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online trading, day trading
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5/06/02 Technical Traders Report
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Technical Traders Report Subscribers:
MARKET ALERTS
Target hit alerts issued today: GMRK (+$8.50; +21%); AROW (+$3.65; +12% on bounce); OATS (+$2.98; +27%); TGIC (+$11; +30%); ATAC (+$4.38; +22%); OEX put (closed some positions at 523, let others ride).
Trailing stops issued to preserve gains, exit flat or cut losses very small: IMDC, MDR, CDIS, CHK, KSS, BBX, MGA, UPL, ITRI.
Subscribers to the current reports can sign up at the following link:
http://www.investmenthouse.com/alertttr.htm
Emails: We love your emails. We receive hundreds of emails a week, but we don't mind. We respond to them all as fast as we can, so bear with us.
SUMMARY:
- Friday selling broadens out as all indexes break substantially lower.
- Some stocks still swimming against the tide.
- Continued: What is the market really telling us about the economy?
- Looking ahead for clear skies: productivity tomorrow, FOMC meeting. bearishness rising.
- Subscriber Questions
Selling accelerates, but no strong volume.
Investors continued to find little to interest them in holding stocks much more buying them. Again it was time to sell stocks, and investors did a good job of it all session long. Not really good enough, however, as volume shrank on the major indexes as more shares were shed. To get some sense that the selling might be reaching a climax we like to see selling volume really picking up. This is one of the few times a bull would like to see upside volume rise as that indicates a rush to selling similar to what we have noted in WCOM and ORCL of late. When everyone wants out and they all out at once, that indicates the selling is coming to an end. Looking at the volume that was not the case today.
What has been holding the market up also came under pressure today. The selling was much broader. Though the small cap and mid-cap indexes were the least hurt by the selling, they still were down 1.8% and 1.5% respectively. The mid-cap index undercut its 50 day MVA, closing near the session low. This is one of the key sectors to the upside in the market. It did not undercut the recent bottom of its trading range at 525, but this is the second close below the 50 day MVA in 6 sessions.
The A/D line was very weak, demonstrating the broad selling. Now while the lighter volume selling indicates no cathartic sell off on the big indexes, the lighter volume is good for the smaller issues that have been holding the line and actually rising. The lighter volume for those indexes indicates there was not broad dumping of those shares, just selling on the nervousness about the economy. That is what it looks like for now. However, the financial stations were reporting tonight how investors were moving into smaller issues today and selling the big names. Well, we did not see a mass move into smaller issues; this is just the parroting of what was previously stated on the shows. No one was doing much buying today, small cap or large cap.
Still some stocks moving well, but some leaders are showing problems.
Even with the broad selling there were stocks that continued to move higher. OATS, CAND, BRO, TYL, HTRN, TGIC, etc. These were very good moves, but they were confined to a pretty narrow range of stocks. While we continue to find those stocks, right now the upside pool is smaller. It is hard for stocks to move against the majority.
The good news is the majority of stocks over the past few months have been moving to the upside. That trend has not changed based on the recent action. Today was a tougher day with those investors that were in the market (remember, volume was lower) deciding to sell stocks across the board. While we do not like the mid-cap index breaking its 50 day MVA, the volume indicates it was not a big change of character, at least for now. As we said last week, however, we have to keep an eye on how the smaller indexes perform as that will give us the early signs of a broadening sickness. The second breach of the 50 day MVA by the mid-caps is alerting us as those stocks start hanging around in the wrong neighborhood. If they cannot recover, one of the underpinnings of the 'stealth bull market' as it has been labeled is gone.
Homebuilders under pressure again. This action mirrors the homebuilders. We starting going cold on this group two months ago when they started breaking their uptrends. They did not tank, however, but most formed new bases. We like that action even though we remained skeptical that the housing market could continue its run. Maybe not a bubble, but the pace was showing signs of strain. The homebuilders had a rough day Monday, selling on higher volume almost across the board. Not massively higher volume, but it was upsetting some good handles that were in the make. The homebuilders are once again in a yellow flag environment; they have to prove to us they are going to hold up. They have not broken down, but we have been removing ourselves from positions in them over the past two months.
The economy and the market.
What can this mean for the market? Well, the market is one of the best handicappers there is because it represents the thoughts (fear and greed mainly) of the entire collective of investors. Not quite like the Borg on Star Trek Next Generation, but the available data and investor emotion are all mixed together, and a direction results. You cannot get a better sampling of emotion or views than looking at the market as a whole.
Is the market saying the economy is in the tank?
If that is the case, then some will say the economy is in the crapper as the big indexes break support levels and fall toward the September lows, a level where the economy was supposedly worse than it is now. We feel the latter is true, i.e., the economy is better. Two points. First, the market, despite its accuracy overall in picking economic direction, always overshoots. It overshot on the way up from the bottom (the earnings did not recover as fast as expectations), and it is overshooting to the downside.
But is it overshooting much? Some would say it damn well better be or we are not in much better shape than September 11. Second point. Look at the broader market; it is performing well. More stocks are up than down over the past six months, and even the past one and two months. It is the big few that are in trouble. When an elephant dies, it makes a lot of noise and shakes the earth when it falls. That captures a lot of attention. That is not the end of the life cycle, however. The fall of the elephant will help many, many smaller species flourish. We don't want to get too far off the track here with the Jungle Book/Lion King analogies, but the idea is even if the tech stocks and other large caps crater, we continue to see the rest of the market trending higher. In that respect, the market has NOT overshot at all, nor is it missing the boat.
As we have said in many recent reports, after a deep, three-leg bear market, the children shall lead, i.e., the smaller stocks. Historically that is the case. Some of today's and tomorrow's smaller stocks will be the MSFT, INTC, DELL, etc. of the future market. After years of focusing on these once small but now big horses that investors rode for years, the market is rewarding smaller stocks with lower P/E's that are in economically sensitive areas. They are easy to understand business and book-wise, and consumers need them and want their goods in a recovering economy. In this sense the market is right on as it is forecasting: these stocks started to perform well several months back and have continued to do so despite all of the talk about a 'double dip' recession (which is often a paper phenomena and not an actual event) and some recent weakness.
The market tells the story, but make sure you are listening to what the story is.
Thus, much of what we hear is gloom about the future based on the Nasdaq, Dow, and S&P 500 dives. While that is not good news as it means technology is not going to recover any time soon (the market forecasts months and months ahead of actual turns; if the Nasdaq rallies next week and beyond that could mean the actual economic turn won't show for another 6 months or more), it is telling us that other parts of the economy are improving. It is a lot like technical analysis as we teach it in the online seminars: there are so many TA 'tools' out there that if you don't know how to use one or don't know when to use it, you can get a wrong reading. Thus, as we said, you have to listen to the right story. Lots of gloom out there based on the large cap indexes. The rest of the market, while a bit wobbly right now, is still in a solid uptrend.
THE MARKET
The additional selling we were looking for continued Monday, but it did not bring in the fevered volume we wanted to show that sellers were panicky. Volatility is rising but is not nearly high enough. The put/call ratio was weak given the selling. About the only signal sentiment is shifting is volatility and the bulls versus bears. Bulls are declining and bears are rising, but they are way off of reversal levels. There needs to be a lot of sharp selling to get this market jolted. Today there was a lot of downside, but it did not appear to rattle investors much. One market commentator tonight said he had a 'feeling of capitulation.' Give me facts not your feelings. He also felt that tech stocks were good buys after they lost 50% of their value. This is one of the reasons we know there is no capitulation. We have said it before: capitulation is like love; when you look for it you won't find it; when you forget about it and just take care of business, you have it.
Put/Call Ratio (CBOE): 0.77; -0.14. Almost shocking that put activity fell on such a broad market sell off. One of the arguments as to why sentiment indicators were not high is that the overall market is strong. Well, all of the market sold today, but fear indicators actually fell. That indicates there is more selling to come and our put positions taken today and last week could drop a lot further before investors wake up.
Nasdaq
Made some noise today by undercutting the April 2001 low, putting a bullet in the reverse head and shoulders pattern. May not have killed it, but wounded it badly. Now the techs don't have much to stop them down to 1500 and really the September lows.
Stats: 34.55 (-2.1%) to close at 1578.48
Volume: 1.775 billion (-10.7%). Volume fell sharply, lacking the punch that we want to see to show a bottoming process. So, more downside expected.
Up volume: 354 million (-101 million)
Down volume: 1.399 billion (-122 million)
A/D and Hi/Lo: Decliners posted their first big victory in a long time at 2 to 1 (1.18 to 1 Friday). Tech selling was broad along with smaller issues.
New highs: 212 (+19)
New lows: 189 (+52). New highs rose on a downside rout. There were many small Nasdaq stocks moving to new highs even as the big techs burned in purgatory.
The Chart: http://www.investmenthouse.com/cd/$compq.html
A chart only a bear could love, the Nasdaq broke below the April 2001 low (1619.58), leaving little below other than 1500 where it marked some time coming up off the September low (1387.06). Volume has been falling the past three sessions as the index sold; it has not been rampant selling, but that is what the index needs at this point. It is not in an uptrend, so worrying about distribution is akin to worrying about whether proper protocol was followed when the nukes are already flying. Survival is the key at that point.
There appears to be little doubt the Nasdaq will test 1500 and probably the September low at this point simply because it disappointed high expectations and investors are going to grind it down before they will look favorably at it again. It will not, however, fall in a straight line. It is way oversold now, but gauging this bounce is tough simply because it is so oversold. We wanted to see the sentiment indicators start higher today. They did not, and thus there needs to be a LOT more heavy, hard, fast selling to do that. The trend is down, but it might give a bounce at 1500 due to the weeks of selling alone. It could hit that level in two sessions. We want it to undercut that level hard and fast; that could scare. But now most are looking for a test of the September low, and you know the story about the watched pot.
Dow/NYSE
The Dow did not undercut the recent lows, but it came darn close. Volume did not spike on the NYSE. It might try a bounce here, but it is not ready to move very high just yet.
Stats: -198.59 (-2.0%) to close at 9808.04
NYSE Volume: 1.107 billion (-13.7%). Volume was down again, not even hitting average on the selling. It is just not shaking out those holders.
Up volume: 193 million (-305 million)
Down volume: 900 million (+121 million). Fewer buyers, more sellers even with lighter volume.
A/D and Hi/Lo: Decliners jumped to the lead at 2.05 to 1 (Advancing issues led 1.09 to 1 Friday). NYSE suffered a rare strong overall decline.
New highs: 211 (-46)
New lows: 52 (-6). Eight straight sessions of greater than 40 new lows. The indicator has helped bird dog this continued selling. Interesting that new lows did fall on the selling, a potential sign of a bottom.
The Chart: http://www.investmenthouse.com/cd/$indu.html
There is some support at the recent lows at 9811, but the down channel in the downtrend is just under 9750 (9735) is better. This level would be premature for a real hold; we want to see it down to 9500 on some sharper volume. In short, it can bounce near 9700 in an oversold move, but the real damage to come begs for it to test 9500.
S&P 500: The big caps really sold today, but no worse than the Nasdaq and Dow on a percentage basis. Just a really dramatic chart as it fell to its October lows already. This is the last real chance of support before 1,000, a small shelf of support where the index rested off of its September low at 944.75. It too is massively oversold, but oversold conditions can fester for a long time. We sold some of our OEX puts today, anticipating it would try to bounce from near 1050, but we do not expect that bounce to be very strong.
Stats: -20.76 (-1.9%) to close at 1052.67.
Volume: NYSE volume fell below average to 1.107 billion (-13.7%).
Summary: The indexes have undergone massive selling and are oversold once again. The short sellers have almost drawn a penalty flag for excessive piling on. That will lead to an occasional session or two of sharp short covering with big point moves and volume. Until we see those sentiment indicators kick in again, however, those moves are all suspect and should be considered short covering relief rallies.
The Chart: http://www.investmenthouse.com/cd/$spx.html
TOMORROW
The FOMC meets Tuesday in the biggest yawner of a meeting in a long while. With the market in full retreat for fear of a weakening recovery, the Fed won't do anything to exacerbate that action, i.e., raise rates. It now cannot really go back on its 'risks are equal' nonsense it spewed last meeting either. It may want to change to a more relaxed stance again after the market tanking, but it has once again, as Archie Bunker would say, painted itself in a corner and thrown away the key. It is a bed the Fed has made, and we are the poor peons who have to sleep in it.
We anticipate the S&P 500 will try and bounce at or near 1050; that is a logical short covering point for shorts that have feasted on the downside. As with most of these bounces, we don't expect the move to last at this point. Again, there is no alignment of the sentiment indicators that would indicate any fear in this market. That is despite the gloom we hear on the financial stations. Those analysts are talking from their gut and business concerns, not from the facts that market is showing. There just is not a lot of fear out there. In our estimation we need to see the Dow drop over 300 points in one session and the Nasdaq push 100 points in a session to even approach garnering enough attention right now to get people scared of a total meltdown. There is too much talk that the economy is okay; that makes people taught to stay the course feel it is just a matter of time. It IS just a matter of time, but let's not tell everyone.
So we look for a test of 1050 on the S&P and slightly lower to trigger a bounce, a bounce that we feel will not last. We are also not sure it will include all of the techs or the smaller issues. When short covering in a downtrend occurs, it impacts those stocks shorted. Those are your big name techs for the most part, though brokerages have their share of the action. We are comfortable still with our playing the uptrend on smaller issues and the downtrend on the larger names and suffering sectors. We continue to use trailing stop limits on all plays, and we issued a number today that preserved gains, got us out of a position flat or with a very marginal loss. The trends have not changed, so we are not changing the game plan yet.
Support and Resistance
Nasdaq: Closed at 1578.48
Resistance: 1620 stopped the upside move Monday. After that, the down trendline is right at 1660 (10 day MVA at 1663.52). Then the February lows at 1696 to 1700. That is followed closely by resistance at 1743 to 1750.
Support: 1550 to 1560 are the October lows and could try to hold. Then 1500. After that is the September low at 1387.06.
S&P 500: Closed at 1052.67
Resistance: 1063, the late April lows. Then 1080 (February closing lows and the 10 day MVA). The down trendline is at 86, and the 18 day MVA at 1092.67. Again, these are resistance points in a continuing downtrend. 1100 also represents resistance from previous price consolidations as does 1125. The 200 day MVA backs that up at 1126.41.
Support: 1050 represents the October lows and the last price consolidation level before the September low. There is possible support at 1000, but it is not much.
Dow: Closed at 9808.04
Resistance: 200 day MVA at 9921.81. Down trendline at 10,030 and 18 day MVA at 10,063.33). Then 10,100 is 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: Closed right at the recent lows at 9811. The bottom of the channel is at 9735. 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.
5-7-02
Productivity-Prel., Q1 (8:30): 7.0% versus 5.2% prior
Wholesale Inventories, March (10:00): -0.4% versus -0.7% prior
FOMC Meeting (2:15)
Consumer Credit, March (Consumer Credit): $6.0B versus $7.1B prior
5-9-02
Initial Claims, 5/4 (8:30): 407K versus 418K prior
Export Prices es-ag., April (8:30): NA versus 0.2% prior
Import Prices ex-oil, April (8:30): NA versus 0.0%
FOMC Minutes, 3/19 (2:00)
5-10-02
PPI, April (8:30): 0.4% versus 1.0% prior
Core PPI, April (8:30): 0.1% versus 0.1% priorAuto Sales, April (00:00): 6.0M versus
End Part 1 of 2
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