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4/07/05 Stock Split Report
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Stock Split Report Subscribers:
MARKET ALERTS
Targets hit alerts: None issued
Buy alerts: JAH; STZ; BCR
Trailing stops: None issued
Stop alerts issued: INFY
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 come back from Wednesday reversal attempt, rally to close.
- Retails sales still solid, but showing slight slowing signs.
- Jobless claims back down but it is the same story.
- Sellers slumber as a few buyers push market higher.
- After four low volume gains, Friday likely to see a bit of profit taking ahead of weekend as market awaits earnings.
Stocks come right back from Wednesday reversal off highs.
After three low volume upside sessions and a reversal off the highs, stocks looked ready to head lower in the trading range. The futures were flat and PFE was being told to remove Bextra from the market. Nonetheless stocks rallied from the open and indeed kept up the pace right into the close.
Stocks got some help. Retail sales were mostly solid, and that got things off on the right foot, though as discussed below, it was rather shaky. Oil prices stepped in, however, as oil was down over $1 early on (closed at $54.11, -1.74). Retail sales passed the torch to oil, and it carried the rally through the rest of the session. Stocks may have been helped, but that is the kind of help a market needs. It overcame some adversity from the Wednesday reversal and the PFE news and rallied anyway. Not a pillar of strength but as noted Wednesday night, starting to act better.
Acting better, but not acting strong. Stocks rallied once more on very low volume. NYSE volume managed to bump higher, but at these levels you still need a microscope to see the difference. NASDAQ trade was lower, and both markets were well below average. Buyers are winning out simply because sellers are on spring break. There has been no rush to accumulate shares, just nibbling around the edges. When there are no sellers it does not take much to get stocks higher. Again, acting better, but not acting great. They will either need a catalyst to bring in the big buyers or another test lower to continue the consolidation and try to set up a stronger, more sustainable rally.
THE ECONOMY
Retail sales bag mixed but overall solid.
Given the spike in heating oil over the winter and the average gallon of gasoline running easily in excess of $2, the March retail results were quite solid indeed. Those with lower than expected sales once again blamed the weather while those with good sales didn't seem to mind. The trend was similar with the teen retailers performing well (parents earn it, the kids spend it), TGT outpacing WMT in the discounters, and department stores still stronger than they were in 2003 but the results turning more mixed.
Discounters: WMT +4.3%, TGT +8.2%, KSS -1%. Teen retailers soared overall with some sporting huge gains (e.g. AEOS +29.2%; BEBE +30%; ANF +21%)), but there were some disappointments (PSUN . Department stores were divided somewhat along the lines of low end and luxury as we have seen for most of the recovery. In luxury, JWN rose 5.5%, FD (Bloomingdales, Macy's) rose 3.4%, both beating expectations, but it was not all as good as it has been. NMGA and SKS fell short of expectations with 3.4% and 1.1% respectively. On the lower end JCP could only muster a 0.1% gain, well off the 4+% expected.
March sets the tone for the spring, and with Easter falling in the month it made it the most important sales period of the year thus far until Memorial Day. The preliminary results from the International Council of Shopping Centers (what a fancy title) showed a 4.1% gain, right in the middle of the 3.5% to 4.5% range. February sales rose 4.7%.
The results show a consumer still spending but there are some real problems that were totally glossed over by almost all analysts. First, slowing in the luxury sector is something we consider a leading indicator. The luxury end of any market is often a harbinger for change. It is usually the first to turn higher in an economic upturn, and it often shows some of the first signs of caution if things turn down. We have heard from some financial planners that handle very large accounts that their clients have turned cautious on the prospects of the continued economic expansion what with high oil, the start of inflation this time around, and the Fed on an indefinite rate hiking campaign. It is interesting because it shows some jitters when things turn weaker but it also holds up overall better than the lower end markets. Thus you can see luxury sales pull back as with NMGA and SKS but still post solid gains.
Second, the teen retailer stocks did not perform well when the news hit. In early January, February and March the stocks bolted higher when the news of strong sales hit. Thursday they did not tank, but few of the big winners showed the same sharp spike higher. BEBE did, but ANF and AEOS, the two other big winners, could do nothing with the numbers. They have enjoyed strong runs and their reaction to this good news shows there is not a whole lot left in the gas tank on this move. In short, time to tighten up the stops on these positions.
In sum, our take is the consumer is starting to slow in the face of higher energy prices regardless of what Greenspan and VP Cheney say. The high end is softening a bit as shown in some of the sales and some of the chatter from the well heeled. The stocks that have enjoyed the lion's share of sales during the expansion yawned in the face of more strong results. That makes this summer more problematic for the consumer as gasoline prices continue to rise along with mortgage rates (a lot of adjustable mortgages out there) and interest rates in general.
Jobless reverse recent climb but it is simply more of the same.
Weekly jobless claims fell 19K last week to 334K. That was still higher than expected (330K) as the figure has backed away from the low 300K levels in February. It was the lowest reading in 2 months after the numbers started to climb from the low 300K's, and maybe it suggests the spike in March is over and could lead to stronger non-farm payrolls, blah, blah, blah.
We had several weeks of low readings as noted, but they were unable to produce any real lasting transformation in the jobs market. Jobs were weak in March once more, continuing the modest traditional jobs growth in the US. The scene remains the same: the large companies that were growth engines in the 1980's and 1990's are in the cost-cutting phases of their lives, no longer growth companies but living off their cash cows (e.g. MSFT) and trying to maximize shareholder value through cutting costs. The new young companies are still trying to get established and harness growth potential. In the interim, i.e. until those newer companies really hit the growth button, the traditional employer/employee jobs are thin. It is always a difficult transition, and if the economy slows in the summer and fall due to higher energy costs and the Fed tightening into those rising costs, growth will slow and so will the potential for creation of new jobs from these new companies.
THE MARKET
A nice price gain once more with semiconductors and large cap techs leading the way (2%, 1.3%), but gains coming in across the board. NASDAQ and SP500 cleared the Wednesday highs, and SP500 and SP600 broke through their 50 day EMA. As noted, volume remained quite low despite a modest bump higher in NYSE. Breadth was well below 2:1 as well.
There are buyers in the market, and the buyers are more active than the sellers right now, and that is why stocks are rising. It is so basic it sounds ridiculous even to say that. That does not mean, however, that buyers are controlling the action. They are so few in number it would not take much to stall the move. There are more buyers than sellers this week, but in the bigger picture, there have been more sellers than buyers in the market as the institutions have been dumping shares in the higher volume distribution seen during March. This low volume bounce does not alter the character of the distribution. It is starting to as the market is acting better, holding gains into the close, overcoming some adversity, etc. It has not been really tested, however, and when adversity raises its head, light volume moves typically melt away.
Sellers have basically gone on leave for the week, allowing the market to rise. They poked around some Wednesday, but nothing serious as volume was still low. A market can always rally or fade on light volume. That simply shows there are no real backers to the move, that it is just moving with the prevailing momentum. After the strong March selling the market is still showing distribution, but it is moving into a consolidation attempt the past two weeks with some lighter trade the past week. Nothing wrong with that.
Continued moves in one direction on light volume, however, will typically reverse the move if no catalyst comes along to bring in more buyers or sellers as the case may be. When a stock or index moves higher on lower volume it is like having just a few guys carrying a piano up flights of stairs. They get tired and that piano gets heavier and heavier. Unless some fresh legs come in to help out eventually the piano gets dropped, and it gets dropped on those carrying it.
Thus the market is going to need a catalyst to get it higher on a more sustainable move from here. It is showing better action as noted, but it will need some heavier buying. After selling off ahead of earnings and now moving laterally, it is set up to move. If earnings guidance is strong that could be the catalyst.
Market Sentiment
VIX: 12.33; -0.82
VXN: 16.67; -0.68
VXO: 12.23; -0.39
Put/Call Ratio (CBOE): 0.69; -0.3. Falling off after a series of high readings the past month.
NASDAQ
Up off the 200 day SMA, closing at the high. Good price move but no follow through as no volume to support it.
Stats: +19.65 points (+0.98%) to close at 2018.79
Volume: 1.714B (-3.04%). More below average volume, below average all four moves in this rally. The last above average session was last Friday's loss. Still needs to get some volume to give the move some support.
Up Volume: 1.328B (+632M)
Down Volume: 369M (-648M)
A/D and Hi/Lo: Advancers led 1.59 to 1. Very modest given the 1% move. It was mostly large cap techs moving the index higher.
Previous Session: Advancers led 1.1 to 1
New Highs: 55 (-20). New highs fell as the index posted a solid gain. Large caps led the move more than the overall tech index.
New Lows: 81 (-16)
The Chart: The Chart: http://www.investmenthouse.com/cd/^ixq.html
Nice price gain as NASDAQ continued the move off the 200 day SMA (1993). At this juncture it is trying to make a breakout from a two week lateral move at the 200 day SMA, a key level. It has started the move but now it needs some volume support to prop up the gains as techs, left for dead to start the year, try to pull together in a leadership role. Not too confident it will happen, but again, earnings could provide the catalyst after the modest consolidation.
The large cap techs led the tech move with a 1.3% gain, explaining the narrow breadth on a 1% gain in the NASDAQ. It is approaching the 50 day EMA (1505.51) rapidly and will find some resistance there, particularly if volume remains light. As it is Friday tomorrow, that will add to some resistance at that point as hedge funds button up positions before the weekend.
SOX jumped off the 200 day SMA (412.49) after holding tough at 410 support for the two week consolidation. Of all the indices it consolidated the best and has set up this move. Still inside the trading range with the top at 420.
SP500/NYSE
Solid price move up off the up trendline, moving on rising but still below average volume.
Stats: +7.07 points (+0.6%) to close at 1191.14
NYSE Volume: 1.49B (+2.04%). Volume was up but still below average and still lagging the prior selling volume. Would love to see some more trade as it continues the move higher to give the move some support.
Up Volume: 1.314B (+315M)
Down Volume: 549M (-210M)
A/D and Hi/Lo: Advancers led 1.72 to 1. Low volume and breadth less than 2:1. Not follow through but a bounce that is going to need more support to sustain itself.
Previous Session: Advancers led 1.49 to 1
New Highs: 90 (-4)
New Lows: 22 (+2)
The Chart: http://www.investmenthouse.com/cd/^spx.html
Nice move off the up trendline (1183) and out of the recent range. It cleared the 50 day EMA (1189) and is moving in on the 50 day SMA (1193.75). The move through that resistance on lighter volume is no confirmation of the move, but volume is creeping higher and it could cut loose. Hate using words like 'could' because hope rhymes with dope, etc. For now it is moving higher but does not have conviction. Odds are Friday it will find some resistance near the 50 day ahead of the weekend. Trying to make a comeback but still in a toppy pattern and on low volume.
Moved through the 50 day EMA (323.50), an important move as it has not sold as hard as the other indices and is in position to lead. Its pattern is still toppy as well, but if the small caps start to lead again, the overall market will do well.
DJ30
The blue chips have held the 200 day SMA (10,380) and have made their fourth consecutive move as well off of the key level. Volume was up Thursday on the back of PFE and its FDA worries, so we really cannot attribute the move to any start of accumulation. It is still a follower, but it is following with some style: holding the 200 day SMA and showing some better volume.
Stats: +60.3 points (+0.58%) to close at 10546.32
Volume: 283 million shares Thursday versus 237 million shares Wednesday.
The chart: http://www.investmenthouse.com/cd/^dji.html
FRIDAY
We hate to harp on the low volume, but that is the most important point with respect to this move. The market has moved up and we have dissed it the whole way because of low volume and weak breadth. That does not mean we have not taken part in the move, it is just that we have to understand that the low volume means it could come back hard at any time once some sellers wake up. It does not have to come back; it can always get a big burst of buying interest on some strong earnings news and power higher, never looking back. It has certainly made the test of key support levels and has started to move back up. There has been some leadership. The only lacking element is overall better volume to show the big institutions are back in buying stocks as opposed to dumping them as they were in March.
Near term we feel there could be some weakness Friday afternoon. The market has rallied four straight sessions, and a bit more rally by SP500 up towards its 50 day SMA sets it up for a pause. Without volume carrying it higher, the market is more susceptible to some selling at resistance and ahead of a weekend. It has not taken many buyers to drift stocks higher, and it would not take many sellers to pare some of the gains.
We are not suggesting the rally is going down in flames Friday, but it could ease back given the weekend and the gains. We don't have much confidence in the move overall, but it is trying to set up for a better move and you have to respect that. It will still have to show the move on volume, and the odds are it will test back again before it does that.
Either way we are going to be ready. Low volume gains mean we have to be strict with our upside plays; they can turn if the sellers suddenly reawaken. We have been sticking for the most part with stocks moving on solid volume as that helps mitigate any renewed selling: if the volume is strong on the upside someone wants it pretty bad and they are less likely to turn right around and jettison it.
Friday we are going to be careful of any continued run higher early on. Odds are an early run will be sold into later in the afternoon. With that in mind we will be scanning positions for those that have put in a good move and may be worth taking some gain off the table as Mondays in earnings season after low volume moves can sometimes be rude starts to a week.
Support and Resistance
NASDAQ: Closed at 2018.79
Resistance:
The 50 day EMA at 2034
The 50 day SMA at 2042
2050-54, prior resistance and the June high is stronger
2066 to 2070, the bottom of the January lateral move.
2100 from February and March.
January high at 2154 (early 2004 high)
Support:
The 200 day SMA at 1993
Early October high at 1971.
Late 2003 highs from 1960 to 1970.
1954 from October as well.
1921 at the September 2004 highs.
S&P 500: Closed at 1191.14
Resistance:
The 50 day SMA at 1193.75
1196, the mid-January high and the early December peak in the left shoulder.
1200
Q1 1999 lows at 1215
December high at 1218.
Support:
The 50 day EMA at 1189
1185, the top of the November consolidation range.
March 2003 up trendline at 1183
1175 second high in that double top that spanned late 2001 and early 2002 is being boxed around of late.
1163 is minor support.
1154-1157 tops from early 2004.
The 200 day SMA at 1152
Dow: Closed at 10,546.32
Resistance:
The 18 day EMA at 10,541 is not completely broken.
Price consolidation at 10,600
The 50 day EMA at 10,608
The 50 day SMA at 10,659
10,754 is the February high
10,868 from the December 2004 high.
10,975 - 11,000 from Q4 2000, Q1 2001
Support:
10,400, the bottom of the November/December range
The 200 day SMA at 10,380
September high at 10,342.
Economic Calendar
These are consensus expectations. Our expectations will vary and are discussed in the 'Economy' section.
April 07
Initial Jobless Claims, 04/02 (08:30): 334K actual versus 330K expected and 353K prior (revised from 350K)
Wholesale Inventories, February (10:00): 0.6% actual versus 0.7% expected and 1.0% prior (revised from 1.1%)
Consumer Credit, February (3:00): $5.6B actual versus $7.5B expected and $11.6B prior (revised from $11.5B)
End part 1 of 3
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