Brigitte
05.01.2001, 13:18
* * * *
1/04/01 Investment House Daily
* * * *
Investment House Daily Subscribers:
TONIGHT:
- Some rest after the big surge, but watch those volumes.
- Again, not straight up from here with earnings just around the corner.
- Money was flying out of the market before the Fed cut.
- Experts change their tune 180 degrees, but they are still on the tube
spouting forth.
- Earnings that are out are good, but warnings are still coming.
- Team Trades
Indexes try to rally, but give in to profit taking in the afternoon.
The day was working out pretty much as we wanted with a softer open and
rally attempt after the first half hour. At that point it sold off and
could not conquer the session highs when it tried again later; that
brought in the rest of the profit takers and closed the indexes down.
Not really bad after such a huge move up, but the volumes were extremely
high. The NYSE set another volume record while the Nasdaq plunked down
2.6 billion shares. Higher volume selling is never a good sign, but much
of the higher volume selling was in those defensive sectors that have been
riding high as the bear market grew: utility, energy, healthcare, food,
beverage, smokes. Selling in technology was on lighter volume, and there
was some heavier volume buying in selective technology stocks while
telecom stocks surged on very heavy volume. Thus, it was a mixed bag as
far as volume goes, but we do note that money is rotating between sectors
versus leaving the market.
Rotation out of defensive sectors continues.
Many of the stocks that we have been following to the upside gave sell
signals today as they crashed through the 50 day moving average on high
volume. This is a follow through to the rotation out of these stocks we
noted Tuesday night. Stocks that are receiving institutional support will
jump back up off of that level or will quickly recover if they breach it.
That represents institutions stepping in to hold the stock up. If a stock
can move back over its 50 day moving average the next session, that is
okay. Indeed, stocks often turn back up after breaking such an important
level to test it as some buyers come in to try and support it. If enough
buyers are not there, it will fail and lead to further losses.
Look at the following chart of CHCS (Chico's Fashions). It broke its 50
day moving average in September and October, but was able to recover.
This was still flashing up a warning sign, but to that point institutions
continued to steop in. Then it broke that level intraday in November, but
jumped right back over it. It moved back up on much, much lower volume
than the previous moves. That showed there were not many institutions
coming in to buy the stock once again. Later in the month it broke the
level again, but it could not recover the next session. Volume started to
climb on the selling days. The next session it gapped over the 50 day,
but closed below it. It tried one more time, but then the dogs were on it
and if collapsed to the 200 day MVA. It tested below its 200 day MVA
twice before it closed below it. Then it moved up and tested the 200 day,
but it failed to take it out and collapsed further. Two tests of
important levels after they were breached, and two failed tests.
http://www.investmenthouse.com/cd/chcs.html
The defensive stocks may recover when tech earnings start coming out next
week, but that is conjecture (and maybe wishful thinking) by those we see
on television who run funds that invest in these stocks. They are trying
to calm investors and keep their fund values higher. Problem is, the
volume of selling indicates that the big money is moving elsewhere for
now. It may or may not come back. Warning lights all over the place on
these stocks for now.
No big rally today, but do we sit it out?
It tried, but could not make it two sessions in a row. Huge moves
followed by some digestion of gains is acceptable as long as volumes
remain steady. As noted, that was mixed today. Still, sectors that have
been hammered continue to improve, e.g., telecoms and semiconductors.
That money that was too afraid to venture into beaten down areas is all of
the sudden pouring into them.
This is just part of what we noted last night: this won't be a smooth sail
from here. Technicians on the tube were saying that the market has to go
test the lows just hit in December and early in the week. That definitely
has been the pattern this past year, and each time the test ultimately
failed. But that was with a hawkish Fed and no change in outlook for the
economy. There is a big difference this time as the Fed has now switched
to protecting and promoting the economy versus actively trying to slow it
down. Perhaps there will be a test; the indexes are anything but clear at
this point after being roughed up so hard. When we see moves that are
bullish in plays that we want, however, we pull the trigger. It requires
us to be diligent with sell points, but if we wait and hold off on bullish
moves, we are not trusting what we are seeing and potentially let good
gains slip by. It is like always waiting for that new high-speed chip to
come out before buying that computer; the wait goes on and on as faster
and faster machines come to the market.
Caution is the rule, but when we see the financial services stocks break
downtrends on huge volume, telecoms breaking downtrends on huge volume,
and key stocks making solid, high volume moves, we get in. We also
continue to average into positions on great stocks we know will be back
(e.g., SUNW, CSCO, GLW, etc.) with stock positions and option positions.
The reason: technology does well after the Fed eases rates. According to
Prudential, the first month is the best, and the first three months are
better than the next three months. Indeed, the last three Fed rate
cutting cycles saw tech stocks rise 65% in the following year. That is
why we continue to average into great stocks and make plays on those
stocks that are showing heavy buying interest. We will have down days
when bad earnings come out, but the landscape changes when the Fed starts
easing. What was a series of deep canyons we had to climb down and out of
all of the sudden has a suspension ladder spanning it; rickety and
sometimes scary, but it gets the job done for those who venture across it.
More information on why the Fed acted so fast.
The NAPM was a big factor, but another report circulating the brokerage
houses showed that $13 billion flowed out of the market on Tuesday. That
is a ton of money. The Fed saw these figures, and the word is that it
feared a complete meltdown of the market. Things were not looking too
good for them Tuesday and Wednesday as the Nasdaq had hit a new 52-week
(and more) low each day. Moreover, we understand that big institutions
were directly communicating to the Fed that there was no liquidity in the
market to sell many issues. This was similar to the credit crunch in 1998
when spreads were so wide no one would trade.
Fed cuts discount rate another 25 basis points.
After the close today the Fed cut the discount rate another 25 basis
points at the request of the 12 Federal Reserve Banks. The Fed said
Wednesday it would do so if requested, and it was. This is the rate
charged to commercial banks when they need to borrow money from the Fed,
but it is rarely used as banks lend each other money. Stocks jumped on
the news as some investors were confused about what was being done, but
they then settled right back down.
Are you sick and tired of these guys or what?
Today Stephen Roach, economist from Morgan Stanley, was back on the tube
delivering his expert opinion on what the Fed did and what was going to
happen. He is a former Fed member bac
1/04/01 Investment House Daily
* * * *
Investment House Daily Subscribers:
TONIGHT:
- Some rest after the big surge, but watch those volumes.
- Again, not straight up from here with earnings just around the corner.
- Money was flying out of the market before the Fed cut.
- Experts change their tune 180 degrees, but they are still on the tube
spouting forth.
- Earnings that are out are good, but warnings are still coming.
- Team Trades
Indexes try to rally, but give in to profit taking in the afternoon.
The day was working out pretty much as we wanted with a softer open and
rally attempt after the first half hour. At that point it sold off and
could not conquer the session highs when it tried again later; that
brought in the rest of the profit takers and closed the indexes down.
Not really bad after such a huge move up, but the volumes were extremely
high. The NYSE set another volume record while the Nasdaq plunked down
2.6 billion shares. Higher volume selling is never a good sign, but much
of the higher volume selling was in those defensive sectors that have been
riding high as the bear market grew: utility, energy, healthcare, food,
beverage, smokes. Selling in technology was on lighter volume, and there
was some heavier volume buying in selective technology stocks while
telecom stocks surged on very heavy volume. Thus, it was a mixed bag as
far as volume goes, but we do note that money is rotating between sectors
versus leaving the market.
Rotation out of defensive sectors continues.
Many of the stocks that we have been following to the upside gave sell
signals today as they crashed through the 50 day moving average on high
volume. This is a follow through to the rotation out of these stocks we
noted Tuesday night. Stocks that are receiving institutional support will
jump back up off of that level or will quickly recover if they breach it.
That represents institutions stepping in to hold the stock up. If a stock
can move back over its 50 day moving average the next session, that is
okay. Indeed, stocks often turn back up after breaking such an important
level to test it as some buyers come in to try and support it. If enough
buyers are not there, it will fail and lead to further losses.
Look at the following chart of CHCS (Chico's Fashions). It broke its 50
day moving average in September and October, but was able to recover.
This was still flashing up a warning sign, but to that point institutions
continued to steop in. Then it broke that level intraday in November, but
jumped right back over it. It moved back up on much, much lower volume
than the previous moves. That showed there were not many institutions
coming in to buy the stock once again. Later in the month it broke the
level again, but it could not recover the next session. Volume started to
climb on the selling days. The next session it gapped over the 50 day,
but closed below it. It tried one more time, but then the dogs were on it
and if collapsed to the 200 day MVA. It tested below its 200 day MVA
twice before it closed below it. Then it moved up and tested the 200 day,
but it failed to take it out and collapsed further. Two tests of
important levels after they were breached, and two failed tests.
http://www.investmenthouse.com/cd/chcs.html
The defensive stocks may recover when tech earnings start coming out next
week, but that is conjecture (and maybe wishful thinking) by those we see
on television who run funds that invest in these stocks. They are trying
to calm investors and keep their fund values higher. Problem is, the
volume of selling indicates that the big money is moving elsewhere for
now. It may or may not come back. Warning lights all over the place on
these stocks for now.
No big rally today, but do we sit it out?
It tried, but could not make it two sessions in a row. Huge moves
followed by some digestion of gains is acceptable as long as volumes
remain steady. As noted, that was mixed today. Still, sectors that have
been hammered continue to improve, e.g., telecoms and semiconductors.
That money that was too afraid to venture into beaten down areas is all of
the sudden pouring into them.
This is just part of what we noted last night: this won't be a smooth sail
from here. Technicians on the tube were saying that the market has to go
test the lows just hit in December and early in the week. That definitely
has been the pattern this past year, and each time the test ultimately
failed. But that was with a hawkish Fed and no change in outlook for the
economy. There is a big difference this time as the Fed has now switched
to protecting and promoting the economy versus actively trying to slow it
down. Perhaps there will be a test; the indexes are anything but clear at
this point after being roughed up so hard. When we see moves that are
bullish in plays that we want, however, we pull the trigger. It requires
us to be diligent with sell points, but if we wait and hold off on bullish
moves, we are not trusting what we are seeing and potentially let good
gains slip by. It is like always waiting for that new high-speed chip to
come out before buying that computer; the wait goes on and on as faster
and faster machines come to the market.
Caution is the rule, but when we see the financial services stocks break
downtrends on huge volume, telecoms breaking downtrends on huge volume,
and key stocks making solid, high volume moves, we get in. We also
continue to average into positions on great stocks we know will be back
(e.g., SUNW, CSCO, GLW, etc.) with stock positions and option positions.
The reason: technology does well after the Fed eases rates. According to
Prudential, the first month is the best, and the first three months are
better than the next three months. Indeed, the last three Fed rate
cutting cycles saw tech stocks rise 65% in the following year. That is
why we continue to average into great stocks and make plays on those
stocks that are showing heavy buying interest. We will have down days
when bad earnings come out, but the landscape changes when the Fed starts
easing. What was a series of deep canyons we had to climb down and out of
all of the sudden has a suspension ladder spanning it; rickety and
sometimes scary, but it gets the job done for those who venture across it.
More information on why the Fed acted so fast.
The NAPM was a big factor, but another report circulating the brokerage
houses showed that $13 billion flowed out of the market on Tuesday. That
is a ton of money. The Fed saw these figures, and the word is that it
feared a complete meltdown of the market. Things were not looking too
good for them Tuesday and Wednesday as the Nasdaq had hit a new 52-week
(and more) low each day. Moreover, we understand that big institutions
were directly communicating to the Fed that there was no liquidity in the
market to sell many issues. This was similar to the credit crunch in 1998
when spreads were so wide no one would trade.
Fed cuts discount rate another 25 basis points.
After the close today the Fed cut the discount rate another 25 basis
points at the request of the 12 Federal Reserve Banks. The Fed said
Wednesday it would do so if requested, and it was. This is the rate
charged to commercial banks when they need to borrow money from the Fed,
but it is rarely used as banks lend each other money. Stocks jumped on
the news as some investors were confused about what was being done, but
they then settled right back down.
Are you sick and tired of these guys or what?
Today Stephen Roach, economist from Morgan Stanley, was back on the tube
delivering his expert opinion on what the Fed did and what was going to
happen. He is a former Fed member bac