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us stock market, trend trading stock
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12/20/01 Investment House Daily
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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:
- Nasdaq torpedoes lower on bad earnings news.
- Don't want to sound too down: did say Thursday would be the worst day.
- Christmas stimulus gone and now they want to regulate what you hold in your 401k, and thus regulate your ability to control your retirement and how you live your life.
- Subscriber Questions
- Team Trades
Nasdaq plummets through 200 day MVA on higher volume.
Higher volume can be attributable to the shuffling at expiration, and as we noted earlier in the week, Thursday is usually the toughest day on an expiration week. Today, however, had a bit more spice to it. JNPR shocked the market with a 50% slashing of earnings for the quarter. Networkers along with semiconductors had been leading the tech rally from the September bottom, and in back-to-back sessions we get two big names from each sector saying things are not going to be any good this quarter.
That really took some wind out of the economic recovery sails as investors start wondering if the timing of the recovery is a bit further out (this, of course, as Congress seems to be taking the view that no quick action is necessary on stimulus). The Nasdaq has been riding higher on the tide of better economic sentiment. With that in question, dollars started coming out of techs, and out of networkers and semiconductors in a big, big, way.
Then Argentina news just gets worse and worse. IMF refuses to 'help,' riots in the streets, president and top officials leaving. Not a good, stable foundation for good market action.
Rally ran out of steam as expected in the near term, but it was sharper selling.
Monday we said this rally would most likely carry through Wednesday and then run into some trouble on Thursday, the wilder of the days during an option expiration week. That happened, but the selling on the Nasdaq was sharp; many stocks were undercutting the 50 day MVA on strong volume. If solid stocks undercut the 50 day MVA without an attempted institutional support, that is not a good sign for a successful test of the recent gains before further rallying. Today there were big point plunges on strong volume.
The Nasdaq sold hard and plowed right through its 200 day MVA. It rallied to test it, but that failed. When we saw it failing, we fired out an alert for downside positions. The Dow and S&P were holding up better, but then they started to crack as well from those potentially negative patterns, and we sent some alerts on them and went after some downside positions on those as well.
After breaking the up trendlines, the market has indeed changed its stripes.
The indexes broke their up trendlines in succession with the Nasdaq, the leader, the last to do so. Even with that, the indexes were still hanging in there, building nice handle consolidations to their previous runs. The Nasdaq showed a day of distribution, but the Dow and the S&P were making moves back up on good volume, appearing to take some leadership.
Then some bad news in the form of warnings hit two days running, and the Nasdaq rolled over and fell out of its handle today. It looks as if there is at least a bit more downside here on a move today through the 200 day MVA on 2+ billion shares as the Nasdaq makes a lower high and then a lower low. Meanwhile the Dow and the S&P turned lower after again testing resistance; their volume was not big, but with the failure at resistance once again, the selling could increase.
Don't get too gloomy.
While it is apparent the market is going in for a bigger correction, we don't want to sound too gloomy. Weekly jobless claims fell for the seventh out of the last eight weeks. This is clearly no fluke at this point; jobless claims are falling. Retail sales are better than a lot of the analysts are reporting. Apparel stinks this year because it is hot outside. No one is buying coats, sweaters, sweatshirts, etc. when they are not needed. Instead they are buying the crud out of electronics and home furnishings. It is not a great year, but it is not the horrific scene that it is being made out by some. Look at Nike and BBBY; they met or beat views and have good visions of the future. These stocks are performing well and will continue to help lead the market; they were overlooked because tech is sexy and gets the headlines.
Where are we now? The market rallied well, was trying to consolidate a bit, but then got hit with warnings and downside earnings surprises. It is now going to test a bit further. No one can really doubt there is going to be an economic recovery; the market just got hit with bad news after a good run higher. Moreover, today being the Thursday before a triple witch expiration, the moves were accentuated a bit. Overall things are still in good shape for the longer term as we are in the best time of the year to be getting into and holding stocks combined with a good recovery in the economy coming.
THE ECONOMY AND YOUR RETIREMENT
As noted, jobless claims were down once again. The Philly Fed report came in at -5.5, much, much better than the -17.5 expected and the -20.2 November reading. Things are indeed getting better still, and that bodes well for the market.
Of course, if certain elements of our government have their way, we will be a socialist country in a few years and all of this will be moot. Attempts at socializing healthcare failed, but there are backdoor attempts all the time. Bit by bit it will happen. The most recent and incredible attempt by the government to dominate your life: a new bill to limit the amount of any one stock you can hold in your 401k account to 20%. The government, the world's worst investor, is trying to tell you how to save for your retirement because you are too stupid to do it yourself. The next step in this is going to be simply a government takeover of all retirement plans so it can monitor and make sure they are 'safe.' What better way to have total control over its minions than their retirements? I know this is extreme, but if history has shown us anything, it is that the government tries to usurp as much individual freedom as possible and it is horrible at handling finances as evidenced by welfare, medicare, medicaide, social security. This bill is another step in achieving control. This is insane.
It is using tearful testimony as a weapon to take more control over your investing lives. Enron is NOT representative of the thousands of well-managed companies out there. It was well known in Houston that ENE was very aggressive and played things faster than others. Should its failure be applied as a standard to ALL companies in the U.S.? Off-sheet debt at least as large as on balance sheet debt; do we really believe that is widespread in the U.S.? If that is the case, the cure is not to limit what investors put into the company, but to get the SEC to do its job. It is preposterous to hold up ENE as the standard for investment standards.
They are talking of taking away one of the best investment strategies available to the working person.
No the 401k won't be eliminated, just restricted. We like building up big volumes of shares and using those to write covered calls on them to generate monthly income. This is how to break the bonds of servitude and take control of your lives. Bills like these take away and limit your ability to do that and that is just wrong. The key to our success individually and as a nation is educated citizens. Those that want to achieved should be allowed to do so without government holding you back. I know several people with thousands of shares of company stock accumulated over the years and they write covered calls on them monthly to generate income to pay bills, go on vacations, pay taxes, etc. If this rule had been in place, they would not have amassed these shares. This is another attempt to use an emotional time to take away freedoms. We need to stand up and say a loud, definite 'NO!'
THE MARKET
All indexes turned lower today, the Dow and S&P doing so after tapping at resistance. The Nasdaq turned down and broke below some solid support at the 200 day MVA on strong volume. While the market has a lot going for it, it now is going to test lower than it originally looked. We issued downside alerts today when this occurred and the trend was established, and now we will ride those down to the next support level.
VIX: 24.38; +0.81. A mild rise in volatility as the S&P sold down on the session, but did not really tank. It has not been down this low in a while, and is close to that 20 to 22 level that is considered complacent and can lead to selling or stagnation in the index.
VXN: 52.91; +3.23. Nasdaq volatility jumped on the big selloff; glad to see that happen; sometimes it does not jump right up. Still at a fairly high level, but this is a secondary indicator, and with the Nasdaq volume spiking higher on the selling, that takes precedence.
Put/Call Ratio (CBOE): 0.97; +0.34. Major spike in the put/call ratio on the CBOE, the largest options exchange. Such dynamic moves indicate much continued pessimism in the market as option speculators are ready to play the downside moves. Now the last time we saw a 0.90 reading or better, it turned out to be incorrect; this seems to be a massive jump, but we have no doubt that put activity jumped higher today. Overall this is a good sign for the market longer term as it shows healthy disrespect for the rally, and that means there is still money out there in bears' pockets ready to fuel the rally higher when it resumes its move back up.
Nasdaq
Wow. When you get back-to-back bad earnings news from some big names, a lot of fluff can be removed. The network and semiconductor sectors were mauled today on the MU/JNPR news. Those led the move up, and with them tanking, the Nasdaq followed on heavy volume. Important support was broken, so the near term momentum is down.
Stats: -64.35 points (-3.2%) to close at 1918.54.
Volume: 2.043 billion shares (+6.5%). Another day of distribution, i.e., dumping of shares on the Nasdaq. That makes two strong days and one mild day (Wednesday). A few quick days can portend a stronger drop.
Up volume: 261 million
Down volume: 1.743 billion. Mounting selling momentum.
A/D and Hi/Lo: Decliners raced ahead 1.88 to 1 (1.28 to 1 Wednesday). Rising declines on rising volume is not a good combination.
New highs: 76 (-36)
New lows: 42 (-3). Again, new lows falling selling. That is a good sign that the market is not overall in bad shape.
The Chart: http://www.investmenthouse.com/cd/$compq.html
Gapped lower and looked weak all session. Later in the session it broke below the 200 day MVA (1931.39) and the prior consolidation range tops (1934). It tested it but failed, dropping more or less like a stone. It has now made a lower high and a lower low since its initial break of the up trendline. The Nasdaq 100 is way ahead of the overall Nasdaq. It is already at its 50 day MVA (1550) and could easily head down to 1500. The character has changed, and today's move put an exclamation point on that. Now we have to look to see if the 50 day MVA (1884.54) or some price support at 1873 to 1875 holds. If it does not, things get much more interesting so to speak. For the short term it has downside momentum to that level.
Dow/NYSE
After tapping at the 200 day MVA Wednesday on a good volume move, the index turned lower and sold down on strong volume was well. The double top scenario appears to be playing out, but we are not ready to ignore Wednesday's good volume move.
Stats: -85.31 points (-0.8%) to close at 9985.18.
NYSE Volume: 1.435 billion shares (-4%). Volume backed off on the selling, one of the few positive signs for the day. Buyers were back Wednesday, and the sellers were not stronger today. That helps, but it was not a light volume day.
Up volume: 552 million
Down volume: 864 million
A/D and Hi/Lo: Decliners increased the lead to 1.47 to 1 (1.07 to 1 Wednesday). Not a blowout to the downside.
New highs: 83 (-5)
New lows: 40 (-10). As with the Nasdaq, NYSE new lows fell on the selling. This is a signal that the market overall is not in seriously bad shape.
The Chart: http://www.investmenthouse.com/cd/$indu.html
Last night we said it gets interesting, and today it answered some of the riddle by failing to take out the 200 day MVA and starting some more selling. Volume was above average, but at least it was lower than Wednesday. With this move it made a lower high and failed to take out the 200 day MVA once again. Very close to the early December high, and with the selling it could have formed a double top, a pattern we have seen in stocks such as BRCM and QLGC of late with the results being rather sharp to the downside. It is just below potential support at 9992, and on further selling we look for 9750 range to hold (50 day MVA at 9759.36). We may see it trade in a range between the 10,000 and 9750 for awhile to regroup. That is the best case scenario as far as the downside action being limited. The index has shown more resilience of late, trying to assert some leadership.
S&P 500: The big caps failed to make a higher high, stalling just below the November high and the down trendline from March 2000 and resistance at 1150. It looks to be forming a weaker or wimpy right shoulder to a head and shoulders pattern. When the right shoulder tops out below the left shoulder, that is usually a signal that the selling will be a little more intense. We issued some alerts on this downside action today, and were taking some aggressive downside positions. The true breakdown would be below 1125, but with the Nasdaq in full retreat today, we feel a move down to 1125 in and of itself is not difficult and will deliver a good return if that is as far as the index drops.
Stats: -9.63 points (-0.8%) to close at 1139.93.
Volume: NYSE volume backed off on the selling, but it was still strong and above average (1.435 billion shares; -4%).
The Chart: http://www.investmenthouse.com/cd/$spx.html
TOMORROW
Friday on the triple expiration week. Personal income, spending, GDP, Michigan sentiment are out there as well. Argentina, warnings season, long holiday. A few months ago the market would be wallowing on the rocks with all of that hitting. Now it is selling back a bit, but holding up well overall.
We noted today in a late alert that the market on close orders had a sell imbalance, and that usually foretells more downside momentum in the morning unless there is some news to change the landscape. With the stimulus package being squashed by procedural means, we are not expecting any upside lightning bolts.
That leaves downside action for the open and possibly most of the session. Most positions for expiration will be squared already, and that leaves the door open for buyers late. Will they want to come inside? The market is only going to be open a half session on Monday, then closed Tuesday. It will take a lot of coaxing to get the buyers to walk in before that weekend with the warnings from big names increasing and the uncertainty of few trading hours over the following four days. That means we will be inclined to let those downside positions ride through the weekend unless we get a selloff to support and a rebound.
Not a great way to end the rally up to Christmas, but early in the week we anticipated the move up through Wednesday then selling to enter. That has occurred with a bit more vigor than we anticipated, but again, overall conditions are still good for a continued move higher. Warnings hurt, and that is what many are tuned to right now. We cannot forget that there are many companies that have already come out and said things were getting better and were going to be better. The are both from tech and other sectors. That is being forgotten right now by most, but we need to remember that. When the market gets this selling bout out of its system, the good news, and there is more of it than bad news right now, will once again propel stocks higher.
Support and Resistance
Nasdaq: Closed at 1918.54.
Resistance: The 200 day MVA at 1931.39). 1934 to 1941, the tops of the trading range it has fallen back into. Then 2000 and the up trendline is at 2015.
Support: The 50 day MVA (1884.54). 1875 (the November gap up point and prior price points.
S&P 500: Closed at 1139.93.
Resistance: 1150 (former price consolidations). The March 2000 down trendline at 1145. Then the December high at 1173.62. The 200 day MVA 1169.59. The up trendline is at 1175.
Support: 1125, former price consolidations, and the 50 day MVA (1127.59). After that, 1100 is next (top of the October consolidation range).
Dow: Closed at 9985.18.
Resistance: 9992 to 10,000 could be, but have not been holding either way with much vigor. The 200 day MVA (10,106.89). The up trendline at 10,110. The December high is at 10,169.44.
Support: The 50 day MVA is at 9759.36. After that, 9500.
Weekly Economic Calendar (All times Eastern). The figures are the consensus expectations, not ours.
12-18-01
Housing Starts, November (8:30): +8.2%. 1.645M actual versus 1.525M expected and 1.521M prior (revised from 1.552M).
Building Permits, November (8:30): +5.3%. 1.564M actual versus 1.470M expected and 1.485M prior (revised from 1.473M).
12-19-01
Trade Balance, October (8:30): -29.4B actual versus -$27.5B expected and -$19.0 prior (revised from -$18.7B).
Leading Indicators, November (10:00): +0.5% actual versus 0.2% expected and 0.1% prior (revised from 0.3%).
12-20-01
Initial Claims, 12/15/01 (8:30): 384K actual versus 394K expected and 395K prior.
Philadelphia Fed, December (12.00): -5.5 actual versus -17.5 expected and -20.2 prior.
Treasury Budget, November (2:00): -$54.3B actual versus -$47.5B expected and -$23.7B prior.
12-21-01
Personal Spending, November (8:29): -0.5% versus 2.9% prior.
Personal Income, November (8:30): 0.0% versus 0.0% prior.
GDP - Final, Q3 (8:30): -1.1% versus -1.1% prior.
Chain Deflator - Final (8:30): 2.1% versus 2.1% prior.
Mich Sentiment - Rev., December (9:45): 85.7 versus 85.8 prior.
SUBSCRIBER QUESTIONS
Q: I read that on Dec. 24th, ARBA along with some others will no longer be on the Nasdaq 100. Could you please tell me if it will still be trading in the Nasdaq or someplace else if it will be trading at all. Thank you.
A: Those stocks being removed from the Nasdaq 100 to make room for the new group will still trade on the Nasdaq, but will not be factored into the Nasdaq 100 moves. Some of those being added are familiar names: IMCL, CDWC, SYMC, PDLI, SNPS, SEPR, IVGN, ESRX, CEPH, ICOS, CYTC, IDTI.
TEAM TRADES
AZO is on the SSR, and it has been very good to us over the months. Right now it is in another tight, flat consolidation above the 10 day MVA. This stock tends to bound up off of the short term moving averages after trading in tight, flat ranges for several sessions. Today the stock broke over 75, the high in the recent consolidation with a bit higher volume after some very low volume sessions. Whenever we see volume pick up after these low volume consolidations, we take notice. We took some partial positions today when it made this move even though it did not close above the 75 level. We will keep watching this leader for other volume spikes, hopefully higher, to take positions for the next move up.
When the Nasdaq broke below the 200 day MVA, we sent out an alert to the alert subscribers. When it tested the breakdown and started to fail, we issued an alert on the QQQ for some January 48 strike options. Very good delta (-.98), and would almost give us a tick for tick gain down to 36 (our initial target). They were trading at 8.90 by 9.10, and because these are so liquid, we put in an order at 9.00 because the index was still equivocal, i.e., the Nasdaq was moving up and down right below the 200 day MVA, preparing for the fall. When it moved up the bid and ask changed in a flash, and the fill was made. The index traded a bit higher, but could not break back up over the level and fell at the close. The options closed at 9.20 by 9.30.
End Part 1 of 2
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