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world stock market, us stock market
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3/12/02 Stock Split Report
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Stock Split Report Subscribers:
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SUMMARY:
- Earnings warnings hit telecom again and trigger some selling.
- Muted response all things considered.
- Fed tells banks to look both ways before crossing the street.
- Financial stations mention trading range: time for breakout or breakdown.
- Team Trades
Watch what you talk about.
Last night we said the Nasdaq could be setting itself up for some earnings disappointments, having finally followed the Dow and S&P in the rally on the hope that even technology earnings would start turning the corner with the rest of the economy. How quickly some questions are answered. Before the open the perennial disappointer LU warned it was cutting its revenue numbers though it would still increase revenues sequentially. Then NOK stated its sales numbers were going to be lower as the network equipment revenue just was not recovering yet. That hurt because NOK said just a couple of months back that sales were going to be increasing.
On top of that Goldman said that MSFT was going to have to lower its 2003 guidance. Then WCOM said the SEC wanted more documents in an informal inquiry into a loan to the CEO, stock trades, and just about everything else but who provides the bottled water to the office. The SEC might have called it informal, but afterwards it does not sound as if there will be any secrets. In like kind, WCOM posted the inquiry letter on its website even though it was supposedly confidential according to the SEC. Apparently WCOM decided that full disclosure to the shareholders is a good thing after all, especially when it can stick it to the government a bit. Admirable even if stupid.
In short, the lack of scheduled economic news did not mean there would be a pause in economic news. Tuesday most of it was negative, especially for the techs. We were concerned that the drift higher instead of slightly lower would set up a bigger selling session, and it sure was set up Tuesday with futures way down on all three major indexes.
No calamitous selling.
Everything opened lower, but the Dow was able to climb back up as the cyclical stocks attracted more investor dollars again with the likes of MYG boosting earnings by a LOT. With the new terrorist rating system we suppose Americans simply want to make sure their whites are whiter and colors brighter. Actually, all of those new homes built and sold need new washers and dryers and other appliances; a durable goods bonanza that WHR shared in as well today.
That news helped keep the Dow under control, losing over 100 points early but then clawing its way back. Indeed the Nasdaq and S&P tested down toward their support levels (the Nasdaq took out the 200 day MVA and was looking at the next level) very early and bounced. In the last two hours the Nasdaq tested support again and held once more. That gave some late buyers confidence to enter once more; all indexes moved up in the last hour, closing at or very close to the session highs.
Volume rose on the NYSE as the Dow scored a modest gain and the S&P finished just lower but recovering to close at the session high. These types of recoveries are a good signal even if they come on a loss with increased volume. This action shows that investors were ready to come in and buy, picking up stocks as the index grazed support.
The Nasdaq lost ground, but it too recovered late to close just off its session high. Volume was lower by a hair; again, not bad action if it had to be a down day and the bad vibes at the open. We wanted to see the Nasdaq hold the 200 day MVA, but it did the next best thing, holding at some proven support and bouncing from there.
THE ECONOMY
Richmond Fed report gets airtime. Usually overlooked, this report received some attention today when it released its survey of business activity from its region. What an improvement. Shipments jumped from a +3 reading to a +24 reading. New orders jumped from +8 to +28. These are major moves, and they were greeted with favor. The markets used this information to help the turn from the early low levels.
Fed: You banks better not make bad loans.
Fed governor Olson told banks today that though things are looking better, they should not get complacent. Loan losses tend to lag the recovery, actually rising as the recovery proceeds. Very similar to employment: the economy is improving, orders are up, but managers do not hire until their current staff is ready to kill them or the recovery becomes very apparent, whichever comes first. The advice was kind of ingenuous. The Fed has pumped liquidity into the economy, but at the same time it had a very large number of banks on what amounts basically to probation because of 'questionable' lending back in the late 1990's when the economy was roaring and businesses wanted money to meet the demand. Thus, even if the money is there many banks on restriction cannot lend to everyone they want to AND many that want to borrow cannot because of the restrictions and already high debt loads. Thus Olson's advice was somewhat like telling a person fasting for Lent not to eat meat.
THE MARKET
Again, not a bad session given the potential for big downside. The market was set up for a bit of a fall and it needed a down session or two more to shake out those still ready to sell at this level but were waiting to see what would happen. Some of that occurred today on the selling to support levels and then the buyers reentering late. First test was passed. Tomorrow will be a bigger test if there is some more bad or negative news. The second day of bad news is always toughest.
Trading range proclaimed. About three weeks ago one of the Dow television reporters talked about the Dow's trading range from 9600 to 10,000. No sooner than he discussed this range the Dow broke over 10,000, tested the move with its handle, and then powered ahead. Moral of the story: by the time it hits the popular press, the trend is usually ready to change. Today the reporter was talking again about the new trading range. From 10,300 to 10,600. Maybe it is one, but looking at the bigger picture, it is just another lateral consolidation after a good move up; the trading range is more of an intraday range as opposed to traveling up and down. Whatever you want to call it, the Dow is moving more or less laterally in a fairly narrow range. That is good action after a move higher; again, however, we would prefer it to move slightly lower and shake out those last sellers to clear the way for the move higher. Today's trade lower to 10,500 helped, but a slightly lower close a couple of sessions in a row shakes them out without the big blowdowns.
VIX: 21.31; -1.06. Falling to very low levels once again even when the S&P closed down. Once again there was talk on the financial channels about how low the level is indicating no fear. This is not a new phenomenon; it has been low for months on end and the market has still rallied. There are times the volatility ratio disconnects from the action on the markets. It can give us a heads up to possible problems, but we first look to price/volume action, and it is looking decent still.
VXN: 43.01; +0.96. Rising on the selling, hitting 44.48 on the high before the late rally cut the volatility. Still at very low historic levels, but it has been there for a long time as with the VIX. If you relied solely on the VIX or VXN, you would not have bought into any stocks on the recent moves higher.
Put/Call Ratio (CBOE): 0.65; +0.10. Moving back up on the first hint of selling just as it has been for most of the year. This is exactly the action we want to see; the VIX may not be showing any concern, but the put/call ratio continues to show that investors are eager to play the downside. That is good in the contrary world of option speculators; they are usually wrong as a group about market direction, and that is what makes the indicator work. Or, as Colonel Henry Blake said about Major Frank Burns on M*A*S*H, "You're always wrong Frank, that's what is so right about you."
Nasdaq
Gapped open below the 200 day MVA, but it was able to hold support and rally to close just off its session high. That is not bad action all things considered, but the point loss was more than we wanted on what should have been 'so what' news re the telecoms. There will be more earnings warnings and today's action was just a warm up. It is always harder to recover from a second cold than that first one; more bad earnings news will be the real test, but we liked today's action. Lower volume means no dumping.
Stats: -32.37 (-1.7%) to close at 1897.12.
Volume: 1.749 billion (-0.8%). Volume edged ever so slightly lower, but in the big picture that was good action. After Friday's big breakout, volume has dropped back below average on the following two sessions. That is what you prefer to see if there has to be selling.
Up volume: 286 million
Down volume: 1.449 billion. Sellers were in charge today for the majority of the action.
A/D and Hi/Lo: Decliners took over for the first session in over a week, coming in at 1.38 to 1. No downside blowout, but it was higher than the advancing ratio Monday and moving toward Friday's 1.76 to 1 advancing issue reading.
New highs: 114 164 (-50). New highs finally slowed down, but it has been a long time.
New lows: 23 (-3). New lows still fell even as the Nasdaq suffered its worst point loss since February 21. That still indicates fairly healthy action even at the onset of some selling.
The Chart: http://www.investmenthouse.com/cd/$compq.html
Telecoms not going to hit their numbers? Again? You would think the response would have been 'well, la de da.' Instead you get the Nasdaq futures down 33 points at the open. The index followed suit in the early trade, heading down as much as 50 points at its low (1879.42). It gapped down to 1888.68, below the 200 day MVA (1902.52) in one move. Hard-won Friday on strong volume, the Nasdaq gave it up quickly, indeed much quicker than we wanted. On the low, however, it held support at 1875, a level that has held in the past (that level is the bottom of the November consolidation range). The bounce up from that level and close near the high shows there is still some bullish action in the index. Many tech stocks show similar intraday patterns. Ahead, we can expect some more earnings warnings, but we also get some big consumer numbers Wednesday and Friday. Perhaps they will offset the earnings warnings. BUT, techs still have to show some improvement; rational or not, that is what investors are looking for in this quarter.
How the index reacts over the next week to two weeks before earnings is important. It needs to consolidate in an orderly fashion to get some selling out of the way. Otherwise earnings disappointments on techs will hurt the Nasdaq and its major components. We just don't see the tech numbers improving dramatically this quarter, and we have a feeling the index will start to price some of this fear in as earnings season approaches. It may run up to earnings and then sell off, but more likely it does okay for now and then starts selling in fear right before they hit. It has been the laggard; it has been holding back on this earnings fear, but then started to follow the Dow and S&P higher. There is not real independent strength on the Nasdaq that we can see as there was on the move off of the September bottom. For now it is acting fine, but how it responds to the break below the 200 day MVA once again will tell us more about what it is going to do near earnings. If it spends a couple of sessions below that level and then moves back over on strong volume, it has a good chance of moving into the earnings season in good shape. If it cannot generate upside volume, that shows that investors are fearing the worst and that sets it up for a bigger, faster drop if more bad news hits. For now we are playing the moves that are set up, but we are also very aware of volume.
Dow/NYSE
Sold down at the open but spent the rest of the session recovering and then posting a modest gain on rising NYSE volume. The various parts of the Dow seem to take turns carrying it higher. It continues to perform the best of the big three, but we would prefer a more lateral consolidation than this creep higher. That does not clear out those ready to take profits at this level if they see selling.
Stats: +21.11 (+0.2%) to close at 10,632.35.
NYSE Volume: 1.3 billion (+7.4%). Volume rose on the up session, but it was not a powerful session as volume remained below average on the move.
Up volume: 600 million
Down volume: 696 million. Closely matched, much as was the session.
A/D and Hi/Lo: NYSE decliners overtook advancers for the first time in over a week, at 1.03 to 1 (a 60 issue lead). The broader market struggled a bit today, but it was not a huge fight.
New highs: 127 159 (-32)
New lows: 14 (+5). New lows higher, but not much higher.
The Chart: http://www.investmenthouse.com/cd/$indu.html
The Dow continues to fight it out at the top of the summer 2001 trading range that sports an intraday high at 10,670. The Dow is working to consolidate its recent breakout, trading between 10,400 to 10,650 almost intraday every day. Each day some component group boosts the index while the others don't sell off. That is holding it steady, but this higher creep is not what we like to see. Today's test of 10,510.91 on the low no doubt helped clear out some sellers, but the Dow marched right back up. The action was bullish, but the internals suggest this was not a strong move. That is why we anticipate another pullback from here in the trading range before a real attempt at breaking out of this range on a move to test 11,000. The Dow continues to show good price/volume action, and we cannot ignore that. Now is it ready to plow to new highs? There are still a lot of questions out there as to accounting, and there is a lot of overhead resistance still. Let the market show us; for now it is looking good but is showing some ebbing strength on this move. Nothing nefarious, just weakening as it has no punch or pressure built up to take out 10,670. That is why we wanted the index to drift lower on this move, not creep higher. That former is much more constructive for upside moves. The creep higher continues the threat of a more substantial selling session or two to take the light volume air out of the last two sessions.
S&P 500:
The S&P's pattern looks the best of the big three from the breakout perspective. It has tested the resistance at 1175 near the double tops in December and January (1170 and 1176.55). On the high (the open) it was flat. On the low (1154.34) it tested down toward support at 1150 (the 200 day MVA is at 1149.13). It held and was able to rally; once again some buyers came into the big names. We like the lower test as that works on shaking out some of the sellers at this level. We also like the recovery in the afternoon to close just a few points lower. This shows the buyers coming back in the market, and it makes us not that concerned about the slightly lower close on slightly higher volume. It shows some churning action which is bearish, but the recovery off of support was solid. So, it continues to consolidate in its range above key support. That is what we want it to do for a couple of more days and then it is in shape to move higher.
Stats: -2.68 (-0.2%) to close at 1165.58.
Volume: NYSE volume increased on the action to 1.3 billion (+7.4%), indicating some light churning but still well within the consolidation range.
The Chart: http://www.investmenthouse.com/cd/$spx.html
TOMORROW
Retail sales are out before the open, the first of the consumer oriented news of the week. They were an upside surprise last month and are expected to gain slightly this month. The market is getting to an interesting point. Economic news has been very good, but it is coming to the nut crunching time: earnings are coming and there has to be some performance. There will be more warnings; as we saw, telecom is not recovering and more telecoms will warn. Remember, chip stocks are claiming that this is the bottom; that does not necessarily mean there will be real improvement. We are seeing spotty improvement in earnings; that is a signal of change as the former trend was all bad. As the market showed today, it is not immune to disappointment though it did recover somewhat.
We still like many patterns we see and feel we can take 20% gains on stock trades and even better on option trades. We are not, however, going to push things too far. We will take money off the table when upside targets are hit just as we close them out when the downside stops are hit. With the looming earnings warnings and the actual numbers, the technology sector in particular is subject to quick upset. If price/volume action starts to deteriorate, we will view that as a signal of uncertainty about the upcoming earnings and we will start lightening up on upside positions and preparing form more downside.
We don't anticipate that change this week necessarily. We continue to see good action on the indexes that is a nice consolidation of the recent move higher. As long as the price/volume action continues to show that there is not dumping but continued holding of the shares recently purchased on the move up, the potential for another breakout is there. As that occurs, individual stocks continue to move higher and give us solid returns without overstaying our welcome.
Support and Resistance
Nasdaq: Closed at 1897.12
Resistance: The 200 day MVA (1902.52. The top of the November consolidation at 1934 to 1941. After that is 1980 (the December gap up point) and some minor resistance at 2000. Then the January top at 2098.88.
Support: 1875 has acted as support Tuesday as it has done in the past. It represents the bottom of the November consolidation range. The 50 day MVA is at 1866.46. After that, not a lot of room before 1800.
S&P 500: Closed at 1165.58.
Resistance: The December high (1173.62) and the January high (1176.97). That point also marks roughly the lows of summer 2001 consolidation that runs up to 1240.
Support: 1150 and the 200 day MVA (1149.13). After that, 1125 is the hump in the double bottom, and the simple 50 day MVA (1128.33) and exponential 50 day MVA (1127.87) are converging. 1100 has acted as support as well.
Dow: Closed at 10,632.35
Resistance: The top of the June, July, and August 2001 trading range at 10,600 (10,679 intraday high), is still holding. 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 (10,017.21) and 10,000.
End Part 1 of 2
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