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us stock market, understanding the stock market
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9/03/05 Stock Split Report
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Stock Split Report Subscribers:
***NOTE****
Our staff is performing volunteer work in Houston to aid hurricane evacuees. Accordingly the report this weekend is shortened to new plays in order to give our people some rest.
***NOTE****
MARKET ALERTS
Targets hit alerts: None issued
Buy alerts: AMX; MSCC
Trailing stops: None issued
Stop alerts issued: None issued
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
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SUMMARY:
- Market loses ground but holds support as it bows out for the weekend.
- Jobs report has its positives ahead of Katrina.
- Market to start rest of year on Tuesday with indices at important levels.
Low volume pullback to end a tragic week as market hangs in well.
Stocks struggled all session as investors lacked enthusiasm ahead of the 3-day Labor Day weekend. By the close they posted modest losses, closing near session lows after trading in very narrow ranges between near support and near resistance. Volume was low, breadth was low, energy continued it pullback as oil eased further (but at $67.57/bbl, hard to call it 'easing'), and stocks eased as well.
In short, Friday did not tell us much about what the market intends to do with SP500 testing its up trendline. Wednesday was a strong session as volume surged to its highest levels in two months as stocks rebounded from the 4 week decline even as gasoline surged on the heels of the hurricane Katrina disaster. SP600, the small cap index that helped lead the market higher off the April lows. SOX continued showing its relative strength to the rest of the market. SP500 and NASDAQ rebounded as well, but SP500 has yet to make an important move, i.e. retake the up trendline from the April low. It is holding the 50 day EMA, but it is still trying to fight off setting up a head and shoulders base. SP600 looks to have exploded its head and shoulders, and now it is time for SP500 to do the same.
Indeed, looking across the market we still see a lot of stocks still in good shape even after this four weeks of correcting after the after the April to August run. After some distribution on the way down three was some stabilization around the 50 day EMA. Some threats to breakdown but then a lateral move that saw upside volume came back in last week. It is still far from out of the woods, but there is leadership and the indices have shown some renewed strength to end the week. That leaves the market set up to move back up once more, but we are also now in September, a month where investors remain skittish and is historically tough for the market.
THE ECONOMY
Everything economic is now colored by Katrina and its aftermath. As reported Thursday night, the feds swung into action in New Orleans after the initial deployment immediately following the storm focused on Mississippi and Alabama that bore the brunt of the actual storm. Thirty hours later the levees broke in New Orleans and that opened another chapter in the disaster. When it became horribly obvious that New Orleans and Louisiana had no stop-gap measures in place to assist residents in the event of a catastrophic flood, a massive redeployment of federal resources had to be made. Guard troops and supplies heading to the hurricane impact zone had to be split up and rerouted as other supplies and troops received the call to muster. By the end of the week they were entering New Orleans and bringing some order. The transformation from Friday to Saturday was an even greater magnitude. There are still many people in harms way, but things have improved dramatically on the human front.
Economically there are huge question marks. Bush and Congress have approved $10.1 billion that is termed just the start of the aid. Many are talking about 'rebuilding' New Orleans, something of dubious value in many eyes; rebuild a city below sea level and wait for another disaster? It is only going to sink further as the delta subsides through lack of replenishment from flooding. We need a port on the Mississippi, but we also spend tens of millions per year trying to keep the Mississippi from avulsing into the Atchafalya River to the east of New Orleans. We could let it avulse and build a new port there.
In any event we need to really evaluate what the best options are for everyone as opposed to a knee-jerk 'we will rebuild New Orleans' as some sort of challenge. The challenge is to be smart about how we spend taxpayer dollars. A novel idea, but a necessary one. As noted Thursday, we cavalierly toss around hundreds of billions of dollars on a pork-laden highway bill that does a lot of things that are at best tangentially related to highways. Transportation museums, filling potholes on county back roads (is that really the Fed's job?), nameplates for prominent senators on bridges. Are these really necessary given the plight of Mississippi, Louisiana, Alabama and Florida? We don't need to print more money or plow deeper into debt; we just need to use what we have better, and that means junking that absurdity of a highway bill and using that money for aid and reconstruction.
Jobs report is interesting reading but it is already ancient history.
Unemployment fell to 4.9%, dropping yet again even as non-farm payrolls turned in a mediocre performance. Jobs added 169K, well off the 190K anticipated. That was well down from July's 242K, but July was revised sharply higher from 207K. Thus the revision was enough to make the August drop a wash. That is an easy rationalization, but the history of this jobs market is starts and stops with the average being decent. As noted tow weeks back, however, if you take out all of the federal jobs created since 2001 (about 3.1 million), you are still at a net loss as less than 3 million jobs have been created since.
Now with Katrina, jobless claims are going to spike, and hate to sound like a pessimist, but there will be thousands of fraudulent claims. Moreover, Labor Secretary Chow was on television promising jobs to everyone. Everyone. Unless everyone impacted wants to learn how to drive a bulldozer, work a jackhammer, operate a nail gun, etc. that will be a hard promise to fulfill. Hell, the country cannot create enough 9 to 5 jobs to employ all of the new graduates from school right now. In addition, even if the evacuees want to do the work, where will they be housed? It is a tough road ahead. We can do it because we always rise to the occasion and we have great minds and ingenuity in solving problems. Again, we just have to be smart and let our system of markets help do the work. It cannot be a total federal project. We have to get the private sector involved with the planning and rebuilding, and we don't mean simply winning government contracts to do the work. That invites graft. They need a stake in the success; part of the profits; a piece of the action. We need to be creative with solutions and not succumb to the typical knee-jerk 'the government will bail us out.'
As for the report itself, it showed decent job creation and that solid unemployment reading. Some say that is underestimating the level of unemployed, but the history of the report the past 5 years shows that not to be the case. This survey asks 'are you working?' The responses that get recorded are 'yes' or 'no.' That is pretty clear. There are not qualifiers. Now the jobs may not be the job wanted, but it does measure employment, and employment has improved. That is about to change with the Katrina story. It will take many months before we get a true reading and a true idea as to the impact of Katrina. Jobless claims will spike, then jobs will mushroom as reconstruction starts. As with mushrooms, however, they will die off. It is what grows after that is the key. Again, 'that' is a long way away.
THE MARKET
MARKET SENTIMENT
VIX: 13.57; +0.42
VXN: 15.67; +0.6
VXO: 12.95; +0.34
Put/Call Ratio (CBOE): 1.15; +0.26. Lots of pre-holiday action spiked the ratio once more above 1.0. That makes 10 in the past three weeks; it has lost some of its predictive value with so many playing options of late.
Bulls versus Bears:
Making some steady progress toward the May lows (bulls) and highs (bears). Once these indicators get momentum they tend to run rapidly as we are seeing. Good sign for the market along with the solid upside Wednesday last week.
Bulls: 51.1%. Third down week in a row falling below the 55% level considered bearish. Definite improvement but would like to see a mid-forty reading again. It has been a steady decline: 56.8%, 57.3%, and 59.1%. Starting to challenge the trend of blatant bullishness that emerged after the number bottomed in May at 43.5%.
Bears: 27.3%. Third week above 20%: 25% last week and 22.5% the week before. Bears are on the rise, breaking back above the 20% level considered bearish. Just spent one week below 20%. Hit a high for the year at 30% in early May. It is running toward that level.
NASDAQ
Stats: -6.83 points (-0.32%) to close at 2141.07
Volume: 1.16B (-30.8%). Volume off the table Friday as NASDAQ posted a modest loss. That shows no earnest selling, just some nervousness and positioning ahead of a 3-day weekend.
Up Volume: 400M (-291M)
Down Volume: 711M (-248M)
A/D and Hi/Lo: Decliners led 1.43 to 1. Modest again, matching the session.
Previous Session: Advancers led 1.01 to 1
New Highs: 80 (-63)
New Lows: 42 (+1)
The Chart: The Chart: http://www.investmenthouse.com/cd/^ixq.html
Tech stocks attempted a modest rally Friday, but that ended early in the day and techs struggled to hold on the rest of the session. 'Struggle' is not really the word; more like sluggish as it traded in a very narrow range, holding the 50 day SMA (2142) and well above the 50 day EMA (2134). Big picture: this is a test of the reverse head and shoulders breakout from early July. It was rocky on the way down with some distribution, but NASDAQ has shown some relative strength the past two weeks, retaking the 50 day EMA. Its next big move is a strong volume break through 2151; that puts it on the road to the next move higher. Showing surprising strength in the face of spiking gasoline prices and a terrible natural disaster.
SOX looked ready to set the market on fire Wednesday with its strong volume move off the 18 day EMA (467.38). It ran out of gas almost immediately and has faded back to the 18 day. Recovered Friday to close at that level, and that keeps this attempted higher low still alive. Chips have been strong, at least relative to the rest of the market, and are ready to lead along with the small caps.
SP500/NYSE
Stats: -3.57 points (-0.29%) to close at 1218.02
NYSE Volume: 1.261B (-24.47%). Very low below average volume Friday as the NYSE traders called it an early holiday on Friday.
A/D and Hi/Lo: Decliners led 1.21 to 1
Previous Session: Advancers led 1.57 to 1
New Highs: 155 (-133)
New Lows: 42 (+15)
The Chart: http://www.investmenthouse.com/cd/^spx.html
SP500 continues to be a key indicator of this attempted recovery move. It mad a higher low last week, holding above 1200 support and rebounding on volume Wednesday and Thursday. It cleared the up trendline (1225.50) intraday on Thursday but could not hold the move. Friday it tapped that level on the high and then faded to the 50 day EMA (1217) to close. It is trying to hold off forming the right shoulder to a potential 12 week head and shoulders base. These often set up but then don't follow through. Nonetheless, want to see SP500 hold at the 50 day and then break higher through the trendline.
After surging Wednesday, S600 took Friday off, easing back and easily holding above the 18 day EMA (344.17). A very solid week that saw SP600 rally Monday and then explode higher Wednesday, just about breaking up the 7 week head and shoulders base. After this test back to the 18 day SP600 will be ready to move higher and, along with SOX, lead the market to the upside.
DJ30
DJ30 continues to struggle, tapping at the 18 day EMA (10,500) for the second session as it rebounded to try the nasty resistance that has formed just above 10,500 (the 200 day SMA at 10,537 and the 50 day EMA at 10,521). DJ30 is just holding back, ready to follow the rest of the market as has been the case for the past year.
Stats: -12.26 points (-0.12%) to close at 10447.37
Volume: 204 million shares Friday versus 279 million Thursday.
The chart: http://www.investmenthouse.com/cd/^dji.html
TUESDAY
More economic data to be released this week (ISM Services, productivity, Beige Book, inventories, consumer credit), and it will receive its due attention, but again this data will be limited in its impact due to the ongoing assessment of Katrina. By the time the market opens Tuesday much of the rescue operations will be concluded, at least the first stage of getting the evacuees out. The sister states will still be in the process of absorbing those people, and that will be an ongoing, expensive process. Everyone is talking about dollar losses, rebuilding costs and impacts on energy, but much of the cost will be with respect to the human aspect.
Oil softened to end the week, but we have yet to hear the extent of damage to Gulf production platforms. That information will start to come in this week and oil prices will be sharply influenced by what that data has to say. Over 1 million bbl/day comes from the Gulf and was shut in ahead of Katrina and has not been put back into the stream. As for delivery capabilities, the LOOP and other key pipelines are up and running. The key oil port (20% of daily US imports) has not yet re-opened either, and when it does that will be a positive as well. As we said last week, it is a lot like a bankrupt company; any decent news is a real positive. Indeed, with the improvements over the weekend the market could get a boost.
The market has absorbed and anticipated all of this, and it is holding up pretty darn well. SP500 is still in a precarious position, but given all that has occurred it is in decent shape. SOX and SP600 are in position to further rally, and NASDAQ is not holding a weak hand. Thus the market has taken a lot of negatives re Katrina and some slowing economic data even before it hit, e.g. the ISM, and it is still in good shape. More than that, stocks surged higher Wednesday on higher volume. That was the end of the month, however, so some of that was end of month position shuffling. In other words, the market is going to have to show another strong move higher this week, including SP500, to show that was real strength building.
As noted, many leaders are still in excellent position to move higher, and we are putting more on the report this weekend. The good thing about pullbacks is that it puts strong stocks in better buying position. There is never just one entry point on a stock; it will give you several opportunities. This pullback is shaping up to be one of those opportunities given the good upside volume starting last week and SP600, NASDAQ and SOX leaving themselves in good position to rebound.
That goes contrary to general market history where September shows weakness that often leads into a market bottom in October. While you have to keep that in mind, particularly with SP500 still on the bubble and DJ30 still in the toilet, you also have to let the market do the talking. As noted, some key indices are in position to break higher once more while many solid stocks are in position to rebound and continue solid moves higher. We saw those stocks starting to move mid last week, and if they continue to do so this week the market will follow. That is why they are called leaders. We are going to be looking at them again this week, ready to move in if they show upside strength.
Support and Resistance
NASDAQ: Closed at 2141.07
Resistance:
2151, the early December closing high and highs from January 2004 is being tested.
2163, the mid-December closing high
2178 is the January closing high
2191.60, the January intraday high.
Support:
The 50 day EMA at 2134
2100 was key resistance on the way up.
2090 is the February and March interim highs
2075 is the 200 day SMA
2050 to 2045 from May and June
S&P 500: Closed at 1218.02
Resistance:
December 2004 high at 1219 and June high at 1220 being tested
The April/July up trendline at 1225.50
March 2005 closing high at 1225 and intraday high at 1229.11
The recent July highs at 1245.15
Support:
The 50 day EMA at 1217
Some resistance at 1210
1200 is some support
1196, the mid-January high and the early December peak in the left shoulder.
The 200 day SMA at 1196
1183 - 1184 from November 2004 highs and July 2005 intraday low.
Dow: Closed at 10,447.37
Resistance:
The 10 day EMA at 10,472. Tried to clear this level but failed on the close.
10,500 is some price point resistance
The 18 day EMA at 10,500
The 50 day EMA at 10,521
The 200 day SMA at 10,537
The April high at 10,557
Price consolidation at 10,600
The June highs at 10,646 to 10,656
10,720 is the high in the recent lateral move.
10,754 is the February high
10,868 is the December 2005 high.
10,985 is the March high
Support:
The May high at 10,406 and 10,400, the bottom of the November/December range
10,350 turned out to be support in the recent pullback.
10,250 held in the June and July lows.
10,012 the April low.
Economic Calendar
These are consensus expectations. Our expectations will vary and are discussed in the 'Economy' section.
September 06
ISM Services, August (10:00): 61.3 expected versus 60.5 prior.
September 7
Productivity, Q2 revised (8:30): 2.2% expected versus 2.2% prior.
Fed Beige Book (2:00)
September 8
Initial Jobless Claims (8:30): 315K expected versus 320K prior.
Wholesale inventories, July (10:00): 0.7% expected versus 0.7% prior.
Consumer Credit, July (3:00): $10.0B expected versus $14.5B prior.
September 9
Export prices, August (8:30): 0.2% prior.
Import prices, August (8:30): -0.1% prior.
End part 1 of 3
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us stock market
understanding the stock market
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