounding solidly the past couple of months, we have little worry that the consumer has folded up. Indeed, given the reports this week and what we have heard from our own surveys of retailers, the season was solid. December retail sales will be reported this Thursday as part of a week heavy on the economic data. That will tell more of the tale, but we do not expect to be disappointed.
THE MARKET
Last week saw the slow and somewhat volatile gains accumulated in December mostly, and in some cases completely, given back. The market suffered distribution across the board as some big money came off the table following the November and December sprint to a positive close for the year.
A long base in 2004, a breakout and run higher, and now a pullback. Pullback implies an orderly move. This was a hard drop along the lines of a correction. The large caps held at the 50 day EMA more or less, a level that, if the big money is so inclined, can act as the support level for a consolidation after a hard drop. This level failed to yield a sharp rebound last week, so the odds of any upside from here are more for a consolidation than getting a strong bounce back up and a continuation of the rally after a one week hiccup.
Of course after a distributive drop such as last week leaves the door open for further downside. The 50 day EMA does not necessarily have to hold up as seen with the SP600 small cap index. The selling pressure definitely weakened toward the end of the week as the market was actually able to try a couple of rebounds (though none stuck) and some stocks broke higher on solid volume. Still, that is a long way from signaling any end to the selling. SP600 tapped the 50 day EMA and failed. That index does not look ready to rebound just yet.
Perhaps the money taken out of the market will return this week into other areas. The economic data continues its strength, there is positive talk about tax and entitlement reform that will be good for the economy and financial markets, and there is money waiting to come back in. The latter is conjecture, however, and that wears off after first blush until real progress is made. The former, as seen in 2000, is not the leading indicator; the market was the leading indicator though we did see signs at the time the economy was softening, signs we do not see now.
We still suspect this past week was a shorter term pullback as money was taken out of the market for reallocation elsewhere. Many good stocks finished the week holding up well. In reviewing the market we see strength in drugs, health services, medical instruments, telecom, and some insurance (P&C in particular). These not only show relative strength, but many are set up to rebound well, showing some good upside volume on Friday. The 50 day EMA is a logical place to start putting money back to work. That the small caps did not hold the 50 day and continued to sell while the large caps held a key support level suggests that the long predicted small cap decline may have indeed started, and that the small caps' loss will be the large caps' gain.
At this juncture we continue to watch how the indexes and the leading stocks that sold back the past week and held the 50 day EMA respond to the second week of the new year. If it was reallocation we should see some rising upside volume as stocks bounce up off the 50 day EMA. Of course, it does not hurt that the market sold the entire week, setting up something of an oversold condition right at a key support level.
Market Sentiment
VIX: 13.49; -0.09
VXN: 19.15; -0.98
VXO: 13.85; -0.32
Put/Call Ratio (CBOE): 0.97; +0.17. A ratio of 0.95 Wednesday helped stocks post a modest bounce Thursday. With the large cap indexes and many strong stocks holding near the 50 day EMA, this suggests at least a rebound attempt this week.
NASDAQ
More of the same with a midday rally that paused for a breather and never got it. It slid well below the 50 day EMA before the rebound, but it did manage to hold much of the recovery and close near the 50 day.
Stats: -1.39 points (-0.07%) to close at 2088.61
Volume: 2.206B (+0.31%). Volume crept higher as NASDAQ sold a bit. We note, however, that it rebounded and almost held the 50 day on the close. That suggests some buying after the undercut as some shorts covered. Now we see if the buying continues this week.
Up Volume: 1.114B (+181M)
Down Volume: 1.067B (-183M)
A/D and Hi/Lo: Decliners led 1.59 to 1
Previous Session: Decliners led 1.02 to 1
New Highs: 54 (+18)
New Lows: 26 (0)
The Chart: http://www.investmenthouse.com/cd/^ixq.html
Nasdaq flirted with the 50 day EMA (2093) for the third straight session. In what is now the morning routine for the index, it sold after an early bounce and this time undercut the 50 day substantially, hitting 2076 on the low. That triggered some short covering; often when a support level is broken there is an initial surge lower and then a rebound as the shorts take their gain. NASDAQ rebounded Friday and recovered the 50 day only to lose it in the last half hour selling. Volume was slightly higher as it rebounded off the lows. That suggests some potential upside this week, but at this stage it is just a suggestion. Techs showed no backbone at all last week.
NASDAQ 100 performed better than NASDAQ, posting a 0.5% gain and showing a nice, tight doji right at the 50 day. Volume edged higher as it did. This is much more of a suggestion of upside than on the overall NASDAQ.
SOX posted the best gain (1.3%) as it found support at the 400 support level. Good to see support act as support. This is a recovery move at this juncture as some shorts take pity on the chips and cover positions after they fell out of their consolidation attempt between the 200 day SMA and the 50 day EMA (420.23). The covering was rather logical; after a hard fall out of the range chips slowed at next support and they covered. The real story is when the chips make it back up to the 50 day EMA.
SP500/NYSE
Turned and led the sellers Friday, managing to hold at some support at 310. Not good action.
Stats: -1.70 points (-0.14%) to close at 1186.19
NYSE Volume: 1.476B (-5.84%). Volume backed off near average, showing the lowest volume of the week. As it moves laterally over the 50 day the lower volume indicates an attempt to consolidate.
Up Volume: 537M (-415M)
Down Volume: 922M (+334M)
A/D and Hi/Lo: Decliners led 1.37 to 1
Previous Session: Advancers led 1.35 to 1
New Highs: 58 (+22)
New Lows: 14 (-2)
The Chart: http://www.investmenthouse.com/cd/^spx.html
The large caps managed to hold the 50 day EMA (1180) for the third session, tapping that level on the low and rebounding to close at the midpoint of the session. Volume fell back toward average as SP500 moved laterally, holding the 50 day and the November to December consolidation range. This is a solid support level for the index, hence its holding at this point. It also maintains the breakout from the 2004 base, always a positive on a pullback.
The small cap SP600 led the selling Friday with a 1% drop. Thursday it kissed the 50 day EMA (315.60), tapping it on the high and falling back. Friday it tried again, failed to make the 50 day, and then rolled over. It stopped at some support at 310, but that does not look as if it will hold despite the 6% drop in just 5 sessions.
DJ30
The blue chips tapped toward the 50 day EMA (10,542) on the low (10,571) and managed a modest rebound along with the other large cap indexes. It too sold in the last half hour to close negative, but though volume was higher, it was still well below average indicating no real distribution. It undercut but then popped back to hold important support at 10,600, the top of the November to December consolidation range. More so than the other indexes, DJ30 looks ready to rebound to at least test the selling from last week.
Stats: -18.92 points (-0.18%) to close at 10603.96
Volume: 242 million shares Friday versus 232 million shares Thursday.
The chart: http://www.investmenthouse.com/cd/^dji.html
THIS WEEK
Heavy on the economic data with retail sales, trade balance, PPI, inventories, and industrial production as the highlights. That will take a back seat of sorts to the start of earnings. And of course the earnings themselves will take a back seat to the guidance. Most everyone is predicting slowing earnings compared to the strong moves in 2004. Stock prices in general follow earnings, or more correctly, move in anticipation of future earnings. Until last week, however, the predicted weaker earnings comparisons had not impacted stock prices. There is precedent for stocks rising even as earnings slowed. This happened in the 1980's after a big earnings surge. Basically the market continued anticipating an extended recovery and that kept prices rising.
As noted above, the near term key is whether the large cap indexes can hold the 50 day EMA and start to recover. DJ30 and SP500 look quite capable of that; NASDAQ is more problematical as it is below the 50 day, but it has refused to cave in to the selling. As noted, there is strength in drugs, medical, health, and telecom. After a sharp week of selling, we are looking hard at those sectors and stocks that held up well during that selling, showing that relative strength that makes them strong upside movers when the selling pressure abates. The new plays on the report include these areas.
What is interesting is listening to the idea many are espousing that the market had a great 2004 and that it is due for a correction. But for November (December was up but not nearly the move of November) the market is negative for the year. NASDAQ did have a strong run from August and SP600 enjoyed a similar run, so one could expect a pullback to test those moves. After a long base and finally a breakout, however, the more typical action is a breakout test.
The action last week was not what you would consider a typical test because volume is lower showing no real dumping of shares that were just bought during the rally. With the new year we can explain the sharp selling as reallocation as gains were taken from areas that did run well in 2004 (tech and small caps) so they would not show up on the 2004 tax cycle and to raise money to put into other areas in the new year. We suspect that is what happened but it has yet to prove us right.
Many leaders broke down last week but many more are holding the key 50 day EMA just as the large cap indexes. Stocks had a sharp pullback to take some gains, raise some cash for the new year, and ahead of earnings. They are at a logical point to rebound if this is the correct scenario. This week will tell us just what the big money has in store now that the first week shuffling is over. Well, at least the first week is over.
Support and Resistance
NASDAQ: Closed at 2088.61
Resistance:
2110 - 2112, the top of the November consolidation.
January high at 2154 (early 2004 high)
2250 - 2260 from January/February 2001 highs and lows.
2282 from 5-2001 high.
Support:
The 50 day EMA at 2093.26 is still trying to hold.
Price support at 2090.
The April high at 2079
2050, prior resistance and the June high.
S&P 500: Closed at 1186.19
Resistance:
The 18 day EMA at 1196.44
1200 acted as resistance on the last trip higher
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 50 day EMA at 1180.66
1175 second high in that double top that spanned late 2001.
Dow: Closed at 10, 603.96
Resistance:
The 10 day EMA at 10,680
10,754 is the February high
10,975 - 11,000 from Q4 2000, Q1 2001
11,350 from the May 2001 highs
Support:
Price consolidation at 10,600 level
10,570 is the early April high
The 50 day EMA at 10,542
The late April, June peaks at 10,478 to 10,512
10,400, the bottom of the November/December range.
Economic Calendar
These are consensus expectations. Our expectations will vary and are discussed in the 'Economy' section.
January 10
Wholesale Inventories, November (10:00): 0.8% expected and 1.1% prior
January 12
Trade Balance, November (08:30): -$53.0B expected and -$55.5B prior
Treasury Budget, December (14:00): -$12.5B expected and -$17.6B prior
January 13
Export Prices ex-ag., December (08:30): 0.4% prior
Import Prices ex-oil, December (08:30): 0.7% prior
Retail Sales, December (08:30): 0.7% expected and 0.1% prior
Retail Sales ex-auto, December (08:30): 0.4% expected and 0.5% prior
Initial Jobless Claims, 01/07 (08:30): 364K prior
January 14
Business Inventories, November (08:30): 0.6% expected and 0.2% prior
PPI, December (08:30): -0.1% expected and 0.5% prior
Core PPI, December (08:30): 0.2% expected and 0.2% prior
Industrial Production, December (09:15): 0.5% expected and 0.2% prior
Capacity Utilization, December (09:15): 78.9% expected and 78.7% prior
End part 1 of 3
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