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us stock market, understanding the stock market
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9/06/05 Stock Split Report
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Stock Split Report Subscribers:
MARKET ALERTS
Targets hit alerts: WC (took some interim option gain)
Buy alerts: MDT; WFMI; MSTR; APC
Trailing stops: None issued
Stop alerts issued: YHOO
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http://www.investmenthouse.com/alertssr.htm
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SUMMARY:
- New week shows more improvement, lifts optimism.
- Stocks post strong price gains, break resistance.
- Pre-Katrina ISM Services surges past expectations
- Construction boom anticipation outweighing current economic strains
Recovery progress accelerates and investors anticipate rebuilding rebound.
Summer is officially over and investors were back again Tuesday. Stocks posted a solid move on the return from vacation, but it was more the improved outlook following Katrina than the end of summer.
Not that things are great. The devastation is still there but there are signs of improvement. The New Orleans levee breaches have been bridged and somewhat fortified. Some of the pumps are operating and the water level is falling. There is electricity returning in the New Orleans suburbs as residents are allowed to return to assess the damage and salvage some valuables. They are supposed to leave by Friday, but we are hearing most are not going to leave, and law enforcement is not planning on a major crackdown if they don't. There is even some electricity popping up on the French Quarter, but that is likely from generators.
On the energy front there was more good news. Oil prices dropped again (65.96, -1.61). Anadarko's Marco Polo platform was up and running at full capacity. Indeed, 90% of Gulf production did not suffer damage. XOM announced one of its LA refineries was undamaged and operating while VLO said its St. Charles refinery would be up by Wednesday. There are still three Louisiana refineries that are not ready to operate, however, and will take much more work to get online. Some good, some bad, but mostly focusing on the positives in the Tuesday session.
That sums up the session: focusing on positives as opposed to the near term stresses. It is September, but Tuesday investors did not seem to know it. It was not a blowout session, but it was a solid session as investors looked past high gasoline and natural gas prices, past the massive strains on southern state economies, and gazed on the massive building effort to rebuild New Orleans on stilts. That is just our view of the rebuild if it is going to happen, and even if that is the decision, studies published in 2002 said eventually New Orleans would be an island in the Gulf. In any event, whether it is rebuilt or moved there is a massive construction effort anticipated, and that is keeping the market moving higher in spite of some very nasty headwinds (energy costs, consumer slowing).
Resistance broken on rising though not surging volume.
SP500 was at an important juncture, trying to break through the June highs and scuttle a head and shoulders pattern before it could form up. It did what it had to do, following SP600's lead from last week. The large caps jumped above the up trendline at 1225 and rallied on some rising, above average volume. NASDAQ did some decent work as well, moving through some resistance at 2151, continuing the move off the 50 day EMA.
This was all the result of a strong start that held its gains mid-session and then rallied higher into the close. Volume was up but as noted, it was not surging. NYSE made it to average on the session, showing some decent accumulation. NASDAQ could not muster average. That always leaves a question mark for any upside move that takes out some resistance. With this move, however, that is about par. Volume has been spotty though Wednesday and Thursday showed the return of strong upside buying.
Leadership was solid once more even as the energy stocks continued their short repose. After leading the market higher they had to take a rest, and the market struggled when they were not at the forefront. They were not selling much Tuesday, and with that underlying floor other leadership emerged from across the market. It was a market-wide move as breadth was impressive at 2+:0. Resistance was broken by NASDAQ and SP500. Volume was not as strong as last week, but was solid on NYSE.
In short, it was a solid but not great move. There are still major issues to deal with that were present even before Katrina (slowing consumer), issues that suggest the market is heading for trouble. It is a losing proposition, however, to argue against the market when it starts moving in one direction and shows strong attributes support that move. It may be September, a historically weak month for stocks, but when leaders and the market in general are speaking it behooves us to listen.
THE ECONOMY
ISM Services scores big before Katrina.
The 65.0 reading easily topped expectations of 60.0 and July's 60.5 level. The services industry, to no one's surprise, remains the strength of the economy. It was simply quite a bit stronger than expected. No issues with that. Indeed, after the weak ISM reading last week the economy needed to show the bigger part of the economic machine is working well. Despite the slowing consumer activity even before Katrina the service sector was expanding well.
The issue is how it holds up in the face of the post-storm turmoil. It is, after all, a sentiment survey conducted for the service providers. It is not actually what their business is at the current time, but how they feel about how it was and will be. Post-Katrina that sentiment will change, but whether significantly enough to change expectations of hiring remains to be seen. A big chunk of consumers are stranded without means right now, and gasoline shot higher after Katrina. That is going to hamper service spending as well.
Labor Day muted.
A check around the nation over Labor Day shows that Americans were still out and enjoying their leisure, but the numbers were reduced. A check of inland lake activity showed boating traffic was lower; higher gasoline prices means less cruising in energy hungry boats. National park attendance was slightly lower from initial reports; gasoline once more the culprit. In short, it would be what you expected: a bit slower given the higher energy costs and relief response to Katrina, but still a solid showing.
THE MARKET
MARKET SENTIMENT
VIX: 12.93; -0.64
VXN: 14.89; -0.78
VXO: 12.02; -0.93
Put/Call Ratio (CBOE): 0.94; -0.21
Bulls versus Bears:
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: +25.79 points (+1.2%) to close at 2166.86
Volume: 1.459B (+25.8%). Volume jumped up from low Friday pre-holiday levels but was still well below average on the session. Even at that, however, it was still higher than most trade the past three weeks outside the strong sessions last Wednesday and Thursday. It was not a glowing confirmation that buyers were back accumulating NASDAQ stocks with abandon. That leaves the move a bit suspect, but after the solid volume on the Wednesday rally, this rising volume as the move continues is a good indication.
Up Volume: 1.14B (+740M)
Down Volume: 304M (-407M)
A/D and Hi/Lo: Advancers led 1.97 to 1. Very nice upside breadth even as the large cap techs posted the stronger move for the technology sector.
Previous Session: Decliners led 1.43 to 1
New Highs: 110 (+30)
New Lows: 41 (-1)
The Chart: The Chart: http://www.investmenthouse.com/cd/^ixq.html
After a pause Thursday and Friday following Wednesday's strong move, tech stocks were back on the upside trail on rising volume. NASDAQ cleared 2051 resistance that had held it in check for the pat three weeks. That frees it up to make a run toward 2190 where there is some resistance. The key features of this move: NASDAQ held above support at 2100 on the test and last week's lows, rebounding quickly back above the 50 day EMA (2135), strong upside volume, and a continuation of the move. This is technically a confirmation of the Monday reversal last week and opens the door for NASDAQ to make a run at the August high (2220).
It took SOX some time, but it got on track Tuesday and just beat out SP600 for the strongest move (1.6%). Terrific job of holding above support in the mid-August dip toward the 50 day EMA (459.69) and immediate recovery from that level. It has hit a post-August low high as it too is in position for a move toward its recent highs (486.34).
SP500/NYSE
Stats: +15.37 points (+1.26%) to close at 1233.39
NYSE Volume: 1.417B (+12.36%). Volume moved up to average as NYSE indices posted solid, broad gains. As with NASDAQ, no match for the Wednesday and Thursday volume last week, but a solid upswing as NYSE stocks resumed their rally that started last week.
A/D and Hi/Lo: Advancers led 2.71 to 1. Excellent breadth as the small caps led the market higher.
Previous Session: Decliners led 1.21 to 1
New Highs: 241 (+86)
New Lows: 20 (-22)
The Chart: http://www.investmenthouse.com/cd/^gspc.html
A good confirmation of last Wednesdays rebound move after holding solid at support at 1200, each day rebounding off those lows. A technical follow through just as with NASDAQ, and a better one at that given the stronger volume and a stronger price gain as well. Nice move off of support at 1200, a quick test of the 50 day EMA (1218), and then a resumption of the move higher on stronger, average volume. Not bad at all, particularly as SP500 broke up the head and shoulders pattern that was trying to form up.
The small cap SP600 led the market (1.5%) outside of SOX, helping punch up NYSE breadth. Very similar to SP500 with the strong move on volume last week, the test to end the week, and then a resumption of the strong upside move. Last Wednesday SP600 took the lead once more when it surged higher on that strong volume, breaking up its head and shoulders base that had formed. That is a very good show of strength, and it confirmed that move Tuesday.
DJ30
DJ30 moved over the 200 day SMA (10,537) on rising, average volume, moving back into the July and August range that tried to act as a handle or shakeout to the 6 month base. Maybe it has done the trick with last week's drop and this stronger volume move back up. Still a follower even with this move.
Stats: +141.87 points (+1.36%) to close at 10589.24
Volume: 233 million shares Tuesday versus 204 million shares Friday.
The chart: http://www.investmenthouse.com/cd/^dji.html
WEDNESDAY
Over the weekend we discussed how the market was looking past the immediate ramifications of the storm and onto the rebuilding ahead. It did not hurt that the economy, while showing some signs of slowing pre-Katrina, was still in decent shape, something the Services ISM reiterated Tuesday. Tuesday it was clearly doing just that, bolstered by the better news coming over the weekend as more evacuees were taken out of harm's way and more good news regarding the energy supply emerged.
When you look at the sustained energy price increases even before Katrina, the impact they were having on the consumer, the strain that is being placed on the southern states (housing, food, medical, utilities, etc.), the additional billions of federal dollars (your tax dollars) committed to relief on top of those supposedly hallowed prior spending bills (hallowed in the sense our leaders seem to think they cannot be touched once passed), it makes you take pause. You really, really have to place a lot of emphasis on the rebuilding effort to wipe away those issues.
There is enough concern about that to keep the idea alive that the Fed needs to pause before any further rate hikes. Greenspan may very well do that, but he also understands the markets and their relationship to Fed action. With the Fed Funds Futures already pricing in a rate hike, he does not want to give the markets what would effectively be a rate cut with a 'no action' here. It might be prudent, but we also see little harm in a 25BP rate hike that is already factored in and then a pause. The only issue would be whether bond yields start to fall ahead of this month's meeting. As of Tuesday they were not high, but they were up off of the recent lows hit last week as the Katrina saga unfolded.
Thus we are inclined to believe the Fed will raise again and then say it is done until it sees the need to resume. As noted over the weekend, you don't want the Fed pushing too much money into the economy just now with energy prices so high. You want to keep things at a level they can continue growing, at the same time balancing and then factoring in the net gain or loss from Katrina destruction versus Katrina rebuild. We talked about the tough balancing act the Fed had just in a normal rate hiking campaign. As usual, something very bad hit and now the Fed is caught in no-man's land. Good cover for Greenspan to exit under, but he has to make some prudent decisions. Another rate hike and then sliding out the door without further action would be in keeping with his style.
It is hard to look past historically troublesome conditions for the market, particularly when it is September. Nonetheless the market is showing very good action in the face of these problems. Do you try and outguess the market? No. You do what you always do: look for opportunity in the strong stocks that are ready to move higher, and when they start showing their moves, you move in. That is what we were doing Tuesday as the market continued higher and showed a follow through session. We will continue to do the same as long as the market says this is what we should do. Follow those tracks in the sand the big money is leaving and take what the market is giving. Despite our gut feeling about the problems confronting stocks, trying to butt against the move is a losing proposition.
Support and Resistance
NASDAQ: Closed at 2166.86
Resistance:
2163, the mid-December closing high
2178 is the January closing high
2191.60, the January intraday high.
2192 is the mid-July high.
2220 is the August high
Support:
2151, the early December closing high and highs from January 2004 is being tested.
2144 is the 50 day SMA
The 50 day EMA at 2135
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 1233.39
Resistance:
The recent July highs at 1245.15
Price tops at 1265 from 1-28-99 and 2-99 & price bottoms from 12-20-00
Price top at 1-6-99 at 1272
Price tops at 1290 from 5-23-00
Price tops at 1364 from 1-29-01
Support:
March 2005 closing high at 1225 and intraday high at 1229.11
The April/July up trendline at 1227
December 2004 high at 1219 and June high at 1220 being tested
The 50 day EMA at 1218
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 10,589.24
Resistance:
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 April high at 10,557
The 200 day SMA at 10,537
The 50 day EMA at 10,524
10,500 is some price point resistance
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): 65.0 actual versus 60.0 expected and 60.5 prior
September 7
Productivity, Q2 revised (8:30): 2.1% 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): 0.6% 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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