da pluralidade nasce o debate!
Enviado: 5/5/2003 14:11This is Part 1 of your complimentary subscription to The Daily edited by
Chief Market Analyst Jon Johnson. Enjoy!
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* * * *
5/03/03 Investment House Daily
* * * *
Investment House Daily Subscribers:
MARKET ALERTS:
Target hit alerts issued Friday: None issued. Stocks were flying so we
let the many stocks over their targets run.
Buy alerts issued: DCLK; DSPG; VTAL; MYK; TSCO
Trailing stop alerts: COX
Stop alerts: None issued
To subscribe to the Daily alert service you can sign up at the following
link:
http://www.investmenthouse.com/alertdly.htm
SUMMARY:
- Poor employment report fails to stall high volume gain.
- Job losses, non-government GDP smack of recession.
- DJ30 breakout follows Dow transports higher, fulfilling some Dow Theory
bull market requirements.
- Subscriber Questions
Market was set to rally.
From the action Friday it appeared as if the market was set to rally
regardless of the news. A poor employment report barely budged futures,
and when stocks opened there was only a brief look to the downside before
the buying started. It started and never looked back. The stair-step
surges in the first 2.5 hours were impressive as we saw volume ramping up
well past Thursday levels earl on, particularly on Nasdaq. There was the
usual midday slump which, in this case, was just a lateral move. That was
followed by an afternoon rally that lacked the morning ballistic missile
characteristics but managed to push the indexes to close at or very near
the session highs.
Excellent volume and tremendous breadth led the way with small caps and
techs leading the way. DJ30 broke over the 8522 level, following the Dow
Transports higher. Nasdaq put plenty of cushion between it and the
January high and is knocking at the door of the December high, the high
point after breaking over the August 2002 high. At the same time the NYSE
composite broke free and clear of the August/December/January down
trendline that marked a descending triangle; the accumulation leading up
to the move made that iffy resistance, and the strong volume on the break
simply reiterated the buyside pressure that had built up from below.
Shorts start to cover recent positions as indexes clear stubborn
resistance.
Success breeds more success, but it also raises the bar as the indexes
then have to deal with the next resistance level in the downtrend. What
do we mean? Breaking over resistance in DJ30, Nasdaq, and the NYSE
Composite caused some shorts to cover. Remember we have said that short
interest was rising even as the market rose. More and more were betting
against the market. The put/call ratio was 0.85 just Thursday, well into
the rally. Once the indexes start breaking resistance, shorts start to
cover, and that adds to the upside pressure in addition to the actual
buying for the longer term.
On the other hand, now Nasdaq is right below the December high, a point
many have an eye on as the apex of the rally. Then DJ30 and SP500 still
have to deal with their January, December and August highs because they
have lagged all along. It is a struggle, but the market keeps telling us
it is under accumulation.
Enjoying the benefits of listening to the market.
Each of you is to be congratulated. Most investors have followed an
almost scripted path. They jumped into the market as it was peaking in
the October 1999 to March 2000 race to the top, rode it down to oblivion,
and finally gave up between the September 2001 lows to the October 2002
lows. Even as the market flashed another reversal and confirmation off
the October low with leaders starting to jump higher, they stayed away.
Even after the recent Nasdaq double bottom breakout and run that kept the
rally not only alive but prosperous, they still stayed away. By listening
to their guts instead of the market, they have missed out on some huge
gains (several option plays have yielded gains in excess of 100% already)
that are enjoyed when the market first starts that rebound.
You did not follow that herd. You made your own path. You watched the
signposts in the market and reacted accordingly. You were in when most
were still talking about how foolish the stock market 'game' is, how it
has worse odds than a Saturday night Tijuana dice game. You rode the
bull, tricked the bear at its own game, and are willing to see if this
young bull has more than just wobbly legs. All the while you are banking
money, adding to those accounts that others only wistfully remember
having.
Many bears claim this is a bear market rally. It may be. After all
Barron's this weekend will scream 'The Bull is Back!' As we have said,
you don't know what the market is really doing in the long run until you
look back and say 'yep, that was the bottom.' What you do is move in when
the market says buy and ride it like a bronco rider on Sunday afternoon
trying to make enough money to cover the entry fee for next week's rodeo.
Even if this is a bear market rally, we have a number of stocks soaring
past their original targets, and we are riding them like that cowpoke.
While the bears short the market because they believe or feel it is going
to roll over, we have followed the market cues and just take what it is
giving us. It may roll over, but we will have moved up our stops on our
gains already and bank a big profit even if it does. And you know what?
If it does we will grab it by the neck and kick it all the way down.
THE ECONOMY
Jobs report indicative of recession levels.
April unemployment rose to 6% while non-farm payrolls fell a less than
expected 48K (-58K expected). The market took it in stride and we will
discuss that in a minute. What is striking is that over the past three
months the economy has lost over 500K non-farm jobs. That is a
traditional recessionary level. Worse, the average workweek fell to 34.0
from 34.3. The weekly jobs numbers are telling us layoffs continue and the
monthly jobs reports are telling us that companies are using those left at
work less. That is not indicative of any improvement in business, though
it is looking in the rearview mirror.
Jobs are lagging, but let's look at some other indications. GDP has been
growing the past three quarters between 1.5% and 3%. Not great but not a
recession by textbook definitions. The government side of the equation
dominates GDP, however, and that does do not grow an economy long term.
The government taking dollars from the economy via taxes slows the economy
because that money is not there for investment where it is needed. When
the government spends those dollars some of that goes back into the
economy, but even the socialists know it is not even close to a dollar for
dollar exchange. Thus government spending is not really a good thing to
see, particularly in terms of growing an economy.
Take out the government spending and you have private GDP growing by just
0.7% if that much. There is no way that is going to sustain businesses.
It takes 3% GDP growth before jobs are created. It is not close at this
point.
Recession as the market bottoms?
We talked about this in February when oil prices were spiking. We noted
that oil prices had risen enough over the prior 12 months to cause a
recession. Add to that the war slowdown and the already pathetic private
GDP growth, and we could see the economic picture actually worsen this
quarter to negative levels. When we were doing a story for Bottom Line
Personal in February we told the reporter there that energy prices had hit
a point where a recession was quite likely, or at least a quarter of
negative growth. If we were wrong we agreed to fly to New York and enjoy
a big steak dinner with the reporter. Thus far we don't see any
significant change in the economic picture to change that. Energy prices
have improved, but the damage may have been done. There has been renewed
optimism after the war, but business sentiment has not improved. It could
get worse before it gets better.
Is that horrible? Depends upon what you are looking at. Bush won't like
it, but he already knows there is trouble because he has some pretty good
advisors who see the same things. That is why they want fundamental
changes in the tax structure to remove impediments to capital investment.
Others that don't see the light or understand economic cause and effect
fret over $200B over 10 years (the difference between the House and Senate
tax bill versions) when they are going to spend $27 trillion in tax
revenues taken in during that same 10 year period. Talk about money
grubbing at its finest. They have $27T expected to spend and they want
that other $200B and are willing to further stomp on the economy to do it.
From an investor's perspective, it may not be that bad. We have discussed
the 1991 scenario before. The US had a quick Iraq war, but the economy
was in trouble. Consumers stopped buying while watching the war, and that
only exacerbated the slowdown. As it became clear the war was going to
actually occur, the market shot higher, ending its downtrend. The economy
continued down and did not have a recession until after the market
bottomed.
The market looks ahead always. It looked ahead in early 2000 and rolled
over even when economists were still slathering kisses all over
Greenspan's ring, overusing the descriptive phrase 'white hot economy' as
much as sports commentators overuse the term 'superstar.' Just as in
1991, once it became clear the U.S. was going to war, the market started
to rally and it has continued to do so even as economic news continues to
slide. Thus as an investor, the current decline in economic numbers is
not necessarily the harbinger of bad market tidings. Eventually the
economic numbers will have to turn to support the advance and future
advances, but the market always leads the move. Unlike those saying 6 to
9 months back that 'this time' the market was going to wait for the
economic news to improve before rallying, the market has behaved as it
typically does.
THE MARKET
Stocks did not wait for next week to make the move higher and break the
indexes out of their newly formed handles. Shaking off bad news is a
hallmark of a strong market and also another indication that the market
looks down the road past the current economic climate when determining
stock prices. In any event stocks rallied on a strong volume surge,
particularly in Nasdaq, with DJ30 breaking resistance and small caps
actually leading higher. As we have stated, it is a good sign to see
small caps start moving higher with authority as they tend to outperform
when economic recovery is nearing.
DJ30 makes an important move.
The DJ30 breakout over 8522 was a technical move of significance. It is
still off the January, December and August highs, but it finally broke
over near resistance in its triangle. That has two effects. First, it
causes shorts to cover positions and adds fuel to the upside along with
the institutional buying. Second, it follows the DJ20 (Dow Transports)
higher, making a new high over a prior high, the first time it has done so
in this current leg to the downtrend that started when the August 2002
high failed. Dow Theory in general says the industrials (DJ30) and
transports (DJ20) need to confirm each other. The transports have already
made a higher high, and Friday it broke to a new high for the year. The
Dow's move over the 8522 high helps confirm that move to a certain extent.
When DJ30 can make a new high for the year and hold, the future for Dow
stocks looks better.
The neat thing is, DJ30 is lagging. Nasdaq has made a new high for the
year, the SP600 (small caps) made a new high for the year, and the SP500
is just a stones throw. And in those indexes, the leaders are well beyond
new highs for the year, most at new multi-year highs. That is another
reason why we always scoffed somewhat at the idea that stocks are in a
bear market until they reach the prior highs. By watching what the market
is showing, you can make some hefty percentage gains as stocks breakout
and run higher. The leaders always enjoy strong percentage moves versus
the indexes. Once again that is happening right now.
Leaders shoot higher again.
Leadership is the key. Friday the leaders were out in force along with
most other stocks (3:1 breadth will do that). Volume moves were the norm.
Isn't it nice to be sitting in some of these stocks for a few days, weeks
or even months, enjoying nice gains already, and then seeing them shoot
higher as new waves of investors finally join the market? Again, that is
the benefit of paying attention to the market cues. Friday there were
breakouts from individual stocks, breakouts on the indexes, and continued
strong advances from the leadership.
Where is the top?
All along we have said that Nasdaq 1522 looked like a point where the
market would need a longer rest. For awhile last week it looked as if it
might not get that far. Friday we heard many commentators talking about
that December high as well or talking about the end of May being a point
where they would take gains. That is okay; you need to look ahead and see
the lay of the land. We have been doing the same simply because if you
work through the various scenarios and possibilities you are ready and
know how to act when they are presented. In short, you don't sit there
and scratch your head wondering what is up because you already know what
the market is showing you accumulation and leader-wise, you know where the
resistance points are, and you know how you will react when the scenarios
start to play out.
We will watch how the market reacts to those levels. Sellers will try
their hand there as the did recently at Nasdaq January highs and DJ30
March highs. Another consolidation after a move up to or above the
December Nasdaq highs as a result would not be out of question. This
breakout from the handles on Nasdaq and SP500 could easily propel the
indexes higher near term before that consolidation starts. The key will,
as always, be how the leaders react and whether the big money starts to
exit.
Market Sentiment
VIX: 23.61; -0.89
VXN: 32.36; -0.13
Put/Call Ratio (CBOE): 0.72; -0.13. The ratio remains high even as the
market rallies. Ralph Bloch stated today that the put/call ratio he
tracks hit its highest point since August 2001. This is a contrary
indicator, but as we noted Thursday night, the sentiment indicators are
mixed, and as secondary indicators they take a back seat to
accumulation/distribution and leadership.
Nasdaq
Nasdaq broke to a new closing high since the October bottom, moving on a
strong volume breakout and just missing its December intraday high.
Stats: +30.32 points (+2.06%) to close at 1502.88
Volume: 1.843B (+25.95%). Strongest volume since the March high as
Nasdaq blasted off the low and rallied sharply.
Up Volume: 1.586B (+597M)
Down Volume: 243M (-204M)
A/D and Hi/Lo: Advancers led 2.51 to 1. Excellent breadth. Downside
breadth never expanded during the consolidation, showing a market more
intent on maintaining its gains.
Previous Session: Advancers led 1.19 to 1
New Highs: 209 (+55)
New Lows: 16 (-5)
The Chart: http://www.investmenthouse.com/cd/$compq.html
Nasdaq was nudged from the top spot by the SP600, but it still put on a
show. It put some mileage between it and the January high (1467), cleared
the December closing high (1484.78), and has its sights set on the
December intraday high at 1522. The move broke it out of the handle to
the cup that had formed in 2003, and the high volume move has the
potential to carry the index past 1522 before it starts to consolidate the
move. This December high is the focus of many, and it is also the point
where the May 2001/January 2002 down trendline now tracks (roughly 1510).
Hate to say it, but another key point for Nasdaq. It continues to show
good accumulation and the breakout was strong. Sellers will take a run at
it; many of the buyers have said in the past that they would look to take
some gains at this level. The accumulation has been strong and the
leaders as well. Once again, however, it is the old 'what have you done
lately for me' time.
S&P 500/NYSE
Broke out of its cup with handle on strong though now blowout volume.
Edging close to that January high.
Stats: +13.78 points (+1.5%) to close at 930.08
NYSE Volume: 1.542B (+11.9%). Solid increase in above average volume
though not as strong as it has been recently.
Up Volume: 1.284B (+633M)
Down Volume: 237M (-492M)
A/D and Hi/Lo: Advancers led 3.36 to 1. Outstanding breadth as the small
caps are showing their muscle.
Previous Session: Advancers led 1.09 to 1
New Highs: 180 (+49)
New Lows: 4 (-6)
The Chart: http://www.investmenthouse.com/cd/$spx.html
Breakout of the cup with handle that formed this year, moving solidly over
the longer term down trendline (September 2000/March 2002) and attacking
the January high (935). This is where it all bunches up for the large
caps as there is a series of peaks with a closing high in November of
938.87. Now that high along with the January high were part of a
trendline formed in conjunction with the August 2002 high. SP500 has
broken that down trendline as well. This breakout gives the large caps
some power to take out the closing highs through December. The December
intraday high (954.28), backed up by the August 2002 high (965) are going
to be tough, however.
DJ30:
Breakout from the ascending triangle, pushing over the March high at 8522.
This finally puts this resistance to bed from the look of it, and now the
blue chips have a path to the November (8800), January (8870), and
December (8931 closing, 9043 intraday) highs. As DJ30 has lagged, it may
not make it that high before the overall market starts its next
consolidation, but this move in conjunction with the DJ20 (transports)
hitting a new high for the year is much needed for the overall foundation
of the rally.
Stats: +128.43 points (+1.52%) to close at 8582.68
Volume: 1.542B (+11.9%)
The Chart: http://www.investmenthouse.com/cd/$indu.html
THIS WEEK
The big action this week is the FOMC meeting on Tuesday. It is a one-day
meeting, and while the Fed Funds Futures contract is showing a decent
chance of a 25 basis point cut, we would be surprised if the Fed cut rates
with the war victory wave and the market looking better. This is
particularly true with the Fed's moves in the bond market where it is
still buying bonds to keep rates from climbing. That does not mean the
failure to cut is the right move; the economy needs easy money. It has
not had easy money even when the Fed was lowering rates because the Fed
was still restricting many banks and the loans they could make. Thus some
banks could not lend to small businesses and others might have wanted to
but they were afraid to do so given the Fed looking hard over their
shoulder and the lackluster business climate. Money, money everywhere but
none of it fit to lend. That seriously impaired any economic recovery
attempt, and the effects are still lingering
Thus without any rate change from the Fed what can be expected? A strong
Friday often leads to a weaker Monday. The breakout could be tested,
sellers could try to jump on the move immediately before Nasdaq actually
makes it to the December high. We really expect the sellers to make a run
at the market again given the significant resistance ahead as well as the
recent uptick in short interest once more. Many are betting the market
cannot make it higher, and when they start to sell the market feels it
regardless of whether the sellers are ultimately successful. That is what
causes that choppy action when the indexes hit resistance and bounce
around; the buyers and the sellers are at work with no clear advantage to
either. As long as the selling volume does not start putting together a
string or series of higher volume downside days, consolidations are a good
way to get rid of the excess supply in the market after a run drives
prices higher.
End Part 1 of 2
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Begin part 2 of 2
That leaves the question of whether we continue to buy into the move at
this point or sit back with many good positions. We have several accounts
holding different positions in many stocks, but not too many stocks in any
particular account. That makes it easier to manage more stocks. Do we
add or not? The market answers that question. Friday the market showed a
strong move once again. Many stocks are well into their runs, but the
market also moves in waves. There are stocks still just emerging from
good patterns as money moves to new areas of the market. While the market
has moved well and is approaching yet again important resistance, we still
react to the moves the market is showing. While we may suspect some
resistance at the Nasdaq December high, given the solid price/volume
action, accumulation, and leadership, no one can say the move will run
into a dead end there. We definitely do not want to chase extended stocks
that will easily fall back in some selling attempts; those are a recipe
for trouble on any strong move regardless of where next resistance is.
Instead we focus on leaders that have pulled back (there were a handful
that were moving higher ahead of the rest of the market that are making a
pullback still) and those next wave stocks that are just now completing
their bases.
Support and Resistance
Nasdaq: Closed at 1502.88
Resistance: The August 2001/January 2002 down trendline (1510). The
December intraday high (1522). 1575, May 2002 closing lows.
Support: The January high (1467). The 10 day MVA at 1458. The 18 day
MVA (1438). The March and August highs (1426 and 1427). 1400 is some
price support. The exponential 50 day MVA (1397).
S&P 500: Closed at 930.08
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 (912). March and April highs (896 and 905).
The 50 day MVA (881) 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 8582.68
Resistance: November and January highs (8800, 8870). December high
(9044).
Support: 8522 and 8520, the March and April twin peaks. The 10 day MVA
(8453). The 18 day MVA (8392). 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): 50.0 expected, 47.9 March.
5-6-03
FOMC meeting results (2:15)
5-7-03
Wholesale inventories, March (10:00): 0.1% expected, 0.3% February.
Consumer Credit, March (3:00): $4B expected, $1.5B February.
5-8-03
Initial jobless claims (8:30): 440K expected, 448K prior.
FOMC prior meeting minutes (2:00)
SUBSCRIBER QUESTIONS
Q: Like everyone else I am worried about a correction in the near future.
My
latest source of concern is the Nasdaq Composite Bullish Percent Index
($bpcompq). The reading has reached 50 which is said to be a sell
indicator
and in fact it seldom moves very far over 50. Should this be considered a
caution going forward?
A: Yes the sentiment indicators are starting to show more bullishness,
and that is a concern. We keep an eye on the bulls/bears readings. They
are still within our limits for trouble (55% on the bulls, 20% on the
bears). Why are these a concern? Well, if everyone is bullish then there
is no more fresh money to come into the market. The ammunition is gone.
Tonight on Kudlow and Cramer it was a bull fest. Barron's headlines are
screaming the bull is back. Things are getting heated and that keeps us
watching the actual price/volume indications and the leadership even more
closely. They will tell when a problem develops. Think of them as those
signs on the road that warn 'bridge may ice in cold weather.' It may
happen if it gets cold enough. You proceed with caution, and if you see
ice, you take appropriate action. The sentiment indicators are getting
closer to a point where we will need to be very careful.
Another thing to consider. Most retail investors are still sitting out.
Moreover, there is still a few trillion dollars sitting in money market
accounts with the owners still having too fresh of memories of plunging
stock prices to risk putting it back to work. That is fuel. If the
market continues to move, more and more of that will be put into the
market, and fund managers will have to put it to work. That is one
difference between bull runs that are long in the tooth versus baby bulls
(calves?) just starting out. Many feel it is still too risky to be in the
market right after that run (commercials still play this up), and that is
a lot of wood lying around the campground to put in the camp fire.
by www.investmenthouse.com
xi
OSanto
ps:"eu nunca tenho certezas...so duvidas saudaveis a espera se serem esclarecidas"
Chief Market Analyst Jon Johnson. Enjoy!
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* * * *
5/03/03 Investment House Daily
* * * *
Investment House Daily Subscribers:
MARKET ALERTS:
Target hit alerts issued Friday: None issued. Stocks were flying so we
let the many stocks over their targets run.
Buy alerts issued: DCLK; DSPG; VTAL; MYK; TSCO
Trailing stop alerts: COX
Stop alerts: None issued
To subscribe to the Daily alert service you can sign up at the following
link:
http://www.investmenthouse.com/alertdly.htm
SUMMARY:
- Poor employment report fails to stall high volume gain.
- Job losses, non-government GDP smack of recession.
- DJ30 breakout follows Dow transports higher, fulfilling some Dow Theory
bull market requirements.
- Subscriber Questions
Market was set to rally.
From the action Friday it appeared as if the market was set to rally
regardless of the news. A poor employment report barely budged futures,
and when stocks opened there was only a brief look to the downside before
the buying started. It started and never looked back. The stair-step
surges in the first 2.5 hours were impressive as we saw volume ramping up
well past Thursday levels earl on, particularly on Nasdaq. There was the
usual midday slump which, in this case, was just a lateral move. That was
followed by an afternoon rally that lacked the morning ballistic missile
characteristics but managed to push the indexes to close at or very near
the session highs.
Excellent volume and tremendous breadth led the way with small caps and
techs leading the way. DJ30 broke over the 8522 level, following the Dow
Transports higher. Nasdaq put plenty of cushion between it and the
January high and is knocking at the door of the December high, the high
point after breaking over the August 2002 high. At the same time the NYSE
composite broke free and clear of the August/December/January down
trendline that marked a descending triangle; the accumulation leading up
to the move made that iffy resistance, and the strong volume on the break
simply reiterated the buyside pressure that had built up from below.
Shorts start to cover recent positions as indexes clear stubborn
resistance.
Success breeds more success, but it also raises the bar as the indexes
then have to deal with the next resistance level in the downtrend. What
do we mean? Breaking over resistance in DJ30, Nasdaq, and the NYSE
Composite caused some shorts to cover. Remember we have said that short
interest was rising even as the market rose. More and more were betting
against the market. The put/call ratio was 0.85 just Thursday, well into
the rally. Once the indexes start breaking resistance, shorts start to
cover, and that adds to the upside pressure in addition to the actual
buying for the longer term.
On the other hand, now Nasdaq is right below the December high, a point
many have an eye on as the apex of the rally. Then DJ30 and SP500 still
have to deal with their January, December and August highs because they
have lagged all along. It is a struggle, but the market keeps telling us
it is under accumulation.
Enjoying the benefits of listening to the market.
Each of you is to be congratulated. Most investors have followed an
almost scripted path. They jumped into the market as it was peaking in
the October 1999 to March 2000 race to the top, rode it down to oblivion,
and finally gave up between the September 2001 lows to the October 2002
lows. Even as the market flashed another reversal and confirmation off
the October low with leaders starting to jump higher, they stayed away.
Even after the recent Nasdaq double bottom breakout and run that kept the
rally not only alive but prosperous, they still stayed away. By listening
to their guts instead of the market, they have missed out on some huge
gains (several option plays have yielded gains in excess of 100% already)
that are enjoyed when the market first starts that rebound.
You did not follow that herd. You made your own path. You watched the
signposts in the market and reacted accordingly. You were in when most
were still talking about how foolish the stock market 'game' is, how it
has worse odds than a Saturday night Tijuana dice game. You rode the
bull, tricked the bear at its own game, and are willing to see if this
young bull has more than just wobbly legs. All the while you are banking
money, adding to those accounts that others only wistfully remember
having.
Many bears claim this is a bear market rally. It may be. After all
Barron's this weekend will scream 'The Bull is Back!' As we have said,
you don't know what the market is really doing in the long run until you
look back and say 'yep, that was the bottom.' What you do is move in when
the market says buy and ride it like a bronco rider on Sunday afternoon
trying to make enough money to cover the entry fee for next week's rodeo.
Even if this is a bear market rally, we have a number of stocks soaring
past their original targets, and we are riding them like that cowpoke.
While the bears short the market because they believe or feel it is going
to roll over, we have followed the market cues and just take what it is
giving us. It may roll over, but we will have moved up our stops on our
gains already and bank a big profit even if it does. And you know what?
If it does we will grab it by the neck and kick it all the way down.
THE ECONOMY
Jobs report indicative of recession levels.
April unemployment rose to 6% while non-farm payrolls fell a less than
expected 48K (-58K expected). The market took it in stride and we will
discuss that in a minute. What is striking is that over the past three
months the economy has lost over 500K non-farm jobs. That is a
traditional recessionary level. Worse, the average workweek fell to 34.0
from 34.3. The weekly jobs numbers are telling us layoffs continue and the
monthly jobs reports are telling us that companies are using those left at
work less. That is not indicative of any improvement in business, though
it is looking in the rearview mirror.
Jobs are lagging, but let's look at some other indications. GDP has been
growing the past three quarters between 1.5% and 3%. Not great but not a
recession by textbook definitions. The government side of the equation
dominates GDP, however, and that does do not grow an economy long term.
The government taking dollars from the economy via taxes slows the economy
because that money is not there for investment where it is needed. When
the government spends those dollars some of that goes back into the
economy, but even the socialists know it is not even close to a dollar for
dollar exchange. Thus government spending is not really a good thing to
see, particularly in terms of growing an economy.
Take out the government spending and you have private GDP growing by just
0.7% if that much. There is no way that is going to sustain businesses.
It takes 3% GDP growth before jobs are created. It is not close at this
point.
Recession as the market bottoms?
We talked about this in February when oil prices were spiking. We noted
that oil prices had risen enough over the prior 12 months to cause a
recession. Add to that the war slowdown and the already pathetic private
GDP growth, and we could see the economic picture actually worsen this
quarter to negative levels. When we were doing a story for Bottom Line
Personal in February we told the reporter there that energy prices had hit
a point where a recession was quite likely, or at least a quarter of
negative growth. If we were wrong we agreed to fly to New York and enjoy
a big steak dinner with the reporter. Thus far we don't see any
significant change in the economic picture to change that. Energy prices
have improved, but the damage may have been done. There has been renewed
optimism after the war, but business sentiment has not improved. It could
get worse before it gets better.
Is that horrible? Depends upon what you are looking at. Bush won't like
it, but he already knows there is trouble because he has some pretty good
advisors who see the same things. That is why they want fundamental
changes in the tax structure to remove impediments to capital investment.
Others that don't see the light or understand economic cause and effect
fret over $200B over 10 years (the difference between the House and Senate
tax bill versions) when they are going to spend $27 trillion in tax
revenues taken in during that same 10 year period. Talk about money
grubbing at its finest. They have $27T expected to spend and they want
that other $200B and are willing to further stomp on the economy to do it.
From an investor's perspective, it may not be that bad. We have discussed
the 1991 scenario before. The US had a quick Iraq war, but the economy
was in trouble. Consumers stopped buying while watching the war, and that
only exacerbated the slowdown. As it became clear the war was going to
actually occur, the market shot higher, ending its downtrend. The economy
continued down and did not have a recession until after the market
bottomed.
The market looks ahead always. It looked ahead in early 2000 and rolled
over even when economists were still slathering kisses all over
Greenspan's ring, overusing the descriptive phrase 'white hot economy' as
much as sports commentators overuse the term 'superstar.' Just as in
1991, once it became clear the U.S. was going to war, the market started
to rally and it has continued to do so even as economic news continues to
slide. Thus as an investor, the current decline in economic numbers is
not necessarily the harbinger of bad market tidings. Eventually the
economic numbers will have to turn to support the advance and future
advances, but the market always leads the move. Unlike those saying 6 to
9 months back that 'this time' the market was going to wait for the
economic news to improve before rallying, the market has behaved as it
typically does.
THE MARKET
Stocks did not wait for next week to make the move higher and break the
indexes out of their newly formed handles. Shaking off bad news is a
hallmark of a strong market and also another indication that the market
looks down the road past the current economic climate when determining
stock prices. In any event stocks rallied on a strong volume surge,
particularly in Nasdaq, with DJ30 breaking resistance and small caps
actually leading higher. As we have stated, it is a good sign to see
small caps start moving higher with authority as they tend to outperform
when economic recovery is nearing.
DJ30 makes an important move.
The DJ30 breakout over 8522 was a technical move of significance. It is
still off the January, December and August highs, but it finally broke
over near resistance in its triangle. That has two effects. First, it
causes shorts to cover positions and adds fuel to the upside along with
the institutional buying. Second, it follows the DJ20 (Dow Transports)
higher, making a new high over a prior high, the first time it has done so
in this current leg to the downtrend that started when the August 2002
high failed. Dow Theory in general says the industrials (DJ30) and
transports (DJ20) need to confirm each other. The transports have already
made a higher high, and Friday it broke to a new high for the year. The
Dow's move over the 8522 high helps confirm that move to a certain extent.
When DJ30 can make a new high for the year and hold, the future for Dow
stocks looks better.
The neat thing is, DJ30 is lagging. Nasdaq has made a new high for the
year, the SP600 (small caps) made a new high for the year, and the SP500
is just a stones throw. And in those indexes, the leaders are well beyond
new highs for the year, most at new multi-year highs. That is another
reason why we always scoffed somewhat at the idea that stocks are in a
bear market until they reach the prior highs. By watching what the market
is showing, you can make some hefty percentage gains as stocks breakout
and run higher. The leaders always enjoy strong percentage moves versus
the indexes. Once again that is happening right now.
Leaders shoot higher again.
Leadership is the key. Friday the leaders were out in force along with
most other stocks (3:1 breadth will do that). Volume moves were the norm.
Isn't it nice to be sitting in some of these stocks for a few days, weeks
or even months, enjoying nice gains already, and then seeing them shoot
higher as new waves of investors finally join the market? Again, that is
the benefit of paying attention to the market cues. Friday there were
breakouts from individual stocks, breakouts on the indexes, and continued
strong advances from the leadership.
Where is the top?
All along we have said that Nasdaq 1522 looked like a point where the
market would need a longer rest. For awhile last week it looked as if it
might not get that far. Friday we heard many commentators talking about
that December high as well or talking about the end of May being a point
where they would take gains. That is okay; you need to look ahead and see
the lay of the land. We have been doing the same simply because if you
work through the various scenarios and possibilities you are ready and
know how to act when they are presented. In short, you don't sit there
and scratch your head wondering what is up because you already know what
the market is showing you accumulation and leader-wise, you know where the
resistance points are, and you know how you will react when the scenarios
start to play out.
We will watch how the market reacts to those levels. Sellers will try
their hand there as the did recently at Nasdaq January highs and DJ30
March highs. Another consolidation after a move up to or above the
December Nasdaq highs as a result would not be out of question. This
breakout from the handles on Nasdaq and SP500 could easily propel the
indexes higher near term before that consolidation starts. The key will,
as always, be how the leaders react and whether the big money starts to
exit.
Market Sentiment
VIX: 23.61; -0.89
VXN: 32.36; -0.13
Put/Call Ratio (CBOE): 0.72; -0.13. The ratio remains high even as the
market rallies. Ralph Bloch stated today that the put/call ratio he
tracks hit its highest point since August 2001. This is a contrary
indicator, but as we noted Thursday night, the sentiment indicators are
mixed, and as secondary indicators they take a back seat to
accumulation/distribution and leadership.
Nasdaq
Nasdaq broke to a new closing high since the October bottom, moving on a
strong volume breakout and just missing its December intraday high.
Stats: +30.32 points (+2.06%) to close at 1502.88
Volume: 1.843B (+25.95%). Strongest volume since the March high as
Nasdaq blasted off the low and rallied sharply.
Up Volume: 1.586B (+597M)
Down Volume: 243M (-204M)
A/D and Hi/Lo: Advancers led 2.51 to 1. Excellent breadth. Downside
breadth never expanded during the consolidation, showing a market more
intent on maintaining its gains.
Previous Session: Advancers led 1.19 to 1
New Highs: 209 (+55)
New Lows: 16 (-5)
The Chart: http://www.investmenthouse.com/cd/$compq.html
Nasdaq was nudged from the top spot by the SP600, but it still put on a
show. It put some mileage between it and the January high (1467), cleared
the December closing high (1484.78), and has its sights set on the
December intraday high at 1522. The move broke it out of the handle to
the cup that had formed in 2003, and the high volume move has the
potential to carry the index past 1522 before it starts to consolidate the
move. This December high is the focus of many, and it is also the point
where the May 2001/January 2002 down trendline now tracks (roughly 1510).
Hate to say it, but another key point for Nasdaq. It continues to show
good accumulation and the breakout was strong. Sellers will take a run at
it; many of the buyers have said in the past that they would look to take
some gains at this level. The accumulation has been strong and the
leaders as well. Once again, however, it is the old 'what have you done
lately for me' time.
S&P 500/NYSE
Broke out of its cup with handle on strong though now blowout volume.
Edging close to that January high.
Stats: +13.78 points (+1.5%) to close at 930.08
NYSE Volume: 1.542B (+11.9%). Solid increase in above average volume
though not as strong as it has been recently.
Up Volume: 1.284B (+633M)
Down Volume: 237M (-492M)
A/D and Hi/Lo: Advancers led 3.36 to 1. Outstanding breadth as the small
caps are showing their muscle.
Previous Session: Advancers led 1.09 to 1
New Highs: 180 (+49)
New Lows: 4 (-6)
The Chart: http://www.investmenthouse.com/cd/$spx.html
Breakout of the cup with handle that formed this year, moving solidly over
the longer term down trendline (September 2000/March 2002) and attacking
the January high (935). This is where it all bunches up for the large
caps as there is a series of peaks with a closing high in November of
938.87. Now that high along with the January high were part of a
trendline formed in conjunction with the August 2002 high. SP500 has
broken that down trendline as well. This breakout gives the large caps
some power to take out the closing highs through December. The December
intraday high (954.28), backed up by the August 2002 high (965) are going
to be tough, however.
DJ30:
Breakout from the ascending triangle, pushing over the March high at 8522.
This finally puts this resistance to bed from the look of it, and now the
blue chips have a path to the November (8800), January (8870), and
December (8931 closing, 9043 intraday) highs. As DJ30 has lagged, it may
not make it that high before the overall market starts its next
consolidation, but this move in conjunction with the DJ20 (transports)
hitting a new high for the year is much needed for the overall foundation
of the rally.
Stats: +128.43 points (+1.52%) to close at 8582.68
Volume: 1.542B (+11.9%)
The Chart: http://www.investmenthouse.com/cd/$indu.html
THIS WEEK
The big action this week is the FOMC meeting on Tuesday. It is a one-day
meeting, and while the Fed Funds Futures contract is showing a decent
chance of a 25 basis point cut, we would be surprised if the Fed cut rates
with the war victory wave and the market looking better. This is
particularly true with the Fed's moves in the bond market where it is
still buying bonds to keep rates from climbing. That does not mean the
failure to cut is the right move; the economy needs easy money. It has
not had easy money even when the Fed was lowering rates because the Fed
was still restricting many banks and the loans they could make. Thus some
banks could not lend to small businesses and others might have wanted to
but they were afraid to do so given the Fed looking hard over their
shoulder and the lackluster business climate. Money, money everywhere but
none of it fit to lend. That seriously impaired any economic recovery
attempt, and the effects are still lingering
Thus without any rate change from the Fed what can be expected? A strong
Friday often leads to a weaker Monday. The breakout could be tested,
sellers could try to jump on the move immediately before Nasdaq actually
makes it to the December high. We really expect the sellers to make a run
at the market again given the significant resistance ahead as well as the
recent uptick in short interest once more. Many are betting the market
cannot make it higher, and when they start to sell the market feels it
regardless of whether the sellers are ultimately successful. That is what
causes that choppy action when the indexes hit resistance and bounce
around; the buyers and the sellers are at work with no clear advantage to
either. As long as the selling volume does not start putting together a
string or series of higher volume downside days, consolidations are a good
way to get rid of the excess supply in the market after a run drives
prices higher.
End Part 1 of 2
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Begin part 2 of 2
That leaves the question of whether we continue to buy into the move at
this point or sit back with many good positions. We have several accounts
holding different positions in many stocks, but not too many stocks in any
particular account. That makes it easier to manage more stocks. Do we
add or not? The market answers that question. Friday the market showed a
strong move once again. Many stocks are well into their runs, but the
market also moves in waves. There are stocks still just emerging from
good patterns as money moves to new areas of the market. While the market
has moved well and is approaching yet again important resistance, we still
react to the moves the market is showing. While we may suspect some
resistance at the Nasdaq December high, given the solid price/volume
action, accumulation, and leadership, no one can say the move will run
into a dead end there. We definitely do not want to chase extended stocks
that will easily fall back in some selling attempts; those are a recipe
for trouble on any strong move regardless of where next resistance is.
Instead we focus on leaders that have pulled back (there were a handful
that were moving higher ahead of the rest of the market that are making a
pullback still) and those next wave stocks that are just now completing
their bases.
Support and Resistance
Nasdaq: Closed at 1502.88
Resistance: The August 2001/January 2002 down trendline (1510). The
December intraday high (1522). 1575, May 2002 closing lows.
Support: The January high (1467). The 10 day MVA at 1458. The 18 day
MVA (1438). The March and August highs (1426 and 1427). 1400 is some
price support. The exponential 50 day MVA (1397).
S&P 500: Closed at 930.08
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 (912). March and April highs (896 and 905).
The 50 day MVA (881) 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 8582.68
Resistance: November and January highs (8800, 8870). December high
(9044).
Support: 8522 and 8520, the March and April twin peaks. The 10 day MVA
(8453). The 18 day MVA (8392). 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): 50.0 expected, 47.9 March.
5-6-03
FOMC meeting results (2:15)
5-7-03
Wholesale inventories, March (10:00): 0.1% expected, 0.3% February.
Consumer Credit, March (3:00): $4B expected, $1.5B February.
5-8-03
Initial jobless claims (8:30): 440K expected, 448K prior.
FOMC prior meeting minutes (2:00)
SUBSCRIBER QUESTIONS
Q: Like everyone else I am worried about a correction in the near future.
My
latest source of concern is the Nasdaq Composite Bullish Percent Index
($bpcompq). The reading has reached 50 which is said to be a sell
indicator
and in fact it seldom moves very far over 50. Should this be considered a
caution going forward?
A: Yes the sentiment indicators are starting to show more bullishness,
and that is a concern. We keep an eye on the bulls/bears readings. They
are still within our limits for trouble (55% on the bulls, 20% on the
bears). Why are these a concern? Well, if everyone is bullish then there
is no more fresh money to come into the market. The ammunition is gone.
Tonight on Kudlow and Cramer it was a bull fest. Barron's headlines are
screaming the bull is back. Things are getting heated and that keeps us
watching the actual price/volume indications and the leadership even more
closely. They will tell when a problem develops. Think of them as those
signs on the road that warn 'bridge may ice in cold weather.' It may
happen if it gets cold enough. You proceed with caution, and if you see
ice, you take appropriate action. The sentiment indicators are getting
closer to a point where we will need to be very careful.
Another thing to consider. Most retail investors are still sitting out.
Moreover, there is still a few trillion dollars sitting in money market
accounts with the owners still having too fresh of memories of plunging
stock prices to risk putting it back to work. That is fuel. If the
market continues to move, more and more of that will be put into the
market, and fund managers will have to put it to work. That is one
difference between bull runs that are long in the tooth versus baby bulls
(calves?) just starting out. Many feel it is still too risky to be in the
market right after that run (commercials still play this up), and that is
a lot of wood lying around the campground to put in the camp fire.
by www.investmenthouse.com
xi
OSanto
ps:"eu nunca tenho certezas...so duvidas saudaveis a espera se serem esclarecidas"