Brigitte
03.12.2000, 10:57
* * * *
12/2/00 Investment House Daily
* * * *
Investment House Daily Subscribers:
TONIGHT:
- A rally of sorts, but sellers came in again before the weekend.
- Was today the best shot at a rally?
- Economic news is mixed for the day, but down for the week.
- Subscriber Questions
- Team Trades
Markets rally out of the gates, but then fade as the weekend loomed.
The techs rallied as anticipated, but they gave up a huge chunk of gains
before the close, tarnishing what was a stellar day. Volume was solid
though below Thursday's reversal volume. That is often the case when an
index reverses. Each index showed a doji on the candlestick pattern (the
Nasdaq showed one on Thursday), and barring any shattering news over the
weekend, we think there is some more upside to the tech move despite the
selling in the afternoon. Again, we think the selling was more related to
clearing positions before the weekend as opposed to another round of
selling into a rally. Volumes were solid to the upside and the A/D lines
were sharply positive. We have seen this before, and we have seen the
rallies fail, but this has the feel of more upside. Maybe just up to the
resistance lines (50 and 200 day moving averages, down trendlines,
consolidation ranges), but that leaves more room to the upside.
Thus, we do not think today was the end of the relief rally. We don't
think the techs are ready to run from here to the new year. Nothing has
changed regarding the election or the Fed other than the economy continues
to show overwhelming evidence it is rapidly slowing down. Maybe that is
providing some cheer in the inverse Fed theory that bad news is good news
if it gets the Fed to move lower on interest rates sooner. There is some
logic there: the economy is not going to heal itself now that the Fed has
shot six arrows into it. Yet, the Fed, while quick to act on the front
end to head off inflation, is always late to come to the aide of the
economy. It needs to cut rates on December 19, but the majority of
pundits and the Fed Funds futures contract is betting on February, the
next FOMC meeting after December. Much depends upon the economic numbers,
namely the employment numbers out next week that the Fed has continued to
cite as so important, and the stock market performance up to that time.
Of course, the election should be on the books by then, and we feel that
has been keeping the Fed from voicing its true opinion about the economy
in its efforts to appear apolitical. If things continue to fall, we still
look for a pleasant surprise.
THE ECONOMY
Construction higher than expectations, but was nothing great.
Mixed news today, but overall last week was not a good one for the market.
Construction spending rose 0.9%, well above the 0.4% increase anticipated.
To keep things in perspective, however, construction spending for
September was revised down to 1.9 % from a previously thought 2.4%.
Moreover, most was from business and multi-unit housing, not the single
home dwellings that drive the market. Further, construction spending is
the culmination of a long term process that begins months before. We are
seeing it slowing down, and as money supply and credit remain tight, we
are going to continue to see it fall as construction plans will continue
to be yanked off the table.
Manufacturing contracts for the fourth straight month.
The bigger news was the NAPM report that measures the manufacturing sector
of the nation. Prior to Thursday's very weak Chicago NAPM, expectations
were for 48.9%. In other words, a continued contraction was expected.
After the Chicago NAPM, some changed the expectation lower to the 46.3%
range. The actual number was 47.7%, and even though that was higher than
the hastily revised expectations, it continues the four-month contraction
trend. In a related item, the National Association of Manufacturers asked
the Fed to cut interest rates this month. "This economy is not as healthy
as people think," said Jerry Jasinowski, President of the association.
"The chances of this economy going south is greater. If we continue to
ignore what is going on on the economic front we are going to see this
situation deteriorate a lot more." Glad to see someone else joining the
party.
Auto sales down and Detroit is closing shop.
Weak November auto sales caused Ford to join Chrysler in closing
production this month to cut costs and help alleviate inventory problems.
Ford also announced it would report disappointing results for this
quarter. Ford will cut production by 3%. Chrysler will close seven
plants during the next three weeks. GM acknowledged slower November
sales, but said nothing about plant closings. All three stock prices rose
as investors thought the austerity moves were good to get away from the
heavy incentives that they have been using to move units and that cut into
profitability. Still a very good year for the automakers, but it is going
to end bad, a sign of the slowing economy.
THE MARKETS
Man, get November out of the way and the markets are already higher.
Well, at least the Nasdaq and S&P 500 (if by just a fraction). The
markets were ready to run after Thursday's high-volume culmination to this
leg of the selling. And that is what we are really looking at, at least
with the evidence that we have right now. Note that we have had many
'reversal days' as this market has sold down farther and farther. We have
a high-volume reversal day where the indexes tap deep support and then
rally. That is followed by two days of rallying (no three-day rally since
Labor Day) up to the down trendline or resistance point, and then it rolls
over and sells lower. Until we see something different, i.e., a
confirmation of the rally thus indicating institutions are buying, we have
to be ready to exit those short-term positions and then play the downside
again when we see the market start to sell after the next day or two of
upside action.
One thing worth noting. Bullishness remains high in this market. Why is
that a problem? Because after so much selling, there is a lot of ground
to make up. That seems to support the argument that a rally can go a long
way before running out of steam. Well, if there are already a lot of
bulls out there at the start of a rally, where will the new buyers come
from as the rally progresses? Yes the mutual funds have lots of money
piled up, but history shows that when a rally starts with a lot of bulls,
it just does not move up as far. Anything to make bullishness fall?
Well, many are hanging on for a resolution of the election, hoping that
will spark a rally. What are they going to use the rally for? Short term
positions to get back some gains and to dump shares bought back in
September and October. That tends to kill rallies. What the key will be
is whether institutions start buying (shown by heavy volume on up days,
lower volume on down days) with consistency as shown by a follow through
day and then good price/volume action as described above.
Overall market stats:
VIX: 31.59; -1.33. After hitting 34.88 Thursday on the selling early in
the day, the VIX steadied Friday, but remained at high levels. The spike
higher is delivering a small rally.
Put/Call ratio: 0.61; -0.14. No reason to buy puts today as far as the
option traders were concerned. Bullishness returns very quickly to this
market.
NASDAQ: The techs were running from the open and fought off weaker NAPM
and early reports that the Supreme Court questioning was one-sided. It
rallied up 151.14 points on its high (2749.06). At 1:15 CT the 5 minute
moving average crossed the 15 minute moving average, and a test of the
break at 1:35 failed and the index immediately broke below the first high
of the day. With a half hour to go the index almost went negative;
12/2/00 Investment House Daily
* * * *
Investment House Daily Subscribers:
TONIGHT:
- A rally of sorts, but sellers came in again before the weekend.
- Was today the best shot at a rally?
- Economic news is mixed for the day, but down for the week.
- Subscriber Questions
- Team Trades
Markets rally out of the gates, but then fade as the weekend loomed.
The techs rallied as anticipated, but they gave up a huge chunk of gains
before the close, tarnishing what was a stellar day. Volume was solid
though below Thursday's reversal volume. That is often the case when an
index reverses. Each index showed a doji on the candlestick pattern (the
Nasdaq showed one on Thursday), and barring any shattering news over the
weekend, we think there is some more upside to the tech move despite the
selling in the afternoon. Again, we think the selling was more related to
clearing positions before the weekend as opposed to another round of
selling into a rally. Volumes were solid to the upside and the A/D lines
were sharply positive. We have seen this before, and we have seen the
rallies fail, but this has the feel of more upside. Maybe just up to the
resistance lines (50 and 200 day moving averages, down trendlines,
consolidation ranges), but that leaves more room to the upside.
Thus, we do not think today was the end of the relief rally. We don't
think the techs are ready to run from here to the new year. Nothing has
changed regarding the election or the Fed other than the economy continues
to show overwhelming evidence it is rapidly slowing down. Maybe that is
providing some cheer in the inverse Fed theory that bad news is good news
if it gets the Fed to move lower on interest rates sooner. There is some
logic there: the economy is not going to heal itself now that the Fed has
shot six arrows into it. Yet, the Fed, while quick to act on the front
end to head off inflation, is always late to come to the aide of the
economy. It needs to cut rates on December 19, but the majority of
pundits and the Fed Funds futures contract is betting on February, the
next FOMC meeting after December. Much depends upon the economic numbers,
namely the employment numbers out next week that the Fed has continued to
cite as so important, and the stock market performance up to that time.
Of course, the election should be on the books by then, and we feel that
has been keeping the Fed from voicing its true opinion about the economy
in its efforts to appear apolitical. If things continue to fall, we still
look for a pleasant surprise.
THE ECONOMY
Construction higher than expectations, but was nothing great.
Mixed news today, but overall last week was not a good one for the market.
Construction spending rose 0.9%, well above the 0.4% increase anticipated.
To keep things in perspective, however, construction spending for
September was revised down to 1.9 % from a previously thought 2.4%.
Moreover, most was from business and multi-unit housing, not the single
home dwellings that drive the market. Further, construction spending is
the culmination of a long term process that begins months before. We are
seeing it slowing down, and as money supply and credit remain tight, we
are going to continue to see it fall as construction plans will continue
to be yanked off the table.
Manufacturing contracts for the fourth straight month.
The bigger news was the NAPM report that measures the manufacturing sector
of the nation. Prior to Thursday's very weak Chicago NAPM, expectations
were for 48.9%. In other words, a continued contraction was expected.
After the Chicago NAPM, some changed the expectation lower to the 46.3%
range. The actual number was 47.7%, and even though that was higher than
the hastily revised expectations, it continues the four-month contraction
trend. In a related item, the National Association of Manufacturers asked
the Fed to cut interest rates this month. "This economy is not as healthy
as people think," said Jerry Jasinowski, President of the association.
"The chances of this economy going south is greater. If we continue to
ignore what is going on on the economic front we are going to see this
situation deteriorate a lot more." Glad to see someone else joining the
party.
Auto sales down and Detroit is closing shop.
Weak November auto sales caused Ford to join Chrysler in closing
production this month to cut costs and help alleviate inventory problems.
Ford also announced it would report disappointing results for this
quarter. Ford will cut production by 3%. Chrysler will close seven
plants during the next three weeks. GM acknowledged slower November
sales, but said nothing about plant closings. All three stock prices rose
as investors thought the austerity moves were good to get away from the
heavy incentives that they have been using to move units and that cut into
profitability. Still a very good year for the automakers, but it is going
to end bad, a sign of the slowing economy.
THE MARKETS
Man, get November out of the way and the markets are already higher.
Well, at least the Nasdaq and S&P 500 (if by just a fraction). The
markets were ready to run after Thursday's high-volume culmination to this
leg of the selling. And that is what we are really looking at, at least
with the evidence that we have right now. Note that we have had many
'reversal days' as this market has sold down farther and farther. We have
a high-volume reversal day where the indexes tap deep support and then
rally. That is followed by two days of rallying (no three-day rally since
Labor Day) up to the down trendline or resistance point, and then it rolls
over and sells lower. Until we see something different, i.e., a
confirmation of the rally thus indicating institutions are buying, we have
to be ready to exit those short-term positions and then play the downside
again when we see the market start to sell after the next day or two of
upside action.
One thing worth noting. Bullishness remains high in this market. Why is
that a problem? Because after so much selling, there is a lot of ground
to make up. That seems to support the argument that a rally can go a long
way before running out of steam. Well, if there are already a lot of
bulls out there at the start of a rally, where will the new buyers come
from as the rally progresses? Yes the mutual funds have lots of money
piled up, but history shows that when a rally starts with a lot of bulls,
it just does not move up as far. Anything to make bullishness fall?
Well, many are hanging on for a resolution of the election, hoping that
will spark a rally. What are they going to use the rally for? Short term
positions to get back some gains and to dump shares bought back in
September and October. That tends to kill rallies. What the key will be
is whether institutions start buying (shown by heavy volume on up days,
lower volume on down days) with consistency as shown by a follow through
day and then good price/volume action as described above.
Overall market stats:
VIX: 31.59; -1.33. After hitting 34.88 Thursday on the selling early in
the day, the VIX steadied Friday, but remained at high levels. The spike
higher is delivering a small rally.
Put/Call ratio: 0.61; -0.14. No reason to buy puts today as far as the
option traders were concerned. Bullishness returns very quickly to this
market.
NASDAQ: The techs were running from the open and fought off weaker NAPM
and early reports that the Supreme Court questioning was one-sided. It
rallied up 151.14 points on its high (2749.06). At 1:15 CT the 5 minute
moving average crossed the 15 minute moving average, and a test of the
break at 1:35 failed and the index immediately broke below the first high
of the day. With a half hour to go the index almost went negative;