InvestmentHouse.com Weekend Update:
investmenthouse.com
Sluggish finish to a sluggish week.
- Weak rise at the end of the week leaves indexes in less than promising patterns.
- Economic news continues its strength.
- Team Trades.
The week ends as the week was.
More good economic news had the market wanting to move higher again, and the indexes did that early once more. Except for the Nasdaq, however, the excitement was over in the first hour. In yet another role reversal, the Nasdaq led the upside action, adding 1% on rising volume as it rode the strength of the semiconductors. The non-techs have been the predominant leaders during the past three months, but the techs have shown just a touch of leadership ability on Thursday’s. Wow, what a trend.
All week long the action was on light volume, well below average on both the Nasdaq and the NYSE. Monday the indexes fell out of bed, but on extremely light volume. the rest of the week they shuffled back up on rising volume. That is the volume action you want to see, but there were no major mountains conquered on the way back up.
Another less than grand pattern was the close off of the session highs later in the week. The indexes would make good moves, but then buyers would leave and they would drift lower the rest of the day. Still up on the session, but well off the highs. While not bearish action as the indexes closed higher, it was not very bullish; you want to see the buyers winning the day handily, not retreating all afternoon to just hang onto a gain.
Cannot break back over resistance.
Now most of this was due to just a lack of interest. There were buyers, but not enough to take the indexes over the resistance that they bled below on the light volume selling that hallmarks this decline from early March. There were no heavy sellers. The selling volume never ramped up the past two weeks. The buyers simply did not show up, at least not in any numbers. As the week closed the Nasdaq made a run at 1850, but it turned back once again. The S&P moved back over the 200 day MVA, but it could not take out 1150. The Dow ran into 10,500 on Thursday’s high, the bottom of its early March range, and promptly turned right back down to close negative.
The modest rally at the end of the week and the pullback from resistance Thursday did not leave the indexes in great shape. The S&P and Dow showed what are called doji’s on the candlestick chart. These were known as ‘tombstone’ doji’s, i.e., a run up intraday and then a fall back down near the open. The action shows the buyers pushing prices up early, then the sellers (or in this case more like lack of buyers) taking over and pushing them right back down. After a move up this pattern can mean the move is running out of gas.
Not total carnage.
That means the market could face a bit of adversity early next week, but it is not necessarily a harbinger of a meltdown. The semiconductor sector had a good day. TSM is increasing its 2002 capital spending plans to $2.5 to $2.6 billion. Its previous guidance was from $1.6 to $1.7 billion, but it had already upped that to $2.2 billion before Thursday’s announcement. Still, the trend is correct. Basically TSM sees demand picking up enough to justify this investment, and it also believes demand is only going to increase. AMAT, KLAC, CYMI, and other chip equipment makers had a good day and look ready to start some good moves. The market needs these stocks to perform. They are set up to do that, and if the market is going to move, we expect them to be moving as well even if the rest of the tech sector does not.
Outside the semiconductor equipment makers we still see many stocks in many sectors in good patterns. Medical equipment, mining, some regional banks, insurance, health care plans, and more. The big tech names are still in trouble, but overall the vastly improved economic numbers have been pushing stocks higher in their patterns.
Too expensive?
One thing we are hearing on the financial stations is that many stocks have priced in the economic improvement already and we cannot expect too much more from them. True, stocks price in better economic times before the numbers really turn stronger. Look at the retail sector in November and December. Most were saying that they were fully priced at that time given the lackluster Christmas there would be. More than one analyst was saying take profits at that time. Of course, BBY is up 15 points from its December low, WMT is up $9 (17%), etc. Now BBY did pull back to the 50 day MVA and we closed out our play that was riding the run up the 18 day MVA when it suffered a big day of selling volume. That was normal action; as we discuss in the seminars, stocks run up their 18 day MVA and then test to the 50 day MVA periodically. If you are playing the 18 day MVA trend, you want to lock in your gains on the change in character. That does not mean the run is over, and that was the case for BBY.
Many stocks in many sectors as noted above have set up good patterns and have undergone some consolidation of gains the past two weeks. Many analysts see these patterns where the stocks have corrected, rallied, and are consolidating before trying a new high or break of significant resistance. They say ‘getting too expensive’ or ‘the move has been made.’ What we see are stocks that are under accumulation by some big money and are shaking out the last sellers. Maybe they won’t double in price on the breakout, but with the strong economic data that continues to build in strength with respect to manufacturing, for now it looks as if they can still move up. As always we have to keep targets in mind and watch for topping signs.
One problem is there is a real buy and hold mentality still. Most analysts say you cannot time the market. How quickly they have forgotten that those who held on were the ones that were utterly torched in the bear market. A lot of those stocks are cooked; they are done. They won’t be coming back. Holding them was disaster. What is happening now is a recovery market. Early leaders in cyclical stocks have been doing well, but eventually they will run their course; in that respect the analysts are right. That is a normal economic recovery cycle. At some point growth stocks (and that does not necessarily mean tech as some would have you believe) will start to take over the market and make the really dramatic runs. If you buy cyclicals with the expectation to hold them for 5 years, you may be disappointed in the last 3 to 4 years of action.
Right now the economy is recovering, and the market is trying to do the same. Stocks are jostling for leadership rolls right now for when the next phase comes. It might take a while to do it as the recovery looks good, but there are still a lot of questions about the strength over the next several months after the initial inventory buildup is completed. For now we stay focused on stocks setting up the patterns that show accumulation and buying into them and making a good profit and locking it in.
THE ECONOMY
Chicago PMI posts strong gain to 55.7.
This precursor to the national ISM number due out Monday was over 50 for the second straight month, showing the highest level since April 2000. New orders rose to over 62, the highest since January 2000. Unlike the consumer confidence 6 month outlook, Chicago purchasing managers were much more optimistic.
Corporate profits up.
The purchasing managers are much more optimistic than their CEO’s. Treasury Secretary O’Neill noted Wednesday that CEO’s tend to be pessimistic about economic turnarounds. He said he was the same way when with Alcoa. Maybe the corporate profit figures will help perk the CEO’s up. Sure the headline number was that corporate profits were down $50.4 billion in Q4, continuing the slide from Q3’s $34.7 billion decline. That is not the news. The news are the estimated Q1 profits. They are forecast at -$65 billion or so. That is not better. No, but it really is. Part of the stimulus package includes, effective upon signature, retroactive tax benefits. Without those tax benefits, the results would have been +$85 billion, give or take a few billion. That is huge profit growth if it turns out to be fact.
Michigan sentiment jumps to 95.7 from 95 prior and 95 expected. As with the Conference Board’s report earlier in the week, current and future expectations were solid.
Jobless claims rise again.
Jobless claims rose again, hitting the highest level in four months. New claims rose 15K to 394K, well above the 375K expected. The prior week was revised upward from 371K. Continuing claims also rose, hitting 3.53 million from 3.44 million last week, the highest level since December. This is not that unusual; the job pool is growing as people come back in trying to find work with news of the expanding economy. Those laid off are sticking with it as well. The 4-week average rose to 383,500, its third straight weekly rise. As we know, employment lags; businesses tend to think they are still fighting the recession even as orders improve. Thus the employment numbers will continue to lag, and that might have some mild adverse impact on confidence over the next few months. A positive is that temp worker demand has jumped up. These are the first rehired because the company does not have to provide benefits and can let them go no strings attached if something goes awry.
Q4 GDP rises higher than expected 1.7%.
Revised up from 1.4%, GDP hit its highest quarterly growth rate since Q1 2001. Q4 inventories continued to fall, taking 2.2% from the GDP figure. During Q1, inventories were being rebuilt, giving rise to most of the manufacturing gains we have seen. In Q4 it was the consumer doing the spending. Business is rebuilding some inventories now, and that is what is going to give a big bump to Q1 GDP: consumer spending and inventory buildup by businesses. After that, will businesses buy as well? As noted Wednesday, after the inventory rebuilding, that is the key to the recovery.
THE MARKET
We all commented tonight how the discussion of the market this past week has been almost like a broken record. Weak volume, no real buying, no real selling, unable to break resistance, etc. The difference today was that it was Thursday, and apparently techs have agreed to lead on that day of the week but have negotiated a deal to take the other days off and just hang out. As for the other indexes, Thursday is their day off. Even the mid and small cap indexes went nowhere today.
The Nasdaq is still in a downtrend from the first of the year while the Dow and S&P are still within acceptable consolidations of their prior moves, but showing very little energy the last three sessions as they moved higher (the Dow almost made it three straight Thursday). In any event, the real action starts in the coming week when everyone is back after the 3-day weekend and ready for the start of a new quarter. Not that it will be a dramatic change, but the action will have the conviction of the whole market participating. Again, many stocks are set up to move to the upside.
Put/Call Ratio (CBOE): 0.79; +0.12. It was not options expiration, so there was no need for major shuffling of option positions Thursday to account for the rise in put activity on a mostly up session. Some end of quarter action for stocks sold where no further hedge was needed explains some of it. With the somewhat higher NYSE and Nasdaq short interest, we continue to like the higher put/call ratio as a sign of continued anxiety about the success of the market. All the better.
Nasdaq
Lead the market today with a nice gain on slightly rising volume. The semiconductors were the leaders within the index. Nice though hardly an impressive move. Still in a downtrend, and we are not counting on it to do the leading as it did Thursday.
Stats: +18.60 (+1.0) to close at 1845.35.
Volume: 1.664 billion (+2.7%). Rising volume on an up session shows very slight accumulation. Still well below average, and thus we cannot take much from the day other than it continues proper price/volume action that shows no dumping and some accumulation. That sets the table for a move higher. Does not mean it has to happen, but the table is set.
Up volume: 1.099 billion (+258 million)
Down volume: 516 million (-250 million)
A/D and Hi/Lo: Advancing issues improved the lead to 1.31 to 1 (1.24 to 1 Wednesday). Nothing impressive.
New highs: 210 (+25)
New lows: 43 (+9)
The Chart: (Click to view the chart)
Gapped up over the very short term down trendline off of the March high, tapping the simple 50 day MVA (1853.71) on the high and then selling down to close just below resistance at 1850. That is just the start. The bottom of the November consolidation is at 1875, and the 200 day MVA is right behind it at 1880.92. Then the top of the November consolidation at 1941 where the index turned back at the March high. There is a lot of resistance and overhead supply still to work through. The charts of the big tech stocks show similar overhead supply. About the only big name Nasdaq stocks (the ones that make up the bulk of the index’ moves) that are in decent patterns are the chip equipment stocks. They were helping the index today on the TSM news of more capital expenditures and the index will need their continued help if it is to move up in the coming weeks when everyone is back in the game. Again, we don’t expect the Nasdaq to lead, but as we saw Friday, it has its moments.
Dow/NYSE
Unable to hold the gain Thursday, rolling over at the next resistance level and closing slightly lower. Still within the consolidation above the January high at 10,300 that it broke above in early March. When everyone gets back in the game this coming week it has to start making something happen in this month-long consolidation.
Stats: -22.97 (-0.2%) to close at 10,403.94.
NYSE Volume: 1.112 billion (-5.7%). NYSE volume slide even further below average on the mild selling, again indicating there is no ongoing share dumping.
Up volume: 661 million (-160 million)
Down volume: 437 million (+100 million).
A/D and Hi/Lo: NYSE advancing issues still led, but much weaker at 1.23 to 1 (2.04 to 1 Wednesday). Even as the Dow gave back a gain, the overall NYSE continued to improve slightly.
New highs: 196 (+2)
New lows: 33 (-17)
The Chart: (Click to view the chart)
Two modest up sessions that took back 10,400, and Thursday was looking solid as well as the Dow rallied to 10,500. That level slammed the door and the index spent the rest of the session selling off. It bounced mid-day at 10,400, but in the last hour it sold back down to finish at the low. Not bullish intraday action: retreat from resistance to finish on the low. Looking at the bigger picture, it is still holding above the January high at 10,300 that marks the left side of the cup with handle pattern it broke out of in early March. It tested that level Monday when it gave up its early March trading range. NYSE volume on the whole has remained slightly accumulative; at the least there has not been share dumping. It is at the bottom of the early March consolidation range, but the short term pattern is slightly negative. It may take a few sessions this week to give a clear direction. Overall we see nothing that indicates massive selling is on the horizon.
S&P 500:
The big caps crossed back over the 200 day MVA (1141.58) Wednesday and made a run at next resistance at 1150 Thursday (high of 1154.45), but they too gave up all of the gains before bouncing to close slightly positive. A pattern very similar to the Dow as it holds above its breakout from the small double bottom pattern formed in February (1125 support) and trying to consolidate for a move higher. If it clears 1150, it has formidable resistance at 1175 where it has hit four times starting in December. That makes for a lot of overhead supply, and the key for the index to move higher is to take 1175 with volume. On the downside, the key will be holding above 1125; a break below that level puts it at risk down to 1075. The price/volume action has been good during the drop from 1175 to 1130; as with the Dow that indicates a shakeout more than institutional dumping of shares.
Stats: +2.81 (+0.2%) to close at 1147.39.
Volume: NYSE volume was down once again, falling to 1.112 billion (-5.7%). No accumulation, no churning.
The Chart: (Click to view the chart)
THIS WEEK
The ISM (national purchasing manager’s sentiment report) comes out Monday; expectations are still for a slight drop from last month, but if the Chicago PMI proves to be the national barometer it is cracked up to be we could see the national level surpass expectations. That might truly be a piece of news that pushes some of the fund managers back form vacation to put more of that money to work. ISM services is out Wednesday and then the unemployment report Friday.
Economic reports were beating expectations, backed off a bit during the last two weeks of March, and then started surpassing expectations once again last week. Again, maybe that will spur fund managers to buy. What we can say is that the Dow and S&P have made nice breakouts and have consolidated those gains while holding the breakouts. They have dipped further than we wanted on the consolidation, but there has been no share dumping. Many stocks remain in solid patterns. As noted, even some of the semiconductor stocks are showing decent patterns and could help lead higher.
This week we will see where the volume takes stocks. We positioned ourselves in several stocks that are leading and made good moves heading into this week. The overall good price/volume action gave us the confidence to move into the positions ahead of the return of more fund managers and more definitive action. We continue to treat the market as one where we are very pleased with a 20% gain on our stock positions. Until it can clear some of that overhead supply each good move can be thrust back at us. For now we will take the gain.
Support and Resistance
Nasdaq: Closed at 1845.35.
- Resistance: 1850 held the index back Thursday on the close. Intraday, the simple 50 day MVA (1853.71) turned the tide. After that, 1875, the bottom of the November consolidation stopped the attempt before that. The 200 day MVA (1880.92) is right behind that. 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: 1800 held more or less twice late last week. Clearer support is 1775, the October high. Then the early November gap up at 1768 and 1745, where it launched from on that gap.
S&P 500: Closed at 1147.39.
- Resistance: 1150 (prior tops and bottoms) held on the close Thursday. After that is the December high (1173.62) and the January high (1176.97) will be the real key. Those points also mark 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: The 200 day MVA (1141.58) held Thursday. The simple 50 day MVA (1127.46) and then 1125 (former price consolidations and the ‘hump’ in the brief November double bottom). 1100 has acted as support as well.
Dow: Closed at 10,403.94
- Resistance: 10,400 still has not been cleared totally. 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 is possible, but not totally cleared. The January intraday high at 10,300 and the closing high at 10,259.74. Then 10,000 followed up by the 200 day MVA (9981.03).
Weekly Economic Calendar (All times Eastern). The figures are the consensus expectations, not ours.
4-1-02
- Auto Sales, March (8:30): 5.6M versus 5.6M prior.
- Truck Sales, March (8:30): 7.5M versus 7.6M prior.
- ISM Index, March (10:00): 54.3 versus 54.7 prior.
- Construction Spending, February (10:00): 0.8% versus 1.5% prior.
4-2-02
- Factory Orders, February (10:00): 0.5% versus 1.2% prior.
4-3-02
- ISM Services, March (10:00): 57.0 versus 58.7 prior.
4-4-02
- Initial Claims, 3/30 (8:30): 394K versus 394K prior
4-5-02
- Nonform payrolls, March (8:30): 23K versus 66K prior.
- Unemployment Rate, March (8:30): 5.6% versus 5.5% prior.
- Hourly earnings, March (8:30): 0.2% versus 0.1% prior.
- Average Workweek, March (8:30): 34.2 versus 34.1 prior.
- Consumer Credit, February (3:00): $8.5B versus $12.8B prior. |
