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us stock market, top stock pick
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2/26/02 Stock Split Report
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Stock Split Report Subscribers:
MARKET ALERT SERVICE
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http://www.investmenthouse.com/alertssr.htm
SUMMARY:
- Consumer confidence and another Iraq rumor stalls the big caps on light volume.
- Non-tech, smaller issues outperform handily.
- Indexes take a pause on continued lighter volume: rest or reversal?
- Team Trades
Lower confidence and rumors of war trip market, but indexes recover their losses.
A slow start was followed by a rally higher in the first half hour. Consumer confidence came out 3 points below expectations. At the same time another rumor hit the floor that U.S. troops were in Iraq. The combination punches turned the rally to a loss in a hurry, the Dow reversing over 100 points in a matter of minutes. It was so wild that a Pentagon official even made comments at the Enron hearing that in fact no troops were in Iraq.
After the plunge, the markets held at support and then mounted a move back up to recover those losses. A move in the last two hours pushed the Nasdaq and the S&P positive, but some late selling turned them slightly down for the close.
Volume light for second session.
Given the noise made over consumer confidence and the Iraq rumor, volume was light, almost identical to Monday's lighter action. Thus we do not put too much stock in the argument that the sellers took over today.
The negative news did torpedo a decent move, but it did not bring the sellers scrambling into the market. There was no distribution, but more of a pause in the action. It did not have enough conviction to take the indexes through near term resistance, but at the same time, there was not enough to send them crashing through near term support. It was a standoff where the market was able to recover from some worse than expected news as it waits for Greenspan to talk to congress tomorrow.
In this market that continues in a downtrend on the Nasdaq, it is important to pay attention to how the market responds to news. Weak markets tend to get yanked around by news. Today's action shows that the market is hardly a strong one as it was pulled down on the early news. We also need to look at the price action. Today the indexes closed just below resistance levels with doji's. After Friday's reversal and rally up to this point, we have to be alert for the downtrend to resume even if volume was low once again. Many a selling leg has started on low volume during the downtrend. Thus, while today's recovery was positive, there was no break of resistance. It looks like a pause in the upside rally to the next resistance level, but we have to be ready to close out short term plays if it is not.
A non-tech move powers many of our plays higher.
The indexes were flat on light volume, and the big name stocks went more or less nowhere. That had most saying the market did nothing. Overall that is accurate, but when you look in the non-tech and non-large cap areas, there were some great performers. We saw them in gold, business equipment, shipping, management services, manufacturing equipment, construction, leisure, regional banks, and tools. In other words, stocks that are in the nuts and bolts businesses that benefit from an economic recovery. Monday was the session for the big caps. Tuesday was the session for the economically sensitive small and mid caps.
That is one reason the indexes performed sluggishly. Remember, the big indexes are valued on the larger cap stocks. Thus their moves control the indexes' moves. They can lead with a narrow rally as we saw Monday, or they can idle while the smaller issues that are hardly represented on the indexes move higher. The latter is what we saw today. There were indeed some stellar moves on the various reports from these stocks that are, not surprisingly, in some of the best patterns in the market.
THE ECONOMY
Consumer confidence slips. The economic parade continued today with confidence falling to 94.1 from 97.8 in January. Expectations were for 97.0. In reality, expectations were much higher. Why? Because retail sales, auto sales, and home sales all indicate that the consumer is willing to spend in this recession just as he and she did in the good times. Thus, a 94 reading was a real surprise.
All components of the number were down, but current conditions were down a whole 4 points. No doubt there is some fallout from the accounting issues and recent lower stock prices. Still, current conditions were still above 90. A reading above 90 indicates confidence, not pessimism. It is like an ISM (formerly NAPM) reading of 50 or better; that shows expansion. Thus, even the lower number shows consumers are still confident in the future.
Moreover, there have been three straight months of rising confidence. Before 9-11 confidence was still trending down though it showed an uptick before the attacks. It regained its footing and started climbing again as the economy improved. First, it is normal for confidence as with any indicator to move back and forth as the economy firms or weakens. The fact that it was lower but still in the 'expansion' mode was very good. Second, after three months of increases that were all above 90, it is normal for a pause; nothing can rise in a straight line.
All in all, the number was not bad. The problem was that the market's expectations were greater than its expectations. When those 'whisper' expectations were not met and there was some perceived backsliding, the market overreacted. That it overreacted can be seen in its comeback to recoup the losses incurred on the news.
Troops in Iraq once again.
Short sellers have a bad rap, and they come on the television and claim they are just misunderstood. They really don't like to short, but shucks, if the economy and the market are bad, they just have to. In that regard, we have no problem; we play the downside when it is there. Take what the market gives; that is our trademark.
Problem is, there are short sellers and there are short sellers. We do our analysis on the market and the stocks, and the make our downside plays when the time is right. No rumors, no hype. The latter will do just about anything to turn a profit. If they enter positions against a stock or the market and they then rally, many will purposefully float false rumors to reverse that course. It happened a week ago with the Iraq rumor, and it happened again today. This is how short sellers get bad reputations. Fear is stronger than greed, and that is why negative rumors work, particularly in a weak, news driven market. This rumor was released right after the confidence number came out, trying to help make a disappointment worse. It worked for about a half hour.
Greenspan speaketh. Wednesday Greenspan reports to Congress on the economy. Many are saying the market is idling waiting to hear what he has to say. The lighter volume seems to indicate that, but for the life of me I don't know why. It is not as if Greenspan is going to say anything that anyone can latch onto with any firm conviction. He is going to stick to what he said a few weeks back and may note that things appear to be improving, the consumer is still strong but cannot be counted on the remain so strong, and that business capital investment is still weak.
Unfortunately, he will not yet say that a stimulus package is necessary. Remember, he stated before that a package was not necessary now but could be in the future. He was wanting to see if the business investment would pick up if the consumer kept spending. It has not even as the consumer continues to consume. That side of the economy needs stimulus, but Greenspan is too cautious to get into the political argument. Well, that is not correct. Greenspan is all politician. He is too much a behind the scenes politician to politic in the public eye. Thus even if he believed it was time for stimulus, he would not say it. Maybe he will surprise us; don't count on it. The best the bulls can hope for is a statement that the economic recovery appears to be gaining strength.
THE MARKET
A good early move up was rammed with confidence and rumor. It is worth noting that the indexes faltered at near term resistance: the S&P at the 50 day MVA; the Nasdaq below its down trendlines; the Dow at the December highs at 10,184. Many of the big names that make up the indexes, particularly the tech stocks, mirrored that action.
It is also worth noting that the indexes recovered from the selling on the bad news early in the session. Moreover, volume was flat as the indexes traded flat as well; the bad news that stalled the early move did not bring the sellers running into the action. While we are not saying that this is a definitive signal of strength, we do believe the action was more of a pause before the indexes try to move a bit higher. At least, that is what it looks like with respect to the Dow: a test of the 200 day MVA after moving over it Monday. The Nasdaq and the S&P, well, they don't look so convincing: doji's below resistance.
If there is going to be a follow through later this week, it was good action: a bit of rest after a big move Monday before taking on the next level of resistance. Today's recovery kept us in our upside bounce plays started Friday and Monday; the action over Wednesday and Thursday will tell us whether we stay or go on those. We believe we can get a surge higher before the Nasdaq and S&P reverse to turn lower, but the patterns on the close were not totally in sync with that view. Thus, we are going to watch the action closely tomorrow on those plays; if the indexes undercut today's action, we will have to close them up.
VIX: 23.57; +0.29. Going nowhere on a day the market did the same. 24.61 on the high, so no big spike during the selling in the morning.
VXN: 44.77; +0.70. No change on the session as the Nasdaq was flat. Hit 46.52 on the high during the selling. Nothing special here either that would indicate a major turn upside.
Put/Call Ratio (CBOE): 0.82; +0.07. Continues in the high side of the range after two closes above 1.0 (January 30 and February 15). This is a slight positive for a continued move higher, but the real test is whether buyers come back in with any volume to the upside Wednesday, Thursday or Friday.
Nasdaq
Rallied up just below the down trendlines and then was stung by the confidence/Iraq reports, testing first support on the lows and then rebounding. It is in a precarious position as many of its major components exhibited the same action in their continuing downtrends. The Nasdaq has to move to the upside from here or after another mild test lower or else it is back down in the downtrend.
Stats: -3.02 points (-0.2%) to close at 1766.86.
Volume: 1.670 billion (+0.18%). Nearly a dead heat with Monday and still very much below average volume. It was not a high volume reversal at resistance, but we have to be wary of low volume turns that lead to continued distribution.
Up volume: 890 million
Down volume: 763 million. Buyers lost their grip on the action as sellers almost pulled even. With the doji on the candlestick pattern, we must watch for another turn down in the downtrend.
A/D and Hi/Lo: Advancing issues held on to a slim 1.11 to 1 lead (1.17 to 1 Monday) as breadth remains very narrow in tech land.
New highs: 85 (-1)
New lows: 70 (-16). Good to see new lows declining on the session. A small positive.
The Chart: http://www.investmenthouse.com/cd/$compq.html
The bounce was on its way again, but ran into trouble with a news story: a sign of a weak index. It did not quite make it up to its down trendlines on the high (1788) on the first run when the news hit and sent it down to 1750.36, just above the November gap up point at 1745. Good to see that level hold on the low, but not decisive action. The candlestick pattern is a loose doji just below the down trendlines and some resistance at 1775 is not a good signal for a stronger move higher. The lack of volume hurt it at these points as well as the negative news that showed how weak the index is. Realistically, the pattern is weak. We may see another run at the 1800 level or down trendlines before it turns back in the downtrend for a stronger drop. It could still give us a follow through session if the Dow can prop it up for the next positive economic news, but that chart is not screaming it is ready to make a definitive move higher.
Dow/NYSE
Stalled for the second session just under 10,200, but it too found support at the 200 day MVA and recovered. Not a bad day of rest after two stronger sessions. Looks more like a pause.
Stats: -30.45 (-0.3%) to close at 10,115.26.
NYSE Volume: 1.291 billion (-2.6%). Volume contracted for the second straight session, not bad action on a day of rest after two strong price gains.
Up volume: 730 million
Down volume: 545 million. Sellers catching up with the buyers, but still lagging significantly.
A/D and Hi/Lo: NYSE advancing issues continued to hold a narrow lead at 1.36 to 1 (1.64 to 1 Monday). Okay for a day of rest.
New highs: 164 160 (+4)
New lows: 31 (-5). As with the Nasdaq, good to see new lows fall on a slight down session.
The Chart: http://www.investmenthouse.com/cd/$indu.html
Stalled out at 10,186.88 on the high, right at the point it tapped out Monday. On the low it touched the 200 day MVA (10,044.18) and rebounded to close fractionally lower. The Dow has traced out a 7.5 week saucer pattern, and it is normal for it to pause and move somewhat laterally as it approaches the prior high in January (10,300.15). The Dow broke its short term downtrend in starting this pattern, and it is looking to take out its recent high. It still has a load of resistance up to 10,500, more or less the top in the summer 2001 trading range. Can the Dow's cyclical/old economy stocks carry the index through this level? It would seem it could run up to it, but without help from its technology components (HWP, INTC, IBM, MSFT), the likelihood of the index carrying through the resistance is not so great. For now, it looks as if it is resting for an attack on 10,300; it needs the Nasdaq and S&P 500 to go further than that.
S&P 500:
The big caps showed similar action to the Nasdaq though it has moved over its January 2002 and September 2000 down trendlines. It ran up close to the 50 day MVA (1117.54) on its high (1115.05), but rolled down when the confidence numbers came out. On the low it tapped support at 1100 (1101.72 on the low) and rebounded show a tight doji on the candlestick chart. A doji below resistance after a move up is an indication of a potential reversal in direction. The best thing the S&P has going for it is the Dow and the fact that it is above its down trendlines. It does not hurt that it found support twice at 1075 earlier in the month, forming a potential double bottom pattern. Potential is the key word. It needs to break over that 50 day MVA on a strong dose of volume.
Stats: -0.05 (-0.01%) to close at 1109.38.
Volume: NYSE volume was down again (1.291 billion; -2.6%). Not bad action as it was not a high volume reversal. Could be a day of rest, but in this market, a doji below resistance is something to be wary of.
The Chart: http://www.investmenthouse.com/cd/$spx.html
TOMORROW
New home sales, durable goods, and Greenspan. New homes might not do much for the market after the big existing home sales number (existing home sales are 80% of the housing market). Durables goods, maybe. The big news, however, will be what Greenspan has to say, though as noted earlier, he won't say much outside of what he has said earlier this month. Congressmen will try and get him to comment on the budget, Enron, stimulus, and anything else that would benefit them, but he won't have much to offer. The key element that the market will focus on will be whether the Fed is going to hold off raising interest rates any time soon. We firmly believe the Fed is not going to move on rates for quite some time; the economy is just too fragile. Greenspan won't say one way or the other directly, but he must once again be careful not to give the impression the Fed is ready to swoop in with rate hikes. If he is not, the market will start pricing them in, and that is not what he wants and not what the economy needs.
Thus, there may not be a lot of guidance in the morning, and there may not be much guidance once Greenspan finishes speaking. Will the market require some comforting words, or will it be able to move higher on the lack of negative words? In other words, is it enough for Greenspan to decline to answer any question on whether rate hikes are coming or will the market require assurances that the Fed won't hike rates? If it is the latter, the market will be disappointed.
The market is at a small crossroads here and is a bit undecided. Even with today's confidence number, economic reports have been steadily improving. We anticipate some drift in the morning before Greenspan speaks, some anticipatory rallying, and then the real action starts.
Tomorrow we will be ready to exit our upside bounce positions if the plays hit our target levels (of course) or if the indexes test resistance tested today and cannot break through. We do not like the Nasdaq and S&P patterns today, and if they cannot deliver a move over resistance on the Greenspan speech, we don't see much more upside on this leg. We have some put plays that we have been watching and can be triggered on a new round of selling. We also have those good upside plays that are not connected to the techs but that are taking advantage of the overall economic improvement. Those are the upside plays that we will allow to run more.
Support and Resistance
Nasdaq: Closed at 1766.86.
Resistance: 1775 remains resistance from the October closing high. The January 2002 downtrend is now at 1775. The March 2000 down trendline is right at 1796. The bottom of November consolidation at 1875. The 50 day MVA follows at 1869.29.
Support: The November gap up point at 1745 held 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 1109.38.
Resistance: The 50 day MVA (1117.54) 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 1127.10.
Support: 1100 can act as support and did Tuesday. 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 10,115.26.
Resistance: December highs from 10,170 to 10,184. Then resistance comes in again at 10,250 up to the January high at 10,300 (June, July and August 2001 trading range). After that, 10,500 is the top of that range.
Support: The 200 day MVA (10,044.18) 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.
End Part 1 of 4
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