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us stock market, trend trading stock
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3/19/02 Stock Split Report
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Stock Split Report Subscribers:
Online Investment Seminars with Investment House! Starting March 30 Investment House and Jon Johnson bring our 7 part online series back. You learn the basics, technical analysis, options, covered calls, stock splits, LEAPS, using stop losses, and more. Cut through the hype to what the market is telling you about which way it is going to go.
If the automakers can do it, so can we: the BONUS for Investment House subscribers is EXTENDED for another week! The deadline passed but we have received a lot of inquiries this weekend, so we are extending the date - however, the "live" classes are filling up (but check out the archived "taped delay" classes as well!). Order any package (3 or more seminars) by March 23 and receive FREE CD's for the seminars! Reference quality manuals and CD's of the courses allow you to review and refresh whenever necessary to take advantage of the market moves.
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Hope to see you online!
MARKET ALERT SERVICE
Subscribers to the current reports can sign up at the following link:
http://www.investmenthouse.com/alertssr.htm
SUMMARY:
- Indexes tap at a breakout, but Fed neutral shift makes them pause once more.
- Still holding steady, looking for buy-side volume.
- Book to bill in line, earnings 'mixed.'
- Does the Fed really think the threat of inflation is equal to the threat of an economic relapse?
- Team Trades
Not enough to make the break.
The indexes did what was expected ahead of the Fed announcement: meandered, found their footing, and moved up toward a breakout right before the moment of truth. They got cold feet at the critical juncture, however, and turned back. When the Fed changed its bias to neutral, that spooked some of the short term holders and they sold. The indexes followed them down, but held on for a modest last-hour bounce that kept them all in the green.
It was nothing spectacular either way, but more of a pondering of what the Fed really did. All it did was say it was not going to leave the foot on the gas pedal indefinitely. As with most Fed moves it will most likely take a day or two for the real market to show itself. The action after some rather innocuous and upbeat news, however, was somewhat disappointing and somewhat encouraging: investors are still worked up over news stories. Markets climb walls of worry as the saying goes, and today's selling in response to the Fed saying the economy is improving shows there is still worry out there.
Still in the pattern.
Each index really did tap at resistance, but none could make the breakout. Volume rose on the NYSE, complementing the rise in price on the Dow and the S&P. Volume contracted as the Nasdaq held basically flat once again, resting on top of support and just below the 200 day MVA resistance. That was good price/volume action once again for all of the indexes as they continue to grind through the two-week plus lateral consolidation.
Why so much focus on the price and volume? Because it can tell us whether investors, mainly the big investors, are buying stocks when they are lower and then holding them for future gains or if they are selling them and lightening up on equities in anticipation of more selling. The rising volume on up sessions and falling volume on down sessions signals ongoing accumulation through this lateral consolidation.
Now it needs some catalyst to break it out of this range. It was ready today, but the Fed bias change gave it a twist it was not ready for. Again, the fact that it held the range on what some investors obviously saw as disappointing news is a good reflection of the quality of the consolidation. Just when you get bored, just when you start to wonder if it is going to make the move, just when you start to give up, that is when it usually does make the move.
Will the semiconductor book to bill ratio provide that catalyst?
The index patterns look good, but the stocks in the indexes make the difference. The Nasdaq still is having problems as we have noted as its big names are still trying to put together some patterns that show here has been accumulation. There are not a lot of those around right now; does not mean we cannot make some money off of them when they bounce up and down, we just have to recognize that these are not necessarily stocks we want to hold for several months right now. In any event, continuing economic recovery looks to be in the cards, and more solid economic and business news (e.g., earnings news) can provide the impetus to move higher.
February book to bill rises to 0.87 from January's 0.81. This is a measure of orders to revenue. In other words, in February there were $87 of new orders for every $100 of revenue for the month. Chip equipment makers saw a 10% rise in orders over January, and a 3% rise in revenue over January. These numbers were mostly in line with expectations; they were not really a big upside surprise and thus might not be the big catalyst tech investors were looking for.
Lots of optimism. Still, chip equipment and chip manufacturers are very optimistic. At an ongoing conference in New York both companies and analysts say the worst is over for the industry and many chip makers are already spending more on next generation technologies for the next level of chips. Industry insiders say that chip inventories are very low and China is showing very strong demand increases. Good news for the future, but not the current tonic that investors may be looking for.
Earnings continue to come in mixed. Proctor & Gamble (PG) said Q3 will exceed estimates, and this stock is what held the Dow up today. JBL (contract electronics manufacturing) beat the street by a penny. Revenues were down year to year, but what is new. JBL was up after hours. CDWC, a computer wholesaler, saw its earnings plunge and its stock price along with it. The big question right now is whether there is going to be translation of the signs of improved economic activity into earnings.
As we can see, the warnings are to the upside and to the downside. The actual numbers are coming in mixed as well. That in itself is a positive if we think back to the past several quarters when all earnings were bad and getting worse. When a trend starts to change, numbers start to turn mixed as we are seeing. Remember the Fed comments a month and more back about how the economic signals were 'mixed.' That mixed bag turned into a string of solid economic reports over the past few weeks. Thus, the fact that we are seeing earnings start to show this good and bad character indicates that the downward earnings spiral is ending for many companies.
Fed holds rates at 40 year lows.
The Fed held rates at 1.75%, still a very favorable level for fiscal stimulus. This is a level that still has money moving into the economy. As we have discussed in the past, it is not as easy as that as many consumers are already loaded in debt and many banks are still on Fed restrictions as to how much and to whom they can lend. Cheap money yes, the ability to use it all, not really.
Still, the Fed cannot keep the rate at 1.75 forever. It had to start saying it was going to raise at some point given the signs of improvement, mainly an inventory recovery. Even with that, it was very careful to note that even though inventory investment was on the upswing, the real test is whether final demand, i.e., business demand, picks up that inventory. If it does not, repeat the last year and one-half.
The bias was shifted to neutral, a move we did not expect. A few weeks of good inventory-driven numbers does not mean 24 months of manufacturing recession is over. The Fed said again today it balances prices versus sustained economic growth. In other words, inflation versus level of GDP. There is no way the Fed can really think that there is any hint of inflation in the picture. We are now, just now, coming out of some deflation, i.e., asset value decreases. Thus the Fed's switch to a neutral bias giving equal weighting to both was pretty much a joke.
What the Fed is doing is getting the market ready for increases that will have to come because the FFF rate is so low. The Fed can still raise interest rates 75 basis points and not take a lot of fiscal stimulus out of the market given the upturn in the economy. In reality, it can go up to almost 4% before it is more or less neutral. The stronger economic growth naturally pushes short term rates higher. The Fed should, should, follow them up, not lead them up. Let the stimulus work; let the financial, manufacturing, and service industries and markets heal themselves. The Fed will have much more success letting investment take care of demand and not trying to force it. This was its policy in the early 1990's, and it worked.
One last thing to remember, one that the Fed has pointed out repeatedly. The Fed's 'balance of risks' statement is not to be used as a predictor of Fed action. Now that is very much like Greenspan saying he in no way tried to influence the stock market but still made utterances such as 'irrational exuberance.' Even with that, the Fed is now using these statements as more of a snapshot of the economy given the current data. Indeed, that is what the FOMC statement today said ('the information currently available'). What the Fed is doing is looking at the data as it comes in; it is basically saying that it is no better at reading the future than anyone else. Hardly a stunning admission given the prior three years of mismanagement, but at least it is a recognition of reality. There is some comfort.
THE MARKET
No real change today as the indexes thought about breaking out but then had to mull the Fed decision. The book to bill was good but nothing unexpected. JBL topped its estimates and raised its guidance, and that from an electronics contractor may be stronger than the other news as far as upside impetus.
VIX: 20.35; -0.40 Still holding at that very low level that would indicate market complacency. Given the good price and volume action on the NYSE, the VIX keeps us wary but not on edge.
VXN: 38.99; +0.24. As noted Monday, the VXN is hitting levels not seen since before the index was established back in January 2001 and the old data was used to reconstruct earlier times. It is now below the August 2000 low and is heading toward the 34 to 35 level that marked the bottom of the summer to fall range in 1999. Right now the Nasdaq has been moving laterally and the VXN has been falling. It even fell as the Nasdaq fell early in the year. It is not showing a real correlation right now and is not helping much as an indicator.
Put/Call Ratio (CBOE): 0.65; +0.01. This ratio is going nowhere as well right now with the indexes moving laterally. Still above complacency levels.
Nasdaq
Looked as if it might try the breakout but turned back down. Each day it has suffered selling in one major sector or another. Today networking and storage were being hit once again as investors reconcile prices with sales and earnings. It is not a pretty picture for them. Surprisingly, the index is still resilient even with the trashing of a sector each day.
Stats: +3.18 (+0.2%) to close at 1880.87.
Volume: 1.521 billion (-1.5%). Slight drop on the flat action, holding below average for the seventh straight session. That is good consolidation volume and it continues to maintain decent price/volume action as it tries to hold on while the Dow and S&P work toward a breakout.
Up volume: 730 million
Down volume: 759 million. Almost identical levels from Monday, and still very even. It is marking time, waiting for a breakout by the other indexes.
A/D and Hi/Lo: Advancing issues lost more ground, holding on to a slim 1.06 to 1 lead (1.22 to 1 Monday). The entire index was flat so it seems.
New highs: 168 (-22)
New lows: 27 (+6)
The Chart: http://www.investmenthouse.com/cd/$compq.html
Once again tried to make a run at resistance at the 200 day MVA (1892.25) with a high of 1891.51, but that was as close as it came. It sold negative by 4 points before a late bounce pushed it positive. It held on the low (1873.17) roughly at support that runs from 1870 to 1875. Thus it was good to see that level bounce it. It is being squeezed now between that support and the 200 day MVA that keeps falling each session. Two consecutive doji's on the candlestick chart show buyers and sellers in a standoff. Again, it is hanging on while the other indexes try to decide if they are going to drag it higher.
Dow/NYSE
The Dow posted a gain, but lost almost half of its gain after it also tested resistance and faded once again. Volume rose, but it was still well below average. It continues its consolidation, but it will need to make a move soon. There we go, getting impatient; price/volume action is still good, but most of the action today was a result of PG's great move when it raised its expectations.
Stats: +57.50 (+0.5%) to close at 10,635.25.
NYSE Volume: 1.252 billion (+6.3%). Volume rose, but was still well below average. It continues the solid price/volume action, indicating that Dow and NYSE stocks are being accumulated during this period. To us that is still constructive on a day when the index investors were trying to figure out what the Fed actually did and what it is going to do.
Up volume: 710 million
Down volume: 508 million. Up volume rose while down volume held steady.
A/D and Hi/Lo: NYSE advancers led 1.20 to 1, but were down from Monday's 1.26 to 1 that was lower than Friday, etc. The broader market is still moving up, waiting for the larger caps to catch up with it.
New highs: 253 (+50)
New lows: 28 (-2)
The Chart: http://www.investmenthouse.com/cd/$indu.html
Almost made the move over the top of the summer 2001 trading range high (10,679.12) intraday (10,673.10), but did not have enough buying interest to make the breakout. It set up to make the move before the Fed announcement, but the change of bias all the way to neutral led to second thoughts and an afternoon of quiet reflection so to speak. In other words it was ready to breakout, didn't get the word it wanted, so those nervous investors decided to sell. They were not, however, in the majority as we continue to see the solid price/volume action. Still looking for that breakout over that intraday high on strong, above average volume. Over two weeks of lateral movement has it set up to make the move. As we have been saying, the proof is in the actual move. If it can make the move we are looking for a run to 10,800 and even 11,000. Each resistance level is tough climbing out of the bear market, so we look for the breakout first.
S&P 500:
The big cap index once again matched the Dow's steps (or was it the other way around) as it also tested the near resistance level in the form of the December and January tops (1173 and 1176, respectively) before it pulled back. The S&P topped the December high with a 1173.94 showing; not bad, but no volume. It moved higher from Monday, but it was below average; not a lot of power there. It has once again moved to the top of the 25-point range from 1050 to 1075. Overall it looks good in its lateral consolidation off of the February double bottom. As we said last night, recovery from a tail kicking is work. We have to see the breakout. After that there is minor resistance at 1183, and then some real issues with 1240 and 1260 to 1270.
Stats: +4.74 (+0.4%) to close at 1170.29.
Volume: NYSE volume rose 6.2% to 1.252 billion shares. Decent action, but not a surge of buying volume that can sustain a breakout.
The Chart: http://www.investmenthouse.com/cd/$spx.html
TOMORROW
Well, the FOMC could not break the market out. It did not tank it either, instead holding at support in some cases with continued accumulation in NYSE stocks and smaller Nasdaq stocks. The indexes are still in their ranges and they are still showing good to fair price/volume action. There is overall accumulation right now, but as we have been saying, the Nasdaq is struggling. Right now the Dow and the S&P are at odds with the Nasdaq: they have nice patterns and are exhibiting nice accumulation. The Nasdaq is in a weaker pattern and its price/volume action is decent to neutral. The question is which one is going to win over investor mood.
Rates still at 1.75%, a pro-growth level. Economic data improving each week. Earnings turning from crud to better. Earnings warnings running much lower. Tax cuts doing some work on the economy. Stimulus package passed. President talking of more tax cuts to help small businesses. That is an awful lot of positive force on the economy and ultimately earnings. Tech won't deliver as well as some want (though some semiconductors could do better), but overall there looks to be some improvement in the near term. There is the continued concern that the recent inventory buildup will not be met with business buying, a fear the Fed voiced today and we talked about a month ago with respect to a double dip recession. That is why the President wants more small business tax cuts to give business incentive to meet that inventory buildup.
Earnings will not deliver across the board this quarter, but there will be improvement. The Dow and the S&P are ready to once again move higher and are at the most critical levels of their recoveries (all of them seem critical during the recovery period, don't they?). Again we expect a breakout this week once the market figures out the Fed did not do anything bad for the economy or stocks.
Support and Resistance
Nasdaq: Closed at 1880.87.
Resistance: 1875 is the bottom of the November consolidation, and though it has not totally cleared it, 1870 acted as support today. The 200 day MVA (1892.25) once again stopped the move today. 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: 1870 to 1875 is trying to hold now. 1850 was able to hold as support last week. After that, it is pretty sparse down to 1800 to 1775.
S&P 500: Closed at 1170.29
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. Before that point there is some resistance at 1183 from March 2000.
Support: 1150 and the 200 day MVA (1145.77). After that, 1125 is the hump in the double bottom, and the simple 50 day MVA (1128.48) and exponential 50 day MVA (1134.09) are converging. 1100 has acted as support as well.
Dow: Closed at 10,635.25
Resistance: The top of the June, July, and August 2001 trading range at 10,600 (10,679 intraday high), is still holding it back. 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 held as support during this consolidation. That is followed by the January high at 10,300. Then the 200 day MVA (10,002.26) and 10,000 teaming up together.
Weekly Economic Calendar (All times Eastern). The figures are the consensus expectations, not ours.
3-19-02
Trade Balance, January (8:30): -$26.9B versus -$25.3B%
FOMC Meeting (2:15): No cahnge in Fed Funds rate (1.75%). Balance of risks shifted to neutral.
3-20-02
Housing Starts, February (8:30): 1.63M versus 1.678M prior.
Building Permits, February (8:30): 1.65M versus 1.706M prior.
Treasury Budget, February (2:00): -61.0B versus -$48.2B prior.
3-21-02
Initial Claims, 3/16 (8:30): 377K versus 377K prior.
CPI, February (8:30): 0.2% versus 0.2% prior.
Core CPI, February (8:30): 0.2% versus 0.2% prior.
Leading Indicators, February (10:00): 0.3% versus 0.6% prior.
Philadelphia Fed, March (12:00): 17.8 versus 16.0 prior.
FOMC Minutes, 1/30 (2:00)
End Part 1 of 3
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