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us stock market, trend trading stock
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2/02/02 Stock Split Report
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Stock Split Report Subscribers:
MARKET ALERT SERVICE
Friday we had a few more target hit alerts go off with nice gains to bank in a less than great market right now. NETA hit our upside target for a 30% gain on the stock. OSIS hit the upside target for a 27%. GWW looked to be topping out, so we took upside profits for a 23% gain. Pre-split MGAM was running hard and ran over the buy point early. We took profits at 41.88, a bit early as the stock continued to run. A nice pre-split move regardless.
Subscribers to the current reports can sign up at the following link:
http://www.investmenthouse.com/alertssr.htm
SUMMARY:
- Dow and S&P rest Friday; Nasdaq looks a bit winded.
- Economic reports fail to give the market more upside fuel.
- Double bottom recession ahead?
- Subscriber Questions
- Team Trades
NYSE volume backs off on the selling.
It was a week that looked as if near term support had fallen and the indexes were on their way to a deeper test of the September bottom. Then a dramatic intraday reversal Wednesday salvaged support, springing the market up to once again try some near term resistance. Friday all indexes stalled at that resistance, unable to break out of the range that has held them for two weeks.
Given that the indexes were on a sharp downward plunge Tuesday and Wednesday, the recovery and close at resistance was an exceptional move, particularly when looking at the reversal volume. After rallying Thursday in a continuation of Wednesday's reversal, the indexes closed lower Friday after bumping into that resistance.
NYSE volume was substantially lower (-11.5%). This is more indicative of a true day of rest after a strong move up the prior sessions. Both the Dow and S&P 500, whose volume action is measured by the NYSE volume, closed a fraction of a percent lower. Again, this is the volume action you want to see when the indexes take a breather after a hard run. It shows there was no dumping of shares right after the reversal when the indexes hit resistance. They still have to deal with that resistance, but the lighter volume on Friday's rest still gives them that opportunity.
Nasdaq gives up Thursday's gains on slightly lower volume.
The Nasdaq presented a similar picture. It ran up to the 50 and 200 day MVA on Thursday and was able to trade above those levels on the high. The rally did not last, however, and the tech index gave back all of Thursday's gains. It came close to yet another reversal session as volume was running ahead of Thursday's volume up until the last two hours when it backed off to close lower by 4.7%. It thus avoided a technical day of distribution.
Still, volume was close to Thursday's volume on an up session while the intraday down volume and up volume flip flopped. In addition, many of the big name techs did not have a good session. AMAT tried its 200 day MVA for a second straight session, but failed to take it out on higher, above average volume. MSFT made a similar move, giving back all of Thursday's gain on its own intraday reversal. SUNW continued its plunge as well.
Now not all techs are in such negative patterns or experienced distribution, but the bigger names did not have a clear cut day of rest as it appeared the Dow and S&P enjoyed. As noted Thursday night, the Nasdaq is showing indications of giving up its leadership role that it assumed after the market re-opened in September. Yes it was able to recover after Tuesday and Wednesday's drubbing, but the bounce back up was weaker than the Dow and S&P. It is above the floor of this trading range at 1875, and we are still looking for a follow through session to Wednesday's reversal sometime from Tuesday to Friday. Unless the tech big names that make up the bulk of the index' value get it together, follow through will not happen.
The main concern regarding the Nasdaq still appears to revolve around valuations for the big names that are not giving strong guidance looking forward. The Nasdaq led on the upside because of the belief in a recovery. There is no question that recovery is taking place, but it is the strength that is causing the hesitation with Nasdaq investors. After a strong upside move, investors are putting their money into smaller names and cyclical stocks that improve when the economy improves. Friday was not a conclusive day for the Nasdaq, but it made us feel less than comfortable about its prospects of breaking over near resistance and its ability to hold the trading range from 1875 to 2000. That is why we are still looking at smaller caps, retailers, and other cyclicals to the upside and some continuing downtrends and big name breakdowns to the downside.
THE ECONOMY
A load of economic data last week showed continued economic improvement. Early in the week the reports were above expectations, later they were more or less in line. As always we have to look at what the numbers really show. Yes, they show improvement, but again the question is how much improvement.
Unemployment falls to 5.6%. The first drop since May 2001, well below the 5.8% in December and the 5.9% expected. Non-farm payrolls fell 89,000, the smallest loss since August 2001 but well above the 24,000 expected. Retail gained jobs while manufacturing once again lost jobs.
Sounds good, but again, look behind the numbers. The overall workforce declined by 924K jobs. In other words, almost 1 million unemployed workers gave up looking for a job. That distorted the unemployment percentage: if fewer are counted as out of work and payrolls show less decline, it gives the appearance that employment is higher. Second, aggregate hours worked fell 0.4%. This is important as well: if the number of hours worked are not rising and employment is not picking up, that is a pretty good sign that production is not ramping up just yet. Employers tend to work their existing workers harder before bringing on more help. Last month hours worked increased, showing the opposite: businesses were working their existing employees more.
What the employment report shows is that there is change ongoing. As we have noted in prior reports, when economic signals become choppy after running in a clear trend, that is a sign of change. Employment numbers are lagging numbers. We could still see unemployment rise higher just as it would have been in January but for those leaving the job market for now. The job market is trying to improve, but it will do so in fits and spurts.
Michigan sentiment rises to 93. An increase over December's 88.8 reading, but a disappointment in that the preliminary number of 94.2 did not hold. Still a good improvement, but the market was disappointed with the lower numbers.
ISM (the old NAPM - - manufacturing index) rises to 49.9. A nice move from December's 48.1 reading but it too was lower than expected (50 anticipated). The close just below 50 indicates that manufacturing is still contracting, but is doing so less than it has been. This was the third straight rise in the manufacturing index and the best reading since August 2000. On the flip side, it is the eighteenth month of contraction. Eighteen months manufacturing has been in a recession. In addition, prices paid rose unexpectedly to 43.9 from 33.2. Still contracting as well, but not as rapidly. Commodities have been trying to stabilize of late, making a strong run Friday coincident with the economic reports. Still no sign of inflation at this juncture.
Construction spending rose 0.2% in December, in line with expectations. For the year spending rose 5.2%. Sounds decent, but that is the smallest gain since 1995.
ECRI (Economic Cycle Research Institute) falls to 119.4. The reasons for the decline were great jobless claims and a decline in mortgage originations. Last week this leading indicator gave the fourth straight gain, a signal that the recovery was upon us. This week's drop in the overall context does not change the trend, particularly because the 6-month growth rate is at 2.1%, the highest since April 2000. that is more of a moving average of the economy, and it is looking solid.
Economy summary: What these numbers and all fo the numbers the prior few weeks are showing is that recovery is occurring. More specifically, the numbers are showing that things are no longer dropping, but are bottoming and starting to turn back toward growth. They do not answer the question of how strong growth will be. The continuing consumer strength through the recession and the strong housing market indicate that there is not a lot of pent up demand. Indeed, auto sales were off in January as a result of the cessation of 0% financing. Now personal income was up and spending was down in January, and that can lead to a buildup of savings and thus a jump in consumer demand if it holds for a few months. Until then, we have the likes of democratic senator John Corzine (formerly head of Goldman Sachs) stating that he thinks a stimulus package is still a good idea because the recovery is not going to be that strong. We wish they could all get together and pass a stimulus package that was not so much Japan-like government spending and more along the lines of marginal tax cuts, depreciation and tax credits for everyone. That would get everyone in the U.S. investing in the U.S., and that would yank us out of the recession.
THE MARKET
As noted, the Dow and S&P still looked positive, taking a rest on light volume. The Nasdaq continued to stagger, giving back Thursday's gains on just slightly lower volume. A day of high volume selling immediately following a rally attempt is not good action for upside moves. As always, for the indexes to perform, their major components have to be ready to do so. Many of the big name techs are not in very good patterns right now, making it harder for the overall index to post and hold solid gains.
VIX: 22.87; +0.03. No real movement on the session despite the losses on the S&P. Again, volatility is not rallying higher on selling, and it is quick to return to complacent levels when selling is over. It is historically hard for a market to rally when volatility is very low.
VXN: 43.08; +0.62. Up a hair on the Nasdaq selling, the VXN is holding at and slightly below summer 2001 levels. Very complacent readings typically mean it is harder to post sustained index gains.
Put/Call Ratio (CBOE): 0.75; +0.08. Put activity is increasing on the recent selling, showing renewed life (unlike volatility) as the selling started anew last week. Wednesday closed at 1.05. As noted then, it usually takes a couple of such readings to get the indexes turning. If volatility were better this would be a better signal.
Nasdaq
Gave back all of Thursday's gains after attempting a run over the 200 day MVA. Volume was lower, but not by much. That indicates that there is still a major battle between the bulls and the bears ongoing as far as the big name techs are concerned.
Stats: -22.79 points (-1.2%) to close at 1911.24.
Volume: 1.709 billion (-4.7%). Volume did back off but not by much. Technically avoided distribution, but it took a drop off in trading in the last two hours to avoid it. Volume continues in ragged form.
Up volume: 520 million
Down volume: 1.114 billion
A/D and Hi/Lo: Declining issues moved into the lead 1.28 to 1. Not a slaughter by any means. The A/D line mirrors the price line; up and down in a narrow range other than Wednesday.
New highs: 125 (-8)
New lows: 28 (+1)
The Chart: http://www.investmenthouse.com/cd/$compq.html
The techs started out slightly weaker but rallied early to challenge the 200 day MVA (1939.82) and the top of the November consolidation range (1941), rallying to 1942.15 on the high. That quickly reversed to a 42 point plunge, holding 1900 on the low (1901.21). In the last three hours the index managed a weak rally, cutting the loss in half. AS noted, the late volume where the index tried to rally back was much lighter than the earlier selling volume. The index was well on the way to distribution, but the sellers decided to go home in the afternoon, and the market drifted a bit higher. It still is in the range from 1875 to 1945, and given Friday's lighter volume on the selling, we can still be on the lookout for a follow through session this Tuesday through Friday (1.5% minimum price gain on higher, above average volume). Again, however, many of the big names are not in good patterns to launch good moves higher, and that will give any attempt at a move higher problems.
Dow/NYSE
Ran right up the simple 50 day MVA on the high and backed off for a small loss. Volume contracted again, a good sign on a down session that bounced down from resistance.
Stats: -12.74 points (-0.1%) to close at 9907.26.
NYSE Volume: 1.387 billion (-11.5%). Volume fell though it remained above average. After the big reversal Wednesday and Thursday's continued strong volume, the pullback in trade was just right.
Up volume: 519 million
Down volume: 849 million
A/D and Hi/Lo: Decliners pulled ahead 1.15 to 1, nowhere near the strong 2.1 to 1 advancers over decliners in Thursday's up session.
New highs: 136 (-22)
New lows: 26 (+5). After jumping over 50 early in the week, dropping back nicely.
The Chart: http://www.investmenthouse.com/cd/$indu.html
The Dow took three runs at the simple 50 day MVA (9936.97) early Friday and then it too folded, dropping 80 points to the low at 9860 (the simple 50 day MVA is at 9864.74). The action was not bad, holding in the upper part of the intraday range, bouncing smartly off of the simple 50 day MVA on the low in one sharp bounce. As with the Nasdaq, the index bounced, but it wandered the rest of the afternoon. It is not a great pattern, but as previously noted it was a good recovery off of the 9500 level on Wednesday's low to maintain it within the 9691 to 10,000 - 10,150 range. The action late last week was better, but it too needs a follow through this week any day from Tuesday to Friday. The Dow has been riding the back of cyclical stocks on the promise of an economic recovery. We will see this week if they can deliver; they are usually not the best stocks to base a rally upon, but they can get the ball rolling. Financial stocks would help, but once again they proved to be disappointing, mainly on the fears of the accounting woes of companies impacting their bottom line if those companies encounter problems.
S&P 500: Gapped slightly lower Friday and never made an attempt at testing any resistance (50 day MVA at 1132.31; simple 50 day at 1142.41). It fell below some support at 1125 but on the intraday low held 1117, the mid-month low in January before the plunge last week and roughly the low in December. That is good to see it recover after the Tuesday and Wednesday plunge and hold at this previous support level. Perhaps that blast downward to 1080 equally fast recovery got the sellers out. It will need to follow through this week to prove it as the interim trend is still down.
Stats: -8.00 points (-0.7%) to close at 1122.20.
Volume: NYSE volume pulled back on the selling, falling to 1.387 billion shares (-11.5%).
The Chart: http://www.investmenthouse.com/cd/$spx.html
THIS WEEK
Auto and truck sales are officially released Monday, and then we have the Services ISM, Factory orders, and productivity numbers. Not as heavy a week for data, so the market will be able to find its own direction barring any further accounting concerns. This is the new area of intrigue, and anytime there is such a new item it is used by the rumor mill to try and make short term profit.
The indexes were looking sad but managed a nice recovery from some vicious selling. The S&P dipped down and gave a 40% test of the move up from the September bottom in the process. Even with the reversal, the patterns are still on the bearish side. Despite this rather shaky ground at this juncture, they did reverse the selling on strong volume and finished positive. That set the clock to see if we get a follow through session this week to potentially kick off the next rally.
With the big indexes still trying to sort out last week's action, the small cap and mid cap indexes still look to be in good shape. With that we are continuing to look at many of those stocks this week as they are setting up good patterns still and have good money moving into them with good volume. We also continue to see may stocks in continuing downtrends set up to move back down after the rally sessions on Wednesday and Thursday. In addition we have the stocks that breached support and then rallied back up to that level on the reversal, and look now to be ready to roll over again.
Support and Resistance
Nasdaq: Closed at 1911.24.
Resistance: 1934 to 1941 represents the top of the November consolidation range, and the Nasdaq could not hold above it Friday. The 200 day MVA (1939.82) and the 50 day MVA (1936.71) are right at this consolidation level, making it the more difficult. After that we look at the simple 50 day MVA (1965.31) that stopped the index in late December.
Support: The bottom of the November consolidation (1875). After that, 1850 held intraday last Wednesday. Below that would be 1800, and 1750 would be a 50% retracement. Support at that level looks to be anywhere from 1700 to 1750.
S&P 500: Closed at 1122.20.
Resistance: Working on clearing the price consolidations at 1125, but the 50 day MVA (1134.31) continues to be the next real test. 1150 is after that, with the simple 50 day MVA (1142.21) right below that. Looking further ahead, the 200 day MVA is at 1165.84. The December high (1173.62) and January high (1176.55) all line up as strong resistance.
Support: 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 9907.26.
Resistance: The simple 50 day MVA (9936.97). Right behind that is 9992 to 10,000. Then the 200 day MVA (10,104.06). The January high at 10,300 level is last.
Support: 9691 to 9750, the November, December and January lows. 9500 is the next level, and it held on last Wednesday's intraday selloff. 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.
2-04-02
Auto Sales, January (time not supplied): 6.0M versus 5.2M prior.
Truck Sales, January (time not supplied): 6.8M versus 7.8M prior.
2-05-02
ISM Services, January (10:00): 51.8 versus 54.2 prior.
Factory Orders, December (10:00): 1.0% versus -3.3% prior.
2-06-02
Productivity-Prel., Q4 (8:30): 3.0% versus 1.1% prior.
2-07-02
Initial Claims, 2/2 (8:30): 395K versus 390K prior.
Consumer Credit, December (15:00): $9.0B verusus $19.9B prior.
2-08-02
Wholesale Inventories, December (10:00): -0.5% versus -1.1% prior.
End Part 1 of 2
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us stock market
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