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world stock market, us stock market
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12/27/01 Stock Split Report
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Stock Split Report Subscribers:
Happy Holidays!
MARKET ALERT SERVICE
Subscribers to the current reports can sign up at the following link:
http://www.investmenthouse.com/alertssr.htm
SUMMARY:
- Stocks drift higher again as late rally keeps indexes positive.
- Dow and S&P clear resistance on heavier yet still light volume; Nasdaq struggles at resistance once again.
- Small stocks on the move with a few big names thrown in the mix.
- OPEC wisdom: raise prices when world economy is slow or how to choke a choking victim.
- Subscriber Questions
- Team Trades
Buyers come in late to rescue session gains.
Once again the indexes wasted little time in establishing the move to the upside, and once again they sold off after making that move. Thursday, however, buyers did come back into the picture late as opposed to sellers, and the indexes staged a nice recovery. This action is somewhat typical of a holiday market when the overall outlook is positive for the future: without any real news or volume, the market moves higher.
It was not all roses and champagne. The indexes sold down from lunch into the last hour of trade before mounting the late rally higher. The Nasdaq and S&P threatened negative territory and the Dow actually undercut its 200 day MVA and traded negative before the buyers decided it was time to step in.
Some resistance cleared, but without major volume we will see how well it holds next week.
The Dow cleared the 200 day MVA early, undercut it, and then rallied back to close above that key resistance for the first time since June. The S&P 500 is still dancing below that level, but it too was able to clear some resistance at 1150 that has held it back for the past three weeks. The Nasdaq has run into a new nemesis, the gap up point at 1980, and thus far it has been unable to crack that level and hold it recently.
Volume was up on all indexes, but still very light in the bigger picture. While healthier price/volume action, it is hardly something you can point to as a sign of health or a lasting move. We always like to see important moves made on strong volume; that tells us if there is some conviction behind the buying or selling. The higher volume showed that more investors, specifically buyers, were in the market, but the volume is so far below average and the recent pre-Christmas trading levels it is hard to make much of it. About all you can say is that the market is having a 'typical' holiday rally that occurs when the overall outlook for the future is positive.
Small stocks still moving along with some big names.
Today saw a mix of strategies. At yearend there can be tax selling (taking the loss this year to put it against gains to reduce taxes), window dressing (buying stocks that have performed well during the year so they can be put in the yearend prospectus), and the start of small cap buying. The latter usually occurs in January after the tax selling and window dressing is finished, but it has been spilling over into December.
We have been covering more of these smaller cap stocks of late, and they have been moving well indeed. ALLY, ALOY, LYTS, TUNE, NABI, MCTR, INFA, IBIS, AFCO, VRST are just some that have been covered on the reports of late and that are making great moves. They have several things in common: good patterns, good price/volume action, good money moving into them, and excellent relative strength to the overall market. We are putting more on the reports tonight.
In addition, we see some of the big names making decent moves as well. EMLX is showing some of the best strength in the market of late, and was up again today on excellent volume (though it received an infamous 'valuation' downgrade after hours). Today also saw BRCD, BRCM, QLGC, IBM, FDC, IGT, ACS, KKD, NVDA start or continue their moves again. The winners are being added here at the end of the year to portfolios to add that sex appeal to attract investors. We have been covering these on the reports all during their moves higher. Heck, we have alerts on BRCM from back at $22, NVDA at $35, KKD at $35, etc. Window dressing is one thing; profits are another and are definitely preferred.
THE ECONOMY
Tomorrow is the big day for news this week. Most all reports have been pushed back to Friday, and thus we could really see some market direction based on those reports that hit before the open and a half hour into the action. Consumer confidence and the Chicago PMI will be our and most likely the market's primary focus.
Today saw the mortgage application index hit its highest level since 1990, but at the same time the refinance index dropped 20% last week. Those higher interest rates, now at levels where they were at the start of 2001, are cutting into that refinancing boom that looked so promising to the economy.
OPEC never learns. OPEC wants to stop the spiral in oil prices. Problem is, the drop in prices is based on a tanking world economy. What does a sick world economy need to get better? Low prices in the primary ingredients in all economies. Right at the top is oil. Will it help economies to raise the price of this lubrication of the wheels of industry? Of course not.
OPEC enjoyed the early 1970's, but then suffered horribly through the 1980's and most of the 1990's on very low energy prices as the world economy was choked off by those high prices. Attempting to raise prices now will not help price stabilize; short term there may be a pop, but without economic recovery, that move would be short term. And of course raising prices puts pressure on any recovery attempt.
It is very similar to the Fed saying it had to worry about last year's production cuts that led to a spike in energy prices leading to inflation; the threat was that the Fed would keep raising interest rates to combat this energy 'inflation.' But hiking interest rates would not lower the price of oil that was artificially raised by a cartel. Ultimately it did because the U.S. and then world economies crashed as a result; oil prices followed but that was not the stated plan. In the same vein, OPEC raising oil prices won't hasten the thing it needs most to occur: increased demand for oil. That is brought about by increased industrial activity that comes with economic recovery. Higher energy prices mean more money has to go to buying energy as opposed to other parts of the economy. Thus any recovery is slowed. We say it so often it is absurd: history repeats itself with alarming frequency as the same incorrect decisions are repeated over and over.
Of course OPEC is now an imperfect cartel, and its ability to influence world oil prices has diminished. It can and does move prices on its decisions to increase or decrease output, but its grip is weakening as other non-OPEC members expand their share of global production.
THE MARKET
Secondary indicators: Volatility and the put/call ratio are sentiment indicators. They are thus contrary indicators (typically moving inversely with the market) and are most useful at extreme levels. They take a back seat to price and volume, but they can give us a heads up or a caution flag so to speak ahead of time. That is why we keep an eye on them.
VIX: 22.28; -0.65. Volatility continues to drift lower as the S&P 100 drifts higher. It is getting very close to the summertime level of 20 to 22 when the market was under pressure and finding it difficult to sustain any moves other than the downtrend. This does not mean the market is topping right here; these holiday weeks tend to toss most indicators aside. It is something we continue to monitor and will have to watch as investors come back in the new year. It is starting to signal some complacency.
VXN: 47.46; -1.60. Nasdaq volatility continues to head lower toward the summertime levels as well, but again we have to take this week's action with some salt. We will know more next week, but this could be one of those heads up calls, and we are keeping an eye on it.
Put/Call Ratio (CBOE): 0.62; +0.04. Another modest gain as the indexes sold intraday and then rallied. That brought a few more put buyers into action. Still at a comfortable level above 0.4.
Nasdaq
Led the indexes again, but just barely. Again it could not hold above 1980, and could not take out Wednesday's high. It is struggling here and needs to follow the Dow in crossing over key resistance right here.
Stats: +15.72 points (+0.8%) to close at 1976.42.
Volume: 1.249 billion shares (+11%). Volume improved but was still way off average (1.9 billion) as holiday volume remains light.
Up volume: 900 million
Down volume: 327 million.
A/D and Hi/Lo: Advancers led again at 1.41 to 1, slightly down for the session ( 1.46 to 1 Wednesday).
New highs: 112 (-6)
New lows: 25 (-7)
The Chart: http://www.investmenthouse.com/cd/$compq.html
A quick move higher early in the session failed again at 1980; the action the rest of the session worked lower and lower until it found support at Wednesday's close. Then buyers stepped in and drove prices higher 14 points to the close. Good to see the buyers back into the fray after some selling. Still, the techs could not clear and hold above 1980. That level is the gap up point from early December, and it is turning into some tougher resistance. It is good that the index was able to jump right back above its 200 day MVA (1926.83) last Friday after a one-day undercut; it is trying to build some upside pressure here, but the light holiday action makes the read harder. The index did break its recent 3-week downtrend today on some stronger volume; that may bode well for a move up to 2000 before the year end, but tomorrow's action will be assisted or hampered with the early economic news. If it is decent, we anticipate another attempt at 1980 and a hold above that level.
Dow/NYSE
Cleared and held above the 200 day MVA on the close as that upside pressure turned out to be real. Been a long time. Now we will see if it lasts.
Stats: +43.17 points (+0.4%) to close at 10,131.31.
NYSE Volume: 883 million shares (+9.4%). Rising volume on the move above the 200 day MVA, but still well below average (1.29 billion). The lighter volume makes the moved less powerful, but we won't complain.
Up volume: 617 million
Down volume: 242 million
A/D and Hi/Lo: Advancers were stellar again at 1.97 to 1 (1.93 to 1 Wednesday). Very nice and very broad once again.
New highs: 124 (-9)
New lows: 24 (-6)
The Chart: http://www.investmenthouse.com/cd/$indu.html
Today the Dow finally cleared the 200 day MVA on the close for the first time in 6 months. This is a very important level for several reasons. Primarily, it is often a point of buying or selling for institutions. Shorts know this, and on moves over this level they tend to start throwing in a few towels, taking some chips off the tables. That means buying to cover the shorts. The move was not on great volume, so it won't be a mad rush to the exits, but it has their attention. Clearing this resistance, the Dow is free to rise to 10,250 (the bottom of the up trendline) without much hindrance. One thing to watch for: the immediate selling back below the MVA; don't think it will happen this week as the bias has continually been to the upside in the lack of specific bad news. We enjoy it for now.
S&P 500: The big caps split the difference, logging the second biggest gain of the big three indexes. In doing so it cleared resistance at 1150 and held it on the close. It still has not cleared the top of the potential left shoulder in the head and shoulders pattern (1163.38 intraday), but clearing the 1150 level on rising (though fairly weak) volume is a plus. With the overall upward bias, we could see the move to the 200 day MVA (1167.46) tomorrow.
Stats: +7.76 points (+0.7%) to close at 1157.13.
Volume: NYSE volume was up but still well below average (883 million shares; +9.4%).
The Chart: http://www.investmenthouse.com/cd/$spx.html
TOMORROW
Friday comes with a full load of economic data. Again, we will focus on the consumer confidence, Chicago PMI, and housing starts that are announced a half hour into the session. We are not anticipating bad news and expect the reports to assist the indexes in continuing their rise during this 'in between' week.
The big issue is what happens when the S&P and Nasdaq move up to the next resistance points. There is another holiday next Tuesday, but Monday is going to be a full trading session as opposed to the half day on Christmas Eve. That may lessen the tendency for a late round of selling ahead of the holiday. Still, if the S&P makes it to the 200 day MVA and cannot crack it, we expect some late profit taking though mild.
The heavier action will most likely occur Monday, the last trading day of the year. That is typically a heavy session as the last selling takes place along with the last portfolio juggling. Even that heavier action will not give us a true picture of what the indexes will do next year as it is driven by motives other than true investing. Still, as we noted last week, this 'in between' week is one that we take for what it is: in more positive times as we have now, a fairly predictable rise. That is what we have had, and we have enjoyed several nice gains on the action. Some have given us high volume breakouts; those we are going to hang onto. Others have been more momentum moves and were intended for more short term action. If our targets are hit on those tomorrow, we are going to take the money off the table; that was the plan, and it will have worked. We are not going to try to stretch a solid single into a double or a triple. Have the plan and stick to the plan. Then we will look out to the new year.
Support and Resistance
Nasdaq: Closed at 1976.42.
Resistance: Again moved over 1980, but could not break that early December gap up point. That is still the level to beat in the near term. Then the December interim top is at 2010.91. The up trendline is at 2045.
Support: The highs of the prior consolidation is at 1934 to 1941. Then the 200 day MVA at 1926.83. After that the 50 day MVA is at 1895.31.
S&P 500: Closed at 1157.13.
Resistance: Beat 1150 on the close (former price consolidations). Now the big test, the 200 day MVA at 1167.46. Then the December high at 1173.62.
Support: 1150 would be logical, but no strong volume on the break today. After that the 50 day MVA is at 1130.79 and former price consolidations at 1125. After that, 1100 is next (top of the October consolidation range).
Dow: Closed at 10,131.31.
Resistance: Beat the 200 day MVA at 10,094.63. Now it has to take on the December high is at 10,169.44. The up trendline is at 10,250.
Support: The 200 day MVA is what we want to hold (10,094.63). 9992 is next, but it has not held with much consistency. The 50 day MVA is at 9805.83. After that, 9500.
Weekly Economic Calendar (All times Eastern). The figures are the consensus expectations, not ours.
12-28-01
Jobless claims (8:30): 400K expected versus 384K prior.
Durable goods orders, November (8:30): -5.5% expected versus +12.8% prior.
Consumer confidence, December (10:00): 83.0 expected versus 82.2 prior.
Chicago PMI, December (10:00): 45.0 expected versus 41.1 prior
Existing home sales, November (10:00): 5.17M expected versus 5.17M prior.
New home sales, November (10:00): 895K expected versus 880K prior.
SUBSCRIBER QUESTIONS
Q: Today I intended on buying EMLX as per your recommendation in last night's
commentary. I missed the boat due to being tied up in another position. Now, your buy point was 40.19 I believe. By the time I was able look at playing EMLX it was already at 41.70 but in he process of pulling back. Then the question occurred to me that maybe buying at the initial buy point after running up like that might not be such a good idea. So, my question is, your buy points: is that after breaking it for the first time, or is a run up over that level and then pullback to that level just as good?
A: You have hit on something that we often do when we too miss the buy point on the first move. EMLX was moving again on solid volume for the session. Often when a stock is moving well and breaks over the resistance point, it will come back to test that level to some degree before moving up again. That is what it did today, and it is perfectly fine to buy as it tests that level and starts up again. Indeed, even if we catch the initial move, we will often add a few positions when it successfully tests the move. Either point is a good one, and just as there is not only 'one' buy point on a stock's run, there is not just one entry point during a session. You are also correct that it is not necessarily the best time to buy when the stock has made an uninterrupted run for a half hour; it invariably comes back a bit before it rallies further. We cover what levels act as support on these intraday moves in our online seminar series, but the point is we want to buy as close as we can to the buy point, and an intraday test of that level is a good one.
TEAM TRADES
Today we were employing some of the strategy discussed above in a different way. After hitting the initial buy point earlier in the session, we were trolling the plays in the last hour looking for stocks that had cleared resistance and were moving on good volume in a low volume market. ALLY in the gaming sector was moving well with the other leisure stocks, and on excellent volume. As a bonus, it had pulled back in the last 15 minutes by about 30 cents to 29.60, still above the pivot point. We saw an opening and issued an alert and went in to get some shares. Given the solid volume and the break of resistance, we placed a limit order slightly inside the ask at 29.82. Did not take long for the fill and the stock closed right near the level. Like the move on good volume.
BONUS PLAYS:
IDXX (Idexx Labs--$29.79; +0.63; optionable): Diagnostic Substances.
http://biz.yahoo.com/p/i/idxx.html
STATUS: IDXX is in a cup with handle dating back to June, and is showing something of a double bottom in its handle, which has formed over the course of this month. The last two sessions is has made a nice move back up in the pattern, although it is one of the low-volume moves we have seen a lot of recently. It is just below the handle high of 30, and we want to see a high-volume break over that level. Resistance from the left side highs is at 31.25 and 32.38 (made on an intraday spike). Target: 36.
BUY POINT: 30.12 on volume of 450,000 (average 300,000; today 72,700). Stop: 28.01 (7%).
POSITION: Stock and/or March $25 calls to buy (IQX CE - low open interest).
ASGN (On Assignment--$23.71; +0.43; optionable): Staffing services.
http://biz.yahoo.com/p/a/asgn.html
STATUS: Made a great move in December, completing a cup dating back to June. ASGN took out the left side high (23.63) and then pulling laterally over the week and a half. After its rest, which saw it test back toward its 10 day MVA (22.97), today the stock made a move up to 24 as volume kicked in (way up to 643,800; average 182,500). The volume on the move could be the precursor to a breakout, so we will look for that move. Target: 28.
BUY POINT: 28.12 on continued strong volume. Stop: 26.15.
POSITION: Stock and/or February $25 calls to buy (UHV BE - no open interest).
End Part 1 of 3
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