|
|
world stock market, us stock market
* * * *
1/26/02 Stock Split Report
* * *
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:
- A quiet Friday.
- Market action: Building for an upside move or staggering for another fall?
- World economic indicators as mixed as ever.
- Subscriber Questions
Mixed finishes on quiet session and low volume.
Friday saw very little action, and what action there was occurred on low volume. Indeed mid-morning we sent out an alert noting how quiet the overall action was. Both NYSE and Nasdaq volume slid 13% and none of the three major indexes could hold onto the bulk of their gains. Once again they tread water right at resistance, moving back and forth and ending basically flat.
Indexes trying to hold on at near term support.
After two weeks of selling, the indexes are attempting to make a stand at November support. The Nasdaq has fallen 10% from its January high (2098.88), an 'official' correction though many still say it is in a bear market to begin with. After a 10% downside move it is normal for an attempted bounce. After 4 distribution sessions out of 9 trading days the Nasdaq has tried to bounce at support, rising two sessions on increased volume. That is a sign there is some accumulation ongoing, but we note that Thursday the index closed well off of its intraday high, and did so again Friday. A late move was what kept it above the 200 day MVA after falling below that level the prior Friday. As noted over two weeks ago when the Nasdaq rallied sharply intraday and then reversed, rising volume is not necessarily a good thing. Buyers are getting overrun by sellers, and that is what pushes the index down off of its highs.
There is similar action on the Dow and S&P: distribution days during the initial leg down and then two sessions of upside prices on rising volume. Still, they could not break over near term resistance, closing well off the session highs Thursday and Friday.
The trading ranges were rather tight, and the volume was better. They have held at support for the most part, refusing to trade lower. Perhaps they are tightening up for another run higher.
Quality of the bounce attempt not great.
Though still somewhat oversold, the bounce attempt was not the best. Yes volume rose on the moves higher Wednesday and Thursday. That was a plus after the distribution sessions, but it was not the blowout volume you want to see when indexes have hit support and buyers rush back in. Even the A/D line was very weak on the way back up. The action was not enough to sweep away the distribution days, but it put at least a temporary end to the selling at a point it had to hold.
While sentiment indicators are not primary indicators, when they give a heads up as to potential problems, and following their action during this selling has been instructive as to the market's ability to reverse and rally with meaning at this point. There was some good news out in the week with earnings coming in better and Greenspan's 'aw shucks, I didn't mean anything by it' speech to the Senate Budget Committee, but it generated very modest upside action. Despite the selling the past two weeks, volatility never rose significantly. When the market bounced Wednesday and Thursday, volatility tanked faster than it rose in the selling. It is at the summertime lows again just as soon as the selling broke late in the week.
The put/call ratio fell off sharply during the bounce to levels not seen in two months. Bulls are back on the rise even as the market does nothing. Bulls over 50% while bears are down to 23.7%. That is not bullish at all, particularly when the indexes are struggling at resistance after a short bounce.
May get another last attempt to rally this week.
The indexes are being squeezed somewhat between near term support from prior price consolidations and near term resistance in the form of the 50 day MVA. With the slight improvement in price/volume action late last week, they may attempt another run at higher prices. As noted Thursday, the Dow has been tightening up the best of the three and without IBM, it may have made a decent move as the cyclical stocks performed better on the Greenspan mea culpa and the hope of limits on asbestos liability. That, however, usually does not make for a strong recovery.
For the market to rally with any authority, there has to be some change in the idea that the economic recovery is going to be better than many think it will be. Even when Greenspan changed his tune Thursday and said that we were going to have a recovery, he was still vague about when and how strong. He noted that the housing market and consumer had remained strong, and thus we would not get a big demand surge that usually comes with a recovery. In the same breath he pooh-poohed the need for a stimulus package right now, but then said the recovery might not last and thus one would be needed. It did not make a lot of sense. Congress is debating stimulus right now, and Greenspan's remarks made many shrug and ask 'what are we doing then?' Just look at his track record boys and girls in Congress: despite the soothsayers and excuse makers, he has been wrong more than right in his tenure when it came to points where he had to actually take action (or said he had to). If no stimulus package comes along, the only thing that will change the market's mind about the recovery is time.
Thus, unless institutions just start buying because they fell it is time to do so right here and now, we think at best there will be some more upside rallying to test 200 on the Nasdaq and maybe 10,000 on the Dow. The prior distribution, the weak sentiment indicators, poor A/D line, and no real change in the market outlook indicate a further rally attempt won't have strong legs.
Making the trades.
Again, this does not mean a market collapse. Given the sentiment about the future and the weak action of late, it would almost be better for the market to further test the September bottom before starting back up in the bull run. That would stifle some bulls, up the bear count, and perhaps get the other sentiment indicators in better position for some serious buying. The market does not always do what we think is best for it, however, so the next several sessions this week will tell us more. As for the market's character, however, as of last week it had not switched back to positive.
That kept us in our index puts and ready for that next move down. This is a market right now that is still letting us play both sides of the street and profit. There are several stocks still making great upside moves, but we are simply not holding them long term at this point. We are very content with a 15% to 20% gain on stock positions and then just taking the money off the table. Of course option positions will give us a greater percentage return on the stock move, but the idea is the same: the stock makes a nice move, we take our money thank you. We look at the strongest patterns and enter at the right time. That way we get the fullest move up without chasing stocks only to have them reverse on us before we get our gain and are gone.
Same action with the downside. We are looking at stocks that are ready to continue the downtrend after tapping resistance at the down trendline as well as those stocks that have broken support and are testing it. Again, entering when the move is made is the key.
THE ECOMONY
The U.S. economic signals continue to improve, indicating indeed that a recovery is coming. Some say it will be a good one, better than many are expecting. The pervasive feeling is a recovery is coming, but it won't be a surge of economic activity. The weekly Economic Cycle Research Institute's figures rose to a six-week high. The six-week reading is at a 9-month high, and that backs up the belief that a recovery is indeed on the way. This is a very accurate indicator of recovery, but it does not tell you how strong a recovery. That is the rub.
Existing home sales were a hair lower than expected Friday, down 0.8% to 5.19 million annual units (5.20M expected), but that still closed out 2001 with a record year. Home ales never flagged, helping to keep the economy from a real nosedive. At the same time, that is one of the problems Greenspan and others have noted with respect to how solid a recovery we get. If all of the home-buying demand is spent, we cannot count on that to push the economy higher. It kept it from failing, but it won't provide a big boost to spring it back to life.
The dollar is surging for the moment after looking at bit precarious. That is an indication of strength in the U.S. economy and markets, but the index is also just off the July 2001 high. Remember, many were saying the dollar was too high at that point. A strong dollar keeps all of those dollars around the world in place and not coming home to dump on our markets, but only as long as the U.S. continues to represent a good investment.
While the U.S. continues to show improvement, Japan does not. Prices were down 0.7% in 2001, the strongest drop in 30 years. Japan continues its deflation. After the massive equity collapse here in the U.S. similar to Japan and a sudden belief that interest rate cuts alone will do the trick, we still have continued concern that a recovery may be short and we may suffer a depressed economy for quite some time as has Japan. It is not an everyday event to have stock indexes rally 15-fold and then crash over 70%; that wipes away a lot of net worth and makes it that much harder for the individual to lead any recovery. With individuals tapped out and not incentive for businesses to spend, who is going to lead a recovery even if rates are low? As with everything in an economy, the question to ask is whether there is incentive to act. Right now, there is no incentive to act, or at least take a lot of action.
THE MARKET
Putting on a brave face and trying to rally, but not a lot has changed to make for a lasting reversal of the recent selling.
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: 21.93; -0.84. Volatility continues to sag, now down at the July 2001 lows. Very complacent market. That makes it hard for any rally to sustain itself.
VXN: 45.67; -1.70. The intraday low in July 2001 was 43.17. It closed at 43.96 that session. Friday's close is the lowest close on the VIX since that time. The index tapped at 45 in late December, but that was during the holidays when there was no action. Volatility is very low, leaving the life expectancy of this current bounce rather short.
Put/Call Ratio (CBOE): 0.62; +0.16. After dropping to 0.46 Thursday, there was more put activity as more were betting on a market fall. This is an improvement, but with distribution and volatility so flat, it is not at a level to indicate any move higher has power.
Nasdaq
Though it started negative and was able to rally higher and hang onto a close above the 200 day MVA, it was not able to hold onto much of the gains in the session for the second straight day. It can move toward 2000, but without a big change in institutional support, we do not believe a move can sustain itself.
Stats: -4.88 points (-0.3%) to close at 1937.70.
Volume: 1.654 billion (-13.2%). After two up sessions on rising volume, the Nasdaq avoided another bout of distribution on below average volume. Price/volume action improved the last three sessions of the week.
Up volume: 688 million
Down volume: 954 million
A/D and Hi/Lo: Declining issues took back the lead at 1.14 to 1. Reflected the action on the day.
New highs: 92 (-12)
New lows: 31 (+8)
The Chart: http://www.investmenthouse.com/cd/$compq.html
Friday the Nasdaq reversed the action, gapping down as opposed to up. Again the market was led by news to the downside. It was able to rally from the low (1923.06) back up to 1951.79, a clear move over the near term resistance. Still, there was no volume on the session, and in the last two hours it undercut the November consolidation closing highs (1934 and 1941) as well as the 50 and 200 day MVA (1940.64 and 1936.85, respectively). In a late move it was able to overtake the 200 day MVA but not the 50. In sum, it made a nice recovery from the gap lower, but it also could not hold the gains. For the second straight session it closed right at the March 2000 down trendline (now at 1935). It is still fighting at the top of the November consolidation and the key moving averages. It has neither broken away from them or broken down. This week will tell us more, but the big picture has not changed, and we believe the downside action will continue for a further test of the September bottom. We are looking at a test in the 1800 to 1750 range if institutional buying does not emerge this week.
Dow/NYSE
Again the Dow was up over 100 points but gave half the move back. One more time the index was unable to hold above the 50 day MVA.
Stats: 44.01 points (+0.4%) to close at 9840.08.
NYSE Volume: 1.345 billion (-13.9%). Volume remained above average. The Nasdaq volume as a percentage of NYSE volume has been falling once again. It is not nearly as low as it was back in September 2001 (near 90% versus 120% now), but it continues to fall. That is a signal again that speculation in the Nasdaq is being wrung out once again, a good signal overall that the market is not going to collapse.
Up volume: 714 million
Down volume: 585 million
A/D and Hi/Lo: Advancing issues held on to a narrow lead at 1.07 to 1 (led 1.26 to 1 Thursday). Still nowhere near as strong as decliners were in the recent selling.
New highs: 117 (+0)
New lows: 24 (+7)
The Chart: http://www.investmenthouse.com/cd/$indu.html
Another run at the 50 day MVA (9875.09) did not hold as the index rallied for the third session. It had no volume support, and we note that for the second session it too closed well off of the intraday high (9897.85). It still continues to trade in a tight range from roughly 9680 to 9850; above some support at the 9700 level yet below resistance at the 50 day MVA. Again it may try a further bounce from here toward 10,000, the next resistance level. If it does not get a surge of volume, that move will fail and give us that further test of the September low, at least down to 9500 and more likely toward 9100. It may not even make that move; it could make one more run early in the week and fail at the simple 50 day MVA (9941.30) and roll down from there. It has enjoyed above average volume for almost two straight weeks, and during the time it sold lower. Usually with good consolidations before a move higher you see volume settle down to average or lower levels and then surge on more buying. Volume has bene all over the map of late.
S&P 500: All indexes are behaving similarly, and the big caps are also testing upside resistance in the form of the 50 day MVA (1137.48), then giving up a good chunk of the session gains. Friday the price action was flat as NYSE volume backed of. No distribution, but another day of no traction at am important resistance point. It too is getting the squeeze from the 1125 level on the downside and the 50 day MVA on the upside. It too could make a run at the next resistance at 1150 before rolling over again to test 1100 or lower.
Stats: +1.15 points (+0.1%) to close at 1133.28.
Volume: NYSE volume backed off to 1.345 billion shares (-13.9%).
The Chart: http://www.investmenthouse.com/cd/$spx.html
THIS WEEK
A lot of economic data out (consumer confidence, Q4 GDP, unemployment, and ISM), but the first big event of the week is the FOMC meeting Tuesday and Wednesday with results to be announced 2:15ET Wednesday. The FFF contract is pricing in less than 30% that the Fed will cut rates by any amount. It is very accurate when it gets down to the nut so to speak, so it would be a surprise to the market if the Fed cut. It is in the position of whether a further cut would be viewed as a negative given the improving economic conditions. With Greenspan's hot and cold testimony to the Senate, however, it is hard for a rational mind to see another 25 basis point cut on top of 11 previous cuts as indicating overly pessimistic views about the economy. He talked of a stimulus package three months ago as good 'insurance;' a further cut at this point would be in line with his thinking.
In anticipation of the FOMC result and what it says afterward as well as the economic reports late in the week, the early action may not have a lot of power behind it and may not give us the stronger signal we look for or prefer to have. Remember, actions taken on rising, above average volume give you a better gauge of a move's strength. If a move is made over or below an important level on rising, above average volume, it is a move we can take more to heart.
Overall our view of the market remains more bearish over the next few weeks until the indexes can test lower. There has been a change in character, and the two upside sessions on rising volume last Wednesday and Thursday do not change that character. Institutions could continue to come in and buy in volume, and that would change the situation. For that to happen the economic numbers this week would need to be very good and the earnings reports would have to start crowing about the action in Q1 and Q2. That has not happened, at least not enough to satisfy investors. That is what has changed: the view of the future; until institutions feel that there is more growth ahead, they are not committing their money.
That is why we will continue to look for the strong patterns to invest in both upside and downside. We will take comfortable gains when they are in hand and bank the profit. The market is not showing right now that it is one we can just jump in and stay in ride; get the gain and move on.
End Part 1 of 3
|
world stock market
us stock market
|
