THE MARKET:
We have been looking at the Persian Gulf War in 1991 with respect to the
action, the market, and the economy. Yes there are many differences
between now and then that many stand ready to point out. What is
fascinating, and what many market and economy watchers today need to
understand, is that while the US was heading into a recession, the final
push being prompted by the 'CNN effect' as people stayed home to watch
laser guided bombs hit bridges, the market was running to the upside. The
recession was coming but the market was looking past it already. In July
1990 the market topped and then tanked August 2 when Kuwait was invaded
and fell into the September and October lows. It worked its way higher in
a nice rally, dipped just two weeks before the bombing started, then shot
higher on January 17, 1991. It had factored in the recession based on the
war, falling 20%. Once some certainty was in the picture ahead, the
market started to rally.
There are plenty of extra problems this time around, namely struggling to
recover from the worst bear market since the depression and all of the
associated economic overhang. Still, the 1991 lesson is relevant. Many
analysts point to the continued economic troubles even post war and say
the market cannot go up because of that. We recognize those problems and
they are significant. At the same time we also know that the market can
start its moves in the poorest economic climate. That happened in 1974
and in 1991. If you do not look at what the market is doing and instead
focus on other forces, you can miss the signals. The market is still
probing its way around, but it has shown a rally and is trying to hold it.
While we proceed with caution we will let the market do the talking.
Tuesday the market was mixed. NYSE showed decent breadth and gains on
volume. Nasdaq bounced on weaker though average volume. It was not the
dominant upside response you would want to see to the Monday distribution.
The indexes held where they had to, but the bounce was not enough to
offset the high volume selling Monday. They are still in a confirmed
rally but it is dicey at the moment.
One good sign was the continued strength of leader stocks. After some
shaky action Monday, there have been very few breakdowns. Today several
leaders were back moving higher (e.g., BLL, BRL, CECO, APOL, JCOM, SSYS,
TEVA, etc.) and on solid volume. That is the best litmus test for a
rally: can the stocks that are leading the rally continue to lead? While
the indexes many not have had a resoundingly positive session, most
leaders did.
Market Sentiment
VIX: 32.1; -1.27
VXN: 41.97; -1.08
Put/Call Ratio (CBOE): 0.81; -0.1
Nasdaq
Unable to lead the action, Nasdaq posted a small gain, closing in the
middle of its range and over the 200 day MVA.
Stats: +7.13 points (+0.53%) to close at 1348.3
Volume: 1.412B (-10.24%). Volume fell but still came in above average, a
decent response but we would have preferred to see a resounding round of
buying interest after the Monday distribution session.
Up Volume: 732M (+365M)
Down Volume: 555M (-636M)
A/D and Hi/Lo: Advancers led 1.44 to 1. Not much upside conviction.
Previous Session: Decliners led 1.49 to 1
New Highs: 83 (+17)
New Lows: 60 (+5)
The Chart: investmenthouse.com
Gapped higher, fell, rallied, and then fell back to the middle of the
range. That action left a doji on the candlestick chart, not a bad
indication after a sell off from the March highs. It managed to hold the
200 day MVA (1341) on the close but failed to take out the exponential 50
day MVA (1350). 1375 is the level of near term resistance that Nasdaq
needs to clear to give this move new life. The 2002 down trendline and
the simple 50 day MVA (1334) are the near support levels.
S&P 500/NYSE
Held the simple 50 day MVA on the low and bounced on rising, above average
volume. This was more of an affirmation of the rally as volume outpaced
Monday's selling volume. If only Nasdaq had felt compelled to do the same
. .
Stats: +10.3 points (+1.21%) to close at 858.48
NYSE Volume: 1.426B (+4.24%). Nice above average volume surge on the
test of the 50 day MVA.
Up Volume: 1.014B (+722M)
Down Volume: 413M (-668M)
A/D and Hi/Lo: Advancers led 2.21 to 1. Nice finish to the session pushed
the A/D line back up. Smaller issues were leaders in the Monday selling,
and they were joined by some large caps Tuesday.
Previous Session: Decliners led 1.45 to 1
New Highs: 70 (+27)
New Lows: 29 (-27)
The Chart: investmenthouse.com
The large caps held where they had to, tapping near the simple 50 day MVA
(846) on the low and then rallying for a solid gain, leading the market
back up with a 1.2% gain. On the high it tapped the 10 day MVA (860), and
though it fell back on the close, it held the lion's share of the session
gains. Not stellar, but a solid move that did what it had to do after the
Monday selling.
DJ30:
Not the strength of the SP500 move, DJ30 also held the simple 50 day MVA
(7989) and rallying up to test the 10 day MVA (8124) on the high (8100).
Volume was above average though lower than the Dow selling volume Monday.
Not the strong surge we wanted in response to the heavy volume selling
Monday, but it is following the SP500 that took the leadership roll. DJ30
can follow; it is Nasdaq we want to join the SP500.
Stats: +77.73 points (+0.97%) to close at 8069.86
Volume: 1.426B (+4.24%)
The Chart: investmenthouse.com |
