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us stock market, stock watch
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2/14/05 Investment House Alerts Report
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IH Alert Subscribers:
MARKET ALERTS:
Target hit alerts issued Monday: ZICA
Buy alerts issued: NTAP; MRVL; AIRT; BZH; GET
Trailing stops issued: None issued
Stop alerts issued: EWBC
Happy Valentines Day!
SUMMARY:
- Market takes a rest on low volume, consolidating Friday gain.
- Treasury long end rallies again ahead of Greenspan and economic data.
- Market preparing for next leg higher as price/volume remains solid.
- Earnings are not done yet as market gets set for wave of economic data.
Nowhere session good for the upside.
After another strong Friday stocks were again sluggish. Volume was down, breadth was flat, and indeed the indices were flat. Early on there was not a lot of news to drive stocks, and that did not change much during the session. There were some upgrades and downgrades, and the SEC and New York AG were issuing subpoenas again. AIG was the target, and that helped pressure the entire insurance and indeed financial sector.
That slightly negative news bias did not overly impact the market early on. Stocks started soft but turned right back up. That move had promise, but over the course of the morning stocks bounced up and down in a very narrow range as they hovered around the flat line. As the session moved into lunch and early afternoon, however, stocks found some support in the mid-range and moved modestly higher into the close.
Volume was much lighter, breadth was flat, and there was not a lot of news to move stocks, but as the session wore on they drifted higher and closed near session highs. No big gains overall, but in a session that lacked anything to kick it higher the upside bias directed stocks higher to the close. It may not be much, but it is a sign that even after the strong Friday move and no one was really interested in getting into new positions, stocks continued their bullish bias.
In addition to the general drift higher, there were many solid upside moves scattered throughout the market as stocks from good patterns broke higher. Many from our watch list put together over the weekend were moving higher; the leaders were on the move. Leaders get their name because that is what they do. They tend to lead the market higher and they tend to start their moves ahead of the rest of the stocks. With SP500 making a breakout move, the small caps trying to make a higher low before a new all-time high, and NASDAQ attempting to get off the bottom of its base, these breaks higher by solid stocks bode well for the rest of the market. They also give more support for an idea many subscribers have suggested: on the weekend report publish our watch list and then on Monday issue alerts as those leaders on the list make their moves. More flexibility in a time where a lot can happen between Friday and Monday.
THE ECONOMY
It was a very quiet session with respect to economic data. The 10 year treasury rallied a bit, pushing the yield down 0.01% to 4.07%. That is still well above where the bond was last week when bonds rallied sharply before the pullback to end last week. Many are reading the bond market as indicating low inflation. At this juncture that is definitely one of the possibilities; if it is combined with the nice 4% GDP growth experienced the past year that is a very rosy scenario.
Other possible scenarios include fading economic activity; not many are selling the bond, an indication that there is not much belief that interest rates will rise. Typically in an improving economy rates rise as anticipated demand for money starts bond investors positioning for higher rates. That is not happening. Indeed, the short end is rising on the Fed rate hikes while the long end is resisting rising. More than resisting, the long end has been sliding, creating a flatter yield curve.
It is not inverted, and it is not at a level that approaches inverted (inverted curves almost always say slowdown if not recession is coming). It has flattened as the Fed has started raising rates, something it typically does. It has continued to flatten, however, well into the rate hiking campaign, i.e., not just a few month blip higher before the long end adjusts higher as well. The more it flattens as the Fed raises rates, the less likely it is just that temporary event.
Maybe it is nirvana as those suggesting low inflation and solid growth would have it; if the market breaks out and rallies from here that would put some weight behind that view. With oil still high and the market's knowledge that the Fed often over-tightens, however, it is definitely not flashing the 'all is clear' light. It never does, and for now it is letting us know that things could go awry. If the market cannot resume the late 2004 breakout and rolls over, that would be a pretty good indication that oil prices, interest rates, and the yield curve are a problem for the market in the months ahead. Thus far the market has made a nice comeback; it needs to keep it going.
THE MARKET
Stocks went nowhere on the whole but a low volume drift after a solid end to last week is not something to fret over. Indeed, a good move that takes frequent low volume rest stops is just about as good as it gets. That allows the market to build higher and rest as it rises. That keeps it from shooting off all of its ammunition at once (throwing all its logs on the fire, etc.) and then flaming out. It slowly drags money into the market, and that is how a sustained move keeps on going.
As noted, there were some volume moves in leadership stocks. With the rest of the market taking a breather these stocks suggest that it is indeed just a day off before SP500 continues its breakout and SP600 tries for another all-time high. Indeed, even DJ30 is looking for a breakout as well and NASDAQ is trying to make a higher low to work on its base. As noted over the weekend, NASDAQ's laggard status might end up being a positive if the market continues higher and it can complete its base: it will be ready to breakout when the leading indices are in need of a pullback. That is still a few steps down the road, but if SOX can hold its breakout over the 200 day SMA and build upon it as well, the odds improve.
Market Sentiment
VIX: 11.52; +0.09
VXN: 17.68; +0.49
VXO: 11.59; +0.26
Put/Call Ratio (CBOE): 0.9; +0.04. This ratio closed over 0.90 on two consecutive sessions last week, and as noted at that time, that often has led to bounces in this market since 2004. So far it has done the same here. Now, however, stocks have to take it to the next step as opposed to just a bump higher ahead of further selling.
NASDAQ
Underwater most of the session, but an early afternoon recovery and drift higher into the close kept NASDAQ above the 50 day EMA even if volume was very light.
Stats: +6.25 points (+0.3%) to close at 2082.91
Volume: 1.652B (-24.1%). A big volume drop to the lowest level of the year following one of the better accumulation sessions of they year (high volume upside). No selling and no buying Monday, just status quo ahead of a lot of economic data.
Up Volume: 1.011B (-600M)
Down Volume: 598M (+69M)
A/D and Hi/Lo: Decliners led 1.01 to 1
Previous Session: Advancers led 1.94 to 1
New Highs: 131 (+30)
New Lows: 33 (-32)
The Chart: http://www.investmenthouse.com/cd/^ixq.html
NASDAQ held above the 50 day EMA (2075) after reclaiming that support level Friday. That is pretty much it. Volume was minute, breadth was flat. The drift was positive in that it showed the upside bias and kept the price/volume action improving as NASDAQ continues to work on its 6 week base. It has the makings of a reverse head and shoulders pattern, but you don't want to start anticipating your indicators. For now it is showing improving price/volume action as it works through its base, and it is getting support from semiconductors. Now if the large cap techs could contribute something.
Speaking of large cap techs, NASDAQ 100 is still trying to break through its 50 day EMA (1540) and help the overall NASDAQ along. With a market cap weighted index you can't have the top 100 stocks lagging and get much traction. The pattern is setting up with a higher low this month and some better upside volume, but it has to make this important breakout and provide some support for the rest of the techs. Lots of resistance even past the 50 day at the 1550 level.
No change for SOX, showing a doji after the strong Friday move off the 200 day SMA (419.45). This was its best break higher from this key resistance since it fell below it in April 2004: the break higher, the test, and then the strong Friday surge. If it can keep it up it will provide NASDAQ some much needed support to complete its breakout.
SP500/NYSE
Volume dropped and the large caps stalled after the solid break higher on Friday. Not bad action as they set up for a run at the highs as year end.
Stats: +0.84 points (+0.07%) to close at 1206.14
NYSE Volume: 1.289B (-16.65%). Similar theme: very low volume as the index slumbered. Not bad following the Friday higher volume move. Just did not want to commit to anything on Monday.
Up Volume: 693M (-485M)
Down Volume: 577M (+236M)
A/D and Hi/Lo: Advancers led 1.25 to 1. The small and mid-caps were lagging, and that kept breadth very modest.
Previous Session: Advancers led 2.31 to 1
New Highs: 293 (-1)
New Lows: 10 (-8)
The Chart: http://www.investmenthouse.com/cd/^spx.html
Went nowhere following Friday's break higher form the handle to its short 7 week cup with handle pattern. SP500 never gave up its 2004 breakout above that year's long lateral base. In short, it is building on the foundation it laid in 2004 with that 9 month lateral pattern. Indeed, SP500 represents what we discussed when it made that breakout last year: a long base as the Fed started hiking rates just as in 1984 and 1994, then a breakout. Despite oil prices returning to near $50/bbl and the Fed saying there are plenty more rate hikes ahead, it is trying to hold the breakout and provide another one on top of that one. It is showing good leadership along with the small caps. It looks to be ready for another breakout, but it might still be slower going even with that move; the oil and interest rate issues are hardly resolved. For the moment the index is dealing with them, but they will come back into the picture again and again this year.
The small cap SP600 is trying to make a higher low of its own and move to a new high. Not just a new high for the year but another all-time high as small caps continue to pace the market though now joined by the large caps. Maybe the torch is being passed, but small caps looked to be in real trouble at the end of 2004 and into 2005, but have recovered beautifully. A break over 331.17 takes it to a new all-time high.
DJ30
The blue chips are also hovering near a new post crash high, stalling a bit below the recent December high (10,868) but looking pretty solid. Volume has lagged on the rebound this month with the only really solid volume session last Wednesday when HPQ canned its CEO and set off a wave of buying in that stock. Despite its performance it is still following SP500 and SP600 higher as those two indices have shown very constructive price/volume action as their shares are accumulated. DJ30 is moving higher, but its shares are not showing the same solid accumulation, and that always leaves the door open for the sellers to move in and push the index lower. For now its price action is good and the volume is not bad (up on up sessions, down on down sessions), but it has been mostly below average indicating a lack of real buying conviction.
Stats: -4.88 points (-0.05%) to close at 10791.13
Volume: 215 million shares Monday versus 263 million shares Friday.
The chart: http://www.investmenthouse.com/cd/^dji.html
TUESDAY
The economic spigot turns on full blast Tuesday and for the rest of the week with the January retail sales report as the marquis event. Ex-autos sales are expected to bump higher over December's 0.3% increase. Auto sales are expected to plunge and push the overall number negative from a 1.2% gain in December (that was thanks to autos). We need to keep in mind what we saw in 2003 and 2004: retail sales swings wildly based on auto sales results that have become inexorably tied to incentives. Of course now the auto makers are offering big incentives, but they have raised the price of the vehicles as well given the higher cost of steel.
Greenspan does not start talking until Wednesday. He holds over to Thursday, but most of the fireworks are let fly during the first day; the second session gets the leftovers though sometimes there is a new wrinkle or explanation thrown in. Given Greenspan is expected to cover (willingly or not) several of the hot button issues in Congress right now, the market may have another wait and see session before trying to continue the break higher.
That does not mean nothing is going to happen. As noted, leading stocks in good patterns tend to move out ahead of the rest of the market, and they were doing that Monday. They typically do not start out several sessions ahead of the overall market move. If the market is going to follow, it typically does it within a day to two days. If it does not, the leaders come back to test the break higher, and then they try to lead once more and see if the market will follow them after the test.
The market moved higher last week ahead of all this news, fully knowing it was coming. Thus it is anticipating the news, and we therefore doubt it will wait around for long before attempting to follow the leaders higher. It took a day off Monday to catch its breath, and Tuesday we will be looking for a continued break higher by SP500. There is still plenty of work ahead as NASDAQ works on its base and resistance immediately overhead, but we also have to keep in mind the picture that is forming: SP500 breaking out and SP600 looking at a new high while NASDAQ continues to form its base. NASDAQ is a few weeks behind the others and thus we don't want to obsess on it at the exclusion of watching what the leaders are doing. If they do their job odds are the accumulation will continue in NASDAQ and it will continue working on its base. Another thing to consider: GOOG was supposed to fall today as the last big lockup of IPO stock expired. It gained over 5 points. Not that GOOG represents NASDAQ, but that type of strength can be a catalyst for an index.
Support and Resistance
NASDAQ: Closed at 2082.91
Resistance:
The 50 day SMA at 2103.36
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 2075.45. Pretty feeble at this juncture.
2066 to 2070, the bottom of the January lateral move.
2050-54, prior resistance and the June high
2047, the June high.
2000
The 200 day SMA at 1979
S&P 500: Closed at 1206.14
Resistance:
Q1 1999 lows at 1215
October 1999 low at 1233
Q2 2001 peak at 1310.
Support:
1200 acted as resistance and now may hold as support.
1196, the mid-January high and the early December peak in the left shoulder.
The 50 day SMA at 1192.19
1185, the top of the November consolidation range.
The 50 day EMA at 1185.66
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 1138
Dow: Closed at 10, 791.13
Resistance:
10,868 from the December 2004 high.
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 10,649
The 50 day SMA at 10,626
Price consolidation at 10,600 level is a key level.
The 50 day EMA at 10,580
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 10,294
Economic Calendar
These are consensus expectations. Our expectations will vary and are discussed in the 'Economy' section.
February 15
NY Empire State Index, February (08:30): 20.0 expected and 20.08 prior
Retail Sales, January (08:30): -0.5% expected and 1.2% prior
Retail Sales ex-auto, January (08:30): 0.4% expected and 0.3% prior
Business Inventories, December (10:00): 0.2% expected and 1.0% prior
February 16
Housing Starts, January (08:30): 1925K expected and 2004K prior
Building Permits, January (08:30): 2000K expected and 2032K prior
Industrial Production, January (09:15): 0.3% expected and 0.8% prior
Capacity Utilization, January (09:15): 79.3% expected and 79.2% prior
February 17
Export Prices ex-ag., January (08:30): 0.1% prior
Import Prices ex-oil, January (08:30): 0.5% prior
Initial Jobless Claims, 02/12 (08:30): 315K expected and 303K prior
Leading Economic Indicators, January (10:00): -0.2% expected and 0.2% prior
Philadelphia Fed, February (12:00): 17.5 expected and 13.2 prior
February 18
PPI, January (08:30): 0.3% expected and -0.7% prior
Core PPI, January (08:30): 0.2% expected and 0.1% prior
Michigan Sentiment-Prel., February (09:45): 95.5 expected and 95.5 prior
End part 1 of 3
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