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us stock market, trend trading stock
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1/03/02 Stock Split Report
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Stock Split Report Subscribers:
MARKET ALERT SERVICE
Subscribers to the current reports can sign up at the following link:
http://www.investmenthouse.com/alertssr.htm
SUMMARY:
- Techs lead higher with authority.
- Dow breaks 200 day MVA on volume while Nasdaq beats March 2000 down trendline.
- Not just tech news helps rally.
- Economic numbers mixed
- Team Trades
2002 starts well with strong rally.
The tech news has shifted from negative to positive with respect to forecasts. For the past several months and with increasing intensity into October, the forecasts for the future were bad and getting worse. They reached a pessimism peak at that time, and now that the market has started forecasting better times and the economic reports continue to show improvement, the tune has changed. Now positive comments and 'buy' recommendations are being dangled out there. Time to get concerned?
Sentiment is important, and there is no question that analyst forecasts and ratings are part of the sentiment mix. It is most important, however, at the extremes. The few buy recommendations issued of late hardly represent an extreme. Though dwindling, there are still those out there that believe the market is lying to us about the recovery. That could be true, but we do not think we are smarter than the market. The big money moves the market, and the big money was speaking today once again.
Techs continue to lead the market.
It took some good tech news to get shake the market out of the lateral move it has been making. EMC was upgraded to a buy; JPM said to buy INTC now before earnings are announced because there was a surge in PC maker demand during December and the server business looks good going into the first quarter. Then there was word yet again that semiconductor prices were up overnight in Asia; that is becoming a common occurrence. Prices do not rise unless the demand is there; OPEC has taught us that lesson with its failed attempts to raise prices in a global recession.
That was enough to do the trick. Techs exploded higher with a 3.3% move. The Dow was a bit reluctant, but it too joined in later. The big caps also rallied, though both they and the Dow brought up the rear by a ways. A very important stock, Intel, broke resistance on very strong volume. It was a very good consolidation above the summertime tops, blasting off with authority. More and more tech stocks, though many still way off of their former highs, are completing interim bases and moving ahead.
Dow moves over 200 day MVA on solid volume.
The Dow won out over the 200 day MVA, ready to breakout of the ascending wedge it has formed over the past month, a bullish pattern that can lead to strong upward moves. Volume was back above average for the first time in seven sessions. Not huge volume, but the first indication it is going to try and head north to take on the summertime consolidation levels at 10,200 to 10,500.
The Nasdaq did a bit of its own work on resistance, bolting past 2000 and just clearing the closing price down trendline from March 2000. After clearing the 200 day MVA four weeks ago, this was a very important second step. It has not broken free and clear of the trendline yet or cleared the December high, however, so it still has work to do.
Close eye is on the S&P; it rallied as well, but the big caps were the weakest of the group, moving up off of 1150 but still below the 200 day MVA. This time things are a bit different, as volume is up and the indexes have had a chance to regroup, consolidate, and take another stab at this key resistance point.
Some of the action was short covering as the Dow recaptured the 200 day MVA and the good upgrades and other news moved the indexes higher. That move was assisted by some institutional buying that was also occurring on the news. Shorts were surprised by the surge in buying, getting somewhat caught with their shorts down. Hey, while we still believed the reasons for the rally to continue were still in place, we also saw signs of some problems arising. Today does not wipe all of those away, but it helped turn the tide to positive short term.
The Economy: More than tech news helps the rally.
PIR (Pier 1) again upped its December sales figures, raising it to a 14% gain. It also raised its guidance for the quarter. The stock is showing that not all retailers were faced the 'worst Christmas in 10 years.' After hours Starbucks (SBUX) said its December sales were up 22% year over year. Seems coffee drinkers felt good enough about their situation this holiday season to enjoy a $4+ cup of brew.
Auto sales surprised big to the upside. Most had expected sales to come back down to earth after the big sales earlier on the 0% financing. Despite down expectations, Chrysler jumped in with a 6% gain, GM with 7%, and Ford with 2%. Sure they are selling at lower prices (the financing is a big part of profits), but as we have said before, it shows a bigger picture than just what auto profits would be. Consumers are ready to buy value; look at the big business the discounters did over the holidays at the expense of the other forms of retail. They are buying 0% cars. Buying cars means falling inventories and the need for more cars. We noted two weeks ago how auto plants were cranking up to produce more inventory to sell. The need for more cars means those plants are running and that means workers are working. That is very good for the economy even if it is not the best news for auto profits.
Jobless claims were the disappointment, rising 36K to 447K after the prior week was revised from 392K to 411K. Countering that was the decline in the 4-week average to 409K from 419K prior. That smoothes out the trend a bit. Then, more downer news as continuing claims rose, reversing its recent trend, up 42K for a total of 3.715 million still looking for work. That is the real pain in the economy and what hurts the demand side. Those people need jobs! Job losses as reported by Challenger fell 11% for December; that helps, but near term we will continue to see employment lag economic recovery. It always does lag.
Construction spending was a bright spot of sorts, up 0.8% versus expectations of a flat showing. The previous month, however, was revised down to +0.8% from a +1.9% reading. Thus, over the 2-month period construction was more or less flat.
Thus the economic side showed some negatives, but overall it continues to improve. Weekly jobless claims still lag the economic moves a bit, and one week bump higher does not make a reversal of the steady improvement seen week in and week out of late.
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.
Analyst sentiment. There has been an ongoing conversion of bears to bulls the past several months. We have seen those hating stocks just two months ago saying you have to get involved. There is still a cadre of respected names that are saying it is too early and to watch out for a fall later in the year based on a head fake recovery. We have already noted that is a possibility if we assume that recovery is in the bag and thus jettison any thought of a stimulus package.
The question is, what do we do? We look to the market. Today it showed us some strong buy side action we had not seen in awhile. We saw some big stocks clear some important resistance. We don't ignore the moves based on a theory that stocks are overvalued at this point and that may lead to selling down the road if the economy does not come around. There is ALWAYS selling down the road. The key is recognizing when it is time to buy and then when it is time to take some profits. Auto parts have returned us a ton of money over the past several months. The air is being let out now. If they cannot retake the 50 day MVA tomorrow, we will sell the rest of our positions. If homebuilders sell some more on higher volume, we are going to take some profits. Let the market tell you what you should do. These were up last year, but they are under pressure now.
One other point. Even many of the bulls we see and hear from are bulls with caveats: 'we are bullish if the economy is good;' 'I think stocks are where you need to be but I am not comfortable with just buying stocks;' etc. It is a similar theme after getting torched: we think it is time to buy, but we are still very concerned. Heck, who isn't? Just as Pinocchio was told to let his conscience be his guide, we should let the market action be our guide. As we have seen in the past, it is very, very good at doing that.
VIX: 22.83; -1.09. Volatility fell sharply on the buying, something expected on the strength of the move. Still at those summertime levels, but though they give us an alert flag when they fall, they cannot replace the primary indicator of price and volume, and that was much better today.
VXN: 47.07; -1.13. Dropped as well on the Nasdaq 100, just inside the July 2001 consolidation level (47.50) and still above the closing low in June (43.96). No higher volume dumping of shares; actually the reverse.
Put/Call Ratio (CBOE): 0.68; -13. After leaping back up on the hint of selling recently, the ratio settled back down today, but we note that it is still well into the upper end of the range. Again, this has been the foil to the volatility indications. The two have been at odds for quite some time, and the market has continued its general uptrend.
Nasdaq
Led the way with some explosive moves. One of the things that you need to be aware of (we are): many big names had peeled back significantly from recent highs. The moves Wednesday and today recovered a lot of that ground, but some stocks have traveled well over 10% just to get close to the previous highs hit just a week or two back. Be careful of those as there will be some resistance there. We are looking for those stocks that were consolidating and cleared resistance today on big volume. Those are like the dog that has been restrained by the leash and then the leash is unbuckled; they race ahead full of energy and ready for action.
Stats: +65.02 points (+3.3%) to close at 2044.27.
Volume: 2.209 billion shares (+46.2%). Volume soared back to above average levels on the best volume session since the December 21 up session. Strong breakout volume, indicating there was real buying, i.e., accumulation, ongoing.
Up volume: 1.686 billion
Down volume: 513 million.
A/D and Hi/Lo: Advancers jumped up to 1.7 to 1 (1.17 to 1 Wednesday). Much better, and not bad at all for the Nasdaq.
New highs: 107 (+17)
New lows: 12 (-1)
The Chart: http://www.investmenthouse.com/cd/$compq.html
After Wednesday's tap of support and reversal, tech stocks moved into higher gear today with a high volume move. On the close it was able to beat the March 2000 down trendline for the first time since the trendline was formed. Now it has not shaken this level because it closed just a hair above it (right at 2040). That is good news; big news. It still has to deal with the December high (2065.69), but if this type of buying power stays in techs, there will be little to stop it there. It then has the 2250 to 2300 range (old lows and old tops) to deal with from late 2000 and summer 2001, a key range as it once held as a low and later was a top. If it can clear that it is more a function of the economy as opposed to a lot of recent overhead supply.
Dow/NYSE
Back above the 200 day MVA; imagine that. This time it did so on better volume, and its pattern improved in the process. It is looking pretty spiffy on this date with the 200 day MVA this time around.
Stats: +98.74 points (+1.0%) to close at 10,172.14.
NYSE Volume: 1.397 billion shares (+17%). A nice jump to above average trade, coming at a key time on this second move over the 200 day MVA.
Up volume: 795 million
Down volume: 601 million. The up/down action was not as good as you would want on the move, but overall there was accumulation on going.
A/D and Hi/Lo: Advancers jumped 2 to 1 (1.07 to 1). This was impressive.
New highs: 99 (+32)
New lows: 17 (+1)
The Chart: http://www.investmenthouse.com/cd/$indu.html
More volume did in fact come in, turning Wednesday's rebound on higher volume into today's surge above the 200 day MVA (10,091.07). Not blowout, but a solid upside session that solidified that higher low and really improved the nice ascending wedge. It has hit a post-September closing high, and it looks ready to take out its recent intraday high (10,184.45). It needs the bullish pattern: ahead of it at 10,200 to 10,500 there is a big trading range from June to August and the January 2000 down trendline at 10,500, the last major trendline the index has to face.
S&P 500: A similar pattern as the Dow, but the big caps are still residing below their 200 day MVA (1166.72). Two prior tries at this resistance have failed and the big caps tend to lag the other indexes. Today's action makes a higher low and jumbles up the head and shoulder pattern a bit (not minding that at all). Good move on good volume, but the big caps now have to join the others over the 200 day MVA. They may have to be dragged, but the pattern is shaping up. Small caps may rule, but as we said last night, that does not mean big caps will be forgotten.
Stats: +10.60 points (+0.9%) to close at 1165.27.
Volume: NYSE volume finally made it back over average at 1.397 billion shares (+17%). Nice to see it on the gain.
The Chart: http://www.investmenthouse.com/cd/$spx.html
TOMORROW
Friday morning before the open the employment report comes out. Unemployment rate is expected to bump up to 5.8% while non-farm payrolls are expected to fall again, but at a slower rate. Today's action in the overall market, however, may mitigate the impact of any negatives in the report unless they are much worse than anticipated. The market made what looks to be an important move today; we want to see the indexes clear the December highs on good volume to be more comfortable, but is appears as if the market is in that 'head down, intent on rallying' mode again. It has had a strong move up, wandered laterally for more than a month, brought doubters back into the fold, and then had a big up volume day clearing some important resistance. In those situations, if reports are close to expectations, they do not upset the apple cart.
At 9:00 CT the NAPM Services report hits, and it is expected to come in above 50 once again. Now if the employment report is within expectations this may simply add a bit of sauce to the session. If the employment report is significantly worse than expected, a good NAPM Service report could get things back on track. As we expect the employment report to be close to expectations, this most likely will just be a bit more sauce to the session.
After such a strong move from the techs, the momentum will be up, but we often see some softness after a big move. It either manifests itself as a further move up out of the gates and then a test of the prior close or intraday high or some softness right out of the gates and then a move higher. The latter is our preference, and it often occurs in big stocks when there is rallying into the close; market makers run out of stock to sell, so they push the bid and ask down to get some early profit takers to sell their stock. Thus replenished, the price can then rise again. If it takes out the prior close, that is bullish.
The big points tomorrow are the December highs for the Nasdaq and the 200 day MVA for the S&P. Will the big caps be able to follow the other two big indexes higher? At this point it looks as if it will be dragged across. There may be some attempt to take profits if the indexes rally again tomorrow; three good rally days will lead to some wanting to close out positions ahead of the weekend. Overall, however, the move looks solid because the Dow and Nasdaq pattern look solid. We are going to use early weakness at the open or shortly thereafter to show us it has bottomed and then we will move in. There are many stocks out there that have not run too far the past two sessions that have just cleared or are about to clear resistance.
Support and Resistance
Nasdaq: Closed at 2044.27.
Resistance: The down trendline at 2040 has still not been totally cleared away. After that, the December high (intraday) is at 2065.69. Then 2250 to 2300.
Support: 1934 to 1941 (tops of prior consolidation) have been the best support since the early December gap higher. 1980 has tried to hold, but it has pretty much been pushed around and has lost its edge. The 200 day MVA is next at 1926.82.
S&P 500: Closed at 1165.27.
Resistance: The 200 day MVA at 1166.72. Then the December high at 1173.62.
Support: 1150 is a level of some support, but it has been broke back and forth so many times of late it has tire prints on it. The 50 day MVA (1134.72) held Wednesday and looks somewhat worthy. It is backed up by price consolidations at 1125. After that, 1100 is next (top of the October consolidation range).
Dow: Closed at 10,172.14.
Resistance: Broke the 200 day MVA again (10,091.07). The December high is next at 10,169.44. 10,200 to 10,500 is an entire range of resistance with the January 2000 down trendline at 10,500. The up trendline is at 10,380.
Support: Looking at the 200 day MVA (10,091.07) to hold this time given the higher volume. 9992 has acted before as support, but it is weaker. Below that is the 50 day MVA (9849.68). After that, 9500.
Weekly Economic Calendar (All times Eastern). The figures are the consensus expectations, not ours.
1-2-02
NAPM Index, December (10:00): 48.2 actual versus 45.8 expected and 44.5 prior.
1-3-02
Initial Claims; December (8:30): 447K actual (+36K) versus 393K expected and 411K prior (revised from 392K).
Auto Sales, December (8:30): 6.1M versus 6.3M prior.
Truck Sales, December (8:30): 7.8M versus 8.2M prior.
Construction Spending; December (10:00): +0.8% actual versus -0.1% expected and +0.8% prior (revised from 1.9%).
1-4-02
Nonfarm Payrolls; December (8:30): -175K versus -331K prior.
Unemployment Rate; December (8:30): 5.8% versus 5.7% prior.
Hourly Earnings; December (8:30): 0.3% versus 0.3% prior.
Average Workweek; December (8:30): 34.1 versus 34.1 prior.
NAPM Services; December (10:00): 50.3 versus 51.3 prior.
TEAM TRADES
With the INTC and pricing news out of Asia, we were looking for semiconductor stocks that were in good shape to buy. One we had on the SSR that was waiting in the wings as it formed its handle was BRKS. A sharp rally in April caved in, and gave birth so to speak to this somewhat skewed cup with handle, skewed by the September 11 attack. Then handle was a longer one (3 weeks), but the price action was mostly on the low volume we like; when it did spike up, it was on the 'right' kind of days, i.e., moving higher or finishing in the top of the range. Well, today the stock started higher with a nice, deliberate, high-volume move. We were looking for the break over the 200 day MVA and were tempted when it did that early in the session, but we decided to see how much the move had in it. Well, it ran to 44 (200 day MVA at 42.92), but then it just moved sideways with the Nasdaq below the buy point we were looking at, over the intraday high in the handle (44.20 +1/8). After volume was non-existent for 5 hours, it started up on some volume surges. Right at 2:00 it hit the buy point; volume was at 117% of average, well on its way to the 1.1 million target. We looked at some options but there was no action going on in them so we turned to stock and the ask was 44.35 with the bid running from 44.23 to 44.32. We put in a limit order at 44.32 to see what would happen. About 5 minutes later it worked. The stock continued to move for the last hour, adding about $1 above the entry point.
End Part 1 of 3
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