Brigitte
23.11.2000, 12:26
11/22/00 Investment House Daily
Investment House Daily Subscribers:
NOTE: Tonight's market summary is abbreviated as Jon Johnson's oldest son
was rushed to the hospital Tuesday night and remains in the hospital
today. Jon has pulled together some thoughts on today's market action,
but he is remaining with his son this evening.
TONIGHT:
- A reluctant rally gets crushed as sellers dump shares into the mid-day
rally.
- Nasdaq: how low can you go?
- No matter how cheap a stock appears, you have to put it into the overall
market context.
- Team Trades
The markets were poised for a holiday rally after Tuesday's action. The
futures were up after the close, showing some positive carryover from the
session. Then late Tuesday, the Florida Supreme Court took matters into
its own hands and the Nasdaq futures swung from up 20 to down 30. What
looked to be a rally possibility was trashed in about 42 pages of
self-justification for some pretty deep intervention into the legislative
process. But up or down, we want to be on the right side of the market;
that is our goal. Unfortunately, I was indisposed at the time and unable
to issue a follow-up report about expectations for the day.
In any event, the market tried to rally despite the ruling. Mid-day some
more election news came out that the market viewed as positive. Stocks
rallied off of their lows, and the Dow was set to turn positive. As has
always been the case with election news, however, another press conference
announced another legal challenge to the latest development, and any faint
hopes of an earlier resolution disappeared. Sellers once again used a
rally attempt as the point to dump shares. The sharp jump from the lows
turned around and plunged back to session lows. Too much uncertainty
hanging overhead from the three 'E's': election, earnings, economy.
Investors need to have the Fed cut rates and another one of the remaining
to 'E's' cleared up in order to put money to work in earnest.
Going down?
And this was not necessarily light volume. While below average, Nasdaq
volume rose to 1.887 billion shares (+7.8%) with down volume crushing up
volume 5 to 1. NYSE volume was lower, making the Dow and S&P 500 losses
more palatable, but how many times have we seen light volume carnage this
summer and fall? The Nasdaq has now undercut with authority the point
where it gapped up back in October 1999 to start the great run to 5,000.
At this point, as we noted the other night, all bets as to the bottom are
off. The Nasdaq was way over its 200 day moving average when it hit the
5000 level (about 56% above it). The Nasdaq usually corrects when it is
20% to 25% above that level. It is now 30% below the 200 day moving
average. If the market swings completely to the opposite direction on
this drop, that would put the bottom at 2174.31. We are not saying that
is the bottom, but we have heard arguments that this equal and opposite
response is a 'normal' reaction.
As the past two months have demonstrated, guessing about market bottoms is
tough. There were at least four 'reversal' days on heavy volume, but they
all failed. There was even a confirmed rally attempt, but only the Dow
has been able to hang onto a portion of those gains thus far. 2652, the
level of April and May 1999 tops looks to be a likely candidate, but what
is going to turn this market is not a top at some point in the past, but a
top that is hit in conjunction with better news on the economic and
earnings front. Right now, the closest thing we can think of along these
lines is a Fed rate cut in December. The Nasdaq is locked in a downtrend.
The S&P 500 hit a closing low for the year, and it is now heading south
along with the Nasdaq. The Dow is holding support for now, looking the
best of the group. Nonetheless, two out of three are heading south.
Time to buy?
Many are advocating that stocks are 'values' right now, and investors
should be buying stocks at bargain prices. Problem is, today's bargain is
next week's fire sale. There is nothing in the markets to indicate that
stocks have stopped dropping. Moreover, there is nothing to show the next
step, i.e., that stocks are then ready to move up. Jumping into long-term
upside positions while stocks are still falling to new lows often insures
that you are in that position long term as the stock continues to drop and
need to recover and rally just to get even. That is what leads to selling
into rallies as waves of investors attempt to 'get even' on positions that
they were supposedly holding long term. We prefer to let the market show
us it has bottomed with a rally and confirmation, and then start taking
cautious positions. In the interim, we play the trend to the downside
with puts as we have in the reports, and we take advantage of relief
rallies with short term trades of stock and options as well.
THE MARKETS
Overall market stats:
VIX: 31.21; +2.28. Volatility climbed back over 30 today with the
overall weakness, and the higher volume selling in the Nasdaq. Indeed, the
Nasdaq again hit a low for the year. A spike over 30 supports the notion
that the market is trying to mark a bottom, but just yesterday volatility
fell while the market made a new low.
Put/Call ratio: 0.83; +0.23. The put/call ratio jumped as the Nasdaq hit
another new low for the year. The rise indicates an increase in
pessimism, but we look for a reading of over 1.0 for a strong signal.
NASDAQ: The techs hit a new closing low for the year, breaking sharply
below the October 1999 gap up point that set off the rally to 5,000.
Techs were not the place to be today, and investors took the mid-day rally
as a chance to unload shares before the holiday and Friday's shortened
session. This is a familiar pattern for the index over the past several
months. Rallies are short term trading opportunities that need to be
exited when stocks or the index approaches resistance. Then the flip is
to the downside for those plays.
Stats: Down 116.11 (-4.04%) to close at 2755.34, the closing low for the
year.
Volume: Volume was up on the selling, rising to 1.887 billion shares
(+7.8%). Off of the loose doji Tuesday, the higher-volume drop and the
uncertainty in the news does not paint a picture of a good day Friday. On
top of that, the down volume crushed up volume and, as you would expect,
there was no contest between advancers and decliners.
A/D and Hi/Lo: The A/D line was down, with decliners increasing to a 2.8
to 1 lead. New highs dropped to 12 (-21) versus 614 new lows (+124).
The Chart: http://www.investmenthouse.com/ch/nasdaq.html
The Nasdaq gapped down to open and its initial surge reached Tuesday's
closing level, but the move stalled there and the stock peeled back hard.
It tried to rally on news mid-day, but the rally failed and the market
closed within a point of its low for the day. The news Tuesday night
killed any chance for the holiday rally we were looking for.
Dow/NYSE: The Dow dropped, but on lower volume as it was clinging to
support in the 10,300 to 10,350 level. This represents the lows of May and
June, and acted as support in mid-November. If the other indexes continue
to tank, the Dow will be under a lot of pressure.
Stats: Down 95.18 points (-0.91%) to close at 10,399.32.
Volume: NYSE volume dropped to 969.4 million shares (-12.75%). Down
volume beat up volume 678 million to 245 million shares to the upside.
A/D and Hi/Lo: Declining issues pulled farther out in front, 1.94 to 1.
New highs were 67 (-8) versus 142 new lows (+22).
The Chart: http://www.investmenthouse.com/ch/djia.html
The Dow dropped back down to its November low and near the lows of
May/
Investment House Daily Subscribers:
NOTE: Tonight's market summary is abbreviated as Jon Johnson's oldest son
was rushed to the hospital Tuesday night and remains in the hospital
today. Jon has pulled together some thoughts on today's market action,
but he is remaining with his son this evening.
TONIGHT:
- A reluctant rally gets crushed as sellers dump shares into the mid-day
rally.
- Nasdaq: how low can you go?
- No matter how cheap a stock appears, you have to put it into the overall
market context.
- Team Trades
The markets were poised for a holiday rally after Tuesday's action. The
futures were up after the close, showing some positive carryover from the
session. Then late Tuesday, the Florida Supreme Court took matters into
its own hands and the Nasdaq futures swung from up 20 to down 30. What
looked to be a rally possibility was trashed in about 42 pages of
self-justification for some pretty deep intervention into the legislative
process. But up or down, we want to be on the right side of the market;
that is our goal. Unfortunately, I was indisposed at the time and unable
to issue a follow-up report about expectations for the day.
In any event, the market tried to rally despite the ruling. Mid-day some
more election news came out that the market viewed as positive. Stocks
rallied off of their lows, and the Dow was set to turn positive. As has
always been the case with election news, however, another press conference
announced another legal challenge to the latest development, and any faint
hopes of an earlier resolution disappeared. Sellers once again used a
rally attempt as the point to dump shares. The sharp jump from the lows
turned around and plunged back to session lows. Too much uncertainty
hanging overhead from the three 'E's': election, earnings, economy.
Investors need to have the Fed cut rates and another one of the remaining
to 'E's' cleared up in order to put money to work in earnest.
Going down?
And this was not necessarily light volume. While below average, Nasdaq
volume rose to 1.887 billion shares (+7.8%) with down volume crushing up
volume 5 to 1. NYSE volume was lower, making the Dow and S&P 500 losses
more palatable, but how many times have we seen light volume carnage this
summer and fall? The Nasdaq has now undercut with authority the point
where it gapped up back in October 1999 to start the great run to 5,000.
At this point, as we noted the other night, all bets as to the bottom are
off. The Nasdaq was way over its 200 day moving average when it hit the
5000 level (about 56% above it). The Nasdaq usually corrects when it is
20% to 25% above that level. It is now 30% below the 200 day moving
average. If the market swings completely to the opposite direction on
this drop, that would put the bottom at 2174.31. We are not saying that
is the bottom, but we have heard arguments that this equal and opposite
response is a 'normal' reaction.
As the past two months have demonstrated, guessing about market bottoms is
tough. There were at least four 'reversal' days on heavy volume, but they
all failed. There was even a confirmed rally attempt, but only the Dow
has been able to hang onto a portion of those gains thus far. 2652, the
level of April and May 1999 tops looks to be a likely candidate, but what
is going to turn this market is not a top at some point in the past, but a
top that is hit in conjunction with better news on the economic and
earnings front. Right now, the closest thing we can think of along these
lines is a Fed rate cut in December. The Nasdaq is locked in a downtrend.
The S&P 500 hit a closing low for the year, and it is now heading south
along with the Nasdaq. The Dow is holding support for now, looking the
best of the group. Nonetheless, two out of three are heading south.
Time to buy?
Many are advocating that stocks are 'values' right now, and investors
should be buying stocks at bargain prices. Problem is, today's bargain is
next week's fire sale. There is nothing in the markets to indicate that
stocks have stopped dropping. Moreover, there is nothing to show the next
step, i.e., that stocks are then ready to move up. Jumping into long-term
upside positions while stocks are still falling to new lows often insures
that you are in that position long term as the stock continues to drop and
need to recover and rally just to get even. That is what leads to selling
into rallies as waves of investors attempt to 'get even' on positions that
they were supposedly holding long term. We prefer to let the market show
us it has bottomed with a rally and confirmation, and then start taking
cautious positions. In the interim, we play the trend to the downside
with puts as we have in the reports, and we take advantage of relief
rallies with short term trades of stock and options as well.
THE MARKETS
Overall market stats:
VIX: 31.21; +2.28. Volatility climbed back over 30 today with the
overall weakness, and the higher volume selling in the Nasdaq. Indeed, the
Nasdaq again hit a low for the year. A spike over 30 supports the notion
that the market is trying to mark a bottom, but just yesterday volatility
fell while the market made a new low.
Put/Call ratio: 0.83; +0.23. The put/call ratio jumped as the Nasdaq hit
another new low for the year. The rise indicates an increase in
pessimism, but we look for a reading of over 1.0 for a strong signal.
NASDAQ: The techs hit a new closing low for the year, breaking sharply
below the October 1999 gap up point that set off the rally to 5,000.
Techs were not the place to be today, and investors took the mid-day rally
as a chance to unload shares before the holiday and Friday's shortened
session. This is a familiar pattern for the index over the past several
months. Rallies are short term trading opportunities that need to be
exited when stocks or the index approaches resistance. Then the flip is
to the downside for those plays.
Stats: Down 116.11 (-4.04%) to close at 2755.34, the closing low for the
year.
Volume: Volume was up on the selling, rising to 1.887 billion shares
(+7.8%). Off of the loose doji Tuesday, the higher-volume drop and the
uncertainty in the news does not paint a picture of a good day Friday. On
top of that, the down volume crushed up volume and, as you would expect,
there was no contest between advancers and decliners.
A/D and Hi/Lo: The A/D line was down, with decliners increasing to a 2.8
to 1 lead. New highs dropped to 12 (-21) versus 614 new lows (+124).
The Chart: http://www.investmenthouse.com/ch/nasdaq.html
The Nasdaq gapped down to open and its initial surge reached Tuesday's
closing level, but the move stalled there and the stock peeled back hard.
It tried to rally on news mid-day, but the rally failed and the market
closed within a point of its low for the day. The news Tuesday night
killed any chance for the holiday rally we were looking for.
Dow/NYSE: The Dow dropped, but on lower volume as it was clinging to
support in the 10,300 to 10,350 level. This represents the lows of May and
June, and acted as support in mid-November. If the other indexes continue
to tank, the Dow will be under a lot of pressure.
Stats: Down 95.18 points (-0.91%) to close at 10,399.32.
Volume: NYSE volume dropped to 969.4 million shares (-12.75%). Down
volume beat up volume 678 million to 245 million shares to the upside.
A/D and Hi/Lo: Declining issues pulled farther out in front, 1.94 to 1.
New highs were 67 (-8) versus 142 new lows (+22).
The Chart: http://www.investmenthouse.com/ch/djia.html
The Dow dropped back down to its November low and near the lows of
May/