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world stock market, us stock market
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10/27/01 Stock Split Report
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Stock Split Report Subscribers:
MARKET ALERT SERVICE
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SUMMARY:
- Market finishes as well as could be expected, capping a good week.
- Nasdaq taps at resistance while Dow and S&P break above the 50 day MVA.
- Economic data slides lower, but things are not dead yet.
- Senate needs to make some headway this week or there will not be any stimulus going to work before yearend.
- Subscriber Questions
Not a bad finish for the week.
A week that looked like trouble finished stronger with the Nasdaq again leading the way higher even though it was down Friday. The techs held onto a strong week with a 6% gain, but it was after flashing possible trouble Tuesday with its second heavy distribution day in seven sessions. It met that challenge with two solid accumulation sessions, however, before taking a breather Friday on lighter volume. The Dow and S&P also rose for the week, but they never hit their stride, never able to put together really solid price/volume action. While the Nasdaq looks good, those two are still question marks for a continued move higher. Still, it was not a bad week; the indexes all shook off some bad news and were able to continue the more bullish action of early session weakness followed by second half rallies.
Nasdaq approaches next resistance while others cross the 50 day MVA.
The Nasdaq has made a steady climb off of the bottom, following its 10 day MVA up the last three bounces higher. On the last bounce Wednesday and Thursday it crossed resistance at the 50 day MVA on strong volume. Friday it was off and running again, but lost its momentum as it approached 1800. The 1830 level marks the next real resistance for the techs, and they started to feel that resistance after hitting a high of 1792.87 Friday.
The index is moving up in chunks of about 150 points at a time before it peels back about 70 points of that gain. That is making a series of higher highs and higher lows, just what you want to see. As noted last week, that puts this move at 1800 to 1830 before it starts its next pullback. Moreover, this is the fourth run up the trendline formed off of the September low. As we cover in the online seminars, a move tends to make 4 to 5 rotations or bounces up a trend before it needs to pullback a bit and consolidate some gains. It may be a pullback as we have seen on this run or it may be a sideways consolidation. Its trendline is at roughly 1685, right at the pullback range following each move higher on this run off of the bottom. After such a strong move, we would anticipate a pullback to that level if not to 1600 to 1630. The Nasdaq has been surprisingly strong, however, and once you start convincing yourself of one thing it does another. If it cannot hold that up trendline we will look for more of a pullback, but we do not anticipate any major breakdown; it would be more of a test of the September bottom.
While the Nasdaq took a breather, Dow and S&P cleared some resistance.
Friday the Dow and S&P made a move while the Nasdaq took a rest. The Dow joined the S&P in crossing its 50 day MVA (the S&P did so Thursday) as well as moving over resistance at 9500. Those were moves we were looking for, but once again the indexes were unable to make the move on a surge in volume. Volume was below average, and except for Thursday's gain, the moves on the Dow and S&P for the past 8 sessions have not been on the right kind of price/volume action, i.e., rising on rising volume, falling on falling volume.
Thus we have to look upon these moves with some skepticism once again even though they cleared resistance. Until they can show us buyers overwhelming the sellers along the lines of what the Nasdaq showed us Thursday, the break over resistance is not complete. And as we noted last week, that puts the Nasdaq move in some jeopardy still, particularly if the Dow and S&P reverse on higher volume this week. On the other hand, it could come at a pretty decent time if the Nasdaq is ready for a bit of consolidation anyway (and that could be the case as noted above). Why? If the Nasdaq is already prepared for some profit taking, any need to re-test by the Dow or S&P may not impact it that much. Then all could pull back some and then perhaps make the next move up together. That would be best for the market as far as a continued advance.
THE ECONOMY
Economic news last week was pretty grim as September reports showed how the economy shut down after the 9-11 attack. Even though several reports were well below expectations (existing home sales down 11.7%; durable goods orders down 8.5%), it seems as if investors were prepared for such news. After all, as we reported at the time, airlines were shut down, and that has a ripple effect throughout the nation and world with no air deliveries, no meetings, no leisure or business travel, etc. On top of that, consumers were rattled a bit and then were staying home watching television to see what the latest developments were. Delivery pizza is having a good time of it at least.
Despite the glum news, things are not totally in the dumpster. The U.S. consumer knows when to go bargain hunting. Take a look at autos sales for October. The big three are reporting high sales. Indeed, sales are up 15%, near a record high for units. The 0% financing by GMC and Daimler Chrysler is not hurting at all, but other brands are reporting increased activity even without the 0% finance option.
Michigan sentiment 'final' for October came in (even though October is not even over; go figure) Friday, and the reading was 82.7, down from the initially reported 83.4, but higher than September's 81.8. Future expectations were rising once again, so even the lower final figure is still overall a positive, though way down from previous levels.
From the not so bad to the ridiculous. Dallas Fed President McTeer wins the 'duh' award this week for his statement late in the week that the 9-11 attack may tip the U.S. into recession. Hate to say it Bob, but from a practical standpoint we were already there. In fact, we are beyond recession; we are into deflation at this point. Up until now we have been enjoying price declines based on productivity. Over the past 12 months we have had price declines based on a lack of demand. That is the start of deflation. The housing market has been the buffer zone as housing prices actually rose while industrial prices fell. Now with home sales falling sharply, we could be seeing the first serious deflation threat in a long, long time. That is where assets lose value. Those in the oil bust of the eighties well know the impact of a house that is worth much less than what you paid for it, indeed less than the amount left on the note. That is where the economy starts to cave in.
That is why such statements from McTeer seem foolish and simple-minded. Of course 9-11 won't help the economy, but the problem was already there. Think ahead, think outside of the box, be a leader. Some think he is the heir apparent to Greenspan; statements such as that won't help. They do nothing to change an image that the Fed has been behind the curve all the way down, and right now, perceptions of leadership and the ability to act in decisive and productive ways are as important as the actual impact of your actions. Remember, part of a recovery is restoring confidence in consumers and business. Sure-handed actions and time-proven methods are the best way to restore confidence.
Senate needs to get with it.
That brings us to the main course this week: the Senate takes up the stimulus package. The House made quick work of it, though the vote was split along party lines. That does not bode well for a fast resolution in the Senate. Last week we already had the arguments laid out along the lines seen in the original tax package. That more or less means the Senate is going to vote the party line, meaning we will have a committee battle before a final resolution. That is delay, and that is not good for the economy. If something cannot go to the President by the end of the week, that means if they even pass more rebates (not the best use of any stimulus), they won't get out before the holiday season, the time they need them to be out. We heard one Congressman say that it just takes time to get things done; well, time is not a luxury the economy has. That needs to be driven home to each of our senators by each one of us. Whatever they do, do it fast.
THE MARKET
VIX: 30.53; -0.83. Volatility continues to drop as the indexes continue to move higher. That is the action you would anticipate, and at this juncture it is still in the high end of the range, but it has been steadily falling.
VXN: 56.91; -0.02. Barely budged on the selling, but the index did rally sharply early in the session before selling back to almost flat at the close. Still in the upper end of the range, but well off the 80 level that it hit at the time of the reversal.
Put/Call Ratio (CBOE): 0.53; -0.12. The ratio has started to hold around the 0.50 to 0.60 range since the market started to rally, and really after the Nasdaq broke over near term resistance. At that point many shorts were closing positions, and put buyers stopped taking short positions as well. That is normal action, and the ratio is still above the 0.4 level that indicates complacency. It is something to keep an eye on for sure. As long as the market can continue to show good price/volume action, we don't get too concerned, but we keep the secondary indicators in our sights to give us a possible preview of changes ahead.
Nasdaq
Tapped close to resistance on the intraday high and pulled back to close near the session low. The range was small, however, and volume eased back below 2 million shares. This is the kind of price/volume action you want to see.
Stats: -6.51 points (-0.4%) to close at 1768.96.
Volume: 1.998 billion shares (-11.4%). Still above average volume, but lower on the selling as we would want. Down volume led 1.108 billion to 878 million upside shares. Pretty even, indicative of the end result of the day. The Nasdaq has recaptured good price/volume action after flirting with real trouble as late as last Tuesday.
A/D and Hi/Lo: Advancing issues still managed to top decliners even on Friday's loss at 1.16 to 1 (advancers led 1.57 to 1 Thursday). New highs rose to 62 (+3) as new lows also fell to 33 (-4).
The Chart: http://www.investmenthouse.com/cd/$compq.html
The Nasdaq is close to reaching near resistance between 1800 and 1830. 1830 represents a previous price point where the index has bounce up from or failed to crack through on 4 previous occasions over the last 8 months. It by no means is a strong level of resistance, but as that point represents more or less a 150 point move from the last pullback, that lends it a bit more strength. In addition the index closed near its low on the session, a more bearish action from what it has showed with lower opens and stronger finishes. The intraday trading range was just under 30 points, however, and the lack of volatility is a good sign that the index is being stingy with its gains.
Okay, so it looks good and had a good recovery late in the week from that big distribution day on Tuesday. As discussed earlier, however, the Nasdaq has made 4 bounces up the trendline on this move off of the bottom. It could easily pull back further this time to take a bit of a rest. That would be normal action. What would be the level it falls to? Perhaps toward the gap up point at 1630 would not be out of the question. Closer levels: the up trendline is at roughly 1685 and the 50 day MVA is even closer at 1720.40. We would love to see either one of those hold and avoid a further drop, but that might be wishful thinking. One thing to remember: the Nasdaq has been the leader in the move up off the lows. It is being stingy with its gains. Thus it may simply continue the same action we have seen; further, it may even move laterally to consolidate these gains while holding above that key 50 day MVA level. We will watch for either, focusing on the price/volume action; if it breaks down again, a deeper test to the lower level is more likely.
Dow/NYSE
Cleared resistance at the 50 day MVA and 9500, but NYSE volume fell back below average. Thus this move may not have cleared this level for certain as buyers were not clearly in the lead.
Stats: +82.27 points (+0.9%) to close at 9545.17.
NYSE Volume: 1.257 billion shares (-8.8%). Volume did not match the move higher, falling back below average on the move past resistance. Such moves tend to lack the punch to clearly push past resistance. Up volume led 729 million to 463 million shares.
A/D and Hi/Lo: Advancing issues still led Friday at 1.45 to 1 (1.6 to 1 Thursday). New highs fell to 47 (-5) as new lows fell back below forty to 37 (-16).
The Chart: http://www.investmenthouse.com/cd/$indu.html
After wedging higher with resistance at 9500, the Dow broke above that Friday, but volume was not there. The move cleared both the 50 day MVA (9481.26) and 9500 in one move. That is what we wanted, but it needed more volume. The move puts it just below where the index closed on 9-10 (9605.51). On the high it tested that level (9598.17). One thing that has dogged the Dow even as it has moved higher: price/volume action has not been what we want. It is tagging along with the Nasdaq, but it is being dragged along, not providing any real support. As with the Nasdaq, we need to see if this close over the 50 day MVA and resistance at 9500 can finally bring in the volume. The Nasdaq closed over the 50 day MVA on Wednesday on rising, but not blowout, volume. The next day volume shot higher on a strong gain as shorts closed positions given the close above resistance and institutions bought into shares as well. The Dow needs to show this same action.
S&P 500: After closing just above the 50 day MVA Thursday (1099.52 as of the close Friday), the big caps made another move higher and cleared the closing low of the March and April double bottom (1103.25). That was good news, but it did not generate a surge of short covering Friday nor buying volume. As with the Dow, that leaves this move somewhat less than a solid break of resistance where we would anticipate these levels to hold on a subsequent test. If volume flows in next week on a solid gain, this point that has held the index back for the past 2.5 weeks could then become support for the next move higher. Otherwise we could see it fade back into the consolidation and look for 1050 to hold once again for another move higher.
Stats: +4.52 points (+0.4%) to close at 1104.61
Volume: NYSE volume slid back below average on the gain, not the action we wanted to see on a move over resistance (1.257 billion shares or -8.8%).
The Chart: http://www.investmenthouse.com/cd/$spx.html
THIS WEEK
More economic data flows this week, and we will get the first look at Q3 GDP numbers, expected to dip below the zero growth line. In addition we will get the official auto sales, the government's consumer confidence report, personal income and spending, construction, and the NAPM. All are significant indicators to a certain degree. Confidence, auto sales and income and spending bear directly on how the consumer has responded to the 9-11 attack and more pink slips. Regardless of the results, it is clear that things have slowed way down in this country; the market knows this and it is one reason it has not taken dives on news that the economy has slowed more than anticipated. The market is forward looking; it is looking at the proposed stimulus package. That is where the real disappointment could come from if it turns out to be focused on government spending and efforts to get consumers to spend. It needs to be much more balanced with most toward business incentives to go in hand with the rebates previously issued.
Last Monday was not downgrade Monday, so in keeping with the pattern of every other Monday, look for some downgrades early in the week. Why? Because stocks finished higher last week. That has been the pattern: stocks lower, no downgrades on Monday. Stocks higher, time for valuation downgrades. Who will it be? Semiconductors are always good targets. They were hit mid-week but still managed to rise on Friday. They seem to be the target as a group simply because they tend to make big moves up and down and upgrades or downgrades of this key technology sector will grab headlines. Are downgrades holding stocks back? No. The tech stocks that are downgraded take a day or so of rest and then are heading right back up. There is a lot of momentum there; institutions are buying them based on the price/volume action.
Overall the market made a good recovery from the selling early in the week. Friday saw several of our plays make solid breakouts. It also saw a few fail on their breakout moves. The recovery is still fragile as it is pricing in future expectations based on rate cuts, stimulus plans, etc. For now it will overlook poor economic reports that are a result of the recent events. It is expecting a stimulus package soon, and that is why we are concerned that Congress is not delivering the country full service if it haggles too long over what it knows needs to be done.
We anticipate the stimulus package will chug along next week, giving investors enough confidence to continue to price in better times in the future. One good thing about this move: it has not been a straight shot higher in big gulps of real estate. Overall it has been steady move, with solid gains and healthy pullbacks. Continued work on and passage of a good stimulus package will continue that action, giving us more stocks breaking out of good patterns, and more stocks in those building patterns we discussed last week. Those may not lead to long term holdings but they can give us strong moves over the short term as we have already seen. We will watch for some downgrades Monday and see how the market reacts; if it continues the same rallying action with buyers stepping in to drive prices back up toward the close, we should see a continuation of the recent action. It is a series of steps in building back, but the overall momentum is higher. Note how it recovered from last week's selling with more Nasdaq buying.
End Part 1 of 4
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world stock market
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