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us stock market, stock trading investing
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1/16/02 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:
- Losses extend on stronger volume. Quick distribution days.
- Indexes break below some key levels and close on key levels.
- Beige book offers mid-year recovery, not right now, and market sells.
- After hours earnings give stocks a bit of a pop.
- Expecting a bounce from this support before faltering and turning again lower.
- Subscriber Questions
- Team Trades
As expected the SOX leads lower with more volume.
INTC did not sell sharply, but as expected all of the chip equipment makers took up the slack as their future contracted on INTC's reduced capital expenditure projections. INTC received an upgrade and three or four raised estimates. The chip equipment makers received a lump of coal and sold on heavy, heavy volume.
It was a day of selling and more defensive moves. Tech sold off and big names such as JPM and MMM were hammered with their own bad news (though MMM was hit also with accounting issues, the new short selling plan of attack) as gold and insurance stocks rose. Imagine that.
Nasdaq volume swelled, but it was not massive as one would have suspected. A 15% jump is nothing to sneeze at, but it did not even crack 2 billion shares. The NYSE, however, experienced very heavy volume as some big names were pummeled. This action marked another negative change in the market, three distribution days in the last six sessions. Distribution occurs when stocks sell on rising volume; it indicates that sellers are in control and are outnumbering the buyers that are in the market on upside days. It is also an indication that institutions are selling their holdings. The big money leads the market, and when the big money decides to sell, the market reacts. When you have 3 to 4 distribution days in a week, that is a problem.
Economic numbers give more reason to sell, at least to investors.
The economic numbers were not bad, but they were not good enough for investors, at least not good enough to turn sellers into buyers.
Business inventories fell -1.0% versus an expected 0.8% loss and a prior 1.6% drop. Inventories continue to be eroded at a rapid rate. Very good as that means companies would have to start ramping up production soon to replace thin inventories. On the down side, sales fell 1.4%, and that mitigates the speed of the drop and does not impact the stock to sales ratio as much (i.e., the time it takes for current inventories to sell out).
The CPI (consumer price index) was up down 0.2% versus expectations of 0.0%. The core rate rose 0.1%, right in line with expectations and well below the prior 0.4% gain. Indeed the overall number rose just 1.6% year over year, a very low figure. The core, however, rose 2.8% year over year. That is just inside the 3% level that economists consider a potential inflation problem. Year over year housing was up 4.2% and medical care was up 4.7%. Those were uncomfortable levels.
Industrial production was down 0.1%, just below expectations. In 2001, however, the number was down 3.9%, the worst showing since 1982. Capacity slid in lower at 74.4% (74.5% prior, 74.6% expected), putting 2001 at the lowest level since 1983. That was a damper.
The numbers could not generate any excitement because of the mix between the CPI and the other ho-hum numbers.
Beige Book says things getting better and recovery should really be here mid-year. Manufacturing is firming, but consumption and the housing market are weakening. Other so-so news: yes they anticipate a recovery but the strength is just not that certain. The report reiterated Greenspan's words, and the market did not like it. The market wanted a recovery now, not in six months. Thus the report gave a brief bounce but the market then rolled over and slammed lower to the close.
THE MARKET
Earnings news was a bit better today. GE came out mid-day and reaffirmed 2002 earnings. That helped for awhile, but the selling started anew. After hours earnings were providing some relief to the market. AMD blew past revenue estimates by $100 million. CPQ beat by 5 cents or 4 cents depending how you look at it; either way it was way ahead. YHOO beat, AAPL was in line. Overall it was a good evening.
That had stocks moving higher after hours. Not massive moves, but a nice bounce higher when companies come in with numbers clearly better than expected.
Will the earnings provide the impetus for a bounce? The market has sold hard for more than a week. It is getting oversold. The Nasdaq and S&P 500 are right at some pretty solid support levels after today's whacking. The earnings news could give stocks a bounce as they try to bounce back from logical support levels to catch some air.
Still, the S&P, Dow, and SOX have all broken their 50 day MVA. Unless there is strong upside volume on a rebound (back above 2 billion on the Nasdaq and in the 1.5B range on the NYSE), we have to be very wary of a bounce higher. Why? Again, that character change. The indexes broke their uptrends in December, but then they were consolidating well on good price/volume action. That was okay. Now they have tried a new high, reversed off of that level on strong volume leaving double top action on some indexes, and price/volume action has deteriorated. That is not okay. With the change of character, without some other significant news to change it back (e.g., real hope of a stimulus package; very positive earnings news; capture of Bin Laden), any bounce will most likely be a relief bounce up to former support levels or just past them.
We can certainly play any bounce as there are still several stocks in nice patterns, but we have to realize they are shorter term plays on techs and the like. Then if the volume does not flood in on the upside we look for the move to stall and that is when we can play a further downside move. What we are seeing is that change in character in the form of distribution, and the quick distribution we have seen usually indicates some further downside ahead, even if not immediate (i.e., this week). The market tries to recover from the hard selling and then falters at the next resistance because there are fewer buyers than on the prior selling.
Why the change? Lack of a stimulus package to help push a faster and stronger recovery is certainly one of the factors hurting the market. It was factored into the mix and it has been effectively removed. O'Neill hinted Tuesday that a package could be back in Congress in a few weeks, but no one really believed that. Many economists, business leaders, and as seen today and last week, FOMC members fear the recovery will not have much power without further help. Makes sense: if you are not sure there will be a benefit to investing money in a venture, you will not do it. If there is an incentive to do so by virtue of a stimulus package, then companies will spend the money because it is a poor use of funds not to. We said over a month ago this would come back to roost and hurt the market, and it is doing just that.
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: 25.26; +0.84. Volatility barley moved on a heavy selling session. That is not a good sign; you really want to see volatility knife higher on such strong selling. A sign that things have not yet worked out the knots for another move up, at least a sustaining one.
VXN: 49.43; +1.41. As with the VIX, volatility rose, but it was not a spike higher on some very wicked selling action. No rapid spike means no spiking fear yet, and that does not bode well for sustained upside action with the poor price/volume action.
Put/Call Ratio (CBOE): 0.91; +0.14. Highest since well before the end of 2001, a signal that at least there is some anxiety in the market. It has run opposite of volatility, and a move over 0.90 is good, suggesting that selling will not be too severe on the downside. Problem: it will dissipate on the bounce higher, and then on the next round of selling it may spike up to 1.0 or better on the close, a signal that the bout of selling is getting close to the end. We do note that when the ratio has hit 0.88 or higher, the indexes have rallied or tried to rally on this move from September. It attempted a rally Tuesday after a 0.88 reading Monday, but the INTC news slapped stocks back. The character has changed a bit, and that takes a bit of the certainty out of this level until the volume turns better.
Nasdaq
Slammed down to its 50 day MVA on a 15% increase in volume. Tried a recovery, but was torched in the last half hour. At support so may bounce, but we have to see the strength of the bounce to have any confidence of a return to the rally. Also note that for the second out of three sessions decliners have beat advancers at 2 to 1 or better.
Stats: -56.47 points (-2.8%) to close at 1944.44.
Volume: 1.917 billion shares (+14.7%). Third distribution day in six sessions. Volume was not massive (former buying volume was 2.2B), but it again showed more net sellers than buyers in the market.
Up volume: 215 million
Down volume: 1.684 billion. Clear selling all session.
A/D and Hi/Lo: Decliners resumed the lead at 2.02 to 1. Monday they led 2 to 1. This is a marked change in the character. Very important.
New highs: 72 (-11)
New lows: 34 (+10). We are going to start seeing new lows rise a bit as the index tests lower. The key issue: will new lows peak out at low numbers or shoot higher? The latter points to a deeper test.
The Chart: http://www.investmenthouse.com/cd/$compq.html
Has dropped to the 50 day MVA in a hurry (1942.70). This is at support of the November consolidation tops that run from 1934 to 1941, and the 200 day MVA is right below that range at 1931.89. A very solid support level, one the index should attempt a bounce from, particularly after a week of fairly solid selling. We would look for a bounce to carry it somewhere near 2000 or 1980 (the December gap up point), and then run into trouble unless the upside volume really pours in.
Dow/NYSE
Big tank through the 50 day MVA on strong NYSE volume. It too could try a rebound here as 10,750 is some support.
Stats: -211.88 points (-2.1%) to close at 9712.27.
NYSE Volume: 1.453 billion shares (+4%). As with the Nasdaq, this is the third distribution day in 6 sessions. This was strong, above average volume selling, close in strength to the rally volume in early December. That says a lot about the strength of the selling today. Even MMM trading at 10 times usual volume (11 million shares traded) did not really skew the volume.
Up volume: 273 million
Down volume: 1.178 billion. Rout.
A/D and Hi/Lo: Decliners took the lead 1.77 to 1 (advancers led 1.47 to 1 Tuesday).
New highs: 93 (+7)
New lows: 42 (+3)
The Chart: http://www.investmenthouse.com/cd/$indu.html
MMM did not help the Dow, but it did not sink the Dow. Everyone pitched in on the collapse down below the 50 day MVA on strong volume. The index closed near the session lows, a bearish finish to a bearish session. The index has some support at 10,750, but that is not a precise level. Lows in November and December held roughly at that level. The index may try to bounce here tomorrow with the Nasdaq, but the 50 day MVA (9902.25) may stall any bounce.
S&P 500: Crashed below the 50 day MVA (1139.54) on that strong NYSE volume. Finished on the low, but came to rest on what in the past has been solid support at 1125 as well as the March 2000 down trendline also at 1125. Added support, and with the good earnings after hours today we anticipate an attempt to move up off of this support level. The 50 day MVA is a logical resistance level it tried to hold at earlier in the week, then the 1150 level where there is some support and the 18 and 10 day MVA have converged.
Stats: -18.62 points (-1.6%) to close at 1127.57.
Volume: NYSE volume surged to 1.453 billion shares (+4%), strong downside volume.
The Chart: http://www.investmenthouse.com/cd/$spx.html
TOMORROW
Housing starts and permits are out before the open. The Fed noted in its Beige Book that the housing market was now showing some weakness; we will see what the reports say that it was using to make the statement. Then the Philly Fed report is out mid-day. If the market is ready for a reflex bounce, some good numbers should help.
Again, the action we are looking at tomorrow is a relief or recovery bounce based on the week of selling followed by some pretty decent upside earnings reports after the close tonight. Despite the hard selling today, there are some well-known names in good shape for a bounce: SEBL, MXIM, EMC, VRTS, XLNX. ORCL still looks good outright; so does TIBX. Reflex bounces can put nice money in our pocket as long as we keep our heads and know why we are in the trade. ORCL, gold stocks, insurance stocks and others still look good for longer term upside. We plan to take what we are given, all the while watching the overall market price and volume action to see if it tops out again and then stats to roll back. On that we move in for some downside index action as well.
Support and Resistance
Nasdaq: Closed at 1944.44.
Resistance: The March 2000 down trendline at roughly 1960. After that is December gap up point at 1980 and then 2000 (18 day MVA at 1997.68). Other resistance may be moot at this point, but we look at the December intraday high at 2065.69 and the January intraday high at 2098.88.
Support: Sitting right at support of the 50 day MVA (1942.70) and the 200 day MVA at 1931.89. This coincides with the tops of the November consolidation at 1934 and 1941.
S&P 500: Closed at 1127.57.
Resistance: The 50 day MVA (1139.54) tried to hold on the way down and could stymie a weak reflex bounce. After that is 1150, and the 18 day MVA is right below that at 1148.26. after that it the 200 day MVA (1166.79).
Dow: Closed at 9712.27.
Resistance: The 50 day MVA (9902.25) tried to stop the fall, so some resistance there. 10,000 (18 day MVA at 10,003.89). After that the 200 day MVA stands in the way (10,105.05.
Support: Right at support near the 10,750 level (November and December bottoms). After that there is not much to stop it from 9600 to 9500. 9500 has been good support prior in the rally.
Weekly Economic Calendar (All times Eastern). The figures are the consensus expectations, not ours.
1-15-02
Retail Sales, December (8:30): -0.1% actual versus -1.1% expected and -3.7% prior.
Retail Sales ex-auto, December (8:30): -0.1% actual versus 0.0% expected and -0.5% prior.
1-16-02
CPI, December (8:30): -0.2% actual versus +0.1% expected.
Core CPI, December (8:30): +0.1% actual versus 0.2% expected and 0.4% prior.
Business Inventories, November (8:30): -1.0% actual versus -0.5% expected and-1.6% prior.
Industrial Production, December (9:15): -0.1% actual versus 0.0% expected and -0.4% prior (revised from -0.3%).
Capacity Utilization, December (9:15): 74.4% actual versus 74.6% expected and 74.7% prior
Fed's Beige Book (2:00): Better, but still dicey.
1-17-02
Initial Claims, (8:30): 395K versus 395K prior.
Housing Starts, December (8:30): 1.610M versus 1.645M prior.
Building Permits, December (8:30): 1.570M versus 1.595M prior.
Philadelphia Fed, January (12:00): 0.0 versus -12.6 prior.
1-18-02
Trade Balance, November (8:30): -$28.5B versus -$29.4B prior.
Michigan Sentiment-Preliminary, January (9:45): 89.6 versus 88.8 prior.
SUBSCRIBER QUESTSIONS
Q: I'm wondering why, under the current conditions, you're not suggesting a short of the indexes (especially the QQQ's) or a short on AMAT or KLAC? It seems that they look like obvious candidates. Am I missing something?
A: When news hits as did INTC, what happened with AMAT was pretty much as expected: a big cap down. There was more selling, but in both AMAT's and KLAC's situation, just $1 of a $4 and $5.30 loss on the session. Gaps to the upside and the downside are some of the hardest moves to play. That is why last night we indicated we would not jump in on the downside action as much of the damage would be done early. We would see the strength of the move down and if it was another distribution day, let the indexes set up a move to the downside we could take better advantage of. As discussed above we are going to let it do that. We were tempted to play the SOX and QQQ downside late in the session, but the Nasdaq was still above its 50 and 200 day MVA and we did not want to get jerked right back around if it held and tried to give a reflex bounce. We prefer to let the reflex occur, and if weak and it stalls at resistance, then move in and catch the next drop down which is often further than the first move down. That is why today as we noted last night, we were looking at those stocks that had set up downside moves even before the INTC news.
TEAM TRADES
FLR is a put we had on the TTR. We were looking at it because it was already bouncing down a downtrend that started back in May and held when the stock rallied in October, and it was a contractor for CPN. With the ENE news, we anticipated CPN might start having trouble and that would effect stocks it gave business to. Downtrend and ENE fallout; a winning combination that we look for on the TTR and in downside plays.
FLR did the gap down, but just a dollar. It had cleared our buy point, but stocks usually try to move up after a gap down (unless there is really bad news out). It opened at 33.25 (entry was 33.75), but then rallied up to the 33.60 to 33.80 range for about an hour. It made a gasp at 34 at about 9:45 CT and reversed sharply. That was the alert we were looking for. It tried one more move after that, but it could not get through 34 and turned down, breaking below 33.50, the bottom of the early consolidation. That started the cascade lower. We were in with February options, wanting to capture the move down the downtrend as it had been hugging the 18 day MVA and was due for a fall. Man did it come. FLR tumbled down, closing the session off almost $4.50.
End Part 1 of 2
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us stock market
stock trading investing
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