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us stock market, trade stock
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1/10/05 Stock Split Report Update
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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: CMC; HLEX; CYCL; ESRX; HYSL
Trailing stops issued: EBAY
Stop alerts issued: FLO; SNS
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 rebound, post modest gains, but almost give it all back once more.
- Wholesale inventories rise, but appears to be the good kind.
- GM cutting 7% of workforce. Mature companies have a lot of jobs, but they don't create them, they cut them.
- NASDAQ recovers 50 day EMA, some decent volume, breadth good and a smattering of leadership emerges, but still shaking off last week selling.
- Earnings starting with less than a roar.
Nice bounce holds into afternoon but fades to modest gains in afternoon.
Some pressure was released Monday as stocks rebounded after a week of hard selling. Stocks opened flat, rallied, broke through NASDAQ 50 day EMA, consolidated, and then rallied a bit more. Unlike last week, there was no morning volatility, just a solid move higher. Small caps led with techs right behind. That has been the formula for the market advances; the opposite has been the formula when the market has declined.
It did not seem to matter that oil was back over $46/bbl or that foreign markets were lower. After that week of tail kicking, sellers stepped back and some buyers entered. There was some leadership from stocks that had slid back in the selling but otherwise held their patterns. Volume was not great, but it was slightly higher on NYSE, and the leaders were showing solid trade. Breadth was good as the small caps bounced toward the 50 day EMA.
Then the afternoon came and stocks slipped a bit after SP500 had reached but could not punch through the 18 day EMA. Not a lot at first, and they held the morning consolidation. As with each session last week, however, they did not hold for long. They slipped, fell through the consolidation, and NASDAQ gave up almost 20 points from high to low, breaking back below the 50 day EMA. But for a late bump higher into the close, NASDAQ would have lost the 50 day again.
The bounce closed it above the 50 day, but the action was familiar with gains fading in the afternoon. Unlike prior sessions, however, the sellers did not jump onto stocks and sell with volume. Trade actually declined in the afternoon as stocks struggled and gave back their gains. It was the sellers that stopped buying; bids dried up. It did not take much selling strength to push stocks lower as the buyers appeared to take a 'let's see what happens this afternoon before we buy anymore' mentality. Without the bid that boosted shares all morning, stocks once more tumbled rather dramatically.
It was thus not a total replay of last week. Part of the gains were held. NASDAQ held the 50 day EMA. The small caps were back leading (though they could not clear the 50 day EMA). NYSE volume was up on a gain. Volume faded on the afternoon selling. NYSE breadth was solid. There was some leadership moving on solid volume. The underpinnings were better, suggesting something better could be ahead, but as of the close Monday this was nothing more than a relief move.
THE ECONOMY
Wholesale inventories rise and so do sales.
Inventories rose 1.1% in November, better than the 0.7% expected. Inventories are one of those half empty or half full economic indicators. A rise can mean buyers are slowing and inventories area accumulating or it can mean factories are ramping up production to meet demand. A drop can mean buyers are buying faster than production or that manufacturers have slowed production in the face of lower demand. Sometimes it is hard to determine, but there are clues.
One is the overall economic trend. If buying and production have been solid, a rising level is typically a decent sign as the trend is mostly likely continuing. Sales tell more of the story. November sales rose 0.7%, keeping the inventory to sales ratio (how long it takes to sell current inventories at the current sales level) at 1.15, the low held since the 1.12 reading last June.
The primary culprit in was a rise in durables that saw autos turn from a 1.6% October drop to a 0.5% gain. Auto sales fell 2.3%; there was some inventory accumulation there. Computer inventories shot higher, rising 4%. That can be expected, however, ahead of Christmas as producers ramp up production to meet the holiday sales season. Again, that is more of the increase in production in anticipation of more demand. Thus all in all we view this report as indicating steady production and demand.
GM announced cuts in workforce.
GM announced a 7% layoff, continuing its move to streamline its operations. This will be the fifth straight year of payroll cuts at the large and mature company. It still has new hires, but it is not a 1 for 1 replacement; attrition takes key people that have to be replaced. Overall, the trend remains lower.
This is not unusual for a large company in a mature industry. It is no longer in a growth phase but is in a mature market with a shrinking market share. With healthcare costs continuing to rise, GM's profit market shrinks steadily in addition to that smaller share of the auto pie. It is said that almost half the cost of a new vehicle is due to healthcare and pension costs. No wonder auto prices plunge when you roll that new vehicle off the lot.
This is a classic example of how a large, mature company does not create jobs as many believe. Its growth period was back in the fifties and sixties when automobile ownership was expanding in the US and the world. It needed more and more employees to meet production needs, etc. Now that auto ownership is more of a replacement game as opposed to finding new markets, GM is not going to create massive new amounts of jobs. That is true for many of the large US companies that have moved out of their growth phases, a list that now includes former growth companies such as MSFT, DELL, CSCO, IBM, HPQ. None of those companies are hiring anywhere near the rate they were during the growth spurts in the 1980's and 1990's. Unless there is some big technology breakthrough that they corner the market on, the growth prospects and thus job creation are limited.
THE MARKET
Stocks recovered some lost ground Monday, bouncing back from some sharp high volume selling last week. NASDAQ managed to move above the 50 day EMA, but volume was lower, so the move did not carry heavy credentials for that index. Stocks also could not hold all of the gains into the close. That gave the move the look of a relief move with respect to the techs, a group hard hit last week.
On the other side of the ledger NYSE showed rising volume as SP500 and SP600 posted gains, the small caps leading the market. Breadth was solid as the small caps recovered from there selling. Leadership was not widespread, but those areas that held their ground last week and showed some relative strength as the rest of the market sold did post some solid volume moves Monday. A market always needs leadership, and there was some Monday.
The market is still trying to shake off the selling, however. The small caps just managed to tap the 50 day EMA on the session high before fading to the close. Volume was mixed, and NYSE volume was not surging. And of course, stocks faded into the close though they managed to close mixed, hanging onto some gains. A rebound attempt that is still nursing a nasty hangover, holding where it had to but not offering much more.
Market Sentiment
VIX: 13.23; -0.26
VXN: 19.61; +0.46
VXO: 13.17; -0.68
Put/Call Ratio (CBOE): 0.82; -0.15. The 0.97 reading Friday may have telegraphed the Monday bounce to a certain extent, but this was no roaring move.
NASDAQ
Scratched back above the 50 day EMA on the close, hanging onto a modest gain on fading volume.
Stats: +8.43 points (+0.4%) to close at 2097.04
Volume: 2.124B (-3.7%). Volume was still above average and 2B shares, but it was lower versus Friday and indeed all of last week. That shows it was not really an accumulation session as there are still more sellers overall in the market. Monday there were more buyers so the index rose. That was underscored by the lighter volume as NASDAQ sold in the afternoon. That does not, however, turn the tide that started with last week's high volume selling.
Up Volume: 880M (-234M)
Down Volume: 1.169B (+102M)
A/D and Hi/Lo: Advancers led 1.21 to 1. Breadth was close to 2:1 near the session high but of course faded as the afternoon selling peeled 20 points off the index before the late bounce helped recover the 50 day EMA.
Previous Session: Decliners led 1.59 to 1
New Highs: 86 (+32)
New Lows: 29 (+3)
The Chart: http://www.investmenthouse.com/cd/^ixq.html
As described above, a decent move all morning, retaking the 50 day EMA (2093), retaking 2100, showing some leadership along with SP600. Then the same old store arose with afternoon selling. Though on lighter volume, NASDAQ gave up 2100 (mainly psychological resistance) after stalling at next key resistance at 2110-12, the top of the short November consolidation. Thus though it finished positive and above the 50 day, volume was lower and it showed similar intraday action to last week's trade. The only reason it did not close negative was because it did not experience the morning volatility that tended to erode the early strength last week. It held where it had to hold, recovering the 50 day and showing a bit of leadership, but that is about all.
NASDAQ 100 rallied to the intraday highs from last week and it fell back as well. Unlike NASDAQ, the large cap techs gave up the 50 day on the close, finishing flat as the large caps lagged techs overall. Those drug, medical, and healthcare stocks far outpaced the rest of the market.
SOX lagged all session, leading the laggards with a 0.3% drop. Basically they went nowhere after the drop to some support at 400 where it managed to find bottom last week. Still quite weak after something of a 6 week head and shoulders pattern formed when SOX failed to make a higher high to end December when the rest of the market rallied.
SP500/NYSE
Bounced a bit more off the 50 day EMA on slightly higher trade. Helped by SP600 it is showing a bit of leadership.
Stats: +4.06 points (+0.34%) to close at 1190.25
NYSE Volume: 1.49B (+0.94%). Slightly rising volume as drug and medical stocks of all kinds, more of a defensive play, gave the NYSE stocks their backbone just as they did on NASDAQ. In the past week SP500 has shown 3 distribution sessions; that can portend further drops, but it has checked up at the 50 day EMA on better volume Monday. We will see if this sharp, first of the year distribution is met with buying after the reallocation is finished.
Up Volume: 929M (+392M)
Down Volume: 529M (-393M)
A/D and Hi/Lo: Advancers led 1.69 to 1. Breadth fell from 2+:1 levels as all indexes faded in the afternoon. Small caps were definitely helping the breadth Monday.
Previous Session: Decliners led 1.37 to 1
New Highs: 63 (+5)
New Lows: 12 (-2)
The Chart: http://www.investmenthouse.com/cd/^spx.html
Large caps posted a gain as they rose off the 50 day EMA (1181) on some stronger, above average volume. Volume was up but not surging; it was still lower than last Tuesday and Wednesday when the selling to start the year reached its peak. This is a move that is necessary, but at this stage it has hardly turned the tide from the selling as the bounce still remains rather diminutive compared to that selling last week. On the high (1194.78) SP500 hit the 10 day EMA and tapped toward the 18 day EMA (1195.80). That is still the first watermark level to clear as SP500 attempts a recovery. A solid volume rebound Tuesday through that move would give some credence to a recovery and the idea last week's action was a clumsy reallocation of funds.
The small cap SP600 led the move with a 1% gain, but that was far off intraday gain as SP600 tapped the 50 day EMA (315.49) on the high before giving back almost half of the move on the close. 310 is some support and held Monday. It still is shaky whether it will continue to do so. SP600 tapped at the 50 day EMA again on the high and failed, a level that is also the top of the November consolidation. If it fails, the market leadership it showed Monday would have been a true head fake.
DJ30
Moved laterally over 10,600, a level that is key support at that marks the top of the November and December consolidation. It is also easily holding over the 50 day EMA (10,545). On the other hand, it tapped at the 18 day EMA (10,671) on the high for the fourth straight session before fading to the close. Hardly strong action, but it is working laterally on low, below average volume, consolidating above support. Along with SP500, DJ30 is actually providing support for the market.
Stats: +17.07 points (+0.16%) to close at 10621.03
Volume: 234 million shares Monday versus 242 million shares Friday.
The chart: http://www.investmenthouse.com/cd/^dji.html
TUESDAY
No scheduled economic reports Tuesday, but the focus is turning toward earnings, and after hours the reports started to hit. AA and DNA were down after hours as AA earnings were hit with restructuring costs and higher energy prices as well. HTCH beat revenues but it was hardly moving after hours. Looks as if the start is less than inspiring to investors.
The market is still walking on eggshells at this juncture with NASDAQ retaking the 50 day EMA on low volume and the small caps unable to retake the 50 day EMA. Those have been the market leaders, and we note that the market showed its best advance of the year in the morning (and on the close as well) when those two indexes were leading. While SP500 and DJ30 are setting up to try and recover, NASDAQ and SP600 are still far from showing they have enough buy side interest to turn last week's tide.
Again, the pullback last week has set up an earnings bounce as some of the air was taken out of the late 2004 rally. Question remains as to whether the bounce will occur. Stocks showed some better action Monday, but as noted, it was a far cry from showing strength. Drugs, healthcare and medical stocks were the stronger Monday, and as noted, those are more defensive. They can still provide excellent leadership, however, and there continue to be some good patterns in these stocks. If buying in these continues other areas can start attracting money as well. To do that and show a return to buying, however, the upside volume needs to continue improving and the intraday action needs to show a hold into the close for starters.
Support and Resistance
NASDAQ: Closed at 2097.04
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 2093.44 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 1190.25
Resistance:
The 18 day EMA at 1195.80
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 1181.04
1175 second high in that double top that spanned late 2001.
Dow: Closed at 10, 621.03
Resistance:
The 18 day EMA at 10,672
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 10,545
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): 1.1% actual versus 0.7% expected and 1.1% prior
January 12
Trade Balance, November (08:30): -$54.0B 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): 1.1% 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): 340K expected and 364K prior
January 14
Business Inventories, November (08:30): 0.6% expected and 0.2% prior
PPI, December (08:30): -0.2% 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 2
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