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us stock market, stock watch
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9/25/01 Investment House Daily
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SUMMARY:
- Indexes finish positive, but that is about all.
- NYSE volume continues to wane on the move higher.
- Consumer confidence bad, home buying good.
- Team Trades
Up, down, and back up, but not with any strength.
Monday was a solid move up after the worst Dow week ever. Volume was solid, but as noted, not near the levels of the selling the prior week. Not necessarily bad, but there is the danger of a falloff or a lack of upside momentum. Still, we are awaiting some follow through of Monday's big move, and a slower session after a strong upside move is not out of character. It is just that everyone is a bit gunshy when there is any sign of weakness or transition back to the down side.
Is there some indication of transition? The market started flat and then rallied; we like softer opens followed by rallies. That turned to selling, however, and it took a late afternoon run to eke out gains. That is okay. But, all three indexes closed the session with doji's after a reversal of sorts occurred on Friday (at least they closed off of their lows that session) and a solid rally Monday. volume on the NYSE was sharply lower once again to boot. Indeed, even though Nasdaq volume moved back higher, a doji on the candlestick chart after a move up that occurs on higher volume does not give us a lot of confidence.
We were looking for a rally on into Wednesday. We may get it. The rally late in the session may spill over with a higher open tomorrow. After that, we may see the indexes turn back down for some filling in after Monday's move. That often happens when we are waiting for a follow through session. If it is on lighter volume and does NOT undercut the Friday lows (preferably the Monday lows), that could be just fine. What has happened time and again since this bear market has started, however, is a familiar pattern: selling, a big rally attempt, then the selling resumes and the pre-rally low is undercut. The sentiment indicators have hit extreme levels they have not hit in years, so there is more substance to this attempt. Now all we have to do is look for that follow through. As we said before, patience is a big ally right now.
We would prefer to see the market continue higher at this point. We are sitting in some call options on the SOX, OEX, and some stocks, and we are okay on some and underwater a bit on others. We have to be realistic, however, and with the lower volume move higher and the doji's we saw today, we need to be ready to act. If we get a rally higher tomorrow out of the gates that starts to fade, that may be our last chance until we see how far this pullback is going to be before we get another shot at unloading them. Who knows where that will be.
As for the downside action, we are in the same boat. A big downtrend the prior two weeks and just a mild upside move comparatively. On top of that, extreme investor pessimism. If the market does pullback here, is it a re-test or renewed selling? We can play the downside on this move, but we have to be nimble about it simply because the market raised some new issues with the vigor of the selling, and we have to see how they are going to be resolved: follow through session or more selling.
THE ECONOMY
Consumer confidence takes a hit.
Expectedly, consumer confidence dropped sharply this month to 97.6 after a nice 114 reading in August. This is the biggest drop since October 1990 and the lowest reading since January 1996. Current and future expectations both fell pretty hard and the vacation index was the leader to the downside. Consumers were worried about the increase to 4.9% in the unemployment rate (remember how we said two years ago consumers would not crack until they were worried over their jobs? The Fed cited that as a reason for rate hikes, but as predicted, no effect on the consumer until the pink slip) as the major worry. The market did not tank on the news; many traders we talked to were actually expecting a worse number, and that suggests the reason for the so-so market response.
Existing home sales rise, but the report covered August.
Home sales shot up 5.8% in August to 5.5 million annual units, much higher than expected (5.2 million units expected). This surprising strength was welcomed, but it was also taken in light of the September numbers that will be lower. As noted in the immediate aftermath of the attack, however, while new applications, mortgages and refinances were lower, they did not fall off a cliff. It will be down this month, but no one is sure if it will be a tanking. There have been stories of buyers just walking away, but there as many stories of deals continuing to go through.
Economic Research Institute's weekly numbers dive.
This is similar to the Leading Economic Indicators, but it is considered more of a leading indicator. This week it fell below the April lows, and that pretty much bakes a recession in the cake and puts a recovery out past this winter. The institute noted that the precursors to recovery are already in place: recognition of a recession, policy makers taking action (monetary and fiscal), and businesses and consumers pulling back. The latter is important as we have discussed before because that leads to pent up demand that acts to spring the economy back stronger and faster than it otherwise would. Still, these numbers indicate the recovery is pushed back another quarter. The also continue to show, however, that there is no worry of inflation (all-time lows on the indicators), giving the federal government plenty of room to inject needed fiscal stimulus in the system.
Oil and gas stocks rise sharply.
Oil and gasoline weekly supplies were announced after hours, and they were way up. Gasoline stocks were expected to rise 1.4 million; they were up 8.7 million barrels. Huge inventories equal lower prices, equal no pricing pressure.
THE MARKET
As noted, a weaker move up than the selling, but with the fear in the market and record volume on the selling, it would be hard to top that on the initial reversal. Still, unlike some where saying, we did not see today as really a good thing. What we would want is the volume to spike higher on any follow through that occurs anytime starting Thursday through next week. Until then we can stomach some downside action if it comes on lighter volume. The indexes looked as if they might be running out of gas on this first bounce higher, showing doji's on the closes today. We are watching to see how the indexes handle the recent lows, what the volume is (lighter the better for a potential bottom), and then a big follow through day. On the flip side, if volume ratchets higher on any selling, that is usually the death of a rally attempt. We will see soon.
VIX: 38.87; -2.46. Volatility was lower all session. Again, it has given the signal we were looking for. Now it has to be backed up by the market action.
VXN: 67.57; -1.84. As with the VIX, the VXN has given us its signal. Now we look for the market to follow through.
Put/Call Ratio (CBOE): 0.51; -0.04. Puts were again on the light side after closing above 1.0 four out of five sessions last week.
Nasdaq
Stats: +2.24 points (+0.1%) to close at 1501.64.
Volume: 2.153 billion shares (+4.8%). Volume rose on a gain in the index, but it was hard-fought. 1.203 billion downside shares to 932 million upside shares shows the standoff today. Not impressive; the sellers caught up with Monday's buyers.
A/D and Hi/Lo: Advancing issues won by 29 issues (1870 to 1841). It was truly a standoff. New highs fell to 35 (-4) as new lows rose to 188 (+4). All indicators were at a standoff today.
The Chart: http://www.investmenthouse.com/cd/$compq.html
Today was a buyer versus seller fight that no one won. After Monday's big rally, some equivocation is okay, but are leery of these short moves higher on lower volume and topping signals. That is probably good; let everyone beware. In any event, the chart is showing some interim topping characteristics and while we might get a pop higher in the morning, absent some other stimulus to send it higher, we are looking for some test of the recent lows.
Dow/NYSE
Stats: +56.11 points (+0.7%) to close at 8659.97.
NYSE Volume: 1.601 billion shares (-6.4%). Continuing above average volume, but again lower on the climb up from the trough created by two weeks of heavy selling. Up volume did lead at 961 million to 624 million downside shares. A good recovery in the index, but not a powerful day.
A/D and Hi/Lo: Advancing issues continued to lead at 1.47 to 1, but well off Monday's 2.99 to 1. Again, what we look for is a big 2 to 1 or better yet, 3 to 1 on a follow through session. New highs rose to 23 (+3) as new lows rose to 148 (+8).
The Chart: http://www.investmenthouse.com/cd/$indu.html
The move appears as if it is running out of steam already with the Dow showing a loose doji (54 points separating the open and close) just below the down trendline that arose from the January and April 2000 tops. Maybe that will not stop any move higher right now, but it did act as some support last Wednesday (really a momentary stopover) before the index plunged further. It could be enough, however, to stall a weak move higher without some other upside impetus. The move higher has been on lower relative volume to the selling; we have to take that into consideration.
S&P 500: The S&P had a volatile session as well, rising in the first couple of hours and then tanking to negative territory. It staged a nice 14 point rally in the last two hours to regain positive territory. A nice recovery, and the best-looking index after Monday's action in terms of a further move higher on this bounce. It too, however, suffers from lower volume on the move higher. There can be little doubt it will at some point pull back, and the other indexes are giving indications they want to do just that. The S&P will most likely follow those for a re-test if today was not just a pause before continued rallying. Again, all eyes are on Thursday and next week.
Stats: +8.82 points (+0.9%) to close at 1012.27.
Volume: NYSE volume continued above average, but again lower on the buying at 1.601 billion shares (-6.4%).
The Chart: http://www.investmenthouse.com/cd/$spx.html
TOMORROW
After hours Bed Bath and Beyond beat its numbers and said the rest of the year looks great for it. That rallied that stock after hours, but it is hard to imagine no impact given the drop in confidence. On the flip side, Micron Technology (MU), reported even crappier earnings (actually losses) than anticipated. The chips it sells are 85% off of their price last year. It is going nowhere fast.
Kind of like the market today. Looking strictly at the numbers and now what transpired last week as far as sentiment indicators, it looks as if this little move has already been more or less tapped out. We see many stocks that have risen the past two or three sessions, but on lower volume, and they are now at resistance. They could find their way right back down as could the indexes. The big question is whether any selling will be a resumption of the grind lower we have been experiencing for 18 months or just a quick test of the recent selling before this rally continues to try and make some headway.
As we have said throughout the report, that is something that only time will tell as we look for a follow through later this week or next week. Now we could see this rally just continue on up Wednesday; there could be some good news come out (BBBY? The war?) that propels the indexes higher. The economic news tomorrow (durable goods, new home sales) is from August, so it will be discounted accordingly.
Based on the numbers, we anticipate a pullback toward the recent lows. We may see a move higher early Wednesday before that. We are not convinced any selling will be a continuation of the meltdown as a lot of that selling, even if it is not over, was worked out of the market last week. A mild test and then a move back up beyond today's highs seems most likely. We could see the Dow at 9,000 pretty easily in the near term. That is not a big move relatively, but it is realistic: the prior lows from March and April are logical resistance points on this move off of the new lows.
If we see a rise in the morning that cannot take out the session highs on Tuesday (Dow: 8695.54; Nasdaq: 1528.33; S&P: 1017.14), we will seriously look at closing out our upside index plays and look at some very fast downside action on these same indexes. There are similar individual stock plays setting up the same way. We will also be looking at those continued breakout plays where solid stocks are forming good bases and breaking out. If we do get a follow through and subsequent rally, these stocks can lead the market in gains. Even if that does not happen, we can net a nice gain on the strong moves higher on the breakouts.
Support and Resistance
Nasdaq: Closed at 1501.64.
Resistance: 1500 is some resistance it cleared today, but we are watching the intraday high tomorrow (1528.33). 1619 and 1638 are the prior lows that have been undercut and are the nearest potential resistance.
Support: The lows of the 1998 bear market, 1419 closing and 1357 intraday.
S&P 500: Closed at 1012.27.
Resistance: We will watch Monday's intraday high (1017.14). Then 1045, followed by 1075 to 1081.
Support: 960 held on the close Friday (one of the lows in the 1998 double bottom). The other low in that pattern is 925.
Dow: Closed at 8659.97
Resistance: The Monday high (8695.54) may try to stop this move. Then the prior low at 9106, followed by 9500.
Support: 8100 held last week. 8000 is next (the middle of the 1998 double bottom) and then 7500 (the lows of the 1998 double bottom).
Weekly Economic Calendar (All times Eastern). The figures are the consensus expectations, not ours.
9-24-01
Leading Economic Indicators, August (10:00): -0.3% actual versus -0.1% expected and +0.3% prior.
9-25-01
Consumer confidence, September (10:00): 97.6 actual versus 109.0 expected and 114 prior (revised from 114.3).
Existing home sales, August (10:00): +5.8% (5.5M) actual versus 5.20M expected and 5.17M prior.
9-27-01
Initial jobless claims (8:30): 410,000 expected and 387,000 prior.
Durable good orders, August (8:30): -0.4% expected and -0.7% prior.
New home sales, August (10:00): 922,000 expected versus 950,000 prior.
9-28-01
GDP final, Q2 (8:30): 0.1% expected and 0.2% prior.
GDP Chain deflator, Q2 (8:30): 2.2% expected and 2.2% prior.
Michigan sentiment (revised), September (9:45): 79.0 expected and 83.6 prior.
Chicago PMI, September (10:00): 42.3% expected versus 43.5% prior.
TEAM TRADES
PSSI: A medical equipment wholesaler, PSSI has been in a long correction, but back in June it broke out of a six month cup with handle base within its bigger base. Since then it has tested the move and has bounced twice off of its 18 day MVA. It started the last move Friday and Monday, and we caught it today as it rose on strong volume. We were looking to buy some stock and did take some positions, but the November $7.50 options were pretty cheap (compared to $30 and $40 index options), so we looked at those as well. The stock broke over 9, but before we could really do anything with the options it had run to 9.45. We knew after such a run it would pullback to test the move. About a half hour later it pulled back to its first morning top at 9.20, and the options were trading at 1.75 by 1.95. We put in an order at 1.90 to see how much flex was in that spread. Well, the spread was moved to 1.90 by 1.95; that answered that question.
Then the stock popped back up to 9.45 and the ask went to 2.10. We were not in the mood to chase it, and told the broker to leave the order in. Why? Well, oftentimes a morning top will act as support if the move is going to be a strong one. Sure enough the stock dipped back down to the 9.20 level and we got a fill on 10 contracts (we had an order for 20). The stock then ran back up to 9.40. we got a call from the broker and could not figure out why the partial fill, but there were not many trades and the market maker was being, well, a market maker. Then the stock fell back to the first high, held, but tanked over lunch to 9.00, a point of some support. It bounced up and down from there but could not get it together. It finally staged a rally off of 9 in the last 15 minutes, closing at 9.25. A lot of running in place, but a nice gain on very strong volume. We are looking for simple things here. A $1 to $2 gain on the options returns us $2000 to $4000. Not bad for the outlay.
End Part 1 of 2
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us stock market
stock watch
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