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4/21/05 Stock Split Report
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Stock Split Report Subscribers:
MARKET ALERTS
Targets hit alerts: None issued
Buy alerts: ESRX; GPRO; AMHC
Trailing stops: None issued
Stop alerts issued: MATR
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:
- Earnings matter (specifically guidance), spur immediate response to selling.
- Philly Fed index surges past expectations.
- Jobless claims fall below 300K on seasonal adjustments.
- Leading indicators fall once again.
- Stocks stage a follow through though NASDAQ trade leaves a question mark.
- Earnings remain strong after hours as stocks head toward weekend.
Stocks decide they like the earnings and guidance, blast higher.
Stocks did the improbably Thursday. After resuming the dive lower on high volume following a low volume test of last Friday's breakdown, they immediately reversed. NYSE volume moved higher and NASDAQ just missed a higher volume session. Strong price 2+% price gains. Strong breadth. Basically the antithesis of Thursday. Call it fighting fire with fire, a love/hate relationship between investors and stocks, or just more of the same volatile action of late; the results were an impressive response to the selling as stocks posted an improbably follow through session to the Monday reversal from last week's plunge.
What prompted the move? Earnings were good once more and guidance was strong as well. That is not new, however. At first earnings were so-so, but they have come on strong. They could not rescue the market Wednesday, instead giving way to a nasty drop. Was it shear volume of good results or just enough already?
Shorts were ready to cover before the open as futures were surprisingly strong. The jobless claims fell below 300K for the first time in about a decade (it seems), but that was a seasonal adjustment thing. Stocks gapped higher and the SP500 ran up to the 200 day SMA. There it stalled as you probably would have guessed. The LEI was weak once more and the rally was fading back past its opening levels. Then the Philly Fed came out and blew past expectations; on the heels of the very weak NY reading it was a surprise. That goosed the stalling move, stocks found new strength, and SP500 made the break through the 200 day SMA.
That resumption of the move after it looked to stall indicated some longer term buyers coming in as opposed to just short covering. All rallies start with short covering, and after the second blast down from the 200 day SMA on SP500 it was the shorts who got it moving up. The longs came in as well, however, driving stocks to close at session highs. In the end SP500 posted its best percentage gain of the year (2%), delivering a follow through session to the Monday reversal attempt. That clears the way for further upside on this bounce whether it leads to another test or as in 2004, stocks simply keep on rallying. Either way it was an impressive rebound in the face of renewed distribution, a pleasant change from the upside attempts getting immediately trounced by higher volume selling as happened, well, Wednesday. It is a game of one-upmanship right now, and Thursday it was a surprising response to the sellers' 'check' (a chess reference) move on Wednesday.
THE ECONOMY
Philly Fed gives opposite view from New York.
It was the Empire State survey that was really a catalyst to the idea of a slowdown, at least to the market. It was one of the early 'contemporaneous' reports in April on the economy and it was massively weak. The Philly Fed expectations were written lower about every session the past week. Expectations were down to 10 from the March 11.4. Actual results did indeed vary from previous results as the 25.3 reading shows.
The sub-indices were up across the board. New orders surged, shipments surged, employment was up solidly. Of course prices were up over 50. The good with the bad. Even with the prices, prospects improved in all areas.
These improvements gave the market a shot in the arm and gave renewed strength to the rally. They were good numbers, but we also have to remember that the regional manufacturing reports are not hard data, they are sentiment polls very similar to the consumer sentiment polls. That means we are relying on the feelings, nothing more than the feelings, of the purchasing managers. As noted earlier this week, they tend to be too pessimistic when things are bottoming and too positive at tops.
Not saying this is a top, but there has been a slowing in the economy. The bond market is not lying as it tells us there is some slowing. The issue is whether the Fed and energy are going to slow the economy enough to continue the market selling. The Philly Fed was not bad, but it was not the indicator that says all is well.
Jobless claims fall below 300K.
At 296K, jobless claims were below 300K only for the second time since October 2000. It was also the largest weekly drop (36K) since December 2001.
Big numbers for the week, but the 4-week average was still 330K. Further, the drop, similar to the numbers near 300K earlier this year, were mostly from seasonal adjustments. When the adjustments are made they will skew the results if the numbers don't fall within the expected range. With a bunch of new layoff announcements recently on the heels of the revival of merger activity the past few months, you can look through this number and see it is a seasonal thing. There are not that many traditional non-farm jobs being created even now. The big, household name companies are still laying off, even more so with the mergers. Thus we are not getting all stoked about this number and thus impute stronger economic activity than what the bond market and other indicators are showing.
Leading Economic Indicators are not leading higher.
For the sixth out of the last ten months these indicators that look 6 months down the road were lower. The -0.4% reading was less than the -0.3% expected. After posting a 0.1% gain in March the indicators resumed their downward drift. Higher energy prices, lower stock prices, and lower consumer sentiment pulled the indicators lower once more.
While this report is not conclusive (no individual economic report is), it is another of a series of reports that shows there has been a slowdown and that the slowdown is still in progress despite the Philly Fed popularity report issued Thursday. The bond market is not lying to us (at least not much) when the long end prices in a less active Fed and less costly long term money costs. That along with the other indications of slowing are showing a still sluggish economy ahead.
That sluggish economy, however, could do a couple of things. It could push demand lower temporarily and let producers (supply) catch up. If CEO's are as sanguine about the future as the regional PMI reports suggest they will keep on investing and ramping up supply. That would help quell inflation pressures that the demand-led recovery has built up. It could also get the Fed thinking that it is closer to ending its rate hiking than it currently does. For now it is still in the mindset it has to raise rates, and it does. The issue now is how far. 3.5%? 4%? That is just 3 to 4 twenty-five basis points from here and could be done before the end of 2005. That is something the market can live with and it may be what the market is looking at right now with this Thursday rebound.
THE MARKET
It was a sharp upside session Thursday, and the market was led upside by the usual suspects when stocks rally: SP600, SOX, and NASDAQ. It was also a follow through session with NYSE, led by SP600 and SP500 posting gains of 2% or better, rising and above average volume, and breadth at 2.8:1. Those are follow through caliber numbers to the Monday reversal attempt. Moreover, SP500 reversed and pushed right back through the 200 day SMA, doing so on rising volume. It gave its own slap in the face to the Wednesday distribution, something not seen in 2005.
The disappointing aspect was NASDAQ. Its volume was above 2B once more, but it was not higher. There was no clear swing from the Wednesday return of distribution to the Thursday rally. While it only takes one index to post a follow through, with the big back and forth swings recently you would like to see all indices pulling their weight.
A season change?
When the weather starts to change from one season to the next, it gets a bit more interesting. In the summer down here the forecast is the same every day: high in the nineties, humidity 70%, and a 20% chance of rain. Not until the fall comes around (or a hurricane) does it get a bit wilder as the cold fronts blow in and the weatherman actually has to do some forecasting. The forecast will be wrong, but he has to come up with something new. One day it is balmy, the next the wind is blowing hard and the rain is cold. It blows through and then it is hot again. Season is changing.
After somewhat slow action in late March and early April, the sharp sell off last week and then the up and down action the past few sessions pushed volatility higher. Down hard, back up, back down hard, and now back up hard as well. The winds are blowing. The market is trying to change direction. Sometimes it is a knifepoint turn (one bottom with no test as in 2004 on NASDAQ), other times it is a bottom, a test, and then a renewed move higher. Either way, the Thursday action looks to have produced the kind of response to the selling and the kind of buying needed to produce a more sustained upside move. That suggests a better rebound here than the paltry two-day rebound Monday and Tuesday, and that is good for the upside longer term whether this is just a run higher ahead of a test of the prior lows or a 2004-like turn and run as on NASDAQ (note that SP500 did have a test in October even though NASDAQ avoided one). Only the market will show us this though we suspect a more typical test of the recent lows after some further upside.
If this is a real change in the market (and the follow through suggests there is something more here at least for the near term), then investors are looking at what the bond market is showing with respect to the economy and also further Fed action. That would mean a tamer Fed. Energy is still a problem, however, and the Fed is still talking tough. While the Thursday response to Wednesday was a good recovery, it did not change the current fairly nasty patterns in the major indices. They are all coming off the mat. The leaders are performing, something you would expect on a day such as today. Even so we still need to tread cautiously as the action remains very volatile and on high volume on both sides of the fence. A follow through is never an 'all clear'; it just tells us that the stage is set for a continued rally. We still have to pick the right leaders and with the index patterns so beaten up, be alert for signs of a return of distribution that could end the attempted move. It was not a unanimous decision with NASDAQ volume lower. Thus it was a positive development for the upside, but it was still in the context of an overall downtrend that has not been broken up yet.
MARKET SENTIMENT
VIX: 14.41; -2.51
VXN: 18.52; -1.71
VXO: 13.63; -3.2
Put/Call Ratio (CBOE): 0.85; -0.13
NASDAQ
Gapped higher following the Wednesday drubbing, rallying to the 18 day EMA on above average but still lower volume.
Stats: +48.65 points (+2.54%) to close at 1962.41
Volume: 2.026B (-3.39%). This was the weak link in the move as NASDAQ volume contracted from the Wednesday downside trade. NASDAQ has not joined the party with respect to converting to some accumulation from distribution.
Up Volume: 1.726B (+1.041B)
Down Volume: 274M (-1.114B)
A/D and Hi/Lo: Advancers led 2.68 to 1. Breadth has been strong for whatever side won the day of late. Would like to see it less wishy-washy.
Previous Session: Decliners led 2.22 to 1
New Highs: 28 (+7)
New Lows: 105 (-39)
The Chart: The Chart: http://www.investmenthouse.com/cd/^ixq.html
Thursday the NASDAQ gap higher held into the close as opposed to rolling over and selling into the close as it did Wednesday. Volume was lower; still no real change in NASDAQ's character. It has moved up near the 18 day EMA (1968), a point that has held it back on the last two rebound attempts. It needs a move up to the 2000 level, bracketed by the 200 day SMA (1990) and the 50 day EMA (2007), to set up a better position to test the recent lows near 1900. In 2004 there was never really any test, and it did not come off the bottom on stronger volume until a week later in a real follow through. Thus NASDAQ can still provide a follow through here; it is not a one-time shot where you do it or basically you fail. It has another three sessions to show a higher volume gain to show a follow through in the window that typically indicates stronger upside moves.
NASDAQ 100 was a bit stronger with a 2.9% gain. The big tech names are reporting some better earnings (EBAY, YHOO, INTC), and that is helping the large cap index. Lower volume and still below the 18 day EMA just as NASDAQ overall. That means it is still in a downtrend overall as well. It still has to show us something or NASDAQ and the large cap techs could become a drag on the rest of the market.
SOX was the percentage leader (2.8%) Thursday, but it is still way down in the valley from the recent selling. It has held above the January low (383) and is attempting a rebound, but it has yet to clear the recent lateral range following last week's selling. Indeed, it closed lower than the Wednesday high (396.91) and the 10 day EMA (396.28). Lots of work ahead, particularly near 410 and the 200 day SMA (409).
SP500/NYSE
The large caps surged back through the 200 day SMA on rising, above average volume. The NYSE indices provided a follow through session to Monday's reversal move.
Stats: +22.45 points (+1.97%) to close at 1159.95
NYSE Volume: 1.835B (+3.52%). Above average and rising volume as the large and small caps surged higher. The volume was still below last Thursday's selling trade, but it showed responded to a distribution day with accumulation, a positive development not seen in the current selling that started after the early March peak.
Up Volume: 1.909B (+1.567B)
Down Volume: 374M (-1.478B)
A/D and Hi/Lo: Advancers led 2.79 to 1. Solid upside breadth. As with NASDAQ, it has strongly favored the winning side each session, and thus it is not really showing hands down, unquestionable strength. Say breadth had been less than 2:1 on the downside days; then the Thursday breadth would have really been significant. It was good, but the market is not showing any sustained strength yet.
Previous Session: Decliners led 2.93 to 1
New Highs: 23 (+7)
New Lows: 66 (-38)
The Chart: http://www.investmenthouse.com/cd/^spx.html
Stalled at the 200 day SMA (1154) early, but regrouped and moved on through, holding the move into the close. An impressive recovery that turned the tables on the selling and helped provide some follow through that can set up more upside from here. It is still in a harsh short term downtrend, however. It still has not taken back all of the drop from last Friday. It has a lot of work to do, and will be tested in the 1175 area, starting with the 18 day EMA (1167) and the bottom of the late March range up to the 50 day SMA (1188).
The small cap SP600 made its impressive move Monday when it immediately reversed the Friday crash through the 200 day SMA (305). It held that level in the Wednesday selling, and then vaulted higher Thursday on that stronger NYSE volume. This is one of the more positive developments, but it too has its work cut out for it with resistance at 315 to 316, and then again at 320. Recovering from hard selling is always a daunting task.
DJ30
The blue chips managed to hold the psychological 10,000 level once more. The blue chips posted a solid price gain but volume fell on the move. Still has a lot of resistance, and we are looking at the 200 day SMA (10,375) where the index tried to bottom in late March and early April, but of course, failed. That range up to 10,500 could be where this move runs out of gas then comes back for a test and breach of 10,000 toward 9933 to 9900 to really shake things out.
Stats: +206.24 points (+2.06%) to close at 10218.6
Volume: 287 million shares Thursday versus 323 million shares Wednesday.
The chart: http://www.investmenthouse.com/cd/^dji.html
FRIDAY
No scheduled economic data Friday so the market will get to show if the Thursday volume move on NYSE was really meaningful. It was a follow through, but NASDAQ lagged. With the tennis match of late still unresolved and the weekend ahead we will get to see if the move has anything to it. Quick reversals have been the recent hallmark, and if the Thursday move has anything to it this is the time to show it. A volume upside move from NASDAQ would show more commitment, but given it is Friday, less likely.
GOOG is likely to get things off on the right foot, but given it is Friday and a good move Thursday, we don't want to get too worked up by an early move higher. We have taken upside positions this week when the leaders show their good moves, and that way we have been moving into this surge as it developed. We still have to watch positions closely but as noted Wednesday, the leaders were holding up even as the market sold. The Thursday move solidified their positions and broke to the upside.
We will continue to look for strong stocks that held their ground and resume their upside moves on solid trade. That is the best way to participate in this move even when it still looks uncertain. The Thursday move gives the indices life up to the next key resistance levels. We still expect a test of this move, so when they start nearing that point we will watch for any turnover.
Support and Resistance
NASDAQ: Closed at 1962.41
Resistance:
The 18 day EMA (1967) is potential resistance.
Late 2003 highs from 1960 to 1970.
Early October high at 1971 and the March low at 1973.
The 200 day SMA at 1990
The 50 day EMA at 2007
Support:
1954 from October as well.
1950 (top of October to December 2003 consolidation)
1900 from October 2004, March 2004, October to December 2003 (consolidation range bottom) held on this last test.
1876 from the May 2004 low and November 2003 low.
1860 from the late September 2004 low.
S&P 500: Closed at 1159.95
Resistance:
The 10 day EMA at 1159.
1163 is from January is trying to hold.
1175 second high in that double top that spanned late 2001 and early 2002 is trying to hold
The 50 day EMA at 1180
March 2003 up trendline at 1189
The 50 day SMA at 1189
1196, the mid-January high and the early December peak in the left shoulder.
1200
Support:
The 200 day SMA at 1154
1137 the recent April low.
1129 to 1125
1100 to 1095
Dow: Closed at 10,018.60
Resistance:
The 10 day EMA at 10,232
Some price resistance at 10,250.
The 200 day SMA at 10,375
10,400, the bottom of the November/December range
The 50 day EMA at 10,488
Price consolidation at 10,600
10,754 is the February high
Support:
10,065 from March 2004 lows.
9988 from September 2004.
9933 to 9900
Economic Calendar
These are consensus expectations. Our expectations will vary and are discussed in the 'Economy' section.
April 19
PPI, March (08:30): 0.7% actual versus 0.6% expected and 0.4% prior
Core PPI, March (08:30): 0.1% actual versus 0.2% expected and 0.1% prior
Housing Starts, March (08:30): 1837K actual versus 2090K expected and 2229K prior (revised from 2195K)
Building Permits, March (08:30): 2023K actual versus 2094K expected and 2107K prior (revised from 2107K)
April 20
CPI, March (08:30): 0.6% actual versus 0.5% expected and 0.4% prior
Core CPI, March (08:30): 0.4% actual versus 0.2% expected and 0.3% prior
April 21
Initial Jobless Claims, 04/16 (08:30): 296K actual versus 329K expected and 332K prior (revised from 330K)
Leading Economic Indicators, March (10:00): -0.4% actual versus -0.3% expected and 0.1% prior
Philadelphia Fed, April (12:00): 25.3 actual versus 10.0 expected and 11.4 prior
End part 1 of 3
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