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world stock market, trade stock
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3/05/02 Stock Split Report
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Stock Split Report Subscribers:
MARKET ALERT SERVICE
Target hit alert issued on BSYS pre-split (+2.03 per option, +4.06 in pre-split dollars).
Subscribers to the current reports can sign up at the following link:
http://www.investmenthouse.com/alertdly.htm
SUMMARY:
- Taking a day off on strong yet lighter volume.
- Service sector surges as chip sales down but companies upbeat.
- The purposeful recession has the result some wanted.
- Playing with fire: U.S. imposes steel trade sanctions.
- Stocks building patterns today but after hours tech selling is ugly.
- Team Trades
A day of rest, sort of.
After racing ahead for two sessions in what would normally take several sessions to accomplish, the major indexes took a breather of sorts. The Dow gave back 1.4% but managed to hold above near term support. The S&P fell as well, but hung in near the 1150 level. NYSE volume contracted on the selling.
The Nasdaq managed another gain, but it was not a strength move. It traded in a 37-point range and finished off the highs. Volume backed off 10% for the techs; though it was strong volume (2+ billion), it did back off from Monday's follow through session. In that sense, it was a day of rest as the Nasdaq closed in between support and resistance.
It was not a bad session even as sentiment turned a bit. Retailers were downgraded because of their success. Indeed, after some very strong sessions on the Dow followed by impressive gains of late on the S&P and Nasdaq, valuation calls were almost inevitable. They always come after strong moves. That really hammered HD and WMT for over $2 each, and that was a big Dow drag. Retail stocks across the board had a hard time as a result.
All in all it was a day of needed rest after a 7% move in the Nasdaq and 5% moves on the Dow and S&P. The key now will be if the techs can consolidate a bit, building better patterns, and then move up again. There was some carnage after hours on the MCDT profit warning with EMLX, QLGC, BRCD and related stocks taking it hard right on the chin. How the overall market responds will be significant. It was ready to overlook ORCL's shortcomings and follow through Monday; now it has some other worries to take on. The economy is looking better, but earnings warnings are starting to pop up two-thirds into the quarter. Can the market keep its head down and rally anyway? At some point earnings will have to improve following the better economic numbers. After all, that is why stocks rally on better economic news: expectations that better earnings will follow.
THE ECONOMY
Service sector delivers as well.
ISM services index rolled in at 57.3 for February, better than January's 49 and the expected 51. It crushed expectations just as the ISM manufacturing number did Friday. Any reading over 50 means expansion. Services are the largest segment of our economy and obviously the expansion is a tremendous boost to the recovery. The 1-2 punch of the manufacturing sector and services sector expanding is great news.
Challenger jobs survey improves.
128,000 jobs were reported lost in February. How can that be an improvement one wonders. Well, that was 40% less than in January. It is not a turnaround, but it is improvement. It still means that the unemployment rate will likely continue to climb higher as the economy is still not able to absorb all of those laid off (over 1 million) during the recession.
Continuing claims the past two weeks have climbed still, indicating that the job market just is not there. Productivity is up, meaning those left are doing more; that helps companies maintain some profit margin in an economy where they still cannot raise prices due to the continued deflation. Yes, deflation; deflation is falling prices for assets. It makes it very hard for companies to maintain any profit margins if prices of goods keeps falling.
Chip sales drop in January.
Worldwide sales fell 30% in January to $10.01 billion, down 1.7% from December. Don't get too ruffled, however, as January is historically a sluggish month for chip sales following Q4 buying in companies and consumer purchases for the holidays. Also, at the Morgan Stanley conference, many chip makers are saying that the June quarter should be a good one. Now how good was not clearly indicated. Better can mean $1 better or $1 billion better. Improvement yes, dramatic, who knows? If it was going to be a boomer, we would probably heard a bit more excitement.
The purposeful recession: less wealth.
There is a lot of speculation as to why the Fed raised interest rates when there was no indication of inflation in the economy. Some say the Fed was trying to control the bubble it had started earlier and exacerbated in 1998 when there was a monetary crisis but no deep-seated problems. That monetary injection set the economy and the market off and running. Then it really screwed the pooch in 1999 by pumping billions of unneeded capital into the economy in fear of Y2K. That excess money was put into the market, invested directly in technology companies, and stuffed everywhere but under the mattress. A huge boom erupted, and the Fed felt it had really stoked things too much.
So, it accelerated its 'conservative' rate hikes (its last hike was 50 basis points for good measure) and drained the money supply with the clearly stated intention to slow the economy down. It was also clear though denied weekly by the Fed that it was focusing on the stock market. Just as the 1929 Fed supposedly fought the specter of inflation and a 'runaway' market, the 1990's Fed was locked in the same game. The result was the same: the economy froze up, but not before the stock market sensed it and the historic run-up was bulldogged and thrown to the ground.
Another theory is that the Fed was just doing as it was told by the unseen financial powers around the world that are made up of the mega wealthy that effectively control oil, gold, and other key commodities and their prices. Real wealth among the upstart technology class and indeed the rest of the world was rising, cutting into the relative wealth and thus the power of the mega wealthy. Time to slow down this technology boom; invent something to do it, perhaps some new inflation indicators, create some fear of irrational excesses. If that was the plan, it worked. The billionaire list for the last two years has dropped, the most notable names falling off being technology names. 91 fewer a year ago, 83 more recently. And for every billionaire, throw in 100 or so millionaires and 100,000 or so average Joes that were bled dry in the bust. Mission accomplished. Keep the masses poor and puzzled.
Steel tariffs imposed: is this the best way to attack the problem?
The U.S. likes to talk about free markets and free trade, but it has been doing what it can of late to limit them. The federal government has grown and with it the code of federal regulations. These are not the Constitution or the statutes passed by the Congress, but are the regulations drafted by the agencies to enact the legislation. Volumes and volumes regulate every aspect of our lives; I know as I used to research them as a practicing attorney.
My work as an attorney in the latter years involved working with the morass of federal regulation. One thing that can be concluded after watching literally millions and millions of dollars being spent on compliance standards that were at best questionably applicable: keep regulation as limited as possible, and keep it simple. When in doubt, don't regulate but provide incentives. The latter works amazingly well.
Today the U.S. announced tariffs in order to protect the domestic steel industry from unfair foreign competition. What it means is that cheap foreign steel will not be that cheap anymore. A regulated market will mean higher prices for steel, and that goes into screws, nuts, bolts, sheet metal, etc. Just about everything we buy will feel the impact. Is a recession the time to implement such measures that will raise prices for many for the benefit of the few? Why raise prices for everyone and thus limit output and consumption (exactly the opposite of what we want now) when you can accomplish the same goals of using U.S. steel over imports by providing manufacturers incentives to use U.S. steel over foreign steel. Prices may remain low, but the amount consumed would rise. In absolute dollars, that has the same effect and is good for EVERYONE not just a few.
No one rushed to the aide of the independent oil producer here in the U.S. when Saudi Arabia purposefully drove the price of oil down to $9 and less per barrel. In fact, the big producers were split on the issue. There was no way in hell there would be a tariff. Why? Because we are addicted to cheap oil, and everything, everything would have gone up in price. Indeed, it would have hastened the recession that was just a twinkle in the Fed's eye at the time.
No one rushed to the aide of northwest timber cutters and U.S. timber companies when foreign imports put them out of work and depressed prices to levels that bankrupted many independents and put families out of jobs and homes.
The list goes on and on for those industries where it was not prudent to impose tariffs on foreign competitors, but now that we are in a recession with a tepid and tenuous recovery at best the administration makes a ruling that has the effect of raising prices here in the U.S. This is the same administration that says we still need a stimulus package to make sure the economy recovers. With decisions such as this, no doubt we need a stimulus package. At the same time, with decisions such as this, there is no way one will be passed. Mind boggling departure from the idea of free markets. Deregulate the energy markets further? Good luck. Just point to the steel decision.
THE MARKET
Took back some gains on lower volume though the Nasdaq did manage a slight gain. It was a day of rest though not a totally benign one as volume remained strong. After hours the storage sector in the Nasdaq was being slaughtered on a profit warning by MCDT. More warnings are going to come, and we are not too certain earnings this quarter are going to show the kind of improvement investors are going to want given the strong economic indications given thus far. Some economists are calling for 4% or more growth in Q1. That has stoked investors to look for an earnings jump as well. It most likely is not going to happen in tech even with the easy comparisons. For now we have a confirmed follow through and that is good. Old economy stocks are doing just fine, using all of that technology the new economy companies invented and sold to them. Technology stocks may not be able to make the cut with them, however.
VIX: 21.81; -0.27. Edging down on a very slow session. At complacent levels, meaning option prices are pretty cheap relative to where they have been in the past year.
VXN: 42.28; +1.49. The Nasdaq traded slightly higher, but it was up and down in a range and that jumped volatility a bit higher. Nothing close to high volatility; still, we defer to good price/volume action.
Put/Call Ratio (CBOE): 0.71; +0.05. This contrary indicator continues to hang out in the high side of the range even after a strong rally. That continues to be a positive with the good price/volume action on the indexes.
Nasdaq
Rallied up close to the simple 50 day MVA but fell back to close under near term resistance. Volume backed off though it was still over 2 billion shares. Proper price/volume action, but another test tomorrow with profit warnings after the bell taking a toll on at least one sector.
Stats: +6.97 (+0.4%) to close at 1866.29.
Volume: 2.074 billion (-9.6%). Volume fell back on the session, but remained strong and well above average. Still decent price/volume action though we would have preferred to see less volume on the session that was clearly not an up day.
Up volume: 1.343 billion
Down volume: 684 million. A few less buyers, a few more sellers.
A/D and Hi/Lo: Advancing issues continued to lead but fell to 1.12 to 1 (1.84 to 1 Monday). Nothing impressive, nothing bad.
New highs: 152 (-37)
New lows: 31 (-1).
The Chart: http://www.investmenthouse.com/cd/$compq.html
Reached up toward the simple 50 day MVA (1898.38) on the high (1886.15) and then fell to close below resistance at 1875. As noted Monday, this is a logical place for it to take a breather, and the reach higher to resistance and then closing below the next lower resistance (and well off the intraday high) indicates it is going to test a bit lower on this pause before any attempt to move higher. Again, there is not a lot of support between 1875 down to 1800, but it will have to find a point somewhere in that range to keep this latest rally in decent shape. The Nasdaq will be tested tomorrow as yet another negative earnings warning hit. GTW, ORCL, and now MCDT. MCDT is not a leader, but it is having a serious impact on its sector after hours.
Dow/NYSE
Fairly hefty price drop, but a small percentage of the move over the past two weeks. NYSE volume backed off on the selling. Most of the loss was hung on WMT and HD with the retailer downgrade.
Stats: -153.41 (-1.4%) to close at 10,433.41.
NYSE Volume: 1.523 billion (-5.5%). Still strong but lower on the selling session. That is what we want to see.
Up volume: 633 million
Down volume: 850 million.
A/D and Hi/Lo: NYSE advancing issues remained in the lead, but by a mere 37 issues (1.02 to 1; Monday was 2.4 to 1). Not bad at all and indicates that many stocks still performed well even as the Dow dragged.
New highs: 230 (-118)
New lows: 15 (-6). New lows still falling even on a down session. Still very positive.
The Chart: http://www.investmenthouse.com/cd/$indu.html
Never got off the ground today, stalling once again at the 10,600 level that represents the top of the summer 2001 trading range (10,670 intraday). This was where we thought it would take a breather to test the next support level. 10,400 is that support that is right in the middle of 10,300 (January high) and 10,500 trading range. We want it to hold in this level, but it could go down to the 10,300 range given its propensity to move in big leaps these days. Still, we want any further selling to slow down, volume contract, and price losses contract as well.
S&P 500:
Stalled at the 200 day MVA (1151.86) again today (and right at other resistance at 1150) and sold back modestly. NYSE volume was lower but still as strong as it has been in a month. The S&P is not in as good a position as the Dow, so it does not have as much to give back and still be in a really solid position. It could fade back to 1125, the point of the double bottom hump, but if it has a lot of strength it should find support at some level before reaching that point.
Stats: -7.70 (-0.7%) to close at 1146.14.
Volume: NYSE volume backed off on the session (1.523 billion; -5.5%). Still strong, but good on the selling.
The Chart: http://www.investmenthouse.com/cd/$spx.html
TOMORROW
Factory orders a half hour into the session and the Fed Beige book in the afternoon are the planned economic news items. The Beige Book could be interesting to the market as it gives the Fed's take on the national economy and what that means regarding future rate hikes. For now the Fed through Greenspan has indicated it is on hold.
As for the market action, it still looks as if the market is in the process of digesting the recent gains. The Nasdaq is going to get a test as indicated earlier with MCDT giving an earnings warning after hours and taking QLGC and others down $3 and more from the closing price. After shaking off ORCL's warning, MCDT may be a mole hill. But, as the mole hills pop up here and there as we approach the final three weeks before Q1 earnings start, we will see how much resolve the techs have along with the old economy stocks.
Thus, it is yet another time to be patient and let the market and stocks set back up for the next move. All the while we keep a watch on volumes in the leading and big names (not always one in the same) as well as the indexes to see if this is just a quiet pullback after a rally that changed the market character or a resumption of the selling. All indications have set the table for a further rally with all three indexes heading the same way.
Support and Resistance
Nasdaq: Closed at 1866.29.
Resistance: The bottom of the November consolidation range at 1875 that has proved to be support and resistance in the past. A break over that point is the turning point. The 200 day and simple 50 day MVA are next (1908.51 and 1898.38, respectively). That is just under the top of the November consolidation at 1934 to 1941.
Support: 1800 could provide some support. After that 1775 is some support as well, followed by the November gap up point at 1745. 1700 has held loosely. After that, there is not much until 1626, the early October gap up point and the April 2000 intraday low at 1619.58.
S&P 500: Closed at 1146.14.
Resistance: Still working on 1150 (former support and resistance) and the 200 day MVA (at 1151.86). The next level is 1175 marking the December and January tops. That point also marks roughly the lows of summer consolidation that runs up to 1240.
Support: 1125 is the hump in the double bottom, and the simple 50 day MVA is also there at 1126.68. 1100 has acted as support as recently as two weeks ago. Then 1075 to 1080 continues to hold tough, right at the March 2001 intraday low. There is a jumble of prices in a range from 1075 to 1050. 1050 was tested twice in October, holding both times.
Dow: Closed at 10,433.41.
Resistance: The top of the June, July, and August 2001 trading range at 10,600 (10,679 intraday high). 10,800 represents some resistance. That is followed by resistance at 11,000 on its way to the May 2001 high at 11,345.72.
Support: 10,400 could provide some support (it did Tuesday), followed by the January high at 10,300. Then the 200 day MVA (10,030.21) and 10,000. After that is 9730, 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.
3-5-02
ISM Services, February (10:00): 58.7 actual versus 51.0 expected and 49.6 prior.
3-6-02
Factory Orders, January (10:00): 1.4% versus 1.2% prior.
Fed Beige Book (2:00)
3-7-02
Initial Claims, 3/2 (8:30): 380K versus 378K prior.
Productivity-Rev., Q4 (8:30): 380K versus 378K prior.
Consumer Credit, January (3:00): $3.2B versus -$5.1B prior.
3-8-02
Nonfarm Payrolls, February (8:30): Unch. versus -89K prior.
Unemployment Rate, February (8:30): 5.8% versus 5.6% prior.
Average Workweek, February (8:30): 34.1 versus 34.0 prior.
Hourly Earnings, February (8:30): 0.3% versus 0.0% prior.
End Part 1 of 3
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