|
|
us stock market, stock watch
* * * *
11/27/01 Investment House Daily
* * *
Investment House Daily Subscribers:
MARKET ALERT SERVICE
Subscribers to the current reports can sign up at the following link:
http://www.investmenthouse.com/alertdly.htm
SUMMARY:
- 200 day MVA, down trendlines stop the assent today.
- Nasdaq, SOX and S&P churn on higher volume. The Dow simply tanks.
- Retail sales up, existing home sales higher, but confidence is lower.
- Fed done? A hawk says don't make that assumption.
- Nasdaq getting close to a definitive point.
- Team Trades
Indexes turn back at resistance.
Slow start then rally. That is what you like to see. Problem is, that overhead resistance was just a small rally away. Both the Nasdaq and S&P hit their 200 day MVA while the S&P hit its major down trendline from March 2000. None were able to make a dent in them. A quick double top over an hour trading, and then they were ready to fall in the last hour. That is just what they did. Round 1 goes to resistance.
Higher volume churn.
The Nasdaq and SOX showed doji's on higher volume. Nasdaq volume moved back above average for the first time in a week and the highest volume in two weeks. That is not what you want to have when an index cannot make headway at resistance. That is churning, i.e., when shares change hands on high volume (buyers and sellers were matched based on the doji candlestick pattern) but the index goes nowhere. When at resistance, that means potential trouble as there are many sellers preventing the many buyers from pushing the index above that resistance. Look at the up/down volume: 1.074 billion downside, 1.011 upside. That is about as tight as you can get.
The good news was the indexes did not tank on the consumer confidence drop that was more than expected. Indeed, they rallied back positive. That is bullish action. But they then ran into resistance and recoiled like snails hitting a salt trail. The only good news was that the Nasdaq and SOX stemmed the tide at the early morning highs. The Dow and S&P were not so resilient; they finished closer to their lows with the Dow barely dragging up off the bottom in the last half hour.
'It cannot continue.'
That was voiced once again with frequent repetition. It was voiced as it sold down after the confidence numbers. Then the indexes rallied back and that had them scratching their heads. When it sold again late after hitting resistance and on hearing some Fed words that the economy is still weakening, they were back out.
The market has come a long way without a real correction, but it has not just run up day after day, stringing gain upon gain. The move has been very deliberate: up for a few strong sessions, then sideways to down as it consolidates those gains, and then right back up. It never really gets way ahead of itself with a hundred point Nasdaq move in one session. That was one of the problems every time it tried to rally before: violent moves upward were immediately sold into. These slower moves up are not the lightning rod for selling that they were; that is more of a function of time and improving economic numbers, but it just goes to show how the market has changed. There is building going on with lower intraday volatility in terms of point swings. That is characteristic of a stable, building environment.
Our concern is obviously the volume. It was higher on the NYSE as the Dow tanked and the S&P followed it down. It spiked well above average on the Nasdaq as it churned below resistance. At most during this rally that has meant the indexes were selling back toward near term support. If volume ramps up on further selling that is subject to change. For now, we intend to use any pullback for some covered call sales, not wanting to short the market with new put positions given its resilience.
THE ECONOMY
Retail sales up again. Mitsubishi and Redbook weekly sales were out, and while Mitsubishi showed just a 2.2% year over year rise (lower than the gain at this time last year), Redbook was up 4% year over year, its third gain in a row. Retail sales are not bad even as we continue to hear words about how this holiday season will be the worst in years. Once a mentality takes hold, it is hard to shake.
Existing home sales were up a strong 5.5% in October. That was 5.17 million annual units versus the expected 5 million and the 4.90 million prior. Low interest rates are a boon for the economy. The long bond rallied a bit today, but it has still made a run up and is not showing a lot of weakness. We anticipate some more deterioration, but not much.
That brings up the Fed. Today Fed member Moskow was out talking about how the economy was sluggish and that the labor markets could effect confidence down the road (poor job market equals low confidence). Well, we are there now, and thus it appears Moskow is saying it will get worse until the job loss ends. It appears so simple yet so elusive: jobs get workers back to work and that gets confidence up and that drives demand. Moskow said it today in pretty simple terms. We had it, but our economic leaders gave it away. Incredible.
FOMC member Meyer, a hawk that is usually very conservative when it comes to interest rate cuts, came out and said that the economy was still contracting in this fourth quarter. The market seemed to sell on this statement in the afternoon, ignoring that he said that just because the fed funds rate was down to 2% did not mean no more rate cuts were coming. If they were needed, they would come. Pretty straight talk from an interest rate conservative.
Interest rates a problem.
What was the Fed doing today? It was trying to blunt the rise in long term rates. After yields tanked following the announced elimination of the 30 year bond, they staged a massive rally on the belief that the economy was recovering. The Fed knows that low interest rates are important to any recovery and higher productivity, yet it is unable to assert much control over them. Thus, the old standby, jawing the market, is coming back to the forefront of Fed policy. Based on past Fed actions, that may mean it does not cut rates the next meeting, but that would really be hard on interest rates and out of Fed character. It tends to continue its current direction until it sees change in the economy. It is once again in a catch 22 of its own making. It is wrestling with the hydra, and we are not sure if Greenspan has the ingenuity of Heracles to overcome the problem.
Stimulus package needs to get passed.
Promises, promises. All going by the wayside. Now we hear that corporations (and there are many, many family corporations in this country) should not get tax relief of any kind because they are laying off workers. As if they are laying off workers because they like not having work for them to do. Perhaps, just perhaps, they are laying off workers because business is bad; the profit picture sure reflects that (as do stock prices if our leaders have not noticed). With pumpkin stimulus and bison burger stimulus in the bill, let's get crazy and put a little consumer and business stimulus in there. Maybe a little more tax relief for everyone in the U.S. with payroll tax reductions, marginal tax rate reductions, and/or investment credits (that can be for your house, your business - - let's get creative).
Why is this important? One, it is still needed. Two, it is being factored in by the market and those calling for an economic recovery. Three, consumers and businesses are basing buying decisions right now on getting some tax relief. If it does not come, we have a domino effect. That scenario is totally avoidable, yet we are dancing on the edge once again with some ludicrous forms of 'stimulus.' Let's get back down to earth and back down to business to get something passed before Christmas. We said it was pure fantasy a stimulus bill would be passed for us by the end of November. Sad that is coming true.
THE MARKET
Resistance took round one. The Nasdaq and SOX were able to basically sidestep just as we anticipated last night, but volume was significantly higher. They may have not been ready to make the move just yet. That is why the now famous lateral trading range may continue. The Dow was weak, but it was not totally dead. It rallied 140 points off of its low to turn positive before it gave it all up and more in the last two hours. We don't like the volume and could be seeing more consolidation before a real move begins.
Even with the selling and the higher volume, however, note how the stocks that made strong moves of late held onto those gains. They did not turn tail and tank. We have very few stop advisory alerts today. We really like it when the market is stingy with its gains.
VIX: 25.21; -0.03. The S&P was down, but volatility fell anyway. That is a signal of continued complacency. It did hit 26.35 on the high, but that is hardly a spike and well within its range of late. Complacency is setting in and that is not a good sign for the rally, particularly with volume starting to move higher on some selling. 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: 49.27; +1.05. Hit 51.30 on the high today, but backed off as the Nasdaq rallied. It is trying to hold above the summer doldrums levels of 43 to 47, but it is knocking at the door. Complacency has re-entered the Nasdaq 100 after a strong rise; today's higher volume churn is not welcome. 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 after that 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): 0.74; +0.06. Not much of a gain, but there was not much selling either on the leading Nasdaq and SOX. Still, we saw the ratio climb back up into a high level even without massive selling. Contrary to the VIX (how do you like that, a contrary contrary indicator), the put/call ratio is showing that option traders are still nervous as a group about the market's prospects. That nervousness is good; the inability to crack important resistance sent more into put positions.
Nasdaq
Hit the 200 day MVA and fell back with some higher volume churning. Still, it was stingy with its gains as noted above; not many breakouts form the past few sessions cratered back. Sideways would be the best for now.
Stats: -5.26 points (-0.3%) to close at 1935.97.
Volume: 2.136 billion shares (+23%). Back above average and the first strong volume in almost two weeks. Too bad it was on a churn just below important resistance. Buyers and sellers were evenly matched at 1.074 billion downside shares to 1.011 billion upside shares. Churning is not great, but it was not a turn down from resistance and a tanking. Today was a negative but not a disaster.
A/D and Hi/Lo: Decliners took over with a mild 1.08 to 1 lead (advancers led 1.35 to 1 Monday). New highs fell to 88 (-13) while new lows rose to 24 (+4).
The Chart: http://www.investmenthouse.com/cd/$compq.html
The chart was a tight doji with the high right on the 200 day MVA (1965.09). The bottom tapped the 10 day MVA (1902.89). There is something really, really interesting and definitive going on here. The Nasdaq, the leading index off the September bottom, is being squeezed between resistance at the 200 day MVA from the top and support at the up trendline at roughly 1870 (just above the 18 day MVA at 1860.75). That is one reason we have been calling for some more sideways action here as it tests the 200 day MVA. If it can move laterally further and consolidate a bit more, given the upside bias in the market, we anticipate an upside breakout over that resistance. We have to keep an eye on volume with today's doji and churn on above average volume, but as long as it hold support we will watch for that upside move.
Dow/NYSE
The Dow could not handle resistance at the prior double bottom 'hump' at 9992, hitting that level again on the session high and then tanking on higher, though still below average volume. Could test up trendline or continue its lateral consolidation.
Stats: -110.15 points (-1.1%) to close at 9872.60.
NYSE Volume: 1.304 billion shares (+14.5%). Rising volume on the selling, but still below average (1.45 billion). Down volume was slightly ahead at 757 million to 535 million upside shares. Pretty much matches the action, but not sellers were not way out in front.
A/D and Hi/Lo: Decliners took over 1.24 to 1 (advancers led 1.10 to 1 Monday). New highs fell to 79 (-28) while new lows fell to 24 (-9). It is VERY GOOD action to see new lows fall even as the market falls. That tends to indicate that stocks are indeed sold out.
The Chart: http://www.investmenthouse.com/cd/$indu.html
Resistance at 9992 held again today, this time sending the index lower toward the bottom of its recent trading range from 9790 to 9992. There is some support at the bottom of the range, but it is tenuous as it formed just over the past two weeks. Note that on the low (9831.15) it once again held at the 10 day MVA (9846.12) and bounced up from there to the close. As indicated last night, if it can hold the line there, it has made a small wedge, a bullish pattern that could bounce it over the resistance at 9992. The selling on higher volume is a concern that the 10 day MVA may not hold, but it was not heavy volume today. The 18 day MVA is at 9750, and the important up trendline is just above the 50 day MVA (9601.02) at 9625. In the bigger picture, that is the key level to hold on any more significant selling. Still, we like the lateral action, and if it can hold, it bodes well for the index. We are not really interested at taking any new short positions at this point, but would wait for a real collapse below the 50 day MVA. Right now that does not look as if it will happen.
S&P 500: The big caps tapped the March 2000 down trendline on the high (1163.38), but that sent the index right back down. It bounced between the 10 day MVA on the low (1140.81), managing to close back up right at support at 1150. The downtrend is serious resistance. As with the Nasdaq, the S&P is being squeezed between the resistance and rising support in the form of the up trendline at 1120, just above the 50 day MVA at 1114.59 and price consolidations at 1125. Selling volume was not tremendous, and if it can hold with a lateral or slightly lower move, it too will make a more definitive move. If stimulus can get passed and the positive economic outlook continues, we look for the breakout to the upside.
Stats: -7.92 points (-0.7%) to close at 1149.50.
Volume: NYSE volume rose again, but today on selling (1.304 billion shares, +14.5%).
The Chart: http://www.investmenthouse.com/cd/$spx.html
TOMORROW
Not much economic news tomorrow until the afternoon when the Fed Beige Book survey of the overall economy comes out. With the foreshadowing today from Fed members, expect to see a report that says the economy is still contracting. The Fed is in the downside management game right now, trying to keep the idea that there are still problems out there to avoid a further rise in interest rates. Thus we can expect more of the same and that may impact the market in the afternoon as the consumer confidence did today.
Maybe not as sharp an impact, but it seems investors are getting ahead of themselves in anticipating an economic recovery. Now that the worm has turned a bit, they have an insatiable appetite for positive news to reinforce their new commitment to a recovering economy. They are now looking at every report to rationalize their stepping back in. That is why the surprisingly low consumer confidence number affected the market as much as it did.
What we are going to look for is more of a lateral to downward move toward those near term support levels. We would really like to see the indexes continue in their recent tight ranges, moving laterally toward a showdown between resistance and rising support. Regardless of whether they move in the lateral consolidation or move back down to any of the many near term support levels, we want to see them hold on below average volume in preparation for a move up to take on that resistance again.
We are seeing many of the good moves hold on quite well even in the face of today's selling. We are going to look at selling some calls on our existing positions for some fast profits while there is some selling, trying to gain $1 or more net on the positions. As we teach in the seminars, we have a goal of netting $1 on our stock positions with covered call sales and buybacks each month. Sometimes we get more, sometimes just a dollar, but it is a great way to take advantage of the downturns that always occur.
If we see the indexes hold support and start back up, we will take more positions as presented. The market still appears to be building in a stair step fashion, and that bodes well for longer term ownership.
Support and Resistance
Nasdaq: Closed at 1935.97.
Resistance: 1930 to 1940, a level it is trying to clear now. The 200 day MVA is at 1964.14, a level that the index could not break today. The upper channel is way up at 2055 now. The March 2000 down trendline is at 2115.
Support: 1875 is the bottom of the recent trading range. The up trendline is at 1870. The 18 day MVA is at 1860.75. Below that is 1800 and the 50 day MVA at 1796.61.
S&P 500: Closed at 1149.50.
Resistance: 1150 is not broken yet, but it is trying to hold as support as well with the index rallying back up to close at that point today. The March 2000 down trendline is at 1162. The upper channel is right at the 200 day MVA at 1181.86 (the 'hump' in the March and April double bottom as well).
Support: The 18 day MVA is at 1130.11, just above 1124 (a point of prior consolidations). The up trendline is 1123 and the 50 day MVA is at 1114.59. Then 1103, the old closing low in the double bottom from March and April. Again, there is a lot of support unless something bad happens.
Dow: Closed at 9872.60.
Resistance: 9992 (former top and bottom). The upper channel is now at 10,120. The 200 day MVA is at 10,173.49 and there is resistance at 10,200.
Support: Lows at 9790 in the current consolidation are possible support. Then the 18 day MVA is possible at 9735.42. The up trendline is at 9625 and the 50 day is at 9601.02. 9500 also acts as support independently.
Weekly Economic Calendar (All times Eastern). The figures are the consensus expectations, not ours.
11-27-01
Consumer Confidence, November (10:00): 82.2 acutal versus 86.5 expected and 85.3 prior (revised from 85.5).
Existing Home Sales, October (10:00): +5.5% or 5.17M annual units versus 5.00M expected and 4.90 prior (revised from 4.89M).
11-28-01
Fed's Beige Book (14:00)
11-29-01
Durable Orders, October (8:30): 1.8% versus -8.5% prior.
Initial Claims, 11/24 (8:30): 430K versus 427K prior.
Help-Wanted Index, October (10:00): 52 versus 52 prior.
New Home Sales, October (10:00): 850K versus 864K prior.
11-30-01
Chain Deflator-Prel., Q3 (8:30): 2.1% versus 2.1% prior.
GDP-Prel., Q3 (8:30): -0.8% versus -0.4% prior.
Chicago PMI, November (10:00): 45.5 versus 46.2 prior.
End Part 1 of 2
|
us stock market
stock watch
|
