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us stock market, trend trading stock
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4/15/02 Technical Traders Report
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Technical Traders Report Subscribers:
Happy April 15. File your extension, pay the tax, forget about it until August.
MARKET ALERT SERVICE
Target hit alerts issued today: OEX put ($8.55 per option); JH (+$4.05; +21%); SLGN (+$5.62; +17%).
Subscribers to the current reports can sign up at the following link:
http://www.investmenthouse.com/alertttr.htm
Emails: We receive hundreds of emails a week. We get them all as fast as we can, so bear with us.
SUMMARY:
- On idle ahead of big earnings week.
- Monday, bomb scares, and taxes. No wonder the markets went nowhere.
- Inventories falling slower, but sales are not picking up yet.
- Earnings inspiring some investors after hours.
- Subscriber Questions
Slow session before earnings start to roll in.
Lightest Nasdaq volume of the year typified the session. The Nasdaq was leading the action with the SOX rising ahead of the TXN and NVLS earnings. Excitement was not that high for the earnings, however, as the 'leading' Nasdaq could not hold onto positive territory.
The Nasdaq once again suffered from the flu as once again one of its leading components cast a pall over the big names. GE was hit again on continued concerns about its books; the company also announced in the afternoon that it was cutting 7,000 positions with the company. GE lurched lower again, keeping the wind out of the Dow's sales.
Even the small and mid caps were impacted. After breaking out Friday, the small caps were down 0.2% and the mids dropped 0.1%. As we have seen, however, the drops in these indexes are very much just resting points. They held up well during the recent selling in the rest of the market, and today they again held up well while chips got some money ahead of key earnings.
More than just earnings.
We are still at war, and we need to keep that in mind. Today it was brought back into focus with a bomb scare for DC banks. The Dow was already heading lower, but that news pushed it to its session lows. It recovered right after the news hit, but it could not hold the gain even as the it was reported that the bomb scare was a hoax. Still all too ready to obsess on the negative side of any story, a sign that there is still much healing to do in the Dow with its big names.
Then there was Chavez retaking the power in Venezuela, and that drove up oil prices on the news. That somewhat rattled the pattern of the past few sessions as money rushed back into oil stocks and left many of those that were under accumulation to take a day off before things calm back down and investors start buying those same stocks again.
And of course, taxes. There may have not been much action based on the filing deadline today, but it did not generate activity. Indeed, it may have slowed it down a bit as retail investors worked to get their forms together and in the mail in order to pay homage to the revenue god.
THE ECONOMY
Business inventories fall for thirteenth straight month.
January's rise in inventories was revised to a -0.1% drop (+0.2% originally reported), and with February's -0.1% drop (-0.2% expected) that is how you get 13 down months. Looking only at the minus signs in front of the numbers one would get the impression that the economy continues to slide. In fact, inventories are still falling, indicating no massive reversal. Still, the rate of the decline is slowing considerably. Moreover, as we have seen from the regional and national manufacturing reports, signs of improved manufacturing activity are readily apparent. Indeed, with the rate of the decrease dropping, GDP will rise significantly in Q1 on the back of inventories.
Sales not kicking in yet, however.
As Fed chairman Greenspan has said, however, the proof is in the final demand. Manufacturing can kick in and produce more goods to restock shelves, but if the buyers do not show up then we are in the same boat again with excess inventories and a reduced need to bring those employees back in. Business sales fell 0.9%, the greatest drop since November 2001 after a 0.9% jump in January (this number was revised higher). Business sales are not exploding, but are showing some up and down action. As we often say (and repeat), when a trend is trying to change the monthly numbers start to swing back and forth before the new trend takes hold or the old trend reasserts itself. These numbers show that the trend is trying to change; they also show the trend has not changed just yet.
FFF contract backing out rate hikes as fast as it can.
A month ago it was all the talk that the Fed would raise rates in May and June. As we noted at the time, however, the FFF contract as an indicator of action is best the two weeks prior to the actual meeting. A lot can happen before that time. A lot has happened. Oil prices have spiked and economic reports just are not as strong in some respects as some had hoped. Then you have Dallas Fed president McTeer saying the economy is slack. Thus the contract has backed out the May and June hikes, and many are now saying there won't be any interest rate action until Q4.
THE MARKET
Going nowhere, hanging at the recent lows on lower volume. With 179 of the S&P 500 companies reporting earnings this week, the tepid trade is not surprising. The Dow held 10,100 again, the S&P clung to 1100, and the Nasdaq actually 'led', down just 0.1% on the session. The SOX (+2%) was doing the heavy lifting to keep the Nasdaq near flat on the session.
Earnings started tonight with NVLS and TXN, two key techs many eyes were on. NVLS' loss was less than expected at -2 cents versus -9 cents expected. The company also said bookings were stronger for the chip equipment. The numbers were not strong enough for investors at first, as the stock sold below its closing price. As the conference call unfolded, however, the stock jumped a couple of points. TXN also reported earnings better than expected (+0.01 versus 0.00) as well as a 20% increase in orders. The company stated it felt it had turned the corner on growth. It was up after hours on the news.
Put/Call Ratio (CBOE): 0.73; -0.26. Just as it rose when the indexes rallied a bit Friday, the ratio fell as stocks meandered lower. Not exactly the action the index should exhibit, but still giving high readings of late and maintaining the higher end of the scale.
Nasdaq
Tried to follow up on Friday's move, gapping higher, but the action was typical of late: wide intraday swings, finishing the session near support. Volume was the lightest of the year, most likely just idling until the earnings start hitting the wire this week. It is set to bounce if there is some good guidance for the future. If not, we will see how strong the February low is.
Stats: -2.40 (-0.1%) to close at 1753.79.
Volume: 1.338 billion (-12.5%). Lowest volume of the year, indicative that Monday's action was not going to decide the index' fate. Again we see Nasdaq volume turning a smaller percentage of NYSE volume, down to 199%. The techs look a bit sold out at this level right above the February low. How so? The Nasdaq is a more speculative index than the NYSE. When its volume decreases significantly compared to the NYSE, that is an indication that much of the speculation in the market has been wrung out and it can make some attempt at a run higher.
Up volume: 727 million (-441 million)
Down volume: 596 million (+255 million).
A/D and Hi/Lo: Decliners took back the lead at 1.15 to 1 (advancers led 1.93 to 1 Friday). No real teeth in the downside action, but on the same hand, no real action when the index was trading positive.
New highs: 222 (-22)
New lows: 60 (+12)
The Chart: http://www.investmenthouse.com/cd/$compq.html
You would not really notice it if you did not look hard, but the Nasdaq has been trying to assert some leadership of late. Among the big three indexes, the Nasdaq has been showing better price/volume action and holding the line as it approached its February low at 1696.55. It is trying to mount a bounce just above that level and form a double bottom pattern. What will drive it? Better than expected earnings and an outlook for even better times ahead. NVLS and TXN threw a bone in that direction tonight, but they did not provide definitive direction. It will take more and better to get investors moving into technology enough to really bounce this index, but the combination of earnings tonight had most semiconductors really moving after hours.
The key is still how it handles this 1696 level on the low and 1775 and 1850 on the high. As noted over the weekend, the earnings may give the big names a pop higher near term. Stocks such as KLAC and some other chip equipment and chip makers could give us a good move and may hold up better when the bounce in techs loses strength. The question that we have is just how fast will any pop lose strength. Quick turns after bounces on good news have been the norm. What the index needs is a sea change as to future views. Again, that means more and more really positive views toward the future. Even those may only carry a bounce up to resistance.
Dow/NYSE
The Dow was hurt by continuing GE concerns more than any bomb scare or other news. It has been much weaker of late after the cyclical stocks received some valuation questions and IBM and GE ran sharply lower. That combination of events has sent it below its 50 day MVA as well as the up trendline from the September low.
Stats: -97.15 (-1.0%) to close at 10,093.67.
NYSE Volume: 1.119 billion (-12.7%). Volume fell off on the selling, and GE made up a significant part of that action. It avoided another distribution session, but we are seeing the effect of those 4 rapid distribution sessions in the prior 10 trading days. Rapid distribution usually indicates an index is moving lower. The Dow has started to do that; if volume can remain light, it may not tank too far.
Up volume: 451 million (-357 million)
Down volume: 665 (+231 million)
A/D and Hi/Lo: Decliners took the lead 1.27 to 1 (advancers led 2.01 to 1 Friday). A weak effort, and in the prior three sessions advancers had put together 2:1 or better ratios on two of those days.
New highs: 216 (-25)
New lows: 30 (-4)
The Chart: http://www.investmenthouse.com/cd/$indu.html
The Dow moved sharply below its up trendline from the September bottom (now at 10,280), tapping at the exponential 50 day MVA (10,227.49) on the high and then falling hard. It landed right on a down trendline formed off of the September 2000 and February 2001 tops. This trendline stopped the January 2002 advance, almost stopped the February advance, and then held as an intraday bottom for the Dow on several occasions over the past two weeks. With the break below the 50 day MVA, we question whether it can do the same this time around. The index is still roughly within the confines of the trading range from 10,100 to 10,600, but the bottom edge just got a lot rougher. Volume was low on today's selling, but the continued erosion in the pattern cannot continue without a failure. Again 10,000 and the 200 day MVA (9950.79) appear to be likely near term targets unless these tech earnings light a fire under all stocks in general, not just INTC, HWP and IBM.
S&P 500:
The big caps are not looking all that chipper either, taking on a pattern similar to that of the Nasdaq. Today it managed to hang onto some support at 1100, bouncing mid-day rally to 1109 did not last. The index closed near that support at 1102.55. The selling was on low volume, but that is little consolation after being pounded Thursday on heavy volume. It too looks weak right here, but earnings can provide that spark. Again, how far that spark goes is the big question (if it even occurs). If the earnings are not impressive enough, the S&P looks to test the February twin lows at 1075.
Stats: -8.46 (-0.8%) to close at 1102.55.
Volume: NYSE volume fell once again, this time on selling (1.119 billion; -12.7%). It still does nothing to alleviate the prior distribution sessions.
The Chart: http://www.investmenthouse.com/cd/$spx.html
TOMORROW
Futures are up on the NVLS and TXN earnings. The good thing about these earnings: NVLS said in the preceding months that it was seeing a pickup in its business. The 2 cent loss versus 9 cent loss expected is indicative that NVLS knew what it was talking about. That is always good to see; credibility is key. Speaking of credibility, TXN has it. Good management that was cutting production while others were piling up inventory. TXN said orders, shipments, and sales were up and that it was 'turning the corner on growth of sales.' When TXN says it is turning the corner, you can pretty much take that at face value.
Again, futures were up on the news, but that can always change overnight. It sure has tech stocks on the move after hours, with NVLS up over $5, KLAC up another $2, BRCM up another $1. Not huge, but solid. So we get a jump higher on the open. You can bet we are going to approach that with as much caution as a wounded bear. On a whole, big technology stocks have really poor patterns, and they can rally well but then burn out. Stocks such as KLAC and some other chips on the reports have decent patterns that can hold better when adversity next strikes without just imploding. NVLS will be long gone tomorrow, and KLAC will be as well. But there are stocks such as CMOS and OAKT on the reports that are in very solid patterns and could provide nice gains on the improving earnings situations for semiconductors.
Better earnings do not change our game plan all that much. The reason is that much of the stocks we are covering are better situated than most of the market, and they will benefit from the return to overall earnings growth because they have been doing better than most all along. Good earnings may also allow those poor patterns in big techs to start rebuilding for sustained moves higher. If the earnings recovery continues in this earnings season, we anticipate semiconductors to be the first stocks to perform (as usual, and as indicated by NVLS and TXN tonight). In the interim we have our eyes on a few that we could get some mileage out of on the current better news while we still focus on the best patterns that have helped us well through a very choppy time in the market.
Tomorrow, if the good feelings hold, anticipate a gap open on the indexes, particularly the Nasdaq. Whether it lasts is always the question, but our game plan for any new positions will be to let the froth die down a bit and seen where a good entry point is after the first half hour to hour. It may be that the index just runs higher all session. We won't get too bent out of shape. We have had great plays and great entry points as well the past several sessions, and we intend to stick to the game plan. That game plan is patiently letting these stocks set up into good patterns and then catch the moves (up or down). NVLS' and TXN's earnings won't make us change that plan of action. Maybe they will lead to something great for the Nasdaq and the market as a whole. For now we have not seen the change and we will not go too far out on a limb chasing a potential change in character.
Support and Resistance
Nasdaq: Closed at 1753.78
Resistance: 1770 to 1775 is the next higher level. After that is 1800 that stopped the prior bounce attempt. That level is followed by a jumble of trouble. The simple 50 day MVA (1819.95) is next, in front of 1850. Then 1875, the bottom of the November consolidation and the 200 day MVA (1863.21). The top of the November consolidation at 1934 to 1941. After that is 1980 (the December gap up point) and some minor resistance at 2000. Then the January top at 2098.88. These are nice levels, but they are a long way off.
Support: Clinging to 1750. 1700 is next (February low at 1696.55). Then 1613 to 1626.
S&P 500: Closed at 1102.55
Resistance: 1125. The 200 day MVA (1135.28). There is some resistance at 1150 as well; any bounce on low volume might find that level trouble. After that the December high (1173.62) and the January high (1176.97) are the real key to any longer term move higher. Those points also mark roughly the lows of summer 2001 consolidation that runs up to 1240. Before that point there is some resistance at 1183 from March 2000.
Support: 1100 is holding on as best it can. Then 1075, the February low. After that 1050. The S&P moves in 25 point increments.
Dow: Closed at 10,093.67
Resistance: The simple 50 day MVA (10,212.61). Then the up trendline from the September bottom at 10,280. After that is 10,400, the barrier to the upper half of the March trading range. The top of the June, July, and August 2001 trading range at 10,600 (10,679 intraday high) marks the top half of the March trading range. 10,800 represents some resistance. That is followed by resistance at 11,000 on its way to the May 2001 high at 11,345.72.
Support: 10,100 is trying to hold, as is the down trendline from the September 2000 high (10,085). After that 10,000 represents some support. That is backed up by the 200 day MVA (9950.79). From 9500 to roughly 10,000 - 10,200 is recent support off of the September bottom that for now is holding up.
Weekly Economic Calendar (All times Eastern). The figures are the consensus expectations, not ours.
4-15-02
Business Inventories, February (8:30): -0.1% actual versus 0.0% expected and -0.1% prior (revised from +0.2%).
4-16-02
CPI, March (8:30): 0.4% versus 0.2% prior.
Core CPI, March (8:30): 0.2% versus 0.3% prior.
Housing Starts, March (8:30): 1.7M versus 1.769M prior.
Building Permits, March (8:30): 1.685M versus 1.774M prior.
Industrial Production, March (9:15): 0.4% versus 0.4% prior.
Capacity Utilization, March (9:15): 75% versus 74.8% prior.
4-17-02
Trade Balance, February (8:30): -$29.0B versus -$28.5B prior.
4-18-02
Initial Claims, 4/13 (8:30): NA versus NA.
Leading indicators, March (10:00): 0.4% versus 0.0% prior.
Philadelphia Fed, April (12:00): 13.4 versus 11.4 prior.
Treasury Budget, March (14:00): NA versus -$50.7B prior.
End Part 1 of 2
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