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us stock market, trade stock
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12/06/01 Investment House Daily
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MARKET ALERT SERVICE
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SUMMARY:
- Indexes run out of steam, but no damage done.
- Some type of consolidation, rest stop, or pullback appears to be next.
- INTC reports stronger processor demand while AMD announces higher than anticipated Q4 sales
- Factory orders soar, jobless claims drop, and productivity hangs in there.
- Retail sales: the rich get richer.
- Team Trades
No gas left today as market takes a rest.
The indexes were ambivalent at the open, selling down a bit and giving us that softer open. They then gathered strength and ran higher through lunch with the Dow clearing the 200 day MVA and the Nasdaq starting to flirt with its upper channel. The S&P, however, was never able to clear its 200 day MVA, and that was the anchor on the other indexes. They sold down for two hours to the session lows and then managed a weak rally before the Dow and big caps settled back to close near their lows. The Nasdaq managed to continue up toward the close an turn positive, but it was not much of a flourish. It is the strongest, however, and it showed that again today though it was muted.
Volume was lower on the Nasdaq and NYSE, but it was not piddling. The Nasdaq logged well over 2 billion shares, but up volume was still outpacing down volume though the gap narrowed considerably. NYSE volume was well off Wednesday levels, but it was still well above average as well, higher than most volume over the past month. Down volume outnumbered up volume. One of our concerns last night was a high volume reversal, and though today's volumes were not slouches, there was no reversal today. No real damage done as the indexes took a pause at the next resistance level.
Some sort of rest is due here, but how much will this market rest?
There is a definite air of investment as opposed to divestment right now. We are getting upgrades, companies are upping earnings estimates and beating estimates, economic news is snapping back sharply, and there is institution-quality buying volume. When the market puts its head down and wants to rally, it tends to run hard, take a couple of days rest where it just holds its ground more or less, and then rallies more. That is the sense we are getting now though we have to be very careful and not forget that the Dow and S&P are butting heads with some very important resistance at the 200 day MVA.
We are sick of the question that is now asked of each person appearing on television now regardless of their background: is the market overbought? Remember just a couple of months ago it was 'has the market put in a bottom?' It is the question o' the week. The question that is not asked in response but should be is 'in what sense?' The market has rallied well off of the bottom, but it is a mere shadow of where it was 20 months ago. Even if that was an aberration in price, it is still down more than 50%. In that sense it is not necessarily overbought.
Are they talking about the last two rally sessions? After a 7+% surge over two days it is pretty clear that the Nasdaq needs to take a breather, but that does not mean it will roll over and tank. The buying momentum is strong and the Santa Clause rally and January Effect is happening now. There have been trillions of dollars on the sidelines looking for the chance to get back to work. That adds to the momentum as those dollars are put to work in a good rally. We may see some more of what we saw today: lower volume treading water as the indexes catch their breath for another move up. 'tis the season to rally, and there is an awful lot of money being put to work.
We are looking for maybe another sidestep tomorrow; after all, there has been a massive rally on the Nasdaq and SOX this week, and a little more softness may occur before the weekend.
INTC and AMD add holiday cheer after hours.
Intel raised Q4 revenue guidance as expected, and then it also said processor demand was better than expected. Surprise? Not really. Remember when Intel told us three and four months ago that Q4 was going to look better? No surprise today really, but it was still good news. With certain analysts hell bent on talking the stock down at any chance it was nice to see it report things were decent and the stock receiving a nice pop.
AMD, Intel's direct competitor, beat INTC to the punch tonight when it stated that it sees higher than anticipated sales in Q4 and revised its revenue estimates upward by as much as 10%. The stock jumped on the news, and it may continue the nice breakout over resistance at $15 it enjoyed on Wednesday. After hours it sure looks that way with the stock trading at 17.80 after closing at 16.25.
THE ECONOMY
Factory orders soar. The orders jumped 7.1%, a huge move from September's -6.5%. It was reported that the actual number was a 'small gain' over expectations of 6.7% to 7%. Hold the phone. Just this past weekend expectations were for +1.0%. They were revised higher as more and more economic news came in this week showing strong snapbacks post 9-11. Expectations less than a week ago were for almost no gain; they have been adjusted higher during the week. This was a huge gain and a real surprise in reality, just as all the economic news this week has been.
Jobless claims fell again for the fourth week in a row, dropping 18,000 to 475,000. There is some numbers shuffling here, however, as prior claims were revised up 5,000. So, it was a decline of 13,000; still not bad, but you have to watch those number jugglers. The big news: continuing claims fell once again, dropping 349,000, the biggest decline since 1983. That is the third week in a row they have been dropping, and a sign that even as we hear about additional layoffs, the unemployed are starting to get some jobs. Not all of them are jobs, however, because some are dropped from the rolls after a certain period of time. Still, the number is a continuation of a recent trend of fewer continuing claims.
Productivity fell to 1.5% for Q3 from 2.7% prior. Yes it dropped, but you have to look at previous recession periods. Usually in recessions productivity falls off the table. This time around it is holding up quite well. Historically, a 1.5% to 2% productivity increase is well above average. Even as the U.S. has been in recession the past 4.5 quarters (by our count; we announced last fall the U.S. was in recession), productivity is not tanking. Use of all of that technology spending is helping.
Retails sales lukewarm overall with a 1.9% year over year gain in November. That had investors cool to retailers, but not to all. As we have been seeing, the same retailers are doing well at the expense of the others: WMT, HD, LOW, PIR, BBBY, BBY, CC, KSS, COST, ROST, TJX, APPB, RI. These are the retailers that are doing well as department stores, apparel stores, and other traditional retailers see major sales declines (e.g., the Gap down 25%). On the way back from the grandparents' this week you could not help but notice the clusters of these stores and restaurants in key locations. They are dominating the U.S. retail market. Their sales are going up far more than the average.
THE MARKET
The indexes were unable to rally further today, the Dow and the Nasdaq testing higher but unable to hold much of the gains. The Nasdaq closed slightly positive as the Dow, S&P and SOX closed slightly down. Volume was solid but lower, good on the selling. The question is still how far back if at all the indexes will pull while they take a breather. The momentum is great, and the price/volume action has been solid. Thus we do not expect too far or too long of a pullback.
VIX: 25.10; +0.31. Volatility hit a high of 25.66 on the session, no rocket shot higher. The index is still in the middle of the 'normal' range and holding above the summer doldrums. With price/volume action behaving well, we focus more on that while we keep one eye here to let us know if there is too much complacency. 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: 48.39; +0.95. Hit 48.99 on the high, still not a huge spike, but it was not a wildly selling day. The index continues to hold above the summer range, a good sign all things considered. Again, however, this is a secondary indicator and it takes a back seat to price and volume. 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): 0.80 (+0.18). Jumping back up on a very modest day of selling. Option investors continue to bet on the downside after the market moves higher. What we have seen is slight drops as the market consolidates, not the plunge these option players are looking for. We really like to see it spike higher on mild selling. There is still a lot of belief that the rally cannot last, something clear when you see the parade of analysts on the tube stating that the market has to fall. The market is a lot like me; don't tell me I 'have' to do anything as I probably won't.
Nasdaq
Tried to get out of the blocks on some 'on the dips' buying, but it was not enough to maintain the session gains. Not unexpected, and not a bad day at all after the huge gain; the ability to come back after a couple of selling attempts (early and late) is a good sign. There was just not the landslide of buyers after two huge days.
Stats: +7.43 points (+0.4%) to close at 2054.27.
Volume: 2.213 billion shares (-20%). Volume was still solid and above average, but it backed off on the session as the Nasdaq could not push much higher. Better to see it back off a bit on this bit of rest, and then regroup for the next moves higher.
Up volume: 1.241 billion
Down volume: 941 million. The ratio narrowed substantially.
A/D and Hi/Lo: Advancing issues still lead, but shrinking to 1.32 to 1 (1.90 to 1 (1.72 to 1 Wednesday). Still not bad, but showing the slowing momentum from Tuesday's move.
New highs: 125 (-40)
New lows: 33 (+0)
The Chart: http://www.investmenthouse.com/cd/$compq.html
Started soft and the rallied to 2065.69 on its high, closer to but still well below the upper channel at 2095. It simply ran out of gas. Still, it did not violate the session low (2037.64) when it sold lower later in the session before rallying 14 points to the close. It avoided a big reversal, one of the signs of the bear market. Instead it saw buyers come in twice to blunt selloffs. It still must deal with the upper channel now just over 2100 and the March 2000 closing down trendline now right at 2150. More likely it will come back and test this move, but the momentum it has shown leads us to believe it may not be a long or far consolidation.
Dow/NYSE
The Dow moved above its 200 day MVA and was looking somewhat promising after shaking off the dips, but it could not hold the move. Volume retreated on the session, just what we want on a slight pullback.
Stats: -15.15 points (-0.1%) to close at 10,099.14.
NYSE Volume: 1.452 billion shares (-18.4%). Above average and strong, but by far less than Wednesday's big rally volume. This is what we want on selling.
Up volume: 708 million shares.
Down volume: 739 million shares.
Downside shares show how the session was covered with molasses.
A/D and Hi/Lo: Advancers held onto a lead by their fingernails, at 1574 to 1539 or 1.02 to 1 (1.87 to 1 Wednesday). A sign of the day.
New highs: 140 (-23)
New lows: 32 (-3). Good to see new lows still falling on a down session.
The Chart: http://www.investmenthouse.com/cd/$indu.html
Could not keep the momentum going after clearing resistance at 9992. It rallied to 10,169.44 on the high, over the 200 day MVA (now at 10,139.09) but it failed to hold the ground. It was not a high-volume reversal though volume was still above average on the move. The failure to clear the 200 day MVA is significant, but after such a strong move, a little softness is normal. What we want to see here is the index hold close to the 200 day MVA and then rally over it on strong volume in relative short order. So far price and volume has been good, and we will watch it closely tomorrow; we don't want the volume on this initial failure at the 200 day MVA to turn into selling volume. We would love to see it hold above 9992 on any consolidation here.
S&P 500: The big caps did not even attempt to trade over the 200 day MVA (now at 1175), rising to just 1173.35 on the high. It turned and ran from there, dropping below Wednesday's close. Volume faded significantly on the session, and we want to see the index hold above the March 2000 down trendline (now roughly at 1155) and solid support at 1150. Then mount an assault on the 200 day MVA once again and clear it on high volume. We always have to keep an eye out for another attempt that fails and volume spikes higher. For now volume and price action remain solid, and that gives us more confidence in the few days of rest. We would be more confident, however, if it had broken that 200 day MVA.
Stats: -3.25 points (-0.3%) to close at 1167.10.
Volume: NYSE volume was still above average, but it fell on the selling to 1.452 billion shares (-18.4%). If there has to be selling, that is what we want.
The Chart: http://www.investmenthouse.com/cd/$spx.html
TOMORROW
Friday brings the much ballyhooed unemployment report and all of its accompanying statistics. The rate is expected to tick higher while the loss of non-farm payrolls is expected to shrink. Some seasonal jobs will help account for the drop no doubt.
After a big upside week can we expect more Friday? This market has changed its stripes so to speak from what it was just two months ago. Instead of selling when there was no real catalyst, this market now rises when there is no real catalyst. Actually there is a catalyst, it is just not the news of the day that most financial news sources focus on: a massive slowdown and coming recession pushed stocks lower during the bear while a coming recovery based on selloffs, rate cuts and stimulus is pushing them higher.
The economists cannot figure it out; they are always behind the curve as a whole. Back in September and October of 2000, Roach over at Morgan Stanley called for 100 basis points in rate hikes for early 2001. He missed the coming slowdown that was evident all around him in the rapidly slowing economy. Right after the Fed cut rates the first time he declared a recession. We were already in one given the two quarters of massive slowing in GDP. Tonight he was saying there would be a pop up and then a further slowdown next year. Of course, no interviewer calls him on it; he is free to ad lib as necessary without having to worry about history. Again, listen to the market and look at history. Amazing signposts there.
Tomorrow we are not holding our breath for a lot. After a big move, unless there is some really favorable news out there. INTC had some pretty good news and was up big after hours, but it trailed off as the late session wore on. That may be the session tomorrow. What we want to see on any weakness is that lower volume without big point losses. The indexes were very stingy with their gains during the recent consolidation they just blew out of, and given that the Dow and S&P have not taken out the 200 day MVA, we do not want them to fall too far from those levels; we want plenty of steam in the move when they take them on again so they can break over them on big volume and hold the moves.
For short term positions, if we get another run up to the 200 day MVA on the Dow and S&P and the Nasdaq rallies toward that upper channel again but fails, we will close them out and take the nice profit. We don't want time to start eating away our profits on our options.
Support and Resistance
Nasdaq: Closed at 2054.27.
Resistance: The upper channel at 2102 and the closing price March 2000 down trendline at roughly 2150.
Support: One place we can look at is the gap up point at 1980; that is always possible. Below that is the 200 day MVA at 1944.73, just above another support level at 1940. That looks pretty solid. The up trendline is down near 1910.
S&P 500: Closed at 1167.10.
Resistance: Still fighting the 200 day MVA at 1175. Then the middle of the March and April double bottom at 1183.85. The upper channel is right at 1200.
Support: The down trendline is right at 1155, and 1150 represents some prior price consolidations. After that is 1125, a level of prior consolidations. That is backed up by the 50 day MVA at 1122.
Dow: Closed at 10,099.14.
Resistance: The 200 day MVA at 10,139.09. Then the upper channel at 10,270. The September 2000 down trendline is running at 10,325 or so. From 10,200 to 10,300 the index has some pretty tough resistance.
Support: 9992 may now hold as support as it was so pesky on the way up. Then the up trendline is at 9825.
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): 51.3 actual versus 43 expected and 40.6 prior.
12-6-01
Initial Claims, 12/01 (8:30): 485,000 actual versus 488K expected and 493K prior (revised from 488K).
Productivity Rev., Q3 (8:30): 1.5% actual versus 2.6% expected and 2.7% prior.
Factory Orders, October (10:00): 7.1% actual versus 1.0% expected and -6.5% 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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