|
|
world stock market, trend trading stock
* * * *
12/01/01 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:
- Not a bad day at all whatever the circumstances.
- Economy snapping back even if it is not expanding just yet.
- Another building session as indexes hold the up trendlines, selling back on lower volume.
- Team Trades
"Nothing to be happy about today" we are told.
Even when it was clear late in the session that the indexes were going to hold above their up trendlines on low volume as indicated in our last alert for the session, there was a lot of gloom on the financial stations. The quoted phrase was uttered as the market was closing on one of the financial stations, summing up their outlook on the session. In the stark black and white world of financial television, up is good, down is bad. That information is beamed to millions who then nod in agreement.
As a matter of fact, this is exactly the type of session we were looking for once again: a further consolidation above the up trendlines in preparation for another assault on the key resistance at the 200 day MVA and down trendlines from March 2000. Indeed, given the negatives for the session, the action was very good: again the indexes were stingy with the gains, refusing to fold and battling back off the lows to hold the trendlines.
What news? Downgrades were back out again on this Monday after a two-week vacation. Dan Niles was still negative on chips, and that unleashed other 'negative vibrations' from analysts. Next, weekend violence in the middle east raised the specter of a widening conflict throughout the region as Israel is adopting a U.S.-like stance against terror attacks on its state: if the governing body does not take action against its terrorists, the governing body is a retaliation target. Moreover, Argentina was again in the light as it continues to threaten default, limiting private withdrawals to $250. Things are really, really tight in Argentina, and if it makes a major default it could hit the currency and more speculative stock markets (Nasdaq) while rallying the bond market a bit. That would give those wanting to refinance a better window to do so as bonds rally a bit; most likely the news would not tank the stock market for long.
Good economic news acts as a counter to the gloomier news.
The economy continues its snapback after the 9-11 attack. It was recovering with some components of the NAPM moving above 50 in August. Then they were slammed back on the attack, but have made a pretty rapid recovery. We have said it before: September 11 shut the economy down for a bit, but it has jumped right back into the fray after that brief hiatus.
Example: the national purchasing managers' report (NAPM), climbed to 44.5 in November, up from 39.8 and expectations of just 41. Big jump. It was still 18 months of decline in a row, but it was running back up to near August levels. New orders, a key component as it indicates demand that leads to more manufacturing activity, was back up 10.5% to 48.8 (38.3 in October). It had just cracked back over 50 in August, and it was darn close to expansion again in November.
Construction spending jumped 1.9% in October, the first gain since April. With expectations of a 0.5% LOSS, the gain appears even larger. Sure construction starts jumped after things settled back down, kind of a snapback, but let's not forget the real world. Construction decisions are not made in one month and started the next. There is such a thing as lead time in construction. Some projects may have been delayed a month to let things settle down a bit, but that does not account for the entire jump.
Personal spending shot up to an all-time single month gain of 2.9% compared to an expected 1.9% gain. That was well above the -1.7% in September. We had been reporting the increases we were seeing based on our own surveys, and it looks as if those were accurate despite the continued pessimism from many analysts and economists. At the same time, personal income was flat, meaning consumers were taking on more debt. Such a strong jump in spending indicates that it was not just necessary, sustenance spending. Consumers are apparently confident about the future, enough so to continue spending.
Semiconductors had a down session, but Jonathon Joseph at SSB stated that the group bottomed in September and that October shipments were up 25% over September. The drivers: PC's and wireless handsets. The battle of the analysts yet continues, but over the past three months, the semiconductors have rallied sharply, indicating the market is building in a recovery scenario despite the negative analysts. That is the way it usually works.
Another building session.
Today was just what we were looking for. No, we were not gloomy about today at all. We were simply watching to see if the up trendlines were going to hold through the close. Volume was light all session, so that was already a positive even with the indexes in the red. They flirted below the trendlines intraday on the Dow and the S&P, but then climbed to close above those key levels.
This action continues the lateral movement on low volume that shakes out the weaker holders just below the key resistance of 200 day MVA and March 2000 down trendlines. As long as the index can move laterally on lower volume while holding above those trendlines, they establish a better floor to bounce up from and take out that resistance. The reason is that all the profit takers leave, frustrated by the inability to make a definitive move up. At the same time, the low volume shows that the majority of the investors are holding onto their stocks even when down sessions such as today occur. After enough time passes, pent up buying action comes in and as there are not may sellers left, demand drives prices higher. If demand is great enough, it pushes the indexes over resistance on strong volume.
We may even get a 'shakeout' session, that is, where the indexes break below the up trendlines and look pretty sick, but then the sellers are exhausted and the buyers race the index back up on stronger volume, closing at or above the trendlines. That usually marks the launching point for the next move higher. The indexes are getting close to making that move based on the action we are seeing: a refusal to selloff, light volume selling, holding the trendlines.
THE MARKET
Looked like a bad day to many, but we saw it as just what we were expecting. The S&P is right on its up trendline, the Dow just above it, and the Nasdaq with some more breathing room. We will see if we get that intraday sell down tomorrow followed by a sharp recovery, or if the indexes are read to move up from here.
VIX: 26.00; -0.14. Pulled back again on selling in the S&P. This is not the action you want to see when selling occurs. In the past it has taken two days of selling to get this index moving back up, but the index does not have room to give unless it has that intraday low discussed above. Still above the summer range, but sliding. 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: 49.74; +1.29. Nasdaq volatility moved up on the selling, hitting a high of 50.20 before the Nasdaq recovered off of its up trendline. It continues to hold above the high end of the summer range at 47, but it is having a hard time rallying higher on the recent selling as the Nasdaq approaches its up trendline. In other words, there is not much room to fall to the up trendline to let the VXN rise a lot without potentially violating that up trendline. That is something we don't want it to do. 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): 0.72 (+0.09). Put activity jumped up Monday on the selling as option players continue to bet that the indexes are going to fall at this resistance level. We watch this because option speculators on a whole tend to be wrong about market direction. We would love a reading over 0.80, but we may not get it before the indexes make a move higher given their proximity to their up trendlines.
Nasdaq
Came close to the up trendline on the session low, then moved up to close above that level. Holding above the trendline and selling today on lower volume. That is the action we were looking for.
Stats: -25.68 points (-1.3%) to close at 1904.90.
Volume: 1.491 billion shares (-18.6%). Volume backed off significantly as we want on selling sessions. Good consolidation action.
Down volume: 1.143 billion
Up volume: 333 million
A/D and Hi/Lo: Declining issues rammed their lead to 1.72 to 1 (decliners led 1.06 to 1 Friday).
New highs: 73 (-11).
New lows: 47 (+3). Rising on a down session, but not rising much. That is a good sign.
The Chart: http://www.investmenthouse.com/cd/$compq.html
Still in the ascending wedge pattern and still riding above the up trendline as the wedge continues to narrow as volume falls dramatically. This pattern is one that builds pressure from below, leading to an upside breakout if things continue to hold up. There is some significant resistance to break, and there is a lot of talk about a retracement of grander proportions than we have seen thus far. The market is not showing that now with some good price/volume action on the Nasdaq and a bullish pattern. It must clear the top of the pattern (about 1940) and the 200 day MVA (1951.77) as the first major step. After that it has the March 2000 down trendline in front of it. Intraday trendline is at 2020, and the closing price trendline is at 2175. On the downside, support at the up trendline is right at 1900. With a close at 1904.90, the pressure is surely building.
Dow/NYSE
Tested slightly below the up trendline intraday, but rallied to close above that level. Tomorrow it will be starting the session just about at that trendline. Overall, it was what we were looking for.
Stats: -25.68 (-1.3%) to close at 1904.90.
NYSE Volume: 1.200 billion shares (-17.25%). Volume dropped back below average on the fall, very good price/volume action.
Down volume: 687 million shares.
Up volume: 506 million shares.
Still relatively evenly matched up and down volume for a predominantly down session.
A/D and Hi/Lo: Decliners extended their lead to 1.47 to 1 (1.01 to 1 Friday). Not a rout.
New highs: 81 (-1)
New lows: 47 (+14)
The Chart: http://www.investmenthouse.com/cd/$indu.html
The index was looking questionable intraday as it traded below the up trendline on its low (9703.90), but rallied to close 60 points off that low and holding the trendline that is now right at 9755 after Monday's session. That is right at the 18 day MVA and just above the 50 day MVA at 9628.97. To the upside the Dow continues to fight resistance at 9992 (the hump in the March and April double bottom) and then the 200 day MVA at 10,151.20. That is the real test near term as the March down trendline is roughly at 10,375. It is doing what it has to do for now as IBM, INTC, and MSFT continue to form good patterns that could help the index. GE, however, is tanking on high volume, an important stock for the whole market. Remember, the index can trade below the up trendline intraday and then rally to close.
S&P 500: The big caps were looking the weakest today from the standpoint of trading below the up trendline, tapping down to 1125.78 on the low and then rallying to close at 1129.90, right on the up trendline for the day. Tomorrow that trendline will start out around 1134 as up trendlines continue to trend up each session. As with the Dow, it can trade below that level intraday as it did today as long as it rises to close above it. It has a harder road ahead of it as it is starting basically below the trendline. This is the second big test of the trendline for the S&P as it tries to hold and move up to take out the resistance at the March 2000 down trendline at 1160 and then the 200 day MVA at 1177.96. It was a building session just as we were looking for, but the index is lagging the other two.
Stats: -9.55 points (-0.8%) to close at 1129.90.
Volume: NYSE volume pulled back to below average levels, just what you want on a pullback in a consolidation. NYSE volume: 1.200 billion shares (-17.25%).
The Chart: http://www.investmenthouse.com/cd/$spx.html
Summary: Today was just what we were looking for. Now we need to see the S&P and the Dow move up a bit to keep pace with the up trendlines and hold the consolidation. Again we could see the indexes trade below the trendline intraday as the last sellers are shaken out. It is getting close to the point where the upside break needs to occur. So far it has been shaking off bad news and holding onto gains just as a stronger, recovering market should.
TOMORROW
Wilder world news and better domestic news did not push the market either way. It appears to be making up its own mind about what it is doing. More correctly, investors are making decisions not based on the news of the day, but on the events of the past year and the outlook ahead. That has a way of smoothing out those wildly volatile sessions that hallmarked the 12 months prior to the market's reopen in September.
Tuesday there is no major expected economic news hitting the wire, though there are rumblings about what GE is going to say with respect to its outlook as well as Intel's mid-quarter meeting later in the week. It is amazing how nervous investors get each meeting even after GE wowed everyone and kick-started a little rally in the market when it said it was ahead of estimates and anticipated double digit growth in 2002. SSB cuts its estimates to be in line with what GE guided in September, and the stock gets whacked.
The Nasdaq and SOX are set up well; they are now ready to make a move to again try to break above resistance. The Dow and the S&P are tagging along, not leading and trying not to weigh things down too much. Perhaps GE can start another rally, but its chart is hurting ahead of its news, dropping sharply below the 50 day MVA today on sharply higher volume. It is not indicating good news, and we have to take note of that. Charts tend to forecast bad news, and GE may hurt the market rather than help it this time around. Thus far the market has shaken off bad news and continued to move up on the belief things are improving. If GE reverses course and changes its views that is just pronounced a month ago, investors' belief of improving times may be shaken and the market could face a deeper test. There is a lot of fear about consumer debt defaults, and that is driving the speculation around GE. We do not believe GE is going to change its guidance, but that is only based on GE's track record in the past after it has given guidance. It is careful.
The overall market continues to consolidate well for that next test of resistance. This is the key for the market, and it is also what we are patiently waiting for in order to take more aggressive positions for the next stronger move higher. This rally has consisted of strong moves higher, consolidation of parts of those moves, then another move higher. By stepping in at each of these consolidations when they start the move higher, we are able to catch the bigger part of the move. Again we are looking at QQQ and SOX options for the move higher if the break comes, and we are also looking at the great stocks that are ready to move as well such as QLGC, PMCS, KLAC, etc.
Support and Resistance
Nasdaq: Closed at 1904.90.
Resistance: 1930 to 1940. 1940 is the breakout of the ascending wedge, but it needs to clear the 200 day MVA at 1951.77as well. The March 2000 down trendline is at 2020 (intraday prices), and the closing price trendline is at 2175.
Support: The up trendline is 1900. 1875 is still the bottom of the recent trading range. The 18 day MVA is right there at 1880.40. Below that is 1800 and the 50 day MVA at 1814.03.
S&P 500: Closed at 1129.90.
Resistance: 1150. The March 2000 down trendline is at 1160. The 200 day MVA is at 1177.96.
Support: The up trendline is at 1134. The 18 day MVA is right there at 1131.70. Then there is 1125, a level of prior consolidations. The 50 day MVA is next at 1117.54. Then 1103, the old closing low in the double bottom from March and April.
Dow: Closed at 9763.96.
Resistance: 9992 (former top and bottom). The 200 day MVA is at 10.151.50. The upper channel is at 10,200, coincident with some prior price resistance at that level.
Support: The up trendline is at 9750. The 50 day MVA is 9628.97. 9500 also acts as support independently.
Weekly Economic Calendar (All times Eastern). The figures are the consensus expectations, not ours.
12-3-01
Auto Sales, November (8:30): 6.8M versus 7.8M prior.
Truck Sales, November (8:30): 7.9M versus 9.8M prior.
Personal Income, October (8:30): 0.0% actual versus +0.1% expected and 0.0% prior.
Personal Spending, October (8:30): 2.8% actual versus 1.9% expected and -1.6% prior (revised from -1.8%).
NAPM Index, November (10:00): 48.8 actual versus 41.9% expected and 39.8% prior.
Construction Spending, October (10:00): +1.8% actual versus -0.5% expected and -0.4% prior.
12-5-01
NAPM Service, November (10:00): 42.5 versus 40.6 prior.
12-6-01
Initial Claims, 12/01 (8:30): 488K versus 488K prior.
Productivity Rev., Q3 (8:30): 2.6% versus 2.7% prior.
Factory Orders, October (10:00): 1.0% versus -6.2% prior.
12-7-01
Nonfarm Payrolls, November (8:30): -210K versus -415K prior.
Unemployment Rate, November (8:30): 5.6% versus 5.4% prior.
Hourly Earnings, November (8:30): 0.2% versus 0.1% prior.
Average Workweek, November (8:30): 34.0 versus 34.0 prior.
Consumer Credit, October (3:00): $1.5B versus 3.2B prior.
End Part 1 of 2
|
world stock market
trend trading stock
|
