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us stock market, stock watch
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11/26/01 Stock Split Report Market Summary
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MARKET ALERT SERVICE
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SUMMARY:
- A wealth of opportunity today.
- Too Far too fast? Hard to bet against the move.
- Upgrades, not downgrades; well, not all downgrades at least.
- Economic news not all that bad
- Good intraday action on decent volume.
- Indexes thinking about breaking resistance.
- Team Trades
Solid move higher leads to many breakouts.
Today the alerts were popping as many, many stocks hit buy points early and late in the session. Many very strong breakouts on strong volume came from sectors across the board. BRCM, BBY, DYII, HRH, EBAY, PHTN, OAKT and others were making strong moves on strong volume as the rally continued to broaden against a mixed backdrop of market views.
Too far too fast? Baby boomers helping drive the market higher.
The market loves to climb that wall of worry. From the climactic bottom in September after the market reopened, the Dow has climbed 21% and the Nasdaq 35%. That does not even touch the individual sectors such as networking, biotech and semiconductors that have climbed well in excess of 50%. That is a big run. That move alone has a lot of the analysts concerned, hence the 'too far too fast' comments.
While it is true the indexes are still dealing with very near-term resistance that could push them right back down (today's move, while on higher volume was still an average volume session in the bigger picture), it has been hard to bet against the market, particularly with individual stocks starting to make and, importantly, hold good breakout moves. While we have reported deteriorating sentiment indicators, accumulation continues. Breadth continues to expand, money continues to move into stock mutual funds, and economic news continues to improve.
The market tends to defy the conventional wisdom both to the upside and downside over the past several years as the baby boom generation with its massive consumer demand and investment appetite tends to drive the market to extremes in either direction. An example is in 1998 when the buyers shot the market out of its bear on a long bull run. Then in 1999 the market emerged from the October low on a massive liquidity based run. Everyone thought it could not go higher, but it defied those thoughts. I still remember one breathless analyst the day after Thanksgiving 1999 when the Nasdaq dropped sharply on strong volume saying 'stick a fork in it, this rally is over.' That was at 3300 as the Nasdaq marched onward to 5,000.
The point: there is a lot of liquidity in this market, and the usual response to liquidity is market gains. Sounds simplistic and it is; you know there is more to it as we have discussed the past two months. It is, however, one of the basic precepts behind this move and the prior moves in 1998 and 1999 when the baby boom investors blasted the market up off of its lows on super bull runs. The tax cuts, rate cuts, 9-11 attack, and other factors have acted to shake the boomers out of their lethargy and it seems that there is an appetite for securities again as the real ticket to long-term wealth. These folks are going to live a lot longer than their parents, and they want to retire in style. Equities are the ticket, and they are putting their money back in the market at these prices.
Upgrades topping downgrades.
An example: upgrades are coming out early in the week as opposed to massive numbers of downgrades. Today saw positive comments on many stocks while just a few were downgraded, most on 'valuation' measures. A valuation downgrade is basically an analyst saying 'our price target has been hit.' If the analyst does not say some money should be taken off the table, the analyst looks a bit foolish (of course he or she could always say the stock is stronger than expected, but we rarely see that). So the stock is taken down. Strong stocks, however, come back. BRCD was downgraded today basically on valuation and it was able to log almost a 2% gain.
The pattern of good news emerging on Monday's as opposed to being a day relegated to carving up already carved up stocks is a change in overall market psychology. Jonathon Joseph, who was bullish on semiconductors 3 and 4 months ago, helped out by saying INTC would not lower prices for 3 more months instead of 2, and that the price cut would only be 14%, the 'lowest in memory.' Don't get us wrong, there are still many out there that think this is nothing more than a bear market rally. They may turn out right, but do you scoff at a 25%, 35%, 50%, or more gain, sitting out because 'it cannot last?'
The change in market view is something that does bother us. The analyst group was so negative after finally converting to bears following the 'strong buy' push as the market plunged 60%. That was one of our indicators that the market had truly bottomed: analysts as a whole are wrong at the tops and bottoms. Now we see the bulls running back in, and that gives us pause. Are they getting too wild too fast?
It is one of those good and bad scenarios. We like it because with the baby boomer crowd, it generates a snowball effect as more and more turn back to the market and throw that earning power into the market. The excess discretionary income that was piling up in money market accounts is now starting to get pulled into the market. That money is no doubt moving stocks higher as institutions accumulate stocks with that money. What we don't want is for everyone to turn bullish all at once and all of the money rush in ("I am missing out on this run!!!"). Sure we get a big spike, but then the money is exhausted, and the market has to come down while some money is taken out of stocks near term and more cash supplies have to be accumulated through good old hard work. Thus, this is a mixed signal. For now, the fact that the baby boomers are now interested in stocks again is a bigger plus as it pulls that idle cash into the market, and as we have seen in everything that group touches, that drives demand and increases prices.
Recession? So what?
Over the weekend we discussed it and today it was official: the U.S. economy has been in recession since March 2001. By the usual measures, that would mean the economy is already on the way out of it. No surprise. The economic numbers have been turning since back in August and before. It is just that most everyone thought that 9-11 had totally shut down the economy. It just delayed things a month from the looks of it.
Treasury Secretary O'Neill said the recession was a 'measure of the past.' He is right. Just as we never really know we are in a bull run (or to look at it the other way, out of a bear market) until we are well underway, economists never know a recession was really here until after the economy is already well down the road, usually to recovery. If a recession lasts 11 months in post-war times, it is gasping like a fish on hot pavement.
Weekend economic numbers indicate that the consumer is not dead. A lot was made of the fact that mall traffic was down over last 'black Friday,' sales volume was up 2.4%. They moaned about the average check being down 4.2% as well. So consumers are writing smaller, but apparently more checks? I would rather have 10 oil wells netting me $1,000 per month each than 1 well netting me $10,000 per month; if one well goes, it is not a total loss.
And let's not forget about the online shopping: up 12% from last year on Friday. That is not a bad deal; it more reflects changing methods, not changing spending habits. Pier 1 (PIR) raised its earnings estimates based on this weekend's sales. Target (TGT) announced that its sales enjoyed a big year over year jump this weekend. Consumers may be shopping at discount chains, but that is a change that has been occurring for years; WMT would not have been such a great stock over the years if more and more consumers were not shopping there. We have all become value conscience even during the prosperity of the past 20 years.
THE MARKET
The intraday action was positive: a slightly higher open, a move into negative territory on the Dow and S&P, and then a rally for the rest of the afternoon up into the close. Volume was decent, up over Wednesday's action, but still on the low side for the volume action prior to the holiday. The real proof of the move will come Tuesday and Wednesday with the volume we see. Thus, while we liked the action, it was not a resounding 'we are back in business and we are buying' day. As noted, however, there were some excellent, excellent breakouts on very strong volume. Buying overall was decent but not great, but the broad-based buying was accented by strong accumulation in many key stocks such as BRCM, EBAY, KLAC, etc.
The indexes are thinking about breaking resistance. The Nasdaq cleared one small level of resistance, but the volume was not enough to say it has really done so. In any event, there is still a lot of resistance ahead from the 200 day MVA. The Dow still has to deal with its resistance as it simply moved up to those levels today (9992 on the high, bingo) and could not move higher. The S&P cleared one level, but it too has a lot ahead of it in the form of the down trendline and the 200 day MVA. All of this resistance ahead. How can the indexes clear it without resting? That is the question heard on every trading desk and every technician's office. It seems unlikely it can do so, and it has not garnered the volume to do it yet, but it is possible, especially given the strong buying in individual issues today. BRCM and many chip stocks were strong. As we noted over the weekend, the SOX pulled back ahead of the indexes, tested the 50 day MVA, and has moved ahead the past three sessions. It is one of the leaders, and it is ready to try its resistance again. If it can take it out (535 to 560), the others will follow. Everyone wondered how the market could keep rising in 1998 and 1999; it did on the back of massive liquidity, something the market has right now.
VIX: 25.24; +0.46. 26.20 on the high, but pulled back down as the S&P rallied later in the session. It is still lower than we want, but this is secondary to price and volume. We will have to see how price and volume come into the picture tomorrow and Wednesday. 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 before this recent dip lower.
VXN: 48.22; -2.59. Moving lower and lower, falling toward its summertime levels where the market was in sad shape. This keeps us on edge with this move, but mainly because the Nasdaq is almost at resistance and we have not seen solid upside volume in over a week. That is what really bothers us. 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. Another thing to consider; volatility levels back in January through March 2000 traded in a range from 55 to 60 before the Nasdaq's dive.
Put/Call Ratio (CBOE): 0.68; -0.07. Put activity rose on an up session, though we have to consider Friday's half session was not really indicative. The action was still down 0.09 from Wednesday's session. Still, more put action on an up day indicates that there is the feeling that the indexes are at an important resistance level and some are ready to bet on the downside.
Nasdaq
Continued the up move today, clearing in name the resistance at 1934. Still a lot ahead of it and not a ton of volume today. Individual strong moves and the SOX rebound from its consolidation are good momentum indicators, however.
Stats: 38.03 points (+2%) to close at 1941.23.
Volume: 1.733 billion shares (+204%). Better volume than on Wednesday, but still below average (average is right at 1.95 billion). Buyers were way out in front at 1.421 billion to 276 million downside shares. Still, the volume was not what the index needs to clear the resistance. Individual volumes were good, but the market controls the direction of 75% of the stocks. Thus perhaps today was just a 'getting back to work' day and we will see more upside strength. It needs it; the index is still at major resistance.
A/D and Hi/Lo: Advancers led again, but at 1.35 to 1, much less than Friday's lopsided score (2.12 to 1). It is easy for buyers or sellers to skew the results on a short, light-volume session as we had Friday. New highs shot up to 101 (+45) as new lows rose to 20 (+9).
The Chart: http://www.investmenthouse.com/cd/$compq.html
A test of 1900 and then a rally to close at a new post 9-11 high and just above some resistance at 1935 (former price tops and bottoms). The real test is the 200 day MVA at 1967.79. That pushes the index over most resistance near term though there is a gap up point at 2000 from the April rally and the one, key and last down trendline from the March 2000 top is now roughly at 2125. That is a lot of resistance, but as we have seen all through this rally, the move back up is just taking out one resistance level after another, consolidating between the moves to gain strength for the next move. This last point has nagged us on this move as it started without much of a rest after hitting resistance just 5 sessions ago. But in the bigger picture, the index has traded in a range from 1875 to 1934 for 8 sessions prior to today (after gapping to the 1875 level back on November 13). That is similar to the October 11 to November 2 trading range, but less volatile. With the SOX leading higher, the Nasdaq will follow. It must get more volume, however, or it will have a hard time clearing this resistance. We are going to watch for a side-step at the 200 day MVA to 2,000, particularly if no volume comes in on this move.
Dow/NYSE
Ran right up to resistance at 9992 on the high, and pulled back on the close a hair. This is some serious resistance as this point as it was the October 2000 low and the middle of the March and April double bottom. It is not 10,000 as some say, but a real point of bump and grind.
Stats: +23.04 points (+0.2%) to close at 9982.75.
NYSE Volume: 1.090 billion shares (+163%). Sharply higher but still well below average volume. 657 million upside shares to 409 million downside shares. Pretty evenly matched when compared to the Nasdaq volume figures. It is not a real endorsement of the gains today, and it represents the fact that the Dow had to make a comeback from negative territory.
A/D and Hi/Lo: Advancing issues led again, but were way down at 1.10 to 1 from Friday's 2.9 to 1. The light volume session skewed those figures. Not a strong day. New highs rose to 107 (+41) as new lows rose to 33 (+21).
The Chart: http://www.investmenthouse.com/cd/$indu.html
Today the Dow ran right in to resistance at 9992 with its high of 9992.79 where it then pulled back to close at 9982.75. The candlestick pattern was a loose 'hanging man' doji right at resistance, a sign it is struggling at this level. We would not be surprised to see the stock pull back a bit here, but the index has, as has the market, shown the ability to check slides lower, making higher and higher lows. If it holds at the 10 day MVA again (9719.28), it has made a small wedge that could break out and test the next resistance at the 200 day MVA (10,178.92). What today showed us was really a lateral move, something we were looking for over the weekend. If it can stretch the move out sideways for another couple of days, it could actually make a serious move higher. If it cannot hold the 10 day MVA, look for the 18 day MVA (9719.28) to the 50 day MVA and up trendline at 9589.94. Yes that is quite a range, but it is not the test of the September lows. We are not comfortable with the quick move back up to resistance with so little rest, but we have been uncomfortable for the past month. That does not keep us out of these stocks.
S&P 500: Broke over resistance at 1150 with a bit more authority today, but nothing massive from a volume standpoint. As with the Nasdaq, it faces its 'mother of all down trendlines' just ahead at 1165 (the one that started back at the March 2000 high). Then the 200 day MVA is skipping along with the 'hump' from the March and April double bottom at 1182.87. Just so happens the upper channel line is there right now. That is an awful lot of resistance immediately overhead. This market has rallied, rested, rallied and rested all the way up. Looking back the past 7 sessions, the index more or less moved laterally; that is a solid amount of rest. Today it moved over the first step of resistance. If it gets more volume tomorrow and Wednesday, it can actually make a real contest out of taking on that resistance. If it cannot, 1125 (former price consolidations and the 18 day MVA) are right there to catch it. Below that is solid support at the 50 day MVA and the up trendline, coincident at 1113.16. For now this index, like the market overall, continues to trudge higher.
Stats: +7.08 points (+0.6%) to close at 1157.42.
Volume: NYSE volume was up but still below average at 1.090 billion shares (+163%).
The Chart: http://www.investmenthouse.com/cd/$spx.html
End Part 1 of 2
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