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5/05/03 Investment House Daily
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Investment House Daily Subscribers:
MARKET ALERTS:
Target hit alerts issued Monday: AFCO. All others over target moving well
again so let them run.
Buy alerts issued: CHIR
Trailing stop alerts: CMCSA; JOSB; MATK. Taking no chances with stocks
breaking lower.
Stop alerts: None issued
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SUMMARY:
- Unable to hold early gains as Nasdaq pushed back twice at December high.
- Service sector starts expansion post-war.
- Overall market stalls at resistance as leaders again post gains.
- Subscriber Questions
Market showed a desire to move higher, but could not do it.
The market looked as if it would continue to its rally as it kept trying
to come back led by technology as well as small and mid-cap stocks.
Nasdaq kept hammering away at the December high on good volume and some
good individual tech moves. Breadth remained positive all session even as
DJ30 and SP500 sold lower. There was obviously underlying buying
continuing as the smaller issues continued to post gains and leading
stocks scored nice volume moves.
Despite some underlying strength in the leading sectors, however, the
indexes struggled as the large cap stocks could not find buyers. The
buying in techs and the smaller cap issues as well as some selling in
larger caps combined to turn in higher volume session of mixed action. It
was not distribution as NYSE volume was lower as DJ30 and SP500 sold while
higher on Nasdaq that turned in a positive performance if by just a hair.
Technically this is good action, but it also shows some churning in Nasdaq
as it rallied twice to resistance and fell back as volume advanced
slightly from Friday. We saw this in Nasdaq in late April when it flashed
a higher volume churning session at the January high, sold back one
session, and then started back up. Churning is a concern because it shows
a change; on the move higher buyers were easily in the lead as they pushed
the index higher on volume. When the index fails to advance after a move
up but volume remains high, that shows that sellers have caught up to
buyers. They are selling as fast as others buy as the market treads
water. That can be a sign of trouble.
Nasdaq just broke out again Friday on very strong volume. It rallied to
the next resistance that turns out to be a key one: the post October
bottom high. Just as Friday's move cause some short covering, when Nasdaq
could not break over the December intraday high (1522), it emboldened some
sellers. They were able to push Nasdaq back to close near the low, giving
back some very decent gain. This is important price level that we have
anticipated would take some doing to break. With help from the smaller
issues, however, it looks as if Nasdaq is finally getting an ally.
THE ECONOMY
April ISM services expands once again.
50.7 versus 49 expected and 47.9 in March. It appears as if there was
some post-war pop in the services sector, but unlike manufacturing,
services never really had that bad of a recession with march being the
only contraction in the past 15 months. All sub-indexes looked solid as
well. New orders were back in the black at 50.6 (from 47.7); employment
rose to 48.2 from 47.9; prices paid fell to 56.7 from 62.0 (lower is good
as energy prices fell). It was not robust, but it shows that the
war-based slowdown in March dissipating with respect to the larger service
sector.
Layoffs shoot higher again.
Challenger-Gray announced that announced job layoffs rose 71% in April to
over 80,000. That puts the totals year to date over 500K. We mentioned
this over the weekend and how that type of job loss is an indication of
recession. This is called a jobless recovery, but we are not buying that
the economy is recovering. It is trying to slide into recession yet again
on the back of that spike in energy prices that is still being felt
(consumers are still getting their gas card and related energy bills that
reflect the higher energy prices that have only now started to abate).
Thus the economy can still move into recession even as the market looks
past this point to better economic times.
Tax bill to be debated Tuesday.
Once again Congress will take a shot at reconciling the tax bill Tuesday.
We are amused in an incredulous way when we hear some representatives get
up and rant about how cutting taxes is bad because the prior tax cut in
their eyes only exacerbated the slowdown. It is a matter of degree.
Recall that Bush wanted it all up front but could not get it; that is how
the first tax cut was spread out over 10 years with a sunset provision at
the end of the 10 years. In other words it goes away unless made
permanent. That was required to get it passed, and it also limited its
impact. If those grousing about how ineffectual it has been would have
had the guts to do what Kennedy and Reagan congresses did then there would
have been much more impact.
As it is, it still had some impact. Without that tax bill we would still
be in a worse situation. The package helped us avoid deep recession even
if it did not propel us sharply higher. That is a far cry from saying 'it
didn't work, it was a bad idea.' It worked the best it could given the
long phase-in and the lingering economic effects of a post-boom economy
that was brought down hard and intentionally by the Fed. What the economy
needs now is another booster shot to stave off the next potential
recession that is right at the doorstep. We think Bush did not go far
enough. Another trillion dollars with 50% of it in the first year would
be real stimulus. As it is now with the $500B to $350B over 10 years, it
would be hard-pressed to stimulate a dog in heat.
THE MARKET
Some wondering what Fed would do.
Nasdaq is right at the December high and failed to take it out. SP500
also was unable to move over its January high. After the Friday breakout
fueled with longer term buying and short covering, the market was at a
stand-off between buyers of techs and smaller caps versus sellers of
larger caps at resistance.
We have been looking at Nasdaq 1522 as a point of significance as it marks
the December intraday high, the high point in the rally off the October
low. It has been a steady climb to this point with key pauses along the
way at key resistance levels. This is another one. It marks uncharted
territory so to speak as it would mean the first sustained uptrend in
Nasdaq since the March 2000 peak that was not just a shot up off of an
interim low that ran out of gas and then tanked. This rally started that
way, but then put in a lateral correction that formed a nice cup with
handle. From there it has started the next phase with a breakout Friday.
It needs to clear 1522 and the May 2001/January 2002 downtrend to take it
to the next level.
Will it continue the run right here? We have been expecting some
resistance at the December high. After a solid run this year (Nasdaq up
20%) this high would prove a logical resting point to consolidate some of
those gains. It went through a month-long lateral move and broke out
higher two weeks back. It broke out from its 3.5 month pattern Friday.
If it can extend that gain at some point this week after maybe another
test back toward 1480 Tuesday and Wednesday, it has a good chance to move
right up. If this high volume turns to selling, Nasdaq could start that
bit longer consolidation at this level that we anticipated a month back.
Right now it is showing excellent strength. Unless the selling picks up,
it can extend the breakout right here.
Even with Nasdaq showing some churn on high volume, we were not selling
much as our leaders kept moving up, again holding onto some nice gains
even as the overall market was unable to do so. That kept us in these
stocks, but we were not buying a lot of new positions given the struggle
ongoing intraday. With Nasdaq failing at 1522 and SP500 at 935, we
preferred to let winners run and see how this resistance point is resolved
before committing much new cash.
While Nasdaq gets the headlines, DJ30 and SP500 did just fine. DJ30 held
onto the break over 8522, the breakout from its pattern, and SP500 was
basically flat. Volume fell back as they posted modest declines. That is
very good action.
Market Sentiment
VIX: 23.24; -0.37
VXN: 31.69; -0.67
Put/Call Ratio (CBOE): 0.73; +0.01
Nasdaq
Rallied to the December high twice but fell back to flat as volume churned
higher.
Stats: +1.16 points (+0.08%) to close at 1504.04
Volume: 1.919B (+4.11%). Rising volume in the strictest sense was a
positive, but the giveback of a larger intraday gain for a nominal gain is
not what you would call accumulation. It was not distribution either. It
was churning, and that can signal a transition to some selling, but it is
not an absolute indication as seen in late April when Nasdaq churned at
the January high and then powered right past that level.
Up Volume: 1.277B (-309M)
Down Volume: 625M (+382M). Much of the buying was in the techs and
smaller issues, and thus the very good up to down volume ratio.
A/D and Hi/Lo: Advancers led 1.32 to 1
Previous Session: Advancers led 2.51 to 1
New Highs: Nasdaq data was inaccurate and uncorrected at the time of this
writing.
New Lows: Nasdaq data was inaccurate and uncorrected at the time of this
writing.
The Chart: http://www.investmenthouse.com/cd/$compq.html
1519.70 on the high as Nasdaq twice tried to take out the December
intraday high (1522) but failed. A late rally attempt off the lows failed
as well, and Nasdaq closed near the session lows. It did manage to post a
gain but after giving back most of the gain it was not impressive to see
the volume spike. As noted, this is the last interim high in the post
October rally, and as such represents a significant challenge. Short
sellers are trying to step in some, analysts are nervous and not looking
for much more upside, and many market 'guru's' on television are focused
on this level as a potential top. Heck, we have been looking at it all
along as well.
Still, we did not sell out when it hit the level and stalled out some
Monday. With everyone expecting this to be a point of resistance, it is
worth letting it work on it this week and see how it resolves itself. We
expect to see some selling attempts again Tuesday and maybe Wednesday. If
this market has real stones after the Friday breakout, it should move back
up and then take out that high. If not then we could see a longer
sideways consolidation. As many leading tech stocks continued to move
higher Monday even as the market rolled back, we were in no hurry to dump
stocks with the nice gains we are enjoying. We will let the market tell
us more.
S&P 500/NYSE
After the big breakout Friday SP500 stalled right at the January intraday
high at 935. Lower volume on light selling; not bad action.
Stats: -3.53 points (-0.38%) to close at 926.55
NYSE Volume: 1.407B (-8.73%). Perfect price/volume action, falling back
on lighter trade.
Up Volume: 770M (-514M)
Down Volume: 629M (+392M)
A/D and Hi/Lo: Advancers led 1.32 to 1. A shadow of the Friday breadth,
but important in that the overall market still moved higher even as the
large caps took a breather.
Previous Session: Advancers led 3.36 to 1
New Highs: 239 (+59)
New Lows: 3 (-1)
The Chart: http://www.investmenthouse.com/cd/$spx.html
Tested the January intraday high (935) but could only must 933.88 early in
the session. After that it never really challenged the level, giving a
half-hearted wave at it mid-session before rolling over and closing near
but up off the lows (924.55). After the big breakout it was a day of
rest. Not bad action at all.
DJ30:
After blasting out of the triangle Friday and clearing the March high at
8522, DJ30 rallied to 8601 Monday but could not hold the move. Its action
mirrored the SP500 as the large caps were the brunt of the selling.
Volume was lower after the solid Friday surge. Good price/volume action
as the blue chips test the Friday breakout. The Dow Transports added
another 12.75 on their powerful move, a very good sign.
Stats: -51.11 points (-0.6%) to close at 8531.57
Volume: 1.407B (-8.73%)
The Chart: http://www.investmenthouse.com/cd/$indu.html
TUESDAY
The market may have been treading water some ahead of the Tuesday one-day
FOMC meeting, but most anticipate a no-action move from the Fed with the
usual statement that the economy remains sluggish but that with the war
over and the current accommodating Fed mode things should eventually
improve. Yes, even Snow White knew that someday here prince would come.
After three years of a bear market we just want the prince to arrive
sooner than later. Another easing and a nice tax cut would bring him
around sooner.
Tuesday we expect the market to show a bit more softness early. It may
last all session as Nasdaq may have to test back a bit more toward 1480
and there may be some trepidation ahead of the Fed and the Cisco earnings
after hours Tuesday. They are a good excuse at any rate to give some
profit takers reason to sell some and some shorts to try their hand. The
next few sessions will tell us more about how Nasdaq is going to act at
resistance, i.e., a run through that level quicker on the heels of the
Friday breakout or a more sustained lateral move to absorb some of that
20% gain.
As we see how that resolves itself we are going to continue to look at
those stocks that are getting a lot of money moving into them. Many of
the interesting stocks are in those smaller and mid-cap arenas. They are
still forming patterns and breaking higher, and when you find a tech
crossover, it often adds some high octane fuel to the move. As the big
indexes work at this resistance we are going to be reluctant to chase
stocks that are extended, but in smaller caps that are showing good action
we will be more willing to move in.
Support and Resistance
Nasdaq: Closed at 1504.04
Resistance: The August 2001/January 2002 down trendline (1505). The
December intraday high (1522). 1575, May 2002 closing lows.
Support: The January high (1467). The 10 day MVA at 1467. The 18 day
MVA (1445). The March and August highs (1426 and 1427). 1400 is some
price support. The exponential 50 day MVA (1400).
S&P 500: Closed at 926.55
Resistance: 935 (November and January peaks). 954 (December intraday
high).
Support: September 2000/March 2002 down trendline (911). Price tops at
911 (July). The 10 day MVA (914). March and April highs (896 and 905).
The 50 day MVA (883) and the 200 day MVA (879). The bottom of the October
consolidation range at 875 down to 868, the top of the January trading
range.
Dow: Closed at 8531.57
Resistance: November and January highs (8800, 8870). December high
(9044).
Support: 8522 and 8520, the March and April twin peaks. The 10 day MVA
(8467). The 18 day MVA (8407). The 200 day MVA (8308). 8250, the bottom
of the October consolidation range and other index lows is some support.
Economic Calendar
5-5-03
ISM Services, April (10:00): 50.7 actual, 49.0 expected, 47.9 March.
5-6-03
FOMC meeting results (2:15)
5-7-03
Wholesale inventories, March (10:00): 0.2% expected, 0.3% February.
Consumer Credit, March (3:00): $3.5B expected, $1.5B February.
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