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trend trading stock, stock trading information
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5/2/02 Technical Traders Report Update
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Technical Traders Report Subscribers:
MARKET ALERT SERVICE
Subscribers to the current reports can sign up at the following link:
http://www.investmenthouse.com/alertttr.htm
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SUMMARY:
- Dow and S&P 500 stroll up to the down trendlines on shrinking volume.
- Nasdaq already selling back but gives mixed indications.
- Jobless claims, factory orders fail to spark interest.
- SAI report for March shows huge jump in DRAM chips.
- Subscriber Questions
Big indexes move up to resistance.
This looks very familiar. Tuesday the S&P 500 jumped back over the down channel in its downtrend on very heavy volume. After two weeks of selling, the buyers came in with some pent up demand and the shorts were covering after a big gain. Wednesday the low was tested and the indexes rallied again. Strong volume still, but shrinking. Thursday the S&P ran up, tapped the 10 day MVA and just below the down trendline, and then moved lower to close on a doji. Volume contracted again on the move. A late move on the Dow avoided a tight doji on the candlestick chart (which would indicate a change in momentum), but it stalled right at the down trendline and the 18 day MVA, two points were stocks in downtrends tend to run out of gas on bounces.
While you always get cautious about trends in the market that seem too clear, these two indexes appear ready to roll back down in the downtrend. Having met resistance the indexes looked weak, failing to muster the necessary volume to break through. The A/D line looked good, again a credit to the broader market made up of much smaller cap stocks, but the indexes had no power at this key juncture. The employment numbers could give them a spur upward, but we are not counting on that as the weekly jobless claims show that there is no rush to hiring back workers.
Nasdaq selling ahead of the crowd.
The Nasdaq avoided the rush, tapping toward the 10 day MVA early in the session and heading back below the down trendline. It went even further, heading almost to the lower channel in its downtrend. It managed to hold above Monday's low (1640.97) and recover slightly. New lows fell even as the index sold. Volume was lower but still high. There is some indication that the Nasdaq is getting sold out: high volume selling with fewer new lows, not undercutting the earlier low that marks the April 2001 low. It might be getting sold out, but there are not a plethora of tempting patterns in the Nasdaq big names.
THE ECONOMY
Jobless claims dropped 10,000 to 418K, but as always the prior revisions are important. Last weeks' 421K was revised to 428K; thus the drop was 7,000, not 10K. Still, it was a drop and the 4-week average fell 18,000 as well, the first drop in several weeks. Continuing claims, however, i.e., how easily those laid off are finding work, rose 84,000. The economy is not yet at the point where workers are being brought back online. We have seen the average work week increase and income increase, both indicators that the remaining employees are working harder to fill orders. Business as of yet has not hit the point where new hires are being made. Tomorrow's employment numbers will give 'newer' data on the hours worked, and we expect to see that up again this month. Getting there, but not there yet, and that is leaving investors lukewarm.
Factory orders rise 0.4%.
This is a game of follow the bouncing ball as far as expectations. Have you noticed how expectations yo-yo up and down given the most recent economic report? A bit better report and all expectations are raised; a bit worse and they go down. It is really hard to place much stock in what the 'consensus' is. Over the weekend factory orders were pegged to come in at +0.7%. As the week wore on those expectations were reduced to 0.0%. That is a huge swing. It makes the 0.4% gain look pretty good, but against expectations of 0.7% just 5 days prior, it was a disappointment. Take out transportation and the gain was 0.8%. Take out defense spending and the gain was 0.1%. Without the government buying, there are not many orders flowing into the factories.
KB Homes April sales down 13%. The west was strong, the south and east were weak for the company. Counter that with the last two weeks of mortgage information that shows applications up for new buys and refinancing (lower rates). That makes the KB numbers appear more like a slowdown after a brisk winter as interest rates rose. The increase in applications is a key, but other factors show that the market is in fact slowing as the KB numbers indicate. In 2002 there will not be the same strength in home sales as much of the mass migration back home after the internet crash will be over. It will not crash in our view, but it just won't be the strongest pillar of the economy as it has the past two years.
Semiconductor Association reports strong chip sales.
April provided the best year over year comparison in, well, a year. Moreover, the month over month data showed that all geographic regions posted gains less Japan. That is the first time that has happened in six months. The driver? DRAM chips, those chips used in PC memory. They were up 82% as PC makers are packing more memory into their units. Did not help the chip stocks as they were hammered even with the data coming out during the session.
THE MARKET
Familiar action with the Nasdaq testing higher and then selling the rest of the session to close on the lows. The other indexes were less determined, moving back and forth all session, but trending lower as the session wore on, making lower highs. After the lazy move down on the Dow and S&P we anticipated the late move up in our 'last hour' alert, but also noted that it would not pack much punch. It improved the internals a bit, but it did not change the character. As noted, the late rally pushed the Dow and the S&P 500 up to their down trendlines on continued declining volume. There are fewer and fewer buyers as the indexes move higher, though the cyclical stocks and smaller financials resumed their solid moves. Without fresh legs rallies tend to fail; lighter and lighter volume on a move higher indicates fewer buyers. Typical action in a downtrend. It indicates a turn back down if some report or big news even does not intervene.
We anticipate a turn back lower and another test of the recent lows. At that point we can see them hold and start a more sustained rally.
Put/Call Ratio (CBOE): 0.93; +0.21. Put activity jumped today after showing some quirky behavior, i.e., falling on selling, the ratio jumped on rather mild selling and a gain in the Dow. We have seen many readings in the upper eighties and low nineties that have failed to spark a sustained move. It truly needs to move over 1.0 on the close for 1, preferably more, sessions to give a clear indicator.
Nasdaq
Tapped the 10 day MVA and turned and fled lower. Volume was strong but lower, and the selling pushed it back down to potential support. Ready to rally? Not one we want to bet on. A good move gets quickly undercut by the latest bad news as mutual funds are still unloading huge amounts of stocks such as WCOM, ORCL, SUNW, etc. They rode them down and are selling now. That in itself does offer some sign of encouragement for the future as the selling has to stop before techs can move up. Still, the Nasdaq 100 broke below its Monday low; leading the index lower once again as it did frequently in the steep bear market downtrends? Looks that way.
Stats: -32.71 (-1.9%) to close at 1644.82
Volume: 2.060 billion (-5.8%). Nasdaq sold but volume did not rise. It was still very strong, indicating there is still heavy selling of big tech names.
Up volume: 291 million (-368 million)
Down volume: 1.757 billion (+254 million). Volume may have been lower, but down volume continued to mushroom while up volume withered. Still dumping ongoing.
A/D and Hi/Lo: Decliners continued to hold the lead, but very narrowly at 1.04 to 1 (decliners led 1.12 to 1 Wednesday). Not bad A/D, indicating that many of the stocks are trying to hold the line as is the index overall.
New highs: 216 (+35)
New lows: 96 (+5). Rising new highs with new lows barely budging as the index moved down almost 2%. As noted above, this is an indication of a possible sellout.
The Chart: http://www.investmenthouse.com/cd/$compq.html
Held above the Monday low at 1640 as well as the April 2001 low at 1620. Volume was strong (though lighter) with a lot of down volume. New lows hardly rose while the A/D line was basically flat. It has attributes of being sold out at this level, but the picture is not complete. We would prefer to see the index not lose 1.9% on the selling. You want to see high volume and very little point loss in addition to the above indicators for a clearer indication of a sold out status.
Today's move pushed it close to the bottom channel in the downtrend (right at 1630) and the April 2001 low at 1620. Tomorrow we believe it will test that level after the employment report. While there are indications it wants to move up, the trend is still very much down and its habit of undercutting each prior session's low the past two sessions it not indicative of imminent strength.
Dow/NYSE
Smaller move up on lighter volume and butting into the down trendline. It looks like it has made its move on this run, but there was a lot of strength in the old economy cyclical stocks again today. That is what offset the weakness in tech.
Stats: +32.24 (+0.3%) to close at 10,091.87
NYSE Volume: 1.363 billion (-6.8%). Volume fell for the second straight rally session. Lighter volume on moves higher is not a sign of breakout strength.
Up volume: 643 million (-382 million)
Down volume: 713 million (+312 million). Down volume outstripping up volume on an up session is not strength.
A/D and Hi/Lo: Advancing issues continued to lead at 1.41 to 1 (1.58 to 1 Wednesday). Advancing NYSE issues remain trending higher, but were less on a rally day. Again, not powerful
New highs: 248 (+44)
New lows: 41 (-2). Six sessions in a row of greater than 40 new lows though they have been falling each session. This indicator says that the Dow will fall further, and we anticipate it to test lower again before trying a more serious rally.
The Chart: http://www.investmenthouse.com/cd/$indu.html
After roughly 230 points in two sessions, the Dow has run into the down trendline and the 18 day MVA (10,103.57). Falling volume, smaller gains, down volume ahead of up volume on a rally day all indicate the downtrend looks to continue. We look for a test of the recent lows near 9800 to up the sentiment indicators more and have more holders give up. At that point we anticipate a better rally after the ARMS reading. Indeed, the big cyclical stocks were performing decently today.
S&P 500:
The S&P showed the clearest pattern today, a doji after tapping the 10 day MVA (1090.16) and the March down trendline on the intraday high. The pattern is even more pronounced than the Dow as the doji on the candlestick pattern indicates a change in momentum. Over the prior two sessions the buyers were out in front as the index opened lower and closed much higher. Today the sellers caught up with the buyers, making the session more or less a dead heat. Looks ready to roll back down in the downtrend for another test of 1060.
Stats: -1.90 (-0.2%) to close at 1084.56.
Volume: NYSE volume was still above average, but fell for the second straight session on a gain (1.363 billion; -6.8%).
The Chart: http://www.investmenthouse.com/cd/$spx.html
TOMORROW
Friday brings the monthly employment report. It is expected to come in higher, the typical action in a recovering economy. What we will be looking at is hours worked and the average hourly work week. We want to see them increasing, and we think we will see them increase again. That will be the one that the smart money focuses on as that will indicate continued economic improvement. That will make the economically sensitive stocks continue to perform well. We continue to see regional banks, S&L's, retail, healthcare, cyclical stocks, and smaller issues performing. They perform better in an improving economy and that is what we have despite the continued pessimism regarding economic prospects.
Tomorrow we actually hope for a pop on the open as a result of the employment number. We are looking at that as a point where we can prepare to take downside positions on the OEX and/or the DJX (Mini Dow). At the same time, some strength in the key parts of the report as discussed above will provide impetus for those leading stocks, small , mid, and large alike, to continue their moves counter to the trend in the big indexes. There are definitely two trends at work, the downtrend on the big indexes and the uptrend on the small issues that is historically typical in this recovering economy. The action is still somewhat choppy; we still have to cut losses and use trailing stops as good moves are pushed back down in enough cases to keep you on edge. We continue to close them fast if they show that bad action on the breakout, i.e., a blast higher but close well off the high, or the blast higher and then selling right back down the next day. No point in waiting around on those as for the most part they are done on the move until they can regroup. We would rather close them and move to a better prospect.
Support and Resistance
Nasdaq: Closed at 1644.82
Resistance: The steeper March down trendline at 1673. The February lows at 1696 to 1700 are also in the way, followed by the 10 day MVA (1697.84) and the 18 day MVA (1726.30). These are all resistance points in a continuing downtrend. That is followed closely by resistance at 1743 to 1750.
Support: 1613 to 1626 (April 2001 low at 1619 intraday).
S&P 500: Closed at 1084.56
Resistance: The 10 day MVA (1090.16), the March down trendline (1092), and the 18 day MVA (1100.19) are all resistance in a continuing downtrend. 1100 also represents resistance from previous price consolidations. Then 1125 (price consolidations) and the 200 day MVA (1127.90).
Support: 1063 is the recent intraday low that held earlier in the week. 1050 represents the October lows and the last price consolidation level before the September low.
Dow: Closed at 10,091,87
Resistance: Down trendline (10,060). 18 day MVA (10,103.57). 10,100 is also resistance from prior price consolidations. 10,300 blocked the move the last time it made to that level. 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.
Support: The 200 day MVA (9927.82). Then the recent lows at 9811. The bottom of the channel is at 9760. 9500 to 9600 are next as the index has entered into that shelf of support from 9500 to 10,100.
Weekly Economic Calendar (All times Eastern). The figures are the consensus expectations, not ours.
4-29-02
Personal Income, March (8:30): ): 0.4% actual versus 0.4% expected and 0.6% prior
Personal Spending, March (8:30): 0.4% actual versus 0.4% expected and 0.6% prior
4-30-02
Chicago PMI, April (10:00): 54.7 actual versus 55.50 expected and 55.7 prior
Consumer Confidence, April (10:00): 108.8 actual versus 108.0 expected and 110.2 prior
5-1-02
ISM Index, April (10:00): 53.9 actual versus 54.6 expected and 55.6 prior.
Construction Spending, March (10:00): -0.9% actual versus -0.1% expected and +0.7% prior (revised from 1.1%).
5-2-02
Initial Claims, 4/27 (8:30): 418K actual versus 412K expected and 428K prior (revised from 421K).
Factory Orders, March (10:00): +0.4% actual versus 0.0% expected (revised from 0.7%) and +0.2% prior (revised from -0.1%).
5-3-02
Nonfarm Payrolls, April (8:30): 60K versus 58K prior
Unemployment Rate, April (8:30): 5.8% versus 5.7% prior
Hourly Earnings, April (8:30): 0.3% versus 0.3% prior
Average Workweek, April (8:30): 34.3 versus 34.2 prior
ISM Services, April (10:00): 57.5 versus 57.3 prior
SUBSCRIBER QUESTIONS:
Q: Is there a place on the net that makes available Deltas for all stock options?
A: Finally one that does, and it has a lot of useful information regarding options. It is www.phlx.com. On the home page there is a link for deltas. When you get to the options page you have three choices of various option information. The second choice includes deltas on options.
Q: I see you frequently mention MVA-18. Could you let me know where I can find Chart service which has MVA-18? Which chart service do you use? Can you recommend any? I am using IBD chart online currently. But it only has MVA-50 and MVA-200, no MVA-18.
Thanks for your help! Keep on your great work!
A: We use Telechart 2000 because it does offer more flexibility in setting many variables the way we want to set them, including the 18 day MVA. One drawback of the IBD charts is that they are set up for IBD methodology only. There is a free service on the web at www.stockcharts.com. Go to 'tools and charts' and select 'sharp charts.' From there scroll down and manually change the moving average choice to 'exponential moving average 18.' That should do it for you.
End Part 1 of 2
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