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us stock market, stock watch
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2/25/02 Stock Split Report Update
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Stock Split Report Subscribers:
MARKET ALERT SERVICE
Issued a target hit alert on RYL options (+$3.35 per option).
Subscribers to the current reports can sign up at the following link:
http://www.investmenthouse.com/alertssr.htm
SUMMARY:
- The bounce comes as expected.
- Poor breadth and low volume belie the move.
- Home sales soar as economic numbers continue to rise.
- Subscriber Questions
A week of downside tech action gives way to the expected bounce.
Much was made of today's "very powerful rally" on the financial stations even as they talked of the low volume. Early economic news in the form of a powerful January existing home sales report along with tech upgrades (SUNW, EMLX, CTXS) and earnings affirmations by QCOM and GM helped start the bounce that had been set up after a week where the Nasdaq lost 150 points. The market was set up for a further move higher, and the continued good news of late tripped the wire to let some pent up demand out.
Price is there, but volume and breadth provide no Nasdaq or S&P follow through.
The Nasdaq was up over 2% and the SOX almost 5%. The Dow and S&P matched each other with a 1.8% gain. Many component stocks delivered equally impressive session price gains. While the Nasdaq still toils in its downtrend, the S&P cleared its January down trendline and the Dow moved over its 200 day MVA that stopped the blue chips seven sessions ago. Strong price moves.
Volume tailed off, however, after it surged higher the last three sessions the prior week. That building volume had a positive tone for a strong upside breakout on buying volume. That did not materialize today, and that undermines the strength of the move. The Dow's move over the 200 day MVA was nice, but without volume it does not have the same staying power as if there were massive numbers of buyers jumping on board. Same with the S&P's move over its down trendlines.
In addition, breadth on the NYSE and the Nasdaq was narrow, not coming close to the minimum 2 to 1 level you like to see for a really stronger move. Good breadth combined with strong volume indicates that institutions, the big money, were buying stocks of all shapes and sizes. It is not necessary to have wide breadth for the indexes to climb higher (as today shows), but for a recovery rally, you want to see it.
In all fairness, it is premature to look for a follow through on the Nasdaq and S&P just yet. We will look for that starting midweek; you want to see continued buying a week or so after the first rally attempt as that shows institutions are continuing to buy and the move was not just a one or two day event. The point we are trying to make: don't get lured into the 'rah-rah' hype of the session when the building blocks were not all there. It was not a bad day, but it was not a powerful rally either. It was the bounce we expected.
THE ECONOMY
January existing home sales jump 16.2%. Over the weekend we said continued strong economic news could turn the tables on the idea the recovery was not going to be a strong one. The magnitude of the improvement has exceeded expectations, and after the LEI and Philly Fed last week, the stronger than expected recovery scenario is taking root somewhat.
Indeed, one commentator was saying this was the shallowest recession in the post-war period. Another stated that he expected 1% Q4 2001 growth (up from 0.2%) and 3% to 4% Q1 growth. Talk about the seeds of stronger growth taking hold in the minds of investors. Perhaps the trough of the recession in numeric terms won't be that bad, but when you consider growth was around 7% before the fall, the jump into that shallow end of the recession pool was from the high dive board. The splat at the bottom based on the absolute points dropped makes the pain no less great than prior recessions. Moreover, because things were at lofty levels beforehand in terms of economic activity and stock prices, the recovery from this 'shallow' recession may be more difficult than most anticipate. We may see a period of good economic growth and then fall back into recession a couple of years down the road to absorb the rest of the extreme before another long term bull market takes effect.
Home sales continued to shoot higher. Home prices did the same, rising 10.2%. Existing home sales were 6.04 million annualized units versus 5.25 million expected. The numbers were attributed to warm weather and a feeling of buy now while the rates are low. The latter is something we articulated a couple of weeks back. Can housing continue this pace? Some say yes, citing the lack of speculation in the market, i.e., building homes without buyers just on the hope of selling them. Maybe there is not widespread speculation, but there is definitely speculation. In my own area in Texas, there are four subdivisions within 5 miles from first to last that are just now in the land clearing stage. These are not pre-sold subdivisions. These are being built during a recession, with home sales at record pace for months on end, with prices making major moves higher, and at a time when interest rates are starting to climb. I am not sure I would be building a subdivision without buyers in pocket at this point, yet they are going up all over the map at a time that makes you pause a bit.
There is always speculation in building a subdivision; it is easy to see there is a more speculation now, however, than there had been. It is getting a bit frothy, and that is not good for the longer term economic health. There is simply no pent up demand for housing at this point. Indeed, this appears to be more of a last gasp of strong buying before things slow down in that market. For now, the new home sales will continue to drive key aspects of the economy, i.e., durable goods to go into those homes.
THE MARKET
Big point surge clears some key levels on the Dow and S&P, but there was not real strength in numbers yet with moderate volume and poor breadth. It was good to see all three major indexes moving up together, but with the Nasdaq still in a downtrend, for now we have to look at this move as a bounce toward resistance with respect to the Nasdaq and even the S&P. The Dow is making a cyclical move; those can run for quite some time, but they do not normally lay the foundation for a long term bull market move. We will take what the market is giving on this bounce and keep our targets in mind. If we see something better come of this we can make adjustments; until we do, however, we have to be disciplined and not get caught up in all of the rosy talk abounding today.
VIX: 23.28; -1.61. Falling right back down on the continued move higher. As noted low volatility can act as a governor on any move higher, but this secondary indicator is overridden by primary indicators such as price and volume action. P/V action was good last week, but today it backed off; not bad, but not good.
VXN: 44.07; -4.50. Nasdaq volatility tanked on the gain. It is back in the heart of the summer 2001 range where the market was in the doldrums. Not a great signal, and it keeps us wary if the price/volume action on the Nasdaq does not come around.
Put/Call Ratio (CBOE): 0.75; -0.19. Falling as you would expect when the indexes post strong price gains (inverse relationship). It is still very much in the high end of the range, indicating that there is still quite a bit of speculation to the downside even with some glowing words about the market today. Again, it has closed over 1.0 on two recent occasions (January 30 and February 15), a good indication for a move higher. If volume would kick in on a strong up move Wednesday through Friday on the Nasdaq and/or S&P, it would be very positive.
Nasdaq
Bounced higher as anticipated, but found rough going at 1775 on the high and backed off some on the close. Below average volume did not help give the move any drive. For now it is a relief bounce if it cannot deliver a big upside move again on a volume surge later in the week.
Stats: +45.34 points (+2.6%) to close at 1769.88.
Volume: 1.667 billion (-9.3%). After surging the last three sessions last week, volume slid back below average on the best upside price move in a long time. Not a disaster, but not the indication of strong institutional buying you want to see.
Up volume: 1.307 billion
Down volume: 335 million. Buyers were definitely in control, but there were fewer players overall in the market. The upside has not been as strong as the downside action.
A/D and Hi/Lo: Advancing issues were leading again at 1.17 to 1, down from Friday's 1.24 to 1. Even with the big price gains, the move was limited primarily to the big tech names, indicating a bounce for now as opposed to a stronger rally with legs.
New highs: 86 (+7)
New lows: 86 (-18)
The Chart: http://www.investmenthouse.com/cd/$compq.html
The bounce that was telegraphed Friday started today. The question is how far will it carry? As noted, the index cleared the November gap up point at 1745, but it backed off after hitting resistance at 1775 on the high (1776.61). It has some momentum and still ahs room to maneuver up to the down trendlines near 1800 (January 2002 and March 2000). Without volume that is the point of most likely failure (maybe up to the 18 day MVA at 1816.41 that stopped a move up in mid-February). If it does get volume it could make a more substantial move to 1875 before it turns back. For now we have a relief bounce, and we will watch our targets for bounces accordingly.
Dow/NYSE
Another impressive triple digit gain on the Dow, clearing the 200 day MVA and making an approach to the January high. Volume, however, was lower though remaining above average on the move. The Dow is in a confirmed short term uptrend, so it has some leeway. The help it received from the Nasdaq and the S&P today was positive for the upside, but they both need stronger volume to provide sustained support and move from anchor chain to catalyst.
Stats: +177.56 (+1.8%) to close at 10,145.71.
NYSE Volume: 1.326 billion (-6%). Volume broke its string of very positive price/volume action as it did not expand on a price gain. It was not bad price/volume action, just not great price/volume action.
Up volume: 972 million
Down volume: 354 million
A/D and Hi/Lo: NYSE advancing issues led again, but lower at 1.64 to 1 versus Friday's 1.7 to 1. Not bad.
New highs: 160 (+57)
New lows: 36 (-36)
The Chart: http://www.investmenthouse.com/cd/$indu.html
The move over the 200 day MVA (10,048.36) was a positive, but moves over key resistance points (the 200 day stopped the index on its last move higher just seven sessions ago) mean more when accompanied by stronger volume. That leaves the move somewhat in question, though the index has followed through on its recent short uptrend and it has enjoyed good price/volume action of late. Much of the remaining move on this leg depends upon how the S&P and the Nasdaq perform later in the week, i.e., whether they can muster solid follow through sessions of their own. Taken by itself after the prior three sessions, the action in the Dow was not bad at all. It will need to move on stronger volume when it takes on the post 9-11 high at 10,300.15. After another half session or full session of rallying, it may need to take a breather as it sees what the other two indexes are going to do.
S&P 500:
The S&P made pretty quick work of the September 2000 down trendline (1096 at the close), bounding up 1.8% toward its next problem at the 50 day MVA (1117.87), the moving average that stopped its rise in late January and mid February. Immediately after that it has another big test at 1125 where there are price consolidations, the 'hump' in the potential double bottom pattern, and the simple 50 day MVA (1127.65). At that level we anticipate to see either a pause to form something of a handle before a breakout of the pattern, or it will fade there. Hate to sound like a broke record, but it needs a big volume push over that level to make it stick and provide the Dow with continued support. The index still looks pretty weak; the double bottom pattern is a potential pattern, a pattern in process. We need to see the strong breakout to have any confidence of a move higher toward 1150.
Stats: +19.59 (+1.8%) to close at 1109.43.
Volume: NYSE volume pulled back on the advance to 1.326 billion (-6%). As it is in an unconfirmed rally, the S&P needs to show better price/volume action or risk failure at next resistance.
The Chart: http://www.investmenthouse.com/cd/$spx.html
TOMORROW
The first economic report of the week was a barnburner, and the reports don't get much lighter this week. Consumer confidence comes out a half hour into the session Tuesday. Remember, it was a sharp decline in the Michigan sentiment report that had the market jittery a week ago. Confidence is expected to edge up a bit; we have a feeling that the strengthening economic reports of late and the 'so what' attitude towards ENE now that the story is older news will help confidence surpass expectations a bit.
That may help the continued bounce on this surge. We have to also look at Friday as being part of the rally or bounce as the S&P and Nasdaq tapped low levels and then rallied from there. That gives us another session of rallying, and then we have to be wary. For the Nasdaq we have to keep an eye on those down trendlines around 1800. The S&P, we need to watch the 50 day MVA at 1117.87 and then 1125. The Dow is making some of its own wake, but 10,250 to 10,300 is a key level for it. As indicated, we are still in a bounce situation on the Nasdaq and S&P, so we need to keep our upside targets in mind and snag at least part of those profits when the target is hit. If things look good, we can let some of them run after taking some money off the table. Once we get some kind of confirmation, we can have a little more comfort in letting them run further. As we were playing many of the bounces in the techs with options to get leverage on the returns, however, we do not want to take too many chances while in a relief bounce during a continuing downtrend.
Thus tomorrow we are not looking to chase big techs that are bouncing; that gets risky in this downtrend. What we will do with them is ride the positions we have to the upside and watch to see if they stall at resistance and set up the downside. If the Nasdaq cannot muster a follow through, they will be in great position for the next down move. As for other upside, we will stick to good patterns that have been showing good accumulation for new positions. We don't want to chase extended bounces at this point. A follow through would be great, but we cannot anticipate it.
Support and Resistance
Nasdaq: Closed at 1769.88.
Resistance: 1775 remains resistance from the October closing high. The January 2002 and the March 2000 down trendlines are roughly at 1800 to 1798. The bottom of November consolidation at 1875. The 50 day MVA follows at 1873.47.
Support: The November gap up point at 1745 could hold as some support. 1700 has held loosely. After that, there is not much until 1626, the early October gap up point.
S&P 500: Closed at 1109.43.
Resistance: The 50 day MVA (1117.87) that halted the index in late January and mid February. Price consolidations at 1125 where the index stopped stalled earlier in the month (the middle of the potential double bottom) and the hump of the potential double bottom. The simple 50 day MVA is also right there at 1127.65.
Support: 1100 can act as support. Then 1075 to 1080 continues to hold tough. There is a jumble of prices in a range from 1075 to 1050, perhaps the reason this 1075 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 10,145.71.
Resistance: Took out 10,000 and the 200 day MVA (10,048.36) on today's move. Now it faces the December highs from 10,170 to 10,184; the Dow hit 10,172.62 on Monday's high and pulled back. Then resistance comes in again at 10,250 up to the January high at 10,300 (June, July and August 2001 trading range).
Support: Perhaps the 200 day MVA (10,048) and 10,000. Then 9730 is the first January low and has provided some support. There is some support at 9691, the bottom of the November, December and January range.
Weekly Economic Calendar (All times Eastern). The figures are the consensus expectations, not ours.
2-25-02
Existing Home Sales, January (10:00): 6.04M annualized units (+16.2%) actual versus 5.25M expected and 5.19M prior.
2-26-02
Consumer Confidence, February (10:00): 98.0 versus 97.3 prior.
2-27-02
Durable Orders, January (8:30): 1.0% versus 1.7% prior.
New Home Sales, January (10:00): 925K versus 946K prior.
Greenspan son of Humphrey Hawkings testimony
2-28-02
Initial Claims, 2/23 (8:30): No information yet.
GDP, preliminary Q4 (8:30): 0.6% versus 0.2% prior.
Chain Deflator, Q4 (8:30): -0.3% versus -0.3% prior.
Chicago PMI, February (10:00): 47.0 versus 45.1 prior.
Help-Wanted Index, January (10:00): 46 versus 46 prior.
3-01-02
Truck Sales, February (Time not supplied): 7.1M versus 7.1M prior.
Auto Sales, February (Time not supplied): 5.3M versus 5.3M prior.
Personal Spending, January (8:30): 0.4% versus -0.2% prior.
Personal Income, January (8:30): 0.1% versus 0.4% prior.
Mich Sentiment-Rev., February (9:45): 91.0 versus 90.9 prior.
ISM Index, February (10:00): 51.0 versus 49.9 prior.
Construction Spending, January (10:00): 0.1% versus 0.2% prior.
End Part 1 of 2
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