Brigitte
28.12.2000, 13:53
* * * *
12/27/00 Investment House Daily
* * * *
Investment House Daily Subscribers: HAPPY HOLIDAYS!!
TONIGHT:
- This is just the kind of rally that is needed: nothing flashy, just
solid building on surprisingly solid volume.
- Solid moves across the board, tech to food.
- Leading economic indicators sag, but don't forecast a recession.
- More job cuts: Union Pacific trims 2,000 workers
- Subscriber Questions
- Team Trades
Just what the market needed.
Today there was no huge rally on any of the three indexes, but it was an
important day in several respects. First, it was a day that could have
gone either way, but it held on and actually rallied in the closing
minutes as the last urge to sell was overrun. No huge rally that leads to
an immediate selloff the next session, just a nice, quiet, steady move.
String together this kind of session 4 of 6 trading days and you go a long
way to repairing damage.
Second, a nice, steady gain without a huge rally allows stocks to build
their bases in an orderly manner. When the Nasdaq shoots up 150 points
and then sells off 100 points, stock patterns look like a set of jagged
teeth. There is no pattern to build on and we never get rid of the
overhead supply. A nice, steady rally that builds on each day, rising and
pulling back but always trending up is how bases are completed. Look at
the charts on semiconductor stocks such as AMCC, KLAC, ALTR, etc. They
have all sold down in more or less nice sloping patterns. The interest in
semiconductors waned over the past few months and now we are seeing the
stocks start to perk up. Indeed, AMCC has been trying to move up for two
weeks, and today broke above its down trendline in a solid move. If we
get a steady, orderly rally we could see these stocks run up to complete
the right sides of their bases. That is exactly what the market needs:
some solid patterns to develop in leaders (yes, semiconductors can lead
the market again, especially the likes of AMCC, PMCS, VTSS and BRCM that
are in specialized niches) that presage solid breakouts. That takes some
time, but a rally over the two to three weeks would put many of these
stocks in positions to then form their handles, i.e., a week or two of
light volume selling or profit taking that shakes out the last of the weak
holders before the stocks make the really strong breakout move. That
might be too much to ask for now with fourth quarter earnings still to
come, but we are going to have a rate cut from the Fed and the serious
investors will be looking ahead, not back. We need to be ready for that;
moreover, in the interim we can make good money as the stocks complete
their bases.
Third, today's action was on surprisingly solid volume in this shortened
week sandwiched between Christmas and New Years. Nasdaq volume moved up
28.7% to 2.004 billion shares, right at average. NYSE volume, while below
average, rose 32% to 1.063 billion shares. Indeed, today's move on the
Nasdaq represents confirmation of last Thursday's reversal rally: a 1.8%
price gain on rising, average volume. We would prefer to have had higher
volume, but given the fact that this is a holiday weekend, the volume was
not bad at all. In 1999, confirmation came and then stocks blasted out of
solid bases on the way to that historic run. This year, stocks still need
to complete their bases, and there needs to be some recovery to do that.
In a year that saw the worst losses ever on the Nasdaq and the deepest
bear market in such a short time, it is fitting that the repair work
require a confirmed rally before it can really start to move higher.
Some are saying this is just a trading rally preceding further selling.
We know that bear market rallies can last for weeks or a month or more.
All we can do is watch leading stocks and price and volume action. We see
some good bases, we some bases trying to form, and we see many stocks with
a lot of work still ahead. The lack of quality bases lends weight to the
idea that this is nothing more than a trading rally. But, it looks to be
a trading rally with some legs on it as it anticipates a rate cut and
better times ahead for stocks that were once under attack by the Federal
Reserve and high taxes on the U.S. citizens, a very bad combination for
sustained growth. When things look really bad, rallies start. We think
that is what we have here.
THE ECONOMY
The leading economic indicators came in as expected, showing a 0.2%
decline. That projects the state of the economy six months out.
October's number was revised down to a 0.3% drop versus a previously
recorded 0.2% decline. This shows further weakness which is not good, but
the LEI is just down 0.4% from the same time last year. Again, that is
not forecasting a recession at this point, just a slower economy. That is
welcome, but there are still a lot of variables out there that could send
this economy down harder and faster. No reason to hold off on rate cuts.
No reason indeed when you have yet another major corporation announcing
layoffs today. After the close Union Pacific said it would cut 2,000
employees and take some charges. We have had Ford, IP, GM, Georgia
Pacific, Union Pacific and many others announcing major layoffs. On top
of that we have the continuing problems in the technology sector with
23,000 jobs lost in the last three months in internet businesses alone.
The Fed wanted higher unemployment? It's got it. It wanted lower
consumption and confidence. Its got it.
THE MARKETS
The market did just what we wanted it to do today: a nice, steady rally
that hung on. We were holding our breath for a while, but the rally on
the close was a real relief to see. It looks to us that in the midst of
despair about earnings, the economy and the Fed the market has started to
rally. Once again, not all of the indicators were firing, so who knows
how far it will carry us. Still, we viewed today as one of the most
positive in a long time.
Listening to the tube, however, they were talking about what was, not what
is coming. They were talking with Wall Street Journal reporters about how
bad the year in the Nasdaq was and how the internet was killed. It was a
pretty gloomy lineup. But that is okay. The fact that they are dwelling
on the negative and turn their collective noses up at a 45 point gain on
the Nasdaq that showed excellent volume and follow through for the earlier
rally attempts is good as well. The fact that they cannot be pleased by a
mere 1.8% move shows that the common wisdom on the street is that things
are still much too bad. They should be looking forward, but are mired in
their misery. That is the way it usually works. Those that are always
late to the party dwell on the past while the real investors, those who
make good money, are looking at what the market is showing and seeing the
changes taking place. May be nothing more than a bear rally, but it is
something to be focused on, not the past.
Overall market stats:
VIX: 32.31; -0.23. Volatility held steady even in today's rise. Not a
lot of believers out there still. That is a good sign for a continued
move up as the market usually rallies while the majority are still
wondering what is going on.
Put/Call ratio: 0.72; -0.23. Put buyers fell off again on today's rally.
This indicator has yet to give us a close over 1.0, a pretty reliable
signal that fear has reached a reversal level. Still, other bear/bull
indicators are showing bears in the majority, so we have to recognize
there is a lot of despair and take advantage of moves the market is
telegraphing.
NASDAQ: Not a huge day point-wise, but an important day of building on
solid volume. Leaders were moving up sharply (e.g., JNPR, AMCC) even on
an 'average' day. A 1.8% gain on stronger, average volume four days into
12/27/00 Investment House Daily
* * * *
Investment House Daily Subscribers: HAPPY HOLIDAYS!!
TONIGHT:
- This is just the kind of rally that is needed: nothing flashy, just
solid building on surprisingly solid volume.
- Solid moves across the board, tech to food.
- Leading economic indicators sag, but don't forecast a recession.
- More job cuts: Union Pacific trims 2,000 workers
- Subscriber Questions
- Team Trades
Just what the market needed.
Today there was no huge rally on any of the three indexes, but it was an
important day in several respects. First, it was a day that could have
gone either way, but it held on and actually rallied in the closing
minutes as the last urge to sell was overrun. No huge rally that leads to
an immediate selloff the next session, just a nice, quiet, steady move.
String together this kind of session 4 of 6 trading days and you go a long
way to repairing damage.
Second, a nice, steady gain without a huge rally allows stocks to build
their bases in an orderly manner. When the Nasdaq shoots up 150 points
and then sells off 100 points, stock patterns look like a set of jagged
teeth. There is no pattern to build on and we never get rid of the
overhead supply. A nice, steady rally that builds on each day, rising and
pulling back but always trending up is how bases are completed. Look at
the charts on semiconductor stocks such as AMCC, KLAC, ALTR, etc. They
have all sold down in more or less nice sloping patterns. The interest in
semiconductors waned over the past few months and now we are seeing the
stocks start to perk up. Indeed, AMCC has been trying to move up for two
weeks, and today broke above its down trendline in a solid move. If we
get a steady, orderly rally we could see these stocks run up to complete
the right sides of their bases. That is exactly what the market needs:
some solid patterns to develop in leaders (yes, semiconductors can lead
the market again, especially the likes of AMCC, PMCS, VTSS and BRCM that
are in specialized niches) that presage solid breakouts. That takes some
time, but a rally over the two to three weeks would put many of these
stocks in positions to then form their handles, i.e., a week or two of
light volume selling or profit taking that shakes out the last of the weak
holders before the stocks make the really strong breakout move. That
might be too much to ask for now with fourth quarter earnings still to
come, but we are going to have a rate cut from the Fed and the serious
investors will be looking ahead, not back. We need to be ready for that;
moreover, in the interim we can make good money as the stocks complete
their bases.
Third, today's action was on surprisingly solid volume in this shortened
week sandwiched between Christmas and New Years. Nasdaq volume moved up
28.7% to 2.004 billion shares, right at average. NYSE volume, while below
average, rose 32% to 1.063 billion shares. Indeed, today's move on the
Nasdaq represents confirmation of last Thursday's reversal rally: a 1.8%
price gain on rising, average volume. We would prefer to have had higher
volume, but given the fact that this is a holiday weekend, the volume was
not bad at all. In 1999, confirmation came and then stocks blasted out of
solid bases on the way to that historic run. This year, stocks still need
to complete their bases, and there needs to be some recovery to do that.
In a year that saw the worst losses ever on the Nasdaq and the deepest
bear market in such a short time, it is fitting that the repair work
require a confirmed rally before it can really start to move higher.
Some are saying this is just a trading rally preceding further selling.
We know that bear market rallies can last for weeks or a month or more.
All we can do is watch leading stocks and price and volume action. We see
some good bases, we some bases trying to form, and we see many stocks with
a lot of work still ahead. The lack of quality bases lends weight to the
idea that this is nothing more than a trading rally. But, it looks to be
a trading rally with some legs on it as it anticipates a rate cut and
better times ahead for stocks that were once under attack by the Federal
Reserve and high taxes on the U.S. citizens, a very bad combination for
sustained growth. When things look really bad, rallies start. We think
that is what we have here.
THE ECONOMY
The leading economic indicators came in as expected, showing a 0.2%
decline. That projects the state of the economy six months out.
October's number was revised down to a 0.3% drop versus a previously
recorded 0.2% decline. This shows further weakness which is not good, but
the LEI is just down 0.4% from the same time last year. Again, that is
not forecasting a recession at this point, just a slower economy. That is
welcome, but there are still a lot of variables out there that could send
this economy down harder and faster. No reason to hold off on rate cuts.
No reason indeed when you have yet another major corporation announcing
layoffs today. After the close Union Pacific said it would cut 2,000
employees and take some charges. We have had Ford, IP, GM, Georgia
Pacific, Union Pacific and many others announcing major layoffs. On top
of that we have the continuing problems in the technology sector with
23,000 jobs lost in the last three months in internet businesses alone.
The Fed wanted higher unemployment? It's got it. It wanted lower
consumption and confidence. Its got it.
THE MARKETS
The market did just what we wanted it to do today: a nice, steady rally
that hung on. We were holding our breath for a while, but the rally on
the close was a real relief to see. It looks to us that in the midst of
despair about earnings, the economy and the Fed the market has started to
rally. Once again, not all of the indicators were firing, so who knows
how far it will carry us. Still, we viewed today as one of the most
positive in a long time.
Listening to the tube, however, they were talking about what was, not what
is coming. They were talking with Wall Street Journal reporters about how
bad the year in the Nasdaq was and how the internet was killed. It was a
pretty gloomy lineup. But that is okay. The fact that they are dwelling
on the negative and turn their collective noses up at a 45 point gain on
the Nasdaq that showed excellent volume and follow through for the earlier
rally attempts is good as well. The fact that they cannot be pleased by a
mere 1.8% move shows that the common wisdom on the street is that things
are still much too bad. They should be looking forward, but are mired in
their misery. That is the way it usually works. Those that are always
late to the party dwell on the past while the real investors, those who
make good money, are looking at what the market is showing and seeing the
changes taking place. May be nothing more than a bear rally, but it is
something to be focused on, not the past.
Overall market stats:
VIX: 32.31; -0.23. Volatility held steady even in today's rise. Not a
lot of believers out there still. That is a good sign for a continued
move up as the market usually rallies while the majority are still
wondering what is going on.
Put/Call ratio: 0.72; -0.23. Put buyers fell off again on today's rally.
This indicator has yet to give us a close over 1.0, a pretty reliable
signal that fear has reached a reversal level. Still, other bear/bull
indicators are showing bears in the majority, so we have to recognize
there is a lot of despair and take advantage of moves the market is
telegraphing.
NASDAQ: Not a huge day point-wise, but an important day of building on
solid volume. Leaders were moving up sharply (e.g., JNPR, AMCC) even on
an 'average' day. A 1.8% gain on stronger, average volume four days into