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money investment, investment help
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12/04/01 Investment House Daily
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MARKET ALERT SERVICE
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SUMMARY:
- Market was ready to rally, and it made the move today.
- Volume not massive, but solid increases and back above average
- A good rally given that there was 'nothing to be happy about' with Monday's action.
- Another call that semiconductor orders have bottomed while Cisco says sales are well in line with expectations and market share is surging.
- Team Trades
The consolidation gave way to the rally.
Monday night we said the Nasdaq and SOX were ready to take on the 200 day MVA once again. Today the Nasdaq started higher, tested resistance at 1930 three times, and then blew past that level with just over 2 hours to go. It cleared resistance at 1940 and then took out the 200 day MVA at 1949.45 (at today's close). The pressure had been building from below during the ascending wedge. Today it made the first important move, and the other indexes were ready to follow.
Volume was not huge, but it was up over the recent selling, pushing back above average on the Nasdaq and on the NYSE as well. Individual volumes were for the most part solid on the upside moves, but similar to the indexes, they were not what you would call powerful. It was a good move higher, but not a blowout confirmation of the breakout. We want to see volume continue to grow on the move higher toward the down trendlines.
Big mood swing on the street: from 'nothing to be happy about' to effusive.
Monday night you would have thought there had been no rally off of the bottom. The mood was negative after the indexes scored another loss. After the long bear, it does not take much to get the gloom up. It was not just the market commentators on television moping around, but option buyers turned to puts again Monday even as the indexes held above the up trendlines on much lower volume. That is great; if you are going to sell, let it hold support and be on lighter volume.
Despite what the market is saying, many, many analysts, strategists, and fund managers are pretty sure things are going to tank. Barton Biggs has been negative on the market for a long time. Back in August he was quite adamant that the market would not recover for a long time. After September 11 he was even more so. We read an article where he opined the bear market was not over and would last a long time into the future. He was at it again today, but stated that the September lows were most likely the primary bottom. However, he said it was 'madness' that the 'technology bubble' was being inflated again.
He was joined by others that voiced again that the market is just too inflated right now after the run off the bottom. Earnings cannot justify the prices, and they do not see the recovery in earnings. It is very much the 'show me' mentality many have adopted after getting the first real bear market in 25 years. It really makes us wonder how many of these are short the market and are, much as the Fed used to try, trying to talk it down so they don't get just slaughtered on their short positions.
Following their gut?
Barton Biggs has been a stalwart in investment circles for years. He has seen a lot as have many of the others that comment, both positive and negative. We have listened to many of these and read their articles. The most common theme is that valuations are too high based on the economy. As they do not see any economic recovery in the near future, they see valuations too high as they believe earnings cannot start rising to back them up soon.
Indeed, we heard one say that the market was projecting an early 2002 recovery and that is why it was rising now. That would be the nearest term the market would look, and that is pushing it. The market usually looks out 9 to 12 months; six months is really ahead of schedule.
While they are citing historic valuations in the argument that stocks are too richly priced right now, that is the bulk of their evidence for a market that is ahead of itself and is going to trend lower once again. This is a real general view that backs up their 'gut' feelings. It is not a look at what the market is saying right here and now.
We have said over and over again, we are not smart enough to probe the depths of the future, even though we read a lot of history and have been at this a long time. We prefer to look at the true gauge of the market: the market itself. It was telling us it was in trouble back in March 2000 with all of the distribution days and wild volatility that we noted time and again. It foretold the recession. Back in September it flashed classic bottoming signs and ever since has made a solid climb, moving higher, resting and consolidating those gains, and then moving higher again. It is now taking on the major resistance, and it is thus far handling it well. It may turn down and tank, but it will tell us when that is starting.
The point: your gut may tell you something; indeed, we get 'gut' feelings every once in awhile. I had a gut feeling about the move today when I wrote last night's report; I said it was ready to move. That gut feeling, however, was based on hard numbers, specifically the market itself in its price, price patterns, volume, sentiment indicators, and leading stocks. Sure this market may turn and tank in a month or two or three; it may reverse on us after trying to break over the final resistance. But, do we sit on the sidelines and not take advantage of the moves we see setting up on the belief that some day the market will fall again? You know that answer. Our motto is 'take what the market gives you,' and sitting buy and letting great moves pass you by when the market is telling you it is in good shape for now is not taking what is there for the taking. Indeed, we like the negative attitude of these guys. It keeps their money out of the market even as it rallies now. That money will provide future fuel to the rally when they finally start putting it to work.
In fairness we have a different view of the market than Biggs and the others, but our view is based on using the market to make money for the here and now as well as for the future. We want to get our cash flow where we need it to live as well as get those retirement accounts pumped up so we can take advantage of our definition of retirement: doing what we want to do when we do it. Those are our goals for you, and we are continuing to put together the package of services to achieve that. The SSR, TTR, Daily, Online Seminars and the Alert service are the foundation. Taking advantage of what they have to offer and getting in on the good moves builds the house on top of that foundation.
THE MARKET
Besides some of the negative views on the market giving us that good contrary feeling, UBS Warburg joined some others in saying the semiconductor cycle had bottomed and that December would be the turn. Cisco stated it was still in line with its expectations and had picked up 'enormous' market share. President Bush indicated that a compromise was possible on the stimulus package as well, outlining what he felt was necessary.
The market was ready to move, and this 'news' was enough to get it making the move. Not a blowout, but volume can come in tomorrow and later as the momentum builds. The close over the 200 day MVA on the Nasdaq was key as that will call for even more short covering now that key level has been crossed for now.
VIX: 25.33; -0.67. A mild drop today on the rally; pessimism about its fortitude no doubt kept the drop from being larger. The VIX continues to hold above the summertime stagnation level, but it is close. It remains in the middle of the 'normal' range from 20 to 30. 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 dip lower.
VXN: 48.04; -1.70. The Nasdaq volatility indicator gave back all and more of Monday's gain on that selling, closing just above the top of the summer doldrums range. We would expect volatility to fall on the gain, and while we are keeping an eye on it, we let price and volume tell us what is going on. 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): 0.59 (-0.13). Gave it back today after jumping back above 0.70 Monday. No need to buy puts today as the market was in rally mode early on as it gapped higher. The ratio still tends to jump up on selling sessions, so it is indicative of continued readiness to bet against the market by option players, and that is a good contrary indicator for the market.
Nasdaq
The clear leader still, up over 3% on rising, above average volume. Cleared the 200 day MVA and is zeroing in on the major down trendlines. Some are saying 2000 is the target and the top; we shall see.
Stats: +58.20 points (+3.1%) to close at 1963.10.
Volume: 1.908 billion shares (+27.6%). Rising, above average volume on the move up through the 200 day MVA. It was not massive volume, but it was a solid gain showing that buyers were in the lead once again, accumulating stocks.
Up volume: 1.630 billion
Down volume: 264 million
A/D and Hi/Lo: Advancing issues took back the lead at 1.72 to 1, the exact amount by which decliners led Monday.
New highs: 102 (+29).
New lows: 51 (+4).
The Chart: http://www.investmenthouse.com/cd/$compq.html
The Nasdaq broke out of the ascending wedge and cleared the 200 day MVA (1949.45) on its close. The index finished right at its session high as it rallied hard in the last two hours. After the lateral, 14 day consolidation, this was the move that was needed to start the break higher to attempt to clear this important resistance. It must still wrangle with the down trendlines from the March 2000 top. The trendline that runs from the intraday highs is just ahead at 2010, and the trendline from the closing prices is at 2165.
Dow/NYSE
The Dow rallied off of its trendline as well today, tapping that level on the low (9743.05) and rallying along with the Nasdaq in the last two hours. Volume was up and above average, but was even less powerful than the Nasdaq. It is coming along, but grudgingly.
Stats: +129.88 points (+1.3%) to close at 9893.84.
NYSE Volume: 1.292 billion shares (+6.5%). Volume back above average, but not a big volume session, lower than Wednesday through Friday of last week. Still, it did grow in power as the afternoon wore on and the index rallied.
Up volume: 1.015 billion shares.
Down volume: 281 million shares.
A/D and Hi/Lo: Advancers blew away decliners 2.3 to 1 (decliners led 1.47 to 1 Monday). This was a rout, and the NYSE A/D line in comparison to the Dow shows a much broader rally.
New highs: 108 (+27)
New lows: 38 (-9)
The Chart: http://www.investmenthouse.com/cd/$indu.html
Bounced up off the up trendline that is now at 9770 (at today's close), forming an ascending wedge intraday with the breakout point at the two morning highs (9820). It made a powerful break with about 1.5 hours left, following the Nasdaq higher. It also rallied to the close, a good finish to the session as it avoided selling back. Now it is a bit different than the Nasdaq. The Dow did not clear any resistance today as it had sold off harder than the Nasdaq and had not formed that ascending wedge. It is still below resistance at 9992, the middle of the March and April double bottom. After that it has the 200 day MVA to contend with at 10146.45, and there are a lot of price points (former lows) at 10,200 to 10,300. Lots of resistance and still working on gathering the momentum to take it out. It is lagging behind the Nasdaq; thus far the Nasdaq has been able to drag it along. It will have to get strength of its own before too long. A good session today, but it too needs some more volume on the continued move higher.
S&P 500: The big caps opened below the up trendline, tested support at 1124 (1128.86 on today's low), and then rallied late with a breakout very similar to the Dow's move out of its wedge. NYSE volume was not huge, and it was not a breakout day, but a day to recover up off of the up trendline. It did that but must face the March 2000 down trendline at 1156 and the 200 day MVA at 1177.09. Today was a move it had to make, but it was less than inspired. It was as if it did not want to move, but it had to follow the Nasdaq. As with the Dow, we will be looking for it to ramp up on a move toward the down trendline and the 200 day MVA.
Stats: +14.90 points (1.3%) to close at 1144.80.
Volume: NYSE volume moved back above average, but was not powerful at 1.292 billion shares (+6.5%).
The Chart: http://www.investmenthouse.com/cd/$spx.html
Summary: Today was the breakout we were looking for from the Nasdaq, but all indexes need more volume on the further move higher, particularly the Dow and S&P as they buck major resistance. The Nasdaq continues to lead, and the other two need to get a bit more interest in order to clear this resistance. Looking good, but needs to pick up the intensity.
TOMORROW
Economic news starts back up with the NAPM services index. It is expected to tick higher to 42.5 from around 40; with the NAPM looking better, we would expect services to ramp as well. Remember, services moved over 50 before the September 11 attack. We could see it back at that level tomorrow, and that would be a big boost for the market a half hour into trading.
The indexes finished with a furry today, and volume was rising as the buying continued in the afternoon. That is positive momentum for tomorrow, but the key will continue to be whether we get buyers coming in after this start of the Nasdaq breakout to push the index further past the 200 day MVA and get those shorts covering. The down trendlines are also key, but one step at a time is how this market has build the rally off the low, and that is what we anticipate it to continue to do if it continues.
The key to resistance is buying volume. Will it come in stronger as the indexes move up to take on the resistance? Buyers move the market higher. After the consolidation we have seen and the break higher by the Nasdaq, the blocks are in place for a move higher. With things in place and the market making the move, we step up to the table when the moves are made. Today there were plenty of stocks that started the moves we were looking for. After being patient it was time to buy, and if the market continues higher and takes out those resistance levels there will be more buying opportunities.
Tomorrow we anticipate the upward momentum, but we will be watching the resistance levels on all three major indexes. The indexes had a good run today, and could run up to the next resistance point tomorrow and then stall a bit. It may take a sidestep after that and then power ahead. They may run to the downside like a stuck pig at that point. We doubt the latter given the consolidation preceding today's move.
That puts us ready to continue buying the stocks making the moves we want during this spurt higher before the next consolidation range. It is important to jump on option plays when the moves are made. That way we capture the move and then can take profits without having to sit in them and let the time eat away the value. Stocks are more forgiving; we can sell calls on them when they hit their next peak and need to consolidate. Keep in mind the type of play and where you are in the rally when taking positions.
Support and Resistance
Nasdaq: Closed at 1963.10.
Resistance: Cleared 1940, breaking out of the ascending wedge and clearing the 200 day MVA (now at 1949.45). It now must deal with the down trendlines at 2010 and 2165.
Support: 1940, the breakout point, should now act as some support on down to 1930. The 200 day MVA at 1949.45 should also help prop things up. Then there is the up trendline at 1902.
S&P 500: Closed at 1144.80.
Resistance: 1150. The March 2000 down trendline is at 1156 - 1158. The 200 day MVA is now at 1177.09.
Support: The up trendline is at 1137. The 18 day MVA is at 1133.08. After that is 1125, a level of prior consolidations. The 50 day MVA is next at 1118.60. Then 1103, the old closing low in the double bottom from March and April.
Dow: Closed at 9893.84.
Resistance: 9992 (former top and bottom). The 200 day MVA is at 10,146.45. The upper channel is at 10,225, just above some prior price resistance at 10,200.
Support: The up trendline is at 9770. The 50 day MVA is 9639.36. 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
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