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us stock market, trade stock
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3/01/05 Stock Split Report
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Stock Split Report Subscribers:
MARKET ALERTS
Targets hit alerts: None issued
Buy alerts: SMH; ANF; URBN (bonus); FINL (bonus)
Trailing stops: 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:
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SUMMARY:
- Stocks answer Monday selling with a decent rebound.
- National manufacturing expands less than expected, but prices continue mini-trend lower.
- Construction well above expectations even if lower than December.
- Germany's unemployment woes highlight the error in blaming the US for trade deficits.
- Prices rebound and lost ground is recovered, but volume was still lower and still looking for breakout.
- Energy, materials weak but are setting up again as money moves around the market.
A comeback on some solid though lower NYSE volume.
Stocks responded to the Monday distribution with a decent rebound. The modest reversal to end the Monday trade carried over early Tuesday with stocks opening higher. We were skeptical they could hold their gains, particularly with the recent leading sectors in energy and materials struggling once more. Money was moving around the market, not out, however, as other sectors picked up the pace. That kept the market moving laterally mid session, holding onto its gains. It was not a clean, tight lateral move; there was quite a bit of turning and squirming for 5 hours as the indices bounced up and down in their range. A buy program hit just after lunch and stocks moved up to their morning highs. An hour long lateral move and another buy program hit at the start of the last hour and sent stocks to session highs. A modest pullback into the close pushed SP500 back to the top of its intraday range.
Unfortunately the buy programs did not ignite massive buying. NYSE volume remained solid though it backed off almost 4%. NASDAQ volume was significantly lower, unable to crack 2B. It is basing, however, and not on the verge of a breakout, so as long as it can continue to work laterally in its range and calm down some it can move higher. Breadth overall was weak even with SP600 and SP400 hit new highs. New highs were weak as well. It was definitely not a follow through session even with the gains.
There were positives as noted. The obvious was the rebound after the harsher Monday selling. NYSE volume was lower but remained strong. The recent leaders were under pressure, but the market found strength in other areas as money moved around but did not leave the market. Given the end of an old and beginning of a new month and these additional positives, there is still something left in this rally even with the Monday distribution. That does not mean it is a sure thing; it has yet to deliver the follow through even with the good snapback.
THE ECONOMY
National manufacturing expands, but slower than expected.
The February ISM fell to 55.3 from 56.4 in January, below expectations of a modest rise to 57.0. Given the regional reports, specifically the Chicago PMI reported Monday and the Philly report before that, it was a disappointment. A qualified disappointment, however, as the number shows the manufacturing sector continues to expand.
Still, it was the slowest expansion month since September 2003, and while many defended the continued recovery in manufacturing, you heard phrases such as a 'mature recovery' after the release. While growth is not surging, it is still strong, however, and the regional increases historically lead to national increases a couple of months later. There have been two stronger regional months after a lull; we suspect that next month we will see the national ISM post a much better reading.
While the overall number was lower, prices paid were lower as well, coming in at 65.5 (down from 69). That was a 14 month low for the prices index, and even with the oil prices surging the past year, the trend in prices paid has been lower the past 5 to 6 months. We are watching this in conjunction with the PPI and other signs of inflation. This data is at odds with PPI and may explain why CPI is not showing the gains that PPI would suggest.
January construction spending beats expectations, hits record levels.
$1.047T in new construction was put into place in January (on an annualized basis), just topping the $1.040T in December. That was up 0.7% versus the 0.4% forecast (December was 1.2%). Private non-residential spending (business construction) hit an all-time high as well, climbing 1.2%.
That dovetails with what we have been hearing regarding CEO confidence; it takes confidence to build. These plans to build were in place for some time in order to be just put in place at this time. This could be some possible corroboration of the idea that the expansion is slowing some if we are already this far down the road where construction on this order of magnitude has been planned ahead. That is a stretch but something to watch as things continue.
German unemployment swells. Will a positive arise from the negatives?
The price you pay for a combination of overregulation, excess taxation, a unionized labor force, subsidies, and socialized healthcare is an economy under distress. Throw on top of that assimilating a huge formerly communist population into a more western economy, and you have problems. Germany is struggling under a 12.6% unemployment rate, the highest reading since the 1930's when Hitler used the economic woes as one of his rallying cries.
Not suggesting that another Hitler is ready to emerge from Germany; far from it. What may come out of this mess is something quite positive, perhaps some of the financial reforms that are sweeping across Eurasia as former Marxist regimes (whether Marxist by force or choice) institute flat tax systems and thus jumpstart their economies. In those countries huge black markets sprang up in the vacuum left by the fall of the USSR, siphoning off half of the GDP in some cases. With a flat tax in the teens, it becomes economically more feasible to just pay the tax than maintain the expense of avoiding it. That has sparked the economies of many former Soviet block satellite countries.
As many are pointing out, the irony is that many of the democratic countries are still using harsh progressive tax systems propounded by Marx to assist in the war of the classes. Those most adamant about the flat taxes are those that were under the yoke of a failed form of rule. As one commentator put it, Marxism is discredited everywhere it was put into practice and is only embraced in western ivory towers where, of course, nothing is ever put into practice except cronyism.
Economic reforms often occur when the people finally just say enough is enough. 12.6% unemployment and a forecast 0.8% GDP annual growth rate for 2005 engender little hope in German citizens. Even their Chancellor was calling the rate 'dismal.' Reform would be good for Germans, Europe and the US.
Quit blaming the US consumer.
Meanwhile in the US, us citizens and workers get blamed for just about everything. We are the most productive and inventive force there is. Our industry has produced a continual increase in the standard of living. One of the offshoots of prosperity is enjoying it with some consumption.
We always get blamed, however, for actually enjoying prosperity. In 1999 and 2000, Alan Greenspan was browbeating all of us when he talked of the need to reign in the 'runaway consumer.' Eventually he did, but he caused a stock market crash and recession that left us in a business inventory overhang for years. Worst part is, there is nothing wrong with consumption. We had massive production as well. There is no way on earth we were going to spend our way into inflation as he oft discussed. It was BS and he knew it; he just had his marching orders from a different group who wanted to put the brakes on the creation of all that new wealth.
Now we are getting blamed, by our own Congressional leaders mind you, for the trade gap. It is not our fault. You work hard, you are productive, you are inventive, you make money, you raise your standard of living, and you spend the money you make. We are not spendthrifts (that is Congress' forte). The problem is found in economies such as Germany where archaic economic practices have stifled growth, squashed the jobs market, and left a populace lacking the wherewithal to buy exports from other countries such as the US.
The EU wants to be an economic powerhouse, but it is trying to regulate its way there. There are more regulations under the EU than existed in each country before the EU was created. They regulate everything in order to make everything work together. You have to really believe bureaucrats are smarter than the markets the workers to buy that. If unemployment rates continue this high, not many are going to be buying that much longer.
THE MARKET
Stocks recovered ground Tuesday, taking the Monday distribution head on. They did not overrun it. There was no breakout, no stronger volume, and no surging breadth. It was not a follow through session. It was a decent recovery that kept things alive for another try at a follow through. There was a rebound even in the face of continued weakness in the energy and materials. There was improving strength in other areas as money moved around and did not leave the market if the big players were still taking their money and going home. Again, that keeps the rally and attempt toward a new post-crash high alive. Of course we are still watching for a breakout.
Market Sentiment
VIX: 12.04; -0.04
VXN: 17.78; -0.29
VXO: 11.78; -0.08
Put/Call Ratio (CBOE): 0.88; +0.19. Again we see the put/call ratio rise on an up session. It was choppy so there was ample reason to buy protection or into a potential failure from the rebound attempt. There was also some closing of protective puts as the rally firmed and continued into the close.
NASDAQ
NASDAQ rallied back, continuing the rebound Monday afternoon. It made it through the 50 day EMA but volume did not make average.
Stats: +19.53 points (+0.95%) to close at 2071.25
Volume: 1.976B (-8.34%). Volume was at best disappointing for a rebound from the recent selling. It topped Fridays weak levels but fell short even of the average trade shown on last Thursday's rally back from the Tuesday selling. NASDAQ's one excuse is that it is in a base and needs to form up better; that buys it some time. It also needs to show better price/volume action, however, to keep accumulation ongoing if it is going to complete the base and provide a break higher.
Up Volume: 1.431B (+619M)
Down Volume: 523M (-793M)
A/D and Hi/Lo: Advancers led 1.5 to 1. Ho-hum. At least it surpassed on the upside the downside breadth on Monday. Neither session showed any commitment from breadth up or down. That is a pretty decent sign of basing activity.
Previous Session: Decliners led 1.4 to 1
New Highs: 127 (-19)
New Lows: 58 (-2)
The Chart: http://www.investmenthouse.com/cd/^ixq.html
It was a volatile mid-session; basically between the first half hour and last hour the index was a roller coaster. It caught its footing after lunch and fought off a mid-afternoon selling attempt that allowed it to move to a session high. That move reclaimed the 50 day EMA (2070), and even the late pullback did not give that level up. The volume was the weak link again as NASDAQ's price/volume action remains mixed. It is basing, still working on a potential double bottom. Accumulation needs to improve, however, if it is going to make the next move through the 50 day SMA (2087) and the 'hump' in the pattern at 2103.
Tuesday NASDAQ 100 had a better day than overall NASDAQ. A slightly better day (1.1%). It remained below its 50 day EMA (1533) and the 1550 gap down point. That is a lot of resistance, but with a good base, even heavy resistance can be defeated.
SOX led the action upside Tuesday after getting shaky Tuesday. With this move it comes closer to next resistance at 450. A breakout over that level gives it some headroom up to near 490.
SP500/NYSE
Nice recovery, and even though volume was lower, it was still well above average as some of that selling volume Monday and the money generated from it was put into other areas.
Stats: +6.81 points (+0.57%) to close at 1210.41
NYSE Volume: 1.727B (-3.87%). Volume was lower, but as noted, it was still very strong. Monday was something of a reversal, and volume was strong. Volume continued solid as the small and mid-caps moved to a new high.
Up Volume: 1.13B (+579M)
Down Volume: 553M (-670M)
A/D and Hi/Lo: Advancers led 1.8 to 1. Decent but not very powerful given the small and mid-cap indices move to new highs.
Previous Session: Decliners led 1.55 to 1
New Highs: 203 (-114). Not good internal action to see new highs fall as indices move to new highs and come close to new highs (SP500).
New Lows: 18 (-18)
The Chart: http://www.investmenthouse.com/cd/^spx.html
The large caps continued the Monday afternoon rebound, regaining most of most of what was lost Monday. Good volume though lower than Monday. It is pretty apparent now that the Monday volume was end of the month shuffling as we suspected and that Tuesday was reallocating that money elsewhere. That leaves SP500 just below the February (1115) and late December/early January highs (1118) with volume that has been questionable all February. A lateral move for a few sessions along the 18 day EMA (1202) just over 1200 would set up the breakout much better. It looks pretty good but again, SP500 has not shown us the follow through yet.
The SP600 and SP400 broke to new all-time highs Tuesday. These leaders continue to defy the odds and lead higher. We are watching for SP500 and DJ30 to follow their lead.
DJ30
Nice bounce back by the blue chips, but again on a return to that lower, below average volume seen on this rebound off the 50 day EMA (10,642) last week. DJ30 remains right at the breakout point from its 9 week base. The breakout point is a volume move over the late December/early January highs (10,868).
Stats: +63.77 points (+0.59%) to close at 10830
Volume: 247 million shares Tuesday versus 288 million shares Monday.
The chart: http://www.investmenthouse.com/cd/^dji.html
WEDNESDAY
No scheduled economic data to be released Wednesday as the eyes start turning toward the Friday jobs report. The report does not have the impact it did back during the election when everyone hung on what was a very lagging indicator. It really does not tell us anything about where the economy is going. It is more of a measure of prosperity, at least in normal times. This is not a normal time after coming back from the type of post-boom meltdown that completely took away the base for the expansion. Money supply was drained and not refilled for a long time. Businesses could not get the cash they needed, demand dried up, huge inventories sat unused. Businesses folded like tents, jobs were lost by the millions. Then 9-11 hit. Millions more jobs gone as the economy came to a standstill. The mature companies wanted to survive and they cut costs, leaning out for the survival of the fittest. With no one hiring and the survivors laying off the employees they had, the only market was create your own job. That is where the job growth has been the past year. Thus we are not expecting anything great on Friday, particularly as CEO's continue their preference for productivity and profits versus hiring.
Wednesday could be the rubber match after rather wild down and up sessions to start the week. The important thing is the indices held up despite the Monday distribution and the faltering from the energy, materials, homebuilders, and other leaders. Now those are not breaking down, just taking a rest. Somewhat chaotic for some, but most are holding support on decent trade. They could be ready to provide some good entry points for some rebound plays once they finish their pullbacks. At the same time NASDAQ continues to rebuild and chips are also continuing their improvement. We are still awaiting the follow through to overthrow the distribution characteristics and have to be somewhat defensive until that happens.
Support and Resistance
NASDAQ: Closed at 2071.25
Resistance:
The 50 day SMA at 2087
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 2070
2066 to 2070, the bottom of the January lateral move.
2050-54, prior resistance and the June high is stronger
2047, the June high is minor support.
2023, an early October 2004 peak.
2000
The 200 day SMA at 1985
S&P 500: Closed at 1210.41
Resistance:
Q1 1999 lows at 1215
December high at 1218.
October 1999 low at 1233
Q2 2001 peak at 1310.
Support:
1200 held on the Monday close.
1196, the mid-January high and the early December peak in the left shoulder.
The 50 day SMA at 1194
The 50 day EMA at 1191 is potential support.
1185, the top of the November consolidation range.
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 1143
Dow: Closed at 10,830.00
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 50 day SMA at 10,662
The 50 day EMA at 10,642
Price consolidation at 10,600 level is a key level.
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 10,325
Economic Calendar
These are consensus expectations. Our expectations will vary and are discussed in the 'Economy' section.
February 28
Personal Income, January (08:30): -2.3% actual versus -2.6% expected and 3.7% prior
Personal Spending, January (08:30): 0.0% actual versus 0.1% expected and 0.8% prior
Chicago PMI, February (10:00): 62.7 actual versus 60.5 expected and 62.4 prior
New Home Sales, January (10:00): 1106K actual versus 1125K expected and 1218K prior (revised from 1098K)
March 01
Auto Sales, February: 5.5M expected and 5.4M prior
Truck Sales, February: 7.9M expected and 7.6M prior
Construction Spending, January (10:00): 0.7% actual versus 0.4% expected and 1.2% prior (revised from 1.1%)
ISM Index, February (10:00): 55.3 actual versus 57.0 expected and 56.4 prior
March 03
Productivity-Rev., Q4 (08:30): 1.5% expected and 0.8% prior
Initial Jobless Claims, 02/26 (08:30): 310K expected, 312K prior
ISM Services, February (10:00): 60.0 expected and 59.2 prior
March 04
Non-farm Payrolls, February (08:30): 225K expected and 146K prior
Unemployment Rate, February (08:30): 5.2% expected and 5.2% prior
Hourly Earnings, February (08:30): 0.2% expected and 0.2% prior
Average Workweek, February (08:30): 33.8 expected and 33.7 prior
Michigan Sentiment-Rev., February (09:45): 94.3 expected and 94.2 prior
Factory Orders, January (10:00): 0.0% expected and 0.3% prior
End part 1 of 3
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