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world stock market, us stock market
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2/27/02 Stock Split Report Market Summary
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Stock Split Report Subscribers:
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SUMMARY:
- Nasdaq and S&P make final surge toward resistance and roll over on higher volume.
- Greenspan moderately upbeat about economy and avoids spooking the market.
- Economic signals mixed as durable good sales surge and new home sales plunge.
- Subscriber Questions
Run to resistance looks to have run out of gas.
Tuesday night we did not like the look of the Nasdaq and S&P patterns, and thought we might get a push to resistance again before they turned over. While the market seemed to like what Greenspan said in that it did not tank immediately, it did not take a lot of comfort from the 'slower than usual' economic recovery talk. The indexes stutter stepped, ran to resistance, and then rolled over.
Most analysts seemed to take the day in stride as not being that big a deal. This was similar to Monday where the lighter volume rally was called 'powerful.' What was a big deal today? The fact that the indexes ran up to clearly defined resistance and then rolled down, doing so on higher, above average volume. That is about as clear as it can get: hitting resistance and then big players using that point as the place to unload stocks.
Early in the session we saw the QQQ and OEX running into trouble at resistance and issued an alert that we were selling our upside positions. Then later we saw the resistance holding and the volume rising on the rollover. We then issued alerts that we were taking downside positions on the same indexes. Those new to technical analysis find it uncanny the way indexes and stocks run up to a specific, predetermined point and reverse course just as the QQQ and OEX did today. It is all part of understanding uptrends, downtrends, and what constitutes support, resistance, accumulation and distribution.
The Nasdaq and S&P 500 were not alone. If the indexes roll over, those stocks that make them up were doing the same. We saw some heavy selling on BRCD, CSCO, EMLX, EMX, and other big name techs. We issued some downside alerts, e.g., CHKP, and we have more in the reports tonight to take advantage of the move that is starting back down at least for the short term.
Greenspan walks the tightrope and does not upset the market.
Most came away from Greenspan's speech feeling better about the future in several ways. Primarily, most felt that Greenspan had given thumbs up to the economic recovery. The bond market also liked what it heard in that it appeared the Fed was not going to do any rate hiking until the economy was much stronger. The Fed Funds Futures contract made major moves in pricing out a summertime rate hike.
Still, there was a lot of hedging in the speech. Yes the worst of the recession may be over, but the recovery is not going to be as strong as in past recessions because of the continued strength in consumer consumption and in housing: no pent up demand. Debt loads are high. Unemployment will most likely continue to rise, and with that we cannot expect consumption and housing to remain strong. On top of that, even though inventory reduction is almost if not at an end, capital investment remains very, very weak. All of these were the dark clouds on the edge of the speech that most commentators seemed to overlook.
Stimulus still needed to avoid a double recession.
We recall his prior speech just a few weeks back where he said that stimulus was not needed now but may be needed in the future. His careful words about all of the continued threats to the economy avoided saying stimulus might be needed, but the message was pretty clear to the bond market and those that would listen: things may have been better, but things were not great. The same problems are still there: business investment is horrid, and demand is in question moving forward.
This talk about a slow recovery means more than almost any are acknowledging. It is a recognition that yes things are improving, but that the economy is very fragile. What we have seen in recent recessions back in 1980 and 1990 is the double bottom phenomena. There signs of recovery in 1980 and many calls that the recession was over. Unfortunately the bump higher ran out of gas and the economy rolled into the deepest recession since 1933. The next recession in 1990 was followed by two years of very slow, weak growth, making it the slowest recovery in post-war times. The economy did not recover until taxes were cut.
Again, this talk about slow recovery is chilling to us. Remember where we came from: GDP growth over 7% in some quarters in 1999 and 2000. Eking out 2.5% growth for the year is not going to put many of those displaced workers back to work. The longer they go without jobs the more strain on the system in providing for them and the more consumer demand is hurt. It is a vicious cycle that feeds on itself. Slowing consumer demand means even less impetus for businesses to invest in capital goods and equipment, and that has been the heart of the recession. In short, the scenario painted by Greenspan at best points to a 1990-like, slow, drawn out recovery. At worst we dip back down and go into a deeper recession. Deeper you say? Yes, it is a lot like a relapse from sickness; the relapse is worse because your defenses were already beaten down.
Thus this talk about eliminating the tax cuts, limiting investor choices, upping spending on pork, creating a Federal Bureau of Audits, and all of the other bigger government ideas floating in Washington as a result of Enron and the recession is misplaced. History tells us to be careful here with the most important aspect of our standard of living and way of life: the economy. If the economy does well, everyone does well. If it does not do well we have the same problems we are having now, just magnified. Is it really all that unusual that a cutting edge energy company goes bankrupt during a worldwide recession when energy prices plunged because of slack world demand? Sure it looks as if some Enron execs took advantage of the situation for their own gain, but the root of the problems where the plunge in energy prices as a result of the global recession. Is it really unusual that a major retailer went bankrupt in a global recession? Sure consumers stayed strong, but they shifted buying patterns during the recession. It will happen again to other big companies if the turn back up does not last.
From our perspective, the biggest problem facing the U.S. right now is a recovery that is not really a recovery. It would be a fairly simple thing to help insure recovery: get some investment stimulus passed along with the prior tax cuts. Get the small businesses buying new computers, phone systems, cars, printers, production equipment, etc. That will give us a good recovery that will put people back to work and keep consumer demand going. That is what worries Greenspan, and getting investment going will resolve that worry.
THE MARKET
As noted, the Nasdaq and S&P hit resistance and rolled over on higher volume. There was no follow through to last Friday's rally attempt, and distribution at resistance is usually the death of a rally attempt that has not followed through. The Dow churned a bit on higher volume after testing resistance at 10,250. The Dow is still holding above the 200 day MVA, working on its cup, but the Nasdaq and S&P look to be returning to their anchor chain ways.
VIX: 23.09; -0.48. Little movement but at low levels still. It did not provide much impetus to the rally.
VXN: 45.76; +0.99. Very moderate rise on the rollover in the Nasdaq. Volatility remains sluggish.
Put/Call Ratio (CBOE): 0.79; -0.03. Holding more or less steady in the higher end of the range. It has been high, but it is secondary to price and volume. There was no follow through and volume ran higher on today's reversal.
Nasdaq
Ran up to the March 2000 down trendline and then rolled back down on rising, above average volume. A distribution session at resistance before a follow through on a rally is not good. Looks to be heading to 1700 again.
Stats: -14.98 points (-0.8%) to close at 1751.88.
Volume: 1.823 billion (+9%). Rising, above average volume on the turn back from resistance. Distribution before a follow through session. Indicates institutions used the rally to start selling and signals the rally is most likely over.
Up volume: 645 million
Down volume: 1.157 billion. Tuesday showed buyers losing their strength, and today it was clear the sellers had overcome them.
A/D and Hi/Lo: Advancing issues surprisingly held the lead, but fell to 1.05 to 1 (1.11 to 1 Tuesday). They had not been strong all the way up.
New highs: 117 (+32)
New lows: 53 (-17). Still positive action, but this is not definitive compared to the price/volume action.
The Chart: http://www.investmenthouse.com/cd/$compq.html
Rallied up to 1793.73 on the high, right at the March 2000 down trendline (now at 1787) and reversed, falling almost 42 points to the close. Yet another lower high. It did manage to bounce and hold above the early November gap up point at 1745, but that was little consolation given the rollover at resistance on rising, above average volume. If it runs down to the bottom channel line of the downtrend it would but the index below the recent low at 1700 down to near 1650.
Dow/NYSE
Hit 10,250, the teeth of resistance and reversed to close with a doji on the candlestick chart. It still held above the 200 day MVA, and the pattern still looks decent. It will, however, need the help of its tech components, and they are under fire.
Stats: +12.32 (+0.1%) to close at 10,127.58.
NYSE Volume: 1.378 billion (+4%). Volume moved above average on the action. Though there was a gain on the session, the price and volume action (a doji on higher volume) indicates some churning (high volume selling and buying). After a gain churning shows us that there are as many ready sellers as there are buyers: the sellers have caught up with the buyers.
Up volume: 839 million
Down volume: 536 million. Most of the increase in volume was up volume, so the session was not a complete share dump.
A/D and Hi/Lo: NYSE advancing issues actually increased their lead to 1.58 to 1 (1.36 to 1 Tuesday). Not bad action and shows that the overall selling action was in the big issues and not the mid and small cap issues.
New highs: 181 (+17)
New lows: 21 (-10). As with the A/D line, this shows that overall the selling was mostly in the bigger names.
The Chart: http://www.investmenthouse.com/cd/$indu.html
The Dow is in an 8-week cup pattern approaching the pre-correction high at 10,300. Today it hit that 10,250 barrier on the intraday high and ran like a scalded dog to the low (10,058.66). That was just above the 200 day MVA (10,040.15). Now the 200 day MVA should act as support, but remember that it moved through that resistance on light volume on Monday. A light volume break over resistance means there was not a lot of conviction on the move, and thus it might not hold. What we want to see here is the Dow form a handle and then breakout over 10,300. Today's churning on higher volume is not the best action in a handle; quiet volume is better. The Dow continues to be the best of the indexes pattern-wise, and it must hold roughly above the 200 day MVA. The Nasdaq and S&P look to be drags once again as they resume their downtrends for now. Not good enough to short right now as we see how the pattern plays out.
S&P 500:
The S&P is above its down trendlines, but today it ran into resistance near 1125 (high was 1123.06) and turned back hard, falling 21 points high to low before a late rebound. On the low (1102.26) the index bounced from support at 1100, but the higher volume and fractional gain on the S&P indicates churning as on the Dow. The S&P, however, never enjoyed a follow through session to its rally attempt that started last week. Thus its upside action for now is most likely through until it can test support once again. Still, it has some hope. It had formed somewhat of a double bottom pattern with two tests of the 1075 level and is still above its January 2002 and September 2000 down trendlines. It has stalled out near the 'hump' in the double bottom, and we do know that double bottom patterns can form handles as well, shaking out sellers before blasting higher. If the index can hold above 1100 in a lateral move on lower volume, it has a better chance of such a move. The distribution before a follow through session makes us wary of such action.
Stats: +0.51 points (+0.05%) to close at 1109.89.
Volume: NYSE volume rose to above average levels as the index tested resistance and could make no progress (1.378 billion; +4%). The churning is not what we want to see in a handle attempt, but it was not out and out selling as the A/D line shows.
The Chart: http://www.investmenthouse.com/cd/$spx.html
TOMORROW
January new home sales slammed lower by 14.2%, the largest decline since January 1994. Fortunately, existing home sales make up 80% of the housing market. Still, remember how we said that there was speculation in the new home market? Subdivisions going up all over the place yet new home sales are starting to fluctuate; fluctuation in a trend that has been strong typically means the trend is starting to break down.
On the flipside, durable goods orders jumped 2.6%, twice the expected 1.3% gain. Still, note that January durable goods orders were sliced to +0.9% from an original 1.7% gain. A volatile number always, but with those home sales more durable goods are being sold.
Tomorrow jobless claims, GDP and the Chicago PMI are out. The latter are heavier hitters. GDP is expected to be up to almost 1% after coming home at +0.2% earlier. Chicago PMI could be the real market mover if it comes in stronger or weaker than the 47 expected. With the strong Philly Fed report, the 'whisper' expectations are for something greater than expectations.
Unless there is some major economic news to move the market upside, the rollover in the Nasdaq appears to be ready to take the bigger techs down once again. We started playing that move today with some QQQ puts and select puts we issued alerts on. We have more of these we want to take advantage of tomorrow. Remember, the A/D line was not bad at all, showing the rest of the market was not falling down today as the big name techs turned over. There are many still in great shape and holding up well.
Support and Resistance
Nasdaq: Closed at 1751.88.
Resistance: 1775 remains resistance from the October closing high. The March 2000 down trendline is at 1787. The January 2002 downtrend is now at 1775. The bottom of November consolidation at 1875. The 50 day MVA follows at 1869.29.
Support: The November gap up point at 1745 is trying to 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 1109.89.
Resistance: The 50 day MVA (1117.24) helped stall things out again Wednesday as it did 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 1126.91.
Support: 1100 can act as support and did again on Wednesday. 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 10,127.58.
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 (10,040.15) 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): 94.1 actual versus 97.0 expected and 97.8 prior (revised from 97.3).
2-27-02
Durable Orders, January (8:30): +2.6% actual versus 1.0% expected and 0.9% prior (revised from 1.7%).
New Home Sales, January (10:00): -14.2% (823K) actual versus 925K expected and 966K prior (revised from 946K).
Greenspan son of Humphrey Hawkings testimony
2-28-02
Initial Claims, 2/23 (8:30): 385K expected versus 383K prior.
GDP, preliminary Q4 (8:30): 0.9% 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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