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money investment, investment help
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8/12/08 Technical Traders Report Update
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MARKET ALERTS
Targets hit alerts: None issued
Buy alerts: None issued
Trailing stops: None issued
Stop alerts: STJ
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SUMMARY:
- Pretty much on cue the market takes a pause as the financials lead lower.
- Trade gap narrows as exports rise, imports fall despite oil: the irony of rising GDP in a recession.
- In the pullback mode, not wanting the financials to get out of hand and still watching the small cap action closely.
Market takes a pause, trying to ignore renewed selling in the financials.
Most of the news Tuesday morning related to the financials. They were downgrading each other in the old Wall Street version of 'takes one to know one.' They were splitting up their companies in hopes they would not lose their customers (UBS split off its wealth management from its other businesses hoping its high net worth clients would not fly the coop). JPM bemoaned deteriorating trading conditions. Nothing but pleasantries.
Analysts were not helping the leadership either. They downgraded UTHR after it broke out. SXE was the victim of a cheap shot as well just as it made its breakout move. They both finished decently given the circumstances and how they react over the next few sessions gives us an insight as to how strong leadership is right now. The trade gap was lower even with higher oil as exports were up and imports were down: the consumer stops buying imports in a recession yet that jacks up GDP. Only in government calculations, but more on that later.
Oil was attempting a technical bounce even as Russia announced its main offensive aimed at stomping out a nearby democracy was mostly over now that it had burned the government and installed former KGB operatives as peace keepers. Of course their definition of keeping the peace is the Old West version: shoot all your enemies and you keep the peace. Wonder what Russia would say if we just decided to invade Cuba because it was a communist dictatorship only 90 miles away (hard to call the Bay of Pigs an invasion). Or how about going down to Venezuela to knock off Chavez and put those oil fields in friendly (and hopefully sane) hands? Oops. Don't want to step on Pat Robertson's turf there. Anyway, back to the point, oil didn't react much at first, tried a technical bounce, but in the end it once more could not find traction, closing at yet another low for the year (113.01, -1.44/bbl).
Stocks started lower, tried a modest recovery, but it wasn't happening. NASDAQ turned positive into lunch, faded, then turned positive mid-afternoon. NASDAQ 100 did as well. Neither could hold the gains. SOX was up all day, but it could not provide any leadership as the tech indices wandered around the flat lint all session. That is not bad action at all, however, given they rallied nicely and are taking a pause. It was not warm feelings, however, as SP500 and DJ30 stunk up the place again, posting 1.2% declines as they could not fight off the financial affects. With the financials down they were down harder, and indeed the entire market was under some stress as a result. It is trite but true: it is hard for the market to rally without the financials.
TECHNICAL. Intraday the action started lower, posted a modest bounce, but then faded to selling after lunch, moving to session lows in the last hour. Not great action as the NYSE indices with their weakness infected the entire market.
INTERNALS. Though SP500 and DJ30 posted significant losses, the internals were not that bad. Breadth was weak on NYSE (-2:1) and just fine on NASDAQ (-1.3:1), much what you expect if the financials are struggling. Volume was a nice positive, sliding lower on the downside session. Good to see the trade lighten even more on the downside session. Interesting for a Tuesday in expiration week; getting a later start this time around.
CHARTS. NASDAQ and SP600 performed as you would expect for a modest pullback to test a run higher. Modest losses, flirted with positive, lower volume. The NYSE large caps were not pictures of beauty, but they did not roll over. Couldn't hold the 50 day EMA, but they bounced modestly off the lows and volume was significantly lower. All in all the internals painted a better picture than the price losses indicated.
LEADERHIP. Leaders generally took a breather as did most all market sectors. Agriculture bounced, but it has abdicated its leadership role with some pretty sickening plunges that made us some money on the downside. Rails almost ran off the tracks, however, with some distribution in some big names. They rebounded off their lows so we will see if this important leadership group can come back after this hiccup just as they resumed new upside moves. Watching them as well as the small caps, still in very good shape, continue this test.
THE ECONOMY
The incongruity of reality versus government reports.
The trade gap narrowed to -$56.8B in June from -59.2B in May. That makes everyone feel good because there is a school of thought that if our current account gets too big everyone will lose faith in the US, no longer invest here, and we will turn into a third world country. Guess that is why everyone in the world still runs to US treasuries when there is even a whiff of trouble.
Okay, so it was lower. Hurray. Exports rose at the fastest rate in four years. Oil was surging still in June but even with those gains the gap was down. Was it all surging exports? No. We are in a recession and the imports show it. No it is not a textbook recession with two quarters of negative growth, but it is a recession to many businesses and individuals. Indeed the small business optimism survey fell to the lowest level since 1980 when the Carter depression was raging as we suffered the worst economic climate since the 1930's. Capital investment is the lowest since 1975, another banner time as we dove into recession after the oil shocks. High times indeed in the US economy even as some tout it.
While exports are surging on our horridly weak currency that makes US goods a magnificent bargain, real imports are down, continuing a downtrend that started this year. People buy fewer foreign goods due to a weaker dollar (and thus higher prices) and due to pessimism about the future. It is a historical fact that our trade gap rises when the US is prosperous: we buy a lot of goods, domestic and foreign, when we prosper. When we don't we buy fewer foreign goods and the gap drops. Thus it is very difficult for us to look at this data and draw positives from it in the overall sense.
GDP ready to rise on these results.
But there will be positive conclusions made. Why? Because imports are deducted from GDP, and thus we could see upward GDP revisions to Q2. That makes sense as imports are not made in the US, but again it distorts the real picture because we buy them because we are prosperous. If you view GDP as a measure of economic strength and prosperity, then subtracting imports gives you the opposite result from the economic times that currently exist (if you are prosperous and buy more goods it appears things are not as good; if you are in recession and buy fewer foreign goods it artificially inflates GDP).
As for exports, if you have a multinational company with overseas markets you love it because you are selling a lot of goods due to the cheap dollar. That is nice for them, but it stinks for the rest of us. It is hard to argue that it is better for a few exporters to prosper while most of our businesses and consumers do not benefit directly. It is better to have a strong currency and a strong economy than a weak currency, strong exports, and a recession.
I suppose given circumstances our leaders need something to cheer about. Certainly our economy is not in the toilet in a deep recession, but the fiction that times are good because we have a weak dollar pumping up exports and deflating imports is specious.
THE MARKET
MARKET SENTIMENT
VIX: 21.17; +1.05
VXN: 24.51; +0.32
VXO: 23; +0.74
Put/Call Ratio (CBOE): 1.05; +0.19. Jumped quickly over 1.0 at the first sign of trouble. That shows plenty of downside triggers itching, and that is still a positive for the rally.
Bulls versus Bears:
For the second time this year bears are crossing above bulls, doing so basically where they did in March on their way to much more extreme readings just about the time the market made the March low and started the last rally. Positive for the market and if SP500 is going to hold the long term trendline is the place to do it.
This is a reading of the number of bullish investment advisors versus bearish advisors. The reason you look at this is that it gives you an idea of how bullish investors are. If they are too bullish then everyone is in the market and it is heading for a top: if everyone wants to be in the market then all the money is in and there is no more new cash to drive it higher. On the other side of the spectrum if there are a lot of bears then there is a lot of cash on the sideline, and as the market rallies it drags that cash in as the bears give in. That cash provides the market the fuel to move higher. If bears are low it is the same as a lot of bulls: everyone is in and the market doesn't have the cash to drive it higher.
Bulls: 34.0%. Jumped up from 30.0% closing in on that 35% level, below which is bullish. Still bullish though a long way up from the 27.8% on the low this round. Hit 31.9% a month back and the 30.9% low hit in March. Steep drop from a rebound high at close to 50% on the run through May. In March the indicator did its job with the dive below 35% and the crossover with the bears. Now it is going above and beyond. Bulls and bears have crossed over again, doing so even before the prior lows are hit. The bulls and bears were eye to eye in mid-February and have crossed. A move into the lower 40's is a decline of significance. A move to 35% is a bullish indicator. This is smashing that. For reference it bottomed in the summer 2006, the last major round of selling ahead of this 2007 top, near 36%, and 35% is considered bullish.
Bears: 43.6%. Steep drop from the 50.0% peak on this move hit last week. Still well above the 35% threshold so still a LOT of bearishness out there. This bounce off the July lows is instilling some confidence, however. A steady rise to 50% on this move: 48.9%, 47.3%, 44.7% and 39.3% before that. A steady, strong rise. Well above the bullish level and the highest since 1995. Again, that is one of the best indications that sentiment is getting extreme on the negative side. It is again past 35%, the level that historically indicates too much pessimism. As with the bulls the jump in bears did its job after hitting 44.7% in the third week of March that was up from an already freakishly strong 43.3% the week before. Up sharply from a low of 19.6% on the last rally. Bearishness peaked at 37.4% in September 2007. It topped the June 2006 peak (36%) on that run. That June peak eclipsed the March 2006 high (33%) and well above the 2005 highs that spawned new rallies (30% in May 2005, 29.2% in October 2005). This is a huge turn, unlike any seen in recent history.
NASDAQ
Stats: -9.34 points (-0.38%) to close at 2430.61
Volume: 2.087B (-9.38%)
Up Volume: 998.403M (-788.392M)
Down Volume: 1.062B (+563.32M)
A/D and Hi/Lo: Decliners led 1.35 to 1
Previous Session: Advancers led 2.23 to 1
New Highs: 73 (-49)
New Lows: 103 (+4)
NASDAQ CHART: http://investmenthouse.com/ihmedia/NASDAQ.jpeg
Started lower and below the 200 day SMA (2436), rallied back above that level, but there was no desire to make a new move. NASDAQ settled back for a modest loss on lighter, below average volume. Weakest volume in over a week and it was on selling or more appropriately holding steady. As noted earlier, not bad action for a day off after a good run. Will it keep it up or not? Right now it is a strength leader in the market but that doesn't mean it won't sell a bit more. Support at 2400ish is a good level to watch.
NASDAQ 100 (-0.01%) showed the same action, but oh yes, it is already above its 200 day SMA and held that position Tuesday. Lower trade as it bumps against a key level at 1950, and expecting a pullback to test toward the 200 day SMA, about 22 points lower.
NASDAQ 100 CHART: http://investmenthouse.com/ihmedia/NASDAQ100.jpeg
SOX CHART: http://investmenthouse.com/ihmedia/SOX.jpeg
SP500/NYSE
Stats: -15.73 points (-1.21%) to close at 1289.59
NYSE Volume: 1.127B (-10.82%)
Up Volume: 307.704M (-505.167M)
Down Volume: 813.643M (+375.864M)
A/D and Hi/Lo: Decliners led 2.02 to 1
Previous Session: Advancers led 1.61 to 1
New Highs: 44 (-38)
New Lows: 97 (+5)
SP500 CHART: http://investmenthouse.com/ihmedia/SP500.jpeg
At least volume was lower than the low volume shown all last week as SP500 broke below the 50 day EMA (1294). It tapped at the July peaks on the low and recovered some on the close. Hey, despite the loss of over 1% it can again make a higher low at near support and resume the move. It will, however, need the financials to help. Despite the weakness in that sector Tuesday, SP500, though a laggard, remains in decent technical shape.
SP600 (-0.87%) was down after reaching toward the June peak on Monday (402), an expected move after the surge higher, but it was not a weak move, not a rollover. We are watching how the small caps perform here; they led the move into June only to roll over hard. The day after they broke higher in June they reversed hard, giving it all up and more. This action was a cat nap.
SP600 Chart: http://investmenthouse.com/ihmedia/SP600.jpeg
SP400 CHART: http://investmenthouse.com/ihmedia/SP400.jpeg
DJ30
Faded through the 50 day EMA (11,688) just as SP500, moving on lower volume and holding at the old 2004/2005 trendline on the close. Tapped at the 10 day EMA and recovered to hold that level. Not great action as it again lagged, but it also did not implode, holding near support and also still in position to hold the support and make a higher low once more.
Stats: -139.88 points (-1.19%) to close at 11642.47
VOLUME: 173M shares Tuesday versus 183M shares Monday. Lower volume on the selling, even lower than last week. No dumping at least. No excitement either.
DJ30 CHART: http://www.investmenthouse.com/ihmedia/DJ30.jpeg
WEDNESDAY
So the market is in pullback mode after a very nice leg to the rally off the July lows. NASDAQ is up at a key level (the 200 day SMA), and as we all know the small caps came within a stone's throw of the June high. Both are testing, but on the first day of rest they did not sell off. That is good action; you like to see stocks and indices refuse to give up gains as an indication the buyers are holders and not just flighty.
Of course the real test is over the next couple of sessions as the test continues. Will the financials and their annoying and unending weakness continue and eat away at the strength of the growth indices. The grind from the financials and their daily bad news is like being pecked to death by chickens. On the other hand, NASDAQ and SP600 are way out in front, and if they do make another higher low after a good test, that is a positive for this economy, narrow trade gap or not.
Time to be patient. Time to let leaders that are pulling back complete the move. We are bird-dogging those that are in order to be ready, but we don't want to just jump in because they are lower. Let them come back, let them test near support, let them show doji's on the candlestick chart, etc., and then see them break higher. Then we move in.
We are also watching leaders under more pressure such as the rails. Will they put it in reverse and rebound after a bad day? Will the NYSE large caps turn it back around and continue the advance after another test session or two. As for current positions if they hold near support on good volume that is fine and we can let them test as the character of the rally higher would have not changed. Volume will be deceptive; though it was light Tuesday it could very well ramp up Wednesday, the midpoint of expiration week, and skew the action. We are going to protect positions if they get into trouble; we gave most that did Tuesday to get it out of their system, and now will see if they can recover or at least stem the pullback. If the do we continue looking for upside stocks that are setting up for brand new breakouts or proven leaders that are still early in their move and testing near support.
Oil inventories may provide some intrigue Wednesday. Oil is at a level where there is some support and lower inventories or anything the oil market views as positive can be used to rally it off this selling. That will put a bit more pressure on stocks and help them continue their pullback. Pretty normal for technical set ups to use news as a trigger to start the technical move, in this case an oversold rebound.
Support and Resistance
NASDAQ: Closed at 2430.61
Resistance:
The 200 day SMA at 2436
2451 is the August closing low
2500 from interim August lows
2551.50 is the May peak; 2550 is the June peak
2603 is the early January gap down point
Support:
2419 is the January 2008 peak and the early February peak
2392 is the April 2008 peak
2388 is the June 2008 low
2386 is the August 2007 intraday low
The 90 day SMA at 2387
2378 is the mid-February peak; 2379 from the October 2006 peak
2370 from the April 2006 peak
The 50 day EMA at 2350
2345 is the trendline from the summer 2004/July 2006 lows, Q4 2005 consolidation
2340 from the March 2007 low
2286 is the first April 2008 gap up point.
2261 is a March 2008 interim low
2202 is the January 2008 low
2155 is the March 2008 low
S&P 500: Closed at 1289.59
Resistance:
1317 from the February low
1320 is a 50% retracement of the May to July selloff
1324 is the April low
1331 is the June low
1349 is an ancient trendline
1370 is the August 2007 intraday low
The 200 day SMA at 1373
1374 is the March 2007 closing low
1387 is the April 2008 intraday high
1396 is the February 2008 peak
1406 is the August and November 2007 closing low
Support:
The 50 day EMA at 1294
1285 is the recent July peak
1270 is the January low
1257 is the March low
1244 is an August 2005 peak
1240 to 1221 are September 2005 peaks1234 is the July 2006 low
1234 is the late July low
1224 is the June 2006 low
1176 from the Q4 2005 lows
1167 is the January 2005 low
1154 from the May 2005 lows
1142 is the 2005 closing low
Dow: Closed at 11,642.47
Resistance:
11,670 is the May 2006 intraday high; 11,642 closing
The 50 day EMA at 11,688
11,731 is the March 2008 low
11,982 is a 50% retracement of the May to July selloff
12,050 from the March 2007
12,070 from the early February 2008 lows
The 90 day SMA at 12,131
12,250 from late March 2007 lows
The 200 day SMA at 12,493
12,518 is the August intraday low
12,573 is the mid-February high
12,743 is the November low
12,750 to 12,768 is the February 2008 peak and a series of lows and highs from August 2007
12,786 is the February 2007 peak
12,845 is the August closing low
13,092 is the December 2007 intraday low
13,133 is the May 2008 high
Support:
11,640 is the 2004/2005 up trendline
11,634 is the January intraday low
11,317 from March 2006
11,131 is the late July 2008 low
11,061 from February 2006
10,912 peak from March 2005
10,854 from December 2004
10,701-10,705 from July 2006, July 2005
Economic Calendar
These are consensus expectations. Our expectations will vary and are discussed in the 'Economy' section.
August 12 - Tuesday
Trade Balance, June (8:30): -$56.8B actual versus -$61.9B expected, -$59.2B prior (revised from -$59.8B)
Treasury budget, July (2:00): -102.8B actual versus -$86.8B expected, -36.4B prior
August 13 - Wednesday
Import prices ex-oil, July (8:30): 0.9% prior. Will they fall given the oil decline?
Retail sales, July (8:30): -0.1% expected, 0.1% prior
Retail sales ex-auto (8:30): 0.5% expected, 0.8% prior
Business inventories, June (10:00): 0.6% expected, 0.3% prior
Crude oil inventories (10:35): +1.6M prior
August 14 - Thursday
CPI, July (8:30): 0.4% expected, 1.1% prior
Core CPI (8:30): 0.2% expected, 0.3% prior
Initial jobless claims (8:30): 436K expected, 455K prior
August 15 - Friday
New York Empire State PMI, August (8:30): -5.0 expected, -4.9 prior
Net foreign purchases, June (9:00): $57.5B expected, $67.0B prior
Capacity utilization, July (9:15): 79.8% expected, 79.9% prior
Industrial Production, July (9:15): 0.0% expected, 0.5% prior
Michigan sentiment, August preliminary (10:00): 62.0 expected, 61.2 prior
End part 1 of 3
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