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world stock market, us stock market
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10/09/01 Technical Traders Update
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SUMMARY:
- Techs have a rougher day on some gutsy semiconductor downgrades and MSFT selling.
- Higher volume after the Monday holiday, but still subdued as indexes shape up.
- Retail sales up the week after.
- Earnings start to flow as LRCX and MOT announce.
- Subscriber Questions
Techs take the hit today as high court rules against MSFT and semiconductors are downgraded.
Those gutsy Wall Street analysts. Today some more of the Street's fastest and smartest came out with a new round of downgrades on the semiconductor sector. Talk about going out on a limb. The semiconductor sector was down a mere 68% from its high with many of its components down 80% or more, yet these guys stepped in front of that locomotive and downgraded many chip stocks before the open. No fear. Emboldened by the dismissal of lawsuits against Mary Meeker and other analysts that recommended and put 'strong buys' on stocks that subsequently lost over 90% of their value, these gurus are taking it to the other extreme: wring out the last 32% of value left in the index.
We are being facetious of course, but the idea is the same as we have discussed before: analysts are as much momentum players as anyone on the street. The vast majority will continue in the same direction until the market has completely reversed, headed back the other way, and is ready to reverse once again. To us this is just another sign that the recent reversal off of the lows is supported by a more than healthy amount of pessimism. Again, the market does not look at the past quarter or even the next quarter; it is not myopic. It looks down the road and focuses on whether conditions are ripe for the turn in business.
The techs were not helped by a Supreme Court ruling denying to hear MSFT's appeal of findings that it violated antitrust laws. It was expected, but MSFT sold off on the news, and the $3.48 loss dragged the Nasdaq and the Dow down.
Higher volume, but still low relative to recent gains.
Volume on the Nasdaq and the NYSE was up on the selling, but it was still below average. For one, Monday was a holiday, and trading was lower in part because of that. Further, volume was well below the volumes on the run to this level; those sessions were all on above average volume. In other words, there were many more buyers in the market on the recent up sessions than sellers in today's session.
This does not mean we should ignore that volume did rise on today's selling. First, it can lead to increased selling on stronger volume. Second, as we saw earlier this year, there were a series of distribution days on the Dow on below average volume. After 5 such days in 9 sessions, the Dow tanked. Relative volume, however, was below average during that entire time; the selling on higher volume was the strongest volume during that time. As noted above, right now, the selling volume is far below the buying volume.
Retail sales up the week after, then fade a bit.
Retail sales are to be released later this week, but a quick preview from the retailers shows that volumes were up the week following the attack. That corresponds to FDC's report on Monday when it reported earnings. That also corresponds with what we have been hearing and seeing across the country. This past weekend many restaurants were full once again; store parking lots were full; and 'help wanted' signs are in many windows.
The stores also reported that Sunday and Monday saw a fade in sales. Why? Because the war started in earnest, and people were home watching the television to gather what information they could. Unlike the Iraq conflict, however, there is not a lot of news footage to show. What targets that were there are gone already, there are very few cameras to record what is going on; blurry images of apparent explosions in the distance are hardly satisfying. It won't take long before Americans realize they are not going to get the steady stream of striking video they received during the Gulf War, and at that point, again unlike they Gulf War, they will not be hanging around to see the latest footage. That may be frustrating for us who want to know each minute's progress, but it is something that will help the retail sales.
Earnings are mixed, but expect some ugly Q3 results. The market will forgive those for now.
Earnings were finally coming in today and we saw both sides of the story. Harley Davidson (HDI) blew them out again with a 20.8% increase in sales and orders back to pre-WTC expected levels. The stock was up again on another great earnings report. Seems the symbol of American freedom on the road is still very much in business.
Lamm Research (LRCX) 'beat' earnings expectations with a 21 cent per share gain (excluding items) versus expectations of a 16 cent gain. Not bad, but it said orders were down 25%. Cancellations were down from the March to June quarter, but the CEO was not going to say it was the bottom.
MOT reported as well, meeting lowered expectations of a 7 cent loss. It was a typical MOT earnings report of late: not a lot of good, not horrible. It does appear that the handset business may be turning the corner as the company gets its costs under control.
Expect more of the same. Investors seem to know that Q3 is going to be a giveaway and that not many CEO's will say they have visibility. The key will be whether they say anything that would impact investors' beliefs about upcoming recovery; something about how the economic stimulus will help business would be nice, but that would be a stretch with the unwillingness to stick out necks. Still, expect to see more MCHP statements about the inventory correction being almost over. That will help continue to get investors looking toward the future.
THE MARKET
Anthrax news had the market a bit jittery. It was another up and down session, but it did not inflict a lot of damage even though all major indexes ended the session lower on slightly higher volume. They continue to form good bases, and the Dow looks poised to move higher. It is ready, but the fear of further terror has held it back for the moment. If it can get a breath of good news, it looks ready to move higher near term.
VIX: 35.99; +0.08. Volatility rose slightly on the up and down session as the trading range tightened a bit more.
VXN: 66.26; +0.13. A tick higher with a session high of 67.26. Not much movement given the 2.7% drop in the Nasdaq 100. Still in the high end of the range.
Put/Call Ratio (CBOE): 0.97; +0.17. A little selling, and the ratio is right back up. It would be nice to see it spike again on the close over 1.0, but the continued stay in the 0.90+ range shows continued pessimism and anxiety in the market. In the world of contrary indicators, that is good.
Nasdaq
Took the hardest hit of the big three on slightly higher, but still below average volume. It remained in the recent consolidation range, however, holding above the 10 day MVA. But for MSFT and the chips, many bellwether names on the Nasdaq held up very well. We will now see if the downgrades, magnanimously put off one day to allow investors to digest the weekend attacks, have any lasting impact.
Stats: -35.76 points (-2.2%) to close at 1570.19.
Volume: 1.528 billion shares (+7.9%). Stronger, but still below average volume and lower relatively to the recent buying volume on this rally (2.4 billion share range). Down volume led handily 1.083 billion to 425 million upside shares. We need to watch volume as we want to make sure there is no share dumping. The index could sink to further test the low, but as long as there is no dumping, that is good.
A/D and Hi/Lo: Declining issues led again at 1.47 to 1 (1.3 to 1 Monday). New highs fell to 49 (-3) as new lows climbed to 109 (+14). Want to keep those new lows under control on any move lower. They are a bit too high still.
The Chart: http://www.investmenthouse.com/cd/$compq.html
The index was hit the hardest on the session, tapping its 10 day MVA on its low (1565.97) and managing to only close just off that level (1565.97). That still keeps it above the recent breakout (intraday high at 1528.33 before the big move last Wednesday) and the 1550 level it tapped on the low Friday before rallying that session. Today, however, the index was not able to rally late, a slight change in character from the morning dips and late rallies. It sold early on the anthrax and chip downgrade, rallied, but then sold again on the MSFT news. It waffled the rest of the session, unable to recover. It is still in more of a lateral consolidation, and we would like to see it hold above 1550. Might be wishful right now, but a test of the breakout over 1500 would not be out of line, but the 1550 level is where the up trendline from the low in the little ascending wedge is now residing; that is a very good point to pullback to and then start higher.
Dow/NYSE
Continued its slight pullback, tapping the 10 day MVA on the low and rallying to close with a very tight doji. Volume rose but was still well below previous buying volume. It looks poised, now it just needs something to send it higher. Note that it held up well without any help from MSFT (down over $3).
Stats: -15.50 points (-0.2%) to close at 9052.44.
NYSE Volume: 1.106 billion shares (+12.1%). Still below average, but it was more than a piddling increase. Relative to the recent buying volume, it was much lower. Note how the index sold down close to the 10 day MVA once again (8930.86) and then rallied to close in the top of its range and well within its consolidation range. Sellers were there, but buyers came back in and pushed it higher to close. Buyers did come in. Indeed, up and down volume was closer than on the Nasdaq at 485 million and 684 million, respectively.
A/D and Hi/Lo: Decliners maintained a slim lead at 1.07 to 1 (1.61 to 1 Monday). New highs fell to 53 (-8), but new lows rose to 72 (+23). We want to see those new lows hold the line on any further selling.
The Chart: http://www.investmenthouse.com/cd/$indu.html
The narrowing consolidation continues above the 10 day MVA (8995.76). The trading range today was only 82 points (0.9%). As noted, when it sold down to the 10 day MVA on three occasions, buyers came back in and moved it higher. We like what we see: it has narrowed its trading range on lower volume, when it tested today it rallied back up to the close, and it has held above 8900 all the way across. Again, it looks as if it is coiling much like a spring. It needs a catalyst, and we do not want some outside force to blow the spring out to the bottom.
S&P 500: The big caps are sporting a similar picture to that of the Dow, but it is more in between the Dow and the Nasdaq; splitting the difference as usual. Today it bounced four times just above the 1050 level, the level of near term support and almost coincident with the 10 day MVA at 1050.80. It has found support around this level on the prior two sessions and rallied back up from there. Today it was not able to sharply rally, testing it several times. The next session or two will be important for the S&P; it has set up a nice pullback to 1050 on lower volume. it too is poised if it can get the right news.
Stats: -5.69 points (-0.5%) to close at 1056.75.
Volume: NYSE volume moved higher after Monday's big drop, rising to 1.106 billion shares (+12.1%).
The Chart: http://www.investmenthouse.com/cd/$spx.html
TOMORROW
Lots of talk tonight about the 'chilling' warnings from Bin Laden's co-villains. We will not debate whether this was 'chilling,' foolish, or a ruse to throw us off the trail of their next attempt on innocent lives. The question is whether it will impact the market, and if so, how much.
Financial markets hate uncertainty, and this injects more uncertainty, at least from the standpoint of heightening the thoughts of another attack. Over the weekend we heard the '100% certainty' statement from our own leaders, so this is nothing new, just adds emphasis.
With the markets showing a good consolidation, again all it needs is some good news to send it higher again. At the same time, of course, bad news can send it right back down; that is the problem of an outstanding war effort that is still in its earliest stages. We said last night it would take two to three more sessions to get right. The Dow looks ready, the S&P as well, and the Nasdaq is also holding well above support with its big names looking solid. Again, the pattern thus far is one of accumulation since the bottom was hit. The market is looking forward. Once it gets a whiff of strong stimulus coming and a sense that the terrorists are on the run and unable to coordinate as well as they have in the past, that will be enough to unleash some more upside.
Tomorrow is still a part of the waiting game right now. The market has rallied off the low and followed through. There have been some good breakouts that are testing their moves and the next round still forming up. Today saw others move up, e.g., IMNX, DORL, PER, DAP, and PLCM. Pick your favorite plays that fit your portfolio and investment style. Know the breakout points, support, resistance, etc. Keep updated on them, and when they make their move, follow with a the market is telling you. The market is set up to make its next move higher if it gets the signal. We like it when things set up in this manner; it makes taking positions easier. It is time for patience and readiness.
Support and Resistance
Nasdaq: Closed at 1570.19.
Resistance: The high in the current pattern is 1641.56 (intraday last Thursday). Still, 1619 and 1638 are the prior lows, and 1638 held last Thursday. Then there is the bottom of the gap down at 1670.
Support: Still looking at the 1550 level as near support (10 day MVA at 1562.06; 18 day MVA is at 1582.65). Then 1530, the intraday high of the little wedge it just broke out of may act as support. Again, that is where we would expect it to hold. Below that, 1459 has held on a closing basis. The lows of the 1998 bear market, 1419 closing and 1357 intraday.
S&P 500: Closed at 1056.75.
Resistance: The former lows are still the level to beat. Those are 1081 (intraday) and 1103.25 (closing). Then 1124 (prior consolidation level) and 1150 (also price consolidations).
Support: 1050 continues to hold, with a low of 1053.83 today. The 10 day MVA is at 1053.80 and the 18 day MVA at 1058.51; again, those will help the 1050 level out. After that, again 1017 to 1020. 1000 acted as support as well on the prior test. After that, 960 (one of the lows in the 1998 double bottom). The other low in that pattern is 925.
Dow: Closed at 9052.44.
Resistance: The Dow never did really clear the March low at 9106. It still has to make a high-volume break over it. The intraday high in the current consolidation is 9187.37, but 9150 looks to be the primary level of resistance in the pattern. After that, 9389 is the prior closing low, and from there up to 9500 represents resistance.
Support: Still using the 10 day MVA (8995.78) as intraday support, bouncing up off of that level. After that, 8900 and then 8700 is next where it held before.
Weekly Economic Calendar (All times Eastern). The figures are the consensus expectations, not ours.
10-10-01
Wholesale Inventories, August (10:00): -0.3% expected and -0.7% prior.
10_11-01
Initial jobless claims (8:30): 505,000 versus 508,000
Export prices, September (8:30): -0.3% prior.
Import prices, September (8:30): -0.4% prior.
10-12-01
Producers Price Index, September (8:30): 0.0% expected versus +0.4% priorl
Core PPI (8:30): +0.1% expected versus -0.1% prior.
Retail sales, September (8:30): -0.7% expected versus +0.3% prior.
Retail sales, ex-auto (8:30): -0.5% expected versus +0.5% prior.
Michigan sentiment, October prelim (10:00): 75.7 expected versus 81.8 prior.
SUBSCRIBER QUESTIONS
Q: What are your thoughts on security/defense stocks at this time? For instance, VISG which has raced up about 500% since Sept. 11 (today it moved up 56%). If I get into it now, am I just chasing it and subject to a big fall? Or does this sector have staying power in today's environment, and makes a good short term play? On 9/10 VISG closed at 1.94 and today it closed at 13.10. On 9/10 INVN closed at 3.11 and today this stock closed at 14.73.
Since these stocks have made their initial moves, I have been looking for a significant consolidation so that I would buy into, but thus far there has not been a significant downturn. I guess I could buy into at this level with a tight stop limit - but also feel they are overextended at this time, and I hate to invest in something where I feel that my stop limit will be executed.
A: Good question and we are getting it a lot in emails and in the seminars. It is the hot sector right now because it is the focus of some fear of terror. But that is not all. There is some real rationale for the stocks' gains. Several have the technologies that we are going to be using to help screen for terrorists, biological or chemical agents. Why? Because it is an enormous task to quickly and efficiently screen large numbers of people, baggage, samples taken in the field, etc. These are realities in our lives now and we were way behind.
Thus, there is some long term value in these stocks. Does that justify the recent rapid rise? The market tends to overreact; while there is solid basis behind the moves, they were also driven by fear and speculation. Thus it appears that many of these have gotten ahead of themselves. They have exploded higher in ballistic moves, leaping up and are well above even their short term moving averages (e.g., the 10 day MVA).
Stocks cannot continue to rise in that manner. When the initial surge as a result of the U.S. attacks starts to cool, these stocks will more than likely pull back toward those near term moving averages. If they were in good bases, that is better; they will tend to hold at the breakout point or other support levels. Otherwise, where they come to land is a bigger question. What we are looking at right now is for the hype to die down and the stocks come back and find some support or form a better level to move off of. After a ballistic rise, stocks fall harder; they need good support to catch them. We agree that they are extended right now in the immediate aftermath of the attacks. We don't want to chase them right now but are going to let them come back. Again, two factors have driven them higher: fear and the realization that we will need this technology from now on. One is short term and we are seeing the effects of that right now. The other is longer term, and that will show itself when these stocks pullback to the nearest support and they either hold their and start back up or form a consolidation to mount the next move higher.
End Part 1 of 2
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