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us stock market, stock watch
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10/16/01 Stock Split Report
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SUMMARY:
- Indexes again swallow bad news and rally to the close.
- Volume higher on the gains, but still have to deal with the 50 day MVA.
- Earnings are the focus, and third quarter is bad as expected but there are a few positive outlooks.
- Subscriber Questions
- Team Trades
Indexes again overcome urge to sell as buyers look for bargains intraday.
In yet another verse of 'buy on the intraday weakness' hymn the market has taken to heart the past three weeks, the indexes sold into negative territory mid-morning. It did not take long, however, before buyers came back into the market and drove prices higher. We issues a few market alerts today, noting at one point that the early rally had turned, but that we were holding pat with our positions. We then saw what we were looking for: that intraday double bottom pattern that has marked many of these 'sell early, buy the selling' days. When we saw that form we issued another alert noting the pattern and how it was a day trader's dream. As per its pattern, investors then rallied stocks once again to the close.
Volume better, but not a massively powerful session.
Unlike Monday, all major indexes finished positive, and the Nasdaq led the way with the best percentage gain. Volumes were higher as well as they should be on a return to buying, but they were not overpowering. Indeed, NYSE volume was higher but below average. Nasdaq volume was again above average, something we love to see: above average on the buying, below average volume on the selling.
50 day MVA still lurks ahead.
We were watching for the indexes to pierce their 50 day MVA on the upside as a good buy point, but the Nasdaq stopped less than one point from its 50 day, and the S&P fell about three points shy. Close, but not quite there yet.
We had the QQQ, however, move over the 50 day MVA and closed there, even rising after hours on some earnings news. In addition the OEX gave us a more aggressive buy point today in anticipation of the breakout over near term resistance, but even with the rally into the close, the S&P and Nasdaq could not pierce that barrier. That is our next buy point for these, and we want to see that resumption of strong volume when it occurs. Indeed, it will probably take strong volume to make the break.
Earnings start to take center stage.
Revelation on CNBC tonight: a major brokerage house had looked back at recessions in the past and found that, get ready, the stock market actually performed well in the actual recession. The report noted that the market looks beyond the current situation toward the recovery. This was a 'surprising' result according to the CNBC anchor. Actually, there was nothing surprising. We know this is the case because we look at history and told you the same. Moreover, the fact that the television anchors did not know this is not surprising either.
What is surprising is the litany of analysts who continue to say that the market won't recover until earnings recover. They are afraid the market may roll over once again, and thus are not getting too excited about stocks. Sure it could roll over; it could also continue to rally and consolidate, rally and consolidate, just as it is doing now. They are refusing to look at what the market is telling them in favor of their gut feelings about when a recovery might come. In other words, they are guessing, betting on a downturn but not enough to commit, all the while ignoring what the market is saying now. If it does roll over, we will see it, and be out of positions and back in cash, having captured the move while others were too scared to commit. From what the market is saying now, however, this looks very solid. We are not going to try and outguess the market; we will let it tell us what it is doing.
Given the history of the market and how it responds to recessions, the attention to earnings seems a bit overdone. Everyone knows they will be bad and given 9-11 and the present uncertainty regarding the war, no one is giving Q4 much of a chance either. Still, anticipation of fact does not compare to actual fact: when the numbers come, it always prompts some selling no matter how much the numbers were anticipated. Thus, we may see weakness on some of these numbers; if the market continues its pattern, buyers will use this as an opportunity to buy stocks.
Actually, the response to earnings is not necessarily a bad thing for another reason. We have said many times that continued worry in the market is good as it keeps money coming in steadily over a period of time as bears one by one give up and join the move higher. The market does not run out of ammunition all at once, and can thus rally steadily.
After hours earnings: same story as we see during regular hours.
INTC and RFMD announced earnings after hours Tuesday, and both jumped for a few trades and then tanked. The bottom line numbers were not bad, but things just did not look good enough for the after hours traders. IBM announced as well, and it beat the street by a penny and said that it was seeing a nice turn in business and would return to double digit sales growth. It was held for an hour and then vaulted over $4 from the closing price. What did it note? That the semiconductor business was not bad. INTC also had some comments about chips that were not too bad.
Whatever the reason, investors jumped on the lower prices and drove the stocks higher. INTC rallied and carried a lot of chip stocks with it. Perhaps the chips will be ready to rally tomorrow again, and that could give the Nasdaq the impetus to clear resistance for the next leg higher. A bit sooner than we wanted, but the market does what the market does. We can read it and anticipate its moves, but it tells us when the time is right.
Finally, Citigroup announces a huge buyback ahead of earnings. That is bullish. It reminds us of what Michael Dell did with Dell shares just before the company reaffirmed its year earnings. C announces tomorrow; again, that is bullish. The SEC rules are making it easy for companies to make some good buys.
Stimulus package slowing down.
Bickering about what stimulus is best is slowing things down when it does not need to be slowed. There is a lot of infighting about what should be included. Consumers have been strong for the last decade; they were strong even as the economy slipped into recession. Not until they started losing jobs did the consumer back off. The consumer was not and is not the problem.
The consumer, however, won't get fired up again until jobs start coming back. What will do that? Giving out another $300 or $600 to a consumer won't bring the jobs back; a raging consumer did not keep the jobs going when the recession hit. To get the jobs back there needs to be investment incentives for businesses to buy those stockpiled goods and to create demand to get more businesses to buy computers, telephones systems, software packages, etc. If businesses sell their inventories and need to start making new products, they will hire workers back. The rehiring creates confidence in the consumer, and that gets consumer spending back online to go hand-in-hand with business spending. Instead of just one part of the economy revving up (and potentially creating inflationary pressures), there is equilibrium and the economy can grow without further tampering.
So, call AND email your representatives now and let them know they need to get cracking and they need to focus on what history shows works: tax credits, accelerated depreciation, reinstating business entertainment and travel write-offs (to help the travel industry), and lowering the payroll tax. We can leave the capital gains tax for now as long as we come back to it later.
THE MARKET
It was a struggle today, but all three indexes turned off of the lows and rallied to the close on stronger, though not blowout, volume. Resistance was not conquered; they will need a shot of volume to do it. They may get it tomorrow with IBM's and INTC's comments: chips were really rallying after hours, and futures are sharply higher. Again, this may be the juice that shoots the indexes over this near term resistance.
VIX: 35.22; -2.14. Volatility opened lower and moved lower most of the day, particularly when the indexes rallied late. Still in the high end of the range where it has been residing for a long time.
VXN: 64.01; -2.23. Hit 67.52 on the selling, but then gave it back when the index started to rally in the last half of the session. Still in the high end of the range as well.
Put/Call Ratio (CBOE): 0.70; -0.18. Put buying ebbed on today's rally, though it remains at a high level. As noted last night, option buyers are still skeptical of the rally. As we have noted before, that is good for rallies.
Nasdaq
The best move of the day (+1.5%) on stronger, above average volume. It stalled at the 50 day MVA twice, once early and once late. It may get the muscle to overpower it with the semiconductors tomorrow.
Stats: +25.76 (+1.5%) to close at 1722.07.
Volume: 1.844 billion shares (+16.4%). The index moved higher with a bit more authority, and the volume moved back above average as well. 1.312 billion upside shares versus 490 million downside shares. This continues the very good price/volume action of this rally that continues to show accumulation. It now needs more volume to spring it solidly past resistance.
A/D and Hi/Lo: Advancing issues moved higher at 1.51 to 1 (1.06 to 1 Monday). New highs rose to 47 (+14) while new lows fell to 41 (-6).
The Chart: http://www.investmenthouse.com/cd/$compq.html
Perched right below the 50 day MVA (1723.77) on the close, bouncing down from that level early in the session and then unable to blow through that level as it moved sideways in the last half hour of trading. This is obviously a key level; it has been a long time since the index has traded definitively above this MVA. It is some key resistance and it thus needs to clear it with some force. We would have preferred another day of lateral movement to consolidate more. With the positive reaction to earnings after hours, it may simply be ready to move up from here with the support of the semiconductors. Lots of good patterns to base the move on.
Again, still support at 1670, and then at the gap point (1649.55).
Dow/NYSE
Continuing within its consolidation, rising today on rising though below average volume with new lows below 40 for the fifth consecutive session. It is again looking to spring higher above the high in this recent consolidation. IBM will almost single handedly bolt it out of the consolidation tomorrow morning, and INTC and MSFT probably won't hurt it.
Stats: +36.61; +0.4%) to close at 9384.23.
NYSE Volume: 1.204 billion shares (+17%). Rising on the up session, though still below average. Still good price/volume action. Up volume led 778 million to 401 million shares.
A/D and Hi/Lo: Advancing issues moved back in front at 1.73 to 1 (decliners led 1.01 to 1 Monday). Not a bad day at all, and we are looking for better numbers on the next big move which should be soon. New highs rose to 60 (+14) while new lows rose to 36 (+2). This is the fifth consecutive session where new lows closed below 40. According to Dow theory, that means a sustained rally is coming.
The Chart: http://www.investmenthouse.com/cd/$indu.html
Rallied on stronger volume as it banged around inside of its consolidation range. It needs to break out of this range, the top at 9432.04, and then it has to cross the 50 day MVA at 9532.98. The first is easy and it will do it on IBM alone. The latter is still 150 points away; easily reachable on a big rally, but will it then carry through? If this is the start of another strong move up, we should get 2 to 3 days of rallying to carry it higher, and that may allow it to get far enough ahead of the 50 day MVA to use it as support for the next consolidation. The high of the prior consolidation is 9187.37; we don't think we are going to see that.
S&P 500: The big caps tapped close to the 50 day MVA on its high (1101.66; 50 day MVA at 1104.45) early in the session, sold off to Monday's closing price, then rallied in the afternoon. The move was on rising NYSE volume, but it was not huge volume. It appears the index was testing the resistance. As with the Nasdaq, we would have preferred another quiet day and then an explosive move, but with IBM and INTC after hours, it appears as if it will get an early jumpstart over this resistance as well as the April closing low resistance at 1103.25 and a down trendline from the two August tops. A lot of resistance, but the time looks right.
Stats: +7.56 points (+0.7%) to close at 1097.54.
Volume: NYSE volume rose to 1.204 billion shares (+17%). Not above average volume, but it continues the good price/volume action we have seen since the bottom.
The Chart: http://www.investmenthouse.com/cd/$spx.html
TOMORROW
As noted, IBM got things rambling after hours, and INTC did not hurt. This had things pretty rowdy after hours as chip stocks ran higher. Again, we could get a pretty big open tomorrow; the key as always is to watch for where the index holds when it sells back. If they move over resistance levels on the open, we would like to see them hold there on any test. After that, we look to the prior closing price to hold them. We do not have a lot of fear that any solid move up will lead to selling; that is not the character of the market right now. There has been solid buying on each dip, not selling on each rally. That is a major change of character from just three weeks ago.
Greenspan speaks for the first time in a while tomorrow when he addresses Congress on the economic impact of the 9-11 strike. Remember, at first Greenspan said to wait 10 days before doing anything. Then he came out a bit later and said the economy needed fiscal stimulus of 'at least $100 billion.' It is now way beyond those ten days, and we have a feeling that Mr. Greenspan is going to come before our representatives and say 'guys, you need to get something done, and you need to get it done now. Ten days is not 30 days.' Hopefully they will get the message with Greenspan and our urging.
So what do we do? There are so many stocks that are setting up good patterns just as they said they would be doing. They are forming their patterns, they are completing them, they are breaking out. We will most likely see the indexes gap higher tomorrow without some major adverse occurrence overnight. On gaps, we usually let them make the initial run, then come back to test that support that may have just been broken or the gap open point or the prior close, and if it holds, we start taking positions on the bounce back up. Those are our three primary points of attack, but if it is a really strong move, the pullback may not make it back that long; thus we will also look at some partial positions on the first pullback if it does not reach those levels before it turns. If it takes off, we have some positions; if it pulls back to fully test those levels, we can average in at better pricing.
There are so many negative on the market. The primary reason? They don't see the economic recovery coming fast enough to justify stock prices. How do they know? We can look at historical valuations to get somewhat of a handle on things, but those are never the same from recession to recession. They are not; we looked it up. To us, it is enough that the market is in an accumulation phase; the collective of all investors is buying stocks. We believe the market knows more than analysts; it sure did when it was selling off in 2000 and 2001. Now that every hedge fund manager is negative on the market and most analysts are likewise, are they suddenly correct that the market will continue lower? The market is not going along with them for now; it could always fold, but we always follow the market and what it tells us directly. It has flashed all of the historical signs of a new rally; the analysts are still smarting from third degree burns in the bear market. They have finally turned bearish and they are not going to flip-flop quickly.
So, don't let the negative talk get you down. Take solace in looking at the stocks we have been getting into; they are performing well. As one seminar attendee put it after the technical analysis seminars, after losing 75% following his broker, he now understands how things work and is up 25% already. Follow what the market tells us and follow the rules.
Support and Resistance
Nasdaq: Closed at 1722.07.
Resistance: The 1700 level may be giving way, but it must clear the 50 day MVA at 1723.77. If it can beat 1750, it has some room to ramble.
Support: 1670 has been holding as closing support. Then there is 1650. 1641 is the top of the prior consolidation, and 1630 is after that.
S&P 500: Closed at 1097.54.
Resistance: The former closing low still remains intact at 1103.25. The 50 day MVA is at 1104.45. After that, there is 1124 (prior consolidation level) and 1150 (also price consolidations).
Support: 1084 is the high in the prior consolidation, and it has already held on a closing basis. After that the closing tops in that consolidation at 1070 to 1072. 1050 has been solid prior to that during the consolidation.
Dow: Closed at 9384.23.
Resistance: The April closing low at 9389. 9500 is also tough and it is backed up by the 50 day MVA at 9532.98.
Support: The high in the prior consolidation at 9187.37, and it has held intraday. The consistent prices in that consolidation are at 9115 to 9120.
Weekly Economic Calendar (All times Eastern). The figures are the consensus expectations, not ours.
10-15-01
Business Inventories, August (8:30): -0.1 actual versus -0.3% expected and -0.5% prior.
10-16-01
Capacity Utilization, September (9:15): 76.5% actual versus 75.6% expected and 76.4% prior (revised from 76.2%).
Industrial Production, September (9:15): -1.0 actual versus -0.7% expected and -0.7% prior (revised from -0.8%).
10-17-01
Housing Starts, September (8:30): 1.490M versus 1.527M prior.
Building Permits, September (8:30): 1.46M versus 1.56M prior.
Greenspan speaks to Congress re 9-11 attack economic impact.
10-18-01
Initial Claims, 10/13 (8:30): 468K versus 468K prior.
Philadelphia Fed, October (10:00): -13.4 versus -7.3 prior.
10-19-01
Trade Balance, August (8:30): -28.4B versus -28.8B prior.
CPI, September (8:30): 0.2% versus 0.1% prior.
Core CPI, September (8:30): 0.2% versus 0.2% prior.
Treasury Budget, September (14:00): $29.0B versus $65.7B prior.
End Part 1 of 2
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