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us stock market, trade stock
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2/01/05 Investment House Alerts Report
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IH Alert Subscribers:
MARKET ALERTS:
Target hit alerts issued Tuesday: None issued
Buy alerts issued: AVID; WITS
Trailing stops issued: None issued
Stop alerts issued: RECN
SUMMARY:
- Stocks continue rally on rising volume, mixed economic data.
- ISM expands but slower than expected.
- December construction spending surges on year end projects.
- Small caps, mid-caps continue to lead with their 'February effect' while NASDAQ is reluctant follower.
- FOMC to announce status quo, and market may like that near term.
Another push higher on solid volume, except for NASDAQ.
Stocks started slow, sold a bit, but then came right back once more. The action was not as strong as Monday, even a bit sluggish, but volume was up on both NYSE and NASDAQ as the small caps and large caps led the action once more.
Good earnings, lower oil prices, and a weaker (yes weaker) ISM number helped fuel the continued move. The small caps were solid from the open as they continue their impressive advance after fighting off a breakdown from their head and shoulders pattern. The bond yield curve and January dip in stocks may indicate economic stress ahead, but the small caps are an offset to that forecast. Small caps tend to rally ahead of a strengthening economy. Thus there are some competing indicators right now. The yield curve is not at a point where weakness is a lock nor are the small caps breaking free from the topping pattern formed the past 10 weeks. For the past two sessions, however, the action of the small caps has been the dominant, and they have brought the rest of the market with them.
The small caps were not the only stocks moving. The large cap SP500 was close behind and even the blue chip index, bolstered by some good earnings, was in the game as well. Bringing up the rear once more, however, was NASDAQ. Volume was up on the tech index as it advanced, but trade remained below average as it pushed against its 50 day EMA. It remains the weak link in this advance, but thus far it has followed along and has not overly hampered the move.
Indeed, NASDAQ was under some pressure (as were the other indices to a lesser extent) once more in the last hour, giving back almost 10 points from its high after a second top at 2072. It managed to rebound once more in the last half hour as did the other indices. Again the market showed its upside resilience as it swatted back some late sellers and closed near session highs. Lopsided readings once more, but again, NASDAQ was at least still following the market into the Tuesday close.
THE ECONOMY
January national manufacturing survey lower but still expanding.
The ISM came in at 56.4, below expectations (57.0) and December (57.3). That still shows expansion (20 straight months) but at a slower pace than the end of 2004. This continued a trend of lower that started in earnest last August when the ISM turned below 60 after running easily above that level in late 2003 and the first half of 2004.
Despite the decline in a six month slide in manufacturing activity, the report was heralded as a great sign for the economy. Pundits cited improving production and employment sub-indexes as reason for their confidence in the economy. Employment rose to 58.1 from 53.3, the best gain since June 2004.
On the other hand, new orders thudded to 56.5 from 62.6. Customer inventories, order backlogs, and new export orders all slowed in the month. Part of that was the extra capital spending to end 2004 in order to take advantage of that bonus depreciation before it expired.
Thus you have sub-indexes within the overall index that are pulling somewhat in opposite directions. All are still indicating expansion, but it is the trend of each as well as what they tell us that is the key. Employment is lagging. It always, always lags the economy. Employers wait too long to lay off staff and they wait too long in the recovery to hire staff. On the other hand, new orders is more leading because it tells us about work that is not yet performed but is scheduled in the future. As with the overall ISM, new orders are showing a bit of a trend lower. One leading, one lagging. Everyone looks at the employment data because that hits home with the most people. It is not, however, a leading indication of economic activity.
All in all the index is still easily showing expansion and it does not look as if it is going to drop off the table and below 50 anytime soon. On the other hand, the 'expanding' expansion shown through the first half of 2004 is not there. It is growing but it continues to grow slower and slower.
December construction soars 1.1%.
Expectations were for a 0.5% gain, no slouch in itself. The strong showing, however, pushed non-residential construction to its first gain in 4 years.
Again the December gain was heralded as a turnaround, but as with the new orders sub-index of the ISM, December was strong in part because of favorable taxation that expired at the end of 2004. November was revised higher (0.3% versus -0.4%), however, a strong indication that a lot of activity occurred prior to year end to take advantage of those more favorable tax incentives.
Even with that, the private sector grew 0.9% while public spending on schools and highways surged 1.9%. It is very hard to count public spending in getting a real gauge as to the sector's strength. Private entity decision making gives the real insight into economic activity. A 0.9% gain was not bad at all, but the overall number was led by government tax dollars and that just is not the best gauge of activity.
THE MARKET
The market continued its advance, and it did it in the same somewhat bifurcated manner once again. The small and mid-caps were solid and furthered their gains on rising trade once more. The large caps enjoyed a steady advance as well. NYSE breadth was 2:1 and new highs advanced smartly.
NASDAQ, on the other hand, advanced as well, but its move was on continued meager trade. Breadth was modest as well, indicating that some big names moved higher but most techs were mired as the overall market showed strength. In addition, NASDAQ put together a much smaller price move as it compresses up against the 50 day EMA (2077). It is below the 50 day and the early January lateral range. Techs still have some serious work ahead of them, and the light trade does not suggest it has the stuffing in it to make such a break higher. Maybe GOOG's earnings will stuff some guts into techs for the move, but thus far they look more ready to retreat again than advance. Quite a contrast to the strength of smaller caps and large caps.
Despite the NASDAQ drag, the market continues to reverse the effects of the January selling. Tuesday was not a great surge, but after the strong Monday move it was very decent. NASDAQ remains a question mark and a real weakness given its position, but thus far it has been the reluctant follower, and that has been enough to allow the rest of the market's advance.
Market Sentiment
VIX: 12.03; -0.79
VXN: 17.76; -0.67
VXO: 11.62; -0.75
Put/Call Ratio (CBOE): 0.9; +0.13. The ratio rose as the market rallied, typically an incongruous result. Put sales for upside gain and closing protective positions most likely accounted for the increase as the market gained ground.
NASDAQ
Techs posted a gain on rising volume, but the gain was the lowest in the market and volume remained well below average. No pillar of strength, but it is not holding the others back.
Stats: +6.29 points (+0.3%) to close at 2068.7
Volume: 1.929B (+4.35%). Rising volume on the gain, but hard to say there was any serious accumulation. Volume was well below average and very low relative to the trade all year. Other than Monday, trade was the lowest of 2005. That could be trouble for NASDAQ as it takes on the 50 day EMA unless it gets some impetus or catalyst. GOOG?
Up Volume: 1.108B (-314M). Weak volume and pretty closely matched, indicating no domination by the buyers.
Down Volume: 776M (+384M)
A/D and Hi/Lo: Advancers led 1.31 to 1. Pretty anemic after the solid showing Monday.
Previous Session: Advancers led 2.59 to 1
New Highs: 131 (+15)
New Lows: 39 (+7)
The Chart: http://www.investmenthouse.com/cd/^ixq.html
Everything about NASDAQ Tuesday was mediocre: the advance, volume, breadth, new highs. It was similar to watching a tired marathon runner ready to give up. In the last hour it had the look as if someone needed to stick a fork in it. Just when it looked ready to head back down, however, the crowd (SP600, SP500, SP400) cheered it on and it managed to get back up and finish the session. That left it just over the 18 day EMA (2067) as it moves toward the 50 day EMA (2077). This lighter volume rebound simply does not instill any confidence NASDAQ will clear that resistance, a level bolstered by the January lateral range from 2066 to 2072 (the gap down point) on up to 1200. Unless things change, it has the look of an index that will fill the gap and then sputter. Maybe GOOG will provide the catalyst to get investors excited about techs, but some solid tech earnings to this point have failed to do the trick.
Large cap techs of the NASDAQ 100 demonstrated similar action, but they are still below the 18 day EMA, and well below the 50 day EMA (1547). That means it has a long way still before it even gets close to filling the gap up at 1546. QQQQ looks pretty much like crud as well, showing a doji below the 18 day EMA on low volume, well off the 50 day EMA and its mid-January gap lower.
SOX continued its advance, moving much better than NASDAQ, but it is now at its 50 day EMA (410.15), tapping at that level on the high. It has been a good recovery for SOX from its head and shoulders breakdown in early January, and now it finds itself right at the level that started the left shoulder. It too has some serious resistance to deal with after a week long advance.
SP500/NYSE
The large and small caps were the solid performers again, rallying on improving NYSE volume. The small and mid-caps are experiencing a 'February effect' following the January run from the market. NASDAQ may act as an anchor on these indices, but hard to see how.
Stats: +8.14 points (+0.69%) to close at 1189.41
NYSE Volume: 1.705B (+1.41%). Another solid volume session and another solid volume advance. Trade has expanded on almost each session of the advance as small and mid-caps are finding a lot of money moving into them once again.
Up Volume: 1.176B (-145M). Unlike NASDAQ, the action was decidedly one-sided.
Down Volume: 506M (+158M)
A/D and Hi/Lo: Advancers led 2.19 to 1. Strong breadth once more.
Previous Session: Advancers led 3.33 to 1
New Highs: 363 (+137). Nice advance in new highs, another indication the move in the small caps is once again turning the market.
New Lows: 12 (+3)
The Chart: http://www.investmenthouse.com/cd/^spx.html
The large caps were up from the open, and after a short soft patch, rallied steadily into the afternoon. It was impressive enough to note intraday that there was practically no slowdown or pause in the advance during that run. It needed a breather in the late afternoon, but once more a pullback was used to buy, and it returned right back to session highs on the close. Solid volume, solid breadth, and moving just through the 50 day SMA (1179.77) on that last bump higher after the attempted last hour selling.
Small caps (SP600) continued their strong advance, moving toward the early December high (326.22; closed at 323.82) on excellent breadth. Its all time high is just over 330; the small caps are once again enjoying the lion's share of attention on the street.
DJ30
The blue chips moved through their 50 day EMA (10,523) as well, coming off 10,400 for a second session of gains. Volume was still above average, but it was still lower as well, declining the past two sessions as the index moved back up. Volume is lower but it is still stronger than most of the trade for all of January. Thus there is some strength behind the move. Big test at 10,600 and the 50 day SMA (10,591) ahead; that will be the Dow's big first test on this rebound attempt.
Stats: +62 points (+0.59%) to close at 10551.94
Volume: 283 million shares Tuesday versus 298 million shares Monday.
The chart: http://www.investmenthouse.com/cd/^dji.html
WEDNESDAY
The Iraqis and OPEC have spoken, and most companies have as well with their earnings, and now it is time for the other primary market driver of late, the Fed. It is widely anticipated that the Fed will raise rates 25 basis points once more and keep its 'measured pace' language despite talk from FOMC members that the Fed was not beholden to that pace and that more aggressive hikes may be necessary in the future. The moderating ISM report and the relatively tame PCE within the Monday personal income and spending reports suggest the Fed is not going to change the pace at this meeting.
That is what the market expects and the market will likely find some near term solace in such a result. A mostly problem free Iraq election, OPEC holding steady, earnings better than expected on whole, and the Fed staying the course. The market is pretty much getting what it wanted, all things considered, and it has rallied a bit in anticipation and on the news.
Question is, now that it has caught the car, what will it do now (referencing the joke about the dog that actually caught the car)? GOOG may inject some excitement into technology stocks Wednesday, something the legion of tech earnings reports to date have been unable to do. It was screaming higher after hours along with NVDA, another tech stock reporting solid results. We say 'another,' but GOOG is not really a tech stock but an internet stock, and the two are not really interchangeable.
In any event, NASDAQ needs to join the party with more vigor or it is going to have a hard time clearing the near resistance at the 50 day EMA and the gap down point. There is plenty of upside strength in the other indices, but NASDAQ, showing lower volume as it moves higher, could swing back into distribution and hobble the advance of the other indices. Enter GOOG. We will be watching to see if that story can engender some strong buying in techs as well, enough to push then through next resistance with authority.
The past few FOMC decisions, stocks have rallied ahead of the actual announcement, stumbled around a bit on the news, and then advanced further. With the GOOG earnings, stocks may do that same thing Wednesday. After the actual news we are not so certain stocks will continue the advance: several upside sessions, the market has received all the news it wanted, and NASDAQ may need a rest before it is ready to take out the gap down point. Given the strength stocks have shown the past week, we don't expect stocks to fold and tank. NASDAQ is the one index that could do that with its weak advance toward key resistance. As for the rest of the market, it may just take a breather after a good advance from a very weak position, something it did not look to have in it.
We have been pretty selective on this advance given the bifurcated action. We will continue to look for solid plays but we have been looking for the right entry points. Many stocks have made tentative moves on low volume, moving through the buy point, and then jumping from there. We have had to let several of those go for now because the entry point just was not what we wanted. In other words, by the time the stock showed it had some strength behind it, it had almost two sessions of gains behind it; we don't want to move in after a 10% move just to have it come back to test. We will be patient and wait for the stock to give us a better entry point. Some won't this time around, many will. We will look at a pullback after this strong gain to set up some better entry points for stocks that rallied from pretty deep in the base and are extended just from the move up to the point where they are peaking over the late December/early January tops. Again, we will be patient and let the market give us the entry points and take them when the market gives them.
Support and Resistance
NASDAQ: Closed at 2068.70
Resistance:
2066 to 2070, the bottom of the January lateral move.
The 50 day EMA at 2076.69
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:
2050-54, prior resistance and the June high
2047, the June high.
2000
The 200 day SMA at 1976
S&P 500: Closed at 1189.41
Resistance:
The 50 day SMA at 1188.84 is cracking.
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:
1185, the top of the November consolidation range.
The 50 day EMA at 1179.77
1175 second high in that double top that spanned late 2001.
1157 is solid support from January through March consolidation tops.
The 200 day SMA at 1134.99
Dow: Closed at 10, 551.94
Resistance:
The 50 day SMA at 10,590.
Price consolidation at 10,600 level (10,592 is the 50 day SMA)
10,754 is the February high
10,975 - 11,000 from Q4 2000, Q1 2001
11,350 from the May 2001 highs
Support:
The 50 day EMA at 10,523
The late April, June peaks at 10,478 to 10,512
10,400, the bottom of the November/December range
10342 the early September peak.
The 200 day SMA at 10,281
Economic Calendar
These are consensus expectations. Our expectations will vary and are discussed in the 'Economy' section.
January 31
Personal Income, December (08:30): 3.7% actual versus 3.3% expected and 0.4% prior (revised from 0.3%)
Personal Spending, December (08:30): 0.8% actual versus 0.9% expected and 0.4% prior (revised from 0.2%)
Chicago PMI, January (10:00): 62.4 actual versus 59.0 expected and 61.9 prior (revised from 61.2)
New Home Sales, December (10:00): 1098K actual versus 1200K expected and 1097K prior (revised from 1125K)
February 01
Auto Sales, January: 5.3M expected and 5.9M prior
Truck Sales, January: 7.8M expected and 8.7M prior
Construction Spending, December (10:00): 1.1% actual versus 0.5% expected and 0.3% prior (revised from -0.4%)
ISM Index, January (10:00): 56.4 actual versus 57.0 expected and 57.3 prior
February 02
FOMC policy announcement (2:15): 25 basis point hike expected, no changes in statement.
February 03
Initial Jobless Claims, 01/29 (08:30): 330K expected and 325K prior
Productivity-Preliminary, Q4 (08:30): 1.8% expected and 1.8% prior
Factory Orders, December (10:00): 0.6% expected and 1.2% prior
ISM Services, January (10:00): 61.0 expected and 63.9 prior
February 04
Non-farm Payrolls, January (08:30): 200K expected and 157K prior
Unemployment Rate, January (08:30): 5.4% expected and 5.4% prior
Hourly Earnings, January (08:30): 0.2% expected and 0.1% prior
Average Workweek, January (08:30): 33.8 expected and 33.8 prior
Michigan Sentiment-Rev., January (09:45): 96.0 expected and 95.8 prior
End part 1 of 3
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