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us stock market, stock watch
Begin Part 2 of 2
THE MARKETS
Stocks that looked decent yesterday are a mere $40 to $50 off of Wednesday's session highs. A reversal that kept on going right on through the close tonight. Futures are getting stomped with all of the negative sentiment. Tomorrow morning is potentially a site to behold if the after hours action holds for the open. The Nasdaq's down trendline is at 2500. We would hope it would stop the descent at 2600, but that is just a morning of hard selling away after what we saw tonight.
Overall market stats:
VIX: 24.98; +0.42. With the Dow moving up, the plunging Nasdaq did not have much impact on volatility. The low volatility and overall 'rah rah' complacency we noted in the market is taking its toll and most likely will do more tomorrow.
Put/Call ratio: 0.63; +0.10. Selling brought some put buyers out. We would like to see it ramp up on more selling to show more fear getting back in the market.
Futures: Nasdaq -57.50 (60.85 below fair value). S&P -5.50 (6.71 below fair value).
NASDAQ: Some light volume selling early on looked to be ending as stocks firmed in the first half hour after opening lower. They topped out, but then were holding on to marginal losses on continued low volume. With two and one-half hours to go, however, everything rolled over and it got ugly fast. We were watching volumes climb higher and higher, knowing that even if volume was a bit lower it was clear the sellers had jumped into the market and this was not going to be any mild pullback. Looks as if there is more carnage in the morning. Positions we have that were still okay as of the close are going to be ripped wide open at the open. We have already cancelled all stop orders as we don't want to get filled on the lows of the day if there is a bounce up off the initial low.
Stats: Down 104.87 points (-3.7%) to close at 2754.28. Tom Costello will be sweating if it falls below 2700. Looks as if it will on the open tomorrow.
Volume: 2.302 billion shares (-10%). Lighter volume is good, but again we saw big names getting wrecked on high volume. 1.717 billion shares to the downside versus 544 million to the upside.
A/D and Hi/Lo: Decliners jumped back ahead of advancers 1.4 to 1. New highs dropped to 58 (-35) while new lows moved up to 18 (+5).
The Chart: http://www.investmenthouse.com/cd/$ndx.html
The index is going to get a test at the open. After attempting a run on 3000, it petered out at 2892.36 on Wednesday's high. Right now it looks as if it will open below 2700 without too much trouble. Where from there is more problematic. As bad as the last part of the day looked, the selling was on lighter volume and that says something about the overall market action. The down trendline is at 2500, and if this is a real selloff, it won't be hard to get to that level. The volume today does not indicate that, but the big selloffs in individual stocks is reminiscent of those 'low volume deaths' experienced last fall. We would like for it to hold at 2620, the close on the day when the Fed cut rates. The 18 day moving average at 2681.74 would be even more pleasant, but that is pretty close.
So, we are going to expect the dreary scenario down to 2500, but watch for it to hold at 2668 or 2620 along the way.
Dow/NYSE: The Dow was up, but volume was down. That is the wrong price/volume action and the Dow is still in its trading range. Still, we are not going to discount the move as it was positive on a down day for techs.
Stats: Up 82.55 points (+0.8%) to close at 10,729.52.
Volume: NYSE volume pulled back to 1.252 billion shares (-4.3%), still above average but lower on the gain. Not what we like to see from an index wanting to break out of a trading range. Up volume actually topped down volume, however, 666 million to 547 million, so there was life still in the buyers.
A/D and Hi/Lo: NYSE advancing issues continued to lead and indeed widened the gap (1.29 to 1). That is another positive in a day where they were hard to find. New highs fell to 125 (-8) as did new lows (5, -1).
The Chart: http://www.investmenthouse.com/cd/$dja.html
The tight doji gave a jump up over the down trendline and 200 day moving average today, but the index fell off of its high at 10,778.72. A lot of this was most likely due to the Nasdaq selling as the Dow was up over 100 points before the Nasdaq selling intensified in the last two hours. All things considered, we cannot complain about the session on the Dow. Some up on stronger volume, some up on lighter volume. No real carnage, and something the Dow can build on as it takes on resistance at 11,020. Indeed, the volume was lower, but not below average.
S&P 500: The big caps continued to play footsy with resistance at 1360, pulling back slightly on lower volume. The S&P 500 continues to demonstrate proper price/volume action, not to mention showing us the type of pullback we wanted to see in the Nasdaq. It still looks the best of the three indexes right now, particularly after the Nasdaq indicated it wants nothing to do with 3000 just now. The index might pull back some more, but it has good-looking support at 1340.
Stats: Down 6.79 points (-0.5%) to close at 1357.51.
Volume: NYSE volume edged back to 1.252 billion shares (-4.3%). The index is behaving as it should.
The Chart: http://www.investmenthouse.com/cd/$spx.html
TOMORROW
The magnitude of today's Nasdaq selling was disconcerting. We were looking for some 30 to 40 point selling days before the FOMC meeting to keep the index above 2700 or better. That would give the index a good launching point with a 50 basis point rate cut to take on 3,000. If it retreats to 2500, the rate cut won't give it enough push to break over 3000, and that threatens to keep the index in a range. History says it should break out of it, but after 100 basis points in cuts, to still be struggling below 3000 indicates it will take some time. Moreover, if it quickly sells off to 2500 and then starts to rebound in anticipation of the FOMC meeting, it might by a 'sell on the news' event and again fail to take out 3000. We will just have to watch and see how it performs over the next couple of sessions to determine what kind of market we are going to have in the next month.
With futures taking a swan dive on the Nasdaq, the index will have a chance to show us just how much resilience it has. We will watch to see if it catches support at 2681 (the 18-day) or at 2618 (the close after the first rate cut). We will continue to watch volumes intraday and support levels for individual stocks to give us an idea of how sticky they are being; are stocks pausing at them at all or just blowing past them without care.
We will be watching for the time to get back in because unlike many on the tube we follow history and know that when the Fed starts cutting rates the market wins out. Also, though some senators were visibly upset that Greenspan said a tax cut was necessary, the fact that he said it undercuts a lot of opposition who until today had thrown their coats down in front of the man. They will find it hard to have showered praise on him last year and now say he has lost his mind. But, there will be some who do that. The point: we may get a nasty little dive here, but we believe the Fed will cut by 50 basis points and that will help the market up. It has not priced it in after today's action, so it would be due for a run if it does sell off more.
When we see support levels start to hold, we will once again engage in some target shooting on our favorite stocks. While we wait for that there are some great stocks that are in great patterns to the upside, and we are also looking at some plays to the downside as well to take advantage of this selling; harder to do with the sharp move we will probably see in the morning, but it can be lucrative on these sharp spikes down. We are also looking at some covered call sales on long term holds to get some money for another move back up.
Support and Resistance Levels
Nasdaq:
Resistance: 2890 to 2900 is next before the 3000 level.
Support: 2700 is what we are looking for as the first round. Then 2640 to 2650.
S&P 500:
Resistance: 1360.
Support: 1335 to 1340. Then 1325. After that we look to where it turned up last time at 1313.65.
Dow:
Resistance: 200 day moving average (10,705.30). Down trendline at 10,690. Then 10,900 and 11,020. After that, 11,400.
Support: 10,300 to 10,400. After that, 10,000.
Weekly Economic Calendar (All times Eastern). The figures are the consensus expectations, not ours.
1-22-01
Leading Economic Indicators for December (10:00): -0.3% versus -0.2% prior.
Treasury budget for December (2:00): $32.0 billion versus $33.1 billion prior.
1-25-01
Initial jobless claims (8:30): 330,000 versus 306,000 prior.
Employment Cost Index, fourth quarter (8:30): 1.1% versus 0.9% prior.
Existing home sales for December (10:00): 5.05 million versus 5.22 million prior.
Greenspan speech
1-26-01
Durable goods orders for December (8:30): -1.5% versus 2.5% prior.
Help wanted index for December (10:00): 75 prior.
SUBSCRIBER QUESTIONS
Q: Last night we talked of the IBD site that allows you to track volume for the current session as compared to the previous session. Go to the site:
http://www.investors.com/
Then enter the stock you are interested in on the right side of the screen. It takes you to a summary of the stock. The percentage volume figure it shows you is how much higher or lower the volume for the current session is versus the previous session. It also shows you the current volume and the average daily volume so you can compare those as well. Very handy.
Q: What is a "tombstone" doji and what do we do when we see one is a stock we hold?
A: A 'tombstone doji' is a type of candlestick pattern. A doji is where the open and closing price are close. The closer they are, the better the indication. When a doji appears after a run up or run down, it indicates a change in direction. A tombstone doji is a doji that appears at the top of a run and the open and close price are at the bottom of the price range for the session. It is called a tombstone because of the 'wick' of the candlestick pattern sticks up over the open/close price, and because it portents selling ahead.
TEAM TRADES
Nothing done today other than getting taken out of some positions on stop losses that we had placed. We looked at buying some JNPR options between 10:00 and 11:00 CT as the stock continued to form a tighter pattern and was holding at 133, a level just above its 18 day moving average and the down trendline. We kept waiting for a break higher, but it never came. Glad we wanted the market to prove itself to us after showing us it wanted to reverse on Wednesday.
That is important. It is part of the patience of the game plan. After getting impatient on Wednesday with some positions we were doubly sure to see the moves today before we jumped. Knowing that the market wanted to do some more reversal action we were not too eager to jump in until we saw some thing positive. We were ready to target shoot, but we never pulled the trigger on a new position. You can bet we will be looking to do that
Another busy day as we made some bonehead plays and some decent plays. It happens that way sometimes, but we did not bet the farm on any position today as we were still looking for a pullback in the market. We wanted to take advantage of some of the moves up, but not get overexposed if the market turned. Here are two plays that didn't work out as planned to show you have to stick to the plan.
Good Investing!
Jon Johnson and the Tech Traders Report Staff.
All of the foregoing is commentary for informational purposes only. All statements and expressions are the opinion of Online Investment Services, LP or its paid consultants and are not meant to be a solicitation or recommendation to buy, sell, or hold securities. We are not licensed or registered in the securities industry. The information presented herein and on our related web site has been obtained from sources believed to be reliable, but its accuracy is not guaranteed. The security portfolio of Partners of Online Investment Services, LP or its paid consultants may, in some instances, include securities mentioned herein and on our web site. Estimates, assumptions and other forward-looking information are subject to the limits of forecasting. Actual future developments may differ materially due to many factors.
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