Brigitte
23.12.2000, 15:09
* * * *
12/23/00 Investment House Daily
* * * *
Investment House Daily Subscribers: HAPPY HOLIDAYS!!
TONIGHT:
- Holiday rally starts off with a bang, and we don't think it is over just
yet.
- This is fun, but remember we are in a bear market.
- Economy shows no surprises as softness continues.
- Subscriber Questions
- Team Trades
Stocks shoot up ahead of Santa Claus.
The Nasdaq was showing signs it wanted to rally after getting blistered
the past week. The move failed Wednesday, but there were signs it was
still ready to give us a bear market bounce. Friday it was up early,
middle and late, giving us a belated holiday gift. While next week brings
us closer to earnings season and the likelihood of more earnings warnings,
stocks were showing excellent momentum after hours, and they still have
room to move up before they hit their down trendlines. At that point the
rally could very well run out of gas as the down trendlines have been very
solid resistance all the way down.
Bear market rallies can be fierce, and that is what we have to assume this
is unless we see significant changes, one being better chart patterns.
Look at the charts on the big tech stocks; they are once again showing 'V'
bottoms after Friday's move. Those are prone to failure as the sellers
who bought right before the most recent slide have not been flushed out by
the passage of time. They are ready to dump their shares when they
approach or get back to the point where they bought into the positions.
As we have seen over and over this summer and fall, rallies have
consistently failed when stocks jump back up and approach the point where
the most recent selling started.
Still a bear market.
This has the look of a classic bear market rally: furious, but on light
volume. There are still many plays to the upside in the beaten down tech
stocks, but they are merely momentum plays at this point. Don't get us
wrong, these moves are marvelous: JNPR (up 31%), NTAP (26%), SEBL (20%),
BRCD (24%). The list goes on. Despite what we have seen since September,
bear market rallies are not just 1-3 day events. They can last weeks,
even longer. It is just that this market has been brutal, and stocks have
been stomped every time they show signs of life. The market just gave us
one rally the first week in December, and it is trying to give us another
one now. This one could last longer or not.
As we said, more earnings warnings are sure to come next week, and that
could put a stop to it. We have to be ready for the end of the move as
always, looking for singles, not home runs right now. The key will be the
down trendlines that have slammed the door on each rally. Right now ADBE,
NTAP, BEAS and ITWO are a few of the stocks at or approaching their down
trendlines. If the stocks start breaking above those trendlines, we may
have a longer upside event on our hands. If we see the rallying stocks
picked off one by one as they hit their down trendlines, we have to be
ready for another turn back down. Again, keep it simple and safe.
THE ECONOMY
Hey, where did all of the bad news go? Friday saw higher durable goods
sales, increased consumer expenditures, and higher personal incomes.
Durable goods sales were higher than expectations while the other two
reports met expectations. For once a report showed more life in the
economy than expected. We don't want to rain on the parade, but before we
get enthusiastic we have to look behind the numbers and one other big
indicator that was not so friendly.
Airline orders carry durable goods sales higher.
Durables goods looked pretty good for November, rising 2.3% versus
expectations of 1.5% and well above October's 6.5% drop. The largest part
of the rise, however, was again transportation, namely airplanes. That is
the most volatile element of the report, and durable goods sales rose just
0.4% when taken out. Still, the fact that one part of the economy is
still churning away is positive. Unfortunately, consumers, the largest
driving force in the economy, do not buy many airplanes.
They are literally giving merchandise away at the stores.
Speaking of consumer spending, November spending was up 0.3%, inline with
expectations, but that was below October's 0.4% increase. Given that
November is the kickoff month for holiday spending, the smaller increase
is not promising. That, however, was something we already knew given the
reports on the very lackluster holiday sales season. Indeed, we said back
in September and October to wait and do the Christmas shopping the last
few days before Christmas as stores would be begging to bring people in.
Not many agreed it would be that bad, but the numbers were pointing down,
and that is exactly what has happened. Home Depot has everything in the
store on sale. Other stores are giving stuff away to attract customers.
We are sorry this prediction was so accurate.
Consumer sentiment drops sharply.
The Michigan survey of consumer sentiment for December lived up to its
preliminary number, coming in at 98.4 for December, down from November's
107.6 reading. As noted last night, that is the fourth largest drop in
the seminar's history, the others coming during recessions or wartime. We
need to put the number in perspective, however. It is coming off of
all-time high readings, so while the decline was significant, the actual
number does not indicate a level where consumers are donning sackcloth and
ashes. If it continues on the downtrend that started two months ago,
however, with the rest of the weakened economy (manufacturing,
technology), there won't be a force to turn things around. We have all
heard that consumers are two-thirds of the economy, and if they go turtle
it is hard to turn things around.
Oh whence the Fed rate cut?
Thursday night we said we felt a rate cut would certainly come when the
fourth quarter GDP numbers were released. Unfortunately, in January they
won't be released until later in the month, a holdover from things
shutting down around the holidays. That is disappointing. Poring over
the reports coming out in early January, retail sales, a very good proxy
for consumer confidence, is out on January 4. In the minutes of the
November FOMC meeting Greenspan again was clear about his concern for the
consumer; if sales remain atrocious the last days up to Christmas, that
will be a potential catalyst. Not as solid as GDP, however.
THE MARKETS
Thursday hinted at it and Friday showed it: a fierce reflex rally on all
three major indexes. Lots of obstacles ahead, but we don't expect this to
be a lasting bull run. It may turn out to be one, but we cannot assume
that now. Make the most of it, but don't let it get the best of you when
it runs out.
Overall market stats:
VIX: 31.52; -2.90. Volatility fell as the market rose as it should. As
noted on Thursday, this indicator spiked over the 34 level that gave us
the brief rallies we have seen this fall.
Put/Call ratio: 0.61; -0.11. Put buyers dropped further on the continued
buying. As with the VIX, this is expected, but the ratio never spiked to
heights that lead to more substantial rallies.
NASDAQ: Thursday night we said be ready, and Friday delivered. The index
gapped higher, but stocks tested their first move about an hour into the
session giving excellent entry points for another sharp rally that has
characteristically followed the strong bouts of tech selling. There were
many plays to hit, and indeed, we hit one stock twice in one session; when
an index climbs over 7% in one session, you can get away with some wild
plays while still playing it safe.
Stats: Up 176.90 points (+7.6%) to close at 2517.02.
Volume: 2.24 billion shares (-16.5%) as the Nasdaq continues to sell on
high volume and rise on lower volume. Not the 'healthy' pri
12/23/00 Investment House Daily
* * * *
Investment House Daily Subscribers: HAPPY HOLIDAYS!!
TONIGHT:
- Holiday rally starts off with a bang, and we don't think it is over just
yet.
- This is fun, but remember we are in a bear market.
- Economy shows no surprises as softness continues.
- Subscriber Questions
- Team Trades
Stocks shoot up ahead of Santa Claus.
The Nasdaq was showing signs it wanted to rally after getting blistered
the past week. The move failed Wednesday, but there were signs it was
still ready to give us a bear market bounce. Friday it was up early,
middle and late, giving us a belated holiday gift. While next week brings
us closer to earnings season and the likelihood of more earnings warnings,
stocks were showing excellent momentum after hours, and they still have
room to move up before they hit their down trendlines. At that point the
rally could very well run out of gas as the down trendlines have been very
solid resistance all the way down.
Bear market rallies can be fierce, and that is what we have to assume this
is unless we see significant changes, one being better chart patterns.
Look at the charts on the big tech stocks; they are once again showing 'V'
bottoms after Friday's move. Those are prone to failure as the sellers
who bought right before the most recent slide have not been flushed out by
the passage of time. They are ready to dump their shares when they
approach or get back to the point where they bought into the positions.
As we have seen over and over this summer and fall, rallies have
consistently failed when stocks jump back up and approach the point where
the most recent selling started.
Still a bear market.
This has the look of a classic bear market rally: furious, but on light
volume. There are still many plays to the upside in the beaten down tech
stocks, but they are merely momentum plays at this point. Don't get us
wrong, these moves are marvelous: JNPR (up 31%), NTAP (26%), SEBL (20%),
BRCD (24%). The list goes on. Despite what we have seen since September,
bear market rallies are not just 1-3 day events. They can last weeks,
even longer. It is just that this market has been brutal, and stocks have
been stomped every time they show signs of life. The market just gave us
one rally the first week in December, and it is trying to give us another
one now. This one could last longer or not.
As we said, more earnings warnings are sure to come next week, and that
could put a stop to it. We have to be ready for the end of the move as
always, looking for singles, not home runs right now. The key will be the
down trendlines that have slammed the door on each rally. Right now ADBE,
NTAP, BEAS and ITWO are a few of the stocks at or approaching their down
trendlines. If the stocks start breaking above those trendlines, we may
have a longer upside event on our hands. If we see the rallying stocks
picked off one by one as they hit their down trendlines, we have to be
ready for another turn back down. Again, keep it simple and safe.
THE ECONOMY
Hey, where did all of the bad news go? Friday saw higher durable goods
sales, increased consumer expenditures, and higher personal incomes.
Durable goods sales were higher than expectations while the other two
reports met expectations. For once a report showed more life in the
economy than expected. We don't want to rain on the parade, but before we
get enthusiastic we have to look behind the numbers and one other big
indicator that was not so friendly.
Airline orders carry durable goods sales higher.
Durables goods looked pretty good for November, rising 2.3% versus
expectations of 1.5% and well above October's 6.5% drop. The largest part
of the rise, however, was again transportation, namely airplanes. That is
the most volatile element of the report, and durable goods sales rose just
0.4% when taken out. Still, the fact that one part of the economy is
still churning away is positive. Unfortunately, consumers, the largest
driving force in the economy, do not buy many airplanes.
They are literally giving merchandise away at the stores.
Speaking of consumer spending, November spending was up 0.3%, inline with
expectations, but that was below October's 0.4% increase. Given that
November is the kickoff month for holiday spending, the smaller increase
is not promising. That, however, was something we already knew given the
reports on the very lackluster holiday sales season. Indeed, we said back
in September and October to wait and do the Christmas shopping the last
few days before Christmas as stores would be begging to bring people in.
Not many agreed it would be that bad, but the numbers were pointing down,
and that is exactly what has happened. Home Depot has everything in the
store on sale. Other stores are giving stuff away to attract customers.
We are sorry this prediction was so accurate.
Consumer sentiment drops sharply.
The Michigan survey of consumer sentiment for December lived up to its
preliminary number, coming in at 98.4 for December, down from November's
107.6 reading. As noted last night, that is the fourth largest drop in
the seminar's history, the others coming during recessions or wartime. We
need to put the number in perspective, however. It is coming off of
all-time high readings, so while the decline was significant, the actual
number does not indicate a level where consumers are donning sackcloth and
ashes. If it continues on the downtrend that started two months ago,
however, with the rest of the weakened economy (manufacturing,
technology), there won't be a force to turn things around. We have all
heard that consumers are two-thirds of the economy, and if they go turtle
it is hard to turn things around.
Oh whence the Fed rate cut?
Thursday night we said we felt a rate cut would certainly come when the
fourth quarter GDP numbers were released. Unfortunately, in January they
won't be released until later in the month, a holdover from things
shutting down around the holidays. That is disappointing. Poring over
the reports coming out in early January, retail sales, a very good proxy
for consumer confidence, is out on January 4. In the minutes of the
November FOMC meeting Greenspan again was clear about his concern for the
consumer; if sales remain atrocious the last days up to Christmas, that
will be a potential catalyst. Not as solid as GDP, however.
THE MARKETS
Thursday hinted at it and Friday showed it: a fierce reflex rally on all
three major indexes. Lots of obstacles ahead, but we don't expect this to
be a lasting bull run. It may turn out to be one, but we cannot assume
that now. Make the most of it, but don't let it get the best of you when
it runs out.
Overall market stats:
VIX: 31.52; -2.90. Volatility fell as the market rose as it should. As
noted on Thursday, this indicator spiked over the 34 level that gave us
the brief rallies we have seen this fall.
Put/Call ratio: 0.61; -0.11. Put buyers dropped further on the continued
buying. As with the VIX, this is expected, but the ratio never spiked to
heights that lead to more substantial rallies.
NASDAQ: Thursday night we said be ready, and Friday delivered. The index
gapped higher, but stocks tested their first move about an hour into the
session giving excellent entry points for another sharp rally that has
characteristically followed the strong bouts of tech selling. There were
many plays to hit, and indeed, we hit one stock twice in one session; when
an index climbs over 7% in one session, you can get away with some wild
plays while still playing it safe.
Stats: Up 176.90 points (+7.6%) to close at 2517.02.
Volume: 2.24 billion shares (-16.5%) as the Nasdaq continues to sell on
high volume and rise on lower volume. Not the 'healthy' pri