12/7/00 Investment House Daily
TONIGHT:
- The market is trying to gather for a rally, but the hit parade of
earnings warnings continues to stall things.
- INTC's after-hours warning hurt, but stocks recovered well from the news
in after hours trading.
- Bad news starting to be absorbed?
- All eyes on the employment numbers tomorrow even as jobless claims hit a
1998 high.
The market is ready to roll up for a holiday rally if it can get out of
the starting blocks.
Before the open there was more bad news as MOT warned of lower quarterly
earnings as it failed to reduce handset production. MSFT was the victim
of a downgrade by Goldman Sachs based on lower PC sales and thus a
weakened demand for Windows. There were no midday gut punches as we had
with Banc of America (BAC) on Wednesday, but after hours the trail of
worry continued with warnings from INTC, CDWC and others of less caliber.
There is no question at all that the economy is slowing down by just a
quick review of corporate earnings warnings and layoffs announced the past
two weeks.
Even with the announcements, we continue to have a sense that the market
is gathering itself for a move up. After hours, even with the INTC
warning, stocks that sold off on the news fought their way back up.
Indeed, we saw BRCD, PMCS, BRCM, GLW, JNPR, NEWP, SEBL, VRTS and others
not only recover, but move substantially higher than their closing prices.
Even INTC recovered and was trading higher after hours. This is very
bullish activity given the news. The market absorbed bad news from a
major player, dusted itself off, and made new highs for the session. This
market wants to move up.
On top of that bullish after hours action we have a trio of interesting
charts on the major indexes. The Nasdaq, S&P 500 and Dow each showed us a
doji on the candlestick chart today. Not candlestick charts tend to show
momentum associated with moves. A market that opens and then climbs
steadily all day to the close shows that the buyers are in control.
Conversely, if the market opens and sells steadily all day, the sellers
are in control. When the markets open and close at roughly the same
price, that shows that the buyers and sellers were evenly matched. That
is a doji. When it comes at the end of a move up or a move down, that
doji indicates a change in direction is most likely. The reason? If an
index has been selling down, the sellers have been in the lead. If it
then shows a doji, that means the buyers have caught up with the sellers,
i.e., the selling momentum has waned and the buying momentum has gained.
The next move is usually up as the buyers overtake the sellers and push
the market higher. The Nasdaq showed a tight doji (4 points between the
open and close); the S&P 500 not quite as tight (4 points), and the Dow a
looser doji (27 points). All closed right at some support, and all look
ready to move up. Weaker employment numbers in the morning and some
conclusive rulings by the Florida courts tomorrow could send this market
into a strong rally into Christmas.
Yes we sound pretty positive, but there are positives building. The right
triggers and we have a nice holiday rally on our hands. Remember, despite
the earnings warnings there are positives. Many stocks have much more
attractive P/E ratios for those who are wrapped up in those numbers. As
the Fed has indicated it will rescue the economy if necessary, continued
weakening economic news will insure rate cuts. While it will take time
for rate cuts to work as an antidote to the rate hikes (two of which have
yet to hit the economy full force yet), the stock market is
forward-looking. It deals in future expectations and builds prices higher
based on those expectations. If the Fed has signaled that it is going to
protect the economy (better late than never; reminds us of the witness
protection programs of the government) and the future administration is
one that is viewed as enacting tax cuts if necessary to jumpstart the
economy, the future expectations will rise taking stocks with them. For
quite some time we lamented that there was nothing to warrant a change in
the investor uncertainty regarding the future. Change is taking place
right now. If we get the 'good' employment report, i.e., rising
unemployment (as much as we hate to say that) and final resolution in the
election, this market is ready to rally on those future expectations.
THE ECONOMY
While all eyes will be on the unemployment numbers tomorrow despite the
fact that they are lagging indicators, today showed us once again more
evidence in the form of leading indicators that the economy has slowed and
will continue to slow in the future. Jobless claims for the week came in
at 352,000. The headlines trumpeted that they were down from last week's
361,000 (revised upward from 358,000), but again we have to put it in
perspective and realize that only 346,000 new claims were expected. Much
more important, the four week average came in at 345,250, the highest
close for that number since July 1998. The trend is undoubtedly more
jobless claims in the pipeline, and this number tends to foretell more
slowing in the future.
Tomorrow is the unemployment and wage report. Unemployment is expected to
tick up 0.1% to 4.0%. Wages are expected to rise by 0.3%. Non-farm
payrolls are anticipated to rise to by 150,000 versus 137,000 last month.
The first two are probably right. The last is probably high. The
payrolls number is factoring in seasonal employment for the holidays.
Jobless claims are very high even as we move into the holidays, and we
think that there are fewer hires than usual out there this year. It won't
be a big decrease, but it will help the Fed make a decision.
THE MARKETS
We did not get the rally we were looking for, but that only made the
setting more dramatic for Friday when we could have all the news we want
to hear from the economy and the election. Today the indexes seemed to be
biding time ahead of potentially big news tomorrow. The markets are
poised to move up and give us a big confirmation day if the news is right.
If it is not, we will most likely see a lot of good-looking work tossed
out like a bunch of double-punched ballots.
Overall market stats:
VIX: 28.98; +1.04. Volatility was higher but not that much as the
indexes suffered light selling. Not much to tell us here.
Put/Call ratio: 0.78; +0.17. Put buyers entered the picture today as
they started to give up on Tuesday's big move. We only wish they would
have spiked higher. This is good for the rally scenario as we like to
have put buyers ready to pull the trigger to the downside.
NASDAQ: No confirmation, but the volume was very light on the selling.
Indeed, even before the INTC news we saw some of the leaders scoring
excellent gains for the day (e.g., BRCD, JNPR). They tend to act as
precursors to rallies; just another indication that we think things are
looking higher if we get the trigger. As noted, the leaders were higher
after hours despite the INTC warning. Nasdaq futures are up over 50
points at this writing.
Stats: Down 43.84 points (-1.6%) to close at2752.66).
Volume: 1.759 billion shares (-23.7%). Very light volume on the selling.
1.135 billion shares to the downside versus 574 million to the upside.
The lower volume selling is what we want to see if we have to have it.
A/D and Hi/Lo: Declining issues maintained the lead 1.52 to 1, virtually
no change from Wednesday. New highs were just 40 (-30) versus 309 new
lows (+80).
As noted, the Nasdaq showed us a doji on the candlestick chart once again
right at the down trendline connecting the September and October tops.
The leaders were moving up even as many of the techs lost some ground on
light volume. The index is crouching for a move up. It just needs the
positive news it is anticipating to spring it. If we get good news, we
are looking for a confirmation of the reversal that occurred last Friday.
Again, a 1.5% point gain and above average volume. If we get the news the
market wants, we will be getting in and take a calculated risk that the
volume will be there and any point gains will hold.
Dow/NYSE: The Dow pulled back as well on lighter though still strong
volume. It was hurt by IBM (the AAPL news) and MSFT (the Goldman Sachs
earnings downgrade). The selling was mild, however, and support held.
Stats: Down 45.89 points (-0.4%) to close at 10,618.49.
Volume: NYSE volume fell to 1.117 billion shares (-18.5%), but still
above average. Down volume beat up volume 633 million to 431 million
shares. Still seeing good price/volume action.
A/D and Hi/Lo: NYSE advancing issues topped decliners 1.04 to 1. Not bad
for a down day. New highs topped new lows 140 (-26) to 105 (+13).
The Dow showed the third doji of the major indexes for the day, closing
just below its 50 day moving average (10,630.22). The Dow is still
holding above support at 10,600. It has two ranges, 10,300 to 10,600 and
10,600 to 10,900. It broke into the upper range Tuesday, and it looks as
if it is trying to hold in that range. As with the Nasdaq, the Dow is
just waiting for the right trigger to send it up.
S&P 500: The 500 big caps sagged lower again today, but on lighter volume
and holding support above 1335. This index showed a doji as well on the
candlestick pattern, though looser than that on the Nasdaq. Nonetheless,
if the Nasdaq and its big techs rally, the S&P will follow.
Stats: Down 7.91 points (-0.6%) to close at 1343.55.
Volume: NYSE volume continued above average, but fell 18.5% to 1.117
billion shares. Again, the right kind of price/volume action.
TOMORROW
The employment numbers will be out an hour before the open. The trend for
every leading economic indicator has been down for the past two or more
months. Economists expect unemployment, a lagging indicator, to start
showing a rise once again. We have no doubt it will show an increase in
the future as all other forward looking indicators have been falling. An
uptick of 0.1% tomorrow will help the markets Fed-wise without showing too
many people thrown out of work. We hate to see people lose jobs and are
disappointed that the Fed is still clinging to this lagging indicator as a
primary indicator.
In the morning keep your eyes on the average hourly wages. They are
expected to rise 0.3%. This is always the wildcard, but it has been
holding at very steady rates of increase. We want to see it in line with
expectations.
A good employment report could give us the first push for a rally much as
we saw on Tuesday. Investors, however, will be watching the television
for the results of the three Florida cases. Rulings that put this
election to bed will be the second push on the rally accelerator.
Given that, we think we see a move higher early and then a test as
investors wait for the court rulings. We are going to use that test to
take more positions in the stocks that are showing the trappings of
leadership even when the rest of the market is undecided. These are the
stocks we saw moving today such as JNPR, BRCD, SEBL, NEWP, PMCS, SDLI and
QCOM. We will watch for them to hit bottom after the selling back in the
first hour and then pick them up as they move up (partial positions) and
when they move over the morning high. All of this depends on getting the
right trigger. If it does not come and the market gets what it perceives
as bad news, we have to be ready enforce stop rules on our new positions.
There has been a change in the landscape, but the market has yet to give
us confirmation that it is buying into the change.
Support and Resistance Levels
Nasdaq:
Resistance: 3100 to 3200. After that, 3525 to 3535.
Support: Riding down the down trendline. If this rally attempt fails,
2600 looks like support. Below that is 2500, then 2000 to 2200.
S&P 500:
Resistance: 1390 at a down trendline. Then 1410. After that, 1435 to
1460 (maybe we will get there).
Support: 1335 to 1300. 1270 to 1280 is the next level.
Dow:
Resistance: 10,900 to 11,000. Then 11,100 to 11,200. Then 11,300 to
11,400. Lot's of overhead, but the index is looking good.
Support: 10,600 (the 50 day moving average held today on the low at 2781.
Below that is 10,000. |
