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world stock market, us stock market
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2/21/02 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:
- Dow tries 200 day MVA, but Nasdaq jerks the market lower.
- Wednesday's action just a bounce as Nasdaq plummets.
- Economic data continues to show overall improvement. Market not taking note.
- Subscriber Questions
- Team Trades
Anchor chain Nasdaq cuts Dow's rise short.
The Dow was holding up, making a higher low and trying to run back toward the 200 day MVA. As discussed Wednesday, it was being led by the cyclicals higher in a defensive/economic recovery move. Problem: cyclicals are not great leadership and can be overwhelmed. That is what happened today as the Nasdaq, leader turned laggard, rolled over at the near term resistance and then plunged through recent lows as the afternoon wore on.
The Dow and the S&P, the two that led the Nasdaq higher Wednesday, were yanked lower Thursday by the Nasdaq. As the Nasdaq broke through its recent low, the Dow turned from positive and above 10,000 to negative. Neither the Dow nor the S&P broke through their recent lows, however, keeping their trading ranges alive. The lower NYSE volume helped keep these indexes more in order. Indeed, the Dow was really hurt by its tech components as IBM tanked again and INTC suffered after its Banc of America estimate cut.
Still just a bounce.
Some potentially positive tones Wednesday were washed away as that action turned out to be mostly a short covering rally after some previous heavy selling. As we said last night, even with the positives it had to be treated as just a bounce for now, and that appears to be the case. The Nasdaq broke its recent low; the S&P came close to that 1075ish level on its low.
Thus the Dow and to some extent the S&P are hanging onto their support, but the Nasdaq is knifing lower as tech stocks continue to purge the gains off the September bottom. The reversal was a one day wonder created by short covering, and the indexes were more interested in analyst moves and rumors than economic news.
News driven market gets a bad dose.
Weak markets respond to news in big ways. Ever notice how when the indexes are really rallying they tend to put their heads down and ignore news of any kind? Bad news is minimized or rationalized, good news is taken in stride. Well, when they are weak, markets are blown about by news, particularly negative news.
Today Banc of America cut its Intel estimates. That created problems for the semiconductors early. KLAC, AMAT and some other chip equipment makers looked decent, but they were all tossed out on this news.
Then there was the world news and rumor mill. A military helicopter in the Philippines goes down with 12 on board. Then the rumor hits that the U.S. has troops in Iraq. Right at that time, right after lunch on the east coast, the market rolls over and starts to really sell off. Again, weak markets are led around by news and rumors. Today's action showed just how weak Wednesday's move really was as the market was at its high when the rumor hit and that helped spark the selling.
THE ECONOMY
The economic news was not bad to really good. As has been the case of late, however, it did not matter.
Jobless claims up 10,000. Weekly jobless claims were higher than expected at 383K, 10,000 more than the 373K logged the prior week. A bit higher than expected (375K). Still, that was the seventh week in a row where jobless claims came in less than that 400k level that is the usual hallmark of recession. It was not roses, however. Continuing claims rose 44K, the third week in a row of gains. The total number of claims may be peaking, but finding jobs is hard as the continuing claims show. The 4-week moving average rose for the first time in 4 weeks as well. Overall decent, but some problems still.
Leading economic indicators rise for fourth straight month. These economic indicators measure economic activity three to six months out. They rose 0.6% to 112.2, in line with expectations but below last December's 1.2% rise. With four straight months of increases, that is a very good sign that the economy is on the road to recovery.
February's Philly Fed survey shoots higher. This is a measure of economic activity in the Philly district. Expectations were for a reading of 10 after 14.7 prior. 16 was the number. This was the fastest increase in two years as business conditions increased sequentially and new orders increased in over January levels.
The economic news continues to surprise on the upside, yet the market continues to fall in the face of the news. Either the market is overreacting to the downside given the accounting concerns that are the wildcard now, or it has taken into consideration the economic improvement and still thinks the strength of the rebound does not justify current prices.
THE MARKET
What the market is telling us: yes, there is economic improvement ahead as the homebuilders, basic materials, retailers, packaging and other economically sensitive stocks continue to perform well. It is also telling us that even with the economic improvement, the recovery is not going to be robust as growth stocks in technology, plagued by overcapacity, have gone from leaders on the recovery off the September bottom to laggards, pointing the way back down. They are taking out a lot of what was built in on the move higher when there was going to be a stimulus package to help spur faster growth.
Today was not distribution, but it was a signal that Wednesday's action was nothing special to the upside. Lots of poor patterns outside the leading sectors to the upside, and the downside plays are a bit extended right now to chase. This is a time we need to be patient and let the plays set up and make their moves. As we said in our analyst discussion after the close, not a time to chase downside plays or force upside action.
VIX: 25.82; +1.56. Right back up on today's selling, but the rise was not as much as the drop on Wednesday's reversal. Still in the middle of the range and needs to spike over 30.
VXN: 48.08; +1.38. Decent rise, but not much given the spanking the Nasdaq received. It is right at the top of the low range of the summer of 2001.
Put/Call Ratio (CBOE): 0.82; -0.04. A fall in the put activity on a big selling session. If there was a lot of fear we would see it shoot up on a day of selling like this.
Nasdaq
Opened lower, tested resistance for 4 hours, but then rolled over to new lows for the year. The Nasdaq has now given back in excess of 50% of the gain off of the September bottom, and it is nose down looking for a landing spot. KLAC and AMAT may have looked decent Thursday, but they road down on the INTC news.
Stats: -59.33 (-3.3%) to close at 1716.24.
Volume: 1.833 billion (-4.4%). No distribution, but volume remained above average on the selling.
Up volume: 383 million
Down volume: 1.437 billion. Turned right back down with a 3:1 lead.
A/D and Hi/Lo: Decliners took back the lead 1.96 to 1 (advancers led 1.3 to 1 Wednesday). Decliners remain proportionately stronger.
New highs: 87 (+6)
New lows: 81 (+32)
The Chart: http://www.investmenthouse.com/cd/$compq.html
A good old fashioned tanking after rallying to test resistance at 1775 Wednesday. The index never turned positive, and after four hours of lateral movement just below that level the selling bell was rung and the index turned and ducked lower. It undercut the early November gap up point (1745), stopping just for 10 minutes to think about it. Then it was down toward 1700 to close at 1716. That is about 54% retracement. There is some potential support at 1700 and after that 1626. Volume was lower so there was no dumping, but the prior distribution does not require continual selling. The close on the low showed the sellers were in control to the end.
Dow/NYSE
Ran up toward the 200 day MVA but was torpedoed by the Nasdaq's rollover. It is still in decent shape, but dealing with the tech breakdown is hard as INTC, MSFT and HWP are all in the Dow.
Stats: -106.49 (-1%) to close at 9834.68.
NYSE Volume: 1.329 billion (-6.6%). Volume backed off on the selling back down in the range, so no distribution. That is good for the Dow as lighter selling volume indicates it may hold within its recent rally range.
Up volume: 413 million
Down volume: 923 million. Traded places from Wednesday.
A/D and Hi/Lo: NYSE decliners took back the lead at 1.43 to 1 (advancers led 1.55 to 1 Wednesday).
New highs: 126 (+18)
New lows: 60 (+17)
The Chart: http://www.investmenthouse.com/cd/$indu.html
A test of the 200 day MVA (10,056.16) on the high (10,029.94), but then reversed and sold off almost 100 points to close below the 50 day MVA (9848.23). The selling was on lower NYSE volume and the Dow held easily within its recent trading range that has one bottom at 9700 and the next near 9600. You can even step down to 9500 where it tapped in late January. The Dow is not in serious jeopardy here, but its second failed test of the 200 day MVA in a week is not a sign of upside strength. It will most likely test 9700 again as it attempts to continue its lateral base-building move.
S&P 500:
The big cap index had problems today as it too tested near term resistance at 1100 (price consolidations and the September 2000 down trendline) and then rolled over hard, falling 21 points high to low. It closed near its session low but managed to hold above its recent lows from 1073 to 1077. Those are critical levels for this index to hold or else it goes down to 1050. The trend is still down and once again it is key how the index handles this support level.
Stats: -17.03 (-1.6%) to close at 1080.95.
Volume: NYSE volume moved lower on the selling to 1.329 billion (-6.6%). Avoided distribution.
The Chart: http://www.investmenthouse.com/cd/$spx.html
TOMORROW
Friday on a week that has continued the selling from the January top. While it is important to see how the S&P handles support, we might not get a real feel for that with typically lighter action on Friday.
Still, the trend remains down for now but many downtrending stocks are not in the best position to enter trades given the extended selling. As we said earlier, there are times you need to have a bit of patience to let the plays set up so you can have higher percentage entry points, upside and downside. There are plays still in position for entry, and if they hit the buy points and conditions are right we will take advantage of them. There has been a lot of selling in a short period, however, so we need to exercise patience.
We have several current downside positions running and we will be looking to close them out when targets are hit tomorrow. After all of this selling there will be a pretty smart snapback, and we want to have our puts buttoned up by then. We will stick to the targets when hit and smile about the gain. Selling is not a straight line down; after some heavy downside action there will be two to three day of upside. We don't want to join the party in the middle or the end, so we let the plays reset, and then enter when the door is just opening.
Support and Resistance
Nasdaq: Closed at 1716.24.
Resistance: 1745, the November gap up, could be upside resistance. 1775 remains resistance from the October closing high. The January 2002 and the March 2000 down trendlines are roughly at 1815. The bottom of November consolidation at 1875. The 50 day MVA follows at 1890.71, still a long haul from Friday's close.
Support: 1700, then 1626, the early October gap up point.
S&P 500: Closed at 1080.95.
Resistance: The January down trendline is now at 1087. Then 1100, former prices and the September 2000 down trendline. The 50 day MVA (1119.38) and price consolidations at 1125 stopped the index cold (the middle of the potential double bottom).
Support: 1078 to 1080 is still holding. 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 9834.68.
Resistance: There is some resistance at those price consolidations at 9992 to 10,000. The 200 day MVA (10,056.16) is the real resistance, however, as that level has turned the index back twice in the past week. The January high at 10,300 level is last, but the resistance starts at 10,200 (June, July and August 2001 trading range).
Support: 9730 is the first January low and did provide might provide support. There is some support at 9691, the bottom of the November, December and January range, and the January 2002 down trendline is at 9670. 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.
2-19-02
Housing Starts, January (8:30): +6.3%. 1.678M actual versus 1.595M expected and 1.579M prior.
Building Permits, January (8:30): +3.1%. 1.706M actual versus 1.6M expected and 1.654M prior.
2-20-02
CPI, January (8:30): 0.2% actual versus +0.2% expected and -0.2% prior.
Core CPI, January (8:30): 0.2% actual versus +0.2% expected and 0.1% prior.
2-21-02
Initial Claims, 2/16 (8:30): 383K actual and 373K prior.
Trade Balance, December (8:30): -$25.3B actual versus -$28.5B expected and -$28.5B prior.
Leading Indicators, January (10:00): 0.6% actual versus +0.6% expected and +1.2% prior.
Philadelphia Fed, February (12:00): 16 actual versus 10.0 expected and 14.7 prior.
Treasury Budget, January (2:00): $52.0B versus $76.4B prior.
SUBSCRIBER QUESTIONS
Q: Like your service. What analysis did you perform to conclude the QQQ's target at 34?
A: That was our form of good old technical analysis. What we look at and what we teach in the online seminars is how to look at the elements that make up support and resistance and build a picture on you chart that puts all of those elements together so you can see the sequence of levels that will act as support and resistance and how strong those levels might be. When playing puts, we tend to play each leg down and not ride a leg back up to resistance simply because downside action tends to be steeper, but as we saw Wednesday, when it ends the rallies can be vicious as well.
With that in mind, when we picked out the entry point on the put play we simultaneously picked out our target. Two reasons for that. First, we always want to know what we are shooting for in the trade; we want to know our goal. That keeps us focused and helps us make the right decisions when we are in the play. Second, we want to know if the trade is going to give us enough of a move to make it easy to enter and exit without having to be a sharpshooter to do it. By using specific entry and exit points we focus on the trade and we stick to the plan; that gives us a much better 'win' percentage.
As for the specifics as to 34, we had drawn both the upper channel on the January downtrend and the lower channel that connected the January and early February lows. That set the lower range or the bounce point where the index would sell down to and then tend to bounce back up toward the upper channel. It is the exact opposite of stocks or indexes in an uptrend. Looking at that lower channel line and projecting it forward over a 3 to 4 day period, we saw it down at the 34 level.
In addition to that, we looked backwards in the chart looking for points of support. Back in early September the index bounced after crossing below 34 and found resistance there. On the way back up, it gapped up toward that level and then in late October held on the close just below 34 right before the Nasdaq started a big move up in November. Those past price points combined with the lower channel of the downtrend made what we call thicker ice. On top of that, the 50% Nasdaq retracement was right at that level, and if nothing else we felt the Nasdaq would bounce a bit there.
With that in mind we selected a target just inside of that support, and that was 34. As it turned out, that was dead on as the QQQ taped 33.93 intraday Wednesday and then ran up to close at 35.15. Thursday was another day, and it fell back below 34 on the close. Still, with puts we want to take the obvious move and not get too extended as the market can reverse near these support levels. We now wait for the next play to set up and then enter again when the percentages of an easy score are high. That is the key we teach in the seminars: look for those higher percentage plays, the plays you can hit again and again. Then when the market is better we can go for some longer balls on the upside.
TEAM TRADES
TGIC: Insurance has been looking good overall, and TGIC was in a nice lateral consolidation after a breakout. After lunch TGIC hit our buy point of 42.50 on its way to 43.20. It turned immediately and pulled back after that $1.20 run, testing 42 and bouncing up again. Twenty minutes before the close it gapped higher again and with volume decent we went ahead and entered a partial position right at the buy point. The stock proceeded to dump on us again in the last 5 minutes. This is a fairly thinly traded stock, but we like the sector and the pattern. We will see if it holds.
End Part 1 of 3
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