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us stock market, trade stock
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6/11/02 Technical Traders Report
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Technical Traders Report Subscribers:
MARKET ALERTS:
Targets hit Monday: ABT (put)
Buy alerts issued: SLM; FRX; CAND; PHTN
Trailing stops issued: None issued
Stop alerts issued: SGR; HAR; BER; MOLX
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:
- Market gives it a try for the gipper and then gives up.
- Weekly chain store sales not bad.
- Income taxes as an indicator of economic health?
- Indexes ready to test significantly lower.
- Subscriber Questions
One more push up then rolling back down: a one-sided roller coaster thus far.
The market gave that one last push back up to test near term resistance that we were looking for in the Monday report, tested it for two hours, and then just rolled back down on a wave of selling. The indexes were in a decent rally and there was some ebullience in the financial circles. Then the market rolled over and all of the indexes (mid and small caps as well) started to sell. The culprits the commentators had on the daily menu were two-fold: for the appetizer run up today we have a lessening of tensions between India and Pakistan. For the entr e to the downside we are serving up an explosion in Israel. Find a reason; there has to be a reason.
What happened was the market rallied to resistance yet again and once again it could find no buyers. It found plenty of sellers at that level, however, that wanted to get out of positions taken on the last bounce. The wave of position clearing and short selling stopped the rally attempt cold as volume surged higher on the reversal from resistance. It was not blowout downside volume, but NYSE volume was heavy. It continues to trade as a higher percentage of Nasdaq volume, usually a sign that the market is getting closer to being sold out. Why? Speculation is always the death of rallies. Speculation usually occurs on the Nasdaq because of its tech, biotech, and other pioneering sectors. When there is not much or at least comparatively a significant reduction in the volume on the speculative index versus the more stodgy NYSE, that is a sign that the speculation is being wrung out.
After the selling the indexes once again were back at the lows they hit just two sessions back. What were intraday lows became closing lows today. Will the indexes hold again? It does not appear so. Rising volume, the abrupt reversal Monday, and generally the lack of upside patterns reduce the odds of this level holding. The slide lower that we were looking for Friday may be ready to start now.
THE ECONOMY
Weekly chain sales solid.
The weekly Redbook (+2.3%) and Bank of Tokyo-Mitsubishi sales indexes both rose for the last week (BTM +1.6%). Retailers said there sales were on to above plan led by summer clothing, lawn and garden supplies, and shoes.
If they keep the same pace they will be 5% for June, the highest since April's 6.4% gain. There is a lot of talk about weakening economic numbers, but a lot of what we are seeing indicates that the economy is picking up a bit of speed. It is in vogue to find fault with everything related to the market or the economy just as it was in vogue in early 2000 to just drop on the floor and grovel with homage to the 'red hot' economy. At that time the economy was showing cracks as we were writing about every night, but they were 'anomalies' according to the 'expert' economists. There are signs of strengthening economic sectors again and again, but they are doubted. Not all sectors are rising, but many are.
Income taxes an economic indicator?
TrimTabs was out today with its view on the economy. It is the one that comes out with money flows into the market as well as supply of stock available. This is what we hear quite often on television by some of the anchors: too much supply of stock with IPO's, etc. We have discussed the importance of IPO's before; it is much broader than a simplistic view of stock for sale versus buyers.
TrimTabs is of the view that the economy is sick. It says the government is overstating economic health in the economic reports we see. We need to clarify, however, that many of the economic reports that we see each week are not government generated at all. Sentiment, leading indicators, ECRI, weekly retail sales, mortgage applications, etc., etc. provide a river of data the government has nothing to do with. With that clear, TrimTabs is saying that declining income tax revenues show the economy is weaker than stated. What?
The theory apparently is that when income tax receipts are down the economy must be down. Of course that is the case. Fewer workers pay fewer income taxes. Slower corporate activity means fewer corporate taxes. Slower stock markets mean lower capital gains receipts. Tax revenues explode when the economy revs up. That is why lower tax rates often lead to higher tax revenues: money is freed up to invest in the economy and the resulting economic boom really provides great revenues.
Yes, lower income taxes mean a slower economy. But are they an indicator worth spit? No. Income taxes are derived primarily from workers. We know that employment numbers are a lagging indicator: companies wait to hire until business is really humming and they have to have help to meet orders, etc. People don't pay income taxes unless and until they have income, i.e., a job. If jobs are a lagging indicator, taxes are even one step further removed as a good chunk of taxes are collected in April in addition to withholding. Indeed, there were record tax refunds this year from taxes paid throughout 2001; talk about a lagging indicator. Using income taxes as an indicator of economic health is similar to driving by looking in the rearview mirror to see where you have been.
THE MARKET
It was an equal opportunity selloff Tuesday with all indexes suffering the selling. The short selling that showed up late Monday appeared again mid-morning. It sent the indexes back to support where they bounced Friday. Volume was not blowout, but it was significantly higher. Looks as if there is a lower test on the way now. Read the S&P 500 summary as well.
VIX: 27.46; +1.31
VXN: 53.12; +0.55. These are still not there. Need it up to 50 on the VIX and 80 or so on the VXN.
Put/Call Ratio (CBOE): 1.02; +0.16. Third close above 1.0 over the past four weeks. The put/call ratio is getting there, but it is not sufficient itself. There needs to be some sharp selling to drive volatility up.
Nasdaq
Lowest close since October 2001, falling on rising volume. It is back at 1500 that can be some support, but it needs to head to that September low and maybe a bit beyond.
Stats: -33.51 points (-2.19%) to close at 1497.18
Volume: 1.696B (+11.72%). Rising volume but not above average volume. Compared to the NYSE, the Nasdaq looks tamer and tamer from a selling standpoint.
Up Volume: 263M (-325M)
Down Volume: 1.419B (+502M)
A/D and Hi/Lo: Decliners led 1.74 to 1
Previous Session: Decliners led 1.2 to 1. Getting worse, but not horrible as we saw last week.
New Highs: 57 (-9)
New Lows: 201 (+79)
The Chart: http://www.investmenthouse.com/cd/$compq.html
Back at some potential support at 1500 after testing resistance again at 1550 as we anticipated. 1387.06 is the September low and the Nasdaq is within a couple of sessions of being there. We want it to come in a quick two sessions and then undercut it deeply on a third, at the same time seeing the VXN spike to near 80. Will it bounce here some ask? We don't think so with the higher volume selling on the heels of such a weak attempt to bounce. This may be the slide lower we were looking for last week.
Dow/NYSE
A true test of resistance at 9750 today and that was it. The Dow turned over and dove to support at 9500 on rising, above average NYSE volume. 9500 is a harder support level, but the distribution and continued rising new lows indicates it will try to land between 9250 and 9000.
Stats: -128.14 points (-1.33%) to close at 9517.26
Volume: 1.397B (+15.28%). Volume jumped above average on the selling. Friday was a short covering reversal, Monday was a weak volume gain, and today was a resumption of the selling trend that is already very steep.
Up Volume: 358M (-309M)
Down Volume: 1.041B (+497M)
A/D and Hi/Lo: Decliners led 1.71 to 1
Previous Session: Advancers led 1.06 to 1
New Highs: 88 (+4)
New Lows: 87 (+32)
The Chart: http://www.investmenthouse.com/cd/$indu.html
Tested the 10 day MVA and price resistance at 9750 on the high and then reversed to close at some pretty decent support at 9500. We don't think that will hold, however, given the higher volume reversal once again. Now the Dow is already in a steep decline; very oversold as some would say. But it tends to get very, very oversold when it is ready to try for a real bottom. It HAS to get way oversold to make a bottom and there is nothing we see indicating a meaningful bounce. Look at last Friday. There were quite a few commentators speculating that was a significant interim bottom. While it is still holding, we think the action since has shown otherwise: lower volume rally, higher volume selling on its heels. That has been the calling card of weak and failed bounces. To us it looks as if it could start down an accelerating path that increases the volume, the level of selling, and the sentiment indicators. If it is going to find the bottom it needs to go that route. If it does break, 9250 is the next checkpoint.
S&P 500:
The large caps were gut-punched again, tested Monday's high and reversing as well to close just above the Friday intraday low (1012.49). This point represents a long term down trendline from the September 2000 high through the May 2001 high. That is one reason it is trying to hold here, not to mention the little interim high in September 2001 after the S&P bounced off the low and then fell back to test 1000. 1000 is next as it was tested on the move off the bottom, and then it is 965.80 on the close and 944.75 intraday marking the September 2001 lows. The S&P is at a two-thirds test of its move off of the September bottom. Historically that has been enough to secure the real bottom. What we want to see, however, is some more sharp selling that maybe undercuts the September low and thus spikes up the fear indicators to reversal levels. If BOTH September 2001 and June 2002 during the test show the same sentiment indicator spikes, that is more of a lock on the bottom. From there it starts to move higher. Not an explosion higher, but putting in higher and higher lows with a correction here and there. That is how the market bottoms historically. Despite what some are saying, things are not really all that different now from other crisis periods in the past that gave birth to market bottoms and the new bull runs.
Stats: -17.14 points (-1.66%) to close at 1013.6
NYSE Volume: 1.397B (+15.28%)
The Chart: http://www.investmenthouse.com/cd/$spx.html
TOMORROW
Beige Book is out Wednesday afternoon and today that was the focus for many today as they were hoping for ANY good news. Many are badmouthing the economy as we noted above, and we think they are doing so unwarrantedly. The Beige Book is a history lesson for most purposes, but the market is grasping for anything right now.
We like that desperation sense. We like that there is groping for some hope. We like that the put/call ratio is spiking up again. If the selling continues and the VIX and VXN follow with their own spike on a test or undercut of the prior September lows, that will help set a bottom. That does not mean it races back up. Technology is still in the toilet and it is and will lag. It is not going to be easy as it was in 1999. It is going to be getting better and building on itself with a base.
Tomorrow we anticipate more selling out of the gates and we are not sure it will make any rally attempt. 1500 and 9500 are important for the Nasdaq and S&P 500. 1000 is important for the S&P 500, and if it takes that out it will have dropped more than 13 points for the session, quite a drop. Thus the indexes have plenty of runway to the downside to let the volatility and sentiment indicators start jumping higher. That is what the market needs to cleanse itself. We believe the market is heading to the brink, but we have to see it breach those levels hit last week.
We are in many downside plays and are still looking with more that are set up. Not chasing what has already fallen, but catching the next wave that is breaking down. There are upside plays and we took some positions today but we also let some that hit the buy point sit because it was not just what we wanted. We will continue to look both ways, but the trend is down and that is where we think it will be for the rest of the week. What happens from there depends upon how strong the selling is.
Support and Resistance
Nasdaq: Closed at 1497.18
Resistance: 1550 held as resistance again Tuesday. In a very tight range with 1548 as the May down trendline. Then the 10 day MVA (1567.81) and the October lows at 1560. 1600 and the 18 day MVA (1600.66) are next. Then the second March down trendline at 1615. The next March to April trendline now at 1650 and the February low at 1700.
Support: 1500 will try to hold but we do not think it will. 1460 is some support. After that is the September low at 1387.06.
S&P 500: Closed at 1013.60
Resistance: The first March down trendline at 1030. Then the 10 day MVA (1054.01) and 1050. 1060 offers minor resistance after that from previous prices. The second March/April down trendline at 1059. Then the February lows at 1074.
Support: 1012 is the September 2000/May 2001 down trendline. Then possible support at 1000. The September low is 944.75.
Dow: Closed at 9517.26
Resistance: The March down trendline at 9575. Then 9750 that stopped the index twice. The 10 day MVA is right there at 9727.59. Then the April and May lows at 9800 to 9811. That is followed by the 18 day MVA (9836.66) and the 200 day MVA (9863.92). The September 2000/February 2001 down trendline is at roughly 9950. Then 10,100, followed by 10,250 to 10,300.
Support: 9500 to 9600 in the shelf of support from 9500 to 10,100. It is on the bottom shelf right now. Then 9000 to 9100. There is a rest stop at 8500. The September low is 8062.
Economic Calendar
6-12-02
Export Prices ex-ag., May (8:30): NA vs. 0.3% prior.
Import Prices ex-oil, May (8:30): NA vs. 0.4% prior.
Fed's Beige Book (2:00)
6-13-02
Initial claims, 06/08 (8:30): NA vs. 383K prior.
PPI, May (8:30): 0.1% versus -0.2% prior.
Core PPI, May (8:30): 0.1% versus 0.1% prior.
Retail Sales, May (8:30): 0.0% versus 1.2% priorl
Retail Sales ex-auto, May (8:30): 0.3% versus 1.0% prior.
6-14-02
Business Inventories, April (8:30): -0.2% versus -0.3% prior.
Industrial Production, May (9:15): 0.4% versus 0.4% prior.
Capacity Utilization, May (9:15): 75.7% versus 75.5% prior.
Mich. Sentiment-Prel., June (9:45): 97.0 versus 96.9 prior.
SUBSCRIBER QUESTIONS
Q: It's interesting that you are positive on IMH in the same message where you are touting a coming real estate bubble. Isn't that the business they're in? Please explain this apparent discrepancy...
A: As we saw with the technology rally, moves higher and higher can continue for quite some time before the end comes. I remember reading newspapers, listening to talk shows, etc. where the internet bubble was discussed and how it was way too inflated and had to pop soon. That was over a year before March 2000. We can see signs of trouble ahead but the stocks continue to plow forward as investors continue to move into these 'sure bet' areas. What we have to be wary of is an almost ballistic move up on the strongest volume of the run that occurs after a stock has made a very strong run. That can signal a blow off top. IMH has gone from $2 to $12 in 1.5 years. It has now run up above its upper channel, putting it at risk for a pullback. Volume on the move up has been strong, but the recent volume has not been the strongest of the run. It could be due for a rest after this last move up off the 18 day MVA (stocks usually bounce up the 18 day MVA in their uptrends). It ran from $4 to $8 in mid-2001, formed a base, then broke out in December. After running from $4 to $9 in December, it had to form another base that it broke out of in April. It could pullback and form another base here on top of the last one and then breakout again. We just need to know what we want from the particular position: longer term or a shorter term gain. Both can go together as we teach in the seminars.
End Part 1 of 2
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