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us stock market, trade stock
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11/15/01 Stock Split Report
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Stock Split Report Subscribers:
MARKET ALERT SERVICE
Subscribers to the current reports can sign up at the following link:
http://www.investmenthouse.com/alertssr.htm
SUMMARY:
- Dow adds 0.5% on increased volume as S&P churns a bit and Nasdaq retreats on lighter volume. Setup for a controlled pullback.
- Economic news continues to improve. Imagine that.
- Dell earnings at the upper end of a much lower range.
- Team Trades
Indexes rub resistance again.
The Dow led the way, posting a decent gain on again rising, above average volume. The S&P added a slight gain as well, also on the higher NYSE volume. Meanwhile the Nasdaq finished a hair lower on lower volume. This is pretty much the action you would want to see in a general sense.
Looking a bit closer we see that the indexes have started a bit of a stall here. The Dow gained on stronger volume, but it hit just below its upper channel line on the high (9903.04) and pulled back, logging a smaller price gain than the prior two sessions. It is also just under resistance at 9992 as well. Shrinking price gains on increased volume and two levels of resistance immediately overhead are signals the move is slowing. The S&P was more of a churn with a small gain on rising volume and a doji just below resistance at 1150. The Nasdaq pulled back after testing Wednesday's high just below resistance at 1930, finishing in the lower half of its range. Volume pulled back, a good sign on a price drop; there may have been selling, but the sellers did not outnumber the recent buyers.
Why the slowdown? Three days of gains on solid volume moved the indexes up toward resistance. These moves tend to run 2 to 4 days up close to the upper channel on the uptrend and then fade back to set up the next move. They are just below resistance in addition to the upper channel lines. In addition, AMAT did not help techs as it missed its vastly lowered earnings estimates. It acted as a drag on the tech sector and the SOX all session. Moreover, the 'valuation' downgrades we were anticipating earlier in the week finally emerged today as the analysts cannot see economic recovery occurring; if they do not see positive gains they do not believe recovery is possible. The market proves them wrong every time.
Right now the indexes are making the anticipated turn to the downside. Again, we do not anticipate this being a harsh pullback. The gains this week were on rising and for the most part above average volume, and the economy keeps sporting better than expected numbers. That bodes well for an orderly pullback to near support.
THE ECONOMY
Is the market and economy proving analysts wrong now? The confidence in the ability for companies to recover is low. Many analysts do not anticipate any turn around in the first half of 2002, making the second half of 2002 the earliest upside (if it makes it by then). They simply cannot get past the decrease in earnings over the past year and the P/E ratios they place on their altars of stock picking.
Does this all sound familiar? As recently as last week complaints were rampant about the war progress, how the military did not know what it was doing, this was a different kind of war, blah, blah, blah. Then all at once the weeks of bombardment, instruction and coordination with Afghan resistance, and intelligence gathering came together and major Taliban strongholds fell like dominoes. There was a plan and a purpose behind what was going on, and it came together all at once as planned.
Same thing with the economy and the market. Most analysts were wrong about the health of the economy in from March to October 2000, not catching on until it was in freefall even though the signs were there as we pointed out on a daily basis months ahead of time. Now even as the economic numbers on all fronts are improving, they still say 'not good enough' because they have some bizarre view that things are not better until you are back where you were when the downturn started. Well, things get better, a lot better, before that point is hit.
Jobless claims down for third straight week as history repeats itself.
Four months ago we were writing about signs of improvement in the economy, how it appeared to be following past trends on several fronts. One was the jobless claims number. In past recessions and recoveries, jobless claims jump to a level between 400,000 and 500,000 per week, rising even as we start seeing some signs of economic recovery. Some of the regional manufacturing reports were improving, inventories were falling, some companies were saying they were experiencing better order patterns. That is how it works: jobless claims historically rise and hit these 400k to 500k levels even as the economy starts making inroads to a recovery.
Then came September 11, and that set the economy back. But it did not set it back for long. After a month of lethargy and shellshock, already the economic numbers are improving. Jobless claims fell for the third straight week, down to 444k from 452k the prior week, and much lower than the 474k expected. Jobless claims always peak in this area and start to improve just behind the rest of the economy.
The NAPM was improving and did not tank after 9-11. Retail sales were down for two weeks, but have rebounded sharply. Auto sales exploded on zero financing. Home refinancing is through the roof and new home mortgages surged last week. Liquidity, in a 12 month plus drought, has vastly improved. Oil is below $20 a barrel. Inflation is nonexistent. Interest rates are at historic lows on the short end and multi-year lows on the long end. Indeed, the bond market, after a massive rally on the elimination of the 30 year note, is starting to show us again that the future is economic recovery just as it was doing right before the 9-11 attack.
Add it all up, and you have the underpinnings of an economic recovery that will by quite strong. Contrary to the negative thoughts of many of the pundits, that strong recovery will drive stock prices higher because earnings scores will jump dramatically higher given the low rates of the past year. P/E's will improve given the potential for growth a low inflation, low interest rate and lower tax rate environment provides as we saw over the past 20 years. We are getting back to what brought us the success we enjoyed; after several years of prosperity the Fed and our leaders forgot who brought them to the dance.
Inventories drop more than expected and the Philly Fed report is much better.
Inventories were expected to fall 0.3%. The dropped 0.5% while August dropped 0.2%, more than the 0.1% drop originally reported. That is a continued key to recovery as the inventories have to be worked off so more people can be put back to work to replace the goods sold. That is why business stimulus is good: it gets businesses to buy and clear out that remaining inventory so employees are needed again, and that gets people back to work and feeling good once again.
The Philly region economic report gave a -20.2 reading. Looks bad, huh? Well, given that it was at -27.4 in October and was expected to come in at -25, the score was not bad.
THE MARKET
Slowing on the move higher as anticipated, but it looks as if it is going to be orderly. We started some positions to the downside today, but as we said last night, we are not looking for major plunges, just a move to support, then closing out the positions. The market is still showing positive indications for now, and we continue to build positions on stocks for the longer term when they hit buy points.
VIX: 27.78; -0.82. Down again, holding below the 30 level (the high end of the normal range), and in the past month that has signaled time for a pullback to support. With the S&P under somewhat of a churn today, that pattern appears to be ready to repeat itself. For perspective as to where it is now, volatility ranged from 20 to 22 during the summer (very low, very complacent), and then spiked over 55 when the market re-opened after September 11. Since then it has ranged from 28.19 to 38.
VXN: 57.45; +1.07. 59.84 on the high before giving some back as the Nasdaq recovered off of its session lows. Still in a relatively high range, well above the summer lows when the index was in the doldrums. For perspective, in the summer it ranged from 43 to 47 on the lows. After the re-open it was up to 93 intraday, and has since ranged from 55 to 70.
Put/Call Ratio (CBOE): 0.71; -0.01. Holding steady on a gain in the Dow and S&P, the ratio indicates that there is still not a lot of belief in the market's ability to hold. And with some big names still saying the indexes 'must' test the September lows, no wonder investors remain skittish.
Nasdaq
Tested Wednesday's high on the high today, a level just below near term resistance, and then closed lower. Volume eased, a good sign of an orderly pullback to near term support in the making. The Nasdaq has been the leader, and it has started to lead down for a bit.
Stats: -2.62 points (-0.1%) to close at 1900.57.
Volume: 2.025 billion shares (-6.75%). Lower though still above average volume on the selling. We want lower volume when the index inevitably sells. 1.045 billion upside shares to 950 million downside. Up volume still won the day even on a loss in the index, but note how the gap between up and down volume has narrowed. No dumping today; more like the sellers just catching up to the buyers.
A/D and Hi/Lo: Decliners took over 1.11 to 1 (advancers led 1.33 to 1 Wednesday). New highs fell to 76 (-17) as new lows fell to 45 (-5). Good action on the new lows on a down day.
The Chart: http://www.investmenthouse.com/cd/$compq.html
The Nasdaq did what we thought in the absence of a positive reaction to the war news from Wednesday night: started a bit slower, rallied back to Wednesday's high (1922.12), and then faded. A late rally brought it up off the lows, but it was not a powerful move late in the session. We like the lower volume on the fall, and the action looks like a pullback toward the 18 day MVA and up trendline just above 1800. Might not make it back that far, but that is a logical point to hold. Tomorrow is expiration Friday, and we anticipate some volatility, but still a move lower from here to carry over into Monday.
Dow/NYSE
Again the best index for two straight sessions, but it was no barn burner. The index is just below two levels of resistance with smaller and smaller gains as it moves higher. Appears primed for that pullback as well.
Stats: +48.78 points (+0.5%) to close at 9872.39.
NYSE Volume: 1.467 billion shares (+0.7%). Slight rise in volume on the gain. Still above average on the gain. Up volume edged down volume ever so slightly at 725 million to 719 million. Even though it was an up session, the sellers were catching up as the buyers were running out of steam as buyers fell by 200 million and sellers rose by the same number from Wednesday.
A/D and Hi/Lo: Declining issues took the lead 1.1 to 1 (advancers led 1.54 to 1 Wednesday). New highs fell to 112 (-5) while new lows fell to 40 (-10).
The Chart: http://www.investmenthouse.com/cd/$indu.html
The Dow continues its uptrend started from the September bottom, but it is right at the upper channel at 9950 (9903.03 on the high today) and resistance at 9992. As noted, the daily gains have shrunk since the big move Tuesday as the index squeezed up under resistance; it will either pop up above it in a breakout, or it will pull back down, fill in a bit of ground, and then rally back up to take out 9992. That is the pattern, and we would be surprised if it was able to make the breakout, at least one that holds. It needs to make the pullback toward support at 9500 (the 50 day MVA is at 9499.88, a double layer of support). If it can do that on controlled volume, that sets up a move toward a breakout
S&P 500: The S&P churned for the second session as it went nowhere on higher volume, unable to take out Wednesday's high on its peak today (1148.28 Wednesday; 1146.46 today). The continued rising volume on an even smaller gain just below resistance at 1150 (prior price consolidations) and the upper channel at 1160 (indeed, it showed a doji), indicates a turn back down to near term support is ahead. 1120, the closing price consolidation last week and earlier this week is a first potential stopping point. Then we look at the 50 day MVA at 1104.12 which coincides with the 1103.25 closing price in the double bottom pattern earlier in the year, and the up trendline just below 1100 at 1095. That is a lot of support, and if it holds, the S&P looks super.
Stats: +1.03 points (+0.1%) to close at 1142.24.
Volume: NYSE volume climbed again to 1.467 billion shares (+0.7%). Still above average volume and stagnant price equals churning for the second consecutive day, and that signals a pullback without some really positive war news.
The Chart: http://www.investmenthouse.com/cd/$spx.html
TOMORROW
Friday is options expiration for November (a fast expiration as the first Friday of the month was the first day of the month), and these have been more volatile of late. The upward momentum on this recent run is peaking, and tomorrow may give us a more substantial move down. The Nasdaq started negative today, and the SOX, the leading sector out of the bottom, was moving down ahead of the other major indexes. Absent some unexpected positive war news, we expect the indexes to roll over here and test near term support.
As for economic reports, we get the CPI and capacity utilization. We don't expect much market moving potential from these. What we anticipate is perhaps another early attempt at the Thursday highs, but not quite making it before they head lower. The session will be somewhat volatile given options expiration, but the overall move will be down. We initiated some downside positions today, and we will ride them down to support levels, and if we see those levels try to hold, we will close them out and pocket the gain. What usually happens is a tap down to support, a bounce up, and then another test (may or not make it all the way back down), and then a move up. That gives us a second shot to close them out if we miss the first bounce. It also lets us know if the support will hold. The strongest support is a bounce and retest that holds. If it does, great. If it does not, they head lower and we continue to ride positions. The market is so solid right now, however, we do not want to ride downside positions too long. The purpose was to garner gains down to near term support. We do not want to stray too far from the plan as that is how disaster hits you.
Support and Resistance
Nasdaq: Closed at 1900.57.
Resistance: 1930 to 1940 (high 1922.12 today and 1922.45 Wednesday; it is running out of steam here). Upper channel at 1975 and close to the 200 day MVA at 1993.30. Does not look as if they will make it there this time around.
Support: 1800 has been holding, and it coincides with the 18 day MVA (1799.82). The up trendline is right there at 1800 as well. Three layers of ice. Below that the 50 day MVA is at 1759.73. 1700 to 1680 has been acting as some support.
S&P 500: Closed at 1142.24.
Resistance: 1150 is the next level (price consolidations; 1146.46 on Thursday's high). The upper channel is at 1160. The 200 day MVA is at 1993.30.
Support: 1124 (prior consolidations). Then 1103 and the 50 day MVA at 1102.56. The up trendline is now at 1095. Below that 1050 has been very solid.
Dow: Closed at 9872.39.
Resistance: 9870 (9903.04 on Thursday's high). It has not broken clear of this level. The upper channel is at 9950. The real resistance is 9992 to 10,000.
Support: 9500 is the first real level of support. The 50 day MVA is at 9499.88 and the 18 day MVA is at 9524.19. There is a lot of support at the 9500 level. The up trendline is at 9400.
Weekly Economic Calendar (All times Eastern). The figures are the consensus expectations, not ours.
11-14-01
Retail Sales, October (8:30): +7.1% actual versus 2.0% expected and -2.2% prior (revised from -2.4%).
Retail Sales ex-auto, October (8:30): +1.0 actual versus 0.2% expected and -1.6% prior.
11-15-01
Business Inventories, September (8:30): -0.5% actual versus -0.3% expectd and -0.2% prior (revised from -0.1%).
Initial Claims, 11/10 (8:30): 444k actual versus 475K expected and 452k prior (revised from 450K).
Philadelphia Fed, November (12:00): -20.2 acutal versus -25.0 expected and -27.4 prior.
11-16-01
CPI, October (8:30): -0.1% versus 0.4% prior.
Core CPI, October (8:30): 0.1% verus 0.2% prior.
Industrial Production, October (9:15): -0.9% versus -1.0% prior.
Capacity Utilization, October (9:15): 74.7% versus 75.5% prior.
TEAM TRADES
We were looking for downside action, trying to get in on the early move lower. It almost got away from us, but when the market makes a transition, it is important not to get shaken out of your overall plan. That resolve was tested today.
We were looking at one of our favorite indexes to play, the SOX. It makes big moves up and down, and can put a lot of money in your pocket. Those big moves can also get you underwater fast as well. But, when you see the big picture and can get a grip on your nerves and follow the plan, you can score big gains as many of our subscribers have discovered. Today the index made the move we were looking for off the bat, and we entered into some put positions. Then it turned and ran almost 20 points; that takes the wind out of your sails in a hurry, but it never cam close to taking out Wednesday's action when it showed it was ready to turn down. We stayed the course, letting the downward momentum that was building in the overall index work for us. Sure enough the index peaked near 543, rolled down to 534, bounced to 540 and then peaked there. That was a lower high that we noted with satisfaction. Then it fell, tried to hold above the earlier 534 consolidation, but only for 15 minutes. It tanked back to 525 and managed to rally in the last hour, but it was not strong, failing to take out the open price or the mid-day consolidation.
We are still looking for that move down to 500 where there were some price consolidations and where the 18 day MVA has move up to. Staying the course for that move, believing in our analysis of the market. That is a point we drive home in the online seminars: you learn to understand market moves and why indexes and stocks move the way they do and what the telltale signals are. That gives you confidence to stay the course as long as it does not change the pattern. Confidence keeps you in plays when you should stay in and it gets you out of them when you should because you understand what is important to your trade and you act accordingly.
End Part 1 of 4
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