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trading system, option trading
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3/07/02 Investment House Daily
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Investment House Daily Subscribers:
MARKET ALERT SERVICE
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SUMMARY:
- Indexes top out at resistance and sell back, but volume eases off slightly.
- After strong upside move, even more good economic data could not hold the market up.
- Congressional Budget Office: Did we say deficit?
- Greenspan speaks again: recovery is ongoing.
- House passes a stimulus bill with bipartisan support.
- Much awaited INTC mid-quarter report reveals little.
- Subscriber Questions
Out of breath at resistance.
Wednesday the market took a bit of rest and then charged ahead Thursday. After such a strong run, the one-day pause (intraday only on the Nasdaq) was not enough. Today the indexes ran up to the next resistance level in early trade as the Nasdaq ran into the 200 day MVA, the Dow stalled again at 10,600, and the S&P waved toward 1175. They then spent the rest of the day in an orderly pullback back toward the next level of support. That level held, and they rebounded in the last hour and one-half to shave off point losses and keep support in tact.
Volume remained strong, but edged slightly lower on the selling, continuing its trend lower as the indexes have peaked out on these initial strong moves on the follow through. The A/D line was still positive on the NYSE and Nasdaq, and up versus down volume was decent. It was really a day where the indexes just had to take a break after a strong run.
Even more good economic news was not enough to push the indexes further.
A sign of the need for a break: more good economic news originally pushed the indexes higher, but they just could not continue the gains. Earlier in the week and late last week it was good economic news that was propelling the market. At some point the saturation level is hit, and with the employment report out Friday morning, there was no need to get too irrationally exuberant.
Productivity races higher, helping the Fed out.
Productivity grew at a revised annual rate of 5.2% for Q4 2001, well ahead of the 4.7% expected and the 3.5% for Q3. That was the best reading since Q2 2000. What does it mean? It means that those that still have jobs are doing more, and that allows for growth without price pressure. That makes it easier for the Fed after it slammed the door on the supply side of the economy when it said it was targeting the consumer. The consumer never slowed down, and the danger was that the consumer would stay very strong and outstrip supply and thus create inflation. The consumer slowed a bit and now manufacturing is rising. Maybe the Fed has dodged a bullet. If there is any inflation, the Fed can take the blame. Ironic isn't it? The Fed raised rates to fight inflation, but it could have caused inflation with its anti-prosperity policies. More on this over the weekend.
Jobless claims down more than expected.
Jobless claims fell to 376K, down 5,000 from the prior week. The 4-week average fell as well, hitting its lowest level since early August. Even continuing claims finally joined in, falling by 60,000. That can mean that unemployed persons were starting to find jobs. Can. It can also mean that some more fell off the rolls. Still, it shows the upward trend has been broken and the recovery is underway. We noted back in the summer of 2001 that the weekly jobless claims were behaving just as they did back in 1991 and 1992 and that was an indication that the economic bottom was near. 9-11 pushed it back a couple of months, but the downward spiral is over it appears.
Retail sales solid.
Consumers may be a bit weaker, but they are still buying, seeking discounts for those hard-earned dollars. Same store retail sales rose 5.4% last month. WMT sales jumped 10.3%; TGT was up 8.5%; JCP up +12.5%. BBY upped its quarterly targets. PIR upped its target for the fourth time this quarter; Kirsty Alley has more appeal than we thought. Moreover, as we saw Wednesday night, even apparel retailers, the dogs of 2001, are doing better. ANN beat its numbers and was up sharply today. If this recession is over, it is the consumer that Greenspan vowed to stop that will ultimately save his rear.
Employment report Friday. The 'big' report is due out before the open. It is a rearview mirror look at the employment picture. It will most likely rise, but that is normal even as a an economy pulls out of recession. The weekly jobs number shows more current information, but everyone focuses on unemployment because of lingering Phillips Curve devotees. The theory is that employment can only go so low before workers demand more money and that extra money chases the same number of goods causing inflation. Of course, that link has no empirical evidence to support it. Moreover, the theory utterly fails to take into account that in a free market investment flows to the areas where there is demand and thus any excess demand is met. Unless the government restricts the flow of investment through misguided policies, there won't be any 'imbalances.' In more irony, it is the actions of the government and its delegated representatives that create the imbalances that then have to be addressed. Where have we seen this before in recent history?
Holy cow, no deficit?
The CBO just recently issued a contentious report about how the Bush tax cuts had caused budget deficits. A lot of tongue wagging on both sides resulted. Today, after it is apparent that the tax cuts are increasing personal income (as reported earlier in the week) and helping the economy jump back faster than expected, the CBO changed its tune. There won't be deficits. Never mind. Thanks for nothing.
Greenspan speaks again.
You know the answer to that. Mr. Greenspan today was upbeat. He said recovery was underway, that the business cycle was returning to levels that indicate that recovery. Just a few changes to his canned speech, but the recent data required he acknowledge something was happening.
The bond market did not like it; it read the words as a hit that the Fed was starting the word game to get ready for rate hikes in the summer or in the second half of the year. The low fed funds rate will have to be bumped up at some point, but there should be no hurry. The recovery may be underway, but even as Greenspan has acknowledged repeatedly, the strength is most likely going to be less than usual recoveries. Thus, those stating that the Fed will move to hike rates soon are jumping the gun. Greenspan won't raise rates until he sees the whites of the recovery's eyes. With his glasses prescription, that might be quite a long time.
Greenspan was finally challenged a bit on his policies that drained the economy of money and sent it collapsing in on itself. He denied that is what happened. His canned speech talked of imbalances that were in the economy that the Fed's actions moved to rectify. If there were imbalances, we suggest they were minor compared to the major liquidity imbalance foisted upon the economy and its businesses that sent the entire U.S. and the world down. Inventory imbalance? It was meeting incredible demand, that is all. There only became an inventory glut when the Fed literally stopped the economy in a 3-month period. Companies were doing a good job meeting demand; when the economy suddenly dies and trillions of dollars disappeared, there was no demand for those goods anymore. No rocket science, but Greenspan denied it when asked flat out. Of course he would; the criminal never admits to the crime when his chances of getting off unscathed are still good. He can still see vindication of 'Maestro' back in the recesses of his retirement mind with $100,000+ speaking engagements to come. Why answer a politician's question when he could sidestep it and smile, bemused by the poor guy's lack of grasp of economics? Maestro of economics? Well, he is the master politician, even better than those asking the questions.
Holy cow again! House passes stimulus bill. Senate to pass it as well. President says he will sign it.
Last night we reported the House was on the verge of passing a revived stimulus bill. Today it passed with large bipartisan support. House members think it has enough support where the Senate will have to take it up. It is a bill that provides extended unemployment benefits 'to held those losing their jobs' and accelerated depreciation. As for those that lost there jobs, the best help they can receive is to get new jobs. Extending unemployment benefits does not create jobs. Depreciation will give businesses incentives to buy new equipment even if not really needed, and that can lead to more jobs. Tax credits on top of that would have been even better, but getting this bill passed was just about all that could be done. What happened to move it? The republicans decided the best thing to do was to roll over and give the democrats everything they wanted or complained about. That way there is a good likelihood that a bill will be passed. If the Senate democrats don't act on a bill that is exactly what they wanted, it will be easy to point the finger, so to speak, at them. Good politics and some stimulus we suppose, but we would prefer more stimulus as that is what will really help us all.
As a side note, I talked with one of my House representatives and one of my Senators today, and they both indicated that the letters, emails, and calls from concerned citizens kept the issue alive; otherwise it would have died. I know many of you voiced your beliefs to your congressmen, and all I can say is that is how the system works. Congratulations.
THE MARKET
Ran to resistance, then sold back on lower volume. It was an orderly pullback with no slaughters ongoing. Some of the big name cyclicals show some trouble, e.g., PG hit a double top on no volume and then sold off harder today. That is a danger signal for that particular stock, and it has us looking for other such signals. Not many others out there right now in the same boat, so it is just a caution flag for now while we watch to see how far this pullback takes the indexes. Greenspan's proclamation that economic recovery was well underway did not help stocks, and it hammered the bond market. Hope you all locked in earlier in the year as we suggested.
After hours INTC gave its mid-quarter update, and it was rather bland. The revenue target was narrowed slightly higher on the low end and slightly lower on the high end. Gross margins were to be 'slightly above the midpoint range previously given.' Heard that before. INTC was slightly lower after the news. SUNW gave its update as well. It said that Q3 (its current quarter) would be greater than Q2, and it looked as if it would be profitable again in Q4. It feels business is improving. SUNW was up after hours. All in all, the news was a bit better and should not torpedo any upside bias nor should it accelerate today's pullback.
VIX: 21.95; -0.08. Continues to hold steady at the bottom of the 'normal' range. It is interesting that it is not falling further as the market rises. Interesting action, and it keeps option prices lower and spreads narrower.
VXN: 43.76; +1.03. A mild rise on the mild drop in the Nasdaq. This is more what we would expect, but it too is still at a very low level.
Put/Call Ratio (CBOE): 0.65; 0.00. Held steady on a rather flat day in the market. Not bad action; again, still holding well above the 0.4 level that is considered complacent.
Nasdaq
Techs gapped higher. After 4 straight up sessions, fear the gap higher. It hit the 200 day MVA, and then turned lower. Held support on the close, however, so all in all not a bad session.
Stats: -8.77 (-0.5%) to close at 1881.63.
Volume: 1.897 billion (-0.5%). Volume remained strong as it edged ever so slightly lower. The action continued the trend of falling volume that started Wednesday when the index was running out of steam. This is the kind of action we like.
Up volume: 962 million
Down volume: 914 million. Even, and it reflects the day.
A/D and Hi/Lo: Advancing issues continued to hold on at 1.12 to 1 (1.78 to 1 Wednesday). Decent action on a down session.
New highs: 160 (+17)
New lows: 27 (-4).
The Chart: http://www.investmenthouse.com/cd/$compq.html
Hit the 200 day MVA on the high (1906.53; 1910.70 on the high). After gapping up 13 points, the last gasp higher was all it could muster. It held up nicely even with the selling, but it started an afternoon plunge. Still, in the last hour plus, the buyers came back in and pushed the index back over potential support at 1875 on the close. The late buying to hold above potential support and continued positive A/D line was very decent action. It needs another day or two of rest and consolidation to mount another move higher, but this 1875 level is one that is one we would like to see it hold. It has not given itself much room, however, and it might test lower over the next couple of sessions. Again, we want it to hold easily above 1800 on any selling this go round. So far price/volume action confirms it will do so. Thus we are patiently waiting for stocks to let off some steam and set back up for another move higher.
Dow/NYSE
Fourth straight session of head banging at 10,600. Recovered off of the lows very nicely as NYSE volume edged back as well. it is trying to hold a narrow 200 point range as it consolidates the recent moves on good price/volume action.
Stats: -48.92 (-0.5%) to close at 10,525.37.
NYSE Volume: 1.513 billion (-2.4%). Volume remained strong and above average, but it again backed off on some selling as price/volume action remains very healthy on this rally and subsequent consolidation.
Up volume: 692 million
Down volume: 801 million. Shifting volume levels show the change in momentum, but it was still evenly matched compared to recent volume spreads.
A/D and Hi/Lo: NYSE advancing issues held onto a 34-share lead at 1.02 to 1. Again, this shows that the overall move has been broad just as it was as the index followed through and confirmed the recent uptrend.
New highs: 273 (+26)
New lows: 13 (-2). New lows once again fell on a down session. Very solid.
The Chart: http://www.investmenthouse.com/cd/$indu.html
The Dow has bumped against 10,600, the top of the summer 2001 trading range, four sessions in a row on the high (today at 10,606.88). After the strong move, this was the point where we thought it would have to take a breather. On the low side, it is holding well above 10,400 as it consolidates the breakout gains. We note volume the past four sessions has held well above average as it holds steady. This indicates some potential churning at these higher levels, but thus far the price/volume action has remained solid. The Dow may need another day or two of consolidation as well. On that we would want to see volume back off a bit more substantially.
S&P 500:
The big cap index ran out of steam just below potential resistance at the twin tops from December and January (1170 to 1176), topping out at 1167.94 on the high. As with the Dow, it did a very nice job of reaching down to test support at the 200 day MVA at (1150.97; 1150.69 on the low) and rebound in the last hour to close comfortably above that support level. NYSE volume backed off on the selling, but not a whole lot. Still, price/volume action remains solid, and we expect the big caps to further test down to the 200 day MVA, maybe even undercutting it a bit intraday. The breakout from the double bottom was strong, and after some rest here, we look for a move to try and take out that resistance ahead.
Stats: -5.23 (-0.4%) to close at 1157.54.
Volume: NYSE volume backed off again, this time on selling, coming in at 1.513 billion (-2.4%). This is good action, and we want to see it decrease even more on another pullback.
The Chart: http://www.investmenthouse.com/cd/$spx.html
TOMORROW
The employment report is issued before the open, and though the weekly jobless claims have been improving, the trend is too recent to really show much impact on the February payrolls. Typically, unemployment continues to rise even after the economy makes its turn as businesses are slow to rehire new workers until they are sure. Look at the CEO pessimism; look at the productivity gains. The workers out there are doing more for now until there is more certainty of the recovery.
The indexes have still not worked off enough of the recent strong move. They need a couple more days of lateral to lower prices on declining volume. Today's action indicated as much as more good economic news was unable to keep things going upside. Saturation point. Now the employment report gets a lot of attention, and if the numbers show an unexpected drop, that could ignite another round of buying. We are not expecting that, however, and would prefer to see the lazy, orderly pullback and then an eruption higher next week.
So, we will still look for upside positions as they appear; even in a pullback we continue to see strong stocks ready to move up and actually doing so. In addition we have some covered call plays we initiated that we anticipate hitting the buyback points Friday or Monday (some hit the buyback points today already). It is a time again to be patient and let things set up for the next moves.
Support and Resistance
Nasdaq: Closed at 1881.63
Resistance: The 200 day and simple 50 day MVA are standing in the way of a further move higher (1906.53 and 1896.53, respectively). That is just under the top of the November consolidation at 1934 to 1941.
Support: 1875 acted as support on the close today. That is where we would like to see it hold; it may again test below it intraday. After that, not a lot of room before 1800. 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 1157.54.
Resistance: Reached toward the twin tops at 1174 today; those are the December and January tops and will have to be cleared. That point also marks roughly the lows of summer 2001 consolidation that runs up to 1240.
Support: 1150 and the 200 day MVA (1151.43) held on the button today. After that, 1125 is the hump in the double bottom, and the simple 50 day MVA is also there at 1127.39. 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 10,525.37.
Resistance: The top of the June, July, and August 2001 trading range at 10,600 (10,679 intraday high), and it is holding tough for now. 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 has been providing support, followed by the January high at 10,300. Then the 200 day MVA (10,026.96) 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.
End Part 1 of 2
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trading system
option trading
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