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us stock market, trend trading stock
Begin Part 2 of 2
THE MARKETS
As we said above, today was not a great day, but it was far from the bad day that could have occurred. The Dow and S&P 500 are knocking on resistance's door on low volume while the Nasdaq held support and traded more or less flat on lower volume. Despite the gloom being spelled out in the economy by the economists-come-lately-to-the-conclusion-a-recession-could-be-here, we remind everyone that the stock market looks far ahead of this quarter's earnings. There are still bad reports to come, but that is always the case by the time the Fed starts to act after it has cut the legs out from under the economy. That does not stop the market from moving ahead as it places bets on economic gains in the future. It is not a smooth ride, but the trend is higher.
Overall market stats:
VIX: 23.99; -0.30. Volatility was a flat line with the rest of the market today on the light volume and even with the Dow pushing up close to 100 points. Not much fear, but not much excitement. That is not bad for a consolidation period.
Put/Call ratio: 0.53; -0.08. A rise in the market overall, a drop in put activity. This is not telling us much over the past month after spiking over 0.90 several times in late 2000.
Sentiment: Individual investors remain bearish according to polls of investment associations, but investment advisors are really getting bullish. They apparently feel the rate cuts will do the trick while individuals are not entirely buying it. That is how it always happens, however, when the market is saying it looks ready but investors don't trust themselves.
NASDAQ:
Overall not a bad session as the Nasdaq tested support twice, held, and held on to some small gains. Volume was lower, nothing horrid, more consolidation in the trading range. Good.
Stats: Up 10.06 points (+0.4%) to close at 2782.79.
Volume: 1.778 billion shares (-25%). Even with the revised volume measure, volume fell by 18%. Up volume edged down volume 896 million to 809 million shares. Not technically great volume action, but not bad given what we saw Wednesday. Up volume took over with a half hour to go in the session.
A/D and Hi/Lo: Declining issues continued to lead, 1.07 to 1 (1.16 to 1 Wednesday). New highs fell to 106 (-32) while new lows fell to 17 (-1).
The Chart: http://www.investmenthouse.com/cd/$ndx.html
Today was an interesting day. Up early, the Nasdaq quickly dropped to test 2750. It bounced sharply and we were pleased. It turned down 5 minutes later and undercut that low. A classic undercut that scared some that support at 2750 would not hold. That shook them out and the market started right back up on a 50-point run. It then showed a double top 25 minutes apart and sold down hard to again test the 2750 level. It bounced up, and with an hour to go was at the peak reached in the early morning. It had set up a head and shoulders pattern and started to sell back. It dropped 12 points but bounced up off of the 15 minute MVA and rallied to the close. Whew. It had several opportunities to cave, but it did not.
At the end of the day the index showed us a doji on the candlestick pattern. As it occurred at the bottom of the consolidation range, that indicates to us that we have at least a short term rise ahead. Whether it is ready to make a run at 3000 on this next move or not is questionable. It took three sessions after the last rate cut to figure it out. We will watch and see. We want to see some snappy upside volume for the next move up.
Dow/NYSE: The Dow is really putting on airs that it wants to breakout of its trading range. It has surged up out of its tight, intermediate trading range and is knocking at the door of 11,020. Volume has declined on the two major moves this week, however. That does not indicate a lot of power on this move, and unless an attempted cross of 11,020 triggers a massive buying response, it could once again fall back and have to make another run at it. A second shot at tough resistance before a breakout is the norm.
Stats: Up 96.27 points (0.9%) to close at 10,983.63.
Volume: NYSE volume dropped back below average on the move, falling to 1.118 billion shares (-13.66%). Up volume outpaced down volume 620 million shares to 461 million shares. Again, this price/volume action does not speak of a powerful move; it could morph into one, so keep an eye out. It really looks as if it wants to get through here in the near term.
A/D and Hi/Lo: NYSE advancing issues continued to lead, 1.25 to 1 (1.29 to 1 Wednesday). New highs fell to 238 (-18) while new lows rose to 6 (+3).
The Chart: http://www.investmenthouse.com/cd/$dja.html
Tapping at the door of resistance at 11,020. That level has acted as some support and resistance for over a year. Getting through it will be a feat, and it needs more volume to do it and hold. If the techs rally tomorrow, the Dow may have to take a rest before it tries it again. We would love to see the Dow and the Nasdaq move in tandem for a change. We will see if that happens when the fact that the Fed has made a tremendous move in less than 30 days (it raised rates 175 basis points and has now cut 100). If it does pull back, we will look for it to hold in the 10,700 range.
S&P 500: The big caps mirrored the Nasdaq's move almost to a T in both the pattern and the size of the gain. Much as the Nasdaq, it rose on lower volume. Unlike the Nasdaq, it is right at resistance at 1375. Like the Nasdaq, it will need more volume to make the break. This is the S&P's second crack at this level. More volume should do it.
Stats: Up 7.46 points (+0.5%), gaining back Wednesday's loss to close at 1373.47.
Volume: NYSE volume fell back below average at 1.118 billion shares (-13.66%). Wanted more volume on the move, and it may be coming.
The Chart: http://www.investmenthouse.com/cd/$spx.html
TOMORROW
The Nasdaq avoided potential disaster today after Wednesday's ride, and is showing signs of a short term move higher. The Dow and S&P 500 are at the brink of breakouts; the Dow may have to pull back a bit and retry while the S&P 500 looks as if could make the break. The fact that the indexes were able to get it together better today (still not where they should be) was a positive to us that the markets will respond again as they did after the first rate cut: pensive right after and then figuring out that this was a good thing and moving higher again.
For now all we can say is that the Nasdaq is set up for a short term move. Until we see strong volume and leading stocks asserting power in their moves, we have to still view it in the trading range. Sooner than later it must take out 3000 to have any hopes of advancing. Some say that the Nasdaq is going to be range bound, halted at 3000 and trading down to 2500 again, perhaps 2200. It could do it. The road to recovery even with rate cuts is hard on the rear end. We just have to be willing to put money to work when we see the right plays for us and be ready to take gains when things turn down or our loss-cutting rules require it. We are still in a market that requires extreme caution because we do not know if there will be a test yet. The Nasdaq has shown good price/volume action thus far this month, but that can change. It is showing some cracks now that should keep us on alert.
The futures are modestly positive, but a lot happens between now and 9:30 ET. The employment report will be out before the market opens along with factory orders and the Michigan Sentiment Survey (final). Any one of those can shake the market, but we don't think they are going to do that. As with earnings, after so much good or bad news investors become a bit desensitized to the flood of information. It looks as if the markets are going to try to make a positive Friday out of it, and we will have to keep an eye on volume to determine if it can bleed over into Monday. If we see strong buying volume and it holds to the close more or less, things could be ready to really make a move under this last rate cut. If not, we want it to hold support and consolidate further on low volume.
Thus we will keep looking for breakouts. They continue to occur (MWD today) while other stocks look ready to spring from solid patterns and turn back up for a run higher. Volume will be the key on these moves; we need to see powerful volume to get moves that have a chance of holding and helping all indexes break resistance. So far so good, but lots of work ahead. Keep your focus.
Support and Resistance Levels
Nasdaq: Closed at 2782.79.
Resistance: 2890 to 2900 is next before the 3000 level.
Support: 2750 held today, and that was great. The 18 day MVA at 2732.67. 2700 is next. Then 2640 to 2650.
S&P 500: Closed at 1373.47
Resistance: 1360 to 1375.
Support: Bounced off of 1360 on its low as we were looking for (right at the 10 day MVA). The 50 day and 18 day MVA are at 1348.32. After that 1335 to 1340.
Dow: Closed at 10,983.63
Resistance: 11,020. After that, 11,400.
Support: 10,750. 200 day MVA is 10,702.45. Then 10,650.
Weekly Economic Calendar (All times Eastern). The figures are the consensus expectations, not ours.
1-30-01
Consumer Confidence, January (10:00): 114.4 actual versus 125.0 expected and 128.3 prior.
FOMC Meeting, Day 1
1-31-01
GDP Fourth Quarter (8:30): 1.4% actual. 2.3% expected versus 2.2% prior.
Chain Deflator-Adv., Fourth Quarter (8:30): 2.1% versus 1.6% prior.
Chicago PMI, January (10:00): 40.2% actual. 43.0% expected versus 45.2% prior.
New Home Sales, December (10:00): 975,000 actual. 895,000 expected versus 909,000 prior
FOMC Announcement (2:15)
2-1-01
Auto Sales, January: 5.8 million versus 5.8 million prior.
Truck Sales, January: 6.7 million versus 6.7 million prior.
Initial jobless claims for prior week (8:30): 346,000 actual versus 316K prior.
Personal Income, December (8:30): 0.3% versus 0.2% expected and 0.4% prior.
PCE, December (8:30): 0.3% versus 0.2% expected and 0.4% prior.
Construction Spending, December (10:00): +0.6% versus -0.5% expected and -0.6% prior.
NAPM Index, January (10:00): 41.2% actual versus 43.8% expected and 44.3% prior.
2-2-01
Non-farm Payrolls, January (8:30): 80,000 versus 105,000 prior.
Unemployment Rate, January (8:30): 4.1% versus 4.0% prior.
Hourly Earnings, January (8:30): 0.3% versus 0.4% prior.
Average Workweek, January (8:30): 34.1 versus 34.1 prior.
Factory Orders, December (10:00): -0.5% versus 1.7% prior.
Michigan Sentiment Review, January (10:00): 94.0 versus 93.6 prior.
SUBSCRIBER QUESTIONS
Q: Can you please explain how to recognize when an index or a stock flashes a buy or sell signal.
A: This is a great question and one that will take a long time to explain. Indeed, we are going to cover this in detail as a main topic in our upcoming seminar series. In a nutshell, while there are all kinds of oscillators and vague tea leaves, but the key is whether institutions are buying into a move up and whether leading stocks are ready to move up. Stock charts show graphical representations of investor fear and greed. Volume shows if institutions are moving in to capitalize on that those emotions. We want to see the index reverse a downtrend and then confirm that downtrend on a large gain and a sharp rise in volume. At the same time we want to see leading stocks breaking out of solid patterns and hitting new highs. That is the best indicator that a serious bull move is starting. Right now the Nasdaq is not at that point, but there are financial stocks breaking out and other stocks from scattered sectors doing the same. The indexes are performing better and are giving stocks time to complete there bases. Once we see them start breaking out of those bases in high numbers, the move is on.
TEAM TRADES
EMLX: We saw EMLX open right on top of its 18 day MVA, test a bit lower and then start immediately back up. After getting pasted on EMLX Wednesday, we were ready to target shoot some more at it. It ran by us on our first attempt as it shot up quickly. It stalled around 97.50 and bounced between 95.50 and 97.50. The April 90 calls were 18.50 by 19.50, and we put in a limit at 19.38 trying to again narrow the spread. The stock banged around for twenty minutes or so, and the fill was finally made. It exploded higher to 100 and ranged around that level for two hours before selling back with the market to 96.50. We contemplated more positions, but with the Nasdaq forming a head and shoulders, we didn't pull the trigger. EMLX ran back up to close at the 98.50 level and the options at 20.88 by 21.75. Not huge volume so may be risky, but this is one of the strongest stocks in the market right now.
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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