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us stock market, trade stock
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1/29/02 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:
- Quiet days give way to heavy selling.
- Volume mushrooms on NYSE as indexes break down.
- 'Confidence crisis': Commentators play pin the reason on the selling.
- Economy: Confidence, durable goods higher, inventories lower.
- Subscriber Questions
- Team Trades
Indexes fail at resistance and fall off the edge.
The two upside days on stronger volume and lateral movement was not enough to overcome the prior distribution sessions, and when the indexes again tested the resistance levels they were slapped down hard as sellers aggressively sold stock, dumping shares all session long.
Morning news on durable goods and rising consumer confidence actually fueled a bit of a rally, but that rally ran out of gas at key levels. The S&P ran into the 50 day MVA once again and failed. The Nasdaq ran into the simple 50 day MVA again, and it held as resistance again. The SOX ran to its 200 day MVA; it paused then cleared it, but there was no strength. It too rolled over and closed beneath its 50 day MVA. The Dow had run over near term resistance at the 50 day MVA, but it had no stomach to move higher, and it completely reversed and undercut its prior support levels.
Very heavy selling volume resumes distribution.
Sellers were pernicious, jumping on every rally attempt with vehemence. NYSE volume shot up to 1.775 billion shares, very heavy volume on that exchange and the highest since the September meltdown. Even if you take out Tyco's additional 150 million shares (average volume 16 million; 165 million today), it was still a whopping volume session on the big board. The Nasdaq was right up there as well with 1.875 billion shares, but that was nowhere near the volume in September, October, and many sessions in November.
The selling made for a resumption of the distribution, where stocks and indexes sell on higher volume than the upside volume. The prior 4 such day sin less than two weeks set up further selling that a couple of mild accumulation sessions last week could not reverse. Sellers were very, very strong today with a lot of short selling ongoing, put buying (put/call ratio up to 0.90 on the close), and institutions unloading stocks. In short, there was no follow through to last week's rally. There was follow through, but it was to the downside.
This gives the indexes the next push down toward the 50% retracement of the gains off of the September bottom as discussed last week. Yet, every time we see a day where virulent selling resumes we get the emotions running high. Some market commentators that proudly boast of their technical prowess in reading the market wear their emotions on their sleeve as well. Today we heard some glumly stating that a full test of the September lows was now coming. Just a few days back they were saying more of a test, but not down to the lows. One hard day of selling, and the bottom falls out. Give me a break.
NYSE versus Nasdaq volume.
Over the weekend we noted an interesting phenomena developing once again. Back when the market was heading toward the bottom in September, Nasdaq volume as a percentage of NYSE volume was falling rapidly. The significance? The Nasdaq tends to have the more speculative issues. Investors typically like to trade those stocks that can give them big returns; those tend to be more speculative with more questionable earnings, shorter histories, etc. When there is much higher volume on the speculative issues vis- -vis the more staid issues, the market may be ready to correct. The high end of the ratio is near 250%. In the past 12 months the high was 207%. The low hit on 9-17 was 95.1%.
Today NYSE and Nasdaq volume were at a dead heat with about 45 minutes left in the session. In the end the Nasdaq nudged out the NYSE, but by just 100 million shares, leaving the Nasdaq percent of NYSE trade at 105%. It has been tailing off of late, falling into the 120% range. It is getting darn close to being lower than NYSE volume. That is a signal that the speculation is once again being wrung out of the market. Remember: one of the fears that led to the recent selling (before today's 'confidence crisis') was the concern over too much speculation in the Nasdaq. While there still may be distributive selling ongoing, overall volume on a comparative basis is way down (Nasdaq just barely hit average today while the NYSE blew past average volume). That means the speculation is leaving the market once again, and it is leaving it in a hurry and well before the September bottom. Once the speculators are weeded out, the market is in stronger hands to move back up once again. It is not a buy signal, but it is a fact that shows speculation is leaving the market.
Rule number 1: find a scapegoat.
Today's action was quickly labeled a 'confidence crisis' on the street by the common investor. Well, when the volume ramp up as we saw it today, anyone who has take the online seminars knows it is not you and me, i.e., the little guys, doing the selling. The institutions with the billions of dollars and millions and millions of shares are selling.
So, the big boys were selling again after some quick distribution over a two week period and then a bit of a lull as the indexes tested resistance. After a lull, the media had to find a reason for the selling. No, it could not be a continuation of the same reason for the prior selling, i.e., pricey stocks, too much speculation. That was old news. Find a new reason. The perfect story came to light: ENE accounting woes spreading across corporate U.S.A. Now that is a story. Never mind that the ENE accounting problems have been out, debated, and dissected to the molecular level for over two weeks. Never mind that PNC, asked by the Fed to change some of its methods of accounting some results, did nothing wrong at all in its accounting. Never mind that the TYC story has been haunting that company for two years. Today it all came to head as a 'confidence crisis' that had to be the cause of selling.
Yes, institutions were dumping IBM, GE, INTC, MSFT, C, JPM, etc., but it was not because institutions were worried that these companies were conducting shady accounting. It was a resumption of the selling the market had been engaged in and could not shake off with the weak rally back up to resistance last week and this week. Call it what you want, pick the label you want. The key is to see what it really is by looking at what the market is saying. It started selling again today on strong volume and broke below some support levels.
THE ECONOMY
Tomorrow the Fed lets fly with its decision on rates, and most likely it is going to hold rates steady. The FFF contract is less than 20% of a 25 basis point rate cut, and that usually nails the result. The Fed chairman has come back out to say that the economy was improving, and in light of the inventory reductions, etc., the Fed pretty much as to say no rate cut, but it is still very concerned that the economy may start to slow again. The market views this as what is expected, and it will not change the sentiment by itself right now. After all, the economic numbers have been getting better and better. The problem is that corporations did not give glowing projections for Q1. That caused the selling to commence.
More good news: Durable goods order up, consumer confidence up, inventories down.
Durable goods jumped 2% versus expectations of a 1.3% gain. Very good action. Non-defense capital spending came in higher for the third straight month, another plus. On top of that inventories continued to fall, dropping 0.4%, the tenth month in a row of dropping inventories. No wonder Greenspan sees more production activity coming.
Consumer confidence rose to 97.3, beating expectations of 96 and 94.6 in December. That was good, but it did not beat the whisper number of 108 and 105. Moreover, though it was the highest since September, before the attack you have to go back to January 1996 to get a lower consumer confidence number. Yes it was higher, but relative to past times it was no great shakes.
THE MARKET
Distribution resumed as the Dow and the S&P broke below support. The Nasdaq is still trying to hang on, but the odds are against it. All hit resistance on the upside and rolled back over on volume that ramped higher. Many head and shoulders patterns out there as financials, one sector that held up well during the recent selling, gave way to massive dumping. We still had some great upside moves, but the tide is moving to the downside again for the near term.
VIX: 26.26; +4.49. This was the largest jump in volatility in months. In one move the index returned to the top of the July 2001 consolidation level, but it is still low. Expect it to ramp higher as selling on the S&P continues toward 1050.
VXN: 45.90; +2.94. Another big jump though it cannot compare to the VIX. It is still below the July 2001 consolidation level. Fear is rising, but it has a long way to go to indicate a turn.
Put/Call Ratio (CBOE): 0.90; +0.21. Put activity shot up on the heavy selling, back in the range indicating some real anxiety. The market has bounced on reading of 0.88 during the move up off of the September bottom, but now that some support has been broken, we look for a close over 1.0 to give us some indication anxiety has reached a level to weed out the weak holders and give us a turn.
Nasdaq
Broke down hard on above average volume, but did not undercut the November consolidation range. It still could hold its ground, but the distribution has started anew and it looks as if it will at least test 1875 before any attempt at a bounce.
Stats: -50.92 points (-2.6%) to close at 1892.99.
Volume: 1.875 billion (+26.6%). Above average volume, but not by much.
Up volume: 235 million
Down volume: 1.629 billion. Downside slaughter
A/D and Hi/Lo: Decliners steamrolled advancers 2.06 to 1. Again, the big action is on the downside.
New highs: 87 (-32)
New lows: 53 (+19)
The Chart: http://www.investmenthouse.com/cd/$compq.html
The Nasdaq tested toward the simple 50 day MVA on the high (1959.05), but that did not last long. Sellers jumped on the index at that point and drove it lower all session, testing 1875 (bottom of the November consolidation range) on the low (1883.49). It managed to hold above the December low (1879.24) as well. Those are positives in an otherwise very negative day. Volume was up but not blowout, just edging past average. The Nasdaq is being sold, but it may not be sold as hard as the Dow and NYSE; the volume is falling relative to the NYSE. We feel it will test 1875 soon and then head lower after a possible bounce attempt, but it may bottom above 1750 if the Dow and S&P continue to sell ahead of it.
Dow/NYSE
Took out support at 9691 on very strong volume. 9500 will most likely be tested soon, perhaps tomorrow.
Stats: -247.51 points (-2.5%) to close at 9618.24.
NYSE Volume: 1.775 billion (+48%). 150 million shares were attributable to TYC, but even if you take that out volume was still up 36%. Strongest volume since September, representing massive dumping of NYSE stocks.
Up volume: 246 million
Down volume: 1.551 billion. Rout.
A/D and Hi/Lo: Decliners led 2.3 to 1, a huge blowout to the downside.
New highs: 92 (-38)
New lows: 49 (+23)
The Chart: http://www.investmenthouse.com/cd/$indu.html
Broke below the November, December and January lows, taking out that support at 9691. It now has little to stop it as it heads to the next support level at 9500. Now whether that holds is questionable. It will most likely try that level soon; if things stay negative, we could see that move in the morning tomorrow. With the resumption of distribution we are not certain that 9500 will stem the tide. After a bounce we would anticipate a selloff down to the 9250 to 9100 level before it truly finds bottom for the turn back up.
S&P 500: The big caps took the hardest beating of all, falling through 1125 and ending up at the next level, 1100. The big caps are leading the other indexes lower; big caps have had a harder time of it thus far this year. Given that it is January, that is not unusual though today's action was brutal. The index landed at the top of the October consolidation. Remember, the 50% correction is 1060. It appears as if the big caps are going to reach these levels first based on today's action and the recent selling in the indexes. Either it will lead the turn, or it will continue to sell further toward the September low, leaving to the other indexes to make a stand. As unlikely as it may seem to some, the fact that the Nasdaq is selling on lower relative volume to the NYSE makes the Nasdaq the likely choice to lead the market back up.
Stats: -32.42 points (2.9%) to close at 1100.64.
Volume: NYSE volume exploded in a selling binge, coming in at 1.775 billion (+48%).
The Chart: http://www.investmenthouse.com/cd/$spx.html
TOMORROW
Tonight President Bush speaks on the state of the union. Tomorrow we get GDP numbers out. Maybe the President can rally the troops, but we would be skeptical of any rally. A lot of damage has been done even though the Nasdaq has not totally broken down. The index has that character change we have discussed before, and today it continued its negative side in a big way. Thus far it is still telling us it is ready to sell overall. We will still find upside plays. We always do just as we did in the bear market with the healthcare stocks and other select leaders (e.g., NVDA, ACS, LLL). At the same time we continue to take advantage of the overall market trend with selling calls on long term holds that are still riding well above the 50 day MVA and buying puts on those stocks and indexes that are breaking down or continuing downtrends.
Tomorrow we may see a pop on the President's speech. If he can convert the selling into lasting buying, however, his 84% approval rating is probably low. More than likely, any upside move we see would be short lived, patriotic enthusiasm. More likely: no real change from the close. Again, the Dow could test 9500 in an hour or two from the open, the Nasdaq testing 1875 early on. We are looking at quite a few downside plays to continue to take advantage of that action. We do not anticipate the Fed announcement moving the market, though we could see whatever direction the market is heading turn the other way right before the actual announcement.
Support and Resistance
Nasdaq: Closed at 1892.99.
Resistance: The 200 day MVA (1938.51) and the 50 day MVA (1938.90). The March 2000 down trendline is before that at 1925. After that we look at the simple 50 day MVA (1964.80).
Support: The bottom of the November consolidation (1875). After that point, 1800 at best. As noted 1750 would be a 50% retracement. Support at that level looks to be anywhere from 1700 to 1750.
S&P 500: Closed at 1100.64.
Resistance: The March 2000 down trendline at 1118. Then price consolidations at 1125, followed by the 50 day MVA (1135.87). Then the 200 day MVA is at 1166.37. The December high (1173.62) and January high (1176.55) all line up as strong resistance.
Support: Right at the October tops at 1100. That is followed by a range of support from 1075 to 1050, the 1050 level holding twice in October. That is right at the 50% retracement (1060).
Dow: Closed at 9618.24.
Resistance: 9691 to 9750, the November, December and January lows. Then the 50 day MVA (9864.67). After that 9992 to 10,000. Then the 200 day MVA (10,105.91).
Support: 9500 is the next level. After 9500 there is a very congested trading range from 9125 to 9500. A 50% retracement is 9181.
Weekly Economic Calendar (All times Eastern). The figures are the consensus expectations, not ours.
1-28-02
New Home Sales, December (10:00): 946K (+5.7%) actual versus 923K expected and 934K prior.
1-29-02
Durable Goods Orders, December (8:30): +2% versus 1.3% expected and-4.8% prior.
Consumer Confidence, January (10:00): 97.3 actual versus 96.0 and 93.7 prior.
FOMC Meeting started
1-30-02
GDP-Adv., Q4 (8:30): -1.1% versus -1.3% prior.
Chain Deflator-Adv., Q4 (8:30): 1.9% versus 2.3% prior.
FOMC Meeting (2:15).
1-31-02
Initial Jobless Claims, 1/26 (8:30): 376K versus 376K prior.
Employment Cost Index, Q4 (8:30): 1.0% versus 1.0% prior.
Personal Income, December (8:30): 0.2% versus -0.1% prior.
Personal Spending, December (8:30): -0.2% versus -0.7% prior.
Chicago PMI, January (10:00): 45.0 versus 41.5 prior.
Help-Wanted Index, December (10:00): 45 versus 45.
FOMC Minutes, 12/11
2-1-02
Nonfarm Payrolls, January (8:30): -60K versus -124K prior.
Unemployment Rate, January (8:30): 5.9% versus 5.8% prior.
Hourly Earnings, January (8:30): 0.2% versus 0.5% prior.
Average Workweek, January (8:30): 34.2 versus 34.2 prior.
Michigan Sentiment-Prel., January (9:45): 94.2 versus 94.2 prior.
Construction Spending, December (10:00): 0.2% versus 0.8% prior.
ISM Index, January (10:00): 49.5 versus 48.2 prior.
SUBSCRIBER QUESTIONS
Q: In your Jan 22 daily newsletter you indicate the possibility of a 50% retracement for all the indices. Yet at market close on the 22nd, the retracements were S&P 500 24%, the Dow/Jones Industrial Average 28%, NASDAQ composite 30% and the SOX a 40% retracement. Given these values doesn't it seem likely that each index will have its own retracement level? It seems unlikely that the SOX will wait for the S&P to catch up! What should an investor look for in the retracements that you believe that are coming?
A: First I want to say that I did not see this email until after tonight's summary was written. With that said, it is a very good question. The indexes ARE selling down at different rates, and the S&P has retraced 76 points (65%) of the 50% of the move off the bottom (about 232 points; 50% is 116). It is moving down hard. The 50% retracement is a rule of thumb on tests of prior lows. As noted, the S&P can move down further; it can perform a full test of the prior low as the Dow did back at the end of the 1974 bear market. During that bear the S&P did not fully test the lows. They can do the same thing here, perhaps in a different order: the S&P may head on down further than the other two that may catch bottom at the 50% level. Or maybe the S&P reaches it first and turns and the others never reach that level. What we are watching are some significant support levels right around those 50% retracement levels. Given what we know about retracements, we look for support near those levels and are ready for them to hold for the reason of exiting our downside plays and getting ready for some bounce action up off of those points if we see a big volume reversal.
End Part 1 of 3
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