Stocks in the Spotlight / "Late Market Comment"
October --21 -- 2002
The markets ended the day higher, with more new
lows than highs on the Nasdaq for the last 79 days!
The Markets were higher on Monday, 10/21/02. We can credit the stronger markets today on bargain hunting and short covering, as investors shrug off a negative report from the government telling us the U.S. index of leading economic indicators fell 0.2 percent, compared to a drop of 0.1 percent in August. September was the fourth straight month of declines in the index. Also, news from Microsoft Corp. (MSFT) concerning comments for taking caution in the months ahead, did little to hold investors back on the day. The SPREAD (VL vs NY) closed at 506.69, up +13.71, and over the slight resistance level at 505, a near term bullish sign.
The DOW 30 (^DJI - news), opened on negative ground and spent the entire day trending higher, closing just off the highs on the day, while the Nasdaq (^IXIC - news), opened on negative ground and spent the entire day trending higher, closing just off the highs on the day.
The SPREAD (VL vs NY) closed at 506.69, up +13.71, or +2.14%, and over the 505 slight resistance level, a sign of higher ground ahead. The close on 10/9/02, at 430.39, is the new 52 week low breaking the support level of 442, set in October of 2000. Next support at the 467 level. Next resistance comes at 520.
The higher close today is 31st day out of the last 67 days with the index closing higher. The SPREAD set 8 all-time highs in March, 4 in April, and none since.
There were only 5 down days on the SPREAD in March, 13 in April, 16 in May, 14 in June, 16 in July, 11 in August, 12 in September and 7 out of 15 days in October.
The direction of the SPREAD tells us what the over-all markets are doing, with a stronger leaning to the Nasdaq than the blue chips.
The indices were higher on the day. The best performer was the ^DJU (Utilities), up +3.54%, and the worst performer was the ^RUT (Russell 2000), up +1.14%.
There were no new 52 week index highs today.
There were no a new 52 week index lows today, but Wednesday, 10/9/02, we saw new lows on the all the major indices.
No 52 week index lows expired today.
No 52 week index highs expired today.
Since July 1st there have been no new 52 week highs on any DOW 30 stock.
Dow 30 stocks removed from the three month list in May, were CAT, DD, IP, JNJ, & WMT. None were removed for April. KO, GM, MMM were removed from the list for June. MO & PG were removed from the list for July.
The 52 week DOW 30 high expired today on SBC.
The DOW 30 highs that have expired since July 1st are T, AA, BA, C, EK, XOM, GE, HPQ, JPM, MCD, MRK, MSFT, SBC, & DIS. MCD was added to the list on 8/26/02. SBC was added to the list on 9/25/02.
The Dow 30 closed higher today (8538.24), and back over the 8200 support level for day 3, a positive sign for the near term. The close Wednesday, 10/9/02, at 7286.27, is the new 52 week low. The next support level is slight at about 7700, then 7100, followed by 6600. The next resistance is at 8600.
The Dow 30 is currently off -3184.74, or -27.17% from the all time high as of today. One definition of bear market territory is when the stock, or index, is off more than 20% from the 52 week high.
The Nasdaq closed higher today and remained in negative territory, for the year, for 189 consecutive trading days. This means the Nasdaq has closed in positive territory only 11 of the first 200 trading days of 2002. Closing at 1309.67, is off -640.75, or -32.85% from the closing price of 1950.42 on December 31, 2001. The Nasdaq stayed on negative ground for the last 85 trading days of 2000 and the last 214 trading days of 2001.
The Nasdaq (1309.67) is off -3738.95 , or -74.06% from the all time high (5048.62) as of today. The index is back over the under the 1300 level, after closing under it for the last 26 days. Next resistance is 1400. The close Wednesday, 10/9/02, at 1114.11, is the new 52 week low.
The DJT (Transports) was the only index higher than the end of the 2001 year, but returned to negative ground again on 7/08/02, making all the indices lower than the end of last year.
The DJI (Industrials), DJT (Transportation), XMI (AMEX Major Market), VL (Value Line) and the SPREAD are the only indices higher than the close on 9/21, the end of the first full week of trading after the Attack on America. The DJT & XMI returned to positive ground on 10/17/02. The VL returned to positive territory today, 10/21/02.
ADVANCES/DECLINES
We saw weaker volume on the NY and the Nasdaq today, with the NY over the billion share mark for day 25, after 1 day under it and under the 2 billion mark for day 7, after 1 day over it. The Nasdaq is under the two billion share mark for day 4, after 1 day over it, after 56 days under it. This means the Nasdaq has been over two billion shares only 48 days out of the last 250 trading days.
There have been only two days of the year where the Bulletin Board had more highs than lows, but returned to more lows again for day 144 The NY had more new lows today for day 17, after highs for 1 day, after lows for 10 days. Recently we saw 27 straight days of more lows and before that 79 trading days of more highs. The Nasdaq finished with more lows today for day 79, after highs for 1 day, after more lows for 8 days. The AMEX came in with more lows today for day 37, after highs for 1 day.
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Worth Mentioning Today
The Conference Board (news), a private research firm, said its U.S. index of leading economic indicators (news) fell for a fourth straight month in September, increasing the concern of a possible double dip recession for the U.S. economy.
The index fell 0.2 percent compared to a drop of a revised 0.1 percent in August. Estimates were calling for a drop of only 0.1 percent. The August decline was revised to 0.1 percent from an earlier reported 0.2 percent.
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Market Comment
The markets started the day lower but turned up early and never looked back. Even negative news concerning a "fourth month in a row" fall in the U.S. leading economic indicators was cast aside as investors grabbed bargains and shorts covered.
The strong market on Friday, and today's strong market, were both on negative news. This is a strong sign for the markets to continue higher for the near term. When investors move against logic it is best to step out of the way.
The thing to remember about rallies on negatives is to not chase a stock. If we missed one of our favorites we just have to look at other ones and decide if we should still move in. Usually, once the markets have climbed this far, so fast, it might be best to wait for the selling to come back in.
So far about 50 percent of corporations reporting for the quarter are coming in over estimates, a positive sign for the near term. This good news is providing the fuel for the rally, but it is not strong enough to overpower the steady dropping in consumer confidence, the continued falling in production and output by factories, mines and utilities and the continuing poor unemployment picture.
There has to be more to a rally than beating estimates. Beating estimates are one thing, but when we look at how the average corporation is doing, compared to last year, we may find news that doesn't have as much shine to it.
The constant threat of a possible war is another strong factor in predicting the future of the market and without knowing if we go to war, or not, the future can not be predicted accurately.
The better bet is still to stick with the individual bargain and not worry about the direction of the near term market. If we enter our favorite stock at the right price it will be much easier to ride the bumps.
The close today on the DOW 30 (8538.24) is getting near the 8600 resistance level, and the Nasdaq (1309.67) closed over the 1300 level, both are positive signs for the near term. We will need to see the move over the 9000 level and the Nasdaq will have to keep climbing to the 1400 level, or the action so far will not count.
A "best guess" is there is still room for the rally to continue, but it is climbing on all the wrong reasons and will turn fast when the time comes. Do not chase anything in this current rally. Use PUTS to lock in profits.
Stay with the lower priced stock for the time being. Smaller stocks are able to move a big percentage quite fast. If in the correct stock money can be made fast. Also, a small growing company, that has fallen too far on mostly good news, may become a real big winner if held a few years. The pickings are many but all require homework.
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Even in the worst of bear markets we can find big winners. We could easily see a decent rally in a given stock anytime with no guarantee that it will fall back the next time the markets do. This is because many stocks get beaten down much further than they should have in the first place. Stick with individual stocks and avoid industries.
No matter what type of investor we are, in this current market we need to buy near the lower end of the range. If we do this we are able to take advantage of the short term moves, or set back and wait for the long term without too much worry.
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If we take a look at the DOW 30 discount chart it shows that the DOW 30 peaked over 2 months ago and fell to a new maximum discount to the high yesterday, 10/9/02. This table shows the overvalued markets when it trades near the higher end of the range and undervalued when it approaches the lower part of the range. Does the new low discount mean the markets will climb for awhile???
You can view the chart by visiting the following link. http:/www.thespotlite.net/dow30gph.htm. Close the window when you are finished and this page will still be here.
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Look for increasing revenue as one of the more important items to follow. Increasing revenues tell us the company's products are selling, while falling revenue is telling us the they are not.
Buy low, sell high! Remember, it matters little what the market is doing if we are in the right stocks at the right time.
Trading ranges are important, so if the company has a trading range, and nothing drastic has happened at the company, it will very possibly stay in the range. Buy near the low end and sell near the high end.
We still want to use caution and do not chase any stock. There is no reason to expect the markets to run away, so favorite bargains, that have already moved up, have an opportunity to become bargains again. Use patience, waiting for the best entry value.
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One of the main reasons to enter the markets at this point
would have to do with the long term capital gain strategy
We need to hold a stock for at least one year in order to achieve long term capital gain status. Knowing this, if we can find the right bargain now, and buy it, our one year holding period will get here sooner rather than later.
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Stocks worth a "closer look"
Some of my choices for this current market. Borland Software, BORL closed at $10.54. "Hold" here with best entry when under $7. 3COM Corp. COMS, closed at $4.01, with entry okay under 4 1/4, but if the markets return to selling we could see a great entry level at 3 3/4. Dell Computer DELL, closed at $28.85. Entry OK when under $23 with best entry is under $20. Hold the the $27.50 PUT. EnXnet, Inc. (EXNT), closed at $0.51. Any news should make this one jump. Entry here might be the the thing to do. Fonar Corp. (FONR), closed at $1.09. Entry here OK for the long or short term investor, but the chance of lower ground still looks possible. FONR can easily bounced up to 1 3/4 if the markets continue to climb, but it could also fall to under $0.80 if the markets return to selling too soon. Intel Corp. (INTC), closed at $15.45, one of our favorite long term "buy and hold" stocks. Entry when under $14 might be the thing to do. Interland Inc. (INLD) (formally Micron Electronics (MUEI), closing at $1.51. Hold here with best entry when under $1.10. Novell, Inc. NOVL, closed at $2.44. Entry on anything under $2 should work just fine. Book value is about $3.65. Sharper Image (SHRP), closing at $21.21, in on anything under $10. Universal Compression Holdings, Inc. (UCO), closed at $17.73, entry here, while under book value. Zila, Inc. (ZILA), closing at $1.17. Long termers should hold here, while short termers should already be out. Entry best on anything under $0.80
If we choose the right stocks it won't make any
difference what the markets do over the near term.
Continue to keep holding the PUTS to protect the downside on the profitable positions. Buy PUTS in this market to protect your entry level and any profits you may be lucky enough to have. Continue to shop for bargains and to remain cautious.
A "best guess" is the markets will continue higher over the near term, but the turn back down will happen quick when the time comes.
I'm J.R. Budke and this is my opinion!
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J.R. Budke has been a stock broker since 1981, an options principle since 1982 and a branch office manager since 1987. He is currently inactive as a stockbroker as of 12/31/99. J.R. writes some of the articles and opinions for the Stocks in the Spotlight, in conjunction with the editor B.G. Santos. The stories and stocks found on this site, or any "Stocks in the spotlight" written material, are the opinions of J.R. Budke or B.G. Santos unless other wise stated and are opinions only and are not to be construed as advice. You should not purchase any stocks solely on the opinions found on the "Stocks in the Spotlight's" web site or in any of it's written material. You should also be aware that options are not for everybody and carry a high degree of risk. Always consult with you broker or investment advisor before purchasing any stock.
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