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us stock market, trade stock
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3/07/05 Investment House Alerts Report
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IH Alert Subscribers:
MARKET ALERTS:
Target hit alerts: STR; URBN (took some interim option gain on the big move)
Buy alerts: KOMG; OPTN; CWTR; PPDI; TTEC; FLSH (bonus)
Trailing stops: IR (as playing options, took a decent gain when it started to falter some)
Stop alerts: None issued
SUMMARY:
- Large cap techs and chips take over the action from NYSE stocks.
- Quiet economic day, so re-run the oil stories.
- Market shows some healthy rotation.
- NYSE indices taking a breather, will need to continue breakout later this week.
- Subscriber Questions
Techs show a flash of strength.
SP500 and other NYSE indices took a breather Monday pretty much as expected. After the breakouts last week, keeping the momentum alive to start the new week was difficult. They did not sell off, however, and were mostly higher all session, buoyed by the unexpected strength in NASDAQ. They did not advance the ball much, but they held up very well after the breakout, something the market has been hard-pressed to do over the past year. With NASDAQ leading, stocks of all walks were able to hold their recent gains.
NASDAQ was the surprise of the session, starting the week with a sharp upside spike that made a stab at breaking out of its recent double bottom pattern. By the time it reached the 2100 breakout point, however, it had run far and only made a token tap at that level. Volume was up, however, and that showed money truly moving into the sector. Thus while the recent leaders took a deserved breather, money moved to another part of the market as techs were accumulated. When money moves around but does not leave the market, that is a healthy sign and it added credence to the recent break higher.
THE ECONOMY
After a flurry of economic reports to end last week, it was a really slow economic day Monday. There were a few merger announcements but no Fed governors were on the stump and there were no released economic reports during the session. That prompted several re-hash stories about oil and where it is going price-wise. Once again we heard stories about the 'Alan Greenspan of oil' discussing the role of Saudi Arabia's oil minister. Speculation about how many reserves Saudi still has, can it remain the power in OPEC, etc. all received airtime Monday.
Given Venezuelan president Chavez' weekend remarks about cutting the US off if there was aggression, there was some worth in covering oil. Chavez was on the ropes a couple of years back as the oil workers and much of his countrymen were ready to toss him out. Now he talks a lot of noise about how he won't take any crap from the US in large part to placate the masses in Venezuela by showing he walks his own path or something of the sort. He seems to relish the new role more, however, because he goes out of his way to make controversial statements just as Qadaffi used to and as the North Korean crackpot dictator does now.
Anyway, Chavez was echoing what his boss, Saudi's oil minister, said just over a week ago, i.e. get used to $40 to $50/bbl oil. He went a step further and said that was the new price band, something OPEC has not said but that most pretty much figured at this point. As we have said, oil looks might comfortable at that $46/bbl level when it is not off on some jaunt caused by a ripple of fear that runs through the market every few weeks.
Oil is simply not ready to head lower right now given the demand. Saudi was bent on keeping oil lower 4 to 5 months ago, but as we have seen, it has been rather impotent in getting oil back down into the thirties as it said it wanted to do. Whether a conscious change of heart by OPEC to let it rise, the inability to forestall the rise, or a combination of both is at work. Probably the latter as OPEC nations are as hungry as US corporations to make as much profit as they can to recoup prior losses. Further, they don't see any nefarious affects of oil at these prices, so they are disinclined to intervene too much. Problem is, much as with interest rates, the impact comes on all of the sudden and by that time it is way too late to do anything to prevent the economic decline. There is a saying you don't know a bird is sick until it dies. That is a good way to think of the economy; it does a pretty good job of looking healthy until the reports start to implode. We are not saying the economy has gone to the birds; just trying to make a point.
THE MARKET
The large techs picked up the slack for the rest of the market, posting a higher volume gain as the recent leaders took a break after last week's breakouts. Not only did the market avoid a post-breakout reversal common to its moves the past year, it actually showed long lost health as money moved into new areas as the recent leaders to a blow. The market is still far from out of the woods, but the Monday action provided a much better picture of an ongoing shift in market character.
Market Sentiment
VIX: 12.26; +0.32
VXN: 17.73; -0.4
VXO: 11.64; -0.41
Put/Call Ratio (CBOE): 0.77; -0.04
NASDAQ
Made a surprise tap at a breakout from its 2005 base as the large caps led the index higher on some stronger though still overall low volume.
Stats: +19.6 points (+0.95%) to close at 2090.21
Volume: 1.974B (+7.28%). Volume rallied on NASDAQ as it made a stronger than expected tap toward a breakout, but by the close it was still below average. In short, it is showing some good signs with Monday showing some modest accumulation, but it is also still working in its base. The action in the base continues to improve within the base.
Up Volume: 1.493B (+434M)
Down Volume: 447M (-240M)
A/D and Hi/Lo: Decliners led 1.04 to 1. It was a large cap session as breadth was negative even as NASDAQ overall posted a 1% gain. Thus while NASDAQ showed some unexpected strength, it was measured in that it was narrowly focused. Better health but not recovered by any diagnosis.
Previous Session: Advancers led 1.36 to 1
New Highs: 171 (+32)
New Lows: 47 (0)
The Chart: The Chart: http://www.investmenthouse.com/cd/^ixq.html
NASDAQ rallied up to the February intraday high (2103.45), coming up just short of that level before giving back some of the gains in the afternoon. It still easily moved through the 50 day SMA (2081) on rising volume, a much better quality move than has been put together of late, at least to the upside. It had to run 30 points to make that tap, so there was little chance it was going to actually make the breakout; it was out of gas when it got there. Still, it managed to hold much of the gain and there was modest accumulation. The base building continues, but it is starting to take a very nice turn for the better.
NASDAQ 100 was the clear tech leader as it posted a 1.6% gain versus overall NASDAQ's 0.95% move. It cleared both the 50 day EMA and SMA as it filled the mid-January gap lower below 1550. It has filled the gap and if it was as weak as it had been back in January this could suggest a fall back. With the renewed strength it is a positive sign. It will have to break above 1550, however, to really show a positive turn in the pattern.
SOX was the strongest of the indices as it rebounded up off the 18 day EMA and helped lead the market higher. It continues in its 4 month reverse head and shoulders base and is looking for a breakout over 450. TXN was not wowing investors after hours, however, as its mid-quarter update was not as upbeat as hoped. It lowered the top end of its earnings and revenues as its DLP product demand (for televisions, projectors) was slowing. Outside of TXN, however, there did not appear to be much damage.
SP500/NYSE
These stocks basically took the day off, holding steady on lower, average volume. Not bad action at all following last week's breakouts.
Stats: +3.19 points (+0.26%) to close at 1225.31
NYSE Volume: 1.488B (-8.94%). Lower average trade as the indices posted modest gains or slight losses was good price/volume action. It was up on the move higher last week and now backing off as they take a post-breakout rest. That is what you want to see. Still, volume has not been blowout on the upside move. It has been pecking away at the distribution, outdoing it by its peskiness.
Up Volume: 882M (-323M)
Down Volume: 584M (+178M)
A/D and Hi/Lo: Advancers led 1.16 to 1. The small caps lost a fraction Monday, and that explains the weak volume.
Previous Session: Advancers led 3.26 to 1
New Highs: 365 (-62)
New Lows: 14 (-2)
The Chart: http://www.investmenthouse.com/cd/^spx.html
Continued moving higher following the Friday breakout. No power in the move as volume backed off and the index closed 4 points off the high, slicing the gain in half. This is really more than we expected and we are not calling the lack of volume on an upside move a negative. Anticipating more of test of the breakout before it can make a stronger continuation of the breakout.
The small cap SP600 lost a fraction after yet another breakout Friday. It has continued to outperform, and after its breakouts it has taken this type of lateral sidestep for a couple of sessions before continuing higher.
DJ30
DJ30 posted a 40+ point gain on the high but after the Friday break higher it did not have much left in it. Volume was even lower and still below average. Indeed, that was one of the disappointments about Friday, the lack of even average volume on the move. About the only thing spicy about the session was Boeing's CEO getting sacked for allegedly getting into the sack with a Boeing executive. It was kind of peculiar the way the news media and Boeing reported the executive did not report to the CEO; don't all executives report to the CEO? In any event, DJ30 much as the other NYSE indices showed more upside than we thought it would Monday before it came back on the close.
Stats: -3.69 points (-0.03%) to close at 10936.86
Volume: 229 million shares Monday versus 240 million shares Friday.
The chart: http://www.investmenthouse.com/cd/^dji.html
TUESDAY
The market is mostly on its own again Tuesday as there remains a dearth of economic news this week until Thursday when the Treasury budget is released. Well, a bit on its own. TXN gave its mid-quarter update after the Monday close and it lopped off the top end of its estimate. TXN was down over a stick after hours but its impact was relatively narrow as its problems are related to its products for DLP televisions as opposed to a problem with its chips.
We still anticipate some more testing from the NYSE indices, and NASDAQ appears to have some more work ahead of it before it is really ready to make a breakout. If that does occur it will strengthen the breakout move as long as the volume does not jump on any selling. That will set up more upside plays. We will also keep watching for those leaders that are making breaks higher. They are always a step or two ahead of the overall market.
After any testing this week SP500 will have to continue the break higher on stronger volume, kind of a follow through to the follow through given the Friday breakout was not hugely powerful. We don't want to see NASDAQ turn back on stronger volume either. A lateral move below 21000 on lower volume would set up the breakout even better.
In short, the market showed further resilience Monday. Sure it did not score gains across the board, but it did not do that Friday either. Money simply moved around to other sectors as stocks are being accumulated. That bodes well for the market, and we actually like this slow and steady pace. It is still not in the clear and it could still reverse on volume, but it has been putting the pieces of a stronger foundation together, and the fact stocks did not reverse and sell on Monday following last week's breakouts was a very good sign.
Support and Resistance
NASDAQ: Closed at 2090.21
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 SMA at 2081
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 1989
S&P 500: Closed at 1225.31
Resistance:
October 1999 low at 1233
May 2001 interim peak at 1266.
Q2 2001 peak at 1310.
Support:
December high at 1218.
Q1 1999 lows at 1215
The 10 day EMA at 1211
1196, the mid-January high and the early December peak in the left shoulder.
The 50 day SMA at 1195
1185, the top of the November consolidation range.
1175 second high in that double top that spanned late 2001.
Dow: Closed at 10,936.86
Resistance:
10,975 - 11,000 from Q4 2000, Q1 2001
11,350 from the May 2001 highs
Support:
10,868 from the December 2004 high.
The 10 day EMA at 10,834
10,754 is the February high
The 50 day EMA at 10,678
The 50 day SMA at 10,675
Price consolidation at 10,600 level is a key level.
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.
March 07
Consumer Credit, January (3:00): $11.5B actual versus $5.2B expected and $8.7B prior (revised from $3.1B)
March 10
Initial Jobless Claims, 03/05 (08:30): 310K expected and 310K prior
Wholesale Inventories, January (10:00): 0.6% expected and 0.4% prior
Treasury Budget, February (2:00): -$98.5B expected and -$96.7B prior
March 11
Trade Balance, January (08:30): -$56.8B expected and -$56.4 prior
SUBSCRIBER QUESTIONS
Q. In your comments on a prior play you said your favorite entry point is the test of the breakout. What are you looking at as the breakout and the test?
A. A test of the breakout often occurs after a stock breaks out of a consolidation or base and moves higher: once the initial move higher peaks, the stock "takes a rest" ideally by coming back to test some short term support such as the 10 or 18 day exponential moving average (this "rest" is actually some profit-taking by short term traders, and is normal behavior). On strong breakouts these support levels often hold, but sometimes a stock on a weaker breakout may test back closer to or actually at the buy point, and even strong stocks have about a 50/50 chance of coming back to test their breakout point. The stronger the move the less likely a full test to the buy point will result, but that is a general rule. Full tests back to a buy point tend to occur more often in weaker markets. And sometimes strong stocks won't come back for a test at all, but typically most will.
Why are tests of the breakout a favorite entry point? That is because stocks can make their strongest moves after a successful test. As noted above, even the strongest stocks can pull back a bit on some profit-taking after the initial surge, and these are choice for selecting test of the breakout plays. Entry points can be taken as the stock moves off of the support level on strong volume. If we have entered the play on the breakout, we can purchase more positions on the test, or use this entry point for taking initial positions if we missed the breakout.
On breakout tests, look for good price/volume action as the stock tests the buy point, what we call an orderly pullback. This means a steady pullback in price along with a narrow intraday range. We don't like a stock that jerks back and forth on the pullback showing higher volume, indicating a real fight between the buyers and sellers. Instead we want to see a nice, lazy pullback on low volume, showing few sellers and buyers that are taking a breather. If the stock may trade just below the buy point intraday, as long as it closes above that level on the test and shows good price and volume action, it can still be viable to play, especially if the stock has a good technical base behind it.
Even with the above attributes, we still want to see the buyers actually move in, which means a rise in stock price on strong and rising volume. Not breakout volume, but a good volume surge on the move back up. Average volume would be enough if it has come back on average trade. A rebound off of near support or the breakout point with volume surging is where we can put in another buy. This is an especially good entry point, as noted above, when you miss the original breakout. The test is a great way to get a second chance!
After that another great entry point is that first test of the 10 or 18 day MVA after the stock breaks out and starts its trend higher. This is a great add-to point as it is still early in the move (still a lot of upside) and you already have a good idea of the stocks' strength. Again you see an orderly pullback, a tap of the 10 or 18 day, and then a move higher on a solid volume increase.
End part 1 of 3
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