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us stock market, trend trading stock
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2/13/02 Stock Split Report Market Summary
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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/alertdly.htm
SUMMARY:
- Not dead yet: Dow and S&P rise on stronger volume.
- Nasdaq not acting as well.
- Retail sales are robust and they help the rally continue.
- Subscriber Questions
Dow continues to show leadership, but no follow through.
The blue chips may not have had the highest percentage gain on the session, but the pattern is better and NYSE volume was higher (though still below average) as the index closed higher for the third out of four sessions. After lagging the Nasdaq all the way up on the rally from the September bottom, the two have swapped roles. Now the Dow is pushing toward its post 9-11 high, clearing its recent top and the simple 50 day MVA, a point that held it in check the last rally attempt. The Nasdaq is reluctantly following for now.
Not that it was a banner day. After six weeks of selling, three gains out of four has given a lot of bulls renewed hope. Volume, however, has been very light on the move; buyers have not been rushing back in. Wednesday NYSE volume was up for the first time on an up day in the bounce from support. The index gained 1.3%. A few years back, such action on the fourth day of a rally attempt would be considered follow through. Today it just was a better day that still needs improvement.
What needed to be better? The price gain needed to be at least 1.5%. Volume was up, but it would have been better at above average levels (shows a lot more conviction). The NYSE A/D line was 1.74 to 1, not the minimum 2 to 1 we like to see (and what it has been showing on its up days of late. All of the indicators were better on the move over resistance, but they were not the convincing levels that clearly state institutions are in the game and buying.
No follow through, but definitely on the move.
We closed out our DJX call options Tuesday when it looked as if the rally might stall below the simple 50 day MVA once again. With today's higher volume gain, though it was not a powerful follow through (or a weak follow through for that matter), the Dow does have some real upside momentum as it cleared resistance that held it back on its last upside move. With today's rally on a bit stronger volume, the Dow has set the stage for a test of the January top at 10,3000 where all of the overhead supply is from the June, July and August 2001 trading range. 9500 held and prevented a rollover to much lower levels. Now it has cleared interim resistance and has the track to test the recent high.
Nasdaq having a struggle.
We noted over two weeks ago that the Nasdaq had turned the reins over as far as upside leadership. It continues to struggle now, lagging the Dow and S&P on this upside move. The Nasdaq continued to climb Wednesday as well, but volume backed off again on a gain after rising slightly on Tuesday's selling day: the opposite price/volume action to what a healthy index would show. It has yet to even attempt to clear its near term resistance at 1875 up to the 1941 level.
The Nasdaq is being dragged along by the Dow and S&P, and today the SOX, one of its main components. AMAT's outlook regarding increasing orders (+10% to 15%) lit a fire under the chip equipment makers, and several are ready to breakout to new post 9-11 highs. That is key for the market overall and the Nasdaq, but the Nasdaq is being held down by other sectors (telecom, networking, and until the past two days, biotech). With those other major tech sectors lagging, the Nasdaq is rising on very light buying; it is not huge buying, it is just that selling is very light recently after a six-week decline and six tough down sessions in a row. Thus it is rising, but not showing any pop or real interest.
Much as the Dow ultimately was a problem for the Nasdaq when it led higher post 9-11, the Nasdaq could wind up stalling out the Dow's move near 10,200 to 10,300 if the Dow does not really ramp up volume. Even then, bifurcated indexes tend to ultimately drag down the overall market when recovering from a bear. In short, though the Dow and S&P are showing signs of life, the market overall is still working out the kinks of the bear market, and as of yet has been unable to put it all together. If buyers do not surge in, even the Dow will have trouble as it approaches 10,200 if not sooner.
THE ECONOMY
Retail sales rock. January retail sales met expectations at -0.2%. Big deal. When you ex out autos, however, sales jumped +1.2%. Moreover, December's numbers were originally reported as down 0.1%, but they were revised higher to +0.2% and +0.7% ex autos. The January ex autos number was the highest in six months. Even more impressive, when everything is adjusted, core consumption rose 6.6% year over year. What a major move. That had the markets abuzz early and set the pace for trading.
Housing numbers mixed, but better. Home purchases fell 7% for the month, but applications for mortgages rose 2% and refinances jumped 13%. These numbers are good recoveries from the last report that showed the housing market dropping fast. No doubt the selling in stocks and resultant rise in bond prices dropped yields to levels that triggered refinancing. Refinancing leads to more disposable income. That is good for continued consumption; that may not save the economy, but it has kept it alive.
THE MARKET
Tuesday we said we would have to see which way the market ran when it hit near term resistance today. The Dow charged ahead, the S&P followed but still has near resistance, and the Nasdaq more or less existed. Rising volume on the Dow and S&P gains gives them upward momentum to the next resistance and perhaps to test the post 9-11 highs. The Nasdaq needs the SOX to continue to outperform just so the Nasdaq can hang on and maybe join the move. Fortunately for the Nasdaq, it looks as if it will.
VIX: 22.42; -1.09. Nice gain equals a drop in volatility. At the summer 2001 lows. Not much correlation now with the moves as it hovers in the lower half of the range.
VXN: 44.47; -0.98. Slight drop on a slight Nasdaq gain. Still low and still a question mark for any rally that is not accompanied by very strong upside volume.
Put/Call Ratio (CBOE): 0.76; -0.04. A fall, but not much given the gains. After a quick dip a couple of weeks back the ratio has climbed right back up to the high end of the range with one close over 1.0 and three closes in the upper nineties. Perhaps that one close over 1.0 is enough to end the correction. It is getting things going; now all we need is some serious upside volume.
Nasdaq
Following, not leading, rising up to its down trendlines but still has to take on the November consolidation range. AMAT and the SOX really helped it out today and yet it was still a low volume gain. While it will most likely sputter higher if the Dow and S&P find some volume, it is still very much at risk of turning down soon once again for a test to 1743 to 1700 if the other indexes stumble.
Stats: +24.95 (+1.4% ) to close at 1859.16.
Volume: 1.6 billion (-1.2%) Slight drop in volume, but a drop nonetheless on an up session. It certainly was not a powerful move up on massive buying volume. Moreover, Nasdaq volume remains well below average.
Up volume: 963 million
Down volume: 615 million. An almost complete flip-flop from Tuesday's volume. The picture still shows little conviction to the upside.
A/D and Hi/Lo: Advancers were back on top, but it was not great blowout at 1.38 to 1. Decliners led 1.05 to 1 Wednesday.
New highs: 89 (+18)
New lows: 31 (-8)
The Chart: http://www.investmenthouse.com/cd/$compq.html
After the techs refused to give up and sell off Tuesday, they made a comeback today, but it was more of the same action: a moderate rise on below average volume. Once again techs could not muster serious institutional interest in their shares. Even with AMAT and NTAP sparking rallies in their respective sectors, the overall tech market could not put together a higher volume rally. The high volume gains were narrow and specific: stocks with good news were bought in quantity. Other stocks went along for the ride, but there was no real interest in them.
The Nasdaq closed right in the range of its March 2000 and January 2002 down trendlines (if it holds steady at the open, it will open above those lines now at 1845 and 1852, respectively) and is directly facing the bottom of the November consolidation range at 1875. From there it gets no easier with the 50 day MVA (1907.86), 200 day MVA (1931.58) and the entire 1875 to 1941 November consolidation. As noted, it is still lagging the other two major indexes and needs the help of the SOX that actually looks good for a run to 600, maybe further. It is at a critical juncture; it is right at the downtrend, and without some sharply higher upside volume, it will continue its downtrend.
Dow/NYSE
What a great move today (all things considered), clearing that recent interim top and the pesky simple 50 day MVA to close right at 10,000 on rising volume. If it gets another volume injection it will take on at least the 200 day MVA and probably the 10,200 level. Without more, however, and without help ultimately from the Nasdaq and S&P, the Dow will struggle at that level if not at the 200 day.
Stats: +125.93 (+1.28%) to close at 9989.67.
NYSE Volume: 1.199 billion (+5.5%). Volume moved back up Wednesday on the buying. Not a blowout as volume remained below average.
Up volume: 769 million
Down volume: 411 million.
A/D and Hi/Lo: NYSE advancing issues took the lead back at 1.74 to 1. Not the 2 to 1 or better level we would want to show a follow through session had broad strength to support it.
New highs: 129 (+32)
New lows: 41 (+10). Held below 50 for the fourth straight session.
The Chart: http://www.investmenthouse.com/cd/$indu.html
After clearing the January down trendline Monday, the Dow took a rest and then broke the simple 50 day MVA (9920.68 at the close), the point that stopped it in late January. It has cleared that interim high (9944) and is taking aim at the 200 day MVA (10,077.81) on stronger NYSE volume. We would be more comfortable with above average volume, but the pattern is good and there is the right kind of price/volume action if not powerful upside action. There is some resistance at the 10,170 level (December top), but if it continues to receive rising volume, it has a shot at 10,200 to 10,300, the January high (post 9-11 high). After almost achieving 10,000 today it may take another slight breather, but we would more expect a test of the 200 day MVA first given Tuesday's rest and today's rising volume. Once it gets to 10,200 or so, whether it moves higher from there depends upon how well the A/D line comes along, how much upside volume moves in, and how the Nasdaq and S&P are performing when it gets there. Right now there is no reason to believe it would break that level.
S&P 500:
It never showed us the volume selling we thought we might see last night. Instead, the big caps did break free from the September 2000 down trendline and the January down trendline today (1104 and 1102, respectively) on higher volume. Now it has another immediate resistance point it did not really test on today's high (1120.56) at 1125 (price consolidations and the 50 day MVA at 1124.56). After that is 1150. We said it was not in as good of shape as the Dow, and it has a lot of resistance immediately overhead. To be successful, NYSE volume needs to continue to climb. If not, 1125 or a bit higher could stall out the move.
Stats: +11.01 (+1.0%) to close at 1118.51.
Volume: NYSE volume turned course and rose on the buying, climbing to 1.199 billion (+5.5%). Still below average, but showing the right price/volume action.
The Chart: http://www.investmenthouse.com/cd/$spx.html
TOMORROW
HWP reported better than expected pro forma earnings. BRCD met expectations but had good things to say about the current and future business. HWP was up slightly, BRCD was hammered. The market is still news driven, and the QQQ was way down but the bounced right back and finished more or less flat after hours. That leaves little upward momentum in techs in the morning.
As for the Dow and S&P, however, with cyclicals and other economically sensitive stocks (retail) doing better, those indexes are moving to the upside with more pace. The Dow really needs the financial stocks to join in the move; then it would really start to shape up. Financials are usually economic leaders; that they are continuing to hem and haw leads to the conclusion that investors are not totally convinced of the strength of any economic recovery regardless of what cyclical stocks are doing.
Even with the Dow and the S&P rising on slightly higher volume, the Nasdaq's relative weakness and the lack of firm direction leaves the market direction still a bit of a puzzle. For now the Dow has upside momentum and may test the post 9-11 high. Without more volume and support from other indexes, however, that may be all it gets. The market is still locked in an intermediate downtrend off of the January high, and though the Dow is above that down trendline, it has not made a definitive breakaway move. Thus, we remain very wary to the downside and will watch for signs of a failing move higher. The Nasdaq is only rising by virtue of the SOX. If that momentum runs out or some bad news hits, the Nasdaq could reverse quickly.
Jobless claims and inventories are out before the open tomorrow. We anticipate continuing improvement in both though weekly jobless claims are highly volatile. The 4-week average, however, has shown 4 weeks of improvement, a trend that takes more than one week to change. Tomorrow will be interesting. There is no really great earnings news story to drive stocks higher (of course, AMAT's earnings story was not all that great today either). We remain generally negative on the market because it has not shown us otherwise. It is trying to put something together, but it has not done so yet. Not a lot has changed and there is not a lot of power in the move thus far.
So we look at the near term resistance levels as major problems for the indexes. That does not mean that the smaller and mid-cap stocks that we have been focusing on the past two months cannot continue to give us great upside trends (not to mention stocks such as WLP, LLL) even in an overall weak market. IN addition, some of the semiconductors look just great (e.g., BRKS, PRIA). We simply have to keep our targets reasonable and manage the positions, not letting them get away from us. We also keep our trades in roughly equal dollar amounts so one 7% loss does not wipe away a nice 20% gain on another trade.
In addition, we still see continuing weak patterns that are set up and ready to fall on any downside move. JNPR, VRTS, ACXM, BRCM and others can easily turn over if the Nasdaq fails. Again, the market right now is trying to make something of this rally, but it is not getting much help from technology, and a split market is overall bad longer term. The Dow and S&P might give a rise near term, but if the Nasdaq turns the other way, they won't be able to maintain the move, and we need to be ready to take upside money off the table and then look the other way.
Support and Resistance
Nasdaq: Closed at 1859.16.
Resistance: The bottom of November consolidation at 1875. The 50 day MVA at 1907.86. After that the 200 day MVA at 1931.58. The 1934 to 1941 range represents the top of the November consolidation. After that we look at the simple 50 day MVA (1952.51) that stopped the index in late December.
Support: Turned at 1772 last Friday, below some support at 1775. The November gap up point is 1745. 1743 would be a 50% retracement. Support at that level looks to be anywhere from 1700 to 1750.
S&P 500: Closed at 1118.51.
Resistance: The 50 day MVA (1124.56) and price consolidations at 1125. Then 1150 and the 200 day MVA at 1161.14.
Support: 1100 provides some support. After that, 1078 to 1080 continues to hold; it has been growing as a support level with each successful test. There is a jumble of prices in a range from 1075 to 1050, perhaps the reason this 1080 level has held well for now. 1050 was tested twice in October, holding both times. That is right at the 50% retracement (1060).
Dow: Closed at 9989.67.
Resistance: The price consolidations at 9992 to 10,000. Then the 200 day MVA (10,077.81). The January high at 10,300 level is last, but the resistance starts at 10,200 (June, July and August 2001 trading range).
Support: The simple 50 day MVA (9920.68) was resistance and may now act as support on a test lower. The January down trendline at 9750. Then 9691 to 9750, the bottom of the November, December and January range. 9500 was tested on the January intraday low, and it seems the level is continuing to act as good support. 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.
2-13-02
Retail Sales, January (8:30): -0.2% actual versus -0.2% expected and +0.2% prior (revised from -0.1%).
Retail Sales ex. Auto (8:30): +1.2% actual versus 0.2% expected and +0.7% prior (revised from -0.1%).
2-14-02
Business Inventories, December (8:30): -0.5 versus -1.0% prior.
Initial Claims, 2/9 (8:30): 376K versus 376K prior.
Export Prices ex-ag., January (8:30): -0.4% versus -0.4% prior.
Import Prics, ex oil, January (8:30): -0.3% versus -0.3% prior.
2-15-02
PPI, January (8:30): 0.2% versus -0.7% prior.
Core PPI, January (8:30): 0.1% versus -0.1% prior.
Industrial Production, January (9:15): 0.0 versus -0.1% prior.
Capacity Utilization, January (9:15): 74.3% versus 74.4% prior.
Mich Sentiment-Prel., February (9:45): 94.3 versus 93.0 prior.
SUBSCRIBER QUESTIONS
Q: You mention candlestick charts quite frequently. Do they make up an integral part of your analysis? Where can I learn more about them?
A: Candlestick charts are an important part of our analysis of any stock. There are several reasons. For one, once you get comfortable with what they are showing, you can get a much quicker idea of what the momentum of a particular stock is. They are frequently very accurate in showing us quickly if there is upside or downside momentum. When combined with volume, and stock patterns, they are very important in analysis. They don't show different data from a bar chart; they just show it in a way that is much clearer to see at a glance and it is easier to see the shift from buying to selling momentum and vice versa.
We teach candlesticks in our online seminars and there are several good books. One of them is by Gregory Morris called 'Candlestick Charting Explained.'
End Part 1 of 2
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